Free Private Cities are an exciting attempt at a new model for private governance. I’ve previously spoken with leaders in this movement such as Titus Gebel and Peter Young. Today I’m speaking with the founder of Ciudad Morazan, another free private city in Honduras. This one is a little different to the others you may have heard of, as this one is more focused on ‘blue collar’ workers, families and businesses. We talk about the free private cities model and how it is being applied differently here with Massimo Mazzone, founder.
Topics:
- Free Private City Model
- Taxes
- How many live in Morazan
- ZEDE law
- Comparison with Prospera
- Morazan’s 4 advantages
- Scaling up
- Amenities available
- Growth
- No legal tender law
Links:
- X: @MassimoMazzone4
- Site: morazan.city
Sponsors:
- Swan.com (code LIVERA)
- CoinKite.com (code LIVERA)
- Mempool.space
Stephan Livera links:
- Follow me on X @stephanlivera
- Subscribe to the podcast
Podcast Transcript:
Stephan (00:01.033)
Hi, everyone. Welcome to the Stephan Livera podcast, a show about Bitcoin and Austrian economics, brought to you by swan.com. Joining me today is Massimo Mazzoni, and we’re going to be talking a little bit about free private cities and his efforts in pushing this forward. So first of all, welcome to the show, Massimo.
Massimo (00:19.222)
Thank you Stephan, thank you for inviting me, it’s a pleasure to be here.
Stephan (00:23.657)
Great. So look, let’s we’re talking about free private cities. So listeners, you can check out some of my earlier episodes with Peter Young, Titas Gable, Eric Bremen to get some other context, but let’s hear it from you, Massimo. Let’s hear how did you first get into and hear about the concept of free private cities?
Massimo (00:40.302)
Well, I’ve been a libertarian all my life and I was living in Honduras when there was the first iteration of the ZEDE law. It was the time that Paul Romer was in Honduras, that was about 12 years ago, and he wanted to meet some entrepreneur that might be interested in the legislation, and so I ended up having a breakfast with him.
I was skeptical that it was going to work, and actually it didn’t work. The first iteration, as you probably know, I don’t know about your audience. And that was 12 years ago. Then the law that was the output of that first effort was rejected by the Supreme Court of
But then they changed the law, addressing the problem that the Supreme Court highlighted. They did a new iteration in 2013. I was still skeptical, but at the end of 2018, I met with the commission that was in charge of implementing the program. And also because I saw Prospera was actually having traction, right? And I have to thank
Prospera and Titus Gabel in particular, because they worked at least a couple of years to make it possible. The law, it’s a great law, but any law is kind of generic. And so there was a million of small things from customs to veterinary services to taxes to work out. That was a very heavy job that people in the commission from the government and especially Titus did.
And so Prospera was actually working. So that point I met with the commission. I said, OK, I’m ready to go too. In this sense, I kind of piggyback the work of Titus. And I am very grateful.
Stephan (02:49.785)
Excellent. And so just to make sure everybody can follow along for people who aren’t familiar, free private cities, it’s this radically different concept. And of course, a lot of libertarians are interested in this idea. But it’s not only for libertarians. But the basic idea is that you could create this almost like a privately run city or area and have a certain agreement that is between the citizens and the people running that area. So maybe if you could explain it just for somebody who’s new.
Massimo (03:17.452)
Right.
Stephan (03:20.221)
What’s a free privacy? Why is that interesting?
Massimo (03:21.07)
Right, right. So basically, yeah, let’s say that the in terms of special economic zone, there are, I think, 5500 in the world. And most of them are private, actually. But all of them, the one private are place of work, people go in the morning, work and go back in the evening, wherever they live.
They usually go to public school outside the zone. The zone is just typically it’s in emerging country and it’s what is called sweatshop. I am a great admirer of sweatshop because it’s a stepping stone to richness for a country. Said that this is the typical private special economic zone. There are a few special economic zone where it’s possible to reside, to live there.
for example in the, well, where you live, in the Emirates and in China, of course, Shenzhen, but also other, like Jiaholang, it’s a new, let’s say a new wave of special economic zone in China, but these are not private, they are owned by the government.
Now, the important thing and why this is really new and disruptive, what is happening in Honduras, is that this private seat, this special economic zone, are private and allows for residents. And the reason it’s radical is that when you have residents, you have law and order, you have crime, right? Because it’s, yeah.
Crimes can also happen in a special economic zone, but I mean, it’s very difficult that the guy is drunk and stab another guy in a sweatshop. If you are in a normal city, where there are all types of people living there, law and order is important. And of course, this means that the government has to give us a certain level of…
Massimo (05:39.786)
let’s say police discretionality or responsibility to a private owner. So yes, if you’re talking in general about free private city, this is especially the idea that Titus is pushing. There are places with a certain level of autonomy.
Massimo (06:09.022)
It’s very important to fiscal autonomy. It’s very important at least civil jurisdiction autonomy. Penal that the judges have your judges, it’s actually in criminal issue, it’s actually not very important on one side and on the other side it’s almost impossible to receive from a host state.
But it’s very important all the regulatory side for companies. And for residents it’s very important that the owner, the private owner, provides what is called public services that are not public goods in economics because of scarce goods like education and health care.
So I think in this environment, the ZLO is definitely the most advanced in the world. We, as Sudamora-san, each ZEDE has the possibility of raising the taxes they want. In our case, it’s 5%. I didn’t want to raise taxes because our business model is to make money on rents and I wanted to pay for public services with rents.
