Paul Romer* on Charter Cities

Nobel Prize Worthy Ideas

Nobel prize winning economist Paul Romer is one of the most powerful advocates for charter cities. In a famous 2009 TedTalk, he outlines the case for charter cities. His talk has inspired many important projects in the space, and has driven the charter cities discussion for much of the last decade.

Venture Stories with Erik Torenberg

The Importance of Charter Cities

During Patri’s recent interview with Venture Stories, he discusses the underlying reasons behind the importance of charter cities. What are the flaws in democracy? Does it provide citizens with the illusion of control? How does it distort the incentives of central authority figures? How does it compare to more market driven approaches?

Fundamentals

Reflections on Charter Cities

The North Star Podcast is a fascinating and informative show that explores a wide variety of important philosophical questions relevant to charter cities. Is it wrong to sentimentalize past tribalism? Do our biologically hardwired systems only work in small groups? Will mechanization cause us to lose our humanity? The episode addresses these, and many other, fundamental questions about modern technology, governance, and the rise of the nation state.

Open Source Governance

Unlocking Human Potential

Balaji Srinivasan’s Y combinator talk on future disruptions of the paperbelt by Silicon Valley, how exit amplifies the individuals voice,  and why governments should give us the tools to peacefully exit if we so desire. At the time, the talk was one of the most polarizing speeches in Silicon Valley: mainstream media as well as individual authors understood this was a highly disruptive force for the future of human cohabitation.

Rebuilding Our Institutions

Where do we go from here?

In this talk, "The Network State" Balaji gives a follow up to his Y combinator presentation 4 years earlier. Delivered at a Startup Societies summit, he describes the three types of new society that will be subsumed under what he dubbed the “Network Society”. These 3 types are crowd choice in governance providers, new startup societies approved by existing states, and completely new developments in unclaimed areas such as the high seas or celestial bodies. Entrepreneurs worldwide are already moving the three possibilities closer to feasibility.

Milton Friedman on Hong kong

Free To Choose

Milton Friedman talks about the reasons driving Hong Kong’s success in the 1980s. This video is part of his larger famous “Free to Choose” series. Hong Kong was fertile ground for an experiment favoring a freer societal approach compared to an authoritarian mainland Asia. Major migration inflow from all across Asia empowered the island and turned it into a prosperous city. This type of development may yet be undertaken in many places in the world.  

WIRED MAG ON SHENZHEN

The Silicon Valley of Hardware

Wired Magazine explores how Shenzhen is quickly becoming the Silicon Valley of hardware, and a hub for free innovation.

Read the Q&A from our Frequently Asked Questions

Q.

What is Pronomos Capital?

A.

We are the first venture capital fund dedicated to upgrading institutions and building the cities of tomorrow.

Our goal is to invest in projects that can find profitable long term solutions for problems such as poverty, corruption, mass displacement, statelessness, and environmental destruction.

Q.

What kinds of projects do you invest in?

A.

We are investing in a brand-new type of venture that combines aspects of social entrepreneurship, community development, and real estate. These mission-driven companies will work side by side with government officials in public/private partnerships to create unique, human-centric communities.

This sector is so new, there's still no agreement on what to call it. Terms making the rounds include “charter city”, “Special Administrative Region”, “Special Governance Zone”, and “Prosperity Hub”. From our standpoint, it has two key attributes:

From our standpoint, it has two key attributes:
1. The city is designed as a product to attract and uplift its citizens.
2. The city has functionally different laws and institutions than the region surrounding it.

Q.

Why build these cities?

A.

Charter cities are a new tool for governments to serve their citizens by better attracting investment, creating jobs, providing security and promoting equality. They do this by making regulation more flexible and allowing officials to more easily enact reforms.

Why are legal reforms so powerful? Because decades of research on economic development has shown that the primary determinant of prosperity is the quality of a country’s laws and the integrity of its courts, administrators, and other legal institutions.

Meanwhile, decades of open-source software work has shown that distributed, transparent development on libraries of reusable modules is the best way to build complex systems that are fair, reliable, and powerful.

Since law is a form of code - written by humans, run by lawyers and judges - we view legal institutions as society’s operating system. We want to see the lobbyist-written legal systems of today evolve towards collections of modular legal codes found to create prosperity and promote justice. We see a future where writing a legal system from scratch will be considered as absurd as rolling your own crypto. Instead, governments, citizens, and businesses will assemble combinations of proven legal codes like they choose apps or software libraries today.

Q.

What are some examples of charter cities?

A.

2020 is our zero to one moment: none of these cities exist today, but dozens of founders are working on them and some will succeed. For now, we draw significant inspiration from historical examples:

Singapore: At the time of its independence in 1964, Singapore was a small, isolated, and impoverished trading port. Through the adoption of better rules for business, Singapore adapted and evolved into the business capital of Asia. Strong institutions are the reason why Singapore is the world’s safest, most educated, and greenest city.

