Robert Wiblin: Hi listeners, this is the 80,000 Hours Podcast, where each week we have an unusually in-depth conversation about one of the world’s most pressing problems and how you can use your career to solve it. I’m Rob Wiblin, Director of Research at 80,000 Hours.
Today we’re talking to two people who want to get tens of millions of people out of poverty by starting unusually ambitious special economic zones, which they call charter cities.
Just before that, a few people this week have asked me how much editing we do on the show.
As we’ve started doing more expansive interviews, Keiran has been doing progressively more editing to avoid repetition or lines of questioning that don’t go anywhere, which I think has gone well.
We also let guests take time to think about their answer before they start talking, and we obviously cut out those silences. So if you were worried that we seem preternaturally quick on our feet, be assured that we have to stop and think from time-to-time as well – that just doesn’t make it in the final cut.
Finally, so guests can speak freely without any anxiety, we let them cut out anything that they regret saying – either because it’s sensitive or not the best presentation of what they actually believe.
Second, I did a hour-long interview on a show called The Good Life with Andrew Leigh. We decided not to put it out on this feed, because we spent more time discussing my life and general advice on how to succeed, than how to do good in your career specifically.
But we’ll stick up a link to that episode in the show notes so that you can listen if you like. There’s new things in there even for regular listeners to this show, and I’ve mostly heard good feedback so far.
Alright, with that out of the way, here’s Dr Mark Lutter, joined later in the episode by his new colleague Tamara Winter.
Robert Wiblin: Today, I’m speaking with Dr. Mark Lutter. Mark is the founder and executive director of the Center for Innovative Governance Research, a new nonprofit which is trying to foster the creation of charter cities. He has a PhD in Accounting from George Mason University, where he wrote his thesis about charter cities. Prior to launching the Center for Innovative Governance Research, Mark worked at an asset management firm, which coincidentally also made early-stage investments in charter cities. Thanks for coming on the podcast, Mark.
Mark Lutter: Thanks for having me.
What are charter cities?
Robert Wiblin: I hope to talk about how to found new, innovative nonprofits like you’re doing. Also, whether charter cities actually a good idea. First, for those who don’t know, what are charter cities?
Mark Lutter: Charter cities are new cities with new jurisdictions. Over the long run, the best way to improve welfare, the determinant of economic outcomes is governance. Many countries have poor governance, and charter cities are basically a mechanism by which you can do very radical, very substantive improvements in governance, in these countries, by focusing on a geographic area. Particularly one that does not have anybody living there, where there are no special interests. You can get much deeper reforms, then otherwise possible. People move to that area. You get a city. The people get more wealthy there. Hopefully, then you show the rest of the country as well as the surrounding region, “Hey, these reforms work. These are good policies. They can be adopted, and lead to good outcomes more generally.”
Robert Wiblin: How would governance of these new cities be different from everywhere else?
Mark Lutter: There are a lot of different governance indicators. One of those common ones is the World Bank Doing Business Index. If you look, for example, at Sub Saharan Africa, it takes on average 46% of per capita income just to legally register a business. The governance in a charter city would be different by making it much cheaper and easier to legally register a business, as well as to hire people, as well as to build new buildings, et cetera, et cetera. It would create an environment that fosters investment, that fosters job creation, that fosters trade, that lead to these good outcomes.
Robert Wiblin: Would these new charter cities be governed by other countries or by other businesses, or just have a different legal arrangement with the same government as the country that they’re in, or any of the above?
Mark Lutter: Broadly speaking, any of the above by the wide definition, which is a new city with a new jurisdiction that has a different set of business law, commercial law, then the rest of the country. Paul Romer, when he originally proposed this idea, did propose that a guarantor country, a high-income country, would administer the charter city in a low-income country. What we do at the Center for Innovative Governance Research is focused not on that, because we don’t think that’s politically feasible, but focus on creating new jurisdictions that are governed in a way that the host country is comfortable with. This might be a new legal entity like nonprofit created. It could have the board of directors be represented from the UN, the World Bank, et cetera. It might work closely with the developer that is building up the infrastructure of the new city. But this is something that is very much going to emerge from the discussion with the host country as well as our partners on the ground.
Robert Wiblin: Why do you think charter city’s a really important idea?
Mark Lutter: Yeah. If we look back at the last, the greatest humanitarian miracle in the post-war era has been China, which lifted about 800 million people out of poverty. What they did was urbanization combined with special economic zones. Starting with Hong Kong and Taiwan, they basically looked and said, “Wait, Hong Kong’s rich. Taiwan is rich. They’re Chinese, we’re Chinese. Why are they doing well and we’re starving?” In 1980, they created four special economic zones. One was in Shenzhen. That was the biggest, the first year of its existence. A special economic zone in Shenzhen attracted over half of all foreign direct investment in all of China. This is a 30000-person fishing village attracting more foreign direct investment than a country with 700 million people.
Mark Lutter: That basically spread. These areas were successful. In 1984, they created some more. 1988, they created some more, until they basically spread throughout the entire country. Now, depending on what statistics you look, some 90% of China is a special economic zone. This strategy of governance reforms, combined with locating them in areas that don’t have a lot of political involvement, so you can get deeper reforms to test and basically to demonstrate their success is a proven, effective mechanism for such reforms that can then lead to changing the long term growth rate. Why is it an important problem? You still have billions of people living in poverty. To get them out of poverty and to change the growth rate, governance reforms is probably the single best way to do that. Charter cities are probably the best way to change the governance system in most of these countries.
The best way to shift governance
Robert Wiblin: Why is charter city’s the best way to shift governance? I guess most people trying to improve government in the developing world or indeed anywhere. I’m not trying to do it by founding the new cities.
Mark Lutter: Basically, it can be very difficult to change governance on a national level. What’s known to economists, as the logic of collective action, which is basically that there can be small groups of people that benefit from bad laws. Even if the net impact of those laws is negative, because the group that benefits from them is small, they will be able to keep the law enforced. A common example from the US is sugar tariffs. The US has cane sugar price’s about twice as high as the rest of the world, because we have high tariffs, because there’s a group of farmers in Florida that harvest cane sugar. Even though the net benefit from to the American consumer of these tariffs is negative, because every person loses $5 to $10 a year, based on these tariffs, but the farmers each gain a million dollars let’s say. Because of that, they’re able to coordinate much more effectively and keep a tariff in place.
Mark Lutter: Similarly, if you look at a lot of low-income countries, you have similar problems of political economy where, even though everybody agrees, it would be better to make it easier to start a business, to legally register a business. Then the existing businesses basically think, “Oh, well, this is more competition. Competition hurts my profit margins and so let’s prevent this.” You look at, for example, Egypt. During the Arab Spring, everybody was very excited. The outcome, it actually turns out that the military is in charge and controls everything in the entire economy. That’s not going to be the same in all countries. It shows that a lot of these governance reforms end up affecting the bottom line of some powerful interest group.
Mark Lutter: One of the questions is, how do you implement good governance reforms is put them in a place that is not politically important. That will not impact the bottom line of these powerful interest groups. Then you’re able to use that as a test ground to demonstrate the success of those reforms. Improving the lives of the people who move there, as well as improving the lives of, hopefully, the rest of the country because they get spillover effects as well as a demonstration of those good policies.
What was different about the policies in China’s special economic zone?
Robert Wiblin: What was different about the policies in China’s special economic zone that really made them take off? Could it just be that China was poised to take off anyway?
Mark Lutter: China certainly had a lot of factors. For example, there was a very rapidly urbanizing population. There was a large labor force. They have a long history of statehood. They basically understood what a state is and how it acts, which tends to be an indicator of development potential. They had state capacity. The state was actually able to do and accomplish things. I don’t want to downplay those margins. Those were certainly important, but at the same time, China’s had all of these qualities throughout history. It did take off. When it took off, in part, because of the specific governance reforms. Just looking at, to a certain extent, the randomized control trial of Shenzhen versus not Shenzhen. Shenzhen had those governance reforms. They were able to develop very rapidly in large part due to those reforms.
Mark Lutter: 1979, they did not get any foreign direct investment. When they made it legal to get for an investment, they got a lot. If you see over time, basically, it was a constant back and forth between the city of Shenzhen. A lot of the reforms were initiated by the city. It wasn’t Beijing coming and saying, “Do this.” It was the locals as well as Hong Kong businessmen basically looking to offshore, labor-intensive manufacturing to Shenzhen and working together to propose these reforms. Over time, they also implemented labor reforms. They implemented land reforms. The first stock exchange in China was in Shenzhen. Over the last 40 years, it has been one of the most innovative places in terms of governance by adopting these generally market-oriented reforms earlier than the rest of China.
Mark Lutter: As a result, gaining some of the growth. Of course, it also had a lot of advantages. It is close to Hong Kong. There’s natural business ties there. It’s in a delta that allows for easy exporting. But without those aspects, even if they kept the same institutional state, it would not have become what it is today.
Scale, neglectedness, tractability
Robert Wiblin: I’ve got a lot of follow-up questions and certain question marks about this idea to come later. First, let’s just survey the case in favor working on this problem. As you probably know, we use this framework of scale and neglected-ness, and tractability to try to assess the cost effectiveness of working on a particular problem. Would you walk us through the scale and neglected-ness, and tractability to this problem? Perhaps, how that inform your decision to work on it?
Mark Lutter: Sure. In terms of scale, our goal at the center is to raise tens of millions of people out of poverty, which I think is realistic, given the impact of you have 70 million people moving to cities annually. Even if we’re able to just capture a small percentage of them in charter cities, if the charter cities are successful, then we are having immense impact on global poverty. In terms of neglected-ness, I think it’s extremely neglected. There has been a small community that has been interested in charter cities and related ideas for 10 years. There are a handful of other semi-related organizations. I mean, total funding for all organizations in this space, nonprofits, is probably under a million dollars annually.
Mark Lutter: Total funding for the for-profit companies is probably under $10 million annually. I think it within the effective altruists’ framework, if we just take open philanthropy, which has, I believe their endowment is 11 million. Spending 5% a year. They’re spending basically 500 million annually. Given that amount, the amount of resources that are going to charter cities is quite small.
Mark Lutter: In terms of tractability, we have incubated two projects. We expect to basically be at like four, five, six projects by the end of the year. Next year, we expect to be up to 10 projects. What we mean by incubating? The role we play is 30000 for air support. We want to put groups on the ground that are capable of executing. We give high-level strategic advice and introductions. Effectively, we would be able to step back and they would still be able to move forward. That’s the metric we use. I mean, right now, we have two groups on the ground that both have a … I mean, if you’re pessimistic, non trivial. If you’re optimistic, 60 to 70% chance of actually building a charter city. I think the tractability is very high.
Mark Lutter: I think briefly to, I guess, cost effectiveness point, in addition, two aspects. One, charter cities have a profit mechanism. If you build a charter city, the land will increase substantially in value that will be able to pay for all the infrastructure that creates this beneficial cycle. Once you get one charter city development, the developer might want to build more. Other people will see that successful and want to build them. You basically have this built in profit mechanism. The actual charity cost is really just getting the cycle started. Then the profit motive kicks in. Because of that, the cost effectiveness, I think, is quite high.
Mark Lutter: The additional aspect that I think is important compared to a lot of traditional, especially in the economic development space, that effective altruists focus on, is level first growth. For example, if you eliminate malaria in the world, that will have a substantial impact on people’s well being. But there isn’t that much evidence that will have a growth effect. If you’re talking about taking people from $1000 per capita to $10000, we need to do is raise the growth rate by one to 3% per year, continuously over a 30, 40, 50-year period. There isn’t that much evidence that reducing disease burden does that. There is a lot of evidence that improving governance does that. In terms of having these very long-term effects, the best long term effect for raising people out of poverty is creating economic growth. Governance is the best tool to do that. I think charter cities are the best to improve governance.
Robert Wiblin: I’m not sure whether I would have recommended doing this, but have you tried to estimate the cost effectiveness of, say, a year of your time working on this problem in terms of how many people you get out of poverty per year? How that might compare to other things if it was recommended charities?
Mark Lutter: I have done very, very preliminary stuff. We have a master student, who is coming to work with us over the summer. His project is going to be to actually build out a case for charter cities within the effective altruists’ framework. The basic challenge is you have, GiveWell’s mechanisms of improving what is the cost effectiveness of these different charities. But then translating that to economic growth requires a number of assumptions. It’s basically just assuming my assumptions are correct and haven’t actually like drawn out the assumptions anyway. My feeling is that we are comparable with some of the most cost-effective charities. Just in terms, my estimate is we can basically incubate a charter city for a half million dollars. Given that, if you assume that, what a charter city does is basically raises per capita income of, let’s say, 100000 people by one to 2% over a 30-year period. I think that is the extremely effective way to alleviate poverty.
What does CIGR do?
Robert Wiblin: Seeding a charter city for half a million dollars, it sounds ambitious. What does CIGR actually do that could cost a charter city half a million dollars?
Mark Lutter: The tagline for the center is building the ecosystem for charter cities. What we see is that there are a number of groups that are interested in charter cities approaching these ideas from different angles. To a certain extent, it’s an idea whose time has come. These stakeholders include Silicon Valley. I’ve spoken to multiple unicorn founders, who tell me when I exit, I’m building up a warchest so that when I exit, I can build a city. You have policy experts particularly development economists, where you have a large fraction of them are interested in charter cities from Paul Romer’s work, but don’t get career points for talking about them, because there’s no data set. So you can’t actually publish. You have humanitarians, particularly in Europe, who are trying to think about different ways to approach the refugee crisis.
Mark Lutter: Because you see refugee camps that last for two, three generations, they need to how do you actually create something that’s sustainable, such that these camps are just not dependent on indefinitely. You have new city projects, mostly in the Global South, in Africa and Asia. You have dozens of new cities that are being dealt. Specifically, we have three programs. One is content. We have a podcast. We have a blog. We put out research. Then, two, we do events. With the events, what we do is basically try to bring these stakeholders together such that they can start talking. They can build shared mental models of charter cities and potentially collaborate in the future.
Mark Lutter: The third thing we do is collaboration, where we work with projects on the ground to actually basically understand what charter city is and get to work. The project that was currently most developed that we’re working on is in Zambia. We’re working with the company that’s building it. It’s called Thebe Investment Management. The city itself is called Nkwashi, N-K-W-A-S-H-I. They are building outside of Lusaka, which is the capital of Zambia, a new city for 100000 residents. It will also include a university and industrial park, a business district. They are interested in becoming a charter city. One, to increase economic activity. Then, two, to act to a certain extent as a buffer against copper price fluctuations, because the Zambian economy is very dependent on copper prices.
Mark Lutter: Nkwashi wants to have an economy that is greater than simply a function of copper prices. How we’re working with them? I’ve known the CEO for about two years. He messaged me on Facebook. He expressed interest in becoming a charter city. We’re working with them and Zambian government to basically figure out what a charter city actually is. That’s relatively low-resource cost. Because while we are the NGO that’s presenting directly to the Zambian government, a lot of the heavy lifting, they’re telling us who to talk to. I’m not gonna figure out Zambian politics. That’s really complicated, but they understand it.
Mark Lutter: Our costs are effectively, one, identifying the group. Two, making sure we have a shared goal. Then, three, traveling to the respective country every few months to work with them and the government to actually pass this. What we’re trying to do is basically come up with a scalable model that we can help to incubate dozens of charter cities, with the idea that even though all of the conversations in Zambia have been going extremely well, at the same time, politics in the US is unpredictable. Politics in Zambia is unpredictable. That’s hard to know if there’s a change in political winds, or something happens that is just out of our control. That makes it less likely. What we want to do is make sure one, there are a lot of projects that are going on all over the world. Then, two, also make the idea of charter cities more salient, such that it makes all these projects, all those conversations easier because no longer is it, “Oh, this is crazy idea.” But it’s, “Oh, these other guys are doing it,” and making it such that it’s becomes much more within the realm of political possibility, rather than something that only countries in bad situations try.
Why go with the term ‘charter cities’?
Robert Wiblin: Why go with the term charter cities? Do you think that’s very associate now in people’s minds with an economist, programmers’ idea of one country voluntarily giving up sovereignty over some unoccupied piece of land to another country’s legal system? Which was a provocative and interesting idea, but also quite controversial. Whereas, it sounds like you’re talking about mostly about seeding, special economic zones, which I think probably it’d be easier to get more people on board with that.