We were forced to have a 5% tax on income. It’s the only tax we have. We don’t have a value added tax, a sales tax, inheritance tax, any type of tax. It’s the only one, it’s a flat tax of 5% on income. And out of this 5% that we collect, we give 12% of it, which means 0.6%
of income to the government to provide for let’s call it the national public goods like the army, the main arteries that brings the various cities together and criminal justice because we do not have a criminal responsibility and criminal justice.
Massimo (08:13.858)
So the law are extremely low. I didn’t want to do that, but I was forced by the government, but it’s only 5%. It’s flat for legal entity or private individuals. And even if it’s a minimum salary or salary very low or five million dollars per year, you buy 5%. We are responsible to give education and education up to 18 years old, so primary and secondary.
Stephan (08:31.893)
Great.
Massimo (08:42.91)
healthcare. In terms of administrative autonomy, it’s extremely high. We are only constrained by immigration, meaning that if somebody wants to come to deal with us, it has to be first approved.
Stephan (09:07.709)
at the Honduran level before they can come to your inside Honduras.
Massimo (09:07.938)
to live in Honduras because we are part of Honduras. So once they come in Honduras, they can come to us. We cannot allow them to enter if Honduras doesn’t want. We cannot have an army, of course. We cannot have foreign policy like embassy side, which all things that we are not interested by the way. But for example, okay, the day to day police.
Stephan (09:17.652)
Yeah.
Massimo (09:34.886)
It’s our police, it’s people that we pay. And we do not have to follow regulatory agency of the host nation. For example, we have our own company registry. We can give charter for banks. The school doesn’t have to follow the curriculum or the regulation of the Ministry of Education.
One that is very contentious is the lab or code of Honduras that do not apply in the ZEID. So we are very, very autonomous.
Stephan (10:12.177)
Okay, so let’s just summarize a few of the key points because we’ve covered a lot there. So essentially, I think we should get to the question of why is this interesting for people? And I think one answer could be, okay, maybe it’s lower taxes, maybe it’s less regulation, maybe there’s certain economic opportunities that are afforded to people. That’s, I guess, that’s why the model is interesting. So if you had to answer that question, if somebody said,
Okay, Massimo, why is this idea of a free private city interesting? Why is it interesting to you?
Massimo (10:43.666)
Well, it’s all of above in terms of the first two things, very low taxation and very, very low regulation. I’m libertarian, I believe in Achean, in Aiec, so I don’t know what’s going to be the best industry in Sudamora Sand, which is the name of my Z.
I guess it’s going to be something that is typically done in Honduras. In Honduras there are traditional free trade zones called Zolis that are places where you go to work and there’s a lot of textile, 70% is textile, 20% is automotive harnesses. And I guess the first clients and the clients that were interested in the
at the beginning before the change in government were just this type of people. But I don’t know, I mean there are also Americans involved in crypto space, libertarians, that decided to come to live with us. And they are starting some small business. I don’t know where the society goes. I mean a city, a society.
As Ferguson said, it’s the product of human action, but not of human design. It would be very arrogant from my part to direct what the residents should do, right? I just provide a safe place, a place with low taxes, a place where people can have a life with dignity. And this sounds strange, but our objective is…
people in Honduras. If foreigners want to come, they can come. But our main objective, people in Honduras and security and life with dignity, it’s a very important issue. So people come there and then the spontaneous order of the market will take care of it. We already start to have a small business catering to the residents. We have a mom and pop convenience store, we have a cafe, we have a gym, we have a girl that cut your hair.
Massimo (13:01.506)
doesn’t apply to both of us. And we have this type of small business that are already growing. And we’ll see. I mean, I know it’s gonna work. I don’t know how it’s gonna work, but I trust the market.
Stephan (13:04.297)
Ha ha.
Stephan (13:11.257)
Yeah. So.
Stephan (13:17.873)
Of course. And so just to give people a rough idea, how many people live or work in Sudad Morizan nowadays?
Massimo (13:26.81)
At this moment there are about 200 people living there. We have 64 houses. So up to now we invested $15 million, one five. And all this was until November 2001, because it was when the left leaning, 2021, yeah. Because the new…
Stephan (13:47.305)
2021, yeah? Yeah.
Massimo (13:52.73)
new government came along and the electoral campaign was one of the main issues, I think one of the three main issues was according to them, the elimination of the ZEDI. And since then we had a terrible rhetoric, I mean they say that we are criminals, we are narcotraffickers.
Stephan (14:12.583)
Yeah.
Stephan (14:16.505)
Yeah. So just to clarify for listeners who aren’t familiar, the Zeta law was the law that actually enabled this free private cities to exist, right? So I guess the history for listeners who aren’t familiar is that this Zeta law was what enabled free private cities to exist. Then we’ve had a change of government and as part of, yeah, in Honduras, and as part of this change of government, it was part of the political election that they were going to try and take away the Zeta law. And that’s maybe where some of the conflict or the uncertainty is at this point.
Massimo (14:22.519)
Yeah.
Massimo (14:31.54)
in Honduras.
