Michael Strong joins us this week to talk about the role that capitalism and social entrepreneurship play in alleviating global poverty.
We also discuss special economic zones, startup cities, the right of exit, mechanisms of public choice, and seasteading.
Show Notes and Further Reading
Strong is the author of Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems (2009) and The Habit of Thought: From Socratic Seminars to Socratic Practice (1997).
Here’s our Free Thoughts episode with Bruce Benson.
John Hasnas’s essay “The Obviousness of Anarchy”.
Trevor Burrus: Welcome to Free Thoughts. I’m Trevor Burrus.
Aaron Powell: And I’m Aaron Powell.
Trevor Burrus: Joining us today is Michael Strong, the co-founder of Conscious Capitalism and the CEO and Chief Visionary Officer of Radical Social Entrepreneurs. He is the lead author of Be the Solution: How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems and the author of The Habit of Thought: From Socratic Seminars to Socratic Practice. Welcome [00:00:30] to Free Thoughts, Michael.
Michael Strong: Thank you. I’m delighted to be here.
Trevor Burrus: I’d like to start with your background because you’ve had a history … an interesting history and you weren’t always into free markets. What brought you to this point?
Michael Strong: Absolutely, thank you. My parents were not educated. I basically educated myself discovering Harper’s New York Review of Books, New Republic, and so forth. As a college student, I realized that all smart people were socialists. We all admired Scandinavian socialism. [00:01:00] Then I discovered that economists, in particular Chicago economists, believe that free markets were good. With all the hubris of youth, I thought, well, clearly, they must be missing something. For graduate school, I went to the University of Chicago, in the Committee on Social Thought. I went there to discover where the Chicago economists went wrong. I realized quickly enough that I was absolutely clueless about economics, so I ended up doing a dissertation under Gary Becker [00:01:30] on Ideas and Culture as Human Capital and really became free market then, once I understood the benefit of free markets.
Later, I went to an Institute for Humane Studies workshop and discovered both anarcho-capitalism, David Friedman’s work and so forth and then Austrian economics, Hayek in particular. I’ve become ever more deeply interested in these fabulously powerful paradigms, intellectual and moral paradigms, ever since.
Trevor Burrus: But you didn’t end up going into academia.
Michael Strong: [00:02:00] No, while I was in graduate school in Chicago, I began training too. I went Saint John’s College as an undergraduate, four years, where you read and discuss the great books in Socratic discussions, and I loved it. I had earlier gone to Harvard, bored by having famous people talk at me so while in graduate school in Chicago; I began training teachers to Mortimer Adler’s Paideia Project to lead Socratic seminars in their classroom. That led to a full time job training teachers [00:02:30] in Alaska to lead Socratic seminars. We were on soft money and when the grants ran out, some parents asked me to create a private school based on the same Socratic principles. That led to me essentially becoming, by accident, an educational entrepreneur.
I’ve spent most of my life then creating small schools based on Socratic inquiry, entrepreneurship, and personal development in both charter schools and private school contexts.
Aaron Powell: A lot of your [00:03:00] work and writings have to do with social entrepreneurship. Can you tell us what that is, how that’s different from just starting a business or regular kind of entrepreneurship?
Michael Strong: Absolutely. Well, I am absolutely a do-gooder. When I was on the left, I wanted to make the world a better place: peace, prosperity, happiness, and well-being for all. It was only through studying economics that I realized government is a catastrophically bad mechanism for making the world a better place; entrepreneurship is a much better one. To [00:03:30] connect it directly, in I think it was about 2001, I met John Mackey, now CEO of Whole Foods, founder of Whole Foods … co-founder. He and I agreed that entrepreneurship was more effective at making the world a better place than government. Really, ideologically, I describe myself more as a radical social entrepreneur than as a libertarian, simply because, for me, it’s not about reduced taxes and regulation par se.
It’s the government systemically prevents people from making the world a better place through [00:04:00] entrepreneurial initiative.
Trevor Burrus: You really don’t draw these limits, as your book is subtitled, How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems, which is quite a claim.
Michael Strong: Well, absolutely. Just to go out there in one example, one of the … when I began working with what was originally FLOW, Conscious Capitalism and Radical Social Entrepreneurs, the spin-offs with Mackey, we were looking at how micro-entrepreneurs [00:04:30] had brought millions of people - a little, tiny, but out of poverty -through microloans; The whole Silicon Valley tech entrepreneurship solving problems thing was really getting going. When I really looked into it, the biggest one was global poverty. I met Mark Fraser, who’s a … who’d been a free zone developer and consultant for years. He made the case that the reason poor countries are poor were bad law and governance. Way back, [00:05:00] Milton Friedman had basically proposed a replicate Hong Kong in order to create prosperity around the world.
Through Mark Fraser and others, I began really looking into how can we create zones with higher quality law and governance in order to create prosperity? Eventually, that led to my involvement in a free zone in Honduras. It was mistakenly associated with Paul Romer in Charter Cities, but Romer was an afterthought from the Honduran prospective. [00:05:30] Just before getting into all these solve all the problems, and I’ve got ideas for other things, the big one is global poverty. In China, thanks to special economic zones, in the last 30 years, average GDP per capita has increased from about $1,000 per person to about $6,000 per person - its’ average urban wages actually. With about 700 million urban Chinese, never before in human history have so many people escaped poverty so dramatically. That alone [00:06:00] is a spectacular improvement.
As zones around the world are being designed to improve law and governance, I see, as do many people in this movement, that we can very rapidly eliminate global poverty if we’re allowed to do so.
Aaron Powell: What is exactly a free zone or a special economic zone?