Mark Lutter: There’s several substantive differences between charter cities and special economic zones. First, as a point of, I think, history, Paul Romer in his initial TED Talk, he suggested that high-income countries would act as a guarantor, which effectively minister the city. Later, he appeared to go against that. For example, when he was in Honduras, the initial legislation. It was not clear that it required a guarantor country. In subsequent talks, he appeared to move away from that. It was never 100%. Two, what we think of charter city is as the next generation of special economic zones. Most special economic zones, they focus on a single industry. Maybe it’s textile manufacturing, right? Maybe it’s call centers.
Robert Wiblin: Electronics and so on, yeah.
Mark Lutter: In addition, the framing of special economic zones is countries have bodies of law. They cut around the edges and think, “Okay, on what margins can we improve this to make it a better place to do business?” Charter city things are if we’re building a commercial ecosystem from scratch, how can we make this the best place to do business? I think the framing is quite important in that you’re not focusing on a single industry. You’re adopting this broad framework that is for a city that can allow the emergence of multiple industries. That includes residential. Two, you’re not cutting on the edges. You’re really rethinking the institutional structure, the governance structure to get long-term growth rates. The way we think of this is, how can we create the seeds for basically 50-year success? The question isn’t in year three, are there five companies that are there? The question is, in year 50, is this a thriving city? I think because of that, what we’re trying to do is really create this broad framework that once setup, does not need continuous involvement, continuous action to lead to these long-term good outcomes.
Comparisons to seasteading and other new city projects
Robert Wiblin: How do these charter cities compare to other attempts to do that in a bit of governance? I’ve heard we were talking about seasteading or I guess private cities, proprietary cities I heard mentioned of. I guess just attempts to have separate these efforts on the part of cities or like devolved powers down to the city level, rather than the national level.
Mark Lutter: Seasteading is the idea of building new cities, floating cities on the ocean that have new legal institutions. It was founded in 2008 by Patri Friedman and Wayne Gramlich. A lot of their initial funding came from Peter Thiel. There’s an excellent book. I believe it’s called Seasteading by Joe Quirk and Patri Friedman. Seasteading has been one of the most, I think, influential ideas in Silicon Valley regarding the space of new cities. Private cities are, I think, just as they sound you have a private developer that basically builds the city. Examples, Jamshedpur in India is a private city built by Jamsetji, Tata Group, initially around a steel foundry. Then since evolving into a greater city. You don’t have very many private cities, historically. Most new city projects historically have been government-founded.
Mark Lutter: Brasilia, for example. More recently a lot of new city projects are private or public-private partnerships. There still are a few states that are building new cities themselves. More often, they either work with companies. Then also just because of the very rapid urbanization that’s occurring in Africa and Asia, you have some real estate developers that see this as an opportunity to basically build satellite cities that house 100000 plus residents.
Mark Lutter: I know the seasteading folks. I like them a lot. A lot of their work has, to a certain extent, help frame my own thoughts and our own strategy. I think one of the distinctions is, it’s much easier to build on land than on water.
Mark Lutter: Seasteading was originally founded in 2008. At that time, I think that the common assumption, which at the time was correct, was that no country would really grant the new jurisdiction enough.
Robert Wiblin: Autonomy.
Mark Lutter: to really adopt some of these good reforms. It was heavily focused on sovereignty, which I don’t think is particularly important for long-term economic outcomes. What you need is commercial law, not criminal law, not international treaties. Then, two, this in indicative of the Silicon Valley mindset, within which seasteading evolved, is I think they took a relatively, I guess, aggressive posture. I don’t think it’s actually necessarily correct within governance. Governance is actually really hard. I think it’s important to work with existing institutions. When you build a new tech company, it’s possible to say that because you’re working within this institutional environment that allows for those projects to exist.
Mark Lutter: You don’t need to ask permission from HP to start Apple. If you are trying to create a charter city, a special economic zone on steroids, if you’re trying to improve governance, then I mean, you do need to play nice. You can’t be taking potshots at everybody and telling them how they’re old and obsolete. You’re gonna do it much better than them. Governance is really hard. If it was easy, the world would be a lot richer. I think it’s important to have a degree of humility as to some of the challenges. Then, two, just these are potential future colleagues. These are not competitors that you’re working with these governments. I think understanding that framing is important. The other one you mentioned was private cities.
Mark Lutter: Private cities specifically don’t have any degree of new jurisdiction. There are a number of private cities, but it’s just a large real estate project, which I think is interesting. Maybe they have some local governance screen, a specific HOA for that. I think there’s a lot of interesting things there. Those aren’t things that tend to lead to changes in long-term economic outcomes. That’s what we’re interested in.
Robert Wiblin: The seasteading thing was very provocative, interesting idea. That was a bit out there, always seemed a bit wild. I guess it hasn’t really happened, at least not yet. With private cities, I think isn’t the idea this as I’ve heard it, that you’d have a private company that owns the city and builds up all the infrastructure like the electrical network, the plumbing, all that kind of thing, and the roads. I think part of the idea was that they would continue to own most of it and only rented out so that they would continue to have huge equity or investment stake. The fact that this city runs well because they want it to go really well so that people wanna live there.
Mark Lutter: I’m quite sympathetic to that model. I mean it’s somewhat similar to a shopping mall. That a shopping mall provides all sorts of public goods, open spaces, security, lighting, trash collection, et cetera. Why? Because they want to increase the value of their storefront. Private cities, in a certain extent, are a extension of Georgism where basically, the income of the private city is rents. It’s approximately a land value tax. They’re incentivized to provide all these public goods. This is somewhat similar to our model. It’s just that we increase the idea of public goods to also include governance. Because no matter how good city administration is, if you’re in a country that requires 50% of per capita income to legally registered business. Then that’s not great.
How interested should people who aren’t primarily focused on poverty be in this idea?
Robert Wiblin: How much is this a method for experimenting with better governance and improving how humans know how to govern themselves, in general, versus an effort primarily to bring countries that are struggling up to the frontier of how good governance is? I guess I’m wondering, should people who aren’t primarily focused on development and reducing poverty? How interested should they be in this idea?
Mark Lutter: I think charter cities are a quite good way for experiments. Also, just in terms of total impact. We’ve decided to focus primarily on international development to start. Just because when you have a rapidly-urbanizing population, there’s a lot of people moving to new cities. New cities are being built. Versus, if you look at the frontier countries, they are already relatively urbanized. Attracting a population is is tricky. We are interested in pushing the frontiers. For example, I’m working with Glen Weyl. I think you actually had him on recently. The nonprofit that he founded, as a result of the book Radical Exchange. One of the ideas that was most exciting to me in his book is the Harberger tax which, to me, private property is a very foundational notion of Western civilization.
Mark Lutter: This is the most substantive challenge to that notion that I’ve rarely ever seen. For our listeners who don’t know, a Harberger tax is basically a tax on private property. Where what you do is you’re taxed at the … you self-appraise the value of the property. Let’s say you own commercial real estate. You report the value of that commercial real estate at, let’s say, a million dollars. You are then taxed at that million dollar rate, which incentivizes you to lower the value of the appraised real estate. On the other hand, anybody can buy the real estate at that self-appraised value, which incentivizes you to push it higher.
Mark Lutter: The value behind the Harberger tax is it basically, substantially lower transaction costs in society, because usually price formation takes a long time to discover. There’s a lot of negotiation involved. This effectively sets up a mechanism within which all prices for whatever set of goods the Harberger tax applies to is known. It’s possible to implement this in various phases in the US, for example. You could imagine Harberger tax for this spectrum or Harberger tax for natural resources like oil. It’s hard to really imagine it rolling out beyond that. At least, in the short term, Harberger taxes for commercial property, or Harberger taxes for residential property.
Mark Lutter: I think charter cities offer an opportunity within which it’s possible to test some of these ideas that would restructure society. That would basically push the frontier of governance. I’m quite interested in seeing how this happened. I see those as more second and third generation charter cities with the assumption that the net rate. If you’re spending a few hundred million, a few billion dollars, building out infrastructure, you want to reduce risk at every level. Introducing new forms of social organization, when you’re not exactly sure how they work, isn’t the best thing to do when you do that. Once you figure out all the other elements, and once you have that institutional credibility, then let’s figure out run some experiments with this and see if it works and then implement it more widely. But until you get ready the basics down or you don’t want the first charter city to be a giant failure, because then, it substantially lowers the momentum. Once you have the momentum, then you can have the few figures.
Robert Wiblin: A perfect concept. Early on, the first charter cities you want to be more what we’ve already seen before with special economic zones. You can be confident that work out to some extent. Or, you’ll be able to convince people to get them off the ground. Then having done that, having brought up the idea, then you can potentially start charter cities where the key idea is to experiment with a new form of governance. A new voting or a new economic policy that people haven’t tried elsewhere. If it doesn’t work out, then well, at least then you haven’t started a new city, but you haven’t destroyed something that already existed. Allows more flexibility.
Where does the idea fit on the political spectrum?
Robert Wiblin: Where does this idea of fit into the political spectrum? Are there groups that are particularly enthusiastic about it and groups at all? Or is it just like everyone might be interested in it?
Mark Lutter: I think it transcends traditional political divisions. For example, if you look at the right, which wants to restrict immigration, there’s obviously these massive benefits, particularly to the immigrants, of more open borders. A lot of people on the right understand that there are these benefits, but are worried about maybe long-term institutional stability or impacts on wages on the lower-income spectrum. Charter cities, for them, basically provide a way for them to be like, “Oh, here’s a positive growth program for people in low-income countries.” At the same time, for four people on the left, there has historically been this natural, I guess, more universalism. This natural interest in global poverty. I think charter cities, for them, offer a reasonably cost-effective mechanism that should be, in my opinion, at least part of a basket of approaches to help to lower global poverty.
Robert Wiblin: My impression is that it seems like this more interest in this idea coming from economists. I guess libertarians as well seem to be particularly keen on it. I guess I’m not sure why that is. Is there didn’t get any ideological reason why people on the left haven’t shown as much interest? Or, is that just it happened to begin in a more libertarian social saying and it hasn’t quite spread yet?
Mark Lutter: I think with libertarians, just sociologically, there’s this extreme libertarian notion where if we create the right constitution, then everything good happens. One, I think that’s an accurate assessment. For example, if you look at the … I like the US Constitution, but if you compare the US to any other country that was colonized by Anglos, the outcomes are relatively similar. US, on average, has more free speech. We also have stronger gun right protections. Standard of living is generally comparable to the US and Canada. Canada does not have the same constitutional history. There is this belief that this rationally-derived set of laws can create a perfect society. Combined with amongst at least a subpopulation of libertarians, the belief in the illegitimacy of the current US government and a willingness to embrace relatively extreme alternative forms. Once you get closer to the center, you, one, lose the belief that the US government is illegitimate.
Mark Lutter: And then two, also lose the, we can create the right society belief. And I think those combined to, if you look for example, there’s the Republic of Minerva and Operation Atlantis. Operation Atlantis, the funder, a Jew who escaped the Holocaust, he made a bunch of money and he saw similar trends happening in the US, and wanted to create a new society where that would basically be safe from these trends, and funded an attempt to do this in the Caribbean, but was unsuccessful.
Mark Lutter: There was another attempt called the Republic of Minerva, that was basically putting a bunch of sand on a reef to make it a new island, and then claim it as a country. That got run off by a gun-boat from the Republic of Tonga. And this intellectual history has sort of filtered down in libertarian circles, that have been very interested in create new countries. I’m very self-consciously trying to move away from that aspect. I don’t think you need a new country and I don’t think we could rationally derive the rules of a just society from thinking about it.
Mark Lutter: I think they’re very much empirical notions that arise through repeated interaction, and we can adopt existing best practices in countries. But I do think on the far left, you actually do see a somewhat analogous trend. It might not be charter cities, but the far left does have these sort of utopian visions of creating new societies, which you see most common in like communes and things like that. It’s just that I think the far left puts perhaps less thought into, right, scaling and into how that would interact with the global economy. And because of that, and also because of my own history in libertarianism, I’m more familiar with the sort of libertarian aspects of that history, and how that translates to actually implementing charter cities on the ground.
Robert Wiblin: I guess I’m not super familiar with hard left politics, but when I was thinking about it, I couldn’t see any reason why you couldn’t create a charter city that was based on a more leftist view of things. Because you gave examples of rent-seeking and economic groups, and how we could have a more free market like way of making places richer, but you could also think the problem is governments don’t provide enough services or they don’t provide services in the right way, so we’re going to make a new city with amazing public schools and universal health care and all these other ideas, and we’re going to show how great that works in this new place.
Mark Lutter: So yeah and to clarify, I think markets generally work and sometimes they don’t. And governments should act when markets fail. I think government is actually very important for long-term economic outcomes. One of the reasons that China has been successful is because, right, their government has the capacity. And this is a growing strand of literature in economics, basically, is the government able to provide public goods. And so interesting example, I took a bus several years ago from Honduras to El Salvador, and the bus would only leave at six am. Why? Because it needed to cross the border, basically, go through this part of Honduras during the daytime, because if it went through at night, there were literal highway bandits.
Mark Lutter: And so you want a state that is able to make sure there’s no highway bandits, so you can go along streets at night. And that’s a very important thing for the state to do. And if you look at a lot of low-income countries, the state is unable to provide basic public goods. So one way to think about charter cities is, to a certain extent, is you’re outsourcing state capacity. You’re finding an actor that has the government structure, that has the incentives set such that it can provide a lot of these public goods.
Mark Lutter: Another interesting example is Liberia during the Ebola crisis. There was a Firestone plantation, rubber, that had about 10 thousand people. And they were effectively able to have nobody die, they had a few cases of Ebola but nobody died, because, right, these people had no training. It was just like, “All right. We Googled, what are best practices? If we think somebody is sick, we quarantine them until they’re okay.” And they were able to do that, and right, it’s not technologically complicated, it’s just organizationally complicated.
Mark Lutter: And if you have something that’s effective, a state that’s effective, that can provide these public goods, that’s very important. And so it’s very important that the charter city is able to provide these public goods as well as having, I think, a market that allows for this economic activity. At the same time, I might be wrong, right? And so after the legislation that we proposed as a blank state and commercial law, which would allow people to adopt the very different set of policies where you could see, not just great distributive policies but also a set of government ownership.
Mark Lutter: And I mean, Singapore for example, the government, I believe it’s the sovereign wealth fund, has substantial ownership stakes in a lot of companies based in Singapore. So that is a model that can work in at least some specific contexts. It might work in others. And while I have my own set of policies that I think will be most successful, and those are the ones that I generally recommend charter city projects adopt, I could be wrong. And if other people want to try different sets of policies, right, that’s the test. Can you set these sets of policies such that people want to live there, such that it raises income of people who do live there. And I think this offers a mechanism to do that and figure out what makes the most sense on the ground.
Robert Wiblin: Yes, you mentioned this kind of scaling mechanism where I guess some organization or possible the government buys up all of this land, when there’s very little there. And the hope is that by running it well and getting a lot of people to come in there and having a kind of economies of agglomeration, as you govern the city well and it grows, the value of the land will become much higher, and then you’ll be able to sell off the land progressively to fund the growth of public services, and plumbing and everything else that you need to make the city function. Are there historical examples of that working as like a primary funding mechanism?
Mark Lutter: Not that I’m aware of. I mean, you have some examples that are semi-Georgist. So for example, in Hong Kong and in Singapore, the government does provide a lot of the housing in Singapore, I believe it’s like 80%. Similarly, in Dubai, all the land is basically owned by the royal family. And so you do have this acting to a certain extent as a funding mechanism. I think that will be major funding mechanism. I’m not sure it will be the only funding mechanism. You could also implement various taxes in terms of income tax, in terms of sales tax, and I think the set of best practices for taxation is going to depend relatively heavily on the charter city. But just imagine if you bought land in Shenzhen four years ago; you would be retired and very, very wealthy. In Chicago, the first hundred years of its existence, inland values increased about 30 000 fold. Not like percent, fold. So that’s like bitcoin over returns, granted over much longer time rise but still extremely substantive returns.
History of the idea
Robert Wiblin: Yeah. Do you want to fill in anymore of the history of this idea? So I guess Paul Romer, he’s a famous Nobel prize winning economist, gave this TED talk back in 2009, and it got a lot of press attention. It was controversial … The main criticism I recall hearing is that people thought that it sounded kinda neocolonial, this was the term. That is was like, oh you got this like country like India that can’t govern itself very well so it should like give over this land to the British or America or something to run it, and I think this smacked people. They just didn’t like the sense of it. I guess I’m not quite sure whether that criticism entirely makes sense in as much as it’s like voluntary to do it and it’s like all their choice to move there. But I agree that there’s something that’s a bit disturbing about it. [inaudible 00:39:49] your just running away from that side of things completely. It’s like there’s no change in sovereignty here. It’s a reboot of this idea.