Massimo (14:44.394)
Yeah, the answer that they say, because we are very defended legally. I mean, the law was its constitutional level. It’s the release international treaties protecting it. It’s very, very strong. But this government, it’s very left leaning. And so I had the in the in the business plan that I was actually executing at that moment.
called for 150 million dollars of investment in the next three years and I could spend only 15 it was a question of time because we received the charter let’s say that we were born in 2020 but just at the beginning of covid so it was very difficult to work so we could only
invest 50 million dollars which is we bought the land 45 hectares it’s about 100 acres. We built 64 houses, 4 000 square meters of industrial space, well the wall because we are a duty free zone so we by law we are forced to have a wall around it to avoid smuggling.
And then, you know, water well, the recycle plant, the main road, roads, the line, three kilometer line to bring electricity from the substation of the state provider of electricity. So we were just starting. But at that moment, even if we were in the middle of COVID, it was working beautifully. So when we talk about…
We’re talking about the ZEDE law, not in general about free city, but in this specific case, you have to understand that there are two different entities involved. One is a political entity, like a municipality. The ZEDE is a subdivision of the territory of Honduras. In Honduras there are about 250 municipalities and three ZEDE. The ZEDE takes a territory, it’s like
Massimo (17:01.602)
This is the entity that raise taxes and provide the public services. And of course, it’s a non-profit entity, it’s a political entity. And actually, at the end of the year, if the money raised is more than the cost of the public services, the money is given back to the taxpayer in proportion to what they pay.
So the first nine or 10 months since the beginning of 2021, we actually had companies there and we were raising, we, the ZD. The ZD raised $70,000 per month of taxes, the famous 5% on income. And the cost of the ZD was about $40,000 per month. So he had, it had a surplus of $30,000 per month.
that was going to be given back to the taxpayer. Now at that moment, we still didn’t have the school. So possibly $30,000, at least 20,000 would be absorbed by the school. But the point is, we actually had, if you want to call it a fiscal surplus. On the other side, there is the private entity, which in our case is what in the case
literature is called an entrepreneurial community, meaning it’s like a mall. We don’t sell anything. We only live out of rents. It’s different from Prospera that monetize the increasing value of the land, selling the land. We monetize this increase with higher rents, which in our case, they are still not very high because we just started. But the private entity was
was making in terms of revenue, so renting the 64 houses and the 4000 square meter was making about 15 000, 18 000 per month and at cost only of 3000 dollars because two, three persons. Because actually the gardeners and the police and these people were paid by the public.
Massimo (19:16.394)
So, of course, the money we were making, about $15,000 per month, didn’t justify the investments of the 15 million, one-five, that we put up to there. But you have to consider that maybe 80% of that 15 million were assets that were not monetizable yet. The land, the walls, the wells.
The part that was monetizable, meaning leasable, that was the houses and the industrial space, were just three million after that. And from an accounting point of view, I actually was working because I gave a loan without interest to this private company that is called Communities Artists. And they were making money from an accounting point of view.
Now, of course, the money they were making were not paying the opportunity cost of the capital, right? But from an accounting point of view, they were making money. And in September, I was closing two deals. One was a pharmaceutical company that wanted to put a plant of 10,000 square meter. In that case, it’s a very specific asset of a pharmaceutical company.
So I was just leasing the land for 10 years, renewable, and I was leasing at $1 per square meter. So the plan would have been 10,000 square meter, but the land would have been 50,000 square meter because of parking and all of these things. So that would be another $50,000 without investment from our part. And with another one of my companies, we were centralizing the core center.
There are businesses that have call centers all across Central America. We were centralizing all the call centers in Morassan, building a tower with 500 jobs. The idea was to recruit secondary school graduates in the area, people of 18 years old, to work in the call center, to give them a decent salary.
Massimo (21:36.47)
but pretty low, about $450, which anyway, it’s a good salary in Honduras, $450 per month. A house, one of the house to live there and an IT course in the evening. And after a year, if they pass the course, they would enter in our company in the IT department with a minimum salary of $1,000.
This tower would have paid $40,000 per month. So we were already signing contract to have revenues of $100,000 per month with cost that would probably increase, the cost of community artists, I mean, probably increase at, I don’t know, $10,000. So at that point we would actually make, what, $1 million out of maybe 15, which is still very low, but we were just…
scratching the surface, right? So it was working. We demonstrate up to November 2021 that both the private entity and the public entity were working. The economics was working.
Stephan (22:45.305)
Yeah. So fundamentally, you’ve set up this free private city. You’ve started the process of getting businesses and people to move there or set up business there. But then this, unfortunately, the political climate sort of shifted against, you know, the Zeta law. Yeah.
Massimo (23:00.959)
Yeah.
Totally. For example, I had a company, I have a chain of pharmacies, 700 pharmacies, Central American and the private label, Logistics, was centralized there, was one of the main contributor of taxes. And they threatened me to stop the container with medicine, just outside, with the police putting a roadblock. This was the vice, the president of the Congress.
probably number three in terms of power in the country. And he said in television, don’t worry, we’ll put a roadblock and stop all the containers and we’ll leave the containers to week under the sun and we’ll make life impossible to people working there. I mean, a container of medicine, it’s $1 million. And you have to throw.
throw away if it’s two weeks under the sun. So I had to move my company myself, my own company, I had to move there because the situation was just uncertain. And so I left, my company left and all the other companies that were already leasing the 4,000 square meter.