Michael Strong: Well, they really began … the modern era began in the 1930s, when the governments around the world became heavily status-ed A [00:06:30] zone was really a very localized region that was exempt from some of the trade barriers and later some taxes and regulations, because no matter what national politics dictated in terms of heavily status policies, realistically you need to trade to have some prosperity. Export processing zones, which was one of the first phases, led to where there were, in some cases, no tariffs on goods produced within the zone [00:07:00] for export. Export processing zones led to greater prosperity in Taiwan, South Korea, in Japan, Ireland, Mexico, Mauritius, in some way [respects 00:07:12], India, later China, of course. The idea was it’s very difficult to get a good policy passed on a nation-state basis, but it’s very possible within a small localized zone.
In Dubai, there’s a financial zone that’s 110 acres. Chinese special economic [00:07:30] zones are city-scale, so much larger. But the point is you don’t have to fight all the vested interests if you only want reforms in a zone. Bob Haywood, who is the Executive Director of the World Economic Processing Zones Association for decades, is one of the world’s leading experts. He believes that zones are a path around Douglas North’s natural state issue, where basically oligarchy is the natural state of things. The miracle is why it’s not oligarchy everywhere all the time. He points out that very often zones are initiated, [00:08:00] not by the central oligarchs, but by the second cousin - the rent-seekers who are a little bit on the outside, maybe the younger brother or somebody who’s not already at the middle at the rent-seeking system but has influence enough to say, “Hey, guys. Just give me a little freedom in the zone,” and the rest of the family says, “Okay, whatever. You could have your little zone over there.” Then it’s more formal than that, but he said underline whatever’s going on in public, those sorts of family dynamics that are going on in the background [00:08:30] that allows these little zones to be created. Then those zones become prosperous and as they become prosperous, everybody else wants in on it. That’s how zones have expanded, both to greater geographical territory, but also, Haywood makes a compelling case: the zones have led to broader economic liberalization. As some of the elites in some of these countries realize, there’s more to be heard through more economic freedom rather than the tight, closed rent-seeking oligarchy that’s, again, North’s natural [00:09:00] state.
Trevor Burrus: Now you mentioned Dubai and it seems weird, maybe because we just think of states as doing what states generally do, that they would be like, “Here’s …” and you say, “110 square miles.” What do they actually do to setup a zone that was different? Was there a line that you cross and everything is suddenly very different, different police and everything? What do they actually do to do that?
Michael Strong: Not that extreme. To be clear, Dubai [00:09:30] has been one of the most innovative zone creators around the world. There are four businesses that want to identify the best jurisdiction within which to do business. There are lists made by trade associations of the best zones in the world. Out of the top … Dubai has, I don’t know, 15, 20 zones at this point. Out of the world’s top ranked zones, many of them were Dubai’s. There’s an airport zone, there’s an IT zone, and there’s a financial zone. Dubai [00:10:00] has created a model, and I think the leaders of Dubai deserve credit for this, for creating zone where there are both special freedoms within those zones, as well as some deliberate government-led attempt to concentrate the talents.
Industrial policy has a bad name among libertarians, but on a tiny, tiny scale of a city state, especially a tiny zone within a city state, I think Dubai, like Singapore, is run almost more like a business than just like a [00:10:30] regular nation state. But within these zones, then, there’s a deliberate attempt to attract capital and talent based on specially designed zone rules. The most exciting of which, the one that I regard as an important precedent, is the Dubai International Financial Center, which has a different legal system. Typically, the zone has simply fewer laws and regulations, but same legal system. Dubai wanted to be a world class financial center. This was the [00:11:00] early 2000s. Sharia law is not very friendly to finance so they’re very pragmatic.
They identified British common law and they identified a prestigious commercial law judge from Britain and another one from Singapore. Now they’ve got a panel of some 20 prestigious judges from around the world from credible jurisdictions and those judges actually handle cases, commercial law cases, within the zone based on British commercial law. As a consequence of that, they succeeded [00:11:30] in attracting Citibank and Goldman Sachs and all of the big finance institutions and Dubai has become the finance hub of Middle East. They went from basically nothing to a top 20 financial center in less than 20 years by means of importing best-of-class commercial financial law.
Aaron Powell: I’m struck by the selection of countries that you’ve mentioned, because you started this by saying that government is … We need to free up entrepreneurship [00:12:00] and government is what gets in the way, but the countries that you’ve mentioned, Dubai and China and Honduras, aren’t exactly prime examples of human liberty. These are fairly autocratic or authoritarian or restrictive regimes. Is there a … First, is there a tension there? Then, second, why are countries like that willing to set up zones as opposed to, [00:12:30] say, freer western nations?
Michael Strong: Well, first of all, I’d love for all of them to have both personal liberty and economic liberty, but the fact is when we look at potential sites for zones, I would say desperation and enlightenment are what we’re looking for, and desperation and poverty. The world … Living in the United States, almost everything I see, that people care about on campuses anymore are definitely first world problems. Somehow … My [00:13:00] sense is the Left doesn’t care about global poverty anymore because free markets are the solution. There are, believe it or not, billions of people that are incredibly poor - actually the New York Times gave a great example - just because it’s there but nobody cares about children dying anymore.
I hate to say but in New York Times a great cover story on factories, [Makela 00:13:20] sort of things in India, who talked about these rural women, who, in their rural villages were required to wash the feet of their in-laws and drink [00:13:30] the dirty water from the parents, the in-laws, after washing their feet. Then, they go to the city to get a job in a sweat shop and are much happier. When you just … hello … talk about Dubai, yes. Human rights violations in Dubai are horrible; meanwhile, there are people in Tubek who sell their 10-year old daughters into sex slavery. Would you rather … in a poll, would you rather fly to Dubai and be treated like crap or sell your daughter into sex slavery? In Libya right now, they are selling Africans.
