Creating a new city from scratch (with Erick Brimen)
Spencer Greenberg speaks with Eric Bremen about Prospera, a new city in Honduras designed to catalyze prosperity through innovative governance models. They discuss how private sector involvement and a competitive regulatory environment can attract investment and improve services.
Deep Dive Analysis
23 Topic Outline
Introduction to New Cities and Special Economic Zones (ZEDES)
Advantages of Greenfield City Development and Innovative Governance
Operating a City with a Private Company and Profit Motive
Benefits of Profit-Maximizing Governance for Citizens and Host Countries
The Role of 'Exit' and Competition in Governance Services
Prospera's Unique Opt-Out Feature for Residents
How Prospera Competes: Degrees of Freedom and Ease of Doing Business
Prescriptive vs. Objective Regulation
Prospera's Focus on Commercial Activity, Not Social Standards
Comparing Prospera to Successful SEZs like Dubai and Hong Kong
Business Model for Investors: Real Estate and Governance as a Service
Prospera's Tax Structure and Revenue Sharing with Honduras
Applicability of Honduran Laws within Prospera
Current State of Prospera: Physical Development and Population
Types of Companies and Residents Attracted to Prospera
Addressing Safety Concerns for Novel Medical Technologies in Prospera
Decentralized Enforcement and Liability in Prospera
Political Pushback and Legal Challenges Against ZEDES in Honduras
Current Legal Status and International Arbitration
Public Sentiment Towards Prospera in Honduras
Addressing Concerns About Land Expropriation
Residency Requirements and Restrictions in Prospera
Vision for the Future: More Competing Jurisdictions and Governance Innovation
8 Key Concepts
ZEDES (Zonas de Empleo y Desarrollo Económico)
ZEDES are a unique form of special economic zone in Honduras that enables a rewrite of legal and regulatory frameworks within their designated territories. This allows for the emergence of new cities with highly competitive governance structures, designed to attract investment and foster innovation.
Greenfield Site Development
This refers to creating a new city on previously undeveloped land, which provides a clean slate. This approach allows for the optimal design of both physical infrastructure and, more importantly, the intangible dimension of governance to maximize productivity and competitiveness.
Governance as a Service
This concept views governmental functions, such as managing public registries, providing security, or operating the judicial system, as services for which citizens pay. When private entities with a profit motive are involved, it can lead to increased efficiency and competitiveness in service delivery.
Exit (in Governance)
In the context of governance, 'exit' is the ability for individuals or businesses to switch their governance service provider without necessarily having to physically relocate. This dynamic introduces powerful competition among governance providers, similar to how businesses compete in a market.
Prescriptive Regulation
This regulatory approach involves bureaucrats dictating precisely how an operation should be carried out, including specific technologies, safety checks, and procedures. While intended to mitigate risk, it can become outdated quickly and hinder innovation by forcing adherence to specific, potentially inefficient, methods.
Objective Regulation
In contrast to prescriptive regulation, objective regulation sets clear standards or outcomes that must be met (e.g., maximum pollutant levels), but allows companies the freedom to innovate on *how* they achieve those standards. This approach fosters greater flexibility and ease of doing business without sacrificing safety or risk mitigation.
Informed Consent (in Prospera Healthcare)
A fundamental standard within Prospera's medical framework, requiring that patients receive full disclosure and provide clear, documented consent for any novel medical treatments. This places a higher level of personal liability on physicians if proper informed consent is not obtained.
Decentralized Enforcement (in Prospera)
This system empowers any resident to initiate legal action, typically through arbitration, against a party that fails to comply with regulatory frameworks, such as instances of fraud or negligence. This allows for proactive enforcement to compel compliance or prevent harmful activities, even before actual harm occurs.
12 Questions Answered
Creating a new city on a greenfield site allows for a clean slate to design both physical infrastructure and a more competitive legal and regulatory environment, attracting innovation and investment.
A private company, serving as a general service provider, aligns incentives with economic success and productivity, as its financial upside is directly tied to the jurisdiction's economic activity, unlike traditional public institutions.
Yes, because it incentivizes efficiency and high-quality service delivery, leading to better services, more jobs, and a more secure life for citizens, while the host government receives a revenue share and increased foreign direct investment.
Yes, opting into Prospera's jurisdiction is required, and residents can contractually exit its governance while physically remaining within the area, reverting to the governance of the pre-existing municipality.
Regulation is justifiable when it aims to minimize negative externalities upon non-consenting third parties, such as pollution from a factory affecting nearby residents.
Prospera offers higher degrees of freedom and greater ease of doing business by implementing objective rather than prescriptive regulations, allowing companies to innovate and operate more efficiently while still mitigating risks.
Investors profit through two main avenues: real estate appreciation (venture estate) due to improved governance conditions, and from the governance-as-a-service model, where the private operator delivers services at a cost below the revenue collected (subject to a 7.5% GDP cap).
Prospera allows the aggregation of medical treatments, devices, and physicians approved in any OECD country, and for novel technologies, it requires objective safety standards, informed consent from patients, and clear liability, focusing on actual risk mitigation rather than prescriptive hurdles.