So at this moment we are left without the industrial part. The important thing of the industrial part is that it pays pretty well and it pays taxes. And now we are only ended up with the residential part. Nobody works, I mean, with the exception of those four or five small businesses to cater to the community, nobody works in…
Massimo (24:42.17)
in Morassan, we basically are a residential community now. Why? Because we are not like a prosperous place to attract young, ambitious, kind of wealthy people around the world. We are in the middle of the industrial heart of Honduras.
So our residential clients are blue collar workers in Honduras. We rent 60 square meter houses at $120 per month. These people make $400, $500 per month. So we cannot rent at higher price. I mean, the
Massimo (25:30.146)
They don’t pay taxes, the famous 5%, they don’t pay that. We have to provide public services. And so at this moment, we are losing all the $40,000 that were provided by taxes, right? We don’t have it anymore. So we have to subsidize with the private, private company is loaning every month the money to keep the public company alive.
And it’s normal. I mean, we are completely booked out. I mean, we rented everything. We have a list of 200 families that wants to come to live with us. Because for a blue collar worker, he doesn’t have a lot of belongings, if you want. So if the government decide to close us down against the law, but I mean, they are the, they control the people with the gun, so they can do that.
At that point, I mean, in two hours with a pickup truck, they can make a moving. They don’t have a lot of couple of beds, television. It’s not a big problem for them. But for a company, it’s a big problem because I mean, when you move into a new place, you have to change the electrical assets move. It depends, of course, on the company, but it’s always a few hundred thousand dollars.
He always thinks that the government will retaliate against you because you live in a place that they say do not exist, which is absolutely untrue. We exist, we are there, you can physically see us.
Stephan (27:06.681)
OK, so.
Okay, so we’ve sort of talked a little bit about the different kinds of people who are there. If you could just explain for people the difference then at a high level, Morozan as contrasted or compared with Prospera. Like how would you compare these different…
Massimo (27:23.342)
Prospero. Yeah. There are two main differences. One is what Prospero is looking for. Prospero wants to provide a superior jurisdiction in the world. I mean, it’s very advanced in terms like financial regulation, medical regulation and many other aspects.
and its job is to attract, as I said, the bright, young people, the same people that might go to Silicon Valley. In our case, we focus on the traditional… we want to attract the people of Honduras.
I mean, so the clients are the clients that live in Choloma. Choloma is the third city in Honduras, 300,000 people. When I arrived at the, 25 years ago, I arrived in Honduras, it had only 30,000 people, so increased by 10 times. There is people moving to Choloma, hundreds of people every week. It’s like John Steinbach, you know, all the hockey that went to California. So these are people that lives in,
the countryside with the subsistence agriculture and they come to Choloma because they can find the job and they find the job. They come from an horrible life in the countryside, a wretched life. They go to Choloma, they find a job. What they don’t find, it’s a nice place because I guess even in Sweden, if a county…
If a town increased by 10 times in 25 years, it would have been a problem to cope with the growth, right? But that’s absolutely true in Honduras. So you find every small business pay extortion to the gangs. The police doesn’t work. You don’t go out after seven o’clock because you’re going to be assaulted. Most of the people in Choloma are single mothers because the fathers went to the US.
Massimo (29:32.782)
to the US illegally. Sea wage is open. I mean, there are kids playing with black waters. It’s awful socially, environmentally and the housing is terrible. It’s still better than the life they do because this is a question of revealed preference. They still move to
And our objective is, okay, let’s take care of these guys, giving a place, first of all, with safety. This is the most important thing in Cialona. And secondly, with the police that is courteous, that do not extortionate you, the police itself, and parks and a house that…
Of course, they are not luxurious houses, but they are houses with the bathroom inside, the kitchen, running water, electricity 24-7, all things that are not available outside. The idea was, okay, there are especially the foreign companies like Nike or Fruit of the Looms.
They have problem to recruit people there because the condition is so bad that some of these people actually live in the US and they also have all this ESG bullshit, right? They have to take care of their own. So in that case, they can say that their own workers live in a safe place with a life with dignity, with a bilingual school for the kids. The business model…
was based on that. I mean, the traditional Zoli, the traditional special economics zone, charge a typical $4 per month per square meter. And we were charging $5 because the idea was that these guys could say that they were taking care of their people. But it’s much more, Azzede, it’s an entire town. So companies go there because there are people that are
Massimo (31:39.278)
good people because we choose who to give the rent next by, literally 100 meters away. They have to boost the worker from even 50 kilometers away in some cases. The people would like to live there not only because of all the public services and the good life but because they have a job next door.
So the business plan, the 150 million, you can find it in our website, http://www.morassandocity.com. You can find the urban plan. And the urban plan for the entire 45 hectares includes a residential unit that would host 15,000 people, 15,000.
Massimo (32:31.426)
100,000 square meters of industrial space, we would make Sudhamora Sun one of the three largest provider of industrial space in the country, plus office tower, supermarket, a church. I’m actually negotiating with the bishop to build a church and to rent to them for $1 per year.
and then public park, public swimming pool, and all the, let’s say, civic thing that make a city, an entire city. And this would have been ready in three years. The money is already here, Mark, it’s there. I don’t have to raise money, it’s my own money. And we were just starting when there was this problem. So this is the first difference. They want to attract
the people that goes to San Francisco, we want to attract what is called under the Statue of Liberty New York, you know, give me your wretched poor, I don’t remember what it’s written, but that one, but of Honduras, I mean, we are focused on Honduras. We already have a few foreigners, mostly libertarians, that came for the idea, but we are built for the blue collar worker of
Honduras. I’m sure with time there will be people with more money like, I don’t know, the owner of one of these companies or a lawyer or somebody else that was to come. So we will be able to build real estate more expensive and to rent to a higher price. Now why am I…
highlighting rent because this is actually the second extremely important difference between us and Prospera. Prospera is a subdivision, it’s like a condominium. They sell the land. We are, as I said, an entrepreneurial community. We are like a mall, but it’s a city, but it’s like a mall. This means that there is no need of collective action.
