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Unknown A
It's the first jurisdiction in the world that recognized Bitcoin in effect as legal tender. You can pay taxes in Bitcoin, for example, even before El Salvador. It's the first jurisdiction in the world that allows you to use Bitcoin as an official unit of account.
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Unknown B
When you look at the types of regulations that you say would inhibit the types of investment that you're looking for companies to make there, I guess what are the types of regulations that you're trying to generally escape?
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Unknown A
You're more on the left leaning camp and you think that controlled economy makes sense, then your instinct is going to be to think that, that decentralization is bad.
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Unknown B
These projects will almost always or inevitably end up being more combative with the host state rather than compatible with the host state.
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Unknown A
Are they going to, you know, keep down the path of expropriation? I mean, they can if they want to, but there will be consequences for them as well.
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Unknown C
Hello and welcome to another episode of Bridges. I'm back from Canada. We are joined here today by Eric Breiman, who is the co founder and CEO of Prospera, which is based in Honduras.
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Unknown A
Thank you for having me. Yeah, happy to be here.
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Unknown C
So probably start with the beginning. What is Prospera? Why are you in Honduras? What's going on?
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Unknown A
Sure. Prospera 6 to build platform to catalyze human prosperity. Starting and developing economies by deploying, let's say, proven economic models through enhanced special economic zones. And we started in Honduras because of the partnership that was struck with the government there, given a special legal regime that they instituted that allowed for our vision to become a reality.
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Unknown C
Okay, so you guys started in. When did you guys break ground and make this all official?
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Unknown A
Physically the first building was begun in 2020, but legally it dates back to 2016. Our first trip down there was in 2016. We applied for the first Z of the country in late 2017 and we were awarded the first charter in December 2017. And then between 2017 and 2020, we were basically working with the government to create the internal regulatory systems that would apply to the Zeta that we were co creating. So it took about three years to develop the legal and regulatory structures and then we started building physical reality.
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Unknown B
A lot of people have talked about building theoretically cities in other countries and having areas for, you know, certain types of people who are invested in certain types of economies or certain sectors of the economy to kind of have like these special cities, you know, where they can kind of grow their own thing on a really broad level. Can you explain like what Is your incentive for doing that? What are the differences between some of these? Like, how does Prospera fit into all of that? Were you inspired by any of these other models or any of the chat for any of that? Or I guess to an average person listening, like, what's the difference between like starting a Special Economic Zone in a country versus just starting a business in that country or any other one?
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Unknown A
Sure. The whole project for me started as an inspiration because of the country I was born in. I was born in Venezuela, a country that by any measure should be one of the most prosperous nations in the world. But it isn't. And so I was early on faced with a question about why is it that some countries are poor, although they have natural resources and good people and others are wealthy, even though they might lack resources and what have you? So while at Babson College, I came to this realization that governance made a huge difference, in fact, made the difference. And I wanted to make a difference. I wanted to, let's say, help get rid of poverty in the world. But the delivery mechanism of doing what is clearly necessary of providing good governance had many limitations. Before our model, before our model, you were essentially limited to working uniquely through nation states, which in a developing economy are sometimes at the source of the problems, corruption and inefficiencies.
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Unknown A
We're kind of stuck. The strategy that Prosper has put together is to, instead of trying to change the country as a whole, is to work in partnership with the country, but to develop a fully functional, full stack of legal and regulatory reforms to be deployed at city scale so that you can get economies of scale and all the benefits of building a city with multiple industries as opposed to one industry at a time, without having to affect the entire country. And that by proven proving, even if it's on a relatively small scale, that the people of that country, in that country can prosper, if you have the right system, that that can then become a bit of an example to be adopted more broadly.
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Unknown B
So when you talk.
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Unknown A
Yeah. To your question about how does this compare to, you know, other types of cities and what have you, it's I would say, an aggregation of things that we believe has worked best around the world. And it is inspired primarily by creating the conditions for anybody to be able to reach their potential. Obviously that includes not just the poor being able to get to the middle class, but innovative entrepreneurs being able to push the frontier of productivity and innovation. And these two can coexist quite nicely.
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Unknown B
When you talk about good governance, what does that look like in your mind?
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Unknown A
Yeah, well, empirically, what it means is you got to have a set of good rules that protect private property and individual liberties, where you have justice so that people who have disagreements can resolve their disputes without having to recourse to force, and where you have security so that you don't have to keep looking over your shoulder for some criminals to take your assets or for foreign power to invade your lands. So those are the three essentials. Good rules and the proper administration thereof, justice and security. And that's it.
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Unknown C
So does your. Because my understanding is. So you described it as a Zeta. Is that how you say it?
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Unknown A
The. In Honduras, the legal regime, it's called the Zones for Economic Development and Employment in Spanish.
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Unknown C
Right. And this is based off of models. My understanding is like Hong Kong itself. Like, is it Hong Kong an example of this? Or what are other examples of people of have an idea of what we're talking about?
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Unknown A
Yes, Hong Kong is a great example. Another very good example is the DIFC in Dubai. And Dubai itself people think of as a city. In reality, it's a. It's a conglomerate of competing special economic zones, the most advanced of which is the difc, which is the one that most closely resembles what Prospera has put together in Honduras.
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Unknown C
Gotcha. So then does Prospera have its own. You're talking about justice and security, because that sounds like military police. So does Prospera have its own police and military, or does it work with Honduras? Like, how does. How do you do justice and security as an independent Z?
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Unknown A
Sure. So it's worthwhile creating a distinction up front between the Z itself, which is a political subdivision of the state of Honduras. You know, the Special Economic Zone itself is a public entity. It's like a municipality, and it's created by the Honduran government, and it's part of the Honduran government. And then there's the company for which I'm the CEO, which is like the private partner in a public private partnership, but the governing entity is part of the Honduras government. So that entity has a series of essentially legal and regulatory powers, just like a municipality would, but on steroids, so that it can create locally more competitive conditions. Now, the Z law that created Zedes does not go into details as to how a particular zone is to be administered. It just creates basically a sandbox in which the government, in partnership with the promoter and organizer, the private party, can co create a system, has to go through approval processes, and then if approved, that applies to that one Z.
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Unknown A
Another Z sandbox could be developed differently. So the way we have created our Z is very much in close proximity to how the DIFC works in some regards, but with some critical innovations that allow for much more innovation, much more rapid adoption of new projects. And I'm happy to go into those details. The duties of the zde, which is a political subdivision of the state of Honduras, do include providing security, but the justice system hangs from the Honduran justice system at large. So the Supreme Court creates a special circuit that is specialized in ZDEs, and so RZ is part of it. But most of the legal disputes are designed to be resolved through arbitration.
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Unknown B
When you talk about like a successful.
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Unknown A
Project, what does success look like within the zedd?
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Unknown B
Yeah, for like you're saying, like you're looking at it and you're thinking this is working well and this has been successful, or this isn't working well, like these are things we'd like to improve on.
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Unknown A
Sure. You know, so the, the beauty of how Prosper is set up is that it's multi industry. So I can talk about different projects in different industries. One of them, for example, would be a robotics manufacturing plant that I believe it's the most advanced robotics plant in for sure in the country, probably in the region, if not south of Mexico. And that was set up within Prospera because it can build building components that are designed to be buildings that follow an objective based building code as opposed to a prescriptive one that would have basically not allowed it. So you couldn't do that as easily in the US because you're so restricted in another side of the spectrum you would have say mini Circle which does gene therapies, advanced gene therapies. It would have taken them five to 10 years in the US to get approved through the FDA and probably hundreds of millions of dollars of costs within Prosper.
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Unknown A
They were able to do it in a year or less and for less than a million dollars. And they basically overcame phase 1 clinical trial type challenges in a very short amount of time while being at the highest level of safety for human, you know, consumption, if you will.
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Unknown C
How do you maintain highest level of safety if there's no kind of like overseeing board? Like that's. The purpose of the FDA is to create standards of safety. So how do you guys ensure that without an institution ensuring that?
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Unknown A
Well, there are institutions. It's just you're not monopolized to just one. So you have to prove that the, the drug or the therapy is safe. If you cause harm, you got to pay for it. But you have a choice of regulatory frameworks. As opposed to being stuck with just one. So at the, at the core of how the regulatory system of prosper works is reciprocity, because the whole idea is to be able to attract investments from all over the world to create opportunities in these zones for the local population. In fact, 90% of the employees have to be of the local country. So in this reciprocal model, a company, instead of having to learn a foreign regulatory system, they can import the regulatory systems that they're used to. So all OECD country regulatory frameworks are by default legal to use within the zone. So a German company can operate under German law, a U.S.
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Unknown A
company can operate under U.S. law, and so forth and so on. And over time, the zone can create innovative regulatory frameworks that are responsive to new technologies and gaps that other countries have not yet addressed.
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Unknown C
How does that not lead to, if there's multiple regulatory systems, my main concern is that they would lead to like a watering down of the regulations themselves. So, for example, and this is obviously going to be, I'm going to go into like my area of more knowledge, but in psychology there was kind of this mental health crisis which led to a number of different regulatory bodies that can now exist and different classifications of professionals that can exist under these regulations. Right. So a psychologist is a very specific type of regulation. But there are, for example, counseling therapists that can be regulated under more private regulatory systems that the public sees as identical. But a counseling therapist is not a psychologist and the regulations required. And what happens is this watering down of essentially kind of like you can pay to get through. And it's, it's not all doomsday.
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Unknown C
Like I wouldn't like knock every single professional, but it creates this watering down of regulation. So how do you avoid that? If you have competing regulations, how do you prevent just like paying off a regulatory body that will just kind of bypass stuff the most quickly, even if it's high risk?
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Unknown A
Well, we believe that consumers ultimately have the right to choose if they're well informed, and that giving them just one option is inferior to letting them choose amongst several, all of which are considered legitimate. So any OECD country generally has a fairly robust regulatory system. But to insert choice all of a sudden creates innovation opportunities. For example, in the medical space, why not be able to use a doctor that's licensed in the US but not in, let's say, Mexico, with a drug that is permitted in the uk, a medical device in Australia, and following a procedure, let's say developed in Israel? Right now, there's no way for you to aggregate all those four key elements, even though individually they're all authorized in an OECD type regulatory environment. So that aggregation by itself doesn't water it down, it just lets you leapfrog into a scenario where you can pick and choose what is most applicable for the activity that you want to carry out.
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Unknown A
You have to fully disclose it to your customers or patients in this regard. And you have to have regulatory insurance in addition to any other liability insurance that is customary to your industry. And what this means is that the regulatory insurance underwriter, the insurance company is ensuring that you're complying with the regulatory standards that you have chosen and that if you don't, they're on the hook financially as well. Okay. So you have a financial incentive to answer your question directly to make sure that there is adherence to the regulatory frameworks that apply. And if there's harm, that harm can be charged not just to the company or the individual that cost it, but to their insurance company.
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Unknown C
Okay, so say we do this example. I've got an American doctor that's using maybe a technique you said developed in Israel with maybe an Australian implement. Say I'm getting a hip joint or something like that. If that fails, would I, would I come to prosperity to get that surgery done. Is that what Prospera to some degree offers? Is that I can go to Prospera and get that American doctor with the Australian implant?
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Unknown A
Yes.
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Unknown C
If that fails, say there's something wrong or the design is bad and I want to sue somebody basically and try to get remuneration for essentially what I view as a failed job, something went wrong. What would that buyer's process look like? Like who do they go to?
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Unknown A
Right. Obviously fails can happen for many reasons. Right. Some of them it's just part of the risk that any medical procedure rings. And it's not necessarily something that the physician or the manufacturer of the device has a liability for now, but let's assume that it was negligent or that the medical device was malfunctioning or something along those lines. Everybody who operates within the Prosper jurisdiction, in order to operate there, they have to sign a residence agreement and that is a legal binding document which essentially is the physical unreal manifestation of a social contract. You're saying, I understand these are the rules and amongst the things that you agree to is to resolve any disputes, perhaps such as this, through arbitration. The default arbitration service provider is the Prosper Arbitration Center. But you can choose any, you can choose London, you can use Paris, whatever. If you didn't choose any, then it would be the Prosper arbitration center and the parties.
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Unknown A
The patient will go to the arbitration center and I say I believe that the manufacturer or the doctor was negligent, it caused me harm and I'm seeking X amount of damages. It would be heard by the arbitration center. The arbitration center complies with the New York convention so its arbitral awards will be enforceable pretty much anywhere in the world. So you don't have to be in prosperate to then go and collect. If the manufacturer of the device, let's say it's in Australia and it failed because of malfunction, then that arbitral award can be collected in Australia proper.
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Unknown C
Okay, interesting. So that's through the isds. I'm assuming when you're saying the New York convention that's all ISDs, like World bank stuff because I'm. Or is it not?
