How to Create a New City? An Interview with Mark Lutter

I’ll be at South Summit in Madrid this week. Holler if you want to meet!

What if you could create a new city? What rules would you choose? Where would you build it? How would you make it succeed? How would you attract people?

In the premium article from last week, I shared the ideas I had on the topic before I talked with an expert: Mark Lutter, the founder and chairman of the Charter Cities Institute (a nonprofit building the ecosystem for charter cities) and the CEO of Braavos Cities (a charter city development company).

You can see the full interview in my YouTube video here:

Instead of transcribing the words of the conversation, I tried something new: I recreated the insights from our conversation. It helped me process the information and structure it in a way that I think flows more insightfully. The article respects our views and I asked Mark to vet it—and you can always watch the interview if you prefer. I hope you enjoy it!

TOMAS: You’re looking for new cities to build. But you are from the US. The US is big and empty. Why not take over something in the US?

MARK: There are two issues here:

1. Many cities want to grow, but under their own prerogatives. Most cities already have plenty of citizens, with their own culture and dynamics. It’s very hard to get a community like this to throw all this culture out the window and embrace the vision of an external newcomer. It’s easier to start from scratch. A good example is the fact that most cities don’t want to build. They don’t want to increase their density. 30% of New York would be illegal to build today given all the new legal requirements and limitations! San Francisco has effectively banned new construction. What you can do, however, is find a place that is already dynamic and turbocharge that. Even then, in the US, municipalities have been there for so long that entrenched interests have been there for a long time in most of them, and it’s hard to enact change.

2. There are also heavy federal-level limitations to growth. One example is immigration: if you can’t attract top talent from around the world, how can you grow? You have this limit in the US of only 85k H1B visas per year for highly specialized foreign workers, but it has recently hit over 700k applications per year. That’s way too limited. Another one might be NEPA

   1
   environmental reviews. If you can’t build because everything will go through a decade-long review and cost 10x more than in another country, how can you grow?

TOMAS: This suggests that you have some idea of the type of city you want to build. What is it? What’s the vision?

MARK: Progress. As you know, there’s a trend of people focused on progress like economist Tyler Cowen; J. Storrs Hall, author of Where Is My Flying Car; or the Collison brothers, founders of Stripe. They wonder: Why did progress stall? We wanted flying cars, instead we got 140 characters

Regulation and idea creation play a big role in this. The FDA has made new drug approval costly, many drone and VTOL

TOMAS: How aggressive would that agenda for growth be? Would you go for all types of regulatory freedom? Would you allow self-driving cars, self-driving drones, stem cell research?

MARK: New technologies can play a critical role in new cities, but won’t be sufficient to drive population growth. San Francisco, arguably the most interesting city in the world, has less than 10% of its population working in tech. Of those working in tech, fewer than 10% are working on interesting projects. A city needs plumbers, clerks, waiters, accountants, lawyers, etc. The key to building a 21st Century Renaissance City is getting the right mix of industries and combining it with talent attraction.

Attracting innovative technologies is critical for the culture of a city. New York is a finance city despite a fraction of the population working in finance. DC is a political city despite a fraction of the people working in politics. However, attracting people working on new technologies is insufficient to populate a new city, the draw must be combined with other industries.

In the Caribbean, the two obvious choices are hospitality and tech workers. There is already high demand for nice beaches for vacations and second homes. Improving hospitality offerings can accelerate investment, create jobs, and improve airlift. Playa del Carmen in Mexico grew from 17,000 in 1995 to 300,000 today. After hospitality, taking advantage of American demand for high skilled labor can drive economic growth. Building a city with easy access to America and in the same time zone could attract companies like Google and Facebook to open campuses there.

Lastly, you want to attract talent. Recent research shows that fewer college graduates are living in New York and San Francisco than before. High prices have caused these cities to lose dynamism. Attracting the young and hungry with low cost of living and good opportunities can create a dynamic environment.

[Note: I pushed back a bit on this, but I didn’t have time to go into the details so I didn’t press too much. These small groups add up. If you can attract ten groups of 200 people, you have a town of 2,000, enough to justify many amenities that would make moving there more palatable.]

