Erick Brimen of Prospera joins me to talk about:
- Creating $100-200T more wealth globally
- The market for living together
- Historical examples
- Governance, Government, & The State
- ZEDE law and uncertainty
- Working with Galoy Money
- Accepting Bitcoin & AmityAge on the island
- Site: https://prospera.hn/news
- Twitter: @erickbrimen
- SLP417 Titus Gebel – Free Cities & Parallel Structures For Liberty
- SLP161 Titus Gebel – Bitcoin Citadels as Free Private Cities
- SLP340 Peter Young – El Salvador On The Ground & Free Private Cities
- Swan Bitcoin
- Unchained Capital (code LIVERA)
- CoinKite.com(code LIVERA)
Stephan Livera links:
- Follow me on Twitter @stephanlivera
- Subscribe to the podcast
- Patreon @stephanlivera
Stephan – 00:00:08:
Erick, welcome to the show.
Erick – 00:02:36:
Thank you. Nice to be here.
Stephan – 00:02:37:
So, Erick, I know you’re doing some interesting stuff over at Prospera. It’s obviously for anyone who’s interested in bitcoin and libertarianism or liberty and freedom related concepts, or anyone interested in free private cities. It’s an interesting thing. Listeners, if you’re interested, I have previously spoken with people like Titus Gebel and Peter Young, who also, you know, are related to this concept as well and have things to add. But I thought it’d be great to chat with yourself. Eric, can you tell us a little bit about yourself and how you got into this whole idea of I guess some people call it the market for living together?
Erick – 00:03:15:
Definitely. Well, thanks for having me again. Look, my journey started from the fact that I was born in Venezuela. And it’s a country that, even though it has, by any measure, a tremendous amount of wealth, material wealth, access to all sorts of natural resources, it’s a country that’s become one of the poorest in the world with the worst living conditions. And that really got me thinking about why that is. What is it that makes the difference between a prosperous society and poverty? And ultimately, through thinking, through studying, through reading, it became very clear that if there isn’t good governance defined in a private property, individual liberty oriented fashion, then there’s no way for societies to prosper. And so it got me thinking that if I wanted to make the most out of my life, that that’s the type of problem I needed to solve. And looking into it, it’s over 100 trillion dollar a year problem to solve, if you will. So that’s what got me started.
Stephan – 00:04:22:
Yeah. On the 100 trillion dollar a year problem, could you sketch that out for listeners? Like, if somebody maybe hasn’t looked into those numbers or hasn’t seen some of this, could you just explain a little bit about why it’s such a big market?
Erick – 00:04:34:
Sure. So there’s two numbers I want you to think about. There is a $30 trillion a year in recurring revenue number for the market of governance as a service. And then there is a number of between 100 trillion and 200 trillion a year of wealth worldwide that goes uncreated because of poor governance. The first number, it’s the easier number to observe $30 trillion a year is what people pay in aggregate for governance services, in taxes okay. And fees to monopolistic governments generally. So that’s easy. The 100 to 200 trillion is derived from the fact that at least we believe that at birth, most humans have essentially very similar potential. Undoubtedly, some people are way smarter. Some people are born with disabilities. But on average, the vast majority of people are born with inherently similar potential. Yet when you look at all the countries in the world, if you plot them in terms of GDP per capita, the average wealth generated in their country per person versus a score, and there are many, but they measure similar things. Economic freedom, for example, or ease of doing business or rule of law. The higher the liar, the latter, they hire the former. So the more economic freedom, the more rule of law, the more ease of doing business, they hire the GDP per capita, and the range is quite substantial. And so if you start from a first principles perspective and most humans at birth have the same potential, yet you realize that at adulthood they produce drastically different levels of wealth, then it follows that if you were to let’s say, balance out so that most people have, let’s say, average governance services. That’s where you would be creating at least another $100 trillion a year in wealth. So you grab the GDP per capita times the population in the world, and you adjust the former by the average GDP per capita. In well governed countries, that’s the 100 trillion. If instead you say, well, why would we be mediocre, right? And let’s not even think way better than we have now. Because I do think that even the best governed countries today under a public and for politics structure are not nearly as well governed as it could be done under private free enterprise. But let’s just say that instead of the average, you were to grab the GDP per capita of the top 25% of the countries today under the current public and for politics governance service, then at that level, if you base that out, then it’s $200 trillion in added worldwide GDP. So that, to me, there’s no other there isn’t anything else in the world that you could say, if we solve this problem, we unleash this amount of wealth. Nothing. So for me, solving governance as a service is by far the most impactful thing that I could be doing with my life. And I think our entire team and shareholders and investors think and feel the same way.
Stephan – 00:07:51:
So it’s essentially a statement about unrealized productivity, unrealized potential, because there are all these people who are, let’s say, stuck in poor governance situations. And I guess maybe that’s one area we can spell out, perhaps a difference between government and governance. Or maybe some people prefer the term the state. Right? But whichever term we’re using, I think it would be good to spell out what is the difference between good governance, whether that’s private governance or let’s say monopolist statist style governance and bad governance.