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Unknown A
No, not necessarily. It's just most countries around the world are part of the New York convention, which means if you have a recognized arbitration center, you have to just present it to a local court but you don't have to argue the case all over again. They're just going to recognize that it's from an arbitration center and then that court through the New York convention has agreed to order its enforcement.
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Unknown C
Gotcha. So if I got it in Prospera and I say I sued the Australian hip joint provider, I can go to Australia and give them that arbitration certificate a word?
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Unknown A
Yes.
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Unknown C
And they will enforce it.
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Unknown A
Assuming you won the arbitration. But assuming you did, then yes.
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Unknown C
Okay, interesting. Okay, gotcha. Do you have any?
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Unknown A
Yeah.
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Unknown B
When you look at the. You talked about like kind of like growing a partner city to show or demonstrate, I guess like the success of a model for a country. In this case Honduras. Would you for obviously for the government and I'm sure we'll get into this. There are like issues now with people saying that they want to get rid of, you know, these types of economic zones. How would you I guess like tell a government of a country that we're like a partnership city as opposed to, I guess to them it feels they're more like a competitor. Like how does the stuff that you guys develop in your zone roll back in a positive way to Hondurans if you guys have like special tax exempt status or stuff like that?
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Unknown A
Yeah, well first of all, Zeda is a Honduran creation and the legal system predates our operating in the country. And of course it's physically in the country. It does collect taxes. It's not a tax free zone. It's a tax competitive zone, but it does collect taxes.
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Unknown B
I imagine it's substantially lower than what it would be to operate in the country though, right? Proper, right?
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Unknown A
Yes, with one important caveat, and that is that there's a hold harmless provision which prevents an already operating company outside of the zone to relocate into the zone as a way to do tax avoidance. They can move into the zone, but then there's three parties that have to sign a hold harmless agreement, the company, the Z and the private promoter and organizer, to guarantee that the country will continue to receive no less than the same nominal taxes they were getting on average the last three years. And so then the company, the growth of it has a better tax implication. But nominally the country receives the same taxes. So of all the taxes collected within the zone, there's a revenue share with the country without the central authorities having service obligations within. So it's basically, you know, profit for them, if you will. It's about 12% minimum and we've calculated up to 15 based on some additional agreements.
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Unknown A
So let's just round it up to 15%. 15% of all the taxes are shared with the national authorities and then the rest stay inside. To finance the various goods and services that have to be in place. There's a requirement that 90% of the employees have to be Hondurans. The minimum wage is at least 10% higher than the minimum wage outside of the zone. On average it's 25 in our case. So there's a lot of positive externalities that happen outside of the zone. Within the zone, then you have a whole bunch of advantages because companies can be more competitive, salaries are higher, you're entering industries that would not have come to the country, you're bringing new investment through foreign direct investment. So the idea is that it's additive across the board.
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Unknown B
Are you guys allowed to sell goods and services to the citizens of Honduras?
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Unknown A
Of course, yes. But anything that is exported out of the zone has to go through the same process as any good that would be imported into the country. So that if that good would have had an import duty of sorts, or if it has to go through a quota, then it goes through exactly the same mechanism. What was the intention behind that? Is to not give an unfair advantage to operations inside of the zone to sell into the rest of the country when other manufacturers might have been with a less competitive regime. So it is treated as if it was an import, although it has a most favorite treatment clause. So if Honduras allows an import from Guatemala tax free, for instance, then the same treatment would be given to a manufacturer within the zone that wants to sell outside of the zone.
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Unknown B
So if you were like a entrepreneur within Honduras, would you ever want to start a business in or outside of any of these special economic zones? It seems like they would attract all the people that would want to start a business. Because why would you want to grow?
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Unknown A
It depends on the business. Right. For example, low margin businesses might not be the best business to start in the zone because the way taxes work, it's not as favorable for low margin businesses. And I can get into the details of that. Also, the zone has a very small market. Internally, there's no demand to speak where it's just starting with thousands of people, not millions. So if you have a product or a service that is heavily dependent on local consumption or a lot of logistics, it might not make sense for you to do it in the zone because you want to, you know, you want to be close to your consumer base. So it depends. If on the other hand, you want to do something that is very high value add in a highly regulated industry, then you almost certainly want to be in the zone then for.
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Unknown B
Well, I'm curious. Yeah, just on the thing you said that low margin businesses don't tend to do well. Is the tax on like revenue instead of profit or why, why is that?
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Unknown A
What is that? There's three taxes in the zone. One of them is income tax and it's a 10% flat income tax. However, for simplicity, it's, it's calculated as a percentage of, of revenue.
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Unknown B
So that is that income tax on every single entity or just individuals. Like does it apply to corporations as well or both. Okay, okay, gotcha.
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Unknown A
Although there's no double taxation. So as an individual, if you're a shareholder of a company, then you can discount that pro rata tax from your personal income tax return.
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Unknown B
Okay.
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Unknown A
But for a company, the tax is calculated essentially as a percentage of revenue. So if you're a low margin business, or even if you're losing money, you're still going to pay income tax even though you might be losing money. So we've decided to trade simplicity for, let's say tax optimization through exemptions. There are no exemptions is a very straightforward flat income tax of 10% with a presumed income of 10% of your sales. So basically 1% of your revenue is what you're going to pay as, as your income tax.
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Unknown B
Okay. You said there were three taxes.
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Unknown A
The other two, one is a value added tax that's calculated as 5% of the final price to the consumer. So in Practice is more of a sales tax. And the third one is a land value tax la Henry George not as a property tax of 1% per year. So the value of the land 1%, you pay that per year. Obviously if you build the valuable building, you're paying more or less the same as the empty lot next to you, which incentivize value creation and penalizes free.
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Unknown B
Riders because your LVT is on the same tax would apply to unimproved land versus improved land, right?
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Unknown A
Well, there's a valuation process, but yes, you don't tax the value of the improvement. Just even though you improving your land does raise the value of yours and those around you, your lot is not treated materially different than the one next to you that is empty.
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Unknown B
If you have. If you guys do a lot of kind of your own administration, I guess what kind of insight does the Honduran government have into I guess like the fiscal ongoings of the Special Economic Zone. So like let's say for instance, you guys were reporting, you know, $150 million of taxable revenue one year and then the next year, like, well, this year we only have $100 million of taxable revenue. Does the Honduran government have the ability to audit? I guess like taxation.
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Unknown A
So by law all Zedes have to carry out an audit yearly by one of the internationally recognized firms. And in addition to any intra ZDE governing entities, there is a supra ZDE committee that was created by the National Congress that oversees all ZDs and has supervisory powers to audit and get information as needed.
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Unknown B
What do you think? So I feel like I'm going by basically articles I've read. I don't know what the internal polling looks at, but it sounds like right now the concept of the Z is relatively unpopular in Honduras. Where do you think that unpopularity comes from?
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Unknown A
It's actually not from a public perception perspective. According to Gallup, over 72% of the population supports the job creation that happens in the Z and the Z themself. And only, you know, anywhere between 0.5%, maximum 3% when the last election took place, voted with the Zeda being an issue that they were voting against, there was a pretty substantial swing of the pendulum, but that has more to do with the prior governing authorities. The President, you know, that had been in power for 12 years. There's a lot of things that were happening. ZEDE is just one of those things that got cut up. It was similar to how the Affordable Care act became Obamacare and said it didn't Matter what the facts were, Republicans just had to kill it regardless. Well, because Obamacare, same thing, but in reverse. Zedes were a legacy project of the prior president who had some significant issues.
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Unknown A
And so anything he touched, and in particular his legacy project, had to go. So it became very unpopular with a certain set of politicians, especially those that were looking to position themselves as radically against. And it became a campaign promise as well to get rid of it. Lots of misinformation or disinformation across the board as to what they actually are. You know, boogeyman stories about colonialism and what have you, but in reality that's not what they are. Most people are in favor.
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Unknown B
Last question, just on the, on the governing bodies in these, how are they chosen? Do you guys have like, like local elections in the Za or is it. How does that look?
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Unknown A
Yeah. For the prosperous, remember, Zedes were enabled to be set up slightly different one from the other. The prosperous zde, the maximum rule setting authority inside is the Z Counsel. And that is a rulemaking body that has nine members, one that must be a Honduran national by birth, who also holds the legal representation. And it's known as the technical secretary. It's the highest public authority of the zone. Then of the other eight people, four are nominated by the promoter and organizer, the private partner in the effort. While there's a low population density, two of the other four are nominated by landowners in proportion to their land holdings and the other two by residents. Once the population density reaches an urban level, all four. So the ones that were previously landowner nominated become resident nominated as well as a technical secretary. So out of the nine, eventually five are essentially selected by the residents and four are nominated by our company.
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Unknown B
Gotcha.
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Unknown A
So you have a majority of them are selected or elected and a significant minority by the company that's developing the zone. And then that body in its rulemaking authority can set up sub bodies and committees, you know, with facilitations, whether it's finance or healthcare or security and what have you.
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Unknown B
Okay. And theoretically all eight could theoretically come from the same company, assuming that the like two of the largest landowners were your company and then two of the. Right.
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Unknown A
In the beginning, you know, the, the two landowner positions are related to affiliate of ours because in the beginning we're, you know, we have a significant amount of land.
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Unknown B
Okay.
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Unknown A
But then they get voted by residents as there are more residents that come in the zone. In the beginning it's just land, so. And they're seven year terms.
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Unknown C
Okay. Why I'm trying to figure out, basically the dispopularity with the ZAs. So I know Castro repealed it in 2022 and the Supreme Court also declared it unconstitutional. If you had to kind of like steel man. Why they feel that way. What is the current administration's concerns with Z's? My understanding specifically with sovereignty or democracy.
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Unknown A
Yeah, the. I would say 80% of the beef against them is because of who create, you know, who sponsored the creation of them. Just like Obamacare was Obama and he had to be against everything Obama. Juan Orlando was the president, he led them. There was a strong anti Juan Orlando sentiment that built up over time and so they had to get rid of those areas. But there is a contingency within, I would say the more radical left parties that view the way in which these errors are being carried out or the hypothetical in how they could be carried out as a problem. They think of it as perhaps a violation of sovereignty, as a risk because the central authorities don't have as much control. So it comes down to a paradigm where they suppose that the best way to govern the country is by centralizing power in Tegucigalpa and that anything that goes in an opposite direction of decentralizing power is bad.
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Unknown A
And you can just imagine, oh, if we're not the one supervising, then everything can go wrong. Is not a Honduran only phenomenon. So you have this tension between localization of authority versus centralization of power. And if you're more in the left leaning camp and you think that controlled economy makes sense, then your instinct is going to be to think that decentralization is bad.
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Unknown C
Are Prospera entrepreneurs say, could you yourself donate towards a candidate's campaign? So in the election that just happened, are you allowed to donate certain funds to the Democratic campaigns?
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Unknown A
Hondurans have that capability.
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Unknown C
But do you as a private foreign investor?
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Unknown A
Foreigners are restricted. You know, you can't participate directly in a campaign. You can support general pro democracy efforts, whether it's get out the votes or protect the votes, but it's not advisable to become directly involved with politics.
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Unknown C
Yeah. Does Prospera contribute in any way to political campaigns or canvassing or get out to vote campaigns?
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Unknown A
Not directly, not yet. But we're considering just in general how do we support democratic processes in the country to make sure that there's free and fair elections.
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Unknown C
Right. I guess my question is, as somebody who's kind of worked with different PACs and stuff, one of the interesting things that I've noticed about like get out to vote campaigns is that they're aesthetically dressed up to be kind of politically bipartisan and neutral. Except typically the way that the canvassing is done is that areas that are selected for the work will benefit your party. And so even though it's dressed up to look bipartisan, it's fundamentally not really partisan in how you know, you cut your lists or whatever type of canvassing or political work that you're doing. And so is there like rules about that, like how you guys can be contributing or are you able to just. I don't know if Honduras has like packs or anything. Do you know what the limitations are there?
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Unknown A
It's not my area of expertise and it's also not something that Prosper is directly involved with. Okay, so if we donate, we will donate to foundations and organizations that do specialize in that and have observers or get out devote initiatives. But Prosper, course that's not our, our main business nor our main focus. We're more focused on creating conditions to attract foreign direct investment, you know, negotiate deals with those investors, support their setting up and being, you know, able to grow rapidly, sometimes helping them find Honduran talent. Because when you land into a new country, you don't know where to start. And we like to have a bench. We have over 1200 Hondurans in our database that have been pre filtered. And so depending on what a company needs, they can start with immediately three candidates to interview. So we focus more on that part than anything else.