[00:14:00] There are slave markets and that’s gotten some media, thank goodness, where Africans are being sold in old-fashioned, 19th century –what we thought were long gone - slave markets. The fact is that global poverty is still an immense problem and people need to move …. I describe the world as ‘zone for poverty’. One of the analogies is that, if you look at real estate development, often real estate developers will try to get a piece of land, designated commercial zone, rather [00:14:30] than residential and very often, the value of the land can go up two times, three times, four times or whatever, simply by changing zoning. Instead of from residential to commercial, you can think of zone for poverty to zone for prosperity. Most of the world is zone for poverty.
It was one of the most cruel and horrific things we’ve ever done to zone the world that people are so desperate they will go and sell their daughters into sex slavery or go in … risk being enslaved. [00:15:00] Even Honduran immigrants come in the US. They leave Honduras, and then pay coyotes $10,000, they may be forced to smuggle drugs across the border, and they may be raped in the process. They get to the US, they have no rights. Somehow we need to remember that the most urgent need is for people to move up from desperate, desperate sole grinding poverty to a descent standard of living. If that happens, it happens to be in countries that are not glamorous for human rights and individual liberty.
[00:15:30] Maslow’s hierarchy, let’s get people to the point where they have a descent standard of living. Then, lots and lots of bells and whistles … yes let’s all be as wonderful as the most wonderful places on earth but we’ve got some pretty fundamental issues we got to work on first.
Trevor Burrus: You have an article with a great title that is relevant to what you just said. It’s called, ‘Naomi Klein Is a Young Earth Creationist’. What is that? What are you saying there?
Michael Strong: One of the things that really [00:16:00] frustrates me, and Naomi Klein is a really important symbol of this is, over the last - and this is very mainstream – over the last 30 years more people have escaped poverty more than ever before in history. China’s big case, I already mentioned that. Roughly a billion people have come out of poverty, thanks to greater economic freedom. No one disputes … the economic critics all talk as if neo-liberalism was this evil conspiracy – this horrible evil right wing conspiracy. Meanwhile, neo-liberalism for the most part is another name for greater economic freedom. Compared [00:16:30] to 1980, there’s dramatically more economic freedom in most countries in the world, not the US by the way.
In most nations, there’s more economic freedom and much more prosperity and it’s been one of the greatest gifts to human kind ever. When I read about academic humanist or critics of neo-liberalism like Naomi Klein claiming that through capitalism, the rich get rich and the poor get poor – that’s insane. No credible economist claimed that the poor have gotten poorer in [00:17:00] the last 30 years. On balance, more people have escaped poverty. We just need to call these people out. They need to be ashamed. I still run into people who are shocked to hear that people in China are better off than 30 years ago. People in India, on average, are better off than they were 30 years ago.
Most countries have actually improved. We need to make this absolutely mainstream. Just as a younger creationist, or someone who denies evolutionary theories, they’re wacko crazy. Too, i think most of the academic humanities [00:17:30] and all those who assign Naomi Klein clueless neo … anti-neoliberal books need to recognize its not even credible. It’s basically like Young Earth Creationism, forget it. We can talk about how to make capitalism better for more people and to help more people escape … there are a lot of interesting legitimate conversations but the notion that capitalism simply makes rich richer and poor poorer is insane.
Aaron Powell: You mentioned special economic zones, is that the same or different [00:18:00] than free cities and start up cities or are they all the same thing?
Michael Strong: That’s a great thing. One issue is, where there’s not a common terminology because all of these things have happened ad hock, around the world in all sorts of different ways. I would say the notion of free cities and startup cities is more ambitious. Originally … again, zones were simply reduced tax regulations. China innovation in part was to go from little export processing zones to city scale, machines in. Now the world’s manufacturing [00:18:30] headquarters is a very significant city and the entire city is a zone. Most of the big zones in China are city scale. The next stage is to combine the Dubai innovation of actually implementing a new legal system at city scale that’s not yet been done, but that’s the concept of free cities. I’ll give a little more credit charter cities or start up cities Mark Klugman, an advisor of the Honduran government, calls them leap zones.
But I think [00:19:00] the next important innovation are city scale zones with access to higher quality law and governance. When we are allowed to create those, then we’ll really accelerate the end of poverty.
Aaron Powell: What’s the incentive for a place like China to do that? Say, if you set up an economic zone and it generates a lot of wealth then, presumably they can take part of that in taxes or it benefits the country and the government directly in that way; [00:19:30] but say, importing more liberal laws, wouldn’t that be scary for a country like China where they say, “Suddenly this city gets to live under significantly more liberal laws than anywhere else. If it works really well, that’s going to look … they’re going to have to explain to the rest of the citizens why they’re not doing it everywhere else.
Michael Strong: That’s certainly a legitimate concern and in China, they experimented on a small scale first. What people don’t realize is the first [00:20:00] zones were designed and implemented in around 1980. Even by the mid-1980s it looked as if they had failed. Bob Haywood send me an article, I think from 1986, that announced that the special economic zones experiment had been a failure after six years. Anyway, now it’s one of the greatest successes ever. By means of these little experiments, China did want to become more prosperous and then through Milton Friedman had actually gone and talked to the Chinese government in the late 1970s. [00:20:30] By the way people always talk about how he went and advised Pinochet for an hour.