TOMAS: This means you’re going for a more bottom-up approach, where you don’t verbalize your values much, instead of setting a strong vision upfront. It seems to me that strong visions are superior: you can define what the new city or state is about upfront, and then make all the laws and regulations fit these values and that vision. It’s a bit like in companies: early on, you might get away without verbalizing its values because everybody knows each other and it’s easy for founders to steer the ship in the right direction. But if you don’t formalize your values, later on the company’s culture dilutes, and it becomes yet another company.

MARK: I think about culture a lot. I tend to be skeptical of verbalizing values, rather than living them. The most important determinants of company culture are who you hire, who you promote, and who you fire. There’s a big difference between companies and cities, in that you can vet anybody you want or not in a company, but not in a city.

I think some founding regulations and selecting the early joiners goes a long way. Given the regulations I believe in, only those who are in favor of a growth agenda will self-select to join. Then, if you’re careful about who you invite, you can have a very tight-knit community that perpetuates the spirit of the city.

For example, I went to Zuzalu a few weeks ago.

The hero image on Zuzalu’s home page

It’s a pop up village that has about 200 permanent residents organized by Vitalik Buterin, the founder of Ethereum, with a few hundred people coming in and out every week. All these people working remotely in technology would discuss things like longevity, AI, crypto, synthetic biology, and more. I felt more energized than I have in ages, most random conversations I would join were very high quality. There are a few times in history when amazing things happened very fast in very concentrated places—like Renaissance Italy, Industrial Revolution London, or Silicon Valley more recently. When I was at Zuzalu, it felt like it was enough to gather these people for this magic to happen. It feels like this, plus the regulations, is a more minimalist approach, but it might unleash people’s creativity.

The challenge of a city is scaling that type of environment. How do you build the community with existing residents? How do you convince the visitors to stay longer term? Embedding Zuzalu or similar events within a larger vision of a city development can create something beautiful.

TOMAS: We’ve talked about the regulations, and you’ve mentioned a few so far. Tell us more: what are the key regulations you’d like your city to have?

MARK: The keys are urbanism (land use and permitting), immigration, and business flexibility.

On urbanism, you can’t have NIMBYism

More broadly, you might also want to have a say on infrastructure, or at least make sure you will be well-served. If you want to attract people from the US and Europe but there are no flights, good luck.

You must also be able to create companies easily and operate. No lengthy licensing requirement. Taxes need to be reasonable too. I don’t believe in tax arbitrage—we don’t need to be the cheapest place. But obviously we can't charge too much either or people will never come.

Then on immigration, there’s the visa limitation we talked about. How can you create a world-class company when you can’t attract world-class talent because they can’t get visas? So the visa approval process must be swift for any talented person.

New cities will struggle to attract top talent because of limited amenities. There are plenty of nice places in the world, Monaco is a lovely retirement community for millionaires. A new city needs to engage in talent arbitrage, identifying and attracting the talent before they’ve made it.

Many countries are happy to attract tech workers. Digital nomad visas have become somewhat commonplace. More challenging is attracting long term residents before they’ve become successful. Few countries want to allow early stage builders and innovators as their status markers are less legible. How do you create a visa category for startup founders before they’ve gone through an accelerator, or artists before they’ve become recognized. Working closely with the host country to create these visa categories is critical to success.

TOMAS: This touches on the topic of regulation ownership, and cities vs states. What are the areas of jurisdiction that you absolutely need to have, the bare minimum? What are areas that no state would ever give away? What are areas that might be on the table for both?

MARK: The ones I mentioned before are key for me and a city focused on progress.

Then there’s a question of building a city or a state. Balaji Srinivasan focuses a lot on creating new states to escape from existing ones, but that is extremely hard, and I don’t even think it’s that useful in a hyperconnected world. It’s important to be cognisant of local and regional politics. The US is likely to block any Chinese backed new city in the Caribbean. Similarly, if you become a haven for money laundering or drug smuggling you’ll get shut down pretty quick.

While if you want to do something that is within the boundaries of what’s already accepted by the international community, you don’t really need to create a new state from scratch. Just get an existing one to support you.