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Unknown C
Okay, so then how does a company feel just about foreign investment? Obviously Castro shutting down the Z is being very kind of aggressive anti foreign investment. So how is Prosper kind of handling that internally since there's a major push and what would actually happen to Prosper? The ZA program has been repealed. Where do you guys go? Do you just have to leave or.
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Unknown A
Great question. You know, Honduras as a sovereign country can change its laws. You know, it's, it's one of its sovereign powers. But the Prospero Zede was granted a 50 year legal stability through international treaty and contract. So that agreement stands. The way to overcome it would be that the Honduran government could decide to expropriate the investment, which is also a sovereign power that they could exercise. They can do it, but they can't do it without consequence. So from our perspective, they've already begun to violate the agreements by repealing the law, since the agreement was that the law was not going to be repealed. So the recourse that was agreed to in the event of a dispute between the investor class and the state is to go to ICSIT at The World bank. And, and that's an ongoing process right now. So we've initiated that arbitration after following the prescribed procedures through CAFTA of trying to mediate and find a resolution.
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Unknown A
And that having failed, then you're left with no other option but to go to arbitration.
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Unknown C
Gotcha. So if arbitration rules in your favor, will the Honduras government have to pay you guys out to remove you basically from their state or what's that look like?
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Unknown A
Well, it depends. Depends on what the Honduran government does. If Honduras violates the agreement to a point that causes us harm, financial harm, then international law and the agreements indeed position us to be able to collect. So they are. The tribunal is going to have to decide to what extent were their verdicts violated and then to what extent was there financial harm. And the way that those calculations tend to happen is that the investor is entitled to the profits that they would have made but for the expropriation or the violation of the agreement. And so in the case of the project, because it was such a long contract, 50 years, and because our investment program was for $500 million in the first five years alone, it was going to be more after that. And all of our projections and the agreements are such where we are owed a fair return on that investment based on market risk.
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Unknown A
If you put any reasonable IRR over $500 million and grow it over 50 years, it adds up to billions of dollars very, very quickly.
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Unknown C
Gotcha.
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Unknown A
So if Honduras continues on the path and expropriates the investment, that is likely the outcome, unfortunately.
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Unknown C
Okay, so I guess you guys invested 500 million for startup. You said the first five years.
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Unknown A
No, we've only invested a third of that. So we've already invested $150 million. Okay, we should have invested 500 million by the end of 2025. But because of a series of obstacles and violations that the current administration has engaged upon, we've been unable to meet our investment program of $500 million.
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Unknown C
Okay, and does that investment look like just like jobs, entrepreneurship and infrastructure development? Or what is the what, what is that money going towards? And does like Honduras benefit from any of that investment or is it just mostly an investment for your guys's own Prospera, I guess company in Z to grow?
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Unknown A
It's a mixture, but all of it benefits Honduras. For example, in the early years before we started building buildings and we were co creating a legal and regulatory regime with the state, most of that money went in intangibles. So legal experts, consultants, studies, feasibilities, so none of it was physical, but it's co creating a system that Honduras is benefiting from. Once we started breaking ground, then a obviously a much higher percentage of the capital went to acquiring land, to building buildings, to hiring workers and employees. So it's a mixture, but all of it is to the benefit of Honduras or the vast majority of it.
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Unknown C
Okay, gotcha. And you guys do pay taxes, but it would probably not be the equivocal amount if you were just a business in Honduras. Towards Honduras like the state, I suppose.
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Unknown A
Well, when you say you guys, we got to distinguish.
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Unknown C
So does Prospera as a company pay taxes?
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Unknown A
Honduras, the business operations that are affiliated with our company pay taxes. Just like every other company in the zone has to pay taxes. They have a special zone tax rate which is lower than outside of the zone. But all of those companies are there because of the zone. So any tax nominally paid is a tax income that wasn't happening before, even if the rate of taxation is lower than in greater Honduras.
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Unknown C
Gotcha. Okay, do you have any questions in this line?
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Unknown B
I got all sorts of questions.
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Unknown C
Okay, go ahead. But I wanted to ask him a bit more about justice. So if you want to go in.
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Unknown B
This direction for a bit, we can go in your direction first.
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Unknown C
Yeah, okay. Okay. I wanted to go back so we talked about justice and security. I feel like I didn't get a specific answer and forgive me just because I want to understand.
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Unknown A
Of course.
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Unknown C
Say I'm like marching around in Prospera. I'm a little silly Canadian and I do, I steal somebody's. I do something illegal.
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Unknown B
You guys have like a criminal law system as well?
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Unknown A
Yeah, the criminal law is the, is a criminal law of the country that applies the zone, the public part of the of the administration has the equivalent of a municipal police or can have a municipal police. And so they're the first line of defense if there's some sort of criminal activity. You can also have private security companies, you know, just keeping peace in order, which is what we have opted for primarily. But the criminal code is out of the country.
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Unknown B
How do you decide which parts of the criminal law I guess to apply?
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Unknown A
All of them apply. So the whole criminal code of Honduras applies in the zone.
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Unknown B
I'm trying to think of. I guess I don't actually know the answer. It's the United States. I'm trying to think like any regulatory stuff relating to the fda, Would this be like federal, like tort or would none of this ever fall? Like could the FDA ever commit things that would be eyes in the government? I guess it's all civil action. So depends.
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Unknown A
I mean some things are criminal, some things are civil.
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Unknown B
Because I'm thinking if there was some like regulation that was passed that was criminal in nature, I imagine you guys wouldn't.
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Unknown A
It's generally not criminal. Yeah, but like killing or wrong.
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Unknown B
Sure, anything.
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Unknown A
All the typical criminal activity is criminal. And it's the same inside or outside you mentioned.
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Unknown B
So the criminal law applies through for the police officers that would operate enforcing Honduran criminal law. Are those internal police officers or do they just come from the state and then they apply and if somebody gets arrested, they go back outside of the Z4 like to go to a court like in the.
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Unknown A
Yeah, it's a combination. So the zone does not exclude law enforcement from outside of the zone to come in. It just has to be coordinated.
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Unknown B
Okay.
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Unknown A
Just like when you have between states in the U.S. a criminal that goes and say, runs away from Texas to another state and it's a hot pursuit. There are, you know, hot pursuit agreements. If there is an investigation and they're hiding in a different state, you can extradite them. So all that still applies. It's similar to how from one state to another in the US Collaborate for enforcement. Then that happens. And then just as in here you might have the FBI that has jurisdiction over all of them. In Honduras, it's the military police. So the military police and the military still has jurisdiction within the zone, outside of the zone and everywhere in the country because it's part of the national territory of Honduras. But they cannot just go in willy nilly. You know, there are procedures, there are arrest warrants. You got to have, you know, due process.
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Unknown A
So you know, there are protections for foreigners and nationals in the zone, which are the same that would apply outside. It's just that when they're in the zone, you have in zone jurisdiction and institutions that are making sure that that due process is actually followed.
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Unknown C
So if I was like walking around in Prospera and I like beat the shit out of Stephen, who comes and arrests me first, is it going to be like a Prospera paid police officer or is it going to be a Honduras like state public officer again?
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Unknown A
So Prosperous ZDE is part of the Honduran government. It's like a municipality.
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Unknown C
Okay.
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Unknown A
So it can have a municipal police. There's no municipal police right now inside because it's not warranted. Currently the level of activity is just, you know, everybody's in good behavior. There is a private security company that provides services that handles 90 some percent of the instances when and if there is an issue that needs to be escalated, then you coordinate with the rest of the police, the national police. And they come and they do what they do, whether it's an arrest or an investigation, but it's through coordination.
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Unknown C
Gotcha. Would you guys ever establish like. Like you said, that private security? If I'm like running around and beating people up, I'm assuming your security would probably detain me. Is there, like, holding cells in Prospera or in the ZA in general for those individuals?
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Unknown A
There can be. We don't have a jail per se currently, but the zv, again, it's a public entity, can establish a penitentiary system and hold people as any other police force and penitentiary system. It is part of the Honduran government. What has to be clear is that the ZED is part of the Honduran government. And then our company, sort of in charge of attracting investment and sits on the board, has some of the seats of the board, which is the council.
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Unknown C
Okay. And so I guess I'm. This maybe is like doomer. But if there was, with the mounting potential tensions between the Honduras government and the Z itself does that is part.
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Unknown A
Of the Honduran government.
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Unknown C
Okay. Between Prospera and the Honduran government. If they're wanting you guys to leave, if there's mounting tensions, would you guys need to hire like a private security? Like, would there ever be, like, what would occur if there's like, physical threat from the Honduran government towards prosperity, Prospera.
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Unknown A
Against individuals, you know, the companies.
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Unknown C
Both.
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Unknown A
Yeah. So depends on what form it comes. I mean, normally if a government wants to shut down an operation by force, they'll send the police and they'll just shut it down, and that would be deemed an expropriation. And then, you know, the penalties and the legal consequence, I think, goes up exponentially. According to the treaties, if they go after individuals without due process or justification, then their human rights violations, you know, if you're a US Citizen, the US government has a role to play. If you're a Honduran citizen, you're still protected under due process. So it's not like you can just go and start putting people in jail without reason. So it really depends on the specifics, but so far, fortunately, you know, that's not happening. Yeah, of course there's been some scuffles here and there, but they've been resolved by and large.
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Unknown C
Okay.
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Unknown A
But, you know, the jury's out. I think the Honduran government's going to have to decide if they're going to Ultimately honor the agreements that they've entered into or not. And, and if not, then how are they going to proceed? Are they going to, you know, keep down the path of expropriation? They, I mean they can if they want to, but there will be consequences for them as well.
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Unknown B
Just for, for people listening. I guess that might not understand when you talk about expropriation. Expropriation is anytime a country's government seizes privately held assets, oftentimes for foreign people, because the, for whatever reason, the government just wants to take over those types of things. Maybe they want to expel private entities, maybe they just feel like the government should own it. Maybe it's a violent takeover. Whatever the penalties and everything you're talking about would be taking the expropriation actions and then escalating that to type of world stage. So like through the World bank and any type of like international agreements I guess that Honduras is party to for. Right, yeah.
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Unknown A
And expropriation can happen in that very say physical way that you describe. They come and they take away your asset. But it can also happen by terminating rights without due process or in violation of an agreement. That's also an expropriation of rights. And it's not just foreigners, it's more often done with nationals. You know, in the US it's called eminent domain. It's essentially the government coming and deciding that they're going to take over certain rights that its citizens or foreign investors have.
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Unknown B
I would say I would draw a careful distinction around imminent domain versus expropriation though. Right. Because imminent domain shouldn't be in violation of any pre existing statutes. Whereas I think expropriation is pretty universally agreed upon to be like this should have never happened. Right.
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Unknown A
Ideally, well, maybe has a negative connotation, but in practice it's the same thing. If you, if you are by force deciding to take somebody's properties or rights, it's in practice the same thing. You justify through some public good if you want. But the same thing happens under expropriation most of the time.
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Unknown B
Sure. But I would say that like if you're building in a certain place, I think you have a fair understanding that your stuff shouldn't be expropriated.
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Unknown A
Right.
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Unknown B
Like the types of governments that are expropriating stuff. For even absent actual, like physical or not physical, but even actual penalties, there are intangible penalties. Such as like people not wanting to invest in your country.
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Unknown A
Right, right.
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Unknown B
I'm not going to invest in a place you're just still on my Ship. But I think domain is a little bit more of a part of like you understand if you're building near border, certain natural resources that there might be a case where the government, for whatever reason might want you stuff. And under eminent domain I think you would expect to be compensated somewhat for those things as well. Under expropriation, sometimes you hope to flee with your life. That's probably a bit of, I think.
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Unknown A
In practical terms is the same thing. But obviously expropriation has a more negative connotation.
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Unknown B
Sure.
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Unknown A
And it tends to be thought of exactly as you described it. But right now, basically in Honduras, the government decided to terminate the legal regime, but we're grandfathered in, you know, so they have a decision to make here in the near future whether they're going to honor that grandfathered in position that we have or not. And we'll see.
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Unknown C
Are you the only Z in Honduras or is there others?
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Unknown A
There's two other Z. We're the first and we're the only one that continues to operate fully under the Z regime. The other two have sort of either shut down or paused operations as a.
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Unknown C
Result of the election and the decision of the Supreme Court.
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Unknown A
Yes. As a result of all the uncertainty that has ensued from the political attacks.
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Unknown C
Gotcha. Are they also going to the World bank for basically kind of the same issues? Do you. Or maybe you don't know.
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Unknown A
To my knowledge, we're the only one that has actually formally filed with the World Bank. It doesn't mean that they don't have the right to file later. They have just decided not to file so far.
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Unknown B
I'm guessing those two others are probably also significantly smaller in terms of investment or.
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Unknown A
Yes.
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Unknown B
Yeah.