He went to the Chinese leaders who were at least as wicked as Pinochet, and in China’s case, it led in part to great prosperity through zones. The idea is that, if a country does want to become prosperous, and this is a desperate notion, they are willing to engage in these experiments. Honduras talking of the tax thing is an interesting thing. After the now recent Honduran [00:21:00] election I’m not sure its going to move forward but there, there’s an explicit design in the legislation where the central government gets 12% of the tax raised within the central government and within the zone and a consequence, if the zone does become prosperous the central government has a source of income.
The Honduran who designed the legislation was brilliant because, in addition to that feature, the cash from the zone is allocated between the Legislative branch, Executive branch, Judicial branch, [00:21:30] Military and Municipalities. That’s a straight forward way to get buy-in from all those sectors. In addition, it must go through an Honduran bank and basically there are three Honduran banks owned by the few and so they get the float on this tax. In many ways, that’s possible to design the legislation so that the right people get paid off as it were in the open transparently. In addition, there are things such as certain pieces of land designated [00:22:00] so … it just so happens the president’s cousin owned that piece of land. It’s not that interesting how that became designated zone because land values goes up with the zone.
A lot of this, when you get into pragmatic zone dynamics, it is a matter of, how do we incentivize the decision makers so that the prosperity does benefit those who are influential enough to make it happen. It can still be a risk and that’s one of the reasons why there are often oppositions [00:22:30] to zones. It’s the rent seekers who do believe that their rents may be threatened … may on a newspaper say and publish really hostile articles on the newspaper. As with all legislations, at some level interest space and you need to find a set of interest who is officially aligned to support the zone because short, medium or in the long term, they will gain.
Trevor Burrus: Are there any start up cities going right now? I have friends, acquaintances around pure libertarian road on Washington [00:23:00] DC who are working on that and have written about it in different ways. I’m unclear on whether or not there’s something that could actually be called a startup city that is going. I keep hearing about, “We’re pushing in Honduras. We’re pushing in different countries,” but there seems to be a lot of setbacks.
Michael Strong: First of all, you have to remember that all of this takes place at the pace of government and government is slow. Honduras is the long, slow battle. We … there is really excellent legislation in place and with respect to [00:23:30] the opportunity to create a startup city. There are … everything is in place. The recent election may be a setback, we do not yet know, but if the new president does support the startup cities in Honduras it could happen quickly there. There’s also an interesting situation in Myanmar where there’s … the current tribe was engaged in a civil war. It’s the longest running civil war, something like 75 years. They mostly settled around five years ago with central government more recently but there were [00:24:00] a few more flare ups after that.
More recently it looks as if there’s stability there and the current tribe, in exchange for a cease fire in essence has obtained legal autonomy. There is … We can very early stage, pretty much call it a startup city. It might have become an opportunity, it’s looking cautiously optimistic. I know it’s … Basically, with all these things the way to think about it is that, even with a zone, even [00:24:30] if a country designates a zone with new legal system before you get significant capital and talent to come into it they need to trust that the government will respect the new rules in that zone. There’re all sorts of legal machinery that one can impose and incentive machinery that one can impose to increase the probability that the government will respect it.
Realistically, it could take a couple of years for investors to see, “Okay, that contractual dispute [00:25:00] was settled with the new legal rules in place. That opportunity to confiscate when buying – they didn’t confiscate.” Just in the zones, we can land-value gains through one of the business models we have. Often, the land values do not increase much in the first year, two years, three years, four years because nobody is going to trust the government to respect the rules until there’ve been a few test cases. After … China’s special economic zone looked like a failure for six years but after there is that credibility that’s [00:25:30] been built up then you can see more capital and talent coming in to the zone. I would say the Krinn tribe says they have autonomy now, would I invest a million dollars? I don’t think so but you start small and you build up. I see this as a startup. Eventually, capitalists know that most of their portfolio is going to end up losing money but you want to work that on a few winners. I think the way to think around this is, not that there is one magic project out there but rather that the need is [00:26:00] so tremendous. I would say the intellectual sophistication around this is developing rapidly. I know hundreds of people involved in this movement and everybody brings a different piece to the puzzle and often they’re working with different jurisdictions; and each of these jurisdictions could take five, 10, 15 years before they really prove themselves as a legitimate set of new rules.
If you think of it that way, then there are several of these zones that are in process and might turn out to be a winner [00:26:30] but we can’t yet promise on any particular one is a definite winner.
Aaron Powell: I want to go back to something you said and I want to see how it relates to this. You were describing your intellectual journey at the start of our conversation. You said you went from standard campus socialist to Chicago school of economics and then the IHS to David Friedman’s style on anarcho-capitalism. I was curious how these [00:27:00] things fit in with that particular view. Do you see zones and startup cities and free cities as a stepping stone to that? Do you see them as evidence that an anarcho-capitalism would be ultimately the way to go, as a system of pure entrepreneurship?
Michael Strong: Certainly, that’s the direction I’m going but to add a little bit of nuance to that, for one, I don’t know if you’re familiar with Spencer MacCallum. Spencer MacCallum has something … he wrote an article called the Enterprise [00:27:30] of Community. His version is, other than competing mutual defense societies with neighbors and so forth to have geographical contiguous basis, somehow like a shopping mall with different tenants, Spencer MacCallum’s model is a multi-tenant property and with the different tenants renting from it as if it we’re a private landlord, that private landlord can increasingly take on the functions of a state. People [00:28:00] and especially the disputed on anarcho-capitalism get way too caught up in binaries - is it or is not.
