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Show Notes:
In this episode of the Freedom Cities Podcast, Mark Lutter is joined by Patri Friedman, a pioneer in the new cities movement. As the founder of the Seasteading Institute and Managing Partner at Pronomos Capital, Patri has spent the last two decades pushing for new approaches to governance through the creation of innovative urban developments. They explore why Africa represents the most promising frontier for urban innovation, how autonomy and special economic zones can drive development, and what it takes to make new cities work in practice. The episode also addresses key challenges, including financing, talent, and how to build trust in unproven governance models. For listeners interested in the intersection of economics, cities, and systems change, this episode offers a unique perspective from someone who has been at the forefront of the movement to rethink how and where we live.
Key Points From This Episode:
- Patri has been working on startup jurisdictions for 25 years.
- The movement is transitioning from dreamers to doers.
- There is a growing interest from governments in charter cities.
- Africa’s young population presents unique opportunities for urban development.
- Regulatory changes can yield significant benefits in established economies.
- Charter cities can serve as a testing ground for new policies.
- Diversity in governance can help mitigate political polarization.
- Small regulatory changes can lead to large-scale impacts.
- Different regions can adopt varying policies to suit their needs.
Transcript
[INTRO]
Welcome to the Freedom Cities Podcast where we explore bold new ideas and city building and improving regulations in the United States.
[INTRO ENDS]
Mark: Hi Patri, welcome to the Freedom Cities Podcast
Patri: Hey, thanks for having me.
Mark: So to start, who are you and what are you working on?
Patri: Sure, I’ve been working for 25 years on how we can create startup jurisdictions. Meaning special economic zones, Charter Cities, and someday startup countries. First version of this was seasteading is in the 2000s. Governments kind of hadn’t yet gotten that It’s the 21st century and things are different they weren’t really down with this and the admiralty law on the oceankind of makes this this sort of thing easier. And then in the 2010’s with Paul Romer and Honduras creating the charter city program I kind of switched to working on those.
And I currently run Pronomos Capital which it’s just finished up its 5 year investment period as the only institutional fund investing in charter cities, which I define as cities that write their own laws and also just generally interested in ways of fixing governance especially with principles from software and the business world.
Mark: Cool, and so what have you seen over the last like 5 or 10 years? Have you seen like the space grow, mature kind of countries, slightly more willingness to embrace these ideas.
Patri: I mean, I would say both that it’s grown a lot and still has a long way to go. For a long time no countries were willing to work with us there was Honduras in 2011, Seasteddings who worked with French Polynesia in the mid 2010’s but that was the bottleneck for a long time and I was kind of shocked in the early days of Pronomos to find that pretty quickly I actually stopped responding to most people who offered to introduce me to governments and the reason was that governments that kind of come around were very open to hearing these pitches the number of founders in the space was actually now like lower than the number of governments and i worked with Taiwan a bit in COVID and they were interested in doing something and all of the founding teams in the space were already working on other projects and we weren’t set up to start companies we are a venture fund which I find kind of crazy.
It still has a long way to go in terms of I kind of think of this movement as now we’re going from like the dreamers to the doers. And like, you needed the dreamers at the beginning when it’s like a new idea but now we need people to actually build this stuff. What I’ve been finding tough is there’s a lot of a lot of builders who are like, Yes this is great It’s going to happen but as far as committing their careers to it. It’s kind of like not yet proven enough for that for most people.
Mark: Yeah, I think the other thing we’ve kind of run across is that plus also depends on where you’re building but some places where you might want to work on a charter city, even if it would be like net beneficial to humanity, to the country, to the people who live there. Is it somewhere that you would want to live per se? especially in the early years so we’re looking at for example, spinning off a for profit company to do large scale urban development in Africa.
This is kind of like Rendeavour at a lower price point. We would basically be targeting secondary cities. So looking not at the capital cities but at the secondary cities that are also growing rapidly, targeting populations of 100,000 people or so. Basically, the average resident would be somebody who otherwise might live in an informal settlement, who might say, okay, here’s a formal settlement that is at my price point that has better roads, better water connectivity, a better municipal government, not full scale charter city because negotiating with the host country at the top level is difficult.