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Unknown A
I think one of them is similarly sized in terms of investment, but it's a very different project. It's an agroprocessing plant. They just did it inside of a ZDE regime because it was more convenient for them. But they're not doing the full fledged vision as we are of an integrated regulatory system with a, with a city scale project in mind. They're just doing an agroprocessing plant and I think they probably invested over $70 million or so.
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Unknown C
Gotcha. For people who live in the Z, is most of the private property owned? So I know the companies have to hire 90 Honduran locals. Correct. Is it mostly Hondurans who also then live there or is it mostly kind of like foreign nationals and like kind of like CEOs and the entrepreneurs who are bringing their business there that live on site?
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Unknown A
So you're asking if most of the residents are the foreigners or the nationals. Right. Regardless of the fact that most employees have to be nationals, I think most of the people who live inside, it's probably 50, 50 right now, but. But more people work inside than live inside. So we have more, let's say, office and workspace than we have residential space. So most of the employees that come inside of Prosper live outside right now.
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Unknown C
Okay, gotcha. So I'm curious. I was just thinking about visa and, like, worker rights. If you're. You're an American Silicon Valley investor and you want to start your robotics company in Prospera, do you get a. I'm assuming you get a visa to work through the Honduran government. Is that the process to foreigner?
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Unknown A
You still got to go through the same immigration process because that's controlled by the central government. And there are multiple ways to get a residency with some sort of work permit.
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Unknown B
Okay.
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Unknown A
So you have to be in the country legally and then also in Prosper legally. So Prosper is a subdivision. You can be in Prosper legally and unlawfully in the country, if that makes sense.
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Unknown C
Right, yeah, that makes sense.
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Unknown A
But just because you go to the country doesn't mean you automatically have the right to go to Prosper. You then have to be a resident to prosper.
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Unknown C
Did the country set up any specific types of visas to kind of streamline people coming into Z?
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Unknown A
They started under the prime administration, but then with this administration, that stopped.
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Unknown C
Okay.
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Unknown A
So the vision was to make it streamlined and for the administration of those permits and visas to be handled as locally as possible while retaining national government supervision.
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Unknown C
Okay, gotcha. How long do most in, like, investors and foreign foreigners get to stay? Like, how long is a typical work permit?
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Unknown A
Oh, it can be unlimited. You know, there are different classes. Generally, if you just fly in as a tourist, you get 90 days, but then you can apply to be a resident, and then you get initially one year.
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Unknown B
You can.
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Unknown A
You renew that two more times, and then the third time you can apply for it just to not be renewed for five years. And then I believe you can apply for citizenship.
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Unknown C
Okay. Okay, interesting. Does Prospera have, like, anything within it that helps people in that prospect process.
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Unknown A
From a processing perspective? We have lawyers that we work with that are kind of experts about it, and we try to concierge service investors and foreign nationals that want to set up residency in the country so that it's as painless as possible.
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Unknown C
Okay. Has people. Have a number of people in Prospero kind of come to the Z A have they pulled out as a result of the election results? Have you seen kind of a dip in interest?
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Unknown A
We've seen a diplomat and a slowdown. I think right now it's pause and see. A lot of these are very recent developments as of today. So the Supreme Court's decision was announced in late September, but it wasn't published into late November. And so, you know, it was recently published. So now we'll see what the Honduran government decides to do. Okay, they say even in the ruling itself that investors will retain their rights, that they're not intending to expropriate. But then what politicians say verbally amounts to an expropriation. So we'll have to see what were the.
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Unknown B
What was the decision made by the Supreme Court.
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Unknown A
They decided in an unprecedented way and without legal justification, according to some scholars, that the Zeta regime was unconstitutional retroactively.
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Unknown B
So, okay, okay, so then technically nothing has changed yet, but the stage has been set for politicians or lawmakers to theoretically start taking stuff back, I guess to engage in expropriative behaviors.
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Unknown A
No, the government has been engaging in expropriative behavior even before the Supreme Court decision.
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Unknown B
But I imagine you would have had some, some refuge under Honduran law. But now the legal protections in Honduras is probably significantly scaled back with the Supreme Court making the retroactive decision.
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Unknown A
It increases the uncertainty because now you have the highest court of the land saying something that is in direct contradiction to what the Constitution says in other provisions and international treaties that the country is part of which are still in place. So, you know, with that conflict, it leaves investors wondering what the heck applies. And then the central government is not complying with its obligations under CAFTA to provide clarity and certainty. Again, they can change the laws of they want, but they do have obligations to honor the agreements, but at a minimum to provide clarity. They have not complied with that so far. Kind of want to have their cake and eat it too, you know, get a political win without, you know, sort of fully phasing the legal naming it what it is.
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Unknown C
Right. Well, if you guys go to the World bank and they have to pay guys out, it would be a like massive amount of the Honduran GDP is my understanding.
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Unknown A
Yeah, the, the third party estimates is almost $11 billion.
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Unknown C
How often is that enforced? Because my understanding is like Venezuela, for example, has basically refused to pay any of the World bank decision like tribunal that have been awarded companies from Venezuela. Is there any way to enforce that? If basically the country is like, no.
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Unknown A
I'm not willing Venezuela had to pay. They've paid billions and billions and billions of dollars. They ultimately pay because you know the World bank, when they decide that arbitral award can be enforced throughout the world against commercial assets of the state, and sometimes that includes presidential planes and navy ships. I mean, you probably heard the situation with Argentina. So eventually they pay. Doesn't mean that they'll do it without a fight. Venezuela is a perfect example. They've had to pay a bunch of money. And Peru and Ecuador and all of them say they won't, but eventually they do.
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Unknown C
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Unknown B
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Unknown B
Okay. All right. Okay. I'm gonna get my big. Okay, let's go. Okay. So politically in the US like my, I'm a, I'm a big capitalist, but my tend to be kind of left leaning in terms of like economic positions when it comes to regulation and stuff. I guess when I'm thinking like I'm gonna use some harsh language, okay, not too super, go for it economic. So when I'm thinking of like prosperity zones, I guess it feels to me that there are two really big issues that I see with them. The first is obviously it's a far left person. Whenever somebody's just trying to escape regulation, usually my first thought is, well, what type of regulation are we trying to escape? So what regulations do we feel are the most hindering to FDI for, to capital investment in a particular country, to starting a business or whatever?
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Unknown B
And then the second question I feel is that these projects will almost always or inevitably end up being more combative with the host state rather than compatible with the host state. My historic. What?
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Unknown A
Why?
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Unknown B
Because if I am a country, first of all, if I'm a, if I'm an established country with strong institutions, I'm never making a deal like this because why would I ever give up some of my hard earned, hard earned sovereign territory to some special tax exempt status that I can no longer collect revenue off of like I could for the rest of the country.
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Unknown A
But that's not what's going on here.
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Unknown B
Well, like so of all the revenue generation that's happening in the economic zone, they're not collecting the same tax receipts they would if it was happening in the country. Property.
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Unknown A
Well, but 100% of what they collect is profit. Essentially. They have no service obligations and most, most governments run at a deficit, which means that their operations cost more than what they collect. The percentage of the revenue they get from, from our Zones is without service obligations, so it's pure profit for them.
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Unknown B
They don't run, they don't provide electricity or water or roads or anything.
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Unknown A
Nope. And if they do, it would be through an agreement and we have to pay for it.
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Unknown B
Okay.
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Unknown A
So they have no service obligations. What they get is revenue that was not there before and 100% of it is free and clear of any service obligation.
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Unknown B
Sure.
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Unknown A
Without giving up sovereignty. You mentioned giving up sovereignty, but they're not giving up sovereignty.
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Unknown B
Sure. So they might gain some. I guess we could call it tax free revenue, we could call it profit, but it's going to be far less.
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Unknown A
Than what I mean before it was.
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Unknown B
Zero than if they owned all of it outright.
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Unknown A
Right, but that's a fallacy. Right. It's like you bring investments that weren't there before and you're getting less than 100% of the taxes, but it's infinite more than was there before because before is a greenfield site.
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Unknown B
Yeah, I understand it's a fallacy, but I would argue it's a fallacy on the other side as well. What's really happening is you're talking about they are making money. So what I'm saying is that if they owned it outright, they would be making more money as a percentage of revenue generated. Your counter argument is, sure, maybe that might be true, but as an absolute value, they would be earning nothing because that FDI wouldn't be there regardless. Right. So it's an. Yeah.
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Unknown A
And they run at a deficit. So even if they had 100 of the taxes, unless they're going to do something radically different in the zone, they're still losing money.
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Unknown B
Sure. But I don't know if running, I mean, I would say investing money, running at a deficit isn't necessarily losing the money. Right. It's investments you make in the country. Right.
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Unknown A
Well, I don't know. Sometimes it's not an investment. Sometimes.
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Unknown B
Yeah, but I mean, I'm sure Prosper runs out of deficit right now, right?
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Unknown A
We do. Yeah.
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Unknown B
So I think it's pretty standard. Every business is going to borrow money to invest in operations. Right?
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Unknown A
Well, except that when you have a for profit company, you don't have an option but to eventually have a surplus to pay back that a country generally doesn't do that. They have a very different set of incentives.
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Unknown B
Maybe just more complicated.
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Unknown A
Yeah, yeah, I know, because I could.
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Unknown B
Secondly, you don't really have to pay back a surplus ever. Theoretically.
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Unknown A
Right.
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Unknown B
If I have equity in a company that is still heavily leveraging debt in order to earn profit I'm still technically like my shares in the company are appreciating. Right. Like, we wouldn't say that. I think. Was it what, 2012, when Amazon turned their first profit? We wouldn't say that Bezos was broke until 2012. Right. Because the equity was coming out. Yeah, so. So I think that the second issue has to do with, with, I would, I would say with questions of sovereignty. That so, and I'm sure that the harsher language that people would use because you mentioned like the colonial or that not the colonialism but the imperialism or stuff like that, is that the agreements are by some nature predatory and that you're getting a country to give up some part of its land into like an semi autonomous, like tax exempt zone and then.
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Unknown A
But they're not giving up part of.
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Unknown B
Their land into a semi autonomous tax exempt zone.
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Unknown A
Right. They're not giving up part of the land. The, the land is acquired through a market transaction and so it's private property. You know, the, the government didn't give up the land. The land is still part of the country. It was privately acquired in our case. It's just, it has different rules that apply within it to stimulate greater investment and more economic efficiency.
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Unknown B
Sure.
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Unknown A
That's not a loss of sovereignty, that's an exercise of sovereignty in some regards. Right. You have the sovereign right as a nation state to come up with policies that can differ from one region to another. So there's nothing fundamentally problematic about that. There are some political issues about it, obviously. I mean, clearly we're going through it, but nothing fundamentally problematic or weird. I mean it happens all the time, everywhere.
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Unknown B
Sure, fundamentally. I agree. I mean fundamentally it's all words on paper technically. Right, but I know what you mean. I guess the question then would be because in the places where I'm thinking of these like semi autonomous regions existing generally, there comes to be a lot of conflict with states that made a lot of these agreements when they were earlier in their development and now well into their development. Now they're like, well, hold on, I don't like the idea that we made this particular deal. Are there examples of these types of semi autonomous zones eventually growing into a healthy partnership or being subsumed again by the state in a manner that's agreeable to all the parties, or do these always end up as combat elements?
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Unknown A
I think the greatest example in modern era is Dubai and it's over 30 special economic zones all competing against each other. As a result, they're all better off. And the most advanced of them is the DIFC which is an integral part of the overall Emirates economy, but the Middle east as well by serving as a base of operation for foreign direct investment to flow through it because it has a more stable legal system. It's a beautiful partnership and that's what we're seeking to do. So I don't think it has to by nature be combative at all. It has the potential to be one of the most value adding public private partnerships out there way more than doing an airport or a road. It's providing governance as a service in a public private partnership setting is a huge win win.
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Unknown B
What do you think when you look at the types of regulations that you say would inhibit the types of investment that you're looking for companies to make there? I guess what are the types of regulations that you're trying to generally escape?
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Unknown A
Well, so that's a good. I would like to reframe that. So it's not about escaping regulation per se. So it's not. It's not that more regulation is always bad and less regulation is always good. I don't subscribe to that. It's that sometimes too much burdensome regulation might have a disproportionate cost in operations that makes some of it not make sense with a societal and a business cost to go along with it. So you have to think what is it that regulations are trying to do? Like why have them to begin with is there, what is the, what is the premise under which a government is justified to force a regulation upon businesses? And I'll submit to you that if there is a moral justification is to promote well it will say health and safety of the population but said differently in economic terms is to protect non consenting third parties to transactions from being harmed against their will.
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Unknown A
Right. I mean so when you wouldn't agree.
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Unknown B
With that last definition, it's very broad or very libertarian esque. Right.
