Europe is a Developing Economy. But so is the U.S. (#13)

Ben Robinson (Ben): Welcome to the Aperture Podcast. For this episode we are very lucky to be with Nicolas Colin, who is co-founder and director of The Family, which is a platform for European entrepreneurs. Nicolas is also an author, he’s written multiple books including Hedge: A Greater Safety Net for the Entrepreneurial Age, a review of which you can find on the Aperture website. He also contributes articles to Sifted, and he writes a weekly newsletter called European Straits. Nicolas, welcome!

Nicolas Colin (Nicolas): Thank you.

Ben: You said that Europe is a developing economy, which I guess is a slightly controversial statement. What did you mean by that? And what do you mean when you talk about Europe having to navigate the narrow strait between the Americas and China?

the fact that Britain used to dominate and ceased to dominate because they missed the opportunity of one particular transition from the economy of railways to the economy of steel reveals that every region that dominates at a given time is in danger of losing it if they don’t do what it takes to embrace the new paradigm.

Nicolas: It’s a long story, but to make it as short as possible, what I believe in is the idea that we’re currently going through a transition from one world to the other, or what economists would call one ‘techno-economic’ paradigm to another techno-economic paradigm. So the world we’re leaving behind is that of the Fordist economy of the 20th century that was dominated by mass production, mass consumption, and the core of this economy was the car industry, the matrix after which every industry was modeled in the 20th century with the core principle of mass production governing everything. The new world we’re entering is that of the entrepreneurial age, as I call it, which is a world dominated by tech companies as opposed to car companies. And tech companies have a distinctive feature that is increasing returns to scale, which leads to companies overall being more fragile, and markets being more concentrated, dominated by one company at the expense of the others. And so that brings many consequences, but as in any transition of the sort, it redistributes the opportunities between the different regions of the world.

We used to race ahead in the Fordist age, but as for the Entrepreneurial Age, if you look around in Europe, we don’t have the large tech companies that determine if you’re racing ahead or lagging behind. We might have that legacy wealth and prosperity that we inherited from the past, but it will be exhausted at some point if we don’t build the growth drivers that we need to rebound and to succeed in the new paradigm, and that’s about building successful tech companies that dominate the global scale.

The first modern technological revolution was the Industrial Revolution, which triggered the rise of Britain as the dominant power at the time, and then, one century later, the rise of the Steel Industry shifted power from Britain to Germany and then to the US, and the US became the most potent economic power in the world at the time, and they still are in many respects. But the fact that Britain used to dominate and ceased to dominate because they missed the opportunity of one particular transition from the economy of railways to the economy of steel reveals that every region that dominates at a given time is in danger of losing it if they don’t do what it takes to embrace the new paradigm.

And I think that’s exactly what’s happening in Europe. We got used to dominating in the 20th century, not because we were the most developed economy in the world, but we were close to catching up on the US, emulating them in many respects, forging this very strong transatlantic alliance that came with sharing the wealth, sharing the techniques to grow successful companies, but also sharing parts of the social contract, so institutions that existed on both sides of the Atlantic. I think we got used to racing ahead, and we need to realize today that we used to race ahead in the Fordist age, but as for the Entrepreneurial Age, if you look around in Europe, we don’t have the large tech companies that determine if you’re racing ahead or lagging behind, and if we don’t have them, that means we’re lagging behind and we might have that legacy wealth and prosperity that we inherited from the past, but it will be exhausted at some point if we don’t build the growth drivers that we need to rebound and to succeed in the new paradigm, and that’s about building successful tech companies that dominate the global scale.

If you want a tech company to succeed — to overcome the many obstacles that exists at the seed stage and then to scale-up and reach a scale that makes it possible to dominate at the global level — you need that company to aggregate resources on different fronts. One front is that of employees — you need to hire a lot of talent. Another front is that of capital — you need to raise a lot of funds. And then a third front is access to the markets, — you need to sell your product to as many customers as possible. If on each of these fronts, you need to overcome obstacles that come with the fragmentation, then you are slowed down when your potential competitors in the US and China are accelerating.