The key is partnering with governments, not trying to co-opt them. Most governments have national plans, create X jobs, Y housing, and Z GDP growth. Figure out how to work with them to achieve those goals with new city development. Many of the core issues of sovereignty, military or international diplomacy for example, are distractions from building a city.

Most governments are focused on taxes and jobs: jobs get them re-elected, and taxes pay the bills. So they will always be very sensitive to these. If you create something that generates income and jobs, the state will be happy and more open partnering.

Then there are other topics that are more or less sensitive. A key one is the police. Who controls the police? If you are building in a high crime area, it can be critical to control the police.

In some places, police might be mandatory. For example, Ciudad Morazán, in Honduras, needs to control a security force because Honduras is one of the most violent countries in the world, and its police tops the world’s list of most corrupt.

Index of perception of police corruption. Source.

The vision of Ciudad Morazán is to host people who can go out on the street, alone, including women or children, without fearing for their lives. This is a given for us, but not for them.

Market day in Ciudad Morazán.

If instead you establish a city or a SEZ in an extremely safe country, you probably don’t need to own the police.

Another aspect that might be contentious is education. Many countries want to offer public education and think it’s a core aspect of the nation. In those cases, you might need to accept it. In others, you might be able to decide what you want to do with education.

TOMAS: A key aspect to attract people is money. The more money they make, the better. Creating good business opportunities and easy immigration is one way. Another is reducing costs. One way to reduce costs is low taxation. But another one is immigration of low-cost labor. A huge part of the lifestyle in developed economies is possible thanks to low-cost labor that builds infrastructure, takes care of kids, makes bread every morning… Dubai, for example, would have been impossible without this type of labor. Obviously, you don’t need modern-day slavery to make it happen, but you do need low-cost labor. This, of course, means you need to allow for immigration of this type of people. What’s your take on this?

MARK: I’m not sure we need it. There are many advanced economies, like Norway, where they don’t have this type of low-cost labor. So I had a fancy dinner there a few years ago, and it was buffet-style, given the expensive cost of labor. But Oslo is great, and lots of people choose it.

It also creates other types of issues. For example, this might be a hard concession to get from the local government, as this type of immigration might take jobs from locals, who might not approve of it.

Also, in the US, a huge share of people’s cost is real estate, including the cost of workers, who need to pay sky-high rents. If you dramatically reduce real estate costs by building fast and predictably, people will spend less directly (in their housing) and indirectly (because everybody else has lower housing costs, they can also have lower salaries, and that is reflected in final prices). If on top of that you have a reasonable taxation level, you can easily have lower costs than in countries like the US today, and be attractive.

Finally, you shouldn’t optimize for cost only. There are many other things you can make better. For example, you can make sure the streets are so safe that you can let your children play in them. Or you might want to tailor streets to pedestrians rather than cars, something that is uncommon in the US, so might be very valuable for Americans, who may decide to come. It’s not all just money.

TOMAS: I agree that real estate and tax costs are important. I believe low-cost labor is another important component too, though. But I have not been faced with getting the buy-in of governments, which usually also means the buy-in of its residents. How do you do that?

MARK: You want everybody to win—us, newcomers, visitors, the government, current locals… It’s not easy, and it really depends on the city and government. But you can’t structure this if those who already live there don’t think this is good for them too. And mass immigration of low-cost labor is frequently a non-starter.

You also want to avoid a complete seclusion of this new city. You want the current locals and the newcomers to engage with each other. You might do that by organizing trips and visits from one to the other early on, see how people live, maybe visit their churches and show respect… Show that you can increase the dynamism of the area while still respecting and incorporating the local culture.

In any case, this is one of the biggest challenges when structuring this type of deal: how do you get the locals to share the success?

This is the Oxagon, part of the Neom project in Saudi Arabia

TOMAS: You mention you need to attract newcomers too, and it’s hard at the beginning. How do you think about the problem of chicken-and-egg growth?

MARK: Much of the challenge is structuring the project well. This means a good location, good infrastructure, and a welcoming government. If you have those things, demand will drive itself.