Erick – 00:08:26:
Sure. Let me first say there is a big difference between governance, governments and let’s say the state. Okay? The state would be the equivalent of saying a C corp versus, let’s say, an LLC or an S corp. It’s an organizational construct. The government, obviously, is the organization and made up currently in most places in a public for politics way. The governance is the service that that organization, through the construct of the state, delivers to the population. So let’s just for now talk about governance, because then we can back into the structure of the operation and then the legal construct that would make most sense and how we see it. So what is governance in the end and what makes the difference? Okay, the first thing I would like to say is this is not an invention of ours and we’re not speculating about it. This is empirical evidence. Empirically, the thing that makes the difference is when you have three components together provided well. One, let’s for now call them good rules and the administration thereof. Two, justice and three, security. And then I’ll explain each good rules. What works? Right? I mean their rules is when the system of rules says that the individual is the sovereign, that they have certain rights, the most basic of which property rights. And the most basic property is your body and therefore everything that is derived from it. And that the fruits of your labor and your decisions are more important and should not be trumped by the decisions of the collective. There is no perfect system out there that says exactly that. But they are variants and the closer you are to that ideal, the better the system empirically. So those are the good rules. However, just because you put rules on paper, it doesn’t mean that that’s what’s being followed or that it’s being followed with ease. And that’s where the good administration thereof comes in. And this has been solved in different ways. Some people, some governments solve it by having a very light touch, even if they have an old school bureaucracy. Others solve it by having a more forward leaning, e governance, self service approach. So you don’t have to wait in line, so wait for third parties as long as you do it fast, it works fast, but it has to be administered well. And then you have to make sure on average everybody is following the same rules so that you know what you can expect and others the same. That’s the first component justice. Inevitably when people enter into agreements and even if they don’t, they’re going to be disagreements with each other and you got to have a peaceful way to resolve that dispute that it has to be fair, it has to be fast and it has to be cost effective. In many places around the world, you might have the first component. But if you don’t have a fair, cost effective and timely way to resolve the dispute, things deteriorate into violence on the one hand, or nobody really trusts the rules, because in the end, if there’s a disagreement, there’s no way to enforce them unless you’re going to go to a shootout. So it is fundamental. And third, the security component, they’re bad actors and there’s a percentage of the population that are sociopaths but then they’re also criminals and people who doesn’t matter what a judge says, they’re not going to comply. And so you do need to have a mechanism by which you can deal with force, with force, right? And force comes in the form of fraud. It comes obviously in the form of physical taking, physical threats. So security is there principally to ensure that when none of the other two things have worked and you still have bad actors. You can enforce the rules and so therefore it’s more of a defensive use of force and not an offensive use of force. Those are in essence the three core components of good governance. There are other things that many governments do but none of those other things make a difference if they don’t get built on top of these three things. And if you have these three things, you might do none of the other things. Like you might not provide education through government or health care, even private physical infrastructure. You might not do any of the other things. But if you have these three things empirically you still have a prosperous society evolving over time.
Stephan – 00:12:59:
I see. And as some of the material I’ve seen, there are perhaps some historical examples of the way I’ve heard other people explain it. For example, Ttis explains this idea it’s like a Special Economic Zone plus or that there are some even though maybe this hasn’t existed exactly in this form. There are things that are, let’s say, somewhat similar. So I’m curious if you have any examples that you normally use there that you refer to, let’s say this area or this city or this place that had some kind of similar structure and the people there did well, there was prosperity or it was more liberty friendly, let’s say.
Erick – 00:13:36:
There are several examples and I will list a few. But first, from a first principles perspective, once you establish what the content should be empirically, the next layer to think about is how can you deliver those conditions at a substantial enough scale so that it’s of societal impact not a handful of people, not just one company, but hundreds of thousands of people at a time. So how do you deliver that? And that was the thing I struggled with the longest initially because you would think that if you have empirical evidence that there is a formula that’s the way to lift people up and create prosperity governments should be all over implementing this. Every country around the world, especially poor countries, should be implementing this formula. It’s not rocket science but because of the political dynamics of a typical state with democracy and vested interests and the fact that even if you could get a better system, the system you have and the system you know is always easier to sustain in your mind than to accept a potential radical change. Change is hard. So there’s inertia and then there’s vested interest. So what I concluded, and many have concluded is that you cannot deliver radical transformation at a systemic level from the top down in a democratic nation government national government however you can delivered it as a subnational jurisdiction. Where? Instead of imposing it upon everybody, you create it as a voluntary alternative to the system that people have are used to, and if they want to keep should be able to keep. And so what mechanism exists out there so that you can create sub-national jurisdictions with different rules than those that apply at a national level? Indeed, Special Economic Zones, of which there are over 5000 around the world, conceptually are exactly that. Conceptually is part of a nation, but has by mandates of the national government, different rules generally to promote a particular industry or to deal with an issue that can be dealt with more quickly and effectively at a Special Economic Zone level, et cetera, et cetera. The size, the physical size of these economic zones vary significantly. They can be huge, they can be small. But when you think about what size is necessary so as to make societal impact again, hundreds of thousands of people at a time, that is when you start to observe around the world examples of where sub-national or smaller than a typical country. Jurisdictions have been created embedded with unique and differentiated rules as previously described, and they have worked those. At the top of my list, I would point to Dubai and specifically the DIFC Dubai International Financial Center because from a legal perspective, from a timing perspective, is the most advanced subnational jurisdiction that has adopted at scale a completely different legal system than what was there before, primarily so that it could drive transformative results. And that’s exactly what you see in Dubai. Similar. However, you can look at Hong Kong in China. Hong Kong when the British and the Chinese entered into the agreement, Hong Kong was still part of China, but it was administered as a Special Administrative region under British common law and rule. And it obviously created a very substantial level of prosperity visitors communist China at the time. And very interestingly, in the late 70s, early 80s, anticipating that Hong Kong was going to revert back to mainland China, they started to copy the model on mainland China through Special Economic Zones, the first of which is Zhen Zhen, which now is a massive city of 25 million people plus. Another example is Singapore, which although today is a nation state, it was not a nation state when it was initially founded. It was part of the overall Malaysian region. And Lee Kwan Yew managed to essentially seek and get independence because the overall nation did not want the changes and a number of other historical factors. And it’s a city. It’s not a big country as you can think of. It’s one of the smallest countries in the world. So those are some examples that I think are top of mind for everybody and they all have similar elements of what makes the difference at a subnational level.
Stephan – 00:18:31:
Yeah, and I think it’s interesting. The Hong Kong example is a particularly interesting one because it was almost like this separate British colony in a way that the inhabitants of that colony later became richer than the colony from which they came from. Like the average GDP in Hong Kong went higher than in the UK, I think at a point in time, I don’t know now, I don’t know the statistics, but it’s just an interesting idea to see, oh wow, like things could really change. Now, I know there are, there are various lines of criticism and you know, people can say things like maybe that was only because Hong Kong was the entry door to China and therefore if you wanted to do business, you had to go through Hong Kong and that’s why they did so much growth. And at the same time there have been people who, let’s say, criticize. Now of course, I’m sort of broadly supportive of these ideas. I personally think they are good examples, but I think there is always going to be that sort of tussle there. And then even as we see with Hong Kong today, the CCP is putting in more control nowadays, it seems, in terms of restricting who may be, I think, available to vote for in Hong Kong in the democracy there. So it’s kind of an interesting thing and I know the project that you’ve been working on with Prospera as part of Inside Honduras in as I believe it’s called a ZEDE Zone for economic development. That’s been something that’s been going on for some time and I know there is kind of some battles going back and forth there in terms of the right for this to exist as well. So could you just outline a little bit of that? I mean, before we get to the lawsuit aspect of it, could you just tell us a little bit about how this project got started and the process up to now?