Ben: And you’ve talked a lot about the reasons that Europe is lagging behind United States, and we can point to many factors, less VC money, for example, but one of the key ones is that… you talk a lot about fragmentation.

Nicolas: Yes.

Ben: And in that regard, Brexit cannot be a good thing for the European project, right?

Nicolas: No, it’s true. So the fragmentation is critical because if you want a tech company to succeed, that is to overcome the many obstacles that exists at the seed stage and then to scale up and reach a scale that makes it possible to dominate at the global level, you need that company to aggregate resources on different fronts. So one front is that of employees. You need to hire a lot of talent. Another front is that of capital, you need to raise a lot of funds. And then a third front is access to the markets, that is you need to sell your product to as many customers as possible. If on each of these fronts, you need to overcome obstacles that come with the fragmentation, be it about languages or culture or regulations, then you are slowed down by the fragmentation when your potential competitors in the US and China are accelerating at the same time, because then they don’t encounter the same obstacles as you. So an example is… you are in Paris, you’re struggling to raise money because VCs are not ready to support an ambitious venture like yours. You can still cross the channel and go to London and pitch London-based VCs that will realize that your venture has the potential to grow big, and they will invest.

Crossing the channel sounds easy, but you need to realize that if you’re an early stage startup, it costs a lot of money to buy a Eurostar ticket, then you need to spend several nights in London and hotels are extremely expensive. And then you need to pitch a VC in English, which is not your native tongue. And then even though you master some English and you can pitch your company, the fact that that you didn’t grow up in the same culture, maybe the VC in front of you is English or they are Indian or they are American but you’re French, and so the informal communication is not the same, the context, the interpretation of the context is not the same, and so there will be a high probability of a miss, not because your venture is bad or that VC is feeble, but because there’s been some misunderstanding between you due to the language and the culture, and that’s fragmentation.

if you immerse yourself in the world of startups, you realize that hard borders are not that much of a problem. It’s more soft obstacles like languages and culture that are the problem. I think that Brexit is irrelevant when it comes to soft obstacles.

Ben: And from here, it gets worse, presumably, with Brexit, because when you read your newsletter, it seems that you oscillate between sometimes being more bullish about Europe, sometimes a bit more pessimistic about Europe? Doesn’t Brexit make you more pessimistic?

Nicolas: I don’t know. The fact is, if you immerse yourself in the world of startups, you realize that hard borders are not that much of a problem. It’s more soft obstacles like languages and culture that are the problem. I think that Brexit is irrelevant when it comes to soft obstacles. It won’t make it harder to communicate across cultures and languages. The only problem that will have is that how do you solve the problem of fragmentation? You don’t solve it by enacting rules in Brussels that say now there is no border where there was one before.

You solve the problem of fragmentation by inspiring a common culture in which everyone from all across Europe can work together at building successful tech companies.

You solve the problem of fragmentation by inspiring a common culture in which everyone from all across Europe can work together at building successful tech companies. And we have a very interesting precedent in that regard, which is the financial services industry. If you go in the building of a large investment bank in London, you encounter people from all over the world who all speak English with very different accents, who obviously come with a very different cultural background, but yet they’re still able to work together because they brought together by a single culture that is the culture of the financial services industry. They have a common language to exchange information, i.e. Balance Sheets, P&L statements, Cash Flow statements. They have common tools that they know how to use — a Bloomberg terminal, Excel spreadsheet — and they have a common culture and everyone knows what they should expect when they joined that particular industry in terms of work ethics, relationships within the organization and so on. And that culture exists because it’s been shaped by successful ventures in the financial services industry. An industry that has grown so large that they’ve imposed the culture and passed it down to the next generations.

The problem we have in Europe is that we don’t have those large tech companies that would shape the common European culture for building tech companies and impose that culture on smaller startups. And because we don’t have that, we need to wait for that first generation of highly successful European tech companies and once they make it at great expense and with great pain, because they are still fighting against an adverse environment and trying to overcome the fragmentation. If they make it, they will crystallize the culture and that culture will spread out of the organization and impregnate entire ecosystems. In turn, that will make it easy for people from all over Europe to come together and build tech companies together, even though they don’t share the same language or the same cultural background.

