Developing the Developed World
Contents:
David J. Theroux, President of the Independent Institute
I’m delighted to welcome you to our luncheon program today entitled “Developing the Developed World: Entrepreneurship, Liberty, and the Future”. We’re very pleased to feature our dear friend Peter Thiel, the world-renowned entrepreneur, investor, and author of the number one New York Times bestselling book Zero to One: Notes on Startups, Or How to Build the Future.
My name is David Theroux. I’m the president of the Independent Institute, and we’re delighted to have you with us today. For those of you who are new to the Institute, there’s information in your gift bags about our program. The Institute is a nonpartisan public policy research and educational organization. Its mission is to boldly advance peaceful, prosperous, and free societies, with a commitment to human worth and dignity. The Institute itself works to shape ideas into impact, applying independent thinking to issues that matter. We seek to create transformational ideas for today’s most pressing economic and social problems. Then by connecting these ideas into organizations and networks, we seek to inspire action that can unleash unparalleled human flourishing around the globe, across the country, and around town.
So we invite you to get to know us better. In your gift bags that I mentioned, you’ll find further information about our many research publication event and media programs. We also invite you to visit our website at Independent.org, and before we begin, I want to note that in making today’s program possible, the assistance of many great people was indispensable. First, I want to thank the members of the host committee, whose names you will find on the printed program at your seat. I especially want to thank John Dennis, if John won’t mind standing. John very kindly arranged for us to be able to use the Olympic Club facilities, and enjoy their hospitality. I further want to thank Alicia Luther, Kyle Palermo, and Lisa Elliot, along with the entire team at the Independent Institute, for their great work in organizing everything for today.
I would like to introduce a number of The Institute’s board members who are present this afternoon. First is Gilbert Collins, if you wouldn’t mind standing; John Hagel, is Jeanine Alexander here yet? She’s representing her husband Pete Howley, who is currently in China. Dieter Tede, David Teece, and my favorite, Mary Theroux. Yes, I know. Susan Solinsky is, where is Susan? Susan, would you mind standing too? Anyway, we’re very grateful. We have some other board members who are on their way, but without them, The Institute would not be possible, and very grateful for all their help. I also want to introduce Peter Thiel’s father, Klaus Thiel, who is sitting right here. We’re thrilled to have Klaus with us. Some of you may not know that today marks the birthday of such innovators as composers Wolfgang Amadeus Mozart and Louis Schubert, author Lewis Carroll, chemist Dmitri Mendeleev, publisher William Randolph Hearst Jr., dancer Mikhail Baryshnikov, actress Donna Reed, Nobel Laureate Physicist Samuel Ting, and architect Balthasar Nueman. But where do such innovators come from? And what should we be doing to facilitate this for the future?
Peter Thiel was born in Germany and immigrated to the US with his family at age one. Thank you Klaus. He graduated Phi Beta Kappa from Stanford University, where he received an AB in philosophy and a JD from Stanford Law School. He was the founding editor for the Stanford Review and president of the Stanford Federalist Society. We first had the pleasure of getting to know and working closely with Peter in 1995 when he became a research fellow of the Independent Institute and co-authored a book for us with David Sachs called The Diversity Myth, on the issue of political correctness, and using Stanford as a case study. He has since become legendary in first founding PayPal in 1998, leading it as CEO. In February 2002, taking it public with one of the first IPOs after the horrific 9/11 attacks, and then just eight months later selling it to eBay for $1.5 billion. He then founded Clarion Capital Management and in 2004, he made the first outside investment in Facebook, where he is a director. That same year he founded Palantir Technologies.
He’s provided early funding for LinkedIn, Yelp, Robotex, Spotify, and dozens of successful technology startups. He’s the co-founder and partner at Founders Fund that has funded companies like SpaceX and AirBnB. And he’s the co-founder of Valar Ventures that has funded such technology start-ups outside the US as Xero, TransferWise, and Canopy Labs.
In case you’ve not noticed, his firms Palantir, Valar, and Mithril are all named after key elements (phenomena) found in J.R.R. Tolkien’s masterpiece novel, The Lord of the Rings, of which both he and I are big admirers.