Erick – 00:20:18:
Sure, definitely. And there is a whole paper that I and a few of my colleagues wrote and it was published in the Journal of Special Jurisdictions that outlines the whole process in great detail because it’s a question that gets asked often. So it is there, you can Google it. However, the process, let’s say, had three phases. Phase number one was led entirely by the Honduran government. Of course, they had support from various sources, you know, thought, leadership, etc. But it was entirely led by the Honduran government. And that was the legal infrastructure that was created within the country so as to allow these Special Economic zones, these enhanced special economic zones indeed called ZEDEs and they were modeled after Dubai and Hong Kong. In essence, they have elements of both and then they are tropicalized, if I can use that term, or at least made compatible also with Honduran constitutional requirements, culture, et. cetera. That process was a steep effort. It required a constitutional reform twice because in the first attempt, what was created perhaps was not sufficiently aligned with the constitutional requirements of Honduras as per the Supreme Court’s decision at the time before 2013. And so there was an attempt to create these types of enhanced zones which then the Supreme Court deemed that they had not been created with all the constitutional protections that are required. So then Congress went back to the drawing board, they dealt with and that they fixed the issues that the Supreme Court had pointed out and then they again passed a constitutional amendment and reform, keeping the best practices that have been observed elsewhere, but making it compatible with the Honduran constitution. And then the Supreme Court ruled that indeed they now complied. And that took for that took a long time, as you can imagine. I mean, the, the law initially passed as they, the law, the one that was recreated to be constitutional passed in 2013. But then, you know, it took a while for the Supreme Court to take up the case and it wasn’t until 2014 ish that the first decision came through. And then there were two others that had to be processed. So that was the first stage. The Honduran government creates the legal system. Second stage was, okay, well, let’s go from a basic law to a chartered zone. The basic law basically says zones can be created that adopt as internal rules international best practices, even if those standards are different than the Honduran legal system, including the capacity to adopt common law as opposed to civil law. Honduras is a civil law country, and after the constitutional amendment of the zones, it can also have common law subdivisions such as this. So that’s what the law says. But the law did not spell out the internal governance of the zones, what specific standards were going to be used, all sorts of things, Right? So phase two was done very much in collaboration between Prospera and the designated authorities of the Honduran government, in the process of Prospera applying for the first city of the country, being granted preliminary approval, ultimately final approval, but then having to work with the government to create the Prospera charter, the internal statutes and all the internal rules that now govern, if you will, the Special Economic Zone by virtue of following the constitutional and legal process where the promoter and organizer, in this case, Honduras Prospera Inc. Would propose to the Honduran government how the zone ought to be structured according to international status. They reviewed it, there was back and forth, eventually they approved it. And that took about two and a half years of back and forth. And that was the meaty part of it. And that can be found in the Prospera charter. That’s phase two.
Stephan – 00:24:41:
Yeah. And I’m curious then, so in terms of the sales pitch, here what’s the pitch is. It basically that, hey, we want to set up this free private city and we’re going to create jobs. Because from their point of view, why would they go with this? Like why would they care? Why couldn’t they just say, now beat it, we don’t care?
Erick – 00:24:58:
Sure. Well, the pitch starts with observation of the current facts. Honduras export hundreds of thousands of people a year who leave their country of birth in pursuit of a better life. The country they leave has an average GDP per capita of about $3,000 per year. The predominant country they go to illegally, the U.S. within a year and a half to two years, according to Pew Research, enables those same human beings, obviously without a substantial change in education, with very negative conditions, because they’re illegals, et cetera, enables them to generate more than ten times in wealth per year. So their average annual earnings in the US is $30,000. They have a 10x increase in less than two years just because they cross a physical border on the other side of which, compared to Honduras, there’s better governance. Okay, so the pitch is quite simple is stop exporting your people and import international best practices in partnership with a group that can administer in a public private partnership type setting the implementation of those rules and standards that in your country will enable hundreds of thousands of people to be at least as prosperous as they are when they leave. And over there, they’re illegal. They don’t have their family, they don’t speak the language. Instead, at home, it’s their country of birth, it’s their place, their language, their family support. So first and foremost is stop exporting people. And now import international best practices lift people up. Obviously, it’s not just about words on paper. Let’s say the rules. And that’s what phase three is all about, is you got to actually build these places because you need the combination of the hardware of a city, roads and buildings and, you know, all the physicalness of it, and then the software, which are the rules and the administration thereof. You got to merge these two. So another big advantage, obviously is all the foreign direct investment that comes into the country to build up the physicalness of it, which enables businesses to come, people to come invest more money. And yes, that translates in jobs and then that translates also in consumption of local supply of labor, of material. So as you’re building it, you’re stimulating the economy. Once built, you’re stimulating the economy. So it’s not just about what happens inside the zone, it’s all of the positive spillover effects that take place during construction and after construction. I see they don’t have to put any money. This is all private capital. It doesn’t require the government to invest any money. It does not require the government to gift any land. The government on top of it all has a revenue share from the top. So there’s a revenue share of all the taxes that the Special Economic Zone collects, which before it was created, there was no taxes being collected. So it’s all upside. The government then gets a percentage of that without any substantial obligation for service. Meaning it’s all money available to invest in other areas of the economy of which the Organic Law directs the government to invested in education, in health care, in infrastructure, national defense. So this is all cost free money, but it is money they can use for other things that otherwise would not have had without having to pay or gift anything to the developers of these cells.
Stephan – 00:28:33:
Yeah, so I guess to summarize, the idea is, hey, let’s have best practices in terms of governance. As we said, good rule, security, good administration, and this place will have a lower tax rate, but still a tax rate. And some percentage of that will go to the Honduran government as well that they can then put towards education and so on. And the idea is that there will also be well, the hope is it’s a win win all around, that people are getting economic opportunities and so on. I suppose one area where now easy for us to say, but I guess people maybe a Honduran could maybe have a criticism of is that eroding the sovereignty of the Honduran government. And I presume that was like some of the arguments that were going back and forth at the time or perhaps even now.