So Brexit doesn’t really make a difference. Maybe it will make it a bit harder to build successful tech companies in Europe, because it will be harder for entrepreneurs on the continent to raise funds from VCs in London. But Brexit or not, we will still need to wait for those highly successful European tech companies for the culture to emerge and to make it easier for people to work together.

if you read history, you realize that the fragmentation of Europe has long been an asset, as opposed to the unity of countries. The fragmentation can be an asset because it fosters competition between different countries which experiment with building new institutions or creating different context for entrepreneurs to succeed.

Ben: So, the good news is that Brexit doesn’t make a material difference to the likelihood of a large European tech company materializing?

Nicolas: No. It can even make it easier actually, because there used to be a time, if you read history, you realize that the fragmentation of Europe has long been an asset, as opposed to the unity of countries such as the EU, China especially, also the US, even though it’s a federal system. The fragmentation can be an asset because it fosters competition between different countries which experiment with building new institutions or creating different context for entrepreneurs to succeed. And entrepreneurs can eventually shop around the different countries to find the right place for them to build that venture. And that’s what happened many times in the past and that was that’s what explains most of the prosperity that has characterized Europe over history. So Brexit maybe will reinforce, foster even more competition, because breaking free from the European Union will make it possible for Britain to invent their own institutions to support entrepreneurs, and that in turn will force countries on the continent to align themselves, and so maybe it will accelerate things.

Ben: So you’re starting to paint what could be a positive picture of post-Brexit Britain, and I think for many of us that didn’t want Brexit to happen, and we’ve sort of come to terms with it but haven’t yet thought about what might be some of the positive outcomes down the road. So, in addition to a slightly elaborating on what post Brexit Britain could be in a positive sense, I want to get your view on Dominic Cummings, because you wrote a very interesting piece about Dominic Cummings a few weeks ago, which was pretty critical. You were trying to answer the question of whether he could transform the British Civil Service, but regardless of whether he can or he can’t, do you think he might have some sort of Grand Master Plan for post-Brexit Britain? Because he may have many faults, but he does seem to be at least pretty good strategist or was at least when it came to winning the LEAVE campaign. So long question, but what could be the positive post-Brexit outcome, plus do you think Dominic Cummings has that kind of vision in light?

Nicolas: So, for context, Dominic Cummings is a special adviser to Boris Johnson as Prime Minister, and he used to be the chief strategist and campaign manager for the official LEAVE campaign before the referendum in 2016.

Ben: He came up with the slogan…

Nicolas: Take back control

Ben: Correct.

Nicolas: Yes. You can see that in a rather good movie with Benedict Cumberbatch, about Dominic Cummings.

Cummings is interesting because he used to study history. So he’s not a technologist per se, but he’s a nerd. He is interested in those new things and he’s probably dived quite deep into technology and the transition that technology is fostering at the moment, and so he understands what’s going on. And unlike many people that are for Brexit, I don’t think he has an ounce of racism in him. It’s not about kicking the immigrants out of Britain. For him, it’s mostly about, if we’re going through this transition, we need room to maneuver, and we need to be able to try as many different things and to experiment with new policies, new institution building, and for that, you don’t want to belong to the European Union, because supposedly the European Union imposes many, many constraints on what you can do as a sovereign country. So if you want to experiment in a radical way you need to unshackle what the European Union imposes, and to experiment and to innovate and so I think now he has the satisfaction of seeing Brexit actually happen, and he’s expecting that now Britain will be free to implement radical reforms, and to deliver radical transformation in the interest of the country and of its inhabitants.

The way you transform an organization is by re-positioning it around solving problems that didn’t exist before or that you couldn’t solve before

What I’ve been criticizing in my article is the fact that if you read the journalists— again, I’ve never met Cummings. I don’t know what’s in his head — but apparently, his obsession when it comes to implementing radical reform is about transforming the Civil Service, reshaping the state, turning the stage from what it is today, that is a very top-down, hierarchical organization entirely designed for mass production of public services, to a state that is more agile, more innovative, more responsive to the demands of the public, which are all good ideas and we can all agree with that.