Prospera has a decentralized enforcement system where any resident can initiate arbitration against a provider for fraud, negligence, or non-compliance, even preemptively, with substantial liability exposure for providers and a 'loser pays' principle to deter frivolous claims.
The Honduran government terminated the ZEDE program and a packed Supreme Court recently declared ZEDES unconstitutional retroactively, despite prior rulings. Prospera views this as politically motivated and legally void, pursuing international arbitration against the state for damages.
No, Prospera cannot benefit from land expropriations. While the ZEDE law discusses expropriation, it does so to add additional barriers and restraints on the Honduran government's existing eminent domain powers, and Prospera has proactively renounced accepting expropriated land.
Generally, yes, but individuals must acknowledge and consent to Prospera's specific rule set. Permanent residents undergo a KYC (Know Your Customer) check, with disqualifiers including being on criminal lists, international terror watch lists, or Honduran arrest warrants.
15 Actionable Insights
1. Design Governance First
When creating a new city on a greenfield site, prioritize designing the intangible dimension of governance before physical infrastructure to enable a more productive and competitive environment. This allows for a regulatory framework that attracts innovation and investment.
2. Enable Jurisdictional Exit
To ensure competitive governance and prevent monopolies, design systems where individuals and businesses can easily switch their governance service provider without physically relocating, creating powerful competitive pressure.
3. Adopt Objective Regulation
Shift from prescriptive regulations (telling companies how to operate) to objective regulations (setting clear standards for outcomes, e.g., pollutant levels) to increase degrees of freedom and ease of doing business without sacrificing safety or preventing harm to non-consenting third parties.
4. Align Governance Incentives
Consider injecting a profit motive into governance services, aligning incentives with attracting and retaining investment, providing high-quality services, and maintaining low operating costs to drive productivity and citizen satisfaction.
5. Optimize Commercial Regulation
To catalyze wealth creation and human prosperity, focus on creating an optimal regulatory environment for commercial activity, while taking a step back from meddling in social or cultural choices.
6. Increase Competing Jurisdictions
Advocate for a significant increase in the number of competing jurisdictions globally, optimally designed to deliver governance as a service with a profit motive, to foster innovation and sustained competitive improvement.
7. Apply Intrapreneurship to Governance
Instead of creating entirely new countries, apply an ‘intrapreneurship’ model where existing nation-states host autonomous, innovative governance zones, benefiting from their successes and pushing the productivity frontier.
8. Utilize Private Governance Partners
Countries can leverage private partners to import and deploy international best practices of good governance, allowing for the creation and operation of successful economic zones without direct government investment or expertise.
9. Improve Governance, Boost Real Estate
Recognize that real estate value is a derivative of the economic activity permitted on it; therefore, better rules and regulations that safely enable high-value activities will substantially increase real estate appreciation.
10. Implement Single Tax Authority
To simplify compliance and minimize friction for businesses and residents, establish a single tax authority for all tax obligations, even if revenue sharing agreements are in place with a host government.
11. Differentiate Laws for Opt-In Zones
When designing new jurisdictions on greenfield sites, it’s easier to create highly differentiated legal constructs because initial inhabitants are not affected, and future residents knowingly and willingly opt into that specific legal structure.
12. Aggregate Global Medical Best Practices
For medical treatments and devices, allow the aggregation of regulatory approvals from multiple OECD countries, enabling access to the best available worldwide technologies and practices without being restricted by a single national framework.
13. Emphasize Informed Consent, Liability
In innovative industries like healthcare, prioritize informed consent and shared liability, ensuring full disclosure to patients and increasing personal liability for providers if these standards are not met.
14. Implement Decentralized Enforcement
Create a system where any resident can initiate legal action (e.g., arbitration) against a party failing to comply with regulatory frameworks, allowing for preemptive and proactive enforcement of standards like no fraud or negligence.
15. Apply “Loser Pays” Principle
Implement a ’loser pays’ principle in legal proceedings, where the party bringing an unjustified or ill-intentioned action is liable for all legal costs and potentially damages, balancing the right to enforce compliance with preventing frivolous claims.
8 Key Quotes
When people think of cities, the first visual that comes to mind is the skyline, but the governance layer is more important.
Erick Brimen
The alternative model of just having a public and politics institution in charge is that their incentives are not aligned with the financial gain and the overall productivity of the jurisdiction. It's more aligned with the political needs of those that are in power from time to time.
Erick Brimen
The main caveat is that the flip side to being or having a profit motive is that you've got to have competition. And in the realm of governance, the minimum standard must be that there is exit.
Erick Brimen
Being physically in the place does not force you to also be a consumer of governance services from the jurisdiction. In order to be within the jurisdiction, you have to opt into it.
Erick Brimen
The objective is to create human prosperity by catalyzing wealth creation and don't meddle with and just kind of take a step back when it comes to a lot of those more social, cultural decisions.
Erick Brimen
The value of real estate is a derivative of the value of the activity that you can carry out upon it and the value of the activity is governed by the rules and regulations that apply.
Erick Brimen
Almost 100% of the companies wouldn't be there were not for Prospera as a legal constructs.
Erick Brimen
The world needs a significantly higher number of competing jurisdictions that are optimally designed to deliver governance as a service and with a profit motive involved.
Erick Brimen