Erick – 00:29:20:
It’s certainly the argument. But again, if we go back to first principles, we have to first consider what is sovereignty to begin with? What is sovereignty before the Middle Ages and feudalism, it’s not the case, but as a continuum. Imagine forms of government going from, say, general anarchy, no central state, no structure and organization, to feudalism, where you had kings and monarchs. And literally the word sovereignty comes from defining the sovereign. The sovereign being, the God, anointed human being that supposedly has the ultimate authority to decide upon the lives of his or her subjects, Okay? That’s where the word sovereignty comes from. As if the king has power over its subjects to then moving towards democracy in various forms, starting with Magna Carta, American Revolution. But in essence, that was a transfer of the notion of sovereignty further away from a particular individual or monarchy to the people via the representational government that they instituted. It was shifting closer to the people, but in essence vested upon a government that is supposed to act not to pursue a monarch’s interest, but to pursue the individual’s interest. But the underpinning as to why the morality, if you will, the justification is that sovereignty actually belongs to the individual. It is the right to self determination. People think of the governments having the right to self determination, but that is only legitimate because the governments are supposed to represent the people’s interest. That is why today everybody appreciates and seeks to uphold sovereignty in the hands of representative governments, but it belongs to the people’s right to self-determination. And so with that in mind, there is no stronger act of sovereignty that a country can pursue than to create more optionality for its citizens to have a greater degree of self-determination where they can voluntarily choose not just to stay with one system. Monolithically speaking, that. Everybody has to follow. But under an umbrella of oversight, human rights, I mean there are some things that are universally accepted, but within that Umbrella transferring even more power to have self determination to the people where sovereignty now in our minds belong to have more options. So as a first principle, not only is a ZEDE and what we’re doing not a violation of sovereignty, in fact it is a mechanism by which to augment.
To express their sovereignty, it enhances sovereignty. Now that aside, that’s the first principled argument and obviously I believe it wholeheartedly. Then you have the optics and you got the politics. And what generally speaking is thought of as sovereignty is whether or not a particular bureaucracy government has absolute control over everything in a territory and that is not really what sovereignty was ever meant to be. That in fact is counterproductive to creation. When you have central planning, concentration of power, it breeds corruption, it breeds inefficiency. And that’s exactly what you see in this region. So a lot of the criticism, let’s say that some political element in Honduras and in the area really stems from the notion that they won’t have the same level of administrative cumbersome power and control over everything because perhaps they ironically think that that is better. Although in fact it is not better, it’s worse. And having said all that, that’s the perception. The reality is that the Honduran government absolutely retains substantial supervision and control over all matters that are sovereignty related in addition to oversight over things that are administrative in nature to ensure that the local government of the ZEDE is complying with the charter and the rules which the Honduran government established for it to follow. So at whatever level you want to think about, there isn’t a dare there when it comes to ZEDE sovereignty in any way shape, right?
Stephan – 00:34:02:
Yeah. Also would be good to just give us a bit of an overview for people who are interested, like if they are interested to potentially go work in Prospera or set up something in Honduras in Prospera. What kind of taxes and what kind of costs are they looking at? And in terms of getting rights to actually live there, work there, is it tied to basically getting Honduras or Honduran residency or working rights?
Erick – 00:34:30:
Great question. So let me start with the latter part of it. In so far as prosperous is indeed part of the national territory of Honduras, anybody in order to be legally within the ZEDE has to also be legally within the country of Honduras. And there’s a number of ways in which people can be legally in Honduras. For better and worse. Honduras does not have immigration migration problem. They’re not trying to close their borders because too many people are trying to move to Honduras. So it’s actually quite easy to get residency just as a resident. There are investor visas, there’s a number of visa options that you can get to ultimately get national residency and it costs about $2,500 and it takes three to nine months depending. And anybody looking to relocate as a permanent resident can be connected with local lawyers that we have vetted and that provide great service on that. And it’s just sort of you provide paperwork and then forget it until it’s done. And then within Prospera ZEDE you also get a ZEDE residency for which you apply. And there are different levels. You can start with simply an E-residency, which you can get @ eprospera.hn, and those start at $130 to $160 it’s just an E-residency, but it does give you the right to go physically and be there for, I think it’s 120 days out of a year. Now, if you want to also own property transact, live there permanently if you will, then you get the full physical residency that for foreigners is $1,300 a year and for Honduran is $260. Now, in terms of the benefits, the first thing is that the ZEDE has adopted a most favored treatment approach to how it manages taxes. So if you’re coming from a different jurisdiction in which in aggregate residents had better tax treatment than the default tax standards of the ZEDE, they submit a form and basically petition to be treated in the same way at the same standards. So if you’re coming from a place that’s better than the default in the ZEDE, you can at worst have the same standards. The default, however, if you don’t have better standards that would have applied to you is in essence it’s 5% income tax. It’s 5% for individuals, 10% for corporates, but calculated as 1% of revenues to make it super simple. And that’s income tax. Then you have sales tax for internal consumptions equivalent to 2.5% and land value tax, not property tax. The value of the land, if you build the building, the value of the building itself doesn’t count, is the value of the land of 1% per year. And that’s it. A very flat, simple income tax, a small sales tax and then a land value tax. And they were all necessary and especially the income tax, although ideally there would be no income tax for a number of reasons. But the IMF International Monetary Fund has certain standards and if the jurisdiction didn’t have some level of income tax at least of 10%, then it could easily be deemed a tax dodge zone and then it gets put on great list and that’s of no good to anybody because then banking becomes problematic and all that. So that’s from a taxing perspective and that can represent a lot of money in savings that then can get reinvested. But I think that most of the value for entrepreneurs, especially those that are on the innovative side of things in highly regulated industries, the primary value is to have the freedom to do things right. I mean, it’s not anarchy, it’s not Wild West, but the concept is, do no harm. If you do no harm, then you’re free to do whatever it is that you need to do and innovate and push the boundary, create new wealth, develop technologies. And that, in many ways, is by far the most empowering dimension of what we’re doing.