But my article is critical. It’s critical because first, I know both worlds. I used to be a senior civil servant in the French government, so I know bureaucracy from the inside. I’ve seen generations after generations of politicians vowing to transform it from the top down. It never works, but I also know the tech world, probably even better than Dominic Cummings, because I’ve been working with entrepreneurs for almost 10 years now, so I know what it takes to transform an organization. And what it takes is not that you seize control of the organization from the top down and force everyone to change. The way you transform an organization is by re-positioning it around solving problems that didn’t exist before or that you couldn’t solve before, and so I think that’s what the British states should do at the moment. You shouldn’t try to transform the way the Civil Service works. It should focus on problems that have become so critical and that technology makes it possible to solve, and build new agencies, new organizations, new policies at the margin to solve those problems. And then if it’s successful, then you have a redistribution of resources that successfully absorbs the failing if you want.

Ben: Not to belabor this point too much because we want to move on to other things than Brexit, but in Cummings’ plan or at least what we know of Cummings’ plan — which isn’t that much — he is talking about new agencies. He is talking about a UK style DARPA organization. So why do you think that he will fail in creating new institutions and gradually making the state more agile and more responsive?

Nicolas: Yes, but gradually means 30 years. In 30 years, maybe the new agencies built by Dominic Cummings and others will have become so successful and so large that will become a model for the rest of the organization to reshape itself. But it’s 30 years is what it takes to change organizations as large and as old as Western states such as France or the UK, extremely centralized organizations that are huge and employ literally millions of people, and so I think he should prioritize. Does he want to build new agencies in which he gets to be the head of one of those new agencies, with all the resources and the autonomy that he needs to try new things? Or does he want to transform the entire organization from the top-down? And if you try to do both, there’s a high probability that you will fail on both fronts.

Being in the European Union or not, doesn’t really make a difference if you are a start-up in one of the non-harmonized industries, and for some reasons startups are mostly located in non-harmonized industries, because harmonized industries are those that are already dominated.

Ben: And then last question on Brexit, but is the flaw … because again, I think when you talk about creating a UK that’s more agile and able to respond faster to this new economic paradigm, that doesn’t sound like a bad thing, but is the flaw that in order to create the flexibility to do so, to reform the state or… we don’t know how quickly that can happen anyway, is the flaw that the UK is no longer part of the single market, so it doesn’t have this large addressable market for its new companies to sell into? Could there have been a better outcome where it was a softer Brexit with more autonomy, but with still access to the hundreds of million EU consumers?

Nicolas: Well, to be frank, I don’t think it makes a huge difference. There’s a thing called the Single-Market, which in theory provides you with a guarantee that if your company established anywhere in the EU, you can market and sell your product anywhere else in the EU. But in fact, the Single-Markets, few people realize this, it only exists in certain industries, such as manufactured goods, financial services, electricity, airlines, railways, and a few others. And so if you are a start-up in one of those industries, then you can enjoy the benefits of the Single-Market and Brussels will be here to provide you with the certainty that wherever you are established, you can compete in another country member state. If you don’t belong to one of those industries, well it’s much more difficult, because the regulations will be different and no Brussels-enacted legislation forces member states to harmonize their regulations in industries such as healthcare, public transportation at the city level.

And so, being in the European Union or not, doesn’t really make a difference if you are a start-up in one of those non-harmonized industries and for some reasons startups are mostly located in non-harmonized industries, because harmonized industries are those that are already dominated, extremely capital intensive. Like, you don’t want to compete on the market for electricity if you are a start-up. That’s simply too hard. You don’t want to come up against the incumbents in that particular industry. So you might, in theory enjoy having a single market for electricity, but in fact, it’s impossible to penetrate, to enter that market. So startups end up in more mundane industries, such as business services, health care, education, and all those industries, by coincidence, are very different from one country to another. So I don’t see Brexit making a lot of difference.

Ben: Listening to you, it sounds like you’re relatively sanguine about Brexit, and I guess at the heart of what you’re saying is you believe that entrepreneurship will harmonize Europe faster and better than politicians ever could, which I guess is inherently why you switched from being a civil servant to starting The Family.

if you tackle a big problem, if you harness the power of technology to solve that problem, and if you raise funds from venture capitalists, then you can deliver great things and make a real difference and a real impact. And so that’s where the power is.