I actually think there is a continuum between the private entity and the government. If you’re talking about a private residential community with a Home Owner Association and the Home Owners Association gradually takes on more and more roles and obtains more autonomy vis-a-vis the central government, at what point exactly does it move from being a private public entity? You [00:28:30] can stipulate arbitrary boundaries; maybe if they have private police enforcement but private police enforcement at what case can a situation be escalated to an outside authority. If it’s never, maybe then it’s hard to grow an anarcho-capitalism. I see this infinite continuum … I’m a big fan of Eleanor and Vincent Ostrom’s notion of institutional diversity.
I want more opportunities for prosperity around the world; I want entrepreneurs to create those. I actually think one of the competing [00:29:00] ways through which jurisdictions will win is by providing higher quality human rights. A lot of the leftists attack on anarcho-capitalism is they picture these dystopias. What if instead of dystopias we had really smart entrepreneurs doing, maybe, conscious capitalism, nonprofit, trust hybrids where the real goal is to have brilliant protection of rights – both property rights and human rights. There would be different bundles [00:29:30] of these rights so maybe … In Senegal you get one bundle of human rights and in Burma you’re Myanmar, the Krinn tribe you get a different bundle of human rights and then a Honduran Zeti has a different bundle.
Right now, there’s the illusion that through democracy we have protection of rights in the US. Anybody who reads Radley Balko’s work knows that’s ridiculous. You know, libertarians are well aware that extreme violation of rights from every direction. The notion that majoritarianism protects [00:30:00] rights is absurd. The constitution was designed to protect rights, of course that’s degraded. As we see rights not being protected by existing jurisdictions around the world, once we get over the simple high school civics fantasy that government’s there to protect your rights and we start beginning to think about entrepreneurial creation of jurisdiction; Nearly, there might be some- if you will- evil dysfunctional zones but I’m a great believer in the market place.
If you go to grocery stores, look at [00:30:30] Whole Foods, you’re treated nicely. Entrepreneurs have an incentive to treat customers nicely. Now you can say, “Oh, we only treat the rich customers nice.” Well in the US basically if you’re poor, you’re screwed all over the place too. Its … again Stigler said before we consider which opera singer is better, we have to listen to both. We need really to look at how badly dysfunctional government is and then not think of anarcho-capitalism as simply a matter of strictly aggressively for profit, [00:31:00] but for profit entities based on an alignment of interest between their various stakeholders. It’s kind of conscious capitalism 101, which include … we protect rights better than anybody else.
I’d love to see 500,000 different jurisdictions around the world advertising the extent to which they protect rights better than anyone else. I think that’s a very plausible world. One other footnote on that though is, and realistically the US is going to be the hedge man probably for another 50 years maybe 100 years, I would very much have the [00:31:30] US as the hedge man rather than Russia or China. When I picture a world of exploding jurisdictions that are entrepreneurial in nature, that do become quasi anarcho-capitalism … As bad as the US government is in its international policy, still I’d rather have the US be the bully than Russia or China as the bully. With that proviso, yeah very much moving towards sort of, enterprise community style anarcho-capitalism.
Aaron Powell: This term - [00:32:00] Conscious Capitalism- that you used a few times, we need to get some clarity on what you mean by that and how it differs from standard profit-driven capitalism. Maybe, imagine a company like Apple computers which is capitalist right now, how would … what would Apple be doing differently if it were consciously capitalist?
Michael Strong: A couple of things and much of these comes from John Mackey and who really led on this one. [00:32:30] First of all, although there is the machinery of markets that necessitates profitability and the more profitable … high returns on investment are going to be preferred to lower returns on investment. That said, there are a couple of other things going on and Milton Friedman and John Mackey had a great debate on this in Reason magazine, maybe 15 years ago. One element is, first of all people love to … by nature we want to be driven by a purpose. [00:33:00] Of course, some people, their purpose is to make as much money as possible but a lot of young employees and talented young people want to work for companies. You could say its window-dressing, but companies that have a purpose since we may be cynical and say its window dressing.
I actually think, again, Maslow’s hierarchy a lot of people would rather work for some company where they believe they were doing good than some company that they thought they were engaged in evil. Part of my dissertation with Becker was looking at shadow prices for [00:33:30] ideas in culture. Becker’s very empirically pragmatic question is, “Are there shadow prices?” For instance, might a person of talent X-maybe an MBA from a great university-if he could work for a company that he thought he thought he was eliminating global poverty versus a company that he thought was robbing widows—or she—and there was a salary sacrifice of 20% of the do-gooder [00:34:00] company rather than the lets-kill-all-the-widows-and-orphans company. That’s a shadow price of 20% salary for working with the purpose driven company.
If we’re really talking about killing widows and orphans versus ending global poverty, actually that shadow price for working for a do-good company would be higher than that. Over time, that mechanism along with the consumer mechanism … Again there are estimates that one third of consumer purchases in the US are based, to some extent, on perception of the values of the company. [00:34:30] You get a lot of ridiculousness out there. I’m not claiming that they don’t make sense but I think due to Maslow’s hierarchy, as we become more prosperous, more of us are going to want to make decisions of various sorts based on meaning and purpose. We want to be allied with good guys and I think that that is an active mechanism. I actually wanted to write a book on Mises plus Maslow, because basically yes Mises is great economics and its hardcore libertarian as you wish.
[00:35:00] But there are Maslovian mechanism also active and I believe those will grow. If you combine reputation mechanisms, there’s a possible reason to believe that direction will increase in the 21st century.