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Unknown A
Well it's like if you have a nuclear power plant and you do something wrong with it, you can affect a whole bunch of people that would never consented. So there is a higher risk of negative externality. And so if there's any space that is more, let's say appropriate to regulate is that which can create a lot of negative externality to non consenting third parties.
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Unknown B
Sure. But I'm sure the for the za I would imagine that those types of regulations are basically off the table which is where the sovereignty arguments would come from.
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Unknown A
No, that's not true.
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Unknown B
So they.
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Unknown A
That's not true. So it's not about escaping regulation. It's about having choice.
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Unknown C
Okay.
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Unknown B
Or like I guess my question be like, let's say that a business were to be set up there that would engage in, let's say that the island of Honduras decided that they wanted to go. What do people call it, like net zero energy or net zero carbon emissions or something because they decided that they're, they care a lot about the environment or something. Would they? I feel like they probably wouldn't have the ability to enforce that regulation upon the ZX without that being seen as a contravention of the prior agreement to set it up under the 50 year lease terms. Right.
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Unknown A
In that particular case that would be true, yes. Which again brings me back to what type of regulations are we talking about? Right. Because not all regulations are bad.
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Unknown B
Sure.
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Unknown A
Not a regulars are bad, but also not all regulations are good. Right. So what is it that we're trying to regulate to begin with and what is legitimate to regulate? I would say that if there's legitimate regulation, it would be to minimize the risk of negative externalities upon non consenting third parties.
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Unknown B
Okay.
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Unknown C
Does it ever. Sorry, this might be a really stupid question. Isn't regulations also in part to protect like the buyer beware? Like there's a certain amount where like one of the benefits of American regulations is that I don't need to know everything about pharmaceuticals to like make a decision about which pharmaceutical medicine is like best for me or which which regulatory body does a good enough job to ensure that the medication isn't going to like harm my body. Like I don't have to learn everything. I just like broadly know the FDA seems to have pretty good standards, seems to have pretty good outcomes and I can just kind of trust that and autopilot it. So I guess like isn't part of regulations to prevent heavy amounts of buyer beware?
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Unknown A
It can be, but generally that can be done privately as well and better. If what you're trying to do is quality control or consumer advocacy, then you don't have to do that through government and especially not through a monopoly because then you have no alternative. Yeah, I just, you're kind of stuck with, with one size fits all. And that tends to limit options, limits competition, increase costs and the FDA is a perfect example. I'm not against the FDA by the way. I'm against it being the only body that can certify whether something is safe and whether it's efficacies as claimed. Yeah, it's just if you want to keep using, you know, only FDA approved medicine, then you should be able to. But should Everybody else be limited from consuming things, therapies or otherwise that don't go through that one body.
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Unknown C
Yeah, I guess, like my concern is kind of going back to that, like watering down regulations, which is that there's a certain level of burden of knowledge that I think shouldn't be required of like an average citizen. And I'm concerned about incentive structures in regulatory body. Like, if a regulatory body's most paying in, you know, shareholders and incentives is companies wanting to get their medications approved, the regulatory body has a lot more incentive to push their regulations towards allowing things through. And obviously there's a certain level of incentive because they don't want their consumers dying and never using them anymore. But I think as long as they hit like a minimum threshold, they can kind of push through. And then you have the situation where you have a regulatory body where at least in the government, the incentive is fundamentally, ideally to be protecting the citizen.
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Unknown A
Because that's the role of the government, you would think. I mean, in theory, but in practice that's not what seems to happen. But I'll tell you a very surprising thing I learned during this process. And by the way, before I did any of this, I would have thought of myself as very left leaning. You know, I was sort of championing the Chavez one in, in Venezuela. I wanted to lift people up, protect consumers. Like, the objective of having a fair and equitable society is deep within my bones. Okay. But what I've learned in this process, and this is before Honduras, it started in Arizona, is that most regulations actually are in place to satisfy the desires of businesses that are under that regulation to begin with. And that regulation, instead of increasing safety, often reduce it. And I'll tell you why. If you have a common law system of law without prescriptive regulation, the standard that would by default apply is that if you cause harm, you pay.
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Unknown A
Okay. Regulations come in to tell you that if you operate a certain way, you're exempt essentially from being sued because you follow what government said was safe. But if government didn't have a regulatory framework that you were to follow, the burn is always upon the provider and that if ultimately it is shown that you caused harm, you can still be liable. So paradoxically, a lot of these regulations are actually there to protect against downstream liabilities. As long as you follow the framework, you're good. They serve as a safe harbor. And this is actually counterintuitive to the notion that regulation reduces risk. It doesn't. Then if you add to it what you're alluding to to some extent, which is Regulatory capture that companies, especially big corporations, have a disproportionate influence on government and the regulatory bodies that oversee them. What you see over time is that regulations actually become anti competitive barriers to protect the incumbents against new entrants that could disrupt their market dominance.
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Unknown A
This is especially true, let's say in healthcare, where you have pharmaceuticals who have very clear incentives to remain in control and they benefit from not letting smaller companies iterate faster and come up with disruptive technologies that might make their drugs completely irrelevant. And they are able to do so in proportion that there is a heavy regulatory body that has the authority to prevent innovation from happening.
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Unknown B
I feel like that's. I feel like you could frame it that way, but I also feel like it's a little bit circular in that if we had an environment that had, you know, dozens of companies that were all convened competing in the exact same sector, and eventually some of these companies grew to be larger than others through whatever market, innovations, market capture that as you begin to regulate the market and you begin to look for any type of like. I agree with the definition you gave earlier. I guess qualifying that externalities impacting parties are generally regulated against that aren't part of like the particular market transaction when the people didn't consent to the externalities. Makes sense, right? If I'm operating a car dealership, but it only works if I dump a bunch of sludge into a river that goes downstream and kills everybody. Probably not good, right?
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Unknown B
Regularly against stuff like that. But I feel like.
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Unknown A
Which is different than. Than saying government is going to prescribe the way in which consenting, knowledgeable people can do commerce. Right?
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Unknown B
Sure.
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Unknown A
I feel that they don't do those types of regulations. It's just that there's a different moral justification. One is more paternalistic, trying to say, well, you know, a central authority is going to tell us what is good for us versus one in which it's more efficient because otherwise, you know, how do people work that were not part of a transaction, might not have a cause of action, protect their interests if it's not through this type of regulation?
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Unknown B
Sure. I feel like you run into strange examples. I guess we run through a few where the externalities can almost be consented to by the party. But maybe we're made better off if people don't have the opportunity to consent to set externalities. So for instance, like, do we think that the United States of the world in general is largely improved by seat belt regulations existing, or would we have expected like all of that to have popped up absent Any kind of regulatory enforcement that everybody would have opted into using seat belts and airbags. And because that's the thing where you could technically buy a car and say, listen, if I crash and die, you know, and I fly to my windshield, like that's my right to make that decision. And it's like, I guess it could be, but we could also just say no and then force the entire market to adopt so we're not competing on things like safety values.
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Unknown A
Yeah, I guess here's the challenge though, Stephen.
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Unknown B
Yeah.
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Unknown A
Let's say on that small margin, maybe you have, maybe, maybe in objective terms everybody's better off because of say seat belts or airbags. The issue is not that. The issue is that the underlying principle that enables that form of regulation has no end. Right. It's a slippery slope sort to speak. So where does it stop? Right. If you accept the premise that a central authority can dictate to people how they ought to live their lives because that central authority determines whatever, through whatever basis that they know better, maybe they get it right with the seatbelts, but you can't opt out of it. It's imposed upon everybody. And so the risk of it getting wrong and causing harm is significant. And then you have no way to opt out of it. Whereas the alternative is not as risky. You know, paradoxically, it's not as risky because you choose to be under one regime or another.
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Unknown A
You know, if you want to have, you know, a super safe life, then go for, you know, the products or the services that have the highest safety rating according to whatever institution you're going to trust, FDA or a private alternative. But what is hard to quantifies the harm in what does not happen because of excessive regulation. You know, healthcare is a great example, but with cars, you know, the cars that now are more expensive and how many people can't afford to buy them or have access to all the benefits of them? I mean, the unseen obviously is the, is the thing that you can't really quantify, but it's definitely there. And in some extreme cases you do see it. And healthcare is a good example of that.
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Unknown B
Yeah, and I would agree that there is, I mean, definitionally there has to be a cost to regulation, right? In the most like concrete examples, any price floor, price ceiling is creating or shifting surplus value around in a way that's going to change market behavior and cause other external impacts. Like that's agreeable. Of course I would agree with you that it would be problematic for a central body to make these things in some governmental organizations. But I would argue that in a democratically elected system, and I'm sure we would agree. Even if we're, even if you're opposed to regulations, regulations coming from a democratically elected body is probably, probably better than regulations coming from like an authoritarian regime or something. Right?
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Unknown A
I'm not sure because populism can actually sometimes be worse since you can be more inclined to redistributive policies through regulation as well. And then where the majority rules, then you know, you can very quickly degrade the institutions where they just become a redistributive instrument. And so the, through democratic voting the majorities keep extracting more and more and more and eventually it's a self destruction that ensues.
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Unknown B
That could be the case. What about like in a super ultra free market society where you get like a monopolistic entity that can essentially bar competitors from joining the market for a variety of reasons? Well, you'd have absolutely no recourse from.
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Unknown A
Which I don't, I mean that you. I don't know if it's a utopian or dystopian version of the future, but I do believe it's important to have institutions. You know, and government has a key role to play in a modern prosperous civilization. But government is an instrument, of course, a force. And so there are philosophical questions that come into play. And you know, everybody can have a different flavor of, of what you think about it and understand that it's not no regular, it's not about more regulation or less. Regulation is what type of regulation and from what source. The market regulates very strongly. It has all sorts of powerful regulations. They're just more dynamic. Whereas a government, a central authority comes up with regulations as well. They tend to be more prescriptive, that can be more political, slower to change, you know, one size fits all.
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Unknown A
But regulation matters a lot. I mean a market cannot exist without regulations.
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Unknown B
Yeah, but I guess the, I guess the issue is that a regulation in like an open, like a capitalist market or in like a very free economy, those any type of what you're calling regulations are ultimately then they're going to be dictated by profit to shareholders. And if the profit incentive is misaligned with some kind of like public interest or public incentive, I think these are the areas where maybe it's good that the government can step in and say, hey, like Central Park, I understand that that could be developed to be more economically prosperous, but maybe it's like a public good that is worth protecting in the city, but left to like free market design, somebody probably sell off parts of that park immediately for redevelopment to have more skyrises or business or something else. Right?
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Unknown A
Maybe, maybe not. But I think you're striking at a quite deep philosophical, say, source of justification for the role of government. Right. The nice thing about what we're doing is that it's not a one size fits all. It's not imposed, it's 100% voluntary regardless of where our zones get deployed. They're not trying to change everything. They're just saying, look, we're bringing a full stack system that has worked everywhere where it's been tried. We're doing so in partnership without requiring public funds with a partnership mentality to benefit the local populations. And you can keep doing whatever you're doing elsewhere, but let's give this a try as an engine of economic development. So, you know, I'm here or in general, I'm not trying to argue the way the world should be as X, Y and Z and whether you like it or not, you know, in fact, you know, honestly part of the issue is that we have too many one size fits all models.
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Unknown A
So we have to kind of battle out it really matters. Like the stakes are really high. If you and I or us, we're debating because fundamentally we're thinking, well, gee, if this is the policy that gets adopted, it's going to affect me one way or another. But if the system were not so imposing. Right. And coercive, then it wouldn't matter so much like it should be that, you know, you can live in an environment that is catering exactly to the way you think the world should be and other people should have a different perspective. I think what we're missing is choice and competition. It can't be that the whole world has only 200 service providers for governance of which less than 5% control more than 80% of the market. It's a heavily concentrated industry and it's concentrated in the hands of institutions that by design have coercion as its mechanism through which to do what they do.
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Unknown A
That's a problem.
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Unknown B
I mean, I feel like coercion is going to be like a necessary part of any type of broad fiscal or policy like harmonization that probably necessarily so. I mean you talk about paradoxically a lot like paradoxically, a system that imposes more restrictions on people can ultimately end up being a lot more freeing to some extent. Right.
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Unknown A
But would you would agree that there's. I would agree that there is a positive correlation up to some extent and then there's a negative correlation. Right. If you become over controlling, you're going to lose economic freedom and other freedoms. And that's net negative. If you have no form of control and it's anarchy and you know, you have gangs and you know all that, that's also not productive. Right. So there's like, there's, let's say generalized prosperity and centralized control and it probably looks something like this. It goes up and then down.