Nicolas: Exactly. That’s the idea. Well, like many people working for government, I was disappointed by what I observed from up close, and the worst thing is in government is the politicians and the very low quality of the leadership. And then you encounter entrepreneurs and you realize that if you tackle a big problem, if you harness the power of technology to solve that problem, and if you raise funds from venture capitalists, then you can deliver great things and make a real difference and a real impact. And so that’s where the power is. Power is not only scale, it’s also agility and ability to experiment with new things having nothing to lose, which is definitely not the case in the government’s spheres.

Ben: Just a challenge that slightly, and let’s talk a bit about the U.S., because the U.S. doesn’t have Europe’s problem in the sense that it has several top of the food chain, massive tech companies, and for a long period of time, that was galvanizing the institutions in the U.S. There was alignment between tech, business and politics, particularly during the Obama years. But things have moved against those tech companies, and they’re not able to exert the influence that they were, and yourself, you’ve talked a lot about how damaging Donald Trump has been for Silicon Valley. I think you even had a piece that was called exactly that or something to that effect.

Nicolas: Yes.

Ben: So is it enough to just have massive tech companies? I mean, because …

Nicolas: No, it’s not enough. Definitely not. What I usually explain is that if you want to be a developed prosperous country in a given paradigm like the entrepreneurial age, you need to run a race that’s effectively divided in two parts. So the first part of the race is about building successful tech companies, capitalist organizations that generate increasing returns to scale at the largest scale possible. And then once you have that you have that wealth, that value that can be realized into wealth and that wealth can be reinvested in developing your economy by spinning out to other industries that don’t generate as high returns. But that doesn’t happen if that particular country is not provided with the right social contract, and so that’s the second part of the race. Once you have the large tech companies, you need to build the social contract to guarantee that the wealth they create and the power that they accumulate is used to developing the entire economy, as opposed to enriching just a small group of people.

Ben: So in the US, why didn’t that second part happens? So the US created massive, global, world-leading tech companies, but it didn’t put in place a social contract, but it looked for a time like it was going to. You had Obamacare. You had some sort of alliance between Silicon Valley and Obama. What went wrong? Was it a problem with Obama, because implicit in some of the things you write, you see him as a very good strategist but failing versus somebody like Roosevelt in terms of visibility to get stuff done? Was that his problem? Was he just not effective enough?

Obama was open minded and extremely charismatic and inspired a lot of respect all across the world and so Obama could vouch for Silicon Valley companies and say, “okay, trust them. I know them. They’re my friends. We’re working together. We’ll find a solution for them to pay a bit more taxes, but not too much. We’ll find a solution to regulate and protect your privacy, but please, let’s stay friends”.

Nicolas: Well, we don’t know whose responsibility it is, but it didn’t work. It didn’t deliver. I think that was the plan. Obama was clearly extremely supportive of Silicon Valley and Silicon Valley companies, including by negotiating free trade agreements with Asia and with Europe, to foster the growth and to guarantee that they would have access to those large markets outside of the U.S. In exchange, you can even say that Silicon Valley was extremely supportive of Obama in many respects, especially by providing a lot of money to his campaigns and providing a lot of talent to staff his administration. And so had another Democratic president being elected after Obama, they could have continued that stream of build up this alliance between the dominant capital-intensive companies of the day and the forward-looking progressive leaders willing to build a new social contract. That didn’t happen for many, many reasons. Part of them are completely random. But because it didn’t happen, the US is now losing ground, and you can see that by the day.

A very concrete consequence of Trump’s election is that Silicon Valley has lost support in Washington DC, especially when it comes to negotiating free trade agreements, because Trump has officially put an end to negotiating all of that. He effectively ceased negotiating on both sides of the U.S., and then he also closed the borders for immigration, which makes it harder to hire talent in Silicon Valley. Plus, he took the side of backward-looking incumbents in many industries, as opposed to supporting innovative entrepreneurs trying to transform those industries. And the result is that Silicon Valley has been slowed down, and not only have they been slowed down by the Trump administration, the Trump administration has also transformed how we view the U.S. from the rest of the world. So before that, people were a bit worried about large U.S. tech companies manipulating data and crushing competition from legacy players, and so on. But when you looked at the U.S., what you saw was Obama and Obama was open minded and extremely charismatic and inspired a lot of respect all across the world and so Obama could vouch for Silicon Valley companies and say, okay, trust them. I know them. They’re my friends. We’re working together. We’ll find a solution for them to pay a bit more taxes, but not too much. We’ll find a solution to regulate and protect your privacy, but please, let’s stay friends.