Trevor Burrus: If we go back to the discussion of special zones and increasing the amounts of jurisdictions, it seems that although there would be very good ones; you said protecting human rights and trying to get people to come to you because you protect human rights, there’s an adherent [00:35:30] problem of, right now, the poverty. The right of exit is very difficult if you’re poor and there definitely are people … You brought up selling into sex slavery, now that’s a for-profit in sense being driven by the profit motive. Doesn’t have any of the conscious capitalism obviously but it’s a really good example of how bad the profit motive can be. It seems that, if we did create certain areas like that where Myanmar where there’s a lot of Human rights abuses going on right now, it could go really [00:36:00] badly for the poor as opposed to the relatively well-off who can leave just as we could leave McDonald’s by transporting yourself and your family and whoever else is just not available to the poor.
Michael Strong: That’s a great question. I want to back up and say one of the most … I once wrote an article called “Academia Is The World’s Leading Social Problem”. One of the most damaging aspects of academia is, so many people come out of universities with degrees that lead them to [00:36:30] think they know what’s going on in the world but so much of university life is stupidly anti-capitalist. It goes a little back to Naomi Klein young earth creationist, where if people think that capitalism is the profit motive that really are not very well educated. Just to focus … New institution economics is not sexy and it’s not simple. In a way libertarianism is much simpler to understand but if one really starts learning about institutions and say he know a little bit about [00:37:00] the work of Nobel laureates Coase and Buchanan and North and Williamson and Ostrom and so forth.
Then one sees … The way I look at it is, what we’re really trying to do is to create systems where entrepreneurial value creation is possible. Where there are win-win systems and one does need to set up governance and protection of rights and property rights and transaction costs. Those sort of things were more likely to get win-win than not. That’s not an ideological issue. There are actually [00:37:30] different ways to set up different situations to ensure positive outcomes rather than negative outcomes. Those positive outcomes are much more aligned with free markets economics than they are with status absurdities that anti-capitalists promote. The number one thing is, first, let’s realize that capitalism has brought billions of people out of poverty.
The next thing is, yes bad things can happen but in addition to blaming the pimps who are trading [00:38:00] in young girls for sex slavery, I want to point the blame in part on governments that are really perpetuating poverty. If we had a for-profit corporation that was keeping a billion people in Africa poor, there would be unbelievable outrage. One of the thought experiment I often try to do is, when you see some bad or stupid thing that government has done and of course those things are ubiquitous, imagine the global rhetorical blow-back if it could have been a for-profit corporation doing exactly the same thing. [00:38:30] If we knew, “Oh, more economic freedom led to prosperity and these entities are keeping people poor by stealing and keeping economic freedom from them.” Imagine if Evil Corporation X was responsible for this.
The campus would go absolutely ballistic. A lot of this is learning to focus. I wrote a post called Hierarchy of Moral Outrage for Let A Thousand Nations Bloom where yes[00:39:00] Union Carbide in India, the Bhopal disaster, bad thing when anti-capitalist article saying that the worst crime you’ve never heard of and let’s talk about Bhopal. From my perspective, Bhopal relatively scale wise, to me the worst crime you’ve never heard of is the fact that nation states are keeping people poor unnecessarily around the world. Six billion people, basically, enslaved in poverty unnecessarily. If [00:39:30] we open things up in zone and there is some more sex slavery, that’s a bad thing. At the same time, we need to focus on the fact that governments are keeping people poor. The whole … almost all bad things are because people are poor. Fred Turner, a wonderful poet, has an article called ‘Make Everybody Rich’.
Basically, the solution to all problems is make everybody rich. Through economic freedom, classical liberal rule of law, [00:40:00] secure transferable property rights and economic freedom, we can make everybody rich. Why are we not doing it? Because of anti-capitalism and the states they support.
Aaron Powell: Trevor mentioned beginning the subtitle of your book; something about the conscious capitalists can solve all the world’s problems. I suppose I can ask are there any problems that you think we need government for. Maybe another way of asking that is, so someone listening to this who is perhaps [00:40:30] more skeptical of outright markets and entrepreneurship might say, that all sounds well and good but really what you’re describing is still … You’re describing governments enabling people to then innovate and create wealth. That these zones that are set up are still inside of regimes that have provided defense, have provided a level of safety, have provided a level of baseline wealth, have set up rules [00:41:00] that have allowed markets to progress to a certain point. When you’re importing other rules, like in Dubai, you’re simply importing the rules from a different government. Really, what you’re saying is, yes we can get more wealth if government is perhaps less heavy handed but we still really need it to make any of this operate at all.
Trevor Burrus: Of course no one would disagree, even the most status person, that there are really [00:41:30] bad governance and that there are better governance and so they say, “Yes, we need better governance.”
Michael Strong: What’s a little bit funny about this, when you suggest that governments protect people’s rights and provide rule of law and so forth, I think anybody who spends much time in many developing governments would find that laughable. Let me give a specific example. When I was in Honduras working on the Zed Project a number of years ago, NPR send some interviewers down there [00:42:00] to interview. It turned out it was Romer and Octavio Sanchez in the final cut but when they were interviewing me they said, “What makes you think that you can do a better job than the Honduran government in providing these services?”I looked at them, and NPR is pretty left-leaning, I looked at them and said, “Could we do any worse?” They immediately acknowledged, okay, done. These governments … I’ve been in government offices around the world where people show up two or three hours late.
You go in [00:42:30] and ask what are the rules for a project, they have no idea and it’s not all incompetence. I have huge respect for some of the people we were working with in the Honduran government but as a system most governments are really, really incompetent and in some combinations of evil and incompetent because they’re all the cronyists and so forth. When people … I think people need to become James Buchanan’s word: government without romance. [00:43:00] If a private … Again if a private provider provided the level of service … government services that we see in most of the developing world, they would be … it would just be unbelievably outraged.one of the things that pushed me farther along in the anti-cap direction was Bruce Benson’s wonderful work, The Enterprise of Law.