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Unknown B
Yeah, probably to some extent. Yeah. Yeah. The example I'd always give, I mean, it's obvious in cases of like criminal law that if you have a neighborhood of people who are all allowed to kill each other and steal from each other, probably nobody's ever leaving the house and it's just going to be. Yeah, but if there are restrictions on their freedoms, then they're allowed to leave and do things, which is obviously a good thing. That would be way at the, obviously at the far end of the spectrum where even in Prospero, I'm sure you're not allowed to kill each other.
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Unknown A
Right. I think, I think the line of demarcation revolves around negative and positive rights. You know, like there's the. I think anybody would be hard pressed to say that, that those negative rights should not be protected for sure.
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Unknown B
But I think there are some positive rights that if you don't have them, you essentially have no like negative right as well. Right. So for instance, like if I were to say like a negative right under US Law and most laws is you have a right to a trial, that trial right probably doesn't mean much without the positive freedom afforded to you of being provided at least like a public defender. Because most people can't navigate like the court systems, right?
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Unknown C
What's a positive right versus a negative right?
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Unknown A
A negative right, this when you have the right of something not being done upon you, right? Like you have the right to your life because nobody has a right to take it from you. They have the right to your property because nobody has a right to take it from you. So negative rights are exist once you prevent people from doing things against your will. Positive rights, on the other hand, it's like right to education or right to food or, or rights to health care. And the only way that an individual can access that right is by others providing something. Okay? So positive rights create a positive obligation. Somebody has to provide that thing. Whereas a negative right, it doesn't force anybody to do anything. In fact, what it does, it prevents them from doing things that violate the integrity of your existence ultimately.
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Unknown C
Gotcha. Sorry to interrupt.
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Unknown A
So that that line of demarcation is super important when you're thinking, well, what is it we're trying to do? We're trying to protect negative rights and that coercion is necessary because you're actually protecting against forces that might be greater than the individual's capacity to self defend. But then positive rights, if you use coercion for that, then you're forcing some people so that others benefit. And that's always some form of redistribution. And at the extreme case of it, you start to enter basically almost like slavery. But 10, 20, 30, 40% of GDP coercively taken from some to be given to other. It's philosophically very similar to slavery. Oh, to forcing to by force take from some to give to others its coercion.
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Unknown B
Sure, yeah.
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Unknown A
By force.
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Unknown B
Yeah. I just, I wouldn't say philosophically. Yeah, I just don't know about philosophically.
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Unknown A
There's just, just there is a. You see, some people might say, well, taxes is theft, right. And they go to the extreme, say libertarian or anarcho capitalist way of looking at it. But I don't think that that's the line of demarcation. It's what are you doing with those taxes? If you're defending negative rights, that is, you need that in order to exist as an individual.
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Unknown C
What about giving positive rights? So part of taxes pay for education for everyone, like public education?
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Unknown A
Well, that's redistribution and therefore that's harder to justify morally. You know, why would the needs of some be, be superior than the needs of others? And who decides and on what basis? And then you start to open a can of worms that is never ending.
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Unknown B
I feel like what you're talking about there is, that's a question of like government, right. What kind of government do you create? What kind of government? What is the function of government? What does it do?
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Unknown C
Yeah, for example, it's, it's worth having some of my money taken away to go into a public education system, even if the public education system is not and a super superior one. Because by and large every single country is vastly benefited by making sure you have as educated populace as possible, gives you better workers. It just. Overall GDP is always boosted a ton, even though the government's forcing me to give it away and I don't have kids. It's like it's still an investment of return. And I feel like the who decides that is kind of this confluence between the citizens and who they're voting for and you know, the people underneath the government with the government deciding on the things that they value. Right. Most people seem to value public education or they seem to Value public, police or anything like that.
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Unknown A
Except that in reality, that's not what people are doing, right? People are not deciding, like you in that example, you're not deciding that it's worth it to you to give your money to fund some program. You're deciding that it's worth it that other people give their money to fund some program, right? And so that's, that's really what is happening, that some people decide that other people should give their money for some cause that they, that, that they think is worthwhile. So you are now detaching the, the decision making from one individual and you're forcing that whether they like it or not, they're going to fund something that you think, not they, that you think is good. And that to your point of being combative, that is the source of combativeness in a society. It puts people at significant odds against each other. You know, we become threats to one another because if you allow a system that, you know, if two of us agree to take from the one here, just because of what we think, everybody's already in the defense.
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Unknown A
It's a destruction of social fabric, fundamentally speaking. Now if you do a little bit of it doesn't matter, but it becomes a slippery slope. But again, what we're doing, we're not trying to shape the world to our philosophy or to a philosophy. We're just saying empirically speaking, poverty sucks. We want to get rid of it. And one of the things I discovered is that ending poverty is the wrong paradigm. You can't end the negative per se. Negative poverty is the absence of wealth and prosperity. So how do you catalyze prosperity? That's, that's where prosper comes from. And you catalyze prosperity by having certain conditions. Excuse me. And so our project is about creating those conditions in as many places as we can in partnership with governments.
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Unknown B
I guess one, I guess one other challenging question I'm curious. When you look at like all of the world's innovations or if you look at where people go to create new innovations, right? I mean, look at it like Elon Musk. Why do you think or why does it feel like all of the innovations and a of the work are coming from so many of these highly regulated environments? Like, we don't see, you know, a ton, like a whole bunch of medical innovation or technolog, technological innovation happening in countries with lower regulatory environments. It seems like it tends to come from countries with higher regulatory environments.
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Unknown A
Well, I'm not sure that's true. The US has a lot of regulations, but less than many other places that are, that are poor. A lot of these places are way more regulated. And, and, and it's not just about regulation either. It's about stability as well and private property protection. So even though the US might overregulate in some regards, it has a fairly strong private property protection scheme. Right. And it, you know, fundamentally believes in individual liberties and it has robust institutions with due process. So Elon Musk can sue the government here and argue that they don't have the authority to do X, Y and Z. People don't have that capacity in a lot of these developing countries.
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Unknown B
So sure, I mean it seems like, like the argument to that would be that the stability that exists could be a byproduct of some of those what you would consider like negative positive freedoms or those coercive forces. So for instance, going to the.
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Unknown A
You've got one that historically that's not true. I mean the income tax for example, was not on the books 600 years ago and all these regulatory burdens were not there before the New Deal. And we didn't have a society that was falling apart. It was still a very innovative country leading in the Industrial revolution. And so it's not correlated at all that with regulation. You've had more innovation. In fact, I believe the correlation is inverse.
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Unknown B
In what way?
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Unknown A
In the way that the more regulations that you have and the more cost and the slower it is to innovate, obviously you're going to get less of it.
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Unknown B
What do you feel like are the major environments, the major less regulated environments today that are producing I guess a lot of innovation? Because it feels like most of the like again like Elon Musk came to the US to do SpaceX and to do Tesla and you've got Silicon Valley for all the tech stuff which theoretically could be done anywhere in the world. It's a computer and a keyboard. Right. So what is the. Why. Why choose the U.S. i guess, yeah.
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Unknown A
I would say because of strong property rights and individual freedoms in relative terms to other parts of the world. And also those industries or the tech industry is very lightly, had been very lightly regulated. Obviously that might be changing and has been changing, you know, in a number of dimensions with AI.
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Unknown C
And why aren't they in Dubai though if like the IFC is so it's.
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Unknown A
The IFC seems like they protect increasing substantially a number of investors, high net worth and entrepreneurs. I mean it's beating every other advanced this country in proportionally speaking in terms of the number of capital and talent that's going over there. In Singapore too, by the way. So it is happening.
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Unknown C
Is there a population cap to what these cities can do? Like, are they, is this the type of invention that can exceed into like the millions, into like an, into like a nation state, for example?
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Unknown A
Not necessarily. I mean, could it. I guess. I mean, Singapore is both a city and a nation state.
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Unknown C
So yeah, I'm thinking something bigger than like a city. Right? Like something that's got like rural land, like Montana. Montana.
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Unknown A
I mean. Well, I'm not sure I understand what the question is. Can a city grow to be big enough as a, as a nation or.
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Unknown C
Yeah, like you're saying. So like this model, you're saying per capita, essentially when you reduce the GDPs and the countries and stuff down to equaling for their size. Dubai and IFC and Singapore are actually innovating at a really, really high rate. I don't know if it's higher than America, but a high rate. And I'm sure you don't necessarily have the numbers. I guess what I'm asking is one thing that's really unique about America is it's highly regulated, but it's also incredibly innovative. And also it's able to collect several million people together and operate a nation state. So I'm curious, like, could Singapore expand its borders to do what? Essentially a nation state, Is it a model that could be spread into a nation state model? Is it.
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Unknown A
I guess what I'm asking the governance system that it has definitely can, can be extended. You obviously have questions of territorial expansion and, you know, the neighbors and all that.
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Unknown C
But I'm gonna wave a wand and everything's gonna be perfect.
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Unknown A
Yeah, yeah. I mean, that, that system can grow and can, can, can serve many more people, but, but once you reach too many people, you have so many efficiencies that emerge from that as well. So the US has 50 different states and I don't know how many cities, but obviously more than 50 cities. And that's a good thing. You fractionalize the population. People aggregate according to various things. Silicon Valley obviously is a mecca of innovation and there's a network effect that goes along with it. But a nation state can be a collection of cities or it can be one big city like Singapore.
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Unknown C
Yeah. I'm just wondering if basically, like, if Singapore has like a population cap, like maybe like. I'm wondering basically, do these models have a selection bias of like. I'm not going to, I'm going to put citizens in quotations, so people who are living there. Right. Is there a selection bias that's occurring. And so you're getting these highly mobile, highly innovated, highly entrepreneurial individuals moving there and living there. And probably to some degree, to thrive there, you have to adopt some level of that type of culture that, for example, couldn't ever truly expand to a nation. Because the reality is that now you don't have a selection bias. You just have people. And some people are highly innovative, and some people are just not going to be highly.
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Unknown A
You mentioned the US And I think it's a great example of, you know, melting pots of sorts where people. You know, it's a country built by immigrants that come from many different places around the world, and they've built it to be what it is today. So you can create a system that people adapt to. And the question is, what is that system fundamentally about what distinguishes it? And I don't think that what distinguishes the US is that it's more bureaucratic than, say, Europe. What distinguishes the US is that it has more freedoms in relative terms, to other places. Most people that come here come in pursuit, not of a heavier hand by the government, but rather more freedoms, economics and individual freedoms. That is the thing that has made the US Different. Obviously, it also regulates. But nobody comes here because it's wonderful to have more regulations as opposed to less.
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Unknown C
Sure. It's just people might be. I guess maybe what Stephen is arguing is it's. It's possible that what, like emerges out of the regulation is part of what draws people here. You know, for example, I think of, like, people with, like, mental disability or severe mental illness. Right. It doesn't feel like the Singapore model has any way of accounting for those types of individuals. Like, where what occurs is it just the cost of, like, the family?
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Unknown B
I think the. So the more formalization. I don't know much about Singapore, so I know that. I think Singapore is like, just a city.
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Unknown A
Right.
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Unknown B
But it's also like a country.
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Unknown A
Yeah, yeah.
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Unknown B
I just know from the map games. I don't know what. I don't know what the deal is.
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Unknown A
It's like a big city. Yeah. But it's also a country.
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Unknown B
Yeah. I guess the. The more the question is, is that, like, obviously for any new city or new zone, you're attracting, like, a very particular type of clientele. But say that they stay there, they begin to live there, they have families. Those families grow up, and all of a sudden you're looking at like, okay, well, now we need to start funding schools and a whole bunch of other public infrastructure. Do you think that the model that you have Would like easily adapt for that or do you kind of like export those problems to other countries? I know you mentioned, I think there's at least one school in the Prospero right now.
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Unknown A
Yeah, I think, I don't know why they have to be like public schools or public hospitals. I mean, obviously your, you know, a population has these needs, so they need to be provided. In our model, and we have a very unique business model. I think our business model is somewhat of an innovation, at least I don't think it had existed before we created it. It is a for profit, but it generates profit by creating, you know, social goods and creating conditions for the maximum number of people to be maximally productive. And in that model there is an incentive to build schools and to build hospitals because you need, you know, well educated people that are also healthy or else you're not going to have a population that's thriving and generating prosperity.
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Unknown B
What's the motivation in that society to be like the person building the hospital if you don't directly kind of like profit from it?
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Unknown A
Would you want a hospital to be built? Because without a hospital you might have health issues and, and all of that.
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Unknown B
Sure.
