Can We Build Safe Countries That Fund Themselves?
Providing safety and safety nets via network states.
I. Interior Points
The "efficient frontier" in finance is the set of portfolios with the highest return per unit of risk. The other “dominated” portfolios on the interior have less expected return, but the same cost (less bang for your buck); these suboptimal outcomes are called “interior points.”
If we find ourselves on an interior point, somewhere along the line, we made a bad decision.
In the clean world of modern portfolio theory, you know when you are on the efficient frontier.1 But how do we know if our cities, states, and governments are on the efficient frontier, or just an interior point?
II. The Problem
Against a backdrop of secularly increasing crime, violence, and distrust, those who can will seek out communities where they and their families can feel safe.
We think the answer is simple. If your city is unsafe, you’re on an interior point. If your city is dirty, you’re on an interior point. If people in your city can barely afford subsistence food, water, and shelter, you’re on an interior point.
Poverty, crime, and unhealthiness are clear results of bad decisions.
For most people, the only reliable safe spaces are their own homes, which itself is subject to home invasion crimes (of which over one and a half million occur each year in the USA). Thus, those who can afford it are leaving crime-ridden cities for quieter locales, and better ones.
III. The Shape of the Solution
Though it’s common to extrapolate the recent past, each decade is not like the last. Chris Dixon looked back and identified the “best product” of each decade, excerpted below:
2000s: PCs & Broadband
2010s: Mobile Phones
We think the next shoe to drop is:
2020s: Safety & Trust
Against a backdrop of secularly increasing crime, violence, and distrust, those who can will seek out communities where they and their families can feel safe.
Some safe spaces exist in the most unlikely places: residents in poor villages in Tamil Nadu may not have material wealth, but do have such social wealth and trust that houses are often left unlocked.
Tech campuses like those of Google and Facebook are also safe spaces; people can leave their belongings out in the open without fear of theft. Through a reasonable screening process, the folks on campus are selected for stability and by association, a lower probability of committing acts of random violence, thus making the environment safer for all.
But can this scale to countries?
We already have an existence proof: Singapore. Singapore is one of the safest countries in the world. I live there now and it's idyllic; it may be the first post-scarcity society we've seen.2 A combination of strong border control, engineered societal norms, technology, and clear consequences keep this city safe. Hey, nobody said building one of the best countries in the world was going to be easy!
Ultimately, we want to feel safe. We want secure homes. We want to walk down the street without the burden of random violence. And we have the ability to make this happen--all the technology already exists. We're just aren’t making good decisions.
We’re on an interior point.
IV. Building a safe, lush, abundant worlds for a thousand people
We want to build for a billion, but let’s start with a thousand. Learning from what already works, we need four components: a combination of strong borders, strong values, strong incentives, and a complete graph.
Strong borders. Just like nation-states have immigration control for people entering, or tech companies check in visitors, we’ll have friendly attendants at the borders to welcome you and introduce you to the values of our society. Members must vouch for any visitor and antisocial behavior from a visitor will penalize the member.
Strong values. A valueless society is an apartment building. Living together means building on the same moral base. Thus, everybody must know what our society stands for: safety, trust, abundance.
Strong incentives. Generous rewards for prosocial behavior, and clear and severe punishments for antisocial behavior.
Complete graph. In computer science, a graph is “complete” if there is a path between any two nodes. In a city, this looks like a dense social graph, where everybody knows everybody else, or at least somebody who knows somebody who knows you. This can be accomplished in a number of ways, but we propose weekly chats with a previously-unknown person in the community.
With these in place, we can start to build the physical environment, which we envision as a combination of beauty, verdancy, and seamlessness.
Beauty. Nick Smoot of Innovation Collective has done a gorgeous renovation of a 120-year old building (above). It’s functional, yet beautiful.
Verdancy. Singapore is a Garden City not by accident but by the will of the great Lee Kuan Yew; the “greenery and lush verdant landscapes were essential in a city to ‘calm the spirit and to make people feel relaxed.’”3
Seamlessness. Culdesac has pioneered car-free cities that reclaim much-needed urban space. Let’s take what works.
V. Abundance
What are the truths you hold self-evident? Is one of them that you need to work to survive?
Working to survive is not a law of physics; those laws are actually on our side. We have enough technology to feed and clothe the world. We are just on an interior point.
How do we move to the frontier?
Aggressively deflate living costs.
Start a Sovereign Wealth Fund (SWF) on day one.
Cover the now-smaller living costs with yield from the SWF.
Aggressively deflate living costs
Balaji Srinivasan makes the point that you can increase your income 5x or drop your expenses 5x; which is easier? Individuals now engage in cost-of-living arbitrages across countries. But there are tools that we as a society aren’t using that can get us there.
For example, Land Value Taxes disincentivize rent-seeking behaviour and deflate housing costs which deflate all costs (isn’t it weird, Georgists say, that when you make more one year, your rent goes up roughly to match?). This is important for all of society because rent and taxes are the huge expenses for individuals and businesses (and thus gets baked into the cost of goods and services for those individuals and businesses). If we deflate housing costs, it has a multiplicative effect on the total bearing of all costs; thus, people need to work less to cover the basics.
Other levels to pull are automation and better energy infrastructure. But why do we want to aggressively deflate living costs in the first place?
The goal is to create a society that’s not just safe and trustworthy, but also one where the basics of Maslow’s hierarchy are covered.
Start a Sovereign Wealth Fund (SWF) on day one
Sovereign wealth funds are sophisticated investors with long time horizons; they are stewards of a nation’s wealth. Temasek, a Singaporean sovereign wealth fund, returned 8% per annum over the last 20 years.
Sovereign wealth funds can afford to hire the best managers and invest globally across asset classes for high return.
Cover the now-smaller living costs with yield from the SWF
Assuming we can drive costs down by a factor of 3 from that of the USA, which clocks in at roughly $40k a year for a single person, how much would we need to cover a ~$14k average cost of living?
If sovereign wealth fund distributions will hover at a relatively conservative 5% net of operating expenses, we can assume a $280,000 chunk invested per person as a starting point (14,000/0.05)4.
(The citizen doesn’t necessarily need to fund the full ~$300k out of pocket; the city may be able to partially fund the fund through equity or token sales.)
Thus, the Dividend from the Fund should be able to fund each citizen’s living costs in perpetuity, because those living costs have been thoughtfully engineered to be as low as possible. Citizens are free to do whatever they want—paint, cook, write crypto protocols. And ideally the Fund has a right to invest capital at a pre-agreed-upon cap in any venture started in the city, with preferably zero income/cap-gains taxes to boot (remember, we have LVTs!).
VI. Building
Life is not about building perfect systems, it’s about building real ones. Better ones.
Singapore is successful because it tried many solutions and only kept what worked. The path to a safe, lush, abundant society is somewhere on the map; we just need to find it.
Abundance is within our grasp. We must not content ourselves with streets rife with crime and poverty. We must think harder, build smarter until we get there.
Build with us. Come to the frontier.
It’s actually more complicated, but this is just an illustration.
Of course, we can make this more complex by talking about real returns vs nominal returns, and we can insulate ourselves against inflation by investing in inflation-hedge assets, the purest of which are TIPS.