On a Troubling Failure of Imagination

Wired, like other magazines who want to cater to mainstream tastes, seems at times to be regressing toward the mean. Once the center of techno-optimism, Wired authors more frequently operate with a kind of conservative 20/20 hindsight — or worse, a failure of imagination.

In this hit piece on seasteading, Wired author Kyle Denuccio demonstrates that a couple of comments by Peter Thiel can be spun into a grand narrative about the failure of special economic zones and what he calls “techie island fantasies.” But it’s just this sort of ex post naysaying that can come back to haunt those with who take lazy shots from the peanut gallery.

I was on the board of the Seasteading Institute in its early days. Everyone knew that because of challenges on the open seas that early versions were likely to be near-shore projects. None of this is new. There may well have been excessive media hype, but as far as I know none of the figures mentioned have had a fundamental change of heart: Long term we will emphatically need jurisdictions that allow more innovation. Everyone involved has always known that one needs a good legal system in order to innovate.

Tom Bell, the legal scholar who worked with Patri Friedman on his Thiel-funded initiative to create a Startup City in Honduras and whose work is a resource for the Seasteading Institute, has been proposing Ulex, an open-source legal system for these projects based on the “Restatements of Law” and other mainstream common law sources (all of which have been proven in real world existing jurisdictions). See here for one explanation of his Ulex concept,

Bell also works with me on an entity that may develop a Honduran LEAP Zone.

The fact that an effective legal system is essential for commerce, prosperity, and innovation is a central theme of Nobel Prize winning economist Friedrich Hayek’s work in the early 1960s. That work in turn inspired much of New Institutionalist Economics (see the work of Nobel laureates Coase, North, Williamson, Ostrom), which has shown the importance of legal frameworks in prosperity in developing nations around the world. For all of the article’s ridicule of the importance of deregulation, the World Bank’s Doing Business index has shown that poor nations are drowning in red tape and reforms that reduce the red tape increase prosperity.

Developing nations, in order to become prosperous, will also continue to need zones with fewer obstacles to business (a case can be made that special economic zones with reduced regulation led to broader prosperity in South Korea, Taiwan, Mexico, China, Ireland, Mauritius, and others). For a video interview that goes into more depth on this issue see here,

This is almost certainly the most promising path for eliminating global poverty. Note that Chinese special economic zones have resulted in a 5x increase in average urban wages in the past 20 years, improving lives for some 700 million people. This must count as one of the greatest moral achievements in human history. Even Joe Stiglitz, the most leftist Nobel laureate economist, acknowledges that economic liberalization in China led to its extraordinary increase in prosperity.

Finally, these new zones and jurisdictions will offer opportunities for creating better education, health care, and social services. My focus and expertise is on the entrepreneurial creation of better education and community formation, in part in order to create societies in which we have much more effective solutions to social problems than is the case in existing nation states.

Mancur Olson, one of the leading political scientists of the 20th century, first called attention to the fact that concentrated interests tend to win out over diffuse interests in democratic political systems. This widely accepted dynamic leads to the fact that regulatory systems typically favor established business interests while restricting opportunities for innovative new companies. There are interesting and sophisticated arguments about how best to create legal and regulatory systems that are not biased towards incumbents. It would have been interesting if Wired had chosen to provide an informed perspective on the challenges and opportunities associated with creating less biased regulatory systems. Within such an article, the initiatives proposed by Thiel, Friedman, Srinavasan, Page, and Andreessen could have been discussed intelligently and thoughtfully.

Instead, Wired chose to publish an inaccurate, uninformed, hack piece.