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Unknown A
So the platform benefits directly by the operation of the hospital and the taxes it will pay and perhaps the profits, but indirectly by making sure the overall population is, is more capable to be more productive. Because, you know, health is sort of a very important service in any given population. So we have a very high incentive for it. And right now we don't have a hospital yet, but it's one of the pain points actually. But there are other hospitals that people can go to and pay for. The main pain point initially in those types of services was education because the alternatives were not perceived to be good enough. So we had to catalyze the creation of a school. But it's a private and for profit school, which for kids that can't afford, you know, their scholarship options, the hospital might operate very similarly. It will be a private and for profit hospital.
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Unknown A
But, you know, if some people can't afford it, you know, you have excess capacity and you can have support systems, you know, before the nation state became the preeminent, you know, welfare system, you have mutual aid societies that worked very well and I would argue perhaps better because people were closer, you know, to the beneficiaries, the benefactors and beneficiaries were closer. And you can really sense that the need was real and the fabric that that emerged out of that was more solid. You felt more connected to the people that were helping you. And the people you were helping. And it, it created more of a community that we've lost a lot of that. I mean you, you good chunk of your money goes to somebody you'll never meet in some other part of the country you'll never go to.
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Unknown B
Okay, I super disagree with that, but I don't want to fight on every single point.
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Unknown A
With the mutual aid society model or just the overarching philosophy.
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Unknown B
I guess with the overarching philosophy, I guess I'm a big. If I say like marginal cost of production or marginal utility for given thing. It seems like one of the reasons why redistribution tends to work is because the marginal utility granted by any particular dollar to an incredibly wealthy person is much lower than the marginal utility granted it to a less wealthy person. And that redistribution would probably never happen in like a naturally occurring environment. Like I'm never, like, I'm a pretty compassionate person, but I'm never giving money to like I'm never giving money to a hungry person in Florida. I don't know any, I don't have any hungry friends or that, that I'm aware that are like starving to death. But like if the government would say, hey listen, we could fix this problem or alleviate a great deal of suffering with some tax and be like, okay, yeah, if you can redistribute it, go for it.
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Unknown B
Because at the end of the day I don't miss, I don't know if I get taxed by some, you know, one or two percentage points or whatever, I don't miss the money. But to other people that could be like, like life changing stuff. So I guess when I'm thinking in terms of like marginal utility to consume, the propensity to consume a given thing, I'm thinking like redistribution is highly effective in these means. And I feel like when I look into the past, like mutual aid societies are very good for like the rich families, but they're very bad for the poor families. And then in a more like Ayn Randian objectivist sense and an enlightened self interest sense, that scenario that you gave earlier where two people are voting to take money from me, I actually much prefer to live in that society because if they didn't have the opportunity to vote to take the money from me, they would just come and kill me and take it.
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Unknown B
And that seems to be what happens in places, places that don't have those like democratic accountability mechanisms is it's like, okay, well there's income inequality here. Like I feel really safe living in the US with income inequality. I think that If I were to move to a less stable state, I would probably spend considerably more income on personal security because I feel like it probably come from, you know. Yeah, sure. But there's also. There's a balance too.
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Unknown A
Of course, I understand there's a balance. I would argue it's you want to have a good social fabric, but you also don't want to destroy the foundations of what is necessary to create prosperity.
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Unknown B
Sure.
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Unknown A
Right. So at some point you do too much of it. The question is, where is that line?
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Unknown B
Yeah.
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Unknown A
And you can define that through elections and that might, you know, have swings back and forth. We'll see where that goes. I think the tendency is to do ever more redistribution unless there's a shocking event and we might be phasing one in the next few years. We'll see. You know, the, the institutions are hard to change. So I'm. Yeah, we'll see what happens. But what tends to happen is that it's a one way ratchet, you know, it's just more, more, more and more over time. It's hard to pull it back.
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Unknown B
Sure. For Prosper, are you guys in your, I guess in your. For going to the World Court? That's Prospera.
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Unknown A
That.
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Unknown B
Does it or does it have to be like the Z A? Like what, what is the.
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Unknown A
You mean the arbitration? Yeah, it's, it's the company.
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Unknown B
Okay.
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Unknown A
Prosper Inc.
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Unknown B
Okay. Okay, gotcha. And are you representing just yourself or that entire semi autonomous zone or is it like a collection of plaintiffs that are all like, represented by you?
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Unknown A
More than one plaintiff, but the primary one is the private company. That is the, you know, equivalent of a private partner in a public private partnership.
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Unknown B
Okay, gotcha.
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Unknown A
And the main issue at stake is that we've gone into Honduras under the expectation and promise that that legal system that that political subdivision of the state called Azadeh would be in place and would be the, you know, the rule sets that apply. And if that, if you take that away, you know, you don't have to go and take the physical land. You've taken the primary source of value to us and you know, the core essence of the bargain that was entered into. And so that's the main issue. And that is an expropriation if you take it away.
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Unknown B
Sure. Because if somebody were to not, not take your stuff, but like just build a giant dome over it so nobody could get in or out, they've essentially expropriated.
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Unknown A
And you don't think the inverse of that.
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Unknown B
Yeah, of course, yeah. Would you guys be happy with the way that this case is going, would you be happy if the government of Honduras basically reversed course and said we are going to honor the full 50 year treaty insofar as the terms are written out? Or do you feel like enough damage has been done that you're the desires to like exit or I guess are there multiple remedies being seeked by your guys's company or are you just looking to basically get paid out in.
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Unknown A
No, we remain primarily focused on a settlement that can let us continue operating in essence with the terms that were agreed upon. The more time goes on, obviously the damage increases exponentially. So at some point we'll will reach a point of no return, but fortunately we're not there yet. The terms of a settlement obviously have to be negotiated and we have to see about all the costs that were cost that were imposed so far. But by and large our preference is to build the vision that we have. It's not to win some arbitration case against any state. In this case Honduras. That's not our business model. And it would be a pity if it ends up being that, to be honest, I mean, you got to remember the genesis of this project is fundamentally about lifting people up and creating better conditions in the developing world.
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Unknown A
But you know, countries have to honor their agreements, right. If you can't do that, then you're definitely not going to attract investment nor foster development of your national industries. So that's also important. And a deal is a deal. So we do expect at a minimum to hold into account, but ideally it's about building division.
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Unknown B
Okay, I don't know this, listen to like public filings, but is like the majority of the, is the majority of the FDI that goes to Prospera, is that from like US based capital or is it.
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Unknown A
Okay, yeah, it's primarily US Capital.
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Unknown B
Okay, gotcha, gotcha.
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Unknown A
That's significant margin. But nationals can invest as well.
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Unknown C
Okay, do you just prosper, operate on the US dollar or do you guys take multiple currencies?
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Unknown A
You mean inside of the jurisdiction? Yeah, it's an open system. Any currency is accepted, including the major cryptocurrencies. In fact, it's the first jurisdiction in the world that recognized Bitcoin in effect as legal tender. You can pay taxes in Bitcoin, for example, even before El Salvador. And it's the first jurisdiction in the world that allows you to use Bitcoin as a official unit of account. So you don't have to, you know, so you can just report it all in Bitcoin. You don't have to Translate it into any other currency. And, and, and that's a big advantage for bitcoin companies.
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Unknown B
What do you ultimately peg your, like, taxation, I guess, in. Is it like a percentage revenue of the country, of the company? Is it a percentage revenue as compared to a particular currency or.
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Unknown A
Well, if it's, if it's a percentage of income and you are bitcoin denominated, then you pay a percentage of the bitcoin profits that you make, or in this case, of the bitcoin revenue. So it's depending on the unit of account that you're using. But the US Dollar is the currency of reference still.
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Unknown B
Okay.
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Unknown A
Originally the prices were quoted in dollars, but anchored on the price of gold. Okay. We might be adjusting that, I don't know, within the next five to 10 years, perhaps to bitcoin instead of gold. We'll see. But you know, bitcoin is still pretty volatile.
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Unknown B
Yeah. Because I was going to say, theoretically, if I did business in your country, let's say you had a 1% tax. If I made 100 bitcoins worth of stuff like right now, and then next year bitcoin crashes to $1,000 each, and then I pay my taxes of one bitcoin. I would imagine you'd probably feel pretty shortchanged by that.
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Unknown A
No. You have the option to change your unit of accounts once.
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Unknown B
Well, yeah, no, but I'm saying it would favor the. It would probably maybe too heavily favor the company there doing business. Like, let's say I make like $100 million because bitcoins are a million each, and then next year it crashes to a dollar each. So I just made $100 million worth of Bitcoin and USD. And then I pay you one Bitcoin in taxes because it's denominated in whatever currency you do business in. It seems like you'd have to peg it to something. Well, to have like, fair collections on.
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Unknown A
No, if you're using bitcoin, you report in bitcoin and you pay in bitcoin. And that cuts both ways. Right. So the same thing could be said that if you create, you know, if you generated 100 bitcoin or 1,000 bitcoin in revenue when bitcoin was 50,000. And by the time you're going to pay taxes, bitcoin is now 200,000, then you're, you know, the same thing would apply, but in reverse.
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Unknown B
Sure.
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Unknown A
And so the US dollar value of what you're paying is much higher. It's just, it's, it's theoretically possible, but it's we're not trying to game it that way.
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Unknown B
Okay, that sounds really complicated for like exports, imports. Are you allowed to do business with like a particular company or do you have to do business with the entire Z? Like if I wanted to buy or sell something from a, from a company that exists inside of that Z A.
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Unknown A
You transact with that company with just that company. Okay. You know, when you set up the terms of the deal, it can be a dollar denominated contract or a euro denominated contract. The one thing is sales tax that.
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Unknown C
Would exist between like if, if I my company sells his company some stuff, is there any sales tax that he's paying?
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Unknown A
If it's intra jurisdiction and it's the final sale to the consumer, then yes, it's 5%.
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Unknown C
Okay, what if he's in America and I sell him like my robot, do I pay? No, that would be the income. That's where it's good.
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Unknown A
So that's equivalent to 1% of the of revenues.
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Unknown C
Gotcha. Okay.
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Unknown A
Calculated as 1% of revenues, but it's 10% of income.
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Unknown C
Okay. And Honduras has no say of like increasing or decreasing that based on like my, like I can export all the robots I want and I just continue to pay the 10 to Prospera. And Prospera does the rev share of the taxes with Honduras?
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Unknown A
Correct? Yeah, the, the terms of legal stability extend to the tax policy and so the tax rates will remain fixed for the stabilization period.
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Unknown C
Okay, gotcha.
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Unknown B
Yeah. Okay, so my complicated question I got to.
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Unknown A
It's not that complicated. I mean the interesting thing here is, you know when you say regulatory choice, right? And you have reciprocity and you go from this paradigm where you have one size fits all, monopolistic and imposed inside of one territory, and then you say, well, actually we're going to create choice. We're going to have 32 different regulatory frameworks that a company can choose from. It feels very complicated. Actually is way more simple to handle than the current status quo. It's as if I were to explain to you, you know, before Uber, okay, you know, right now you need a taxi. It's simple. You just call a number and they'll come pick you up. Instead. If I were to explain to you the way Uber works with gps, you're going to track the car and you're going to. It just sounds like a lot of moving parts.
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Unknown A
But the user experience is a lot more simple. And that's what we've tried to do within Prosper. It's reciprocal use insurance companies as a Way to oversee every regulated entity so that they're compliant. You have multiple parties against which a person that feels hurt can go after not just the company, not just the government, but also an insurance company. So all in all it just creates a lot less friction to operate and it makes it so that companies don't have to go through a huge learning curve each time because they can operate with the system that they know.
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Unknown B
Okay, interesting. Bring other projects or anything going on inside there. I don't remember what time we started. Do you remember what time we started?
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Unknown C
8, 15.
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Unknown B
Okay. No way.
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Unknown A
No, no. 9, 20.
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Unknown B
Okay. Oh yeah.
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Unknown C
I wasn't here.
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Unknown A
Yeah.
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Unknown B
Okay. What of all the, of all the stuff that's occurred within, I guess prosper. And I understand you guys are still early theoretic. I mean in like the life cycle of.
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Unknown A
Yeah. Are you.
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Unknown B
Is there any particular accomplishment or achievement or thing that's happened so far that you're like especially proud of? What's. Yeah, what's the other question first? I guess?
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Unknown A
Well, attracting over $150 million of investments into a country like Honduras. It's, it's in the US Is not that much money. But for that country we represented about 33% of the whole of greenfield foreign direct investments in 2021, 2022, a whole third of the foreign direct investment. And so that, that makes me proud. Over 4,000 jobs have been created in a country that has, you know, a very high poverty rate. Like 52% of the population is deemed poor and a third is extreme poverty. And what that means is that people really do suffer on a day to day basis to create 4,000 jobs as a 4,000 families that now have a way to sustain themselves. That's something that to me is very fulfilling. I mean I like the robotic stuff and the gene therapy, that's kind of cool. But fundamentally, to as a team be responsible for creating that level of opportunity is very rewarding.