Mark Lutter: Yeah. So just briefly on the neocolonialism. This was actually recently brought up by Gunter Nook who’s the German special Envoy to Africa, and he called it voluntary colonialism in an article for the BBC. And I think he has something similar to Paul Romer’s conception where you would have the city be administered by [inaudible 00:40:14] I imagine he’s thinking probably Germany. I mean just on a practical level I actually don’t think that would be effective. I don’t think many high-income countries have the administrative capacity to effectively [inaudible 00:40:25], or even just if you imagine the decision making structure to hire a construction firm build a new city, the US for example, we could build the Golden Gate Bridge in about three years, and then the [inaudible 00:40:37] the Golden Gate Bridge that took 10 years.
Mark Lutter: And so the say capacity of high income countries has dropped substantially over the last 30 to 40 years. And then two, we would run into all these political problems. And so we have quite a strong preference of working with local entrepreneurs who understand the governments, because if you’re undertaking projects with 50 year time horizon politics is very important, and having somebody who is seen as advancing the interests of the country, who is seen as part of it, who has his own interest there, his own family there I think aligns the political incentives much better and is able to neuter a lot of the criticisms of neocolonialism.
Mark Lutter: With regards to the history of the idea, so basically Paul Romer 2009 gives the TED talk. He has an opportunity to start a charter city in Madagascar. There’s a very good Atlantic article on this, I believe it’s called The Politically Incorrect Guide To Solving Poverty, let’s stick up a link to that. And that is unsuccessful. There’s a coup. The coup was probably due to the fact that Madagascar gave a large amount of land to Dae woo which is a south Korean corporation, and there was a feeling of ‘don’t give land to foreign corporations.’ And so the president lost power and that didn’t work. Paul Romer then went to Honduras. The legislation was passed there. There were at least two groups that I know of; Future Cities Inc. which was Patri Friedman, and MGK which was Michael Strong. MGK signed a Memorandum of Understanding with the government of Honduras. Paul Romer got angry that two sides of the story are, actually I don’t wanna get nasty.
Robert Wiblin: Yeah. There’s no need for that. But there was kind of a falling out or something between the bunch of different groups there.
Mark Lutter: Yeah. And then the Honduran Supreme Court ruled that unconstitutional. Subsequently a similar law was passed and the Honduran Supreme Court ruled it constitutional. The results were changed in the Supreme Court where all the judges who ruled against the first one got fired.
Robert Wiblin: Coincidence.
Mark Lutter: Yeah. This was actually probably a coincidence because similar to the US there’s a left right split. And the Honduranian media generally reports that the firing was due to a police corruption case. And I lived in Honduras for six months, and I actually don’t think there was enough political capital to fire people over the charter cities. It was a relatively niche opinion/interest, and the Honduran legislation is still on the books. And there are recently rumors that think projects are finally moving forward. There have been rumors before.
Mark Lutter: These rumors seem a lot more real. We recently released a white paper on Honduran charter cities, framing it within the migration context. Like the US has spent about 2.1 billion dollars for the last three years trying to develop central America, and you can build the first phase of a charter city for a hundred or two hundred million. And try and just sort of lay that out like, ‘Hey guys, it’s not that complicated. You got to do it.’ Those are the two main ones basically after Paul Romer had the falling out in Honduran. He stopped publicly speaking on it. And-
Robert Wiblin: He went onto the World bank for a while, and he’s back in research.
Mark Lutter: Yeah. What happened was he left in 2011 I believe it was, and then was at NYU funding the Marron Institute. Started focusing on Urban issues more probably. He would mention charter cities occasionally in interviews. Then went to the world bank as chief economist, then left the world bank. And won the Nobel Prize and now he’s, I don’t know, doing whatever Nobel Prize winners do.
Robert Wiblin: Yeah. It’s been a busy decade for him. But he’s moved on to new pastures.
Mark Lutter: Yeah.
Robert Wiblin: In these countries that have serious governance issues as Honduras has a massive crime and corruption problems, I know less about Madagascar, why would these governments … They’re trying to like exploit potentially there population to extract resources, or the government is not following there interest all that well. Why would they then hand over a particular amount of land like giving up their ability to kind of extract money and power from them?
Mark Lutter: So I would not think about Governments do act in this, so in the sense of it all governments are made up of different agents that have different motivations or different interests. Again, I’m less familiar with this specific history of Madagascar. My understanding high-level is basically Paul Rover gives his TED talk, he’s famous and the president likes him and invites him. Honduras is a little bit different. Honduras had just gone through a constitutional crisis in 2009 I believe, where the previous president who was a leftist and allied a little bit with Chavez. You can call it a coup, you can call it not a coup. He wanted to run for a second term which is against the constitution and created all these political struggles, so he was removed from power.
Mark Lutter: At the time, the murder rate in Honduras was number one in the world. It’s still quite high, but it’s dropped substantially since then. So you basically have this political crisis combined with this violence crisis. And then the last aspect was basically you had the right leadership in place at the right time. If you talk to Hondurans they had ideas similar to this prior to Paul Romer. And Paul Romer was brought in partially to basically help push an idea they already had through. And what we’re trying to do is to eliminate some of that randomness to one, frame these ideas in manner that’s much more palatable so you don’t have these sort of arbitrary circumstances leading to charter cities where severe political crisis or TED talk make it such that this is a-
Robert Wiblin: More systematic considered decision or something.
Mark Lutter: Yeah. Broad solution that applies to a wide variety of countries. Any country that’s dealing with rapid organization, it’s dealing with [inaudible 00:46:51] intermitting the sets of reforms they like, that this is a potential solution for them.
Selecting the right places
Robert Wiblin: So it seems like this kind of improvement in governance would be more valuable, kind of the more dysfunctional the country is. But on the other hand of course a country that’s really unconditional is not gonna potentially be able to manage the transition or won’t be interested in doing it. What kind of process are you going about selecting places or like countries should take in discerning whether to pursue this, and to whether be among the pioneers?
Mark Lutter: The ideal country I think is about 1000 to 5000 per capita GDP. If it’s under 1000 it’s probably going to be a little bit too dysfunctional to be able to adopt. So well governed countries do not need charter cities because they’re already … there’s still some beneficial aspects that charter cities would provide, but they’re not as important. In poorly governed countries, it’s more urgent but then the fact that they’re figuring out how to walk this tight rope. How do you get a country that’s not very well governed to adopt this pocket of good governance. And that’s really the tightrope to walk that were doing a reasonable good job of walking and figuring out.
Mark Lutter: And as to more specifically what are the important qualifications to consider when thinking about charter cities, what countries. You need a minimum level of commitment ability. So for example, the democratic republic of Congo where the government effectively only controls the capital, Kinshasa, that is not a good candidate. If you have a country that’s relatively functioning, that’s on a growth path, for example South Korea, which is already a high income country there’s probably not a lot of need for a charter city. Middle income countries that have hit the middle income trap like Mexico there’s potential benefit though it’s not as strong as a benefit would be in Honduras which is still … I think actually technically might be a middle income country but their per capita GP is like four times lower than Mexico. And similarly there are other projects.
Mark Lutter: We’re relatively optimistic about where we look. So the model have adopted is basically looking for strong partners on the ground. So in Zambia it’s a new city development. We are in early conversations with the largest urban developer in Africa, and they’ve expressed interest in turning some of there projects into a charter city. And so hopefully they decide to start taking meaningful steps at some point this year. And then we’re putting out a white paper looking at Venezuela. With the assumption being that okay, assuming this transfer of power does go through, they’re basically looking at what is a wholesale development plan like rejuvenation plan for Venezuela, and they’d be willing to adopt ideas that otherwise they might not be willing to adopt. And if you can get charter cities to be part of the conversation there’s about 3 000 000 Venezuelan refugees and most of them are gonna move back to their previous residences and some of them will not. So that offers the opportunity there.
Mark Lutter: We have interests in specific profile of a country but more definitive criteria is who is on the ground and what can they do.
Robert Wiblin: Yeah. I’m surprised you bring up Venezuela ’cause guess I was thinking, given experience in these other countries, you might, one; go to a country where there’s kind of a by part as a consensus or by part as an interest in issuing this. If Maduro gets removed and then someone else comes in he might be interested in this. That’s like a very fragile situation where easily the worst could happen and you’d get kicked out.
Mark Lutter: I actually don’t think that Venezuela is that fragile. I mean now it obviously is, but my guess is if they form a new government then I think there will be a reasonably rapid shift where within two years that government, so long as it can provide some semblance of stability and economic growth. Venezuela is pretty close to the bottom. So no more [inaudible 00:50:36][inaudible 00:50:38]. Just like money that depreciates 50% per year rather than like 500000%. And my guess is that if you’re able to deliver that over a year, two years, you’ll basically have a new political consensus.
Mark Lutter: So I think that is at an inflection point where you could see that shift very substantially in terms of the outcomes. It’s still obviously risky, like Maduro might stay in power in which case our efforts are not going to go anywhere; or two, there could be this like transition and then de-transition. But we want by parts and consensus in all the places that we undertake this, but sometimes that’s not going to be feasible for one reason or another. And we see it as worthwhile basically planting the seed and trying to get it started.
Robert Wiblin: Are there any other countries kind of on the list that are poor enough so this is really useful, but like stable enough that it can actually function I guess, like Ethiopia jumps to mind, possibly Bangladesh, yeah?
Mark Lutter: Bangladesh. I’d like to start conversations in Bangladesh. I think that they have a very good special economics zone regime. I’m less familiar with a lot of the specific politics. Right now we’re in Africa, Latin America. We’d like to expand to Asia. Ethiopia would be I think quite interesting like all their political moves over the last year have been very positive in terms of moving to a [inaudible 00:51:56]democracy. Peace with Eritrea. They have an effective special economics zone program that might be expanded. I’d be interested to start conversations on charter cities there. Rwanda’s another interesting example. They actually probably don’t need them because the words of one of the advisers to the government, ‘If we hear there’s a good policy, we’ll just pass it.’ Like we don’t need a charter city [crosstalk 00:52:14] try that out.
Mark Lutter: I think Kenya’s is another good example of a potential place for a charter city. I mean basically what you want … I think a lot of sub-Saharan Africa would be good. Latin America is actually more urbanized than Europe in point of, no is that urbanization statistics or self-reported and also self-defined, so not a one to one comparison but it’s still metric. So it’s a little bit trickier in Latin America than in Africa. Africa is urbanizing very rapidly. Most of the governance is quite poor and so you have this very young population, and if you can unleash them I mean one, you’d not just the obvious humanitarian benefit of make life better for them; and then two, the sort of global benefit of you have a bunch of young, smart people that can now contribute to the global economy. That’s the big one. And yeah, we were interested in getting into Asia, but haven’t taken any concrete steps there at this point.
Common criticisms and biggest weaknesses
Robert Wiblin: What do you think are the biggest weaknesses of this idea. What worries you the most?
Mark Lutter: Before what worries me the most, the most common criticism is just the ability to create one. In addition there is the commitment ability of the host country. If you get a successful charter city then won’t the host country just come and take it? There’s the long-term criticism if charter cities move in towards government as a service model, and if you look at the countries that will fully embrace it like Dubai poor people are not treated very well.
Mark Lutter: So with the political feasibility question, I think it’s generally overstated. Ten years ago it probably would have been accurate. The countries have become much more willing to accept these special economics [inaudible 00:53:51] charter cities than they would have been ten years ago based on my conversations with governments and the number of people that have reached out to us who are engaged in similar projects. It just seems very clear that charter cities are a very real political possibility. Another question is basically if you have a successful charter city why won’t the government just come and confiscate it? Which is a possibility, there’s several ways to mitigate against that risk. One is, in terms of basically signing treaties such that if the country reneges on the law then you can confiscate overseas assets.
Mark Lutter: This is typically used in cases with natural resources. Most countries in the world are signatories to the New York Convention of 1958. And what this means is that if a country basically confiscates your assets as a company and you win in court, you can confiscate their overseas assets to sell to recoup the costs. And so if you build a oil refinery and the country comes and takes it, if you win the lawsuit then you can go and take their ships overseas or whatever to pay yourself back. This is has been used successfully several times, so if you create a charter city in the correct manner then this would be an asset. But you could be re compensated if it’s confiscated, if it’s expropriated, so that allows for protection against this expropriation.
Mark Lutter: Three just, the new city projects are being built. There’s lot of these large real estate projects, these mega infrastructure projects that are being built. So there are entrepreneurs who think that this is right while the concern is not sufficient of a concern to justify not building a new city. And then three, you want to align interest of the host country with the interest of the charter city. So you want to create a lot of jobs, you want to educate people, you want to have this positive spillover effect such that the people of the host country and their leaders see this as something to be proud of, not something to limit or restrict.
Mark Lutter: And then the third aspect. This is me, the one I’m most worried about. So Dubai for example, you can’t beg, so if you start begging they’ll just put you on a plane and ship you home. And there isn’t much of a … There’s a welfare stay for the Emiratees, but if you’re not Emiratee welfare state is we’re going to send you home and you’re on your own. This works if you have a handful of charter cities but if you have a lot of them then there is probably a portion of the population, however you want to define it, that either for genetic or very deep seated cultural reasons is just not productive. And I think the right thing to do is to create a system such they can still live decent lives, but once you start removing this whole idea of citizenship and of nationality of this sort of collective body that has certain benefits but also these renounceable obligations. And you move towards this very explicit governance as a service model
Robert Wiblin: And you provide for redistribution, I guess.
Mark Lutter: Basically.
Robert Wiblin: ‘Cause people would just leave I guess if they get kicked out.
Mark Lutter: Yeah. And so you have this relatively small percentage of the population that just might see a substantial drop in their standard of living, because they’re relatively unproductive.
Robert Wiblin: So you’ve got some special economic zone. The sovereignty is still the original country, but it’s a company, I guess, that owns it and is developing it and gradually selling off bits of it and taking tax revenue potentially, or I guess taking rents and so on?
Mark Lutter: There’s going to be different structures of governance. So it will be the way that we’re proposing it which I think is going to be the dominant model, is it’s still under the sovereignty of the host country, the constitution international treaty’s criminal law. And it will have this special administrative jurisdiction that will basically have power for our commercial law. This special administrative jurisdiction we’re proposing be an independent body, and think of this like a new government commission. We’re proposing that this basically fire walled from the rest of the government to try get away from the legacy problems as much as possible to be able to implement these best practices reforms.
Mark Lutter: We’re also proposing that this administrative body work closely with the developer, and usually it’s going to be one with the idea being that if the developer is building all of it then they’re incentivized to provide these public goods when if you have a number of different developers then the collective action problem becomes more and more difficult. And so this administrative body will work closely with this developer to basically figure out what is the proper set of public goods. We also generally encourage the developer to keep their long-term interest in the plans by leasing rather than outright selling it because you want them to be there in 20 years. Like in the first 20 years it’s more residential and then in 20 years if you want to instead of having like single family homes you want to start building apartments, or whatever that is.
Mark Lutter: So basically trying to keep the governance structure in tact to continue to align the interests of the residence and businesses and potential residences and potential businesses with the interests of the governing body. In practice, I think we’re going to see a reasonably wide variety of these government structures and how they work. Some people think that there is some [inaudible 00:58:52] republic. There is this ideal form of governance. And well once we get that, everything will be okay. I think that’s the wrong way to think about it. The government of France in 1938, the optimal government of France in 1938, is very different from the optimal government of France today. In 1938 there’s this existential threat on the border in to … But today they don’t have that existential threat. There’s a whole different host of problems. And so similarly optimal government set I think is very dependent on conditions and on context, and depending on the conditions and context I suspect that in different scenarios we’re gonna see different government institutions emerge. What we see as key is basically aligning the interests of the governing body, with interests of like residents and potential residents and businesses and potential businesses. And if you get that incentive feedback group right, then almost everything else is downstream from that.
Robert Wiblin: There’s not like special [inaudible 00:59:43]. It’s like different policies the countries have tried. I guess handing it over to a private entity to that extent I guess one thing that plays into people like concerns about business power, and handing over anything to like a profit motivated organization I think tends to freak people out. Then there’s also just, it’s a huge admission of failure I guess by the government to be like, ‘We are so incompetent that like the only way we can get this to work is to basically hand over a significant amount like most of the control over the city.’ Are those the kinds of reasons that you think that this hasn’t happened already. It’s an idea that’s been around but hasn’t happened very much?