Trevor Burrus: He was a guest on Free Thoughts actually.
Michael Strong: I think he is underappreciated in a big way [00:43:30] because just going back … my main focus has been on education and when I see what I can do in a small school where we personalize education and change lives, just a little degradation there’s … often, I find students who are depressed, have been in treatment centers, sometimes they’re too far, too academically advanced. Sometimes they’re considered learning disabled that you’re flexible make your curriculum more flexible, the so called learning disabilities go away instantly. I see all sorts [00:44:00] of young people whose lives, I would say have been destroyed, by conventional one-size-fits-all education and stupid bureaucracy. I think immediately, “Why do we have to do this?” various ways, I know how dysfunctional the education system is. Reading Bruce Benson’s Enterprise of Law I realized all the public choice mechanisms … Again, it’s important to realize this is not about saying these people are bad.
There are heroic public school teachers, heroic public school principals- it’s a system. When the incentives are messed [00:44:30] up you get terrible outcomes. When you can’t eliminate the dysfunctional systems and when you can’t reward the better entrepreneurial systems then the dysfunction perpetuates. Benson’s Enterprise of Law showed me all sorts of ways which I had taken for granted, that legal systems more or less work. The education is crap but if the legal system works, then and the more I read, not just Bruce Benson, but a lot of Randy Barnett, a lot of libertarian leading people have written about [00:45:00] the actual function of the legal system—Radley Balko is another great one. It’s so nightmare-ish. This is … talk about white privilege. I would say, upper middle class educated white people can get away with all sorts of things and not fear being entrapped in the legal system, but somebody who doesn’t have those protections, it’s an absolute nightmare.
One great … John Hasnas has a great article called, I think, “The Ordinarness of Anarchy”. Everybody thinks anarcho-capitalism is this weirdo exotic thing. [00:45:30] Hasnas makes a comparison with campuses. When I went to Harvard, my roommate was a drug dealer. Drugs have been de-facto illegal on elite campuses for decades and meanwhile if a poor black kid gets caught in the same thing, it’s a nightmare. The homes are graded, the dogs is shot, human beings shot. We have this delusion that somehow government is there or the legal system is functioning. You see a kid from Harvard [00:46:00] can deal drugs and make money, kid in a black neighborhood family shot for no reason. What planet are you living in? This is why … I don’t like right wing clichés about left media but I would say there’s a very … there’s not a balance in terms of the destructions caused by government with the bad things.
Yes, there are bad capitalists and Bernie Madoff and so forth but if you start to really become aware of just how chronic [00:46:30] and systemic and really evil actions routinely take place via government. There was a public … there was a lot of media on private persons and how evil they are. There was a public prison in Florida for most of the 20th century that routinely killed people and there’s a huge burial ground under this. Yes, there are bad things that happen in private governments but because of evolution we know, if there’s a selfish incentive then people can be bad. There’s this stupid romance about the [00:47:00] government, by the people, for the people, of the people and we get good outcome. No. By the people, of the people, for the people we get chronic injustice and violence and degradation. We … privileged educated people, we get away from most of it but if you look at the actual facts on the ground of much reality mass incarcerations of African-Americans. It’s a nightmare out there.
Trevor Burrus: It seems safe to say that you’re not a big fan compared comparatively speaking of politics as [00:47:30] the best way of trying to rectify some of these things.
Michael Strong: Frank Zappa brilliantly said politics is the entertainment division of the military industry complex. It was mostly a joke. Trump makes a joke a little bit more obvious and it can be a painful joke. When I learned public choice theory I was depressed for two tears because I had been raised … our culture raises us to have this rosy view of government and it’s as if you fell in love with somebody and you find out that [00:48:00] they’re a deceitful, cheating scoundrel. We are trained, in some ways our high school’s civil romance of governments is actively damaging because it makes us believe. Actually, I have a lot of compassion for my friends on the left because they were trained to believe that this thing works and it doesn’t. On small scale, like in a local governments, I’m very interested in Switzerland where the canton level of governance is pretty functional. I’m very interested in the way Scandinavian governments seem to be a little more functional [00:48:30] but when you realize that Finland is smaller in population than Houston and is the most ethnically homogeneous country in Europe. You go, “Oh, could we even get Houston to function as well as Finland?”
I don’t know. That night be really hard. Again small scale … yes we need governance. The mistake many libertarians get into is we sound anti-government. I’m for good governance, passionately for good governance. Then, let’s be radically pragmatic about how we get good governance. The first [00:49:00] step of getting there is to get rid of the rose-tinted glasses that make us believe that majoritarian democracy at large scale is anything but radically dysfunctional.
Trevor Burrus: I want to close up by asking about something that you had some involvement in. You were on the board of the Seasteading Institute, correct?
Michael Strong: Yes.
Trevor Burrus: There are some interesting developments going on there. What are we seeing with Seasteading? What is it and then what’s happening [00:49:30] now?
Michael Strong: Seasteading is very much part of the let’s create new jurisdictions. When Patri Freidman created the blog ‘let us house the nations bloom’ and at Seasteading along with … I introduced the idea of special economic zones as an alternative. There had been many people trying to create their own sovereign jurisdictions. Again it’s a portfolio sort of situation. At sea, in theory, we should be able to create new jurisdictions. Of course, there are huge technological problems at the open sea, which is why over [00:50:00] time Seasteading has moved away from deep sea projects to near shore project. That ultimately led to [Tahiti 00:50:08] being … actually signing an agreement with Seasteading to have a near shore pilot project with its own law and governance. They have actually got an agreement in place that would allow for a very small experimental community. Tom W. Bell, with whom I worked on legal issues before, is one of the founders of the idea [00:50:30] of polycentric law.