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Unknown A
And as our model grows, to be able to do it as a profitable endeavor, I mean if you think in a broader scale to transform socioeconomic development from being either a governmentally sponsored or charitable effort into a for profit endeavor is world changing. You know, it all of a sudden unlocks trillions of dollars that are otherwise just looking for a traditional profit transaction that don't necessarily contribute to the social fabric of countries. It's just exporting goods or selling widgets to now dealing with the, with the most essential societal need for prosperity to emerge. That's very exciting and, and very rewarding. You know, it's, it's already proving itself. It's not been that long. We've been in a challenging environment, globally speaking with COVID and all that, and also domestically with these political issues and even against all of those headwinds, to be able to be making so much progress. It's very encouraging.
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Unknown B
Do you guys have an airport in Prospera or do you have to drive out of the city to get.
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Unknown A
The island has an international airport. We pay for use of it just like everybody else. So we don't have an airport inside of the jurisdiction because we have one within 20 minutes driving.
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Unknown B
What is your. Oh, I just had a question. Just completely. Oh, I'm sorry. I'm sure there are obviously some challenges that you foresaw in setting this up. Has there been anything that's, like, been an unexpected challenge, I guess, in, like, working on a pro? I imagine this is the first project, like, of this magnitude that you've had so much like, personal investment in. What's, like, what do you think has been like, the most surprising challenge so far? We're like, I would have never considered this to be an issue. Or.
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Unknown A
I'll tell you. I don't know if it's surprising, especially in retrospect. But I'll tell you what the biggest challenge has been. The hardest thing to deal with is. And it will sound cliche, ish, but it's. It's the breaking the existing paradigms. You know, in Honduras, it's very hard to get Hondurans to think that they could be the next Singapore. You know, if I were to tell you guys or anybody, you know, Honduras could be the next Singapore, it's like, no way. And it's just like, it's, you know, it just, it feels impossible. And. But it's. There's no reason why it would be impossible. You know, it's been done before. I mean, Singapore is a perfect example. They were more poor than Honduras is today, and now they're one of the wealthiest countries in the world. It can scale. We're a small jurisdiction, but China has shown very successfully how this can scale.
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Unknown A
It went from Hong Kong to Shenzhen and then from Shenzhen to all the provinces. And that's how they've lifted over 600 million people out of poverty. So it definitely can't scale to the whole nation, I think, to your question, although indirectly. But people just don't believe that it's possible because they're used to being, you know, stuck in a certain standard. And, and it's very limiting. It's really, really hard to get people to see a possibility that is not already there of this magnitude at least.
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Unknown B
How old were you when you moved from Venezuela to the U.S. yeah, went.
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Unknown A
To military academy when I was about to turn 15. I was still 14.
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Unknown B
Okay. Military academy in Venezuela. In the U.S. virginia. In Virginia. Okay, so you moved when you were younger than to the U.S. do you think so? So obviously I've, I represent a more regulation, left leaning kind of guy, very anti libertarian. But when I look into South America, there's like two strange kind of like paradigms, I think, that are a little bit defining of the past. I don't know, maybe century one is obviously one of heavy American interventionalism in I think in ways that I think most people agree is probably not that great. But then in another it's this kind of like swing back to where you do have some of these like socialized governments that I think have, despite other people complaining, have failed on like the merits of like these command economies. Like my understanding is that like a heavy part of the Venezuelan economy failing.
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Unknown B
A lot of people like to say it was a change in the price of oil, but it probably did have a lot to do with the expropriation of a lot of Venezuelan companies, of the poor running of a lot of the oil refineries, of the incredibly aggressive price caps that were set on a lot of goods and services and then like capital flight for the country. When you look at dealing with people in South America, do you feel, I guess, like what is it like navigating that conversation where people might be warmer to, or are they warmer in general to like socialist governments, even if they might not necessarily treat them as well because of the negative feelings towards America? Do they not think about like socialism versus capitalism at all? Do they think of America generally like in a positive, like what's it like navigating, I guess like those conversations? Yeah.
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Unknown A
Most Latin Americans look up to the US and they aspire to the American dream, whether it is by moving to the US or by somehow having it in their own country. Maybe because of the interventions of the past or Hollywood. But you know, the US is still seen by and large in high esteem. Latin America is a region that was colonized mostly by the Spaniards and the Portuguese. So there's this anti colonialist feeling. And when a foreign power, in this case the US intervenes, it does ignite this antibody allergic reaction. And sometimes it's on the socialist versus capitalist spectrum, but more often than not it's in the anti colonialist versus foreign intervention perspective. I would say that some Countries, I mean, Argentina, for example, I think is the country that is taking the most radical experiment away from socialism, having been one of the most socialist countries in the hemisphere.
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Unknown A
So that's an ongoing experiment and we'll see how it turns out. The early signs are very positive and promising in any measure. Macroeconomics or even social indicators, crime rates, and all of that is moving in the right direction. As to Venezuela and why it's gotten so poor and why some countries, most countries in the region have that problem, I would say, you know, I would venture to say it's not really because of where they stand in the spectrum of socialism versus capitalism. It's about rule of law or lack thereof. You know, you can have, and it's proven in the Nordic states you can have a very redistributive welfare state. But you all, if you have very high rule of law and economic freedom, you can still be quite prosperous. So really that's the primary access. You know, if you have a homogeneous population and everybody thinks like you and everybody's okay with that level of, you know, regulation and oversight, you can still be a very prosperous population.
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Unknown A
Right. The Nordic States prove it. But you can, you must have rule of law. You must know that, you know, you can count on justice and on security, and many countries in Latin America unfortunately lack that.
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Unknown C
Okay, are you guys kept on the land that you guys can own in Honduras?
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Unknown A
To some extent, yes. Both in absolute terms, but more importantly in practical terms. The land has to be acquired voluntarily, you know, can't be expropriated, at least when it comes to prosper. And the National Congress of Honduras designated only certain parts of the country as being eligible to be put into this regime. So if it's in those departments of the country and you can buy it and then you can put it into the system, then they can expand. At least that's the original vision.
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Unknown C
Okay, are you guys looking to potentially expand or I guess it's probably all determined on right now?
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Unknown A
No. Yeah, right now we don't have the practical option because they're not processing the administrative requests. We, we have acquired more land that is incorporated because they stopped the processes and to some extent we would incorporate a bit more. But it's not like we're going to grow 10x. You know, we might just grow 2x from what we have just to reach a certain critical mass. But all in all, to give you a size of a sense of proportion, the total land inside of the prosper jurisdiction is about 1, 100 acres. Okay, so it's not that much land.
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Unknown C
It's like a big farm.
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Unknown A
Like a big farm, yeah.
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Unknown C
With. With the Z program being basically like kind of cut. You said that it was overseen by the Honduran government. Sorry, I'll. It'll be. I promise it'll be my last question.
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Unknown A
No, no, I'm just looking at notes here, not anything else to make sure. Receive their other topics that we haven't covered. But keep going. I'm listening.
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Unknown C
Will there be. I guess you can't really know, but is anyone overseeing it right now? If it's been cut off because you said it was overseen by the Honduran government, but the government now has said no to its existence, that means there must be very little communication going on between Prospera and the like Za program, which to the government is an obsolete program.
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Unknown A
No, we're still supervised by the same supervisory council. The way the system was set up is that Congress created an oversight committee and gave it operational independence and they remain obligated to oversee this address. That is part of the dispute. No doubts about it. But this council, this committee still exists. They still have authority over us and all the governing entities are still in place.
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Unknown C
Okay.
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Unknown A
Until the government forces it otherwise.
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Unknown C
How big is that council?
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Unknown A
I believe in total they have 12 people, but in particular five are the most active and they have the Central Committee.
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Unknown C
They're appointed, it sounds like by.
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Unknown A
They were nominated by the President, but they had to be approved by Congress.
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Unknown C
Okay, gotcha. And does Prosper have a pretty good relationship with those people? Like is it?
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Unknown A
Yeah, pretty good. Of course, you know, they don't often they say no to requests and proposals that the Z makes, but you know, it's. It's a good working relationship.
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Unknown B
Okay, challenging question. One more. I guess because I'm American and at the end of the day, yes, the only thing that matters is my country. How do you feel coming into the next four years for US administration? So Trump won over Harris. I would imagine that from a regulation point of view, you would probably agree more with the Republican side of Yakon versus the the Democratic side. However, in this case you have a president coming in who seems to be a bit more protectionist when it comes to trade policy. What is the viewpoint, I guess, like from your perspective for that? Do you prefer like as somebody who's going to be dealing externally, I guess, with US markets, dealing with somebody who's a bit more protectionist, or would you prefer dealing with like a Democratic administration that might be less likely to side with you, I guess, in the world Court I know the Biden.
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Unknown B
A lot of left leaning people have had criticisms of IMF stuff, World Court, World bank stuff. Yeah, I guess. What are your feelings on that?
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Unknown A
So, a couple of things. The assumption that I would align more with, let's say the Republican approach is, may be true, but not entirely. Our project is set up outside of the typical political spectrum. It's not really about left versus right. It really isn't. It's, if anything it's about public private partnership versus only public and bureaucratic. Okay. So it's more about injecting market dynamics into the economy and that's not really a left or right issue, as you know.
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Unknown B
I was thinking more just like, like, like such a broad simplification like supply side stimulus versus like demand side stimulus where Democrats seem to be more like we need to get money to people to spend and Republicans are more like we need to get money to producers to produce. Basically.
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Unknown A
Yeah. But where I would disagree with both is that I think that the, the government, insofar as it's a course of entity, should do the least amount possible.
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Unknown B
Okay.
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Unknown A
So as to cause the least amount of.
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Unknown B
Yeah.
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Unknown A
But to your specific question, protectionist policies are a double edged sword. I think the way it's actually going to play out the, the counter China tendency that the Trump administration has will be a favorable development because Western hemisphere countries that align to the US policy will benefit, you know, if, if they are aligned and in fact you're producing there and nearshore and from China, then it's a net positive. You know, macroeconomically, is it a net positive to the US I'm a US citizen too, by choice. I don't know. I mean, certainly theory doesn't support it. Right. It's just another form of enabling existing producers to make more profit, not necessarily for the public to get more of it. I mean, it's not necessarily going to go to more welfare. It might just make big companies more profitable because they're protected against competition. That's what the theory would say.
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Unknown A
But I'm willing to see how it goes. You know, if nothing else, I think it hasn't been tried in a while and if it's counterbalanced with a whole lot of other policies that make operating in the US more competitive, then they might balance each other out. You know, it's. We'll see. I think it's good to see the experiment happen. Right. I think we've tried other things and we see how those have worked out. This approach is not exactly the same type of protectionism as in the past, it's more perhaps national security and nationalistic in nature against what is perceived to be abuses through the free market. So we'll see. I think it's worth a try.
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Unknown B
Okay, gotcha.
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Unknown C
All right. People find you?
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Unknown B
Yeah. What would you shout out? Yeah. What do you want to support?
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Unknown A
Well, so my X account is at Eric Bremen. I haven't been very active in posting, but I'll start to do that, I think, next year.
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Unknown C
2025.
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Unknown A
2025 is the year. Our website is Prosper Co, so you can check it out. And there's a newsletter there you can sign up for. And then you can also look at the rosperglobal handle on X to follow the company's progress in general.
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Unknown B
Cool.
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Unknown C
Cool.
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Unknown B
All right. Well, regardless of disagreement, I mean, I do agree that more experimentation is good, so hopefully there's some type of amicable ends.
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Unknown A
I think we agree a lot more than you realize. In terms of intended outcomes.
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Unknown B
Yeah, maybe. Yeah. Yeah, I would think so. Hopefully. Yeah.
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Unknown C
That's the key is Democrats and Republicans both agree on intended outcomes.
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Unknown A
Do they, though?
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Unknown C
I think so. For the most part. They want their people to be, like, happy, healthy, wealthy, and. And fat, you know, and. And, well, it's just the ideas of how we get there, I guess. It's very, very different.
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Unknown B
Yeah. Regardless, good luck with everything and thank you very much.
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Unknown A
Appreciate it. It was fun.
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Unknown C
Yeah. If you guys are watching on Bridges and you enjoy it, remember we've got a Patreon. We're revitalizing it right now. There's going to be very specific Patreon only content and Discord only available content as well. So if you want to support us, Patreon is definitely the best way to do so. And also, 50% of you who watch are not subscribed to the channel. So do that. Subscribe. The news is divided. Ground News puts it back together so you can see how many sources are reporting on any breaking story, where they fall on the political spectrum, how reliable they are, and who owns them. Compare headlines and read full articles to see which details are prioritized, exaggerated, or left out entirely. Because the more we understand the media, the more we'll understand each other. Visit Ground News to learn more.