Mark Lutter: I’d like to push back a little bit. One, different from the developer and the governance body. Those will be two different institutions. And what we propose working closely with. It’s probably not going to be legal control. I don’t think legal control of the private entity having … like for profit entity having legal control over governance is something that will fly. I’d like to see it tested out a few times. I think it might work, but I’m somewhat conservative in this matter, like don’t test new government systems. You wanna test them, but don’t make very strong claims about the functioning government systems before you see them tested. And then two, I think it might lead into certain fears, but if you look at places that have to a certain extent somewhat analogous government structures like Disney World. Disney World works reasonably well.
Robert Wiblin: People don’t really live in Disney World though.
Mark Lutter: No. But there still a lot of problems that could potentially arise. Just in terms of Disney World has a degree of … It’s a special jurisdiction to a certain extent from the state of Florida. And so they have different building codes and all these things, and generally I think Disney World is probably much safer than the rest of Florida. Because if Disney screws up then they lose a boat load of money. So I think having that incentive structure should probably have hopefully similar outcomes. You do want to basically have some form of oversight to make sure that there aren’t abuses. I think for the first generation of residents A pretty strong form of oversight is just like whether they want to move there or not. After then you have a second generation of residents where they’re more captive and you probably want to transition to slightly different structures once it’s stable and reached equilibrium. And what that looks like I don’t know exactly. I think that’s again going to be country dependent and context dependent.
Robert Wiblin: I guess it’s the concern that we’ll have that I suppose to begin with when you’re building it, that you have to make it very appealing. Like how do you proposition to get anyone to move there in the first place. But then I guess once you’ve got [inaudible 01:02:05] effects, once people have like made investments and living in that location then the organization that owns it or runs it has a lot of micro power potential, a lot of discretion before people might leave. And so they could potentially exploit the next generation. People would think that you would gradually have to move away from having a CEO and having more like an elected government in order to like prevent that kind of exploitation.
Mark Lutter: Yeah. I’m quite open to that. I think realistically most of these projects are going to have basically a transition period where say like in 50 or 100 years or whatever it is we’re going to transition to this form of government. I think initially if you’re trying to attract billions of dollars of investment then you can’t have 10 residents have decision making rights just by voting on how that money is spent. But after it’s basically reached peak and we’ve reached equilibrium you probably want to transition to a more traditional form of government. And previously you asked basically is this admission of failure by the host countries. I wouldn’t say it’s that. Countries tend to have the policies the institutions they have because of very particular legacies.
Mark Lutter: They still work on legacies. And these legacies often involve to a certain extent horrific crime, colonialism, slaughter of indigenous populations, and then just bad luck and bad circumstances. And so I think there is a general awareness of the need to improve and charter cities are an avenue that allows for this improvement. Like you’re not going to get charter cities that legislation passed if it’s not already a policy set that the political leaders of that country want to see implemented. And so I wouldn’t see it as an admission of failure. I see it as a opportunity within which they are able to implement sets of reforms that they hopefully already wanted to implement that otherwise might not have the particular package just might not have been presented in the right manner or available to them.
Why isn’t this already common?
Robert Wiblin: So why don’t places do this already more often?
Mark Lutter: I think the big change is just over the last 10 years there’s been a substantial change in the countries willingness to embrace new ideas like this. And so historically you’ve seen sort of a change in special economic zones. Like first it was basically export processing where they just focus on exports. Then you see them get larger and a bit more manufacturing intense. And then two, the other aspect is … So one thing is, in Africa for example, a lot of African countries did not have a strong middle class until recently. And so nobody’s figured out how to basically build, mass produce commercial housing for low income people in low income countries. Typically that’s slums and nobody’s figured out how to commercialize that. So basically to undertake this type of profitable large scale real estate building that is a essential component of charter cities you need a middle class in that country to purchase that real estate because nobody has the business model to do it for low-income.
Mark Lutter: And if you’re just doing it for a lead then it’s not particularly helpful because they already have a good rule set, because it’s not based on the country, it’s based on their personal relationships. And so we’re generally just to back up, I like to think of charter cities as having three essential components. Politics, governance then new city. So where politics is a country needs to pass legislation and continue to enforce legislation that allows for this different rule set in the charter city. Two is governance. You have this blank slate for rules that you need to create functioning rules that works and is successful over long term. Both of them are very hard to do. And third is real estate.
Mark Lutter: You actually have to build a new city, and that is also quite hard to do. And so this combination of these three things … you’ve seen different groups sort of like pawing at different aspects of the idea but nobodies really fully put it together. And I think that’s largely just because ideas change over time. And I’m not sure exactly why countries have gotten more amenable to these types of deep reforms but they have and that opens opportunity as well as these new city projects that are beginning to think about governance. To really put them all together.
Robert Wiblin: It seems like in order to get a sufficiently greenfield site that doesn’t have existing residence who are gonna tell you to go jump off a pier, you have to kind of go somewhere quiet, remote, potentially where people haven’t settled there for a reason, and there’s gonna be a terribly appealing place to live. And ’cause there’s such like strong feedback loops causing people to continue hate where other people are already living, might it be quite hard to get a new place off the ground like that?
Mark Lutter: So what we’re seeing is, these aren’t really new cities. These are more satellite cities. So, when you have cities that are growing at like 4, 5% per year, the land that was previously uneconomical suddenly becomes economical. The project working within Zambia was originally a farm. The government built a new road that cut the travel time from 2 hours to 30 minutes and now, okay a farm is no longer the highest value assets so how can we change this.
Mark Lutter: And so when you have cities that have basically very rapid growth plans, you can buy real estate that’s sufficiently far out to get a large enough amount and then piggy-back off of the existing infrastructure and you can’t do it if you have a population of like 10,000. That’s probably too small to get most of the benefits from improved governance. But a population of 100,000, you can capture a lot of them.
Mark Lutter: At some point in the second generation or third generation of charter cities, I do expect to see the true greenfield cities where you actually building in a new site that has no existing infrastructure. And you see this a little bit, for example, a lot with Neom, which is the new Saudi city that they’re building for $500 Billion. Like the certain amount of money.
Mark Lutter: But most of these projects tend to be state back because they don’t seem to face the same financial constraints as do private projects. At some point, once the skillset is built out, that you have a track record of “We built the city for 100,000 people and it’s very successful. Now were gonna raise a few, like tens of billions of dollars to build a new airport and with a new port and all of that stuff. I think you probably see that happen over the coming years. But you basically need to build out the track record first.
Robert Wiblin: So you’re saying that initially you think about the kind of … just on the outskirts of existing cities?
Mark Lutter: Yeah, satellite cities. One of the key aspects of the charter cities legislation that we’re proposing is a house for incorporation of new land into a charter city without further legislative action. So, if you have a charter city that is successful and nearby land owners are like, “Oh, hey. Do that.” They can join. If there is a population on that land, then you wanna set within that population probably a super majority. Like 60%. Because then you like strong institutional change. You want super majorities such that then successful charter cities will be able to naturally grow without getting the legislation involved. As long as you have all of the parties agreeing to that growth.
Robert Wiblin: You’re starting one of these places in a county that has a big problem with crime or corruption or something like that. Most of the people moving there presumably are gonna be from this host country. Why wouldn’t it just kind of inherit some of the cultural problems to what’s holding back the country as a whole? Is it really gonna be possible to shift the culture all that much?
Mark Lutter: It depends on who the target audience is and how you do that. So, for example if you travel to Dubai, I mean Dubai, percentage of Emiratis who live in Dubai is I think like 7% of Dubai-ians, Dubaians or Emiratis. But there still is a very unique Dubai culture that is largely inherited from the Emiratis. From their decisions. So, I think people actually underestimate the impact of founders on culture. It’s not gonna be as strong as a company where the founders get to choose who their employees are.
Mark Lutter: But different cities are going to have different strengths and attract different types of people. And I think that does have a reasonably strong effect on culture. Two, if you look at for certain aspects, for corruption for example, when corrupt politicians go to New York to the UN, they start paying parking tickets. Why? Because it’s actually like an economic study on this, before they were not like UN diplomats were not legally required to pay parking tickets, the Swedes would always pay. The Nigerians would very infrequently pay. And then they basically changed the law and started enforcing it to everybody, and suddenly the Nigerians start paying and stop parking.
Mark Lutter: And so, even if there are these cultural problems that persist, if you have the governance structure with the right incentives then, even if they would like to be corrupt, if you make corruption costly, then they will stop being corrupt. And you are going to have as set of challenges, of example, the special economic zones in Egypt have found it difficult to be profitable because women are basically have to go home at certain times of the day. It’s a Muslim population, and so there are these relatively strong cultural constraints that they’re not going to get around. And these are going to be inevitable in certain charter cities. Getting around strong cultural constraints to work, to interaction, to whatever.
Mark Lutter: And … hope is one that the formal institutions are going to be sufficient to even informal institutions like the culture is not conducive to economic development. The formal institutions can still lead to improvement. And then two, hopefully this change in culture over time. And so, I mean to be clear, in some places in Zambia, it’s not, for example, realistic to have a Dubai in 30 years. But Zambia might be able to have a Johannesburg in 30 years. And so trying to focus on what are the realistic objectives for these countries. This isn’t pie in the sky, this isn’t like let’s turn Kenya into Denmark, this is a like lets turn Kenya into South Africa.
Robert Wiblin: [inaudible 01:11:21] at Kenya?
Mark Lutter: Yeah, right? Like let’s figure out what is the right goal within the right time horizon that is reasonably achievable. And it’s like trying to figure out what can lead to that. charter cities aren’t going to be perfect. But the question is, are charter cities going to improve things? Are the better than the alternative? And I think the answer is, in a vast majority of cases, yes.
Robert Wiblin: So, are they gonna have immigration restrictions? So you can choose the people who you wanna come. Like people who are more educated or more productive.
Mark Lutter: I would not support a charter city that had that. I think you want the charter city to have open immigration for the host county. I mean, I’m not sure I necessarily oppose it too. But I very strongly counsel against doing that. Maybe in my reason for getting interested in charter cities is largely had to do with global poverty at aviation, and if you’re restricting the people who are the neediest and you’re not ready to help them with global poverty and aviation, even if you’re, maybe you’re helping on some margins, but it’s not the most important margins.
Robert Wiblin: Will the city potentially pay money back to the host country as a way of keeping it on board?
Mark Lutter: Yeah, [crosstalk 01:12:17] certainly. Yeah.
Robert Wiblin: So it kind of have to be pay [inaudible 01:12:20] back to the [crosstalk 01:12:21]
Mark Lutter: Yeah. I suspect what nay charter city basically what you’ll do is you’ll set a law that will basically, an agreement that says this is the amount we pay every year, this is how it increases. We have this natural increase rate. It would basically say “We’ll pay like 20% of the taxes that we’re getting to the host country and we’re going to start at the current level and we’re also going to have this minimum balance current level plus like 5% per year. So you have this minimum bound and then it’s most likely go much higher. But you’re going to have some revenue sharing agreement with the host country. That’s certain.
Robert Wiblin: On the tractability, it seems like you’ve a lot of things that have to come together all at once. You got to have a host country that’s willing to do this. Then you gotta like go to business and get funding to potentially build up all of this infrastructure. And then just like building infrastructure in these countries is really hard, or building infrastructure anywhere is super hard. So it’s like it’s kind of …
Mark Lutter: That’s why we let other people do it for us.
What are the odds of charter cities starting soon?
Robert Wiblin: So what do you think of the odds of this actually that a lot of these things start in the next 5, 10, or 15 years? What would you bet on it?
Mark Lutter: Next five years, like 90%.
Robert Wiblin: 90%? Wow, okay. Why so confident?
Mark Lutter: So it depends on what you mean as start. What I would define as start is basically have a country has approved a new legal administration for a defined geographic area. The new legal system that, say, actually has a judge who decides at least one court case. Plus you basically have like dirt moving which I think is a reasonable definition for a start. And basically what we have is … so regarding the building out of the physical infrastructure, there are a number of projects that are building new cities, right? There are a few dozen new city projects around the world and we want to partner with them to basically help them and the host countries to create government structure that will lead to the adherence [inaudible 01:14:07] of increasing rent values. So we say here is a government structure that increases your land values. And then we work with the host country as like, “All right. This is basically how you do it.”
Mark Lutter: And why am I so confident? It’s because we’re working with one in Zambia that is already moving dirt. We’re working with the government, and the government is so far been excited. We have a team on the ground that is working to create charter city in The Honduras. Honduras already has a legislation. And so we’re working with a guy who has experience doing supply chain manufacturing, so basically building industrial parks. And that’s gonna be the first phase.
Robert Wiblin: Was that ’cause I guess some of the work had already been done in these cases? [crosstalk 01:14:49]
Robert Wiblin: Yeah. In Zambia, is that primarily your work?
Mark Lutter: … in Zambia … no. There’s a guy building a new city and we’re just jumping along for the ride (laughs). That’s our motto. We’re basically providing, like I said on my podcast, I would like to improve governance. But I don’t have a capacity. I was like let me introduce you to somebody who can actually run through legislation. So we’re basically providing like 30,000 for air support. And this is our model. Find the projects that are on the ground that are interested in these things and accelerate them.
Robert Wiblin: So, you’re looking for cases where people are already trying to start cities and build them, and then you’re coming along and saying, “Why don’t you also try this?” Like legal innovation as well where you have kind of a new government that …
Mark Lutter: Yeah, it could be that like this … right? All right, why don’t you try this legal innovation that leads to a new government structure. It could be a think tank that is already pushing special economics and reform. And we were like, “Why don’t you think about this so you can pass the legislation,” it could be Honduras where they already have the legislation. So, it’s then trying to think of what does this actually look like when we put out a state-like phased project and how can we make that successful, and so far, one of the things that we hoped to announce soon, funding dependent, is charter cities business band contest where a hundred K first prize, 50k second prize where the goal will basically be to identify teams on the ground that have the capacity to build charter cities. We want to get one, two, three projects, and we can say, “All right here, go talk to the investors.”
Mark Lutter: This is how you do the different stages, right? Get a memorandum of understanding from the government, and then go raise, I don’t know, a few hundred thousand dollars and then build out the full feasibility study and then go raise like $30 million whatever it is. But that planning processes, it’s not the same everywhere but it’s similar enough and I’ve seen it enough that I can go through the phases and we can put them in contact with a different groups at the different stages that allows them to basically build out. And even if you assume any one of these projects has a 10% chance, which I think is a extremely, extremely pessimistic assumption, just based on their rate of projects that we’re seeing, we’re still probably at 90% chance of seeing a charter city within five years.
Robert Wiblin: Earlier, you mentioned this kind of difference in level versus growth effects. I guess you’re saying it’s one thing to get a one off boost of 10% to people’s income, but it’s another thing to increase the growth rate from one to 2% each year. In the long term, the latter is much better, potentially. And it sounded like you were saying that you think that governance affects the growth rate, whereas other things like improving health maybe on the [inaudible 01:17:14] level. But I guess it seems like people who are healthier could also potentially work harder, improve their productivity more quickly. The clustering is the evidence that it’s governance specifically that really matters to the long term trajectory rather than, you know, like a wider bundle of things that that people could affect by other means.
Mark Lutter: So far as I know, I don’t know any economist who make serious strong arguments that, things like disease burden have these long term effects. I mean, you can extrapolate like Jeff [Sachs 01:17:40] does to a certain extent, but you can’t do RCTs with this. So, the level is automatically going to be weaker than what is the impact of a malarial meds on malaria. And then you can get quality-
Robert Wiblin: Short term effects.
Mark Lutter: … yeah, get qualities out of that. But this is noncontroversial wisdom in amongst these developing economies. That governance matters for a long term growth. There is an argument to be made that any disease burden like great Ken, but it’s a few degrees removed, and I don’t see that argument being made nearly as frequently. I mean for a specific evidence, there isn’t that much per se. But if you look at just the history, like US had malaria, but the US, think most people would agree that US got rid of malaria because we were basically getting rich and had the capacity to do. So, not because of, not like we got rid of malaria and then we got rich. And I think you see this around the world with basically disease burdens and how they’re reduced. It’s largely a consequence of development than a costs.
Robert Wiblin: So, one reason that people might offer for doing is that they think, “Well, we’re going to do this innovative work where we come up with charter cities and we create one or two or three, that demonstrate to the world how great they are. And then other places we’ll copy. And so we’ve got this large leverage by kind of doing research or innovation that will spread elsewhere. I wonder, how big an effect might that be given that we already have kind of lots of special economic zones around the world that have demonstrated this is a way to make a place richer. We also of private cities and we have corporations that own large amounts of land and then internalize all the effects of that.
Would a lot of people copy a successful charter city?
Robert Wiblin: And I guess we also have new innovative legal infrastructures, even charter cities on a small scale in the US where people try to improve how things are governed. Do you think that if you managed to get a few of these off the ground, a lot of people would copy or, is it just the case that there’s actually barriers to implementing this and this is going to get, [inaudible 01:19:23] to get them up?
Mark Lutter: No, I think that there will be a pretty strong cascading effect where I think a lot of it depends on how you frame them. For example, like Singapore, Shenzhen, Hong Kong, Dubai, are all semi-charter cities, but they all have these relatively unique historical contexts that make it, I think, difficult for other countries to really see what happened. So I mean, for example, I mean Shenzhen had this cascading effect within China in 2005. India passed special economic zone legislation that was supposedly modeled on the Chinese, but it sort of missed all of these things. The geographic area wasn’t big enough, there wasn’t enough improvement in business quality, locations were bad, et cetera, et cetera. And so now their internal narrative is we tried this and it didn’t work. So [inaudible 01:20:07] without, when the right lesson is, we did not try this correctly. And so if we try this correctly, it might work.
Mark Lutter: You see the Dubai international financial center has spawned like the Qatar Financial Authority and the Abu Dhabi global market, which all have adopted common law. So, you see these regional cascading effects with charter city-esque developments. So, I think the key … and this is also context dependent and something that we’re trying to help. The key is one, have an awareness of charter cities, right? Like this is what a charter city is, these are the key defining features such that when one has created, it’s not just a, this is a charter city-esque whatever, but like, no, this is a charter city and this is how you do it. Right? Basically create a replicable model. You’re always going to have regional effects. Like if you have a charter city in Honduras, you’re most likely … follow ups are going to be in El Salvador, in Nicaragua, and Guatemala.
Mark Lutter: And if you got one in Africa, it’s not like Bangladesh is going to go look at African and be like, “Oh man, they’re doing it. So we’ll try it here.” It’s a little bit too socially distant but you’ll see that in Africa. And one of the things that we’re trying to do, for example, we have a conference in Johannesburg on October 2nd and 3rd is trying to create this network, create this common knowledge of charter cities to get the media paying attention to understand charter cities such that when we begin to see successes, there is a common knowledge of charter cities and that is able to be spread via existing networks to allow for basically the cascading effect to take place a little bit more easily than it would happen without that network.
Why is Mark the right person to do this?
Robert Wiblin: What makes you the right person to be doing this? You might think that if you wanna get charter cities up in Honduras or Zambia you need a Zambian or someone from Honduras to be pushing it. Is someone from America … ’cause you don’t want to start one in America, so …
Mark Lutter: We’re working with a Zambian and a Honduran because we think that they’re the right people to do it.
Robert Wiblin: Yeah, but why are you the right person to be leading this coordination effort across countries?
Mark Lutter: I don’t think anybody else sees it. So, basically, there’s a number of different stakeholders, and my advantage is that I can speak multiple languages. I can speak Silicon Valley, I can speak economist. I can’t really speak real estate developer, but I’m kind of conversational, and …
Robert Wiblin: Are you from DC originally?
Mark Lutter: Yeah.
Robert Wiblin: Okay. So your parents were in the government, in bureaucracy?
Mark Lutter: I come from a distinguished line of bureaucrats and I think because of that, for example, if you look at the sort of libertarian history, much of their challenge has been the inability to effectively communicate with government because their approach was a little bit too antagonistic.
Mark Lutter: If you look at the Paul [Romer 01:22:36] attempts, I don’t think they were able to effectively communicate with the business community. If you build a new city, you need people who can build new cities and who can raise the money to build new cities, and you need to be able to interact with them. If you are a new city then you need to be able to speak policy to them and explain to them what is the importance of governance and why does this benefit you. And so, what I saw was a number of different conversations that were siloed, that were unaware. I was speaking to one of the leading special economic zone economists and I mentioned seasteading and he had no idea what that was. And I tried to alert people to this. I would tell people in person. I read a few articles and at first I thought, “Okay, well once I tell people, then they’ll get it,” (laughs) and then the problem would be solved.
Mark Lutter: And that did not happen. And the result was I was like, okay, well I’ll just show people. And so I started this organization to bring those groups together, to have them talk to each other instead of just writing articles about it. To actually do it. So far I think our traction has been quite good. Just from a purely organizational perspective, we don’t have a very big reputation yet. There’s a chance within the next year or two. There basically is some large established organization that is able to write the UCs, some [inaudible 01:23:51] Brookings. And besides were gonna create a charter cities, whatever. And the they have all the resources, they have all the connections. There’s the risk to the center that they could suck all the air out of the room.
Mark Lutter: I actually don’t even think that’s that big of a risk because I don’t think they would be able to do it. Because they would have a very specific perspective on how to do that, but they wouldn’t see the other stakeholders. For example, if you don’t see the new city developers, then what is an academic, who’s currently works at Brookings gonna build a new city? (laughs) And so it does have all of these different stakeholders who had all of these different conversations. And because of my experience at George Mason, I speak economist, I have that perspective, but it’s also a weird school because I like part of the reason I went to burning man a bunch, I was in sort of like silicon valley crowds. I had some of those contacts. And so it’s like semi-outsider semi-insider perspective that was able to allow me to, I think understand this, this unique point that nobody else has figured out until now and use that as leverage to build our organization.
Robert Wiblin: Who you think are your best and most kind of provocative critics? The person here like, “Well, I don’t agree with them, but I’m learning by talking to this person.
Mark Lutter: Sarah [Moser 01:26:25]. She’s a professor of, I believe, geography at McGilll, and she comes at this from, she writes a lot on new cities, not necessarily charter cities. We had a Cato unbound exchange and her worry is basically frequently that these are going to be enclaves for the wealthy. Which part of me that’s sort of like libertarian-ish part, I tend to view inequality as much less of a problem than most people from a left perspective.
Robert Wiblin: I guess it’s true that if it just became an enclave for the rich, you wouldn’t feel like you’d super succeeded.
Mark Lutter: Yeah, that’s definitely true. I do believe that is a legitimate criticism. A lot of the new city projects that are currently being built are targeting middle and upper income people, and high income.
Robert Wiblin: And they just kind of like segregate themselves often like … [inaudible 01:27:05]
Mark Lutter: Yeah. And I’m not against this per se, it’s just that those aren’t interesting to me. I don’t … You can build gated community, good for you, I think you should be able to do that-
Robert Wiblin: But that’s not ending poverty.
Mark Lutter: But yeah, it doesn’t have an impact and I don’t really care.
Robert Wiblin: So, what would determine whether these things do become just places that the wealthy moved to versus places that everyone can move to? It does seem like that there could be, if you’re the corporation that starting this area, then there could be pretty strong incentive to just bring in the most educated people to make it as rich as possible as quickly as possible.
Mark Lutter: I don’t think so I think the strongest incentive is actually to bring in the low income people.
Robert Wiblin: Why is that?
Mark Lutter: Toyota sells more cars than Mercedes does. Toyota make some money then Mercedes does. Why? ‘Cause Toyota hits a larger market segment. The largest addressable market is, it’s probably not lowest income, but it’s low income. If you at Kenya migrate, how many charter cities can you build for high income Kenyans? One maybe, for middle income Kenyan’s, like two, three maybe, for low income Kenyan’s, I don’t know, five, ten?
Robert Wiblin: If you want to increase the land value up, then you just want everyone to be able to move there. Get as many people interested in moving to the city as possible. So, why limit it? I guess like an open borders policy probably maximizes the land value or at least it arguably could.
Mark Lutter: Yeah. This goes to the discussion we were having previously, right? You can think of charter cities as what I call a Shenzhen clone or a Dubai clone where Shenzhen is you’re targeting low income people. It’s, this is sort of the global poverty and those are usually going to be highly labor intensive, low human capital, versus Dubai where you target high human capital. And the number of Dubai clones you can build is limited. There aren’t that many opportunities to build that. Right? I can maybe do one in North Africa and one in Central America and one in South America. But there’s so many more opportunities to basically target low human capital people too to build that out. And that’s just, that’s much more exciting to me and much more interesting.
Robert Wiblin: So, this next section on what concretely CIGR actually does, and how it got off the ground, we’re going to be joined by Tamara Winter who is as of last November, four months ago, the operations lead at CIGR. She previously studied economics and public policy at the Southern Methodist University in Dallas, before joining the Mercatus Center at George Mason University, and then heading onto CIGR just a few months ago. So welcome to the show Tamara.
Tamara Winter: Thanks for having me.
Robert Wiblin: How did you end up working at CIGR? This is one of your first jobs out of university, right?
Tamara Winter: That’s right. So I met Mark, was it two years ago?
Mark Lutter: Two and a half.
Tamara Winter: Two and a half years ago. So, I met him while I was interning in, DC and I actually crashed his PhD party. So, we’d met on Twitter and he had written, this was during the height of the Pokemon Go craze, so, he had written this article about how we were no longer bowling alone, but we were Pokemon going together.
Mark Lutter: I literally use that phrase.
Tamara Winter: So, I went to the party, and of course, again, he didn’t invite me, and I walked up to him and I said, “You wrote this piece,” “I wanted to write that piece.” And he just looked at me and he said, “So, why didn’t you?” And then I decided we needed to be friends.
Tamara Winter: So, I was working in DC at the Mercatus center as you mentioned, and last April we met again at ISFLC. And he told me about the center, and I kind of joked that he should hire me. And then a week later he called me and said, “Actually, I do wanna hire you.” And I was not prepared to join the center at all.
Mark Lutter: I was like, “I can promise you three months of salary.”
Robert Wiblin: Minimum wage.
Tamara Winter: I’m incredibly risk averse. So the idea of leaving a job to go work somewhere for three months of a salary was not going to cut it for me. So, I told him he should come back to me when he had a year pay. And then he did. And then I left my job pretty soon thereafter.
Robert Wiblin: What are your main projects?
Tamara Winter: I’ve been onboarding for the past four months or so. I think when you only have, two people, everybody does everything and everybody wears a lot of different hats. Mark has really put me through the ringer in learning how to talk about charter cities, learning what charter cities are and what the big projects are on the world. So, in short, everything. Those are all my projects.
How Tamara got convinced
Robert Wiblin: How did you get convinced to join the project?
Tamara Winter: So, like I said, I met mark two and a half years ago and I think you know when you meet people that they … people whose vision you know is going to be implemented. And so mark is one of those people where when he says something, I know what’s going to happen. So, when he called me and said, “Hey, I’d like to help you … or I’d like you to help me actually make this charter cities vision a reality. I had no idea how that was gonna happen. And, honestly, it was like, “Oh, this sounds a little fake.” But-
Robert Wiblin: We’re gonna build a city, it’s gonna be in Zambia. (laughs)
Tamara Winter: Every time … right. Every time I said this to a friend or family member …
Robert Wiblin: And you were like, “I completely believe this will happen.”
Tamara Winter: Right. So, I didn’t know how it was going to happen, but I have this faith in Mark as a person. I think there’s a lot of people, who have lots of ideas all the time. Whose main contribution to the world was ideas. But getting from idea to execution is something that I think very few people can do really well. And Mark is one of those people I know who has an idea of how to get from idea to execution.
Tamara Winter: And so even though I had no idea how any of this was going to happen, when I joined, the Zambia project hadn’t even really started, I believed in Mark and his ability to lead and his ability to execute on a vision. And if he didn’t know how to do something, to find the people who did. And I think that hunch has been born out.
Mark Lutter: That’s by far the nicest thing you ever said to me. (laughter)
Tamara Winter: I think that’s true.
Robert Wiblin: How much time did you spend kind of looking into whether charter cities is as good an idea as it seems on the tin?
Tamara Winter: Back in April, when we first started having these conversations, Mark said, “Okay, I’m gonna give you like a short reading list.” And he gave me his dissertation. He gave me like 10 different books and none of them were particularly small and said, “Okay, let’s just keep having conversations about this throughout the summer. So, doing my full time job and I’m trying to learn just what a charter city is. So, even though I’ve been on board for about four months now, it’s really been, we’re coming up on a year long of work and we still have a lot more to do I think on that front.
Robert Wiblin: Yeah. Mark, what was the hiring process like from your point of view? Where you like following up on a whole bunch of different leads of people who thought might be able to be your first hire? Because it’s a huge commitment. It’s a really big decision.
Mark Lutter: Yeah. So, basically, the decision making process was I wanted somebody in sort of a junior co-founding role, and there were a handful of people, so I had some, not a lot, but one or two conversations with, for example, Brendan Feller who worked with Paul Romer on charter cities, but the charter city space is like very small. The other aspect is that like any small space, there’re people with a very strong opinions in that space. And so one of the things I did not want to do was hire somebody in that space who disagreed with me on strategy and disagree with me on implementation because I thought that would not lead to good outcomes. So, basically the metric was smart, somebody I got along with, somebody who could help create the culture of the company, and basically could help it grow with me because I mean, I don’t know what I’m doing. (laughter) This is the first time I’ve managed somebody. This is a whole host of new experiences for me. And finding somebody who, and also somebody who I got along with. I mean, like if we’re going to work together, then it’s not … I don’t want a
Robert Wiblin: You’ve got to be friends as well.
Mark Lutter: Yeah. Just because that’s a lot of time we’re signing together so it has to be like reasonably enjoyable. And I mean Tammy fit that bill and she since exceed expectations.
Tamara Winter: That’s the nicest thing you’ve ever said to me.
Mark Lutter: Yeah. So were you kind of very cautious about hiring? I guess …
Mark Lutter: So at [inaudible 01:36:24] hours, yeah. In the very early days when we were just a few people, we also had this experience, kind of everyone’s doing everything. There’s this general tendency that people are enthusiastic to hire and grow early on and then they learn that actually, it pays potentially to go quite slowly and be very cautious about hiring because a single bad hire can be very bad for a project.
Robert Wiblin: Did you have any kind of philosophy on hiring as an early stage project?
Mark Lutter: Hire people and have money in the bank to pay them. (laughter)
Robert Wiblin: That’s forcing you to go slower, I guess.
Mark Lutter: I mean, yeah, like I said, I expect it to be able to pay myself within three months and it took a year. So the fundraising process was slower than I expected. And because I expect it to be faster, I started a lot of these conversations. When I write, I was like, “All right, I’ll have money in like two months.” No, that was a lie. And that, I think allowed me to go slow. And now, as we’re looking for subsequent hires, I think it’s a little bit trickier in early stages because the roles are less defined. And so, in a later stage, once you’ve already got 10 people, the 11th role is a little bit more well defined, versus the second role where it’s like everything.
Mark Lutter: And so we’re at right now, it’s still early. I mean, for example, we put out a job listing for a research fellow and interviewed several people and then realized that that was actually not the right job listing. That was not what we wanted to hire. There were several assumptions. For example, I did my PhD at George Mason, and I sort of assumed that other doctors, doctorates, would understand the DC think tank area without realizing that my understanding the DC think tank scene was not because I did a PHD, but because I lived there and had friends who did it. And then I think one of the other challenges, for example a software company, there is a software culture, there is a startup culture. So every company has their own culture, but there is this sort of like meta level culture that you can draw from. And because we’re trying to bring all these other conversations together, there isn’t a preexisting meta level culture. Hopefully in like two or three years, we’ll help to be able to create one.
Mark Lutter: But because of that, one of the things to consider in the new hires are like the next person we hire, is it going to be somebody who has a lot of experience in international development? And one of the things I’m a little bit worried about just is like how much experience … I’m trying to treat this like a startup, so how much experience do they have in earlier stage organizations where it is a little bit more chaotic, where there are all of these other things going on, and I think that’s just going to be one of the challenges, is that we’re going to bring a bunch of people with different experiences together much more so than in I think your average nonprofit. For example, if you [inaudible 01:38:43] libertarian nonprofit, there is a meta libertarian culture that is relatively easy to draw from and we just don’t have that yet. So, that’s definitely going to be a challenge moving forward.
Robert Wiblin: Yeah. So, Tamara, you said you’re quite risk averse in general. What do you, what are you risk averse about? And I guess do you think you’re gonna continue to work in kind of [inaudible 01:39:01] projects or kind of more speculative projects in the future?
Robert Wiblin: -work in early stage or more speculative projects in the future?