You want to start with a focus on job creation. In the Caribbean, this means tourism. That keeps the government and locals happy. You pair job creation with community. This could mean hosting Zuzalu or a similar event. Using events to draw crowds, some of whom stay long term, can plant the seeds of a community.

Covid shook loose something in the world. Many people are more nomadic than before, looking for the right environment. People are moving to places like Portugal, Mexico City, and Prospera. The right environment, embedded within a long term vision of a city, can attract talent and plant the seeds for a community. The role of the developer is to be more of a gardener than a carpenter. You can’t build a community, but you can create the conditions for one to grow.

The Zuzalu experiment shows this is possible. You can attract digital nomads early on, who might want to try the city for a few weeks or a few months, as well as people I call the "Zoom Class", who might be looking for something a bit more permanent, but might be flexible on where they work and might want to try a new place. If there are 10,000 people interested in doing this every year, and they each spend 3 months in the city, that’s 2,500 people, even if most of them rotate.

Zuzalu is also a good example in another way, which is the fact that it wasn’t an advertised event. Yet hundreds of people went there, including famous ones like Grimes, who heard about it, went, spent some time there, and even performed a couple of times. If you structure this well, you can spread it as a cool event, some people might check it out, some people might stay, others might come back, and this adds people over time, and also shapes culture.

An anchor tenant can help drive the creation of amenities and community.. Somebody that creates an office there, like for example a Google. Imagine the pitch: Hey Google, last year you only got 2k visas out of the 5k you applied for. If you open a campus here for 500-1000 people, I guarantee we will get you visas for them all.

But if you only need, say, 5% of tech people to shape the culture, they might be easier to get than the remaining 95%. So you want other poles of growth. For example, if you secure land in a beautiful region, you can attract tourism, especially if the tax situation is attractive and you’re not too far away from a place like the US or Europe. We see many coastal cities spring up like that.

If you want to grow a city, you probably want to cater to several of these communities in parallel.

TOMAS: Based on these requirements, where are you considering creating such a city?

MARK: It really depends on the project. You want to build a project that has demand, so you want to see who is migrating today. There are two types of migrants. One rural to urban migration in the global south. My non-profit has been working for years with countries primarily in Africa to create new cities and SEZ that achieve catch-up growth.

The other is from developed to developed economy, which is the one I’m focusing on right now. It’s this frontier city, this renaissance city. Doing something close to the US makes a lot of sense: you can attract both tech workers and tourists, because the trip is short from here and the time zones are close.

[Note: a previous article from Uncharted Territories about the Caribbean, Part 1 and Part 2]

The Caribbean is ideal: it’s close, and it’s great for tourism too. It also has many states, so you’re not limited to a single state in the hopes they’d be open to this idea. So it’s one of the areas we’ve been looking at more closely.

Where would you build a new city?

TOMAS: What about infrastructure? When you look at all the most successful cities, they have been trade hubs, which requires transportation infrastructure. Obviously, if you can build a successful port or airport, a canal in Central America, or even a freeway or railroad, you might have a huge advantage with the traffic bringing business opportunities and wealth. Do you look for this? Can you control that?

MARK: Infrastructure is a critical part of city development. You need an airport, ideally also proximity to a port. A city developer should be the master concessionaire, able to control infrastructure in the city.

Most new city projects overbuild infrastructure. They see infrastructure as defining the city, rather than people as defining the city. The Line in Saudi Arabia is perhaps the prime example of this.

Infrastructure, however, is a mature market. Once you have land and proven out demand, getting infrastructure financing is possible.

TOMAS: So in summary, you’re thinking of creating a city in the Caribbean, focused on progress, making it easy to go live there, create businesses, hire people, and build things. If people are interested in this vision, and they want to participate or help, what should they do?

MARK: You can contact me, I’m @MarkLutter on Twitter, my direct messages are open. Or email me at [email protected]. You can contact me especially if you’re interested in relocating, if you have a company who might be interested in relocating, if you’re interested in building something, if you want to help in financing… Happy to chat about any of that. I’m looking forward to building a 21st century Renaissance city in the Caribbean!

Share