Stephan – 00:38:44:
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Erick – 00:41:18:
So as a whole, the island has basic services, as you can imagine. There is an international airport on the island, roads and all that stuff. And we pay for our use of infrastructure. We being desired. It has to pay for the use of services and infrastructure that the rest of Honduras provides at a fair market value. But that’s not something that individuals need to worry about. That’s part of the deal within the ZEDE, I want you to consider two dimensions. One, that is governmental services provided as a governmental entity, either by legal mandate or by choice as a government. And then there are services and things that are provided by Prospera Inc. as a private company that are not monopolistic in nature. People can choose to use them or not, but we feel are important to have as a fallback while there aren’t any other providers or just as another option off the first layer. Basically it’s the three things I mentioned. We have created a system of good rules and a system through which to administer those rules, mostly online, with some oversight of people that audit and have compliance. But it’s very light touch from an internal team. And you can go to eprospera.hn, and when you create your E-residency, you can create legal entities. Part of what you do is you do your regulatory election and that has the rules that would be implemented for your particular activity. The second is the justice part. So Prospera has a dedicated arbitration center called the Prospera Arbitration Center. You can go to pac.hn or pac.hn, and that is a standing bench of senior seasoned judges that anybody at Prospera has access to in the event of contractual disputes, but also other disputes, including with the jurisdiction itself. So you have the service low cost access to justice. And indeed the third level is security. Prospera by law, Prospera by law, is responsible for ensuring that within its jurisdiction there is the basics police, just the maintenance of peace in general. And if there is a commission of crime, then the ZEDE has the obligation to prosecute it, to deal with it. It obviously can and does coordinate with national authorities, but within its jurisdiction it has the exclusive mandate to ensure that there’s peace. That’s the layers of governance services as a governmental entity. By law, the ZEDE also has to ensure that citizens have access to education, to health and to justice if they cannot afford it. And the way that the ZEDE has handled that is by injecting as much free market into the process. And instead of providing the service itself, it is in essence requiring that out of every salary payment that an employee gets the employer sets aside 10% for an account that’s called the Labor Benefits Fund, which belongs to the employee. It’s portable, it doesn’t belong to the company. It’s a combination of a health savings account and a 401K in the US. Insofar that it’s portable, it’s easy, you can invest it, you don’t have to. But that is not only there to encourage savings for long term, but it is the first line of defense. So that if somebody says, hey, I don’t have access to a lawyer, I can’t afford it. Well, that is the first pot of money, if you will, that is used to cover for legal fees or to cover a medical emergency if they did not responsibly seek private insurance separately, or if they say that they can’t afford education. And that’s the first line of defense. And what we’re finding, as you would expect, that all of a sudden it doesn’t get perceived as free because they have to pay at least part of it. And so people are much more judicious and proactive at covering their needs. And if it gets to it, instead of just going and consuming services as if they’re free, as it happens often when there’s free health care, free education, they use it, but it’s what they need, not more. And that’s working out very well. So that is at the governmental level and then at the private level, obviously, we’re building physical infrastructure, including roads and water, and those are of public access, but they’re private. Okay. And you use those, you pay. Right now we don’t have tolls on the roads per se, but people do pay for water, they have to pay for electricity. Any access to common infrastructure is paid for as a service.
Stephan – 00:46:10:
I see. Yeah, and can you just give us a flavor of how many people are on the well, to be clear, there’s rotor on the island, and as I understand, Prospera is part of is a section of that island. So if you could just spell out for us how many people today are, let’s say, living or working in prospera and just give us a rough idea of the size there.
Erick – 00:46:31:
Sure, absolutely. So the island of Roatan, this is really interesting, is 1 sq mile than the island of Hong Kong, 36 sq mile versus 35, if I remember correctly. However, it’s thin and long, as opposed to a bulky and kind of round as the island of Hong Kong is. But it’s aggregate, it’s a bit larger than the island of Hong Kong. There is at most 100,000 people that live between the treaty islands, of which Roatan is the largest. So our guesstimate is that on the island of Roatan, there’s about 75,000 people, less than 100,000 in total, compared to the island of Hong Kong, where there’s 1.2 million people living permanently. There’s a huge difference. And on the island of Hong Kong, what is actually occupied is less than a third. It’s about 25% of the surface area of the island, mostly around the Victoria Harbor area, because the vast majority of the surface area of the island of Hong Kong are natural reserves, nature, if you will, parks and what have you. They’re able to pack more than ten times the number of people in less than a third of the island compared to so this is really cool and exciting because it shows that when you plan density right, you can have not only a lot more collision and economic activity, but you also have less environmental impact and affecting the overall sprawl of the island. That’s a bit of a side note specifically to the size of Prospera, number of people, et cetera, within the Prospera jurisdiction. There’s now about 1000 acres, but they’re not all continuous. The main hub is on the middle of the Roatan island in the French harbor area, and that adds up to just north of 420 acres. And thereabouts then there is about 400 acres on the mainland on which there will be an industrial park supporting near Shoring from Asia back to the Western Hemisphere. And as I said, it’s about 400 acres, and the balance is on the eastern edge of the island that won’t be developed for now. It’s a beautiful, pristine location that eventually will be, I think, a high end echo living community. Right now in terms of people working and living within Prospera, since there are different companies already operating in Prospera, and we don’t have a central office that’s counting everybody’s employees. We don’t do that type of central planning. But it’s easy to estimate that there’s at least 1000 employees right now in aggregate between at all levels agriculture, construction, knowledge workers, management, consultant, about 1000 in total. And the first residential tower that is being built will open up to the public this summer. And that tower has north of 80 residences, and it’s one of three towers, the total of which will be about 256 residences, just that development. So there aren’t any full time there aren’t a high number of full time residents physically within the zone yet because the residential units are not there. I live within the zone. I live full time in the zone. My house is in the jurisdiction, but there’s easily less than 100 people living full time in the zone right now. And so we continue to build more residential inventory of which you ask, okay, how can people get involved? This is one of the ways. I mean, literally, we’re building a city, right? So real estate developers out there that share the vision, there’s no other opportunity in the world to literally come and build the city of the future with the system of governance that empowers individuals to be free and prosperous. So if you’re a real estate developer, we have a whole inventory of over 30 projects that are part of our overall development master plan, which we cannot execute them all at once. Right. And ideally we partner with third parties to come and co invest and execute. So that’s one obvious area to come and partner with us.
Stephan – 00:50:37:
Yeah. And if you could just give, like, as you mentioned, a lot of it is yet to be built, but could you give just a rough idea for people who are interested? What kind of price range are we talking? If somebody wants to buy a property or an apartment or something like this? Do you have a rough number you could give people just so they know the ballpark?