He’s working to create the governance system with that. He’s been studying French law and how to integrate … work on the boundary between the common law legal system on one hand and the French legal system on the other. Optimistically, there may well be a little pilot Sea Stead in the next year or two.
Aaron Powell: Interesting, so then for people listening to this who aren’t in a position to move [00:51:00] to special economic zones, who aren’t in a position to move to a boat or a sea stead, an oil rig, who want to help in this way – what can ordinary people do to participate in this vision that you’ve outlined today?
Michael Strong: That’s a great question. Actually, one group I would recommend is Startup Societies, it’s an online group on Facebook and they’re organizing conferences. I’m going to speak in one of their conference [00:51:30] in DC in January. A number of things … on one hand we need to explain to the world, A that governments are responsible for poverty, that free markets cause prosperity, I think it’s 101. It should have been obvious 30, 40 years ago, 100—Adam Smith basically got it.
Anyway, we need to mainstream this. No one should still believe that neo-liberalism caused poverty. Let’s get rid of the young earth creationist idiocy out there, still on campuses, especially amongst humanities professors. [00:52:00] We need to absolutely make people aware of that.
We do need to explain … it is important to go beyond as it were a libertarian talking points really have huge respect for Douglas North’s natural states concept. We need to get into, “What does it take in terms of property rights and the rule of law to create prosperity.”
We need to help people understand how it is that some countries have become prosperous and why more countries need economic freedom. My wife is a Senegalese entrepreneur. [00:52:30] She actually has a TED talk coming out and is a leading proponent of explaining why African countries are poor because of a lack of economic freedom. I often speak as well and almost nobody knows that African countries are drowning in red tape and are heavily regulated. There’s a lot of basic economic development 101 that needs to be explained. Going beyond that, I think we need to get people to think about applying entrepreneurial creativity to the development of new jurisdictions. It’s not about some simplistic anarcho-[00:53:00]capitalist dystopia. If we could mainstream this to the point we had lots of people thinking about, how would you create a zone that protected human rights better than the existing jurisdictions.
Part of that is, let’s get really honest about how poorly governments today protect human rights. As we change this perception from governments good, free markets bad to a much more new one, how can we design institutions on small [00:53:30] scale and nurture these institutions so they’re better for all human beings. Then, we’ll also need a pipeline of people with nuts and bolts skills. We’ll need a lot of entrepreneurial legal experts. I’ve worked with a lot of illegal experts. Some of them are really boring and not very creative, others are very visionary. We need a whole generation on of visionary legal experts. That there’s going to be countless concrete legal problems to be solved and moving from nation states to innovative jurisdictions. Also, we’re going to need municipal services. [00:54:00] I’m a big fan of the Silver Springs, Georgia, small … Oliver Porter created this tiny government that was a three or four people and subcontracting out the rest of the municipal services in Sandy Springs—not Silver Springs—Sandy Springs, Georgia.
We talked to a reporter about the ways in which he wrote those contracts and how you got different companies to provide different municipal services. Environmentalism, [00:54:30] I’m a big believer in protecting the environment. Honduras … I’ve gotten to the grandular level of governments have laws in book. In general in poor countries they’re not enforced to protect the environment. How do we create cost effective ways for local, as it were cozy private governments, to protect the environment and some of this does go into a cost issue. Entrepreneurs are great at providing higher quality, lower cost, more specialized [00:55:00] because governments have dominated environmental protection; a lot of environmental protection is just incompetent. When you start trying to do it from a private perspective, exactly how do you monitor, say affluence going into sensitive coral reef in an effective way and exactly how do you ensure that there are effective penalties in place.
When I go to this bigger picture of entrepreneurial solutions to all problems, I don’t care if it’s a nonprofit or a trust or a voluntary [00:55:30] religious organization or a for-profit, I don’t care what the entity is. People are way too for atavistic reasons attached to the motivation. We need to get away from exactly how the high motivation is and get into the granular level of incentives and this is why new institution economics is important to see how do we create more effective structures for getting the job done. In some ways, those will be more effective systems for environmental protection, human rights protection; health and well-being [00:56:00] as an educator of young people are very high priority for me. If we could, as entrepreneurs, design entire safety nets … entire wealthier systems. Child protective services … most people … Libertarians, we don’t care about children.
I’m very interested in, if you were an entrepreneur child protection services has really messed up. You hear about kids being taken away, killed by foster families, horrible things and injustices. If you’re an entrepreneur how do you solve that one more effectively? I don’t know at the top of my head but I do believe [00:56:30] that if we have hundreds of thousands of our brightest, most ambitious people looking very carefully at systems and incentives in order to create a process of continuous improvement, we’ll actually feel entrepreneurship broadly construed be better at child protection services better than our existing governments. I could go on and on. One of the worst problems about politics is people get stuck in right, left idiocy. Again, if it was [00:57:00] an evil plot to keep us thinking about ways to keep ourselves down we would never go for it.
It’s not just the Russian influence in it; it’s the Democrats and Republicans influencing us to think about politics non-stop when in fact there are positive, win-win, non-zero sum solutions. The more people we can separate out from the tribal bigotries of left-right politics into proactive entrepreneurial value creation that benefits everybody, the faster we’ll get there.
Trevor Burrus: Thanks for listening. This episode of Free Thoughts was produced by [00:57:30] Tess Terrible and Evan Banks. To learn more, visit us on the web at www.libertarianism.org.