Peter also started the 20-Under-20 Thiel fellowships, which nurture tech visionaries of tomorrow, and he leads the Thiel Foundation, which works to advance technological progress, long-term thinking about the future, and the advancement and application about the ideas of liberty. Peter further co-produced David Sacks’s film, Thank You for Smoking, based on the Christopher Buckley novel. He’s been rated a grand master of the National Chess Federation, and he received the 2010 Innovator of the Year award from The Economist Magazine.
Now of course, he’s authored the book Zero to One, which you all know about. Hopefully you all will get a chance to read it. George Gilder has called the book, “Hands down, the best business book ever written.”
So please join me in welcoming Peter Thiel.
Peter A. Thiel, Co-Founder, PayPal, Palantir Technologies, Mithril Capital Management, and Valar Ventures
Thank you. Well David, thank you very much for that incredibly flattering introduction. I always worry that it just goes downhill from there. But one of the challenges in writing a book about entrepreneurship or teaching a class on this is that there is sort of no formula, and I think the science always starts with the number two. It starts with experiments you can repeat, things you can do over and over again. But there’s sort of a sense in which every moment in the history of business, every moment in the history of technology, happens only once. The next Mark Zuckerberg will not be starting a social networking company, the next Larry Page will not start a search engine, the next Bill Gates will not be starting an operating system. So if you’re trying to copy these people, you’re in some sense, not learning from them. So I think one of the really big challenges in teaching or writing about entrepreneurship is what can you say about being an entrepreneur at all when the key thing is to always do something new, different, that’s not been precisely been done before.
So the point of departure I start with in Zero to One is a somewhat indirect approach by asking a series of contrarian questions. The business question is what great company is nobody starting. The more intellectual version of this question is tell me something that’s true that very few people agree with you on. And this is always a fantastic interview question. It turns out to be quite a hard question. Even when people can read on the internet that you ask it of everybody who comes in the door, it still is a hard question. It’s one of those unusual questions where if you know it’s on the test, it’s still hard. And it’s hard not just because we sort of think that new things require brilliance or something like that, but because it’s socially difficult. So if I ask you that question, if you tell me something like the education system is screwed up, or our political system doesn’t work very well. Those are true answers, but they’re not actually good answers because all of us already know them to be true. The good answers are the ones that are somehow uncomfortable that the person interviewing you does not actually want to hear. And I think we live in this world where courage is in far shorter supply than genius, so it is in a sense, this problem of political correctness properly understood. It’s this very deep, very, very broad sort of a problem. You know, and in some ways, my book Zero to One offers a series of different answers I have to this question, things that I believe to be true that most people do not agree with me on. I’m just going to maybe share a few of those with you today.
The first one, this is perhaps the major thematic one, takes us to the point of departure, this idea of uniqueness. Because if you have a unique business that does something nobody else is doing, you have something that is a monopoly, at least for a while. And my claim is that everybody who is a founder, an entrepreneur, an investor, an early employee in these companies, you always want to aim for a monopoly. And that is what you would want to aim for on the inside. You know, we can have a discussion about what kinds of monopolies are good or bad for societies at large, but on the inside, that is what you always want to aim for. You don’t want to have crazy competition. So I think there’s sort of a conventional view that capitalism and competition are synonyms. And I believe the opposite is true. I believe capitalism and competition are antonyms. I believe the capitalist is someone who’s in the business of accumulating capital. A world of perfect competition is a world where all the profits are competed away. If you just love competition, if you want to compete like crazy, you should just open a restaurant in San Francisco. I was actually talked into doing this once. It was one of the worst ideas ever, and you will get lots of crazy competition, but you will—you’re very unlikely to make any money because it’s going to be completely undifferentiated. And then sort of the paradigm I give of a successful monopoly business in Silicon Valley is Google, where it definitively distanced itself from all the competition back in 2002, Yahoo and Microsoft in particular, and it’s been making enormous amounts of money ever since.