Erick – 00:50:55:
The residential project I mentioned is Duna Residences. You can go to dunaresidences, I think it’s dot com or dot hn, I’ll double check. But those apartment units start in the $80,000 range and they top off in the $200,000 range. They are meant for young professionals mostly in the knowledge, work, economy, digital, nomads, et cetera. So that’s the range, the additional towers, the market feedback is that people wanted bigger units as well. So more three bedroom, less studios, for example. So the average price will go up a little bit more in the 250 and 300 thousand dollars. That’s one project. But within the 30 plus real estate projects that I mentioned, there’s a full spectrum. We have condo tower expected to break ground later on this year, and those units start at the $450,000 range and they cap off in the almost $2 million point. But these are high end luxury apartments, large. They are within the pristine Bay Beach Club, which is by far the best amenities on the island beachfront, wonderful pool area. It’s fantastic. We compete against anywhere in the world and for the quality, it’s a great price point. And then of course, we have the Deja Vu project.
Stephan – 00:52:12:
I see. Yeah. And I just checked it now. It’s dunaresidences.com. Interesting. Okay, so I guess that’s kind of a few ideas on how to get in, I guess. Also, the other big topic obviously, we have to chat about is this whole anti-ZEDE movement that seems to have come. You correct me if I’m getting this wrong, right? But as I understand, there was a new leader elected I think this was last year and that they are very anti-ZEDE and there’s been kind of some back and forth in the media there. Can you give us an update? What’s the status there? I guess that’s probably going to give people a bit of uncertainty about the status of the project and how sustainable it’s going to be if it’s about to get shut down or not.
Erick – 00:52:53:
Yes, indeed. I would say that the rhetoric is a lot more incinerary than the reality on the ground. Not to downplay the negative impact that the negative rhetoric has had. It’s been significant in a number of ways. However, what we’re discovering is that the vast majority of that comes from a lack of understanding of what actually we’re doing, like what Prospera is doing and I’m not talking about ZEDEs in general anymore. I’m talking specifically Prospera. And that a lot of people, when they looked at the original law and in fact, the law doesn’t specify in great detail how the ZEDE is supposed to be structured. And given the history of colonialism in the area, given in a number of, let’s say, historical baggage, it is easy for people to look at a sandbox that enables all sorts of things and imagine that it can be misused, it can be abused, et cetera. So a lot of the concerns revolve around either what people imagine it could be done it could have been done with original law or what they think we’re actually doing, like, if it’s some sort of enclave for criminals. Or just foreign rich people and all that to say that as we are engaging with government in every opportunity possible, we find that through them better understanding a lot of the fundamental concerns they have start to wither away. That doesn’t deal with the political issues because there were promises made by the administration to get rid of this. And indeed, they repealed the law. So no more status can be created. Prospera has a 50 year legal stability guarantee, so they’re acquired rights, and it’s here to stay. But what I’m finding is that when and as we engage, they realize that what we have is actually very reasonable, that a lot of these concerns are not, in practice, going to be a problem, and that there are ways for them to be, let’s say, put at ease at a greater level, either with the systems that are already in place, if they actually utilize them, or with a handful of tweaks here and there so that they can have more oversight, more participation, whatever it is. And it doesn’t change the fundamentals of the vision of creating this good, well-governed environment in which capital and Prospera can come. So that is what’s really happening. I’m very optimistic that things will be able to be resolved. And we’ve also initiated international arbitration because unless we can resolve this issue quickly, the damages might be irreversible. And we also want to make sure that the Honduran government had the opportunity to consider the implications if they were to go downstream and cancel the program and or seek to expropriate, which would be the worst, right? And so that is ongoing. It creates a formal forum to arbitrate and seek a resolution of the differences. And if we can’t, or they refuse to, or they violate, then they are on notice, if you will, as to what the damages would be, which are substantial. Almost $11 billion is what the external experts have estimated. But that’s not where we want to end up. We’re so excited about the project. It has so much potential. It’s already showing to work, and it’s a win win all type of project. I think right now we just have a challenge of communicating and understanding so that all the relevant parties see the facts. And if we need to tweak things here and there, I think it’s going to be very viable.
Stephan – 00:56:34:
I see. Yeah. And as I understand, you were mentioning the international tribunal. So it’s not something that’s being tried by, let’s say, a Honduras or a Honduran court. So could you elaborate a little bit on that dynamic that, as I understand the way Prospera has the agreement with the Honduran government and it’s being arbitrated or seen in the court by a separate court. Right?
Erick – 00:57:00:
Correct. A fundamental part of the deal early on was not just to ensure that the legal regime had stability for at least 50 years, but almost more importantly, but certainly at least equally importantly, that if there was ever a dispute, that dispute would not be settled by Honduran courts. It would be settled by an international tribunal using the International Center for Investor State Disputes, which is part of the World Bank. It is headquartered in Washington DC and has jurisdiction through international law to define and decide. And their Arbitral awards have been implemented anywhere in the world. And this is the mechanism in which when governments go rogue in other parts of the world and they do cross a line to expropriate and what have you, investors that were savvy enough to set this up, go to exit, get an award, and then they enforce that award against, let’s say, Argentina or Peru or whatever. And through international courts, any asset of the country can be frozen until that debt is paid. And this includes a presidential plane, naval ships, bank deposits. It’s just as if it’s a court order against an individual and that’s internationally recognized. So it’s outside of the hands of the Honduran judiciary because it was, from the beginning decided that any disputes will be resolved in this tribunal. And it is further protected by the fact that it is part of CAFTA-DR, which is the Central America Free Trade Agreement that Honduras and other Central American countries signed with the United States of America. And so there’s a lot of dependency and benefit, mind you, in preserving that international treaty because it gives Honduras preferential access to the American market and economy, but it is subject to Honduras complying with, amongst other things, Arbitral awards, should there be one down the road. So we hope it doesn’t go down that path because our predominant preference is definitely to keep proceeding, building and developing an amazing vision. But if the Honduran government were to go down that path, then we have a very solid pathway ahead and our investors will certainly be made whole for the lost profits that we were counting on for the next 50 years. And this applies to anybody coming on board as well. So any investor coming to coal build with us, a tower or what have you, they have the same protections that we have. And of course, we would do everything in our power to ensure that their rights are protected as well.