Massimo (34:50.882)
This is very important. If you rent a place in a mall, it’s not that you decide who’s going to be the head of security or how much money the owner has to spend in advertising at Christmas, right? When you go there, the owner said, OK, this is the boss of security, of private security, and we’re going to spend, I don’t know, one million dollars in advertising. And the price is $20 per square meter.
Do you want to enter or not? I mean, it’s a market relationship. There is no collective action. There is not, I mean, it doesn’t happen that every year all the owner make a strike to have the rent decrease, right? It doesn’t work this way. As Rotberth used to say, nobody ever strike in a private English school. You pay and you receive what is in the contract.
Massimo (35:50.574)
So what’s the difference in these terms is that once you sell the land, you introduce a homeowner association, if you want a way of dealing with collective action, and you introduce all the problem of democracy. Now, it’s, of course, being Austrian, you’re very aware of the public choice
Massimo (36:20.294)
Lizzie, people that live there, it’s very important for them, of course, so they are invested even if there is a subdivision that is a mall, which by the way there is not because this is a big problem, but even this actual big problem would be much smaller than in a place with 15,000 people, for all the problems of racial ignorance that are typical of any democracy.
We don’t have this problem. By law, when we have 50,000 people, the people will be able to vote on a person, an important person that’s called the technical secretary, but the level of public goods is provided by us. So the clients that go there, they can decide, yes, I stay here or not, but there are not all the pitfalls of public, but in our version.
In the version of Prosper, I respect Prosper enormously and actually I’m even a small investor in Prospera, but you introduce indirect democracy with the Prospera model because when you sell land you cannot kick the person out. So what are our advantages? Basically an Entrecome of four major class of advantages. The first is the management of public service.
I mean, I am incentivized to put a public service, like, let’s say, a better park, only if I think that what I get back in terms of rent is more than what my additional expenses. So there is, for the first time, a way of deciding what is the rational level of public service. And of course, the public service are also built by a private person, so they don’t have all the…
waste and corruption that happens in the so the first thing is the managing of the public service the second is the working let’s say the dealing with the conflict i mean we do for the residential side we do only lease three months lease
Massimo (38:43.422)
If a person doesn’t create a problem, we renew the lease. But let’s imagine you have a problem with this person. Very easy. Let’s imagine that you have five kids of university that live in one of the house and keep the music high until 2 o’clock in the morning. And there are laws. There are regulations, indications, that you cannot keep the music more than, let’s say, I don’t know, 60 decibels after midnight.
And let’s say that this guy every single day they put music, they create nuisance. So at the end of the three months, I say before I say, look, it’s all you dial down the music or at the end of the lease, I will not renew the lease. Right. It’s very easy. You don’t have to show proof and to do.
Stephan (39:29.418)
Renew, yeah.
Massimo (39:35.594)
Let’s imagine another example. Some kids, let’s say 12 years old kids out of school, they start to vandalize the antenna of Wi-Fi or so. I mean, they are 12 years old. I don’t have proof, maybe one of their friends tell the chief of police that they are they, but I don’t have proof because the kid doesn’t want to testify in a court. And then the kids are 12.
What I’m going to do with them? I mean, if you think how this thing would be dealt in a Western country, it’s awful. They cannot, I mean, they would probably send a social worker and even in some cases to take away the kids from the father, right, from the families.
In my case, I just said that the head of police to the father and mother and say, look, you are great clients, you’re a part of the community, but you’re not disciplining your kid. So make it happen. I know that are they just make it happen. Or if not, in three months, I will eliminate you. I mean, I will not renew your lease. And at this point, some intra-familial dynamics with probably some heat.
would work and the problem would disappear. So this is the second advantage of an entrecompt. Yeah, the first is public service. The second is this. A very important one is the flexibility with real estate. If we are successful, we’ll become probably the
Stephan (40:59.337)
So back to the advantages. So basically you’re saying the first, yeah, that’s the second advantage. Yeah.
Massimo (41:22.082)
where there is old industrial air of Honduras. Now we are building this cheap housing in the most attractive part of the future community, the entrance. So you can imagine that in 10 years, the use of the land to provide one store houses for blue collar is not the best. Probably…
we would like to build their high rises with people like Pricewaterhouse or McKinsey inside offices, right, to be able to rent at $50 per square meter instead of $2 per square meter that we are renting now. Now, if you have a subdivision, unless you use eminent domain, which for us libertarians, it’s pretty taboo.