Now this monopoly competition idea is not well understood. There’s an intellectual reason that’s, I think, poorly understood, which is I think that people who have monopolies don’t really talk about it. And the people who are competing like crazy also don’t want to talk about it. So the apparent difference, I think, is always much smaller than the real difference. So if you’re running Google, you don’t really talk about the 98% of revenues that come from search, or the monopoly you have in search. You instead talk about your business as being this much, much larger space called technology, and technology is this vast space where there’s competition everywhere, and you’re competing with Apple on the Android phone, and you’re competing with Facebook, and Amazon, and you’re building a self-driving car that’s going to be competing with Detroit, and there’s competition everywhere. And so no, this is not the monopoly the government is looking for. So that’s sort of the external narrative. And I have this sort of quasi-conspiracy theory that maybe the 20 top people at Google understand this; the 20,000 below them have absolutely no clue as to what’s going on and what has made that company so successful. And then on the other end of the spectrum, if you were to leave this talk today and decide you know, I know exactly what I’m going to do. I’m going to open a restaurant in San Francisco, you’d run into a problem very, very quickly, which would be that people wouldn’t want to invest in it because they’d say all these restaurants just lose money. We’re going to lose money, we don’t want to give you any. And then you’d come up with a fictionally small narrative of what you’re doing, and it would be something like well you know, it’s going to be the only British Nepalese fusion cuisine in downtown San Francisco. It’ll be one of a kind. So the competitors kind of understate, and because of these systematic distortions, I think this very fundamental idea ends up not being understood all that well.
But I think there’s also a somewhat more psychological reason that this is somewhat poorly understood. You know, the opening line of Anna Karenina is all happy families are alike, all unhappy families are unhappy in their own special way. And I always suggest that the opposite is true of business. That all happy companies are different because they found something unique to do. All unhappy companies are alike because they failed to escape the essential sameness that is competition. And so when my chapter in my book entitled All Happy Companies are Different was excerpted by the Wall Street Journal, they sort of just retitled it and they changed the title from “All Happy Companies are Different” to “Competition Is for Losers,” which is sort of a much punchier title and got a lot of page views. But the idea that competition is for losers is extremely punchy because we’ve always been taught that the opposite is the case. We’ve been taught that the losers are in some sense, the people who are not effective enough at competing. So the losers are the people who are maybe not quite good enough on the high school sports team, or whose grades are not good enough to get into the right colleges or universities. And we never think of somehow the people who are too addicted to competition as somehow being at a systematic disadvantage.
There is sort of a slight autobiographical thread to this where you know, I grew up in this incredibly tracked sort of a context where I remember writing in my eighth grade, junior high school yearbook, one of my friends wrote in you know, I know you’re going to go get into Stanford four years from now. Four years later I got into Stanford, I ended up going to Stanford Law School. And then you know, I ended up at sort of one of these top law firms in New York City. And it was, you know, it was every step, you had a competition, you won the competition, and when you won, you got to compete again at the next step. And you often, you got very good at what you were competing on, and you perhaps lost sight of why you were doing it, you know, whether it really made sense. And by the time I ended up at this big law firm in New York, it was one of these places where on the outside everybody wanted to get in.
On the inside, everybody wanted to get out. When I left after seven months and three days, one of the people down the hall from me said it was really reassuring to see me leave. He had no idea it was possible to escape from Alcatraz. And part of the reason was that the people’s identity was so wrapped up in the various competitions they had been involved in, that it was inconceivable for people to leave. And you know, it was so easy, you just had to go out the front door and not come back. But it was inconceivable for people to actually do this. So I do think there is something sort of very deeply at work here. If you were to sort of transpose this into Silicon Valley context, there’s always a somewhat peculiar phenomenon where so many of the people in Silicon Valley who seem to be among the more successful entrepreneurs, seem to be suffering from a mild form of Asperger’s, or something like this. And I think we need to always turn this around into a critique of our broader society.
We need to ask the question: what is it about our society where the people who do not have Asperger’s get talked out of all of their creative, interesting, original ideas before they’re fully formed? And you sort of pick up on all these subtle social cues. You see oh, that’s a little bit too strange, that’s too weird, that idea doesn’t make sense. Maybe I’ll just go back to opening that restaurant, or something like this. And I do think this is sort of this very endemic kind of a theme. They’ve done these studies, I often think of—I don’t want to pick on business school too much here, but you know, they’ve done these studies are Harvard Business School where they have found that the largest cohort of people systematically goes into the wrong career every year. And what I submit happens, or something like it, is you have sort of this hothouse environment full of people who are extremely extroverted, maybe a little bit low on the conviction side. They spend two years talking to one another about what they’re going to do next. And at the end of the two-year process, you somehow all often end up gravitating towards trying to catch the last wave in one way or another.