Stephan – 00:59:45:
And I actually met Dusan Matuska at the recent at the Liberty in our Lifetime conference and he mentioned he’s there doing some Bitcoin education work as well. So can you tell us a little bit about the situation there? Obviously. He’s a bitcoin podcast. So can you tell us a little bit about what’s happening there from a Bitcoin perspective and what might interest the Bitcoin is?
Erick – 01:00:07:
Absolutely. Well, first of all, Dusan is doing a fantastic job at evangelizing and educating on what Bitcoin is and why it’s such an amazing and transformative technology. But what’s happening here is really exciting and unique because you have El Salvador, which adopted Bitcoin as legal tender and is a bit of a top down position if you actually go to El Salvador. I’ve heard mixed reviews and I have had mixed experience as to whether or not Bitcoin really is legal tender in practice and you really use it everywhere. Either way, the approach is sort of antithetical to what Bitcoin is all about, which is a central government imposed, in essence, right. In Roatan, what’s happening is that it’s kind of a bottoms up. It’s a decentralized opt in approach where through being educated, more and more businesses and people are not only understanding what Bitcoin is and the merits they’re off, but they’re adopting it. And what I predict is that given the smooth all ish size of the population and the island that through voluntary opt in we’re going to reach a tipping point at which now, in practice, even if the Honduran government hasn’t dictated for it to be said legal to in practice. There’s enough people accepting it and using it that it will become the de facto financial system and currency because it’s both at the same time. And I don’t know of any other place that has the dynamic, especially given that Prospera and we’re really empowering and it’s a fundamental part of our belief system and what we think makes for a robust governance structure to have separation between state and money. So you have a lot of very interesting dynamics here that I think unlike anywhere else in the world, create a real potential for Bitcoin to be adopted at scale and for it to demonstrate how great and the merits of what it has. And I must say, the biggest challenge of Bitcoin adoption, especially as the primary form of payment and is the volatility, Right. But I’m really excited that there are some innovations recently, such as the Staples app, where people can hold Bitcoin but also stabilize the price through what are fairly complex financial instruments. But on the app, it’s just a click away. Do you want to hold it with volatility or do you want to stabilize the price? So I’m really excited we’re exploring that very seriously with Galoy to see if we can bring that on. And. I think that that could be the thing that sparks the difference for mass adoption, because you have all the good things and the benefits of bitcoin decentralization, et cetera, without the main downside of volatility, especially for people that use this as lower income earners, let’s say. And it’s not like savings here or long term investments like the actual day to day instrument. So stay tuned. And for all those of you who are also in bitcoin, maximalist or otherwise, you should come visit and raise your hand and let us know how you could help. We are about to launch a city builders network to really activate our online community, fractionalize projects, and through bounties and other mechanisms, enable the wider community that we have throughout the world to really take on either micro projects or at least become aware of some macro projects that they might be able to jump on and execute. So I hope you visit.
Stephan – 01:03:39:
Right, but I also wanted to just ask about businesses on the island. Are there people accepting bitcoin now? If bitcoins want to go, can they spend bitcoin and sort of live on bitcoin on the island now?
Erick – 01:03:53:
Well, thanks to the bitcoin center and the work that Dusan is doing, it’s very feasible because worst case scenario, you have through the bitcoin center the capacity to even get fiat at the cash. So as long as you can keep all of your net worth or your wealth and bitcoin, and worst case scenario, you can go to the ATF, get cash, and pay with fee cash in places that have not yet onboarded with accepting bitcoin directly. However, an increasing number of businesses are accepting bitcoin directly. And as I was mentioning earlier, we’re exploring the possibility of code developing an app or wallet with Galoy that will have stable sats included. And I’m really excited about that because I think it will make the adoption spread like wildfire. It deals with the main point of hesitation for the average user that might not need to or have the capacity to go deep into the rabbit hole. They just want to be able to transfer money easily without much expense, but they also don’t want their, whatever, 200, $300 balance all of a sudden drop in 20% or increase in 30%. That doesn’t work. So it’s quite feasible. Our biggest challenge is the build out of the physical real estate within the jurisdiction. So we’re working heavily on that.
Stephan – 01:05:25:
Yeah. And funnily enough, I attended a free private cities meetup just last night in Dubai here. And one of the guys I met mentioned how he had purchased a small apartment in Prospera. And so he was saying it’s due to be completed, I think around the middle of the year. He said May or June, I think. I can’t remember, but I guess that’s where we are right now. It’s just so early. What’s the pathway for that growth there for the prospera project, there for residences and businesses to come up and I guess ideally for people to come and set up there?
Erick – 01:06:02:
Absolutely. So, as you noted, our first residential project, which is a 14 storey tower full of apartments, has 80 plus apartments. It’s coming live this summer. But now that we’ve gotten the first project and we’re solving for a number of things, including, for example, enabling mortgage financing to come into the jurisdiction so that buyers can access mortgages which is not readily available in Honduras broadly. But I think that thanks to the prosper jurisdiction, the foreclosure laws and a number of other things, that makes it very secure for a lender to lend and ultimately have real security interest, that we’re going to iron a lot of those wrinkles. But for 2023, the intention is to scale up quite dramatically the real estate side of things. We already have several projects in the pipeline about to break ground this year around the same time when Duna Tower1 is being completed. We will be soon starting the presales efforts, for example, for Pristine Heights, which is residential tower next to the Beach Club of the Pristine Bay Resort. A phenomenon, a beautiful location. As I mentioned earlier, these are going to be higher end units, but it’s another pretty big project coming online. We’ll be breaking around on the Bay of Pilots. That’s the project that we’re doing with waiting on the circular factory to be done, but it should be done in April with the robots and digital manufacturing. And I’m really excited about that project, in part because as we’re developing the pilot, but certainly after we’re done with it, the beauty of that is how rapidly it can scale and how decentralized the planning and the clustering of real estate can become. So that technology is not just about building the buildings themselves, though. It is about that digitally and through robotic technology, it’s about how groups of people, whether it’s family, Nucleuses, extended families or just communities, can decide to go from just being online to becoming an on land community. So that enabling of going from online community to online community through the Deja Vu technology stack, something will be thrown to the public towards the end of the year, piloting it towards the middle of the year. So, short story or long story short, 2023 will be characterized by the launch of a number of projects which will massively increase our real estate capacity for people to actually move and live here more permanently. And it’s going to depend a bit, obviously, on the level of market interest, but we’re going to stand ready to execute according to market demand.