Today when you look at the U.S., you see Trump and everyone hates Trump, except for the fringe of Trump supporters in the US, and so Silicon Valley is not protected by its own government anymore. The government has become a liability, both in terms of what they do at home, but also in terms of the image that they’re projecting abroad.

Ben: Crystallizing a magnet on negative.

Nicolas: Yes, exactly, and so I think it’s not a coincidence if many U.S. tech giants have been renouncing competing at a global scale, precisely during that period. Uber renounced competing in China just a few months before Trump’s election, then they left Southeast Asia, sold their operations there to Grab. And what I see is more and more U.S. tech companies will retreat onto the U.S. market, and it’s now impossible for them to compete in China and it is lost forever. It will become more and more difficult for them to compete in India, another very large market in Asia. Africa is up for grabs but the Chinese are extremely aggressive on the ground and securing market shares and supporting local entrepreneurs with Chinese capital and Chinese platforms, and Russia is also out of grab for U.S. tech companies. So at some point, what they’ll have is the U.S. market, part of Latin America and maybe part of Europe unless we Europeans embrace Chinese products, or we Europeans build our own solutions that are adapted to the European context that is effectively very different from that of the U.S.

Ben: See, you are making out like this has changed the course of history. Listening to you it sounds like there’s some permanence to this new situation, but it could just be a blip. And I’m going to refer you to an article that you wrote, I think three years ago called President Trump, or the Twilight of the Conservative Gods, which for those of us that didn’t want Trump elected, we took a lot of heart from that because what you essentially said in the article is that Donald Trump is the last, the most extreme Republican before a reset towards an era of democratic control and the reconstruction of the state bodies and infrastructures, tuition. Do you still subscribe to that view? Could it be a blip?

the U.S. needs the world less than it used to in the past

Nicolas: So I still subscribe to that view with two caveats. One of them is that what we didn’t expect is how influential Trump would be in terms of reshaping the U.S. political system. That’s especially true for the judiciary. So he’s already appointed two justices in the Supreme Court. He will probably appoint one or two more, especially, or even more, if he’s re-elected. They’ve also appointed a lot of judges. So basically, if you control the White House and the Senate in the U.S. system, you can appoint as many judges as you want, and that’s the case for the Republican party at the time and judges are appointed for life in the U.S. system. So any Democratic president that comes back to power after Trump will have to deal with a judiciary that will be ready to strike down any progressive regulations or laws that are enacted by a new progressive majority, a Democratic majority. So that’s one thing.

The other thing, so the judiciary — Trump is also actively destroying the government in itself. It’s now understaffed, under-funded. A lot of people are traumatized. It’s riddled with corruption at every level, and that’s all because of Trump. And so you can say, Okay, we’ll erase all of that and rebuild. It takes time to rebuild a government once it’s been damaged like it is today. And the first thing is the U.S.’ standing across the world. There will be many relationships and many alliances that won’t exist anymore once Trump leaves power. And all of that in the context, that’s the other caveat, is that the U.S. needs the world less than it used to in the past, because they don’t have… well, China is officially a rival, but it’s not as frightening as the Soviet Union once was. They’re not officially at war, and they don’t have missiles pointed at each other. The U.S. are now almost independent in terms of energy. They have oil, gas, natural gas, and so they don’t need to be as present in the Middle East to secure oil supply for the economy to grow. And so many people expect the U.S. to just go back to the isolationist approach that used to exist before World War Two, and simply ignore the rest of the world. So if it’s a deep trend and long term trend, Trump will only have accelerated that one.