But we would just negotiate kind of for municipal authority and there what we’re looking at we’ve got some investors interested but looking at who’s the person who wants to spend 5 to 10 years kind of building these out in second tier cities in Eastern and Southern Africa and that’s kind of different profile of a person than a standard Silicon Valley founder.
Patri: Yeah, I mean I’m personally just my North Star is the autonomy aspect but everything that you said I completely agree with that as the market. We have like the cold start problem and infrastructure and network effects of being like near a major city is great for that. Africa has a rapidly growing population, youngest population in the world like building for them. I mean just to me the difference between hey you’re living in an informal settlement and we’re going to give you like a nice cheap formal house versus trying to get nomads to live in your charter city instead of in like Bali or San Francisco or Lisbon. To me it just makes all the sense in the world.
Mark: Yeah, it’s tough I mean with this project I mentioned, we do want to at some point engage governments in the future after we’ve gotten started but we figured execution risk is hard enough kind of trying to innovate on a new urban model so that’s cut the execution risk and at least put something aside for the future when we have a little bit more capital when we’re a little bit more established rather than trying to kind of eat two giant elephants to start.
Patri: Yeah, I mean look for me, it’s just about my personal interest in it. I’m not like saying that from a business case, like higher autonomy is the right thing. Like, absolutely we need lots more good we need lots more good housing in Africa.
Mark: Yeah, I generally agree on the autonomy part but yeah anyway. So that’s a high level overview are there any kind of projects that you’re particularly excited about?
Patri: Yeah, our kind of fastest growing portfolio company is called Alpha Cities building in Portuguese, West Africa working with countries like Sao Tomé in Cape Verde. Really excited there about the potential to build housing for lots of Africans, revitalize important industries there like coffee and cocoa I mean, just selfishly for myself I can’t wait until I can give out to my friends like coffee grown in our plantations.
Cause that’s super high quality and they don’t produce very much right now because they don’t have the business expertise. And so you can only get a little bit of it in Portugal but also just excited by how the sector is maturing and how they’re kind of like more and more projects getting close to passing legislation run by more experienced real estate developers and things like that.
Mark: Cool, and so why are you excited about Freedom Cities?
Patri: You know, people have been asking me for like 25 years Why don’t you do this in the US? and the answer is that in the US, I think because there’s 50 states and they’re smaller and so people are closer to their government and they compete with each other that the quality of municipal and county and state regulations is much higher. And because power tends to centralize, I feel like most of the burdensome regulation and wasteful spending is at the federal level and because of our constitution and legal structure there are not very many mechanisms to get exceptions for federal laws.
Two of the main ones that have been relevant in the past are overseas territories, which kind of usually pass most of the federal laws but don’t have to as well as native reservations which have higher than state level autonomy, though still much less than the federal. But what’s most relevant now is the legislative path like whether it’s through national legislation allowing certain exemptions from regulations or through an interstate compact which also needs national legislation.
It is doable if you have a mandate and a congressional majority and what’s really exciting to me is that I think that you can get a huge amount of bang for the buck with relatively small regulatory changes being really powerful within an established economy. In other places we’re kind of trying to bootstrap an economy and bring in FDI in jobs and that takes huge regulatory changes to jumpstart an economy because you’re starting with something that’s not working very well but in the best economy in the world, I think it doesn’t take much. And for me it’s a really fitting place for charter cities as a policy tool, meaning that like, I come from a software background I spent ten years at Google and like if you’re testing out some new change to some key part of Google’s infrastructure you don’t like, write it and run a few tests and then deploy it to all of the users at once, right. That would be ridiculous. You write it, you test it, maybe you put it up on a test server and people inside the company use it for a while and then you roll it out to one in a million queries and then one in 10,000 queries.
And I think the same is true for governments. Like if you look at the negative effects of communism it’s not because this new system was tried and didn’t work. Had that new system been tried in groups of 10,000 people then it wouldn’t have killed tens of millions of people. And so there’s actually this like really tight tie between starting small and your ability to innovate. This is part of why startups are so innovative is that you can design something that has potential to fail and potential to be great and use it for a small number of people. In the US is this huge country like we shouldn’t be rolling out massive regulatory changes with 350 million people. Like that’s not what people want and it doesn’t make sense. It kind of be like testing a new prescription drug on the entire country.