So in ’89, everybody wanted to work for Michael Milliken. It was a year or two before he went to jail. No one was ever interested in technology except ’99-2000, when people from HBS descended on Silicon Valley and sort of timed the end of the dotcom bubble perfectly, and on and on down the line. And again, I don’t think—I think it’s a little bit unfair to just pick on the business school context. I think is sort of a very general, very endemic context that we find competition extremely validating, and it is always super-misleading. The academic version of this, I think, was articulated well by Henry Kissinger when he described his fellow professors at Harvard as saying you know, the battles in academia are so ferocious because the stakes are so small. And we always think of this as some sort of definition of insanity. Why would you fight like crazy? You fight like crazy if the stakes are big. Why would you fight like crazy if the stakes are small? And it’s in part, it’s of course when people are not differentiated, the differences get very small. You fight over less and less, so it is both a definition of insanity, but also sort of a working out of the logic of the situation.
And when I apply this principal to thinking about investing in businesses or getting involved in different technology businesses, one of the questions I always get asked is what are some trends in technology, what are things that are happening. I always find this to be probably the question that I dislike the most, that I get asked on many different stops on this book tour. Because you’re sort of tempted to just give these very banal answers like there will be more people using cell phones in five years, which don’t really tell you very much of one sort or another. But I think the general theme I would suggest is that all trends are overrated. So if you think about current trends in technology, you know, healthcare IT software, education software, overrated. SAS enterprise software, really overrated. Big data, cloud computing, if you hear those words, you need to think fraud, you need to run away as fast as you possibly can. And the reason these buzzwords tell you that something is—these buzzwords are sort of like a tell in poker that people are bluffing, and the business is not undifferentiated, because the buzzwords tell you that it is one company of a category that’s undifferentiated from the others in that category, and therefore are symptomatic somehow of a lot of competition, and a bad business idea. So you don’t want to be the fourth online pet food company, you don’t want to be the tenth thin film solar panel company, you don’t want to be the one-thousandth restaurant in San Francisco.
So there is something about if you can describe what a company is doing very straight-forwardly by referencing these buzzwords, these categories that already exist, that’s actually a sign that it’s a pretty bad, that it’s a pretty bad idea. And I think one of the challenges, conversely, that you have when you have a very successful business is to try to describe it. It doesn’t actually fit into any of the boxes precisely, and that makes it very hard for people to understand what’s going on. Sort of one of the—sometimes you even have companies that are genuinely innovative that do something very new, and they get mischaracterized as being one in a category that’s doing something else. So for example, Google in the late 90s was categorized as just another search engine, and this was sort of one of the reasons people thought it was not that valuable, when probably the correct characterization would have been it was the first computer powered search. All the others were sort of this human-organized list. So it was qualitatively different. But it sort of got mischaracterized. Or Facebook, in 2004, would have been characterized, probably still is characterized, as a social networking company, most straight-forwardly. And of course, it was not the first. There had been a number of others that had done this before.
One of my friends, Reid Hoffman, who started LinkedIn, started the company called SocialNet in 1997. So they already had the name social networking in the company seven years before Facebook came along. They had all these crazy ideas. You were going to have these avatars in cyberspace, and some people would be cats, and some people would be dogs, and there’d be all these questions how they’d interact, and people weren’t really all that interested in that. And it turned out that it turned out that what actually mattered was not social networking among virtual cats and dogs, or anything of that sort. It was real identity. And Facebook was the first company to crack the problem of real identity. That’s not the way it got characterized because we’re always so biased trying to put things in a pattern in a category, and not to think about what’s unique, what’s original, what’s different.