You cannot do anything. I mean, it’s almost impossible to redevelop the real estate. In my case, I can just build two kilometers away because the good thing of the Z is that they can expand. We can buy the land around and incorporate in the Z. So I can build the same housing one kilometer away and tell my client, look, I’m very sorry I have to…
Create this nuisance, but I need this land. So you have the same rent. And actually, I throw a couple of months for free for the disturbance. But I want to renew your lease here. You have a house, it’s just like the house you have, one kilometer away. Please move there. And if they say no, I just don’t renew the lease. So this continuous, I mean, a city has to…
to adapt to the reality that is made by society and technology. You never know what’s going to happen in the future. And you see with the inner city in the US, they were destroyed by the by the birth of cars and suburban malls. And but we can, we can readapt the real estate easily. And the fourth advantage is the harmony of the community. I mean,
Massimo (43:32.034)
For example, if somebody calls me from Texas and says, even a libertarian, I’m libertarian, a second amendment fundamentalist and said, I wanna come to live there. Can I bring my gun? Say yes, you can bring your gun because criminal law, as you know, is the Honduran law. We cannot change the criminal law. But criminal law allows for gun. You can bring your guns. And he said, okay, because I have 60.
I mean, I don’t want a fanatic with 60 guns in his house. I’m libertarian. I respect his choice. But it’s not a person I want around 20 kids that plays there. So I can choose who to rent or not to rent and to maintain a good community. And I believe that one of the major…
opportunity for the nation state of this type of cities is also to allow for this immigration, right? So when there was this problem in Afghanistan that the US had to leave and left 20,000 interpreter or whatever in Afghanistan, I actually went to the American Embassy and I said, look, if you convince the Honduran government, I can take maybe 10 families. Of course,
the government has to give them a working permit because if not they cannot pay the rent. But I have 64 families, maybe five or six I can absorb in the community. But if they say I’m sending to you 50 families of Muslims, I don’t want to be disparaging, but this is not a community I want to grow. So I can absorb five, six.
But not if I ever a an entire Muslim community, probably the people from Honduras would not come easily. So I need to create a community that it’s harmonious that grows. Decently, let’s say that, for example, prostitution is it’s legal in Honduras. So somebody decided to open a brothel in.
Massimo (45:56.594)
in the city of Murassan. No, I mean, I have kids there. I have family with kids. I don’t want to have a brother there. There is nothing against the law, but it’s simply something that I don’t want because my selling proposition is in this case, it’s a family place, a place in which a family can flower and blossom without being worried. So this choice in who’s in the community, it’s an extremely important thing. For example, in malls, malls are a
very, very careful to who they let to, they rent to. And the same thing should apply to a private community, private managed community.
Stephan (46:38.657)
I see. So in a sense, it’s taking that idea of private property and really applying it in a certain sense and you’re basically sort of giving people that option of do you want to live here under these conditions or not? And if not, go somewhere else, right? And that’s sort of bottom line. Yeah.
Massimo (46:55.15)
friends like before. In this sense, it’s just an option more than the Honduran has. The problem of immigration, yes, there are 150 countries or so in the world, but apart from people rich, I can choose where to live, basically. But the normal people cannot choose, not because there is a block to…
emigrating like that was with the Soviet Union and China. Now excluding probably North Korea, you can emigrate from every country in the world, even Cuba. If you want to go, if you have the money to go, you can go. The problem is immigration. Even that beacon of liberty and haven that is the US makes it impossible to go to live there for a person that doesn’t have
money or a great CV or now not even with that. In that sense, given that we have a very limited welfare, we accept everybody. Everybody provided that they have a good relationship with the neighbors, right? There are the ideal tenants that are, for example, the guy that organized
Massimo (48:23.622)
or the guy that organized a small business to serve the community. And it’s great to have these tenants. In some cases, we actually make a discount. The guy that organized the football, after a while, we said, OK, instead of one hundred twenty dollars, it’s one hundred dollars because he’s adding to the community. He’s providing value to me. But there are also normal people that.
They don’t care about the community, but they respect the neighbors. So they are not very friendly. They go to work in the morning. They come back in the evening. Hopefully in the future, they will work in the community. And these are good as well. I mean, we don’t have any problem with them, but they pay. They don’t bother the neighbor. It’s fine. And then of course there are the, I don’t know, the drunk are the, I don’t care if one drunk.
drink and then stay at home and it doesn’t bother the other people. But if he starts to scream and to insult the people and for example to hit the kids, in that case I throw him out.
Stephan (49:34.149)
Yeah, I see. So you’re taking a little bit more of an active management, let’s say. And so I guess the question could also be how does this model scale, right? Like, because maybe at the start, it’s sort of, you can more easily rule in on some of these cases. How does it happen when if the thing were to, if, you know, more design were to start to grow, and there were a lot more families coming, how would you sort of deal with it at that point? Is it more that you you’d have to still put in certain rules and certain regulations to apply? But yeah.
Massimo (50:03.743)
But much less regulation than prosperity. The problem is that you cannot make a book of rules for everything that can happen. So you use common sense, right? You use common sense. In this sense, it’s even better than rules. Because if you have common sense, it’s actually common. If it’s not, you fail because people will leave and you don’t have rents.
Stephan (50:11.144)
Yeah.
Massimo (50:25.942)
Now scaling, yes, I don’t think you were referring to the financial scaling because it’s very easy. Once you have a model like that, I think it’s very easy to raise money. There is a managerial scaling. I think you were talking about that. And yes, like any company, there is a possible problem. We go now in technical terms, we are going into the
Stephan (50:39.217)
Right. Yeah.