So I just think that there’s this even if you’re only making small regulatory changes, there is this really tight connection between starting small in limited places where people opt in is what lets you do experiments And then you can do a bunch of those experiments and see what works and see what you want to roll out at higher level. So I think, even though like charter cities are often thought of as a policy tool for places that have high corruption, poor rule of law, things like that. And it’s great for that. It actually works as a policy tool for any country because every country needs to innovate and try new things.
So, I think it’ll be really great to kind of reform our system so that we’re trying out new different types of policies and doing it in small places with people who agree with them. And then, the states were supposed to be the labs for innovation but because power is centralized, the federal government, we don’t have that anymore. So, I’m just super super excited about the potential for a federal level initiative that lets us try out different regulatory systems, different to a small degree but I think it can still be material.
Mark: Yeah, I think that’s kind of very similar to how I see it. I mean, another kind of overlapping framing is most of our regulatory system was basically designed for the industrial age, right? Like kind of 50 to 100 years ago or so. And the Industrial Age kind of outlawed Tyler Cowan great stagnation has been like relatively stable with the exception of electronics, which because they kind of are very different form of production, we’re not regulated and now we’re kind of starting to see an emergence of new innovation in terms of AI, in terms of biotech, In terms of energy, nuclear It’s old, but like getting more important. And so this I think, requires a change in the regulatory structure where this kind of decentralized mechanism to allow a lot of experiments figure out what regulatory system works best, and then either scale it up through that jurisdiction expanding or serving as a testing ground where the national government might be more open to similar changes.
Patri: Yeah, I mean I think there’s actually a key similarity between like low marginal cost software businesses and governance in that like the laws and regulations that affect the place are a virtual layer. It’s very unlike power and water and roads, which take a lot of time to build. You know, it’s really just kind of bits in a database as far as what laws apply in what place. And that means in the same way that a successful tech business can scale out super rapidly because they just need to like buy more servers and then they can copy all of their software for free, not like producing more cars. I think the same thing is true for government.
If you do have a successful regulatory change, it’s just a piece of paper to roll that out to a lot more places. And I feel like we’re really not taking advantage of this. And we could be in a world where you can scale up successful new policies much faster like we should be trying more new ones because the good ones won’t going be able to get to everyone really quickly.
Mark: Yeah, and I think especially kind of just in the current political climate where the culture war has eaten almost everything, figuring out kind of perhaps a way to zag and come up with a solution that might have bipartisan support, that might be able to get kind of be sticky and show like, look, all right, if red states want to adopt these innovations, blue states don’t have to or maybe blue states want to adopt other innovations. Create a general framework that allows for this decentralized decision making that can hopefully alleviate some of the current fights at the top, where the centralization of power has led to just a lot of disruption in a bad way. It’s all been in a good way but like that’s currently our political systems undergoing.
Patri: No, I totally agree and i’m glad you hit on this because I really think that it’s kind of underused. The fact that like allowing differences, allowing different places to make different choices about rules is like one of the most powerful ways that we have to all get along. It’s fine to disagree about what policies you want. Like there’s no reason I mean, for most things there are certain policies that have to be at the national level, but I think there’s not many of those. And for most things, like both sides can get what they want by just allowing more, more differences in regulations. And like we live in a time of increasing polarization and we’re a large country with really diverse viewpoints. And actually to me, it’s like existential for the country that we’d be able to like to get along. And I think that, people are kind of missing out on this powerful tool for getting along, which is like just let different places do different things and different people have different things you know, we can all be Americans, even if some places have much more restrictive medical laws that are slower to have the new drugs but are like much better at making sure that everything works and doesn’t have side effects and other places kind of let people be free to choose what new things to try. Like we can all be Americans and have those differences.
Mark: Cool, great well thanks for coming on the Freedom Cities Podcast.
Patri: Awesome. Thanks for having me.
[OUTRO]
Mark: This is Mark Lutter and thanks for joining the Freedom Cities Podcast, if you enjoyed this episode, don’t forget to like, subscribe and stay tuned to more episodes.