Dubai International Financial Center, UAE: For centuries, the ancient trading port of Dubai stood over the Persian Gulf. It began transforming into a global hub with the creation of the Jebel Ali Free Zone in 1985, and became a leader in governance innovation in 2004 by establishing DIFC. This zone uses a common law framework and has its own independent regulatory and judiciary systems, which allowed it to attract business from around the world and transform itself into the world’s richest city.

Shenzhen, China: After decades of civil war, foreign occupation, and famine, Shenzhen and other SEZs reformed their governance structures. New zones like Shenzhen were granted the right to attract foreign manufacturers and lift tens of millions out of poverty. Shenzhen now boasts China’s tech capital, and has become one of the world’s most innovative cities.

Q.

What are you looking for when you invest in a project?

A.

We look for teams of inexorable & irrepressible founders working full-time on their business, with relevant experience in real estate as well as their target region and industries. They must be highly ethical, have strong local connections to their country partner, and hold a clear vision for a unique and much-needed community.

As we’re a small fund, we look to invest at the seed stage when a company has some traction (interest from governments, tenants, developers) and the budget is mainly for salaries and travel. We’ll help our portfolio companies find later-stage capital partners to finance land purchase and development. We look for valuations around $3M - $30M and write checks around $250k-$1.5m.

Our investees may call themselves new city projects, economic zones, smart cities, eco-communities, or high tech freeports; but in all cases will be adopting innovative governance in a physical jurisdiction with the enthusiastic support of the local, regional, and national government.

In order to prove our unique thesis with a small pool of initial capital we must focus on this core area, and so we do not accept pitches for other types of technology startups, real estate development, SaaS, blockchain, AI, VR, etc. In the future, we hope to expand to other sectors related to cities & governance.

Q.

How does your business work and what is your current operational status?

A.

We’re an investment fund, which means we provide capital & assistance to companies creating this new type of real estate. We ourselves don’t directly buy land, negotiate with governments, or build cities, that’s up to our intrepid founders. Rather, we help by supplementing our capital with advice and introductions based on our team’s wealth of experience and our experience across multiple projects.

While business models for this new sector are still being tested, we expect the fundamental value equation for our investees is based on creating GDP and land value. Like any developer, a startup city seeks to buy land cheaply, make it worth more, and earn out via leases or eventually a sale. And like any government, a startup city seeks to grow GDP by increasing the income of its people, and taking a small share via taxes. What’s unique is the focus on creating value by upgrading institutions.

We incorporated in August 2019, registered with the SEC on Dec 2, 2019, and at the turn of the decade we’re in the process of setting up operations and conducting due diligence on initial opportunities. Our capital for the first half of 2020 is committed to companies we’ve been working with for the last year, and we’re meeting founders now who are looking to raise in the second half of 2020.

Q.

What are the humanitarian benefits of charter cities?

A.

Prosperity: Recent research suggests these cities may be one of the most effective ways to alleviate poverty

Environmental Preservation: The destruction of the environment means humanity must rapidly adapt and reduce its carbon footprint. Urbanization has consistently been proven to reduce pollution and allow for more space. This allows governments to experiment with new rules and regulations to protect the environment on a small scale. Successful projects will provide models that are emulated across nations and environments.

Refugees:
Millions of displaced people live in refugee camps around the world, or in diasporas with no safe city of their own. They are trapped between their dangerous homelands and countries that refuse to accept them with open arms. Charter cities can serve multiple purposes to solve the global refugee crisis. These innovative model cities can assist and house people who want to stay in their country of origin. Other cities will serve as new homes, ready to accept people regardless of their background. See the Refugee Cities NGO for more on this approach.

Q.

Will these zones be sovereign city-states?

A.

No, these communities will be regulated by their partner countries, follow all international treaties and standards, and “plug in” to the international legal system through the sovereignty of existing states. This is necessary for multiple reasons: to respect the existing international order, to secure our property rights in our investments, and because there is no accepted procedure in international law to create a new country.

Most importantly, we must walk before we can run. There are decades of work ahead for us and our founders to demonstrate this new development paradigm and build international credibility. Someday, when these models have been proved and refined, it will seem as normal to start a new city as it is to start a company today. Meanwhile, international law will continue to adapt towards self-determination.

In that distant future, it might make sense for an experienced group of founders and a nation with deep respect for local autonomy to discuss creating a new country. If so, it is our hope that Pronomos Capital will be there to invest in the first venture-funded startup city-state. But first, there are hundreds of millions of people to help lift out of poverty.

Q.

What kinds of partners are you looking for?

A.

We believe that it takes a village to build a city.

As a small company with a big mission, we aim to collaborate with many types of partners: development NGOs, urban planners, technologists, real estate partners, tenants, operators, governments, and more. We’ll let you know as we develop a more specific partnership strategy, for now you can register your interest here.

As an investment fund, we depend on founders - sovereign individuals to roll up their sleeves and build these shining cities of tomorrow. If you’ve dedicated months or years towards building a city and are getting some traction, please contact us. In the coming months, we’ll write a series of posts on our blog with recommendations on startup city strategy.

We have been honored by numerous offers of volunteer help as we privately circulated these ideas the last two years. Please watch our news feeds for occasional opportunities to give us advice & feedback, or register your interest here.