Massimo (50:52.302)
equation equilibrium of the nature of the firm, right? How big it is when the problem, the cost of agency in organization become higher than the lower transaction cost. It’s cost, right? The boundaries of the firm. And given that this is a new industry, it’s very difficult to know. In my experience, the managerial sophistication
can easily allow for a city of millions of people. I think, but I don’t know. Until we do it, we don’t know. Now there are some example of city like that in medieval times. And I’m not talking about those great medieval republic because those were subdivision, but the real private city, for example, some of the Ansiatic League were private city, completely private city like this.
Stephan (51:29.745)
Yeah, gotcha. And so, yeah.
Massimo (51:49.506)
But in that term, a big city, Florence, for example, in the 14th century, had 25,000 people. So the big city of that time is actually a small town today. So if it’s possible, an organization like that with 2 million people, let’s say, I don’t know. I think we will be, if not me, some other entrepreneur better than me, we will be able to manage the complexity. But we don’t know if we don’t try.
Stephan (52:20.569)
Fantastic. And so when it comes to things like setting up a business, I think this is an area where maybe depending on which country you are in the world, sometimes you need to get licenses and permits and these aspects. So I presume in this case.
Massimo (52:32.394)
We dominate $10 24-hour in Sudan. Morassan is $10 and 24-hour and you have your license. And if it’s a regulated industry, we do not have regulation. You talk to us, I mean, you wanna put, if you wanna put a mom and pop convenience store, we say, go ahead, there is nothing to do. But let’s imagine somebody wants to open a refinery.
Stephan (52:42.026)
Gotcha.
Massimo (53:01.43)
will probably, sorry, definitely, will ask all the information, retain a provider of industrial safety control that review the business plan and the building and all these things, and then ask for an insurance for damage to third parties.
But we do not have too much regulation. We use common sense.
Stephan (53:33.193)
Okay, yeah. And so I guess the other aspect people might be thinking is, okay, so this is very early. What kind of infrastructure is there? Obviously, it won’t be the same level of having, you know, the big Western world and so on. But could you just spell out a little bit, like, what’s the current level of infrastructure and what do you sort of see in the short to medium term in terms of amenities that are available for people?
Massimo (53:56.546)
Well, if you visit morassan.cd, you will see not only the urban plan, but also videos and pictures, month by month, of the community. And now the infrastructure is what is needed for this segment. So we have potable water. We’re probably the only place where you can drink water from the faucet. We have the recycling plant.
We have the two main roads of the community. I mean, there are two large roads, big roads. And some smaller roads that goes where the 64 houses are. We have electricity in the business, in the urban planning, the business plan of 150 million. There is investment in our own production of electricity.
Now we do not have it because we stopped the investments. This is a $10 million investment. So what we have is a line that we built and gave for free to the government to bring the energy from outside, which means that when they have a breakout, we also have a breakout, unfortunately. I would say that the…
The infrastructure now is sufficient for the need of the community. Maybe internet, we do not provide internet. Other local provider came. We want to do the minimum. I mean, our business is to do just governance. So we prefer all the business to have competition, even schools. Absolutely. But even schools, for example, we have to put our school because there is nobody opening a school.
Stephan (55:41.974)
Right, be privately provided, obviously, yeah.
Massimo (55:50.55)
But our idea is to give a voucher of $50 per month for each kid and then to have many schools competing among them. Because by law, we have to provide. I mean, we have to finance education. But the idea was to have a different provider with different schools. And the kids, the father, the father and mother could choose with the voucher. And if the school, for example, costs
Stephan (56:15.025)
Right, typical like libertarian voucher approach, yeah. Yeah, okay.
Massimo (56:19.894)
But unfortunately we have to provide it now because there is nobody there now.
Stephan (56:23.897)
Yeah, I see. I guess one other area that people would want to know about is just your thoughts on where things are with the ZL or and the lawsuit and where that is, you know, where you think that might end.
Massimo (56:36.67)
I mean, we would need an entire episode to talk about the political environment. It’s extremely Byzantine. I would tell you that in my own assessment, I think we have a 60% possibility of surviving the next two years. And that in, I mean, the 60% that we will survive.
Stephan (56:41.963)
Hahaha
Stephan (56:45.641)
Yeah.
Massimo (57:01.91)
which includes that we survive the next two years, change the government with somebody with whom we can reach an agreement. And so at this point, I would bet 60, 65% that we will survive and 35% that we’ll end up with a huge arbitration case in Washington.
Stephan (57:25.277)
I see. Yeah, well, fair enough. So I guess with that in mind, then I guess you’re, you know, the optimistic case is if things go well, then what does Morazan look like? In what way are you hoping for it to grow and advance?
Massimo (57:41.226)
Well, we are growing now. I’m building now 36 houses, a building with 70 apartments. And as I told you, if we reach an agreement, the church. It’s an investment of maybe three million dollars. It’s not the 50 million per year that I was committing to.
And the reason there is a lot of enthusiasm in the community. Every time I go there, the residents tell me, when are you going to build that I have to bring my mother, my sister, my cousin, and we want to grow. And I have a cafe. We have a waiting list of 200 families ready to come here, to come in. And so I decided to invest
Stephan (58:16.369)
I see. So it’s actually quite popular. So it’s quite popular. Yeah.