Stephan – 01:08:59:
Yeah. And I guess one other area that’s interesting, coming back to what we were saying, the idea is hopefully it’s a win win, right? That there’s opportunities coming and maybe opportunities for Hondurans to earn more than they otherwise would. I’m curious, is that something you’re seeing already or something that you can speak to like opportunities for local people or Hondurans to earn more than they otherwise would be.
Erick – 01:09:23:
Yeah, absolutely. Honduras has a minimum wage. And although personally, I think the public policy of minimum wages has been proven to not be good and I don’t agree with it as a principle, as a matter of, let’s say, a political reality, Prospera has a standard to not only abide by the rest of the country’s minimum wage, but actually as a minimum of 10% higher than the minimum in Honduras. And depending on how the employer and employee decide to structure their labor contracts it can be as high as 25% above minimum wage as a minimum. Why? Because I think that given all the other developments and regulatory and fiscal conditions, all things being equal, a business within Prospera should be far more efficient and profitable, therefore able to pay a higher wage. So that’s the sort of policy. The minimum is higher than Honduras but in reality it’s actually quite higher. In some cases two times higher. And the reason being includes that companies that otherwise would not be coming to Honduras and are coming from more developed and more productive economies are actually starting to set up here and initially it’s through knowledge work and they have a bigger arbitrage. Right? So we’re not competing against other Honduran companies operating in Honduras and then do we need to edge them out with 5% more salary? Now these are companies, let’s say that are in the US or Europe, they’re paying like ten times more in salary, sometimes five times more in salary. So when they come and establish themselves here and recruit professional knowledge workers they can cut their cost in half and yet they’re doubling or tripling what a local Honduran would otherwise be getting paid. So on average the amount of earnings are substantially higher than in the rest of Honduras and then just the volume of jobs that we’re creating and that have been creating since COVID is I think, a godsend. But in any case, there’s also another important policy matter that was not of our doing but we believe it’s right and justified and it guarantees that Hondurans are in the first line to benefit from jobs that are created and that is that by law 90%, 90% of employees have to be Honduran. Right. Unless there’s a company that is looking for specialized talent and after looking for a Honduran can’t find it. But the first part of refusal, if you will, for jobs has to be for Hondurans up to 90%. So yes, it’s a win win, win win all the way around Honduras as a country. Hondurans as a people really stand to benefit tremendously from what we’re doing. And I think it’s right the properness it should be because the enabling conditions that the people of Honduras through their government are enabling for us are extremely valuable and we are and should be appreciative.
Stephan – 01:12:30:
Yeah. So I guess in terms of summing up our conversation where I’m seeing it, obviously I’m ideologically aligned. I’m optimistic about the idea. I haven’t been. I probably should come and visit at some point. I think it might be interesting to at least come and visit and hang out and see what it’s really like for myself. Obviously there is some uncertainty around what’s going on with the government and the ZEDE law, but it sounds to me like there’s a decently good chance for a good resolution there. So I guess do you have any closing thoughts? Anything that you want listeners to take away from this discussion?
Erick – 01:13:12:
Sure. Well, this last point that you mentioned making reference to uncertainty, it’s important the way I think that buyers of units or should think about the situation right now. Let’s say you’re considering buying an apartment and you’re not sure, hey, is this other thing going to still be in place or is the Honduran government going to cancel it? Expropriated. The first thing you need to know is that it will be really hard legally for Honduras to get rid of it. If they do it, it will be extremely costly. But even if they do, the way that things are structured for new investors coming into buy, let’s say real estate is that what is being built and at the price of which is being sold is very competitive in the marketplace. So, quote unquote worst case scenario for a buyer of an apartment, if the ZEDEs not being the case, and two years later, three years later, you’re just no longer interested because you would have never bought in Rods On anyways, you only did it because of the community. That would be coalescing and that community ends up moving somewhere else. It’s an asset. It’s an asset on a beautiful island that is on a tipping point in its development curve where not just the prices are going up, but the level of volume that’s coming and therefore the investments as a whole is increasing. So we have fantastic tailwinds in our favor, just from a traditional, let’s say, real estate perspective. So in actuality, there’s relatively little downside risk for people coming on board now. Now, we as prospera have a lot of risk because our business model is different than that of an apartment buyer. Right. We have relied on a 50 years stability and our business model revolves around being successful for decades. But that’s our problem. Given our commitment to the vision, our shareholders are determined to keep pushing, right? Legally. And as long as it’s allowed, we’ll continue to develop. And again, worst case scenario, you have a valuable real estate asset on an island that’s fantastic and getting better. And then the last thing I would say, especially to your listeners, is that we’re always looking to better integrate Bitcoin into what we’re doing, crypto in general. But I know that there’s a huge world out there of non-Bitcoin crypto, which lends itself for all sorts of problems and fiascos. We’re very skeptical and careful about everything that’s not bitcoin. There are some particular use cases that might make sense, but what I want the listeners to know is that we want and need the participation of as many community members as possible. We are not running a centralized operation by design, and therefore, those that are most involved are going to have the greatest impact in determining the future of how things are done on the ground. So if you understand that because of what we’re doing, there’s great potential to do things that otherwise would not be possible, and you want those things to turn out a certain way, the best, if not only way, to ensure that’s the case is to be involved. So please join, let your voice be heard. And beyond just talking, let’s build it together.
Stephan – 01:16:48:
Fantastic. Well, I think that’s a good spot to finish up. So, Erick, where can people find you online if they want to follow you?
Erick – 01:16:53:
Well, I’m on Twitter. I don’t tweet much, but I do pay attention to direct mentions of me and messages, so that’s probably the best way to do it. Otherwise, if you are quite involved within our online community, our team is hands on, and anything that needs to be bubbled up to me eventually does.
Stephan – 01:17:14:
Okay, great. Well, I’ll put all the links in the show notes, and thanks and hope to chat again soon. Thanks, Erick.
Erick – 01:17:19:
Thank you very much.
Stephan – 01:17:20:
So what do you think about free private cities and privatized governance? Do you like the idea? Make sure to share the show out there with your family and friends and get the show firstname.lastname@example.org. Thanks for listening, and I’ll see you in the Citadel.