Tamara Winter: I am Nigerian, and that’s probably where a lot of this risk aversion comes from. I think it’s baked into the culture. I always joke that if you’re Nigerian, you can be three different things. You can be a doctor, a lawyer, or an engineer, and I’m none of those things.
Robert Wiblin: I’m sure you’re an enormous disappointment to your parents.
Mark Lutter: My biggest success was convincing her not to go to grad school.
Tamara Winter: Right. So, baked into this risk aversion calculation is, “How am I gonna explain this next decision to my father?” I have really wonderful parents, but I’m, I think like a lot of first gens, always looking to make them proud. They moved continents for my siblings and I, so I think-
Robert Wiblin: Perpetually want economic security.
Tamara Winter: Exactly. In some ways the choice to emigrate or not is one of those long time horizon decisions, so you want to make sure that you’re doing the right thing for your children in the long term. So, I guess I always want to honor that by picking jobs in life that are going to have economic security. This is-
Mark Lutter: This is definitely one of those jobs.
Tamara Winter: The Center was absolutely a risk, right. It took conversations with several different mentors before I was really comfortable saying yes. It was not a sure fit at all that after Mark had asked me to join the Center, that I would join.
Tamara Winter: In the middle of the summer we were having this conversation and I actually told him that I wasn’t gonna be able to do it because I needed to go to grad school, as he just mentioned. It just took more and more conversations with one of Mark’s mentors, with a couple of my mentors, and really with my little sister, who said, “Tammy, you have nothing to lose. You should do it.”
Tamara Winter: It was exciting, and I feel really grateful, because it just introduced this concept of asymmetric risk to me. These things that have very high upsides if they work out, but if they don’t, there’s very little downside. If the Center doesn’t work out, and now I can’t see how that would happen, there are plenty of things that I could go do and I’ve lost nothing by coming here.
Robert Wiblin: So you get a bunch of experience and then you can go back to grad school, or just do whatever you wanted to do otherwise.
Tamara Winter: It’s funny, I can’t see myself going to grad school now.
Mark Lutter: Build charter cities.
Robert Wiblin: So if this fails, you’re just gonna start another charter city?
Tamara Winter: Yeah, I can see myself moving out to SF. I love cities in general, and I’m always curious about cities and design and how they affect human incentives and behavior. I could totally see myself moving to SF and working in that space. I don’t know what would be next, but I feel confident with this founding, this grounding, rather, that it would be good.
Typical day to day
Robert Wiblin: Do you guys work together very closely day to day? What is the typical day look like for both of you?
Tamara Winter: We work right across the table from each other.
Robert Wiblin: Do you work from home, or do you have a proper office yet?
Tamara Winter: We work out of a cove, it’s like a WeWork in D.C., but it’s cheaper and they have great snacks.
Tamara Winter: We typically will chart out what we have to do for the week, so we know what out big tasks are. Then we’ll just sit there and work. I won’t lie, we spend a lot of the day laughing or reading dumb tweets to each other. It’s actually a really fun workplace, it has lots of natural light, and it’s gorgeous. I’m a big believer in your space determining your outlook for the day. I really enjoy it. Maybe he has a different view.
Mark Lutter: No, I think that’s an accurate description.
Robert Wiblin: Mostly tweets.
Mark Lutter: We travel, I travel a little bit more than her, but probably two or three weeks out of the month I’m somewhere else. Then, in addition, it tends to be relatively varied. A decent number of meetings just talking with people, a lot of it is basically planting the seed. For example, we were in New York last week and we went with a journalist, and we were like, “Come write a story on us” and he’s like, “There aren’t enough characters” and was like, “You know what? I’ll put on a funny hat.” So that’s something, but we need more progress. Maybe in six months or maybe a year, we reach out to him again like, “All right, we’ve done these things. Now come write a story on us.” A lot of these relationships, there’s nothing necessarily immediately actionable, but it’s basically laying the groundwork such that, when the things do become actionable, the conversations become much easier because we already have that pre-existing relationship. That’s a decent portion of our time.
Mark Lutter: Then also, for example, writing op eds, commissioning White papers, we’ve been writing a few invitation letters, we’re having an event this Saturday that Founders Fund is hosting. We’ve had to write come visa letters for people who are flying from Honduras and Zambia.
How is CIGR going to make charter cities happen?
Robert Wiblin: This has somewhat come up, but if you had to describe it in one minute, how the Center is gonna make charter cities happen, what would that description be?
Mark Lutter: We are going to bring together the relevant stakeholders with expertise and create common knowledge and relationships that allow them to build charter cities.
Robert Wiblin: Who are the stakeholders and what are you gonna tell them?
Mark Lutter: To a certain extent, our superpower is that we can speak these different languages, and be able to position charter cities okay. If you’re in international development, you care about policy change to lead to economic growth, we can explain that. If you’re a new city developer, you care about increasing the land value, your real estate value, we can work with that. If you are a Silicon Valley entrepreneur, we can explain why the previous strategies weren’t necessarily successful and why this strategy will be successful. They’re all moving in the same direction anyway, but being able to understand from a higher level what that direction is and being able to reach out and bring them together to start building up the relationships.
Mark Lutter: For example, [inaudible 01:45:55] who’s building the new city in Zambia [inaudible 01:45:57], when I told him, “Silicon Valley’s interested in this”, he was like, “No, really? What?” I was like, “Let me tell you.” So, there is a lot of … sometimes we get a little bit if skepticism at first like, “Why would that be interesting to me?” But over time continuing to be there, continuing to make similar arguments, I think you do win them over. They do begin to see the logic of the ideas that you’re presenting.
Mark Lutter: I’ve seen, and to various extents, participated in other approaches. I think the other approaches generally can be, there’s two. It’s one, like build it yourself. Be the founding entrepreneur. Then two, it’s invest in them. So, being the founding entrepreneur, I’m a white American. I don’t think it’s a … I also don’t have a lot of business experience. So, to go into a country and say, “One, I’m going to build this charter city”, and to have all the political connections … there’s a lot of baggage going on there that might work for certain people who have certain experience sets, but I don’t think it would work for me.
Mark Lutter: Two, to invest in them. I worked for an asset management firm that was investing in early stage charter cities. There was a big challenge with deal flow, and since they’ve pivoted to actually trying to build one. What we’re trying to do, to a certain extent, is increase the deal flow of potential charter cities.
Mark Lutter: Then three, basically I saw that there was this coordination challenge, and I was able to see that and to absolve it. Lastly, basically, being a nonprofit allows you to start conversations that you otherwise wouldn’t be able to start. For example, in approaching governments, those conversations are much easier if you’re a nonprofit than if you’re a for-profit company.
Mark Lutter: There’s certain conversations that are more difficult to start. One of the stakeholders is investors, and sovereign wealth funds, for example, which I think are a potential investor [inaudible 01:48:14] that would be interested in charter cities, is difficult to approach as a nonprofit because the value proposition is very different from what they’re used to. In general, most of the conversations, it’s just much easier to start as a nonprofit to lay the groundwork.
Robert Wiblin: Is the plan that both of you become … constantly doing media and spreading the word about this a lot? Or is it gonna be more back office meetings, talking to the right people and getting them excited?
Tamara Winter: I think with something like charter cities, because it is such a new phenomenon, it’s just a totally new subject, you have to spend time building these relationships. One great to get an external boost is to have media time. I’m not sure it’s going to be something that’s going to be the core of our strategy. But for now we’re spending a lot of time, like Mark said earlier, just building relationships with people in the media, with people in Silicon Valley, with people in New York finance. It’s just a necessary step, but not sufficient for what we’re trying to do in the future.
Mark Lutter: To elaborate a little bit, the media strategy is basically trying to create a filter. Trying to identify all of these people and reach out to them. We can’t do that. What we want to do is build a lighthouse that has a big neon charter city sign on top. That way everybody who is interested in charter cities begins to follow this neon sign and comes up and starts talking to us.
Robert Wiblin: So, the space is sufficiently small that you kind of wanna be like, “You want to build a charter city, come talk to us”, and then you can start making connections between all these people who’ve gotten in touch. You’re like the clearing house for this?
Mark Lutter: Basically. To give you a slightly more specific example, we published this White paper on how to build a charter city in Honduras two weeks ago. About a week ago, I had a call with a Venezuelan migrant living in Australia who I think had seen this. We spoke, I was at first a little bit skeptical, but basically he had just finished a degree in law, had some free time. I was like, “Look, write a White paper on what a charter city in Venezuela would look like.”
Mark Lutter: These people keep coming out of the cracks. I used to know all of them personally, and now … meet a new person every two or three weeks. What we’re trying to do is write one creative filtering mechanism to create a database within which we can find the people who are immediately helpful, who have potential to help in the future, what stage are they at, and build out this giant network.
How hard is it to get people to pay attention to you?
Robert Wiblin: How hard is it to get people to pay attention to you?
Tamara Winter: I’m not sure it’s difficult to get people to pay attention to us. I think, depending on the diff stakeholder we’re talking about, there is a level of disbelief that exists with charter cities that makes every interaction much more important. For example, a lot of people that I’ve spoken to in D.C. about charter cities have this very high bar of proof of concept that they would like to see before this becomes a real thing to them. Whereas we’re having conversations out here in San Francisco, there’s a sort of bias towards the weird and the new. It’s much less difficult, I think, to start those conversations about charter cities.
Mark Lutter: I think that’s accurate. Just thinking through several additional stakeholders, for example, the new city projects, that’s been a little bit slower international development community. One of the things, it generally works … because people have been talking about these ideas for a while, and I don’t think they’ve had strategic implementation plans that make them realistic. For example, I was speaking with Bruno Macaes, he wrote two books, one called The Dawn of Eurasia, the other called Belt and Road, and is the former Minister of Europe fro Portugal. He basically said, “Lots of people have been telling me these ideas. You’re the first one that’s said is coherently.” I think once we get in person, people see that there’s a level of realism and detail in the plans and buy in. Sometimes it’s tricky getting in person.
Mark Lutter: Two, the other aspect is that as two people, it can be difficult to have concrete actionable steps with several partners, because we don’t have that much capacity. What we’re trying to do is continue to build out capacity, such that when we meet these different stakeholders, instead of it just being a conversation with potential for future action in six months, there can actually be immediate action on the ground that we can be able to execute.
Robert Wiblin: Do you feel it might be a little bit crazy or ambitious to do what you’re trying to do, given that Paul Romer [inaudible 01:52:25] he’s so famous, has so much career capital, he struggled to do it, or he tried to do it and then it kind of crashed against the rocks. Does that worry you a little bit, looking at the failed projects in the past?
Mark Lutter: No.
Tamara Winter: I find it really exciting, actually. It is, you’re right, it’s a pretty crazy idea. Our stated goal is that we’re going to help lift tens of millions of people out of poverty, and that is the standard that we are holding ourselves to. To me that’s a really exciting thing.
How did CIGR actually get off the ground?
Robert Wiblin: A lot of projects that seem like they’re a good idea don’t get off the ground because, in order to make anything happen, you need the right person and the right funders. A decent level of interest, and a place to work all at once. It can be hard to actually make something happen. How did the Center actually get off the ground in the first place? Given that so many project ideas stall before they ever reach fruition?
Mark Lutter: It was largely luck. I was fortunate enough to be able to take a leap, and then basically several chance encounters. Our biggest donor reached out to me independently, he had heard of us and seen us a little bit, and he was quite helpful.
Tamara Winter: If I can move it back one layer, I also think it’s just this commitment to the long term vision. You work backwards from there, and say, okay, if our goal is, again, to help life tens of millions of people out of poverty, what is it that I need to do today, in the next 10 minutes, hour, eight hours, to make that happen? I think there is an incredible amount of discipline here, especially with Mark. Mark will tell you it’s luck, but I’m in the office with him every day, and he is pretty relentless in terms of getting finished all the things that he has on his to do list on any given day or week. I think when it’s not fine, when we are curious about where the next cheque is going to come from or when we’re tired from having been of a couple of different planes in rapid succession. When you’re tired and you’re in that low place, that commitment to the long term vision, I think, is why this is going to persist, even when we’re not seeing it immediately.
Robert Wiblin: What’s your process for setting your strategy? Do you set goals for each week, or each month, or over the year? Do you have some kind of cycle by which you do this?
Tamara Winter: This is great, because we actually just set our goals for the next three years. Last Saturday, I was doing a bit of work-
Robert Wiblin: Still exist, I guess, might be the first goal.
Tamara Winter: Absolutely. Just last weekend, I was doing some work at a coffee shop and Mark said, “Hey, do you want to see our business plan for … ” the first was that he had created. It was … I won’t elaborate too much on it, but it was hilarious. The absolute fantasy. No one should ever say this man doesn’t have imagination.
Tamara Winter: We start with the high level. Its the kind of thing where you want to set whatever the high level goal is for the next year, or the next three years, than you work backwards from there. I think that’s how we perceive a strategy. I think what’s great about this team is that we have a lot of conversations. Mark will suggest one thing, and them I’m never shy to challenge it, and vice versa. So, you start with the high level goals, and then you work backwards from there.
Tamara Winter: At this point, the beginning of every month, we’ll set out our monthly goals. Then at the beginning of every week we’ll set out our weekly goals. That dictate what we do on a day to day basis.
Tamara Winter: Even though we said earlier that it is kind of crazy, as any early stage startup would be, there is absolutely a structure there.
Mark Lutter: That’s completely right. When I hired Tammy, I told her if she’s not offending me sometimes she’s not doing her job right. Because I think having a culture of openness and honesty, I’m going to make a lot of mistakes, and I think having a culture that can try to correct for those mistakes relatively quickly is quite important.
Mark Lutter: Our three year goal includes … we want to, on year three, incubate, is it 15 or 20 charter cities?
Tamara Winter: It was also, have half of the heads of state, have connections to half of the heads of state around the world. These are very, very lofty goals.
Mark Lutter: Very, very achievable goals.
Robert Wiblin: As you’re putting together strategy of what concretely you’re gonna do, because it’s gonna be very difficult trade-offs, like I’m gonna talk to some people, I’m not gonna talk to others, we’re gonna do meetings rather than do mass media. What are the difficult decisions that you’ve had to make in terms of prioritizing what is the most important thing to be working on?
Mark Lutter: For example, I’ve turned down money before because they basically said, “You should do this” and I was like, this is not good strategy. This was before I was even paying myself. There was opportunity to raise $35,000, and he wanted me to do a very specific task that I did not think was a good use of my time. When you’re not paying yourself, that’s a tricky decision.
Mark Lutter: I think now it’s stabilized a little bit in that we have a good sense of what the relevant trade-offs are. We try to use very high leverage. Basically, find the local partners and empower them to be able to do the hard work.
Tamara Winter: I am liable to get easily distracted by shiny things that come up. What I’m learning is how to do things that stack. For example, when we do our podcast, how to get three or four different content streams out of it so that we’re not just doing one-offs. That’s how I think about things these days. Doing things that aren’t just going to be impactful in the short term. That are really going to be useful three or four months down the line, or years down the line.
Robert Wiblin: Imagine that in a year’s time you’ve done a huge pivot, and are doing something quite different, what do you think that might look like?
Mark Lutter: We’re not gonna pivot.
Robert Wiblin: Still D.C. mindset, not San Francisco mindset.
Mark Lutter: I don’t know, this is ..
Robert Wiblin: I don’t mean you give up on the charter cities idea, but you’re like, “No, the way to get charter cities is some quite different method.” Or maybe you gonna move country, or something like that.
Mark Lutter: There are several options, there are other charter city strategies that basically assume that the Overton window is much wider than it is. You do have groups that are pushing a much more radical version of charter cities. You do have some explicitly, I dunno what to call them, secessionist projects. For example, Somaliland in Somalia, it’s been a country for almost 30 years now. But it hasn’t been internationally recognized, despite having free and fair elections. You could imagine, short to medium term future, where the dam breaks and there’s basically a much, much wider variance in governance outcomes than we currently expect. We’re currently guessing the trend is like this, it’s normal, and there could be inflection point which would allow for the much wider possibility, and then we’ll adjust out strategy based on that and try and work within that.
Robert Wiblin: Could you imagine Trump getting excited about doing a huge real estate deal and creating Trumplandia or something like that?
Tamara Winter: I’m not sure, I’m not sure the administration currently is focused on any specific thing regarding economic development. I guess regarding Africa, I went to the administration’s unveiling of their Africa strategy, and I think importantly, it name checked One Belt, One Road, the Chinese initiative. Then the solution, the American counter to One Belt, One Road was, “Okay, so I really think we need to re-tool foreign aid”. So, I don’t know that the administration is pursuing anything seriously regarding international development with any sort of imagination beyond moving around 2 to 4 billion dollars in the federal budget. Unfortunately, no.