One of the other sort of very counter-intuitive aspects of this monopoly idea leads me to is that you know, you always want to start with very small markets. You don’t want to start with incredibly big markets. You want to start with—because if you’re starting a company, you want to get a large market share, and since you always start small, you ideally go over a small market first and take over that market in one way or another. PayPal started with power sellers on eBay, it was like 20,000 power sellers we got. They had a big need for a new payment solution, and we got to about you know, 30-35% market share in the first three to four months. And then it gradually expanded, and over many years, you branched out from there. You know, Facebook launched at Harvard, 10,000 students, and you went from 0% to 60% market share in 10 days. Again, sort of a very auspicious start, and then you could branch out from there. One of the really big disasters of the last decade was the whole Clean Tech fiasco, and I think there were sort of many different things that went wrong. I think failure is often very overdetermined. You don’t normally fail for just one reason. You fail for like five different reasons, and that’s why you normally don’t learn a lot from failure. It’s sort of very overrated I think, because you end up—you only learn one of the reasons you failed, not the other four. But one of the things that went wrong systematically with the clean tech companies was that they badly misjudged the market, and every sort of PowerPoint presentation that you saw in the period of 2005–2008, the first one or two slides was we have this giant market. It’s much bigger than anything on the internet ever was. It’s measured in hundreds of billions or trillions of dollars. It’s this market called energy. And so when you’re you know, a thin film solar panel company where you have to beat the other nine thin film solar panel companies, and then you have to beat the next 90 solar panel companies, and then you have to beat the wind companies, and then you have to beat the natural gas companies, and then fracking comes out of right field, and China comes out of left field, you know, when you’re a minnow in a vast ocean, that is not the place you want to be. There is no such thing as an empty ocean, and you have no idea what you’re going to encounter, and that’s the kind of thing I think we want to always try to systematically avoid in one way or another.
Let me end with, and leave as much time as we can for questions, but I’ll end with one sort of somewhat bigger picture contrarian thought. You know, I think that for the 21st century to be a successful century, we have to sort of find a way for both globalization and technology to proceed a pace. But I think it is very important to understand, these words always get used synonymously and I think they should be differentiated very strongly. Always draw a globalization on the X axis, and I describe it as copying things that work, going from one to ten, horizontal, extensive growth. I describe technology as vertical, intensive growth, doing new things, going from zero to one. So you know, globalization is like going from one to 100 typewriters. Technology is going from a typewriter to a word processor. And there have been sort of periods of globalization and technology in the last two centuries, and they’re not synonymous. The 19th century, I think you had both. You had enormous globalization, enormous amounts of technological process, 1815 to 1914. 1914 World War I starts. Globalization goes into reverse. Trade breaks down. The world becomes sort of much more fragmented. Part of it becomes communist, more or less secedes from the rest of humanity. And technology continued very, very much at a pace.
By the 1971, Kissinger’s trip to China, is the point where I would say globalization starts again very much in earnest. But I think we’ve had, for much of the last 40 years, a somewhat more limited technological process, where the word technology has been narrowed to information technology. In the 50s and 60s, technology meant many other things. It meant biotech, medical devices. It meant nuclear power, new forms of energy, underwater cities, the green revolution in agriculture, space travel, supersonic aviation, flying cars, etc., etc. So there has been—so I would argue that the 19th century had both—the last 100 years had a period of technology without globalization, and then more recently, a period of globalization with somewhat more limited technological progress. A lot in computers and the world of bits. Not so much in the world of atoms. Certainly there is a political cut on this where you could say that for the last 40 years, we have lived in a world where bits were relatively unregulated; atoms were more or less regulated to death, and that’s sort of a political explanation for why you’ve had this strange dichotomy.
I do think that if you look at this culturally, we at this point, live in a society, and in a world, a country, that dislikes science and technology in just about all its forms. We were always told that we have lots of technological progress. I think the reality is much more that the culture is very biased against the technology. The easiest way to see this, and this is always my challenge—people don’t agree with this—is challenge you to name me one science fiction film that Hollywood produced in the last 25 years in which technology is portrayed in a positive light, in which it’s not dystopian, it doesn’t kill people, it doesn’t destroy the world, it doesn’t work, etc., etc., it doesn’t not work, etc., etc. And instead, we have one sort of catastrophic, anti-technological scenario after another, and the future is some combination of the Terminator movie, and Avatar, and Elysium, and you know, The Matrix. I watched the Gravity movie the other day. You would never want to go into outer space. I mean, you want to be back on a muddy island somewhere on this planet. And again, I think Hollywood is not sort of the sole source of this. It’s sort of, it, to some extent, creates mostly just reflects the broader culture, which I think at this point, is very anti-technological. Which is why I think Silicon Valley is sort of the center of the counterculture in our society today. Or to frame this in more geopolitical terms, you could say that if you describe the world in the 1950s and 1960s, you would have divided the world into the first world and the third world. The first world was that part of the world where you had accelerating technological progress, the third world was that part that was sort of permanently screwed up, and broken. So it was a pro-tech, anti-globalization dichotomy.