Massimo (58:30.978)
two, three million dollars to maintain this enthusiasm. But of course, it doesn’t have the power of 50 million dollars in one year for three years in a row. I hope I’ll be able in two years, most likely with a new government. I don’t think we’ll reach an agreement with this government. Simply to… And Prospera will be the lead of that, because a lot of the administrative…
freedom, autonomy that ZLO allows are actually needed by Prospera, not by us. We don’t need to have our own banks, right? It would be nice to have it, but we can live without it. We don’t need to be free of the control of the health secretary in order to make the trial that they are doing in Prospera.
Stephan (59:16.84)
Yeah.
Massimo (59:30.498)
Prospera will be able to work out with the government, assuming they will, it will be good for us. Right? I mean, the minimum is Prospera. If it’s okay for Prospera, it’s okay for us. And I’m pretty sure they’d be able to work out something with the government.
Stephan (59:45.851)
Yeah.
Stephan (59:51.869)
Okay, yeah, that sounds good. I guess one other, obviously I’m focused on Bitcoin as well. So obviously I had to ask a little bit about whether there’s any Bitcoin news or anything like that happening in Morazan or no.
Massimo (01:00:01.954)
First of all, we don’t have any fiat currency like IEK. It’s private. I mean, in our case, any contract can be done in any currency, lempiras, dollars, Bitcoin, gold, the cows, whatever they want. It’s fine for me. There is not the use of Bitcoin, but there is one of the residents. It’s an American. I don’t know if you met him. You should. Alex Urgosi.
Stephan (01:00:30.321)
I think I might have met him actually, yeah, gone, yeah.
Massimo (01:00:32.786)
Okay, so he launched a stable currency, eLamp. Lampira is the money of Honduras. So he launched the eLamp. Don’t ask me what technical blockchain is using, I have no idea. I think it’s based on E-Cash, but it works because clients can pay all the public services if they want with this eLampira. It’s baked 100%.
Stephan (01:00:45.185)
Yeah. Oh yeah, I don’t know any details of this either.
Stephan (01:00:52.523)
Okay.
Massimo (01:01:03.022)
I mean, it’s all the money that we emit, it’s in the bank. It’s actually his business. And they start to use also the pulperia. They start to use the wallet of the pulperia. Pulperia is the mom and pop convenience shop or the cafe. So there is this crypto money, it’s a stable coin that starts to be used. Of course, it’s not used outside more or less.
So when, for example, the pulperias to buy the food to sell, they come to our office, give us coins, we burn coins, and we give them a physical lempira so they can spend outside. And we start to have a little bit of use, but it’s, I mean, we are not particularly, you can use Bitcoin, but you are not forced to use Bitcoin, it’s not fiat money, and we don’t want to enter in private decision of adults.
Stephan (01:01:47.933)
Right. Sure.
Stephan (01:01:53.785)
Right. It’s just whatever you want. Yeah.
Stephan (01:01:58.777)
Yeah. Well, yeah, fair enough. I think given enough time, people will sort of adopt it, but I also understand a lot of people want to transact in their fiat currency, so I can’t really judge on that. So let’s leave it there. So listeners, make sure you check out morizan.city. It’s an interesting idea. Any, I guess, any parting thoughts for listeners, Massima?
Massimo (01:02:24.822)
Well, I’d say that this is not our example. It’s not only good for Honduras, and I think we can really transform Honduras, but it’s an example for the world. We are providing public service, I’d say, a quality better than Honduras, and probably in line with Western nation states, with 5% of taxes.
Now, national states in Western Europe occupy between 40 and 70%. And you might ask how it’s possible to do with 5% what the countries that do with 60%. And the reason is that we don’t waste. But, I mean, the US under Grover Cleveland, so only 120 years ago, the federal taxation, there was no income taxes, as most of your audience knows.
But the federal taxation that was mostly duty, tariffs, was 3.5, 3.5% of GDP. Schools and some other public service like local police were given by the states, but even in the states were not more than 5%. So if you add the federal and local taxation was no more than 10%. And this is the history of the world. Up to the 20s…
to the 20s of last century of course, taxation was not more than 10-15% of GDP and the world was working beautifully. And we are demonstrating that we already demonstrated in the past, in those 10 months, that we can do that. It’s still possible. You don’t have to waste 60% of your income to be won by the state, to have the same type of public services.
Stephan (01:04:16.359)
Yeah, look.
Massimo (01:04:16.386)
So we are an example, I think we are an example for the world. Even in rich country, it will never happen in a socialist country like Canada or what the US is becoming. But maybe in places like Estonia, even Australia, where they have a lot of land, they can start to experiment with examples like us.
Stephan (01:04:44.145)
Yeah, I think this is a great example of libertarian ideas in practice. And let’s see what happens. And I think to your point that many nation states around the world are taxing people at just ridiculous rates. The regulation is way too high and it doesn’t have to be that way. And I think this is an example of showing that in practice. I hope more people look at this idea. I’m also a fan and a promoter of free private cities. I’d like to see this idea succeed in many places.
Massimo (01:05:11.502)
When are you coming down? Stephan, when are you coming down?
Stephan (01:05:13.393)
Yeah, hopefully. Maybe sometime next year, I’ll try and find a time. So it’s a long trip though from Dubai, but I’ll see what I can do to come down at some point. But yeah, thank you for joining me Massimo and listeners find the show notes at StephanLivera.com. Thank you Massimo.
Massimo (01:05:25.762)
Thank you, Stephan.
Thank you.
Stephan (01:05:32.467)
Okay, just to say-