When it’s your time, it’s your time. It’s about being in the flow. So your best chance at winning is to be in the flow. Maybe that’s not enough, but staying in the flow is the best chance you have to go as high as possible. When you are in the flow, there’s something that makes a real difference and whatever happens to you, it makes you stronger.

Ben: You have a theory in politics, which I think we can summarize very simply as when it’s your time, it’s your time, and so it wasn’t Hillary Clinton’s time, but you think it’s Elizabeth Warren’s time? However, of late she’s been dropping quite a lot in the polls, do you still think it’s Elizabeth Warren’s time?

Nicolas: Well, the thing with the polls during a primary season is that as long as you’ve not reached the first primaries, you don’t really know where people stand. Because the two first states that hold the primary or caucus that is Iowa and New Hampshire are very weird and unrepresentative of the U.S. as a country. And so they usually can bring the whole pack in a direction that’s very different from national polls and change the nature of the equation because if you have a momentum building up in these early states, then you can recover.

So I know that Warren has been behind in the polls for a while or a close second. Now she’s receding because there have been several controversies, plus there is apparently redistribution from her to Bernie Sanders. I don’t know, but when it’s your time it’s your time. It’s about being in the flow. So your best chance at winning is to be in the flow. Maybe that’s not enough because being in the flow doesn’t guarantee that you’ll be at the bar at the day of the election. But staying in the flow is the best chance you have to go as high as possible. And again, maybe that’s highest at the bar, maybe it’s not, but when you are in the flow, there’s something that makes a real difference is that whatever happens makes you stronger. And the example I use to explain that is Obama. So Obama was obviously in the flow during the first campaign, the 2008 campaign.

But at some point during the primary, he was in a fierce competition against Hillary Clinton already, and there was controversy around raging speech by Obama’s pastor that was captured in video in which he was railing against the US and typically the image of the angry black men that frightens white voters in the US. And so the Hillary Clinton team said that’s over. That will ruin Obama and we will recover and win this race, and then she’ll be elected president. It didn’t ruin Obama because Obama was in the flow, and what he did after that was say, okay, that’s a very big problem, probably the major PR crisis that he had to overcome during that particular campaign. But what he said is, I’ll use this opportunity to make a big speech on race, which he did in Philadelphia. And that speech was so mind-blowing and was so eloquent and so deep that everyone forgot about the raging of the pastor, and then focused on that speech that Obama had made in Philadelphia. And that’s what being in the flow means is whatever happens even though it looks as if it’s very negative, then you can always recover from it, absorb the energy and then move forward.

We’re clearly at a point when Silicon Valley has been extremely successful at growing tech giants, and when the U.S. needs to enter the second part of the race that is building a social contract, and you can’t enter that second part of the race without putting bold ideas on the table.

Ben: So if Elizabeth Warren might not be in the flow, who is in the flow in the Democratic race?

Nicolas: I still see her as the most in the flow. You have some years where nobody’s in the flow like in 2004, if you remember that campaign. There was a very large pack that ended up being dominated by John Kerry who lost the election badly against George W. Bush because he had no exceptional charisma, no bold ideas, nothing. And so some years… that’s all you have. You have uninspiring candidates competing against each other, and no one’s using the flow. The one that’s in the flow is the one from the opposite side.

Ben: How much of a problem is it that Elizabeth Warren wants to regulate and break up big tech?

Nicolas: Well, I don’t think it’s a problem. I think it’s part of being in the flow. We’re clearly at a point when Silicon Valley has been extremely successful at growing tech giants, and when the US needs to enter the second part of the race that is building a social contract, and you can’t enter that second part of the race without putting bold ideas on the table, and she has bold ideas, and you know that’s the rules in politics and government. There’s a very long distance between the initial intent and what comes out of the many bargaining and negotiations at the end. But having someone that’s willing to open the conversation is very important. It’s a signal that says, we’ll get in that race for building a new social contract, and maybe that social contract will be the one that we need to have to have a more inclusive and more sustainable economy.

There’s a common thread that links Obama, Trump, Macron, Ocasio-Cortez. They came from the margins, were not identified as the prominent politician and overcame that obstacle by using technology to create a direct relationship with the voters, which is now possible. So all those politicians have been digital-age politicians when it came to campaigning. But campaigning and governing are two very different things, and I still have to witness a politician that masters the art of governing for the digital age.