Today we would describe the world geo-politically in terms of the developed and developing countries. And the developing countries are those countries that are converging with the developed world, so it is a pro-globalization, convergence theory of history. The world’s sort of becoming more homogenous, more the same. But it is also an implicitly anti-technological description, because when we say we live in the developed world, we are implicitly saying that we’re living in that part of the world where things are finished, done, nothing new is going to happen, it is developed and is in the past. And a part of the world where the younger generation should resign itself to reduced expectations from their parents and grandparents, and I think this is a conception of our country, and of the west, that we should very strongly reject. So I’ll end by returning to the contrarian question, which I think needs to be asked far more often. How can we go about developing our so-called developed world. Thank you very much. Yes, any questions?
We have quite a few questions here. I think we can start with—we’ve heard about your successful bets. What about a few of your favorite failures?
Peter Thiel
I don’t know if I have any favorite failures.
David Theroux
Not in your personal experience.
Peter Thiel
You know, it’s—you know, there definitely are all sorts of contexts where things go wrong, but I’ll stick with what I said on the Clean Tech context. I actually think it’s not that clear how much people can learn from failure. You know, when things go wrong, you know, you don’t always learn—and this is sort of one of these conventional wisdom things people say, that you’re free to fail, you can fail, you can keep failing over and over again. But I actually think that in many contexts, you know, people do not learn all that much. There’s always this question you know, I think in Silicon Valley there have been so many companies where you know, PayPal had sort of, it was sort of the moderately—there were companies that have been a lot more successful than PayPal. Certainly whenever you sell a company, you can say it’s not a complete success. The thing you really want is for a company to remain standalone. So it was a very bittersweet process. It was certainly a success by many measures, but then we had hoped to turn it into a new world currency, to change the nature of money, and we were sort of stuck on this eBay platform. And at the end of the day, the logical thing for us was to combine forces. But it was this sort of intermediate outcome which I think was quite good for training a lot of entrepreneurs, where people learned it was hard, but possible, to build a really successful company. And I think this was the lesson that sort of lead to a lot of people then starting some really great companies in the years after PayPal. If you had been in a company that failed, the main lesson people learned in the late 90s afterwards was you have to aim lower, you have to try something that’s less ambitious. And so failure ends up being a soul fulfilling sort of prophecy where you then, if you fail, you often end up finding it really hard to succeed. And I think on the other end of the spectrum, if success is too easy, which I think was sort of the Google/Microsoft experience, people learn also the wrong lesson, that it’s easy. So if you learn the lesson that it’s easy or impossible, that’s a bad lesson. Hard is probably a pretty good lesson. So extreme optimism and extreme pessimism, I think, are always the bad sentiments. Extreme optimism tells you that there’s no need to do anything, the future will take care of itself. Extreme pessimism tells you there’s no point in doing anything, we’re all doomed. And what extreme optimism and extreme pessimism converge on is you just don’t do anything. So I think it’s always good to have a somewhat intermediate thing. Not focus on extreme success or extreme failure.
David Theroux
Okay, a related question, since you’ve mentioned Microsoft, the question is you say in your book that Microsoft and Oracle are not good bets because they’re not innovating. So who is? And related to that would be what advice would you give an entrepreneur to develop a mindset towards unlocking secrets?
Peter Thiel
Let’s see, so I would say—well, I’m not sure—there are many companies that are good investments, even if they don’t innovate. So there are sort of points where they can be a successful business because they generate cash flows. They’re like banks, they sort of make money. They don’t have to do that much new for a long time. I would say a lot of the—but I think people should be very clear that when they’re investing in these companies, that your fundamentally making a bet against technology. Most of the companies in the NASDAQ 100, at this point, are bets against technological innovation. So if you invest in Microsoft, you’re betting that Linux won’t be developed, that there’ll be no new operating system, that things won’t shift away from Office, that they won’t shift onto mobile devices. You know, if you invest in Oracle, that’s a bet against the cloud. It may be a good bet, but that’s sort of the fundamental bet that you’re making. If you invest in IBM, you’re betting that people are going to stick with—software from the 70s for all eternity. And so now, these companies always brand themselves as technology companies, even when they’re long past that point. General Motors was a technology company in the 1920s. The car companies were all super-innovative and probably was still sort of a tech company in the 50s. By the 80s, investment in GM was a bet against you know, German and Japanese innovation. So there is sort of this arc, where these things change, and you should just be clear on what it is that you’re doing.