Mark Lutter: I think you could see a shift to that. It would take a while for the administration to fully get that mindset, because they don’t currently have it. But One Belt, One Road is charter city-esque in certain ways. So, I think it is possible that in several years … because they’re basically fumbling around for a strategy now and they haven’t really uncovered it, a response. But it’s possible the next administration might.
Mark Lutter: I don’t think we’d want to necessarily partner with them. I think American soft power is good in terms of, these are good ideas, liberalism is generally good, freedom of speech is generally good … not generally, it’s really good. America, I think, has a not great history of intervention around the world. I think American soft power and culture, and technical support and investment in charter cities is good. But it would have to be on a case by case basis. I think a fully American Government embrace of charter cities goes back to the worst Paul Romer guarantor country [inaudible 02:03:25] neo-colonialism that I don’t think is beneficial, either long term or short term, for charter cities.
Tamara Winter: I think the important thing about charter cities is that they give developing countries, emerging economies, the opportunity to build something new. Whereas a lot of the institutions that so many countries have were not by their own choosing. Charter cities allow for them to select the governance system that they think would be the most prudent for their specific green field site where the charter city would be built. I think that is a really important part of owning your development, and owning your emergence.
Robert Wiblin: It’s very diplomatic of you both to find a way to turn my stupid question into a serious question and make some good points there. Well done, you’re gonna go far.
Working in DC
Robert Wiblin: What is I like working in D.C.? I’ve heard that its a place where seeming serious and having good credentials and being traditional so that other people don’t worry that being associated with you is gonna create problems for them, is a very serious thing. Is that right?
Mark Lutter: Yes. When I met Tammy I had just receive my Doctorate. The party was called ‘Trust Me, I’m a Doctor’. I was walking around in a white lab coat, and because of that you can know how serious of a person I am.
Mark Lutter: I think D.C. has flaws, but I think it’s also, on some margins, an underrated city. If you want to do Tech you go to San Francisco, if you want to act you go to LA, if you want to do finance you go to New York, if you have ideas you go to D.C. So, it does attract a very smart, very dedicated number of people who are very interested in policy and understanding it. You get a much higher level of technical detail in D.C., because in D.C. and around the Federal Government the scope of ideas tends to be relatively constrained. You tend to assume the continuing of the existing political system to a much greater extent than people in San Francisco, or outside of D.C., might assume. There’s a little bit less scope. But there is a lot of interest in details, in policies that you won’t get anywhere else.
Tamara Winter: Spoken like a true PhD.
Robert Wiblin: Would you recommend that people who are interested in big ideas in politics move to D.C., or do you think the creativity’s gonna be killed off by the realism of the city?
Mark Lutter: Yes, now is the time for grand narratives. For example, we mentioned [Glen Weyl 02:06:14] earlier. His radical exchange … they just formed a nonprofit, I dot think it’s gonna be based in D.C., but you’re seeing … with Trump, and you currently have a civil war in the Democratic party with the moderated versus the far left. You’re seeing the re-emergence of grand ideas. If you have grad ideas in the policy space then D.C. is the right place.
Tamara Winter: I think that’s right. You look on the hill and you see specific offices that are very interested in tech policy. For example, Senator [Mike Lee’s 02:06:47] office, through the joint economic committee which is chairs, is very interested in reviving America’s tech policy. I’ve heard that Nancy Pelosi’s office is really interested in this as well. Marco Rubio’s office is really interested in industrial policy. I think it would be great if we could have a lot more people, a lot more young people, who are excited about the ideas, who believe in a positive vision of America and it’s potential. The potential of tech, and just generally, take a positive, long term view of the future of humanity. I think it would be really great to have a lot more of those people in Washington D.C.
Tamara Winter: Although I totally understand why they might move to SF first.
Robert Wiblin: Is it potentially hard to get meetings in D.C. because people are like, charter cities, that’s a pretty wack and far out idea, I don’t have time for this, I gotta worry about healthcare, or something? How much, to what extent are you even trying to meet American politicians? Or is it mostly trying to meet people from other countries?
Mark Lutter: From a high level, its much easier to get meetings in San Francisco. If you’re in tech, the hierarchy is very flat because there’s the assumption that anybody could be the next Mark Zuckerberg. I’ve run into extremely successful founders at public parties. You never run into a congressman or a senator in D.C. I’ve lived there my whole life.
Mark Lutter: We’re not approaching D.C. politicians. We are, last year we were focused in SF, because that’s where our funding base is. Now we’re beginning to build up relationships with people in D.C., but it;s actually quite interesting. I went through Brookings and the Center for Global Development to look up all their Africa experts, and I’ve had more luck finding billionaire’s email addresses than I have finding their email addresses. They just weren’t listed on the page. Then they’re semi-responsive. Everybody basically has a reason if they will to find research program [inaudible 02:08:30]. So, there isn’t that much, oh cool idea, I have flexibility in my schedule life to work on it. It’s like, this is what I do, I’m not looking outside of my lane. I’m gonna optimize within my lane. While in San Francisco, for example, there’s a lot of people who, if there is a new interesting idea that comes along, then they’re willing to reallocate some time and energy towards that new idea. In D.C. that’s a lot more difficult.
Robert Wiblin: Are you happy to say the last 10 important meeting that you had? Who were they with and what were the goals of the meetings?
Tamara Winter: I think the biggest was, we went to Zambia in December, of course, to meet with two cabinet-level officials. There we were intending to get one champion of charter cities. To get any charter cities legislation passed, you want to go through the bureaucrats, and of course the cabinet-level officials. There we expected to get one champion, and we got four, and it was really exciting because there is a broad understanding with all of the people that we spoke with in Zambia that governance matters, and it is going to be the thing that determines Zambia’s future.
Tamara Winter: That, I think, was the signature meeting that we’ve had in the last couple of months. But Mark can also elaborate on some others.
Mark Lutter: For example, when we were in New York, we met with a potential donor. We met with a journalist who writes for the Atlantic in D.C. I met with somebody who works at Brookings on Africa, I have a meeting when I come back with somebody, also another colleague of his at Brookings. So, it is basically trying to find people who are semi in the charter city space, make them aware of us and slowly start to get them to either write either for us or write about us or be aware of us. Potentially scope out whether they’re good to participate in events. Really just build the network like that.
Robert Wiblin: Sounds like you might be kind of enjoying yourself a little bit more in California, or in the Bay Area. Is there any chance that you’re just gonna end up moving here? Because you get so much more …
Robert Wiblin: Tamara’s looking very excited here.
Tamara Winter: Every time we come out here, I tell Mark, “We need to move out here.” I would love to move to San Francisco. I think one of the things that being out here does for me, specifically is changes your idea about what’s possible. I tend to think that the kinds of people that you are around all day long give you an idea in your own life, in your professional life, personal life, whatever, or what’s possible and what’s not.
Tamara Winter: When I come to San Francisco, I feel like the sky is the limit for what we could accomplish. I just feel more creative out here, and more excited, and I’m definitely saying all of this to keep dropping seeds in Mark’s lap about why we need to move out here.
Tamara Winter: We also have some very good reasons for staying in D.C.
Mark Lutter: I’ll go over some of those reasons.
Robert Wiblin: Tell us, Mark.
Mark Lutter: I think for both of us it could make sense for us to be based in San Francisco. For everybody else we hire, it makes more sense to be in D.C. there are several reasons for that.
Mark Lutter: One is just aesthetic. If you are in San Francisco, the signal you’re sending is, “We can do this better. We don’t need you.” When you’re in D.C., the system works well and we need to figure out how to improve it.
Mark Lutter: Two is, as I mentioned previously, just in terms of policy expertise, all the major multilateral organizations that we want to build the relationships with, the World Bank, IMF, Brookings, they’re all in D.C. If we can’t get them on board, we’re not going to be successful, and we’re not gonna get them on board if we’re based in San Francisco.
Tamara Winter: It’s great, there are some really amazing organizations that are working currently to bridge the gap between San Francisco-
Tamara Winter: … organizations that are working currently to bridge the gap between San Francisco and DC, so groups like the Lincoln Network, the Economic Innovation Group are doing some great policy centric work to bridge the two worlds. But for the time being, it does make sense to be based in DC.
Robert Wiblin: My sense is that there’s been an increasing amount of antagonism between DC and the tech scene. I’m not sure whether that’s just the media blowing it out of proportion just for entertainment or to get clicks, but it sounds like your facial expressions are telling me that there might be actually some real tension between these two cultures, or a bit of a clash between how they think.
Mark Lutter: Yeah, I think there definitely is. I mean, you see, for example, like Mark Zuckerberg in front of Congress, increasing calls for antitrust with Bezos. And I mean, his dick pics and the low hints that this might have been a government sponsored operation, the fact that there’s even discussion about that, even if it didn’t happen, just suggests this space-
Robert Wiblin: Space of the suspicion.
Mark Lutter: Yeah. Right, I don’t think there would have been that suspicion 10 years ago. It shows the current state of the culture and there’s, I mean, several ways to interpret all of this. One is tech is bad and needs to be reigned in by DC and there’s certainly some truth to that narrative. Two is tech is now challenging the [inaudible 02:13:21] quarter in terms of like, just being a power base. And I think there’s also some truth to that narrative too and the [inaudible 02:13:27] quarter is basically just responding to that.
Mark Lutter: But in general, you’re beginning to see this like three years ago, you’d come to San Francisco and there’d be no policy-specific discussion. I would know more about every policy than anybody and now I come out here and I chat with people and it’s not uncommon for people to have policy perspectives that I’m just not familiar with. And so I think San Francisco, partially for necessity, is rapidly catching up on the policy frontier. And I think over the next three or four years you’re going to see…maybe it’s partly defensive, but you’re going to see this rapid change in how San Francisco and DC interact as you see this increasing semi-populism, semi-antitrust or whatever you want to call it, as well as this San Franciscan seriousness about responding to that and beginning to try to play a larger role in DC.
Mark Lutter: And so just one example, like every administration, you get three or four bankers from New York who come down to DC to be that cabinet-level officials and nobody from San Francisco. No venture capitalists, no founders. And it’s not clear that that’s necessarily a good thing.
Tamara Winter: I also think for its part, there are conversations happening around Washington about increasing the level of technical knowledge within specifically Congress. So there’s some conversations happening about possibly bringing back the Office of Technology Assessment and I think if that happened, that would be a really great thing.
Tamara Winter: Offices specifically with an eye towards recruiting people with some baseline level of knowledge about technology, about where it was, about where it’s going. I think those would both be very good and welcoming trends.
Robert Wiblin: What’s the most binding constraint for the org achieving more right at the moment?
Mark Lutter: The first one is funding. We have decent funding right now that will last us, hopefully, til the end of the year. But it achieves basically half of our budget, our desired budget for this year.
Mark Lutter: Second is hiring. Finding the right people has been a little bit more challenging than we has initially hoped.
Challenge with hiring
Robert Wiblin: What’s the challenge with hiring?
Mark Lutter: Just that, one, it’s probably partially my fault in that I misconceived the role as a research fellow. Really, we’re looking for somebody who’s a little bit more of a director of external affairs.
Mark Lutter: Then two, it is really identifying that key role who is outside of our network and figuring out how to basically get the job listing in front of them to get them to apply. Especially because what we’re looking for is relatively specific. The ideal candidate is a former Minister of a low income country who has a decent amount of experience in international development. We’re pretty selective of who we want to bring on.
Tamara Winter: And I will say, since we know that our binding constraints are funding and filtering through the talent, everything we do is with an eye towards those two things. And so it’s great to know what your weaknesses are so that you can work on them constantly. So I’m really cheered by the fact that we don’t ever…for example, when we were looking to hire the research fellow, we had several great candidates but we weren’t really going to hire one to hire one. So I really like the fact that even though we do have these specific constraints, we’re always working to improve the organization and we’re not making decisions out of scarcity.
Mark Lutter: Another challenge we’re facing is reach. So for example, for the Honduras whitepaper, I was very proud of that and then we didn’t get as much discussion. And I think that was largely, to a certain extent, chance. If we just get one good person writing about it then you can get the contagion effect. And then partially also just…maybe there were certain things we could have done with the paper. We didn’t put out a one-page summary, we just had this fifteen – twenty page thing and so I think figuring out how more effectively to get our message out there is another key.
How hard is it to get people to pay attention to these kinds of issues?
Robert Wiblin: How hard is it to get people to pay attention to these kinds of issues? Do you have to really hone your content marketing and come up with great headlines and things like that?
Tamara Winter: We’re sort of learning this in realtime. I think lots of news organizations have their general priorities and something that we struggle with is that it’s very true that here in the US specifically, we’re really enraptured with our own politics and that is I think for some really good reasons and also some not fully justifiable reasons. So there are always big news items that you’re contending with when you have this really niche issue that’s always going to be on the map, but not always at the forefront of people’s attention.
Robert Wiblin: If someone wants to get more involved, if they listen to this and are like, yeah charter cities sounds like a killer idea, this is a great way to reduce poverty or experiment with better kinds of government or organizations. How can they do it? What’s the top level summary?
Mark Lutter: Obviously it depends on the person so the way is one, you can just get in touch with us. We have a contact page on our website and then we’re happy to give advice based on that. In addition, the roles that are important to fill are if we’re thinking of early career like college students. One, do a PhD in economics or law and then be able to contribute on that margin. You could also think of doing, for example, two years in management consulting and building out a skillset there that is widely applicable.
Mark Lutter: Some of the most valuable people are people who are reasonably well connected in their home countries that have the potential to have a charter city. And so those people, I think we can empower them to understand what a charter city is and put them in contact hopefully…get them some presents and help them to begin to be our local contact on the ground there. As well as donating to us always helps, we love that.
Tamara Winter: And I also think that it’s great to have evangelists out there. So people talking about charter cities. I love when, for example… I’m just going to shout out somebody really quickly. There’s a great student, his name is Spencer Schneider. And he is currently a senior at the University of North Carolina, Chapel Hill. And a couple weeks ago he just asked, “Okay if Walt Disney were to create a charter city, what would that look like?” And all of a sudden my feed was full of people talking about how Disney World was actually one of the first charter cities. And then from that Mark asked whose charter city…which historical figure’s charter city would you most like to see?
Tamara Winter: And I say all of this only to say it’s great when you have…if we can filter down the knowledge of charter cities, I think it makes a lot of the other things that we do easier. So it’s not the case that every single college student is going to show up and suddenly run a charter city. But I think it is great for people to know what charter cities are and in some ways this is us expanding the Overton window of policy options. And one way you do that is by [inaudible 02:20:19] value.
Mark Lutter: And then I guess for the mid-career people who might be listening. Specific, interesting things that might help, if for example, you’re in development and your organization might be interested in charter cities, we’re having a conference, let’s see if you want to attend. If you work in real estate and are developing large real estate projects, you’re interested in government’s reforms, that is also quite helpful. So reach out, get in touch, let’s figure out what makes sense and let’s start those conversations.
Tamara Winter: I think even just asking the question, as Mark mentioned earlier, so Mark’s email is [email protected] Mine is [email protected] It’s not the case that people have to listen to this conversation and then want to get involved immediately but a great place to plug in would be just to send us an email and we can talk further.
Robert Wiblin: Is there a conference where people can come meet you guys? Is there a charter cities’ event? I suppose you were saying there is one in October, right?
Mark Lutter: That’s the first…our big international coming out party. We expect to probably have…we’re going to start setting up meetups in DC. And occasionally when we’re in San Francisco we also do meetups and we’re probably going to start doing more events in DC. Although the big…we haven’t even set up with website yet, but October 2 & 3 in Johannesburg is the big one that we have a date decided on for.
Robert Wiblin: You said you want people who have done economics or law. Do you also want civil engineers or people who understand cities? Are they potentially also good hires here?
Mark Lutter: One of the reasons why Silicon Valley is Silicon Valley, it’s not because of low taxes, it’s basically because there is a network of VPs and chief executives or C-level staff that have experience in hyper growth. Bringing companies from 50 to 500 people. That’s a relatively small set. There’s probably a few hundred people who have that experience, who are able to actually execute it well. And that is combined with several other important aspects, has been enough to keep Silicon Valley as Silicon Valley.
Mark Lutter: Silicon Valley probably produces more unicorns than the rest of the country combined. Mwiya asked me seven or eight months ago, “Do you know a VP who can help build Nkwashi?” And I was just like, “No. I don’t.”