Ben: Do you think Elizabeth Warren is a digital age politician, or do you think somebody like Alexandria Ocasio-Cortez is more of a digital age politician? And do we yet have any digital age politicians in Europe?

Nicolas: Well, that’s the thing. There’s a common thread that links Obama in 2008, Trump eight years later, Macron the following year, Ocasio-Cortez in 2018, and all those politicians… they came from the margins, were not identified as the prominent politician, as a front runner, and overcame that obstacle by using technology to create a direct relationship with the voters, which is now possible. So all those politicians, all highly successful by the way, have been digital age politicians when it came to campaigning. But campaigning and governing are two very different things, and I still have to witness a politician that masters the art of governing for the digital age. All of those failed at reinventing what government is about once they’ve won their election. Obama failed to do that. He was stuck in the gridlock of Washington DC and was unable to use the support, the massive popular support triggered by technology that he enjoyed during the campaign.

Maybe Trump is the most advanced for the worst, because he knows how to leverage the power of his supporters that are angrier and angrier by the day and retracts on government, but some people would argue that he didn’t achieve anything that really matters to him because nothing matters to him probably beyond being famous and wealthy, and so Trump has been a tool used by the Republican Party to achieve lower taxes and more conservative judges on the benches. That’s all but Trump himself didn’t achieve anything meaningful that matters to him in terms of policy outcome…

Macron has likely failed in terms of governing. He mastered the art of campaigning in the digital age but didn’t translate that into a new form of government, and Ocasio-Cortez, it’s still too early to say. But I think Elizabeth Warren, to come back to your initial question, is the best we can have in terms of a politician that’s been learning how to campaign in the digital age. She’s been pioneering new techniques to orchestrate network dynamics between her supporters, including the selfie lines. If you want to Google that…

But Elizabeth Warren, and that’s the key for why I think she’s in the flow. She’s a consummate professional when it comes to governing. She knows every detail related to the mechanics of government, how policy is designed, implemented and so on. She knows how important it is to appoint the right persons in the right positions, and so if she wins, and that’s a Big IF, but if the flow is enough to put her above the bar, then she wins, we will have probably the most expert president in a very, very long time when it comes to governing and to deliver policy outcomes. And I think voters sense that, and that’s very important to them. They can’t explain it because they don’t really know the art and science of government. But they can sense that she’s serious when it comes to government, as opposed to people that have just soundbites.

Ben: With the space that’s being left as the United States retreats from globalization and retreats from international diplomacy and international agreements, is it China’s moment? Will China rise up and usurp United States? There’s a great section in your book about the Belt and Road Initiative. Is China, through the Belt and Road Initiative, going to become the new global superpower?

Nicolas: Well, so the Belt and Road Initiative is a program designed to build infrastructures to connect China to the entire Asian continent and towards Africa and maybe in some parts of Europe. And it’s meant to support trade, and to strengthen the connection between China and the rest of the world. I think there are many precedents. It resembles the Empire that the Portuguese built the 16th century. It resembles to a certain extent the British Empire in the 19th century, with the exception that the British really wanted to govern entire countries, whereas the Portuguese a few centuries earlier, were not interested in submitting entire populations to their will. They just wanted outposts to be able to trade and to access the riches that were in the different parts of the world. And so I think the Chinese are more in that spirit. They’re not interested to submit other countries to their power. They are interested in developing their economy and to supporting their companies growing, and to strengthening their regime and they know because the regime has many adverse negative characteristics from a Chinese population point of view. It’s acceptable only if the economy is doing well.

Ben: Yeah.

Nicolas: And the Chinese economy will do well only if Chinese companies manage to expand abroad and do more business with other countries. So that’s why Belt and Road Initiative was designed. It’s to support and to sustain the continuous growth of the Chinese economy over the long term, even though most industries or companies are reaching a cap in terms of their capacity to grow on the domestic market. So what they’re interested in is more trade, more connections. And as such, they won’t be really comparable to the US in the 20th century. The U.S. was interested in security and matching the Soviet Union. Here the Chinese are interested