David Theroux
Okay. What is something that everyone thinks is right that you think is wrong?
Peter Thiel
Well I already gave a few answers to that. You know, the super flip answer I always give to that question is that most people think the question what’s right that other people think is wrong, this is an easy question to answer. I think it’s a hard question because originality is hard. You know, you don’t get to be original if you dress up like a hipster and you wear all the same fashionable clothes the other fashionable people wear. So there’s sort of a lot of stuff where we always pretend that creativity, originality, all these things are somehow super easy. And the reality is they’re very, very, they’re very hard. You know, already in the time of Shakespeare, the word ‘ape’ meant both primate and to imitate. You know, it was Aristotle I believe, however you say it, man differs from the other animals, and has greater aptitude for imitation. So there is this imitation aspect to human nature that runs very deep. It’s how we learn language as kids, it’s how culture gets transmitted. But it also leads to many forms of insane behavior. It leads to insane peer pressures, it leads to market bubbles, manias, and so I think trying to find a way to be original is quite difficult. I think in practice, again, I don’t think there’s a formula. This is how you do these five steps and you will have an original idea. There’s no easy formula, but if you sort of described it, it often starts by not being that focused on the people around you, being really passionate about some idea, or something more transcendent. And you know, that’s sort of what drives a lot of innovation. At PayPal, we’re sort of very interested in the combination of cryptography and finance, which is sort of this idiosyncratic intersection. We didn’t succeed in building the new crypto-currency. Maybe or maybe not Bitcoin will do that. But it was nevertheless sort of a very motivational kind of a thing. So I think always having some sense of mission is very powerful. I always like to distinguish mission-oriented companies from social entrepreneurship, where a mission-oriented company is a company where if it doesn’t work on the problem it’s working on, the problem will never be solved. Because it’s the only company in the world that’s working on an important problem. My colleague, Elon Musk, from PayPal, is working on the Space-Ex company. Their mission is to go to Mars. Now, you may or may not agree on that being an important or worthwhile mission. But it’s the only company in the world you can work on, if you think that’s an important mission, and for the people there, that is incredible motivational. Social entrepreneurship, by contrast, tends to lead to an awful lot of these sort of copycat imitative sorts of businesses, and I think it starts with the ambiguity inherent in the world social itself, where social can mean either, number one, good for society, or number two, it can mean good as seen by society. And I would submit that most of the cases it’s actually the second definition that dominates. And when you’re doing something that is merely good as seen by society, you are likely to already be in an area where you will have automatically a vast number of copycats, and that’s why I think social entrepreneurship, as a category, has been such a dismal failure.
David Theroux
So since you mentioned Bitcoin and your experience with PayPal, what are your thoughts on Bitcoin?
Peter Thiel
You know, it’s always—I’m probably still somewhat biased since we failed to do it at PayPal, we have to then—when you fail, you assume you can’t do it. And so we’ve probably been somewhat too biased against Bitcoin over the years because we failed, therefore no one is going to succeed at this. It was certainly an incredibly brilliant innovation where you solve the whole combination of different problems. There is, I think the challenge that Bitcoin has at this point, you know, PayPal, we set out to create a new currency and we just built a payment system. Bitcoin actually created a new currency, but I think they still need to get the payment system part to work. So that is, I think, going to be the big challenge. Are there easy ways to get the Bitcoin protocol to work really easily where you can turn it into a form of currency or not, and I think that’s the part that still is an open question.
David Theroux
When the bubble in higher education bursts, what will happen in the university market and society?
Peter Thiel
Yeah, so I guess you know, I’ve been sort of a fairly big critic of our university system over the last number of years, and you know, I’ve been on record as saying we, at this point, have a giant bubble in education. You know, we have over $1 trillion in student debt in this country, and to a first approximation, I believe, the $1 trillion went to pay for lies that were told about how good the educations were that these people got. So the more the colleges cost, the more money they have to tell lies about how good a job they’re doing. And you know, if [you] look at education, one of the things that’s sort of characteristic of all these different bubbles is you know, the public is, of course, involved. You have this incredible mania around it, no one can question it. And they also always involve an incredible abstraction. Education is an incredible abstraction. And when you sort of, you know, because you never are allowed to talk about what it is that you’re learning, or what the substance is, if you try to sort of make it less abstract, I think you sort of get to some different things.
The economic version of it, I suggested to make it less abstract, is you could ask—is education an investment where you sort of invest in something in order to increase your earning power. Is it a consumption decision where college is a four-year party. And I originally thought it was like the housing bubble, which was sort of a combination of consumption and investment, where people thought I’m buying a big house with a swimming pool, look at how much money I’m saving, which is sort of a crazy way to think about things. So when you think you’re consuming by investing, that’s sort of like A and not A at the same time. But I think at this point it’s actually a combination of two different things. It’s a combination of an insurance policy people are buying because they’re scared of falling through the big cracks in our society, and then that’s combined with the reality of a zero sum tournament where if you get a diploma from the wrong school, it ends up being a dunce hat in disguise. So we basically have a zero sum tournament that masquerades as an insurance policy, which are of course very different kinds of things. So that sort of gets you at the sort of fundamental fraud.
David Theroux
Two last questions. These two are related. What do you believe the business climate will be in California five years after increased regulation? Would you move to another state? And is California a monopoly, its control of the world’s crucible of innovation, Silicon Valley, appears to allow it to charge monopoly rents.
Peter Thiel
Let’s see, well I think yeah, disturbingly California is able to get away with putting quite a significant regulatory burden on its industries, and the two big sectors in California are the tech industry in northern California, the entertainment industry in southern California. They both have these—they’re both these heavily networked industries. So there’s—it’s incredibly valuable to be here, even when the taxes are quite a bit higher. And I think as a result, it sort of ends up being very, you know, I still think we’re a long way off from alternate centers getting set up. And one of the things that was very surprising was that you know, the state was able to dramatically increase marginal tax rates in 2012, and it did not actually lead to any excess whatsoever. People are sort of stuck. And this suggests that even if taxes went up a lot more, we’re sort of stuck in these network effect like industries where people can’t leave. I think New York State is sort of much more vulnerable. There’s something about finance, which is much more mobile at this point. So I think New York State, as a political experiment, will collapse well before California does. Then I think with respect—then I think the part that is dangerous about the California dynamic is that when you have these sort of super networked industries, it’s possible that policy can go incredibly far wrong before anybody notices. And the super disturbing example in the US context would be Detroit and the US car industry, which was again, a very networked industry, it was all around Detroit. You had the suppliers, all these different people. There were incredible scale economies, network effects that came from that. So as it got taxed and regulated more and more, people did not leave. There was no response. Then eventually the whole thing completely collapsed. So the risk in California is not that we have some sort of gradual decline, but that we have—that it gets sort of pushed, and then sort of goes over the cliff completely. But I think we’re still a ways away from that.
David Theroux
Last question, what in your upbringing made you think differently? Education? Family? Experience? All of them?
Peter Thiel
You know, it’s some combination of all of the above. I think that yeah, it’s always a—you know, I do think sort of having somewhat unconventional political views is always sort of, it’s like at least a small entrée towards this. And when we started the conservative libertarian newspaper at Stanford, you know, you were sort of forced to engage in all these different topics. You were sort of this minority. And when you’re in a minority, an intellectual minority, you naturally build up a certain resistance to the idea that truth is collective, that it’s simply what everybody says is true in all these different contexts. So I think that sort of experience was very powerful. Thank you very much.
David Theroux
I want to especially thank Peter Thiel for his wonderful work. And we’re particularly grateful to all of you for joining with us and making this such a successful gathering and event. As I mentioned before, copies of Zero to One are available next-door. Peter has kindly agreed to autograph copies for people. Please visit our website at Independent.org, and we look forward to you joining us again in the future. Thank you for joining with us.