Mark Lutter: Because we’re a little bit more naturally focused on the governance aspects but all of the build out aspects are important as well, including civil engineers, people with real estate experience, people with supply chain management experience, are quite important to bring out and get involved.
Robert Wiblin: I guess we’re often pretty short on career suggestions for people who want to live in countries like Honduras or Zambia or Kenya or wherever else. Could you give a bit more information about what concretely people could do there? And I guess what kinds of more senior people are you interested in talking to there, who someone might be able to connect you to?
Mark Lutter: The senior people specifically are people who have experience with large infrastructure projects. So either a large real estate development or industrial park or something like that.
Tamara Winter: So I think one of the really exciting things about Nkwashi specifically…and I think it’s difficult to talk about these charter cities in a broad base because each of them is going to have their own economic base. But Nkwashi is building a university, and I think that’s going to capture a lot of young, smart enterprising Zambians who are really interested in being part of the future of their country’s development.
Tamara Winter: So I would tell them to keep their eye out on Nkwashi, but I also know that the University of Maryland has a research center out there so that might be something worth exploring for them. It’s in Lusaka, in the capital.
Robert Wiblin: I guess that place is going to have a website, that we could link to-
Tamara Winter: It only has a website, so Nkwashi, the way to spell it…it’s an African spelling so it’s always difficult for people but it’s nkwashi.com
Robert Wiblin: Are there any opportunities for people to get rich doing this, if they get involved in buying this land or investing in it?
Mark Lutter: Very rich.
Robert Wiblin: Sell the richness side perhaps, both of you… because at the moment you’re kind of relying on people getting involved in this because they want to do good but what about people who just want to get loaded?
Mark Lutter: Imagine buying land in Shenzhen four years ago. Imagine buying land in Hong Kong sixty years ago. I mean, buying land in New York 400 years ago.
Mark Lutter: Urbanization is happening extremely rapidly and depending on the country, so for example Africa, there is urbanization without industrialization. So the land prices are probably not going to increase as rapidly as in countries that have industrialized very rapidly unless you have a charter city and then you do actually industrialize, as in increase output. That’s one of the selling points of charter cities is that they have this financing mechanism and if you get in at the early stages on a good project, building a city is a multi billion dollar real estate proposition.
Tamara Winter: When we got the chance to meet with a former executive at one of the largest urban development companies in sub-Saharan Africa, I was surprised to learn that the land and some of their projects had appreciated 10% – 15% a year. Which for somebody who is looking for a… not sort of quick investment but for an investment for the medium – long term, that’s an incredible return.
Robert Wiblin: Why not push that angle a little bit more? Focus on it as a business. I guess you’re working in asset management before but it sounded like there just weren’t enough investment opportunities so I guess you’re now trying to create the pipeline for other people to invest in it from asset management?
Mark Lutter: A little bit. The current binding constraint to charter cities is politics and to solve politics, an NGO is the best way to do that. You can’t get a pipeline for charter cities unless there is a common understanding of what charter cities are and currently there is not.
Mark Lutter: So first the challenge is basically solve politics and then the challenge is going to be to solve talent, like who is the local talent on the ground who’s leading, and also finance. So currently we’re focused on politics, soon we might transition.
Robert Wiblin: What kind of roles can you see yourself advertising and trying to hire for over the next couple of years?
Mark Lutter: The roles that we are currently looking for are one, a Director of External Affairs to help build relationships with a lot of the multilateral organizations and development organizations. We’re in the early stage, not hiring, but maybe if we found the right candidate we actually could pull the trigger. A Director of Development to help start building out our fundraising capability. Ideally somebody who is in international development and has a lot of experience with grant writing for these philanthropic organizations. Those are the two immediate roles.
Mark Lutter: We’re going to hire more junior roles as well, including research assistants, things like that. At some point we’ll want a Director of Charter Cities in addition to a Director of Operations. With any luck we could be an office of six or seven people by the end of the year and keep staffing up as we grow.
Robert Wiblin: So obviously you’re like a pretty small org in the scheme of things and there probably isn’t enough jobs for everyone who might be interested in this. Are there any other organizations that are either really good to go and work for now or potentially good stepping stones that people are thinking, “I want to work on charter cities in a couple years time, but what can I do in the meantime while this whole project gets larger?”
Mark Lutter: It depends on what your skillset is but the ones that I would recommend are basically international development organizations so I think the policy expertise is important. For example Brookings Center for Global Development, the Tony Blair Institute for Global Change, the International Growth Center. In addition to getting experience working for governments could be important because that brings a lot of credibility. So if you have the opportunity to get senior experience working for governments in low income countries, that would be beneficial.
Mark Lutter: Get real estate experience, actually building out projects themselves, financial management experience so you know what drives international capital flows.
Tamara Winter: I would also just continue to add the large scale infrastructure. I think that’s skill that’s going to be incredibly valuable and it’s probably underrated here.
Robert Wiblin: What’s enjoyable about this career path and what’s not enjoyable about it?
Tamara Winter: Again, our stated goal, if we get this right, we’re going to help lift-
Mark Lutter: When.
Tamara Winter: Thank you.
Robert Wiblin: True politician.
Tamara Winter: …tens of millions of people out of poverty and I’m from Lagos, Nigeria and we were supposed to…we…Nigerians were supposed to vote last Saturday and that got postponed. That was essentially an active, at the very best, mass disenfranchisement. I think you see the real costliness of poor governance, and I think it’s incredible to think where we’re going to be in ten, twenty years.
Tamara Winter: But I also think on the day to day, we just have a lot of fun. It’s interesting, it’s really exciting for me to just continue to learn. Again, I started this job four months ago, there’s so much I didn’t know. And there’s so much I’m still learning every single day.
Tamara Winter: Just today I learned that 80% of African migrants don’t ever leave the continent but that’s not what you see in the coverage of different migrant crisis. So I really enjoy just getting to learn from people and all sorts of fields who know way more than I do. I think that’s really personally rewarding.
Mark Lutter: My long term focus is good but I have the attention span of a goldfish. Part of the reason why I like this and I did not do very well in graduate school because being able to sit down and write for extended periods isn’t great, but part of why I like this is I’m doing tasks that I’m actually much more mentally suited for. But also I think why this is enjoyable. One, as Tammy mentioned, this has the potential to just have an incredible impact. I literally believe we are probably going to lift tens of millions of people out of poverty. I will view myself as a failure if I don’t.
Mark Lutter: Two, in terms of interacting with people, it’s just a level of people who we’re able to communicate with and get access to, is amazing. I spend my life hanging out with people much smarter than me who do very interesting things. And that’s fantastically fun. Having something you do that you care very deeply about is incredibly rewarding.
Robert Wiblin: I’ve been trying to goad one of you into saying what’s not enjoyable about this though, but-
Tamara Winter: I’ll be honest, I think that generally I have a pretty specific idea of what a good life looks like. For the past couple of months, my Instagram has been better than ever, I’m in Zambia, I’m in South Africa, in California. But you do miss your friends back home and your family. There is this cost of being on the road, life doesn’t stop when you’re not there. people continue building relationships and forming communities. And community is something that really drives my life, so I feel like when I leave places I get to take it with me, I call my sister pretty much every day. But it is challenging to be so far away from home so much of the time.
Tamara Winter: And I also think that sometimes, because this vision is a long term thing, you have those days where you just don’t think that there’s any way that it could happen. I don’t have those anymore but I do have those days when it does feel like if I’m filling out paperwork or something, I’m very far away from actually doing the work. So it’s maintaining that long term focus and finding ways to feel rewarded in the moment.
Mark Lutter: And also, for the first year I didn’t pay myself. Starting an organization you eat a lot of shit. And we’re going to continue to eat a lot of shit. I held an event in San Francisco and I spent $8000 on dinner and 30% of the people I wanted to show up, showed up. I was like, “Oh. I’m not paying myself yet and I just went into debt $8000 for a dinner that the people I wanted to show up to, didn’t really show up to. Dammit, this sucks.”
Mark Lutter: And you have to realize that you’re going to make mistakes, that’s okay, the optimal failure rate is not zero. You’re going to do a lot of things that you didn’t want to do. You’re going to end up making decisions that piss people off. You’re going to get in fights. Tammy and I have gotten in several fights and one of the first ones, she apologized and she was like, “That won’t happen again.” And I was like, “Yes it will.” And that’s okay and you have to move forward but this isn’t all flowers and sunshine.
Mark Lutter: I don’t know if you watch The Wire, but the mayor gets elected and he says, “What is this?” And his advisors are like, “This is your first bowl of shit and you have to eat it and that’s what you’re going to do,” and that’s going to happen and that’s okay because it’s worth it.
Tamara Winter: There have been several things that we applied for that we can’t talk about right now but we’ve just got some really great news and this specific thing that we applied for was three times or so. And that’s just one example of something that worked out even though the first couple of times it was really frustrating that it didn’t. I’m really bullish on us.
Mark Lutter: Me too.
Robert Wiblin: There’s not a lot of innovation in the nonprofit sector, the rate of formation of new nonprofits who are doing something that’s different than what other nonprofits are doing, is pretty low. What other new ideas for nonprofits would you like to see actually implemented in the real world?
Mark Lutter: One of the biggest isn’t nonprofit per se, but in the nonprofit space. I think our luck with foundations has not been good. And I think a lot of foundations are oriented in a way that is not very well structured for new nonprofits and new ideas.
Robert Wiblin: They’re just too conservative?
Mark Lutter: Basically. So for example, Tyler Cowen has Emergent Ventures which tries to go against this but for example, some nonprofits it’s like we’ll give you a grant for two years but you need to count for every thousand dollars and you need to write how it’s mapped out before you get it.
Mark Lutter: And if you can imagine you’re a startup and you go to a venture capitalist and they’re like okay, we’ll give you this money but you need every thousand dollars for the next two years mapped out. It’s not realistic. Similarly, we got a message right when foundation was asking do you have any financial audits. It’s like – no.
Mark Lutter: I can send you the QuickBooks we use, we’re not going to get an outside firm to audit us, it’s fundamentally ridiculous at this early stage. And they’ve basically… a lot of foundations are at the point where they just have a lot more experience and more comfort dealing with large organizations that our donor base is basically entirely high net worth individuals and that is our general operations budget that allows us to make mistakes, that allows us to build out and figure it out that a lot of the traditional funding spheres don’t allow.
Robert Wiblin: Do you have any ideas for wannabe nonprofit entrepreneurs in the audience?
Mark Lutter: One piece of advice to give potential nonprofit founders is just have the idea very well defined. And so I believe it was [inaudible 02:36:02] or [inaudible 02:36:02] who came up with this and I think it’s like a mind maze, and uses it in the for profit space but basically, you’re not going to know what you’re going to do for the next four years but you should have an idea of what the decision tree is. You should know the history of that space, you should know what groups have come before, what they did right, how you’re different – all of that stuff.
Mark Lutter: And you don’t know everything that you’re going to do but you know approximately the things that you’re going to face and the decisions that you’re going to make based on how you face them. And if you don’t have those ideas fairly well established and set up, just don’t do it. Running a nonprofit is extremely hard and if there’s not something that you care very deeply about that you have a unique insight that nobody else has that can add a lot of value, then find a job at an organization that’s a better fit.
Mark Lutter: Have the funding model set up. Who is the donor base? You’re never going to know this before you start but the nonprofits need to have revenue sources and so have a decent idea of what that revenue source is.
Tamara Winter: And so to this end there are a lot of great organizations that are baking in now social enterprises and I think that’s really great because it aligns the incentives. You have this sort of funding source and you see lots of social enterprises and things relating to children’s organizations. So where I’m from in Dallas, there’s a great organization called Cafe Momentum and they work with youth and the youth actually work in the café and they make money. So it’s run by a really amazing chef in Dallas, so I think that is a potentially under exploited model.
Tamara Winter: But I also think one thing that is under exploited in the nonprofit space is the power of creating communities out of people. At Stand Together one of my favorite orgs was an organization called The Phoenix. And they work with people who are battling addictions of some sort. And they don’t do any clinical work but they just create communities and they work primarily with physical obstacles so they’ve got outposts all over the country. And their founder, Scott Strode himself battled addiction, he’s been sober for fifteen or so years. He was a [inaudible 02:38:00] of the year. And they have twice the success of the best clinical programs and it’s specifically because they prioritize community.
Tamara Winter: I think in different contexts that looks different but just the power of changing who people are around and giving them a community not just to be involved in, but to be accountable to, seems to do really powerful things, as opposed to telling people this is how you should change and hoping they do it.
Robert Wiblin: It sounds like they were trying to get people more of a community and more friends in order to help them overcome addiction?
Tamara Winter: Yeah, it’s incredible. They’ve got all sorts of videos online and I would definitely encourage people to look them up. It’s called The Phoenix, they had people who had their spouses in the program, but the core innovation was just offering people a community to which they could belong and with that came all of the obligations. We got to go on a hike with them and it’s just really powerful to see how it works in person.
Robert Wiblin: I have to look at the research to know how effective that is but I think an interesting bias that exists is, it’s very hard to programmatise friendship and to offer it as a service that seems like it’s a legitimate and valuable thing to provide. Even if it’s just connecting people to have good conversations is actually the best treatment for addiction. You could imagine that it wouldn’t get up because it doesn’t seem interesting enough, it doesn’t seem technical enough. But to actually pay to deliver that? I think there could be a bias in that direction. People want something that’s more interesting rather than perhaps the thing that is so boring but so obvious that it’s like, how is this even a program?
Tamara Winter: It’s funny though because something that I hear all the time in San Francisco is if you want to change your habits just understand that you are-
Robert Wiblin: …the average of all the people around you.
Tamara Winter: Right. And so doesn’t it seems obvious that there wouldn’t be…it’s amazing to me that there aren’t more models not just in nonprofits but in the tech space, that are based on this explicit concept that you are the average of everybody that you hang out with, and sort of scaling that.
Robert Wiblin: There’s a slightly dark implication that you kind of what to go and hang out with people that are better than you in order to…who have better habits that you and then you’ll leech them away from them, you’ll be harming them subtly from being around them. Because it’s hard for people to get ahead if they’re just averaging across all of the people.
Tamara Winter: Sure.
Robert Wiblin: Is there anything you want to say just to finish this section on motivating people to get involved, if they’re kind of on the fence about whether they actually want to move forward with charter cities?
Mark Lutter: Follow us, we have Facebook, we have Twitter, we have a newsletter. If you’re on the fence, keep paying attention and hopefully that we convince you that this is worthwhile. We put out content, we’re doing things. And the interest in this space is growing so also you should get in early because the earlier you get in, the higher on the acceleration path you are.
Tamara Winter: I think it’s all about asymmetric risk. There’s a huge upside here and I think the downside, particularly if you are just starting your career as I am, very low. So I think you should just go for it and that’s my motto in life, for at least this period of life.
Robert Wiblin: Just before you go Tamara, I couldn’t help but see on your Twitter feed, when I was researching for this episode, you say that you’re a pro-natalist. I guess I know quite a lot of anti-natalists and I guess I know of a few pro-natalists but I’m curious to know what is pro-natalism for the audience and why are you a backer of it so much that you put it on your Twitter bio?
Tamara Winter: So I come from a really large family and I also didn’t get to grow up around them. And so my bias is for… I wonder how my life might have been different just growing up with my 40+ cousins. And I think just generally, people are the world’s best resource. So more people, not fewer, just more ideas, the potential of any one person is incredible. And I also think what’s important about pro-natalism is not just people having more kids, but also building a culture in which you can bring in new life. It’s amazing that we’re having this conversation in San Francisco as I was walking earlier I saw a baby and got shocked because San Francisco has almost designed itself to be inhospitable to children.
Tamara Winter: So it’s not just encouraging people to have more children. Although if you’re listening to this you should probably have more children but it’s also building a society which allows for children to exist in public without people freaking out that they’re there. And the thing you’ll find is that if you build a society that actually takes children in to account, what you’ve done is designed a society that’s great for people with disabilities and the elderly. So it’s not even just pro-natalism but it’s…how can we revive this idea that civilization is not just the people who are alive right now, who are in the prime of their lives, but the people who came before us and the people who are going to come after us. That’s I think, what drives me.
Robert Wiblin: Maybe at some point you guys will have built so many cities that you’ll need to get people to have more babies just to populate them.
Tamara Winter: It turns out that’s really hard to do, to encourage people to have more children. But I’ll let you know if we figure it out.
Robert Wiblin: Alright, my guests today have been Mark and Tamara. Thanks for coming on the show guys.
Mark Lutter: Thanks so much for having us.
Tamara Winter: Thank you.