[ACX Linkpost] Prospectus on Próspera

by mike_hawke1 min read15th Apr 20219 comments

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I like reading LW comments more than Substack comments, and I think this post might generate some high-info discussion.

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Are there any obvious (or, failing that, plausible) large improvements that could have been made (or could be made) to Próspera's legal code?

I am fairly excited about this, even though I think it's likelihood of working out is low. 

Some folk on Astral Codex Ten are noting some previous failed attempts at things kinda-like-this. But, a) this seems to have a fairly different starting goal that other weird projects in this reference class, b) well, the normal odds for a startup succeeding is less than 10%, so the fact that we've tried this less than 10 times and it hasn't worked out yet isn't much to update on. I think trying things that look superficially similar to this is a big source of expected value.

The most illuminating comments on the ACX article (ie. those that weren't written by salty leftists) was the ones pointing out that the other instances of "free cities" that worked out were all located by important trade routes or natural resources. Prospera isn't, which limits the kinds of success it could have.

Or rather, it means that the only industries likely to succeed there are those which aren't highly dependent on place. The most likely candidates are tech and medical tourism, and it's not clear whether those alone are enough to sustain the place. (I suppose one should add regular, non-medical tourism, as well, which seems to me the main existing attraction on Roatan.) Nonetheless, I wish them luck.

It will allow us to decouple "successful, because located on a trade route" from "successful, because of libertarian environment".

Other comments have mentioned that it may be difficult to distinguish between "this business exists because Prospera is so awesome" and "this business already existed, but moved to Prospera because of lower taxes". Or perhaps, for businesses that do not exist today, between "this business started because of Prospera" and "this business would have started regardless, but pays lower taxes because it is in Prospera".

That is, data about successful businesses that will appear in Prospera will not necessarily tell us what would have happened otherwise. And will not allow us to predict what would have happened if we had fifty Prosperas instead -- would we have fifty times as many successful companies, or just the same number of companies, and fifty cities competing for them by offering even lower taxes... maybe also reducing employee rights, etc.

That's a lot of the appeal. Roatan was known as a scuba destination before this, and so long as Prospera keeps the waters clean, that should only increase. Medical tourism, as well as medical research, including pharma, is also a big selling point with the full reciprocity and choice of regulatory environment. 

One big point I feel should be pointed out is e-residency. Prospera intends to profit not just from activity on-site, but also from people and companies declaring e-residency in Prospera. If the attraction of its regulatory environment works out, it may well have tax revenue disproportionate to physical residents which it actually has to provide services for. 

Here are a few ideas I picked up from the Substack comments:

  • How volatile is the Honduran government? Can you really bet on future politicians honoring current agreements?
  • At any point where the Prósperan government relies on the Honduran government, won't corruption and graft leak in?
  • What are conditions like for those existing resorts on Roatan? Are they protected from corruption and violence?
  • It's too bad that they plan to hew closely to traditional schooling arrangements. If you're starting from scratch anyway, why not make it easy to unbundle education & childcare?

And here are my own thoughts:

  • Why haven't I heard about Próspera already? If it's so promising, are professional economists buzzing about it? For example what does Tyler Cowan think?
  • What do we know about Pronomos Capital? Do they have any sort of track record? Is it reasonable to expect them to have about a 10% hit rate, as Raemon suggests?

Cowen doesn't seem to have written his own thoughts on the matter, but has reported on it at the links below, and seems excited. Until recently the project has kept relatively quiet, as they were shopping around for big early investors. It's only recently they've opened themselves up to the public, and they're still focused mostly on attracting local Hondurans. I've known about the project for a few years,  but only because I'm close to people who got in on the early stages. If I had to guess, I figure they want to have more built and have a solid local base before advertising to the foreign public. Just a guess though.

https://marginalrevolution.com/marginalrevolution/2021/03/charter-city-finally-in-honduras.html

https://marginalrevolution.com/marginalrevolution/2020/05/a-charter-city-finally-in-honduras-from-mark-lutter.html

Apologies for the redundancy if you've already seen those links. 

Roatan is safer than the mainland, both due to its separation from the bulk of drug crime and the local focus on tourism, which shifts the weight onto petty crimes that target tourist's wallets. But it's still Honduras, and there was the notable murder of a US citizen a couple years ago. Prospera aims to have private security, instead of depending on the local police. 

Prospera also claims to be minimally dependent on the Honduran government, in particular by setting up its own services and courts for most crimes. The deal they negotiated is supposed to be a hands-off affair, where HPI pays them taxes and abides by a portion of Honduras' laws. Whether this can be done successfully is yet to be seen.

Honduras deciding to take over seems unlikely, but future administrations wanting to increase their cut in violation of contract is a very real worry. Prospera is trying to curb that by setting maximum tax revenue as a portion of GDP in their charter and Bill of Rights, but if the Hondurans did try to force their hand, it's not clear what they could do.

That's as much as I can answer for now. I'm going through their materials and intend to ask questions of their CEO. If you have specific questions for him, I may be able to pass them along. 

Thanks, this is really helpful! I'll ask more questions if I think of them.

I'd bet a decent amount of money into this project not working out (depending on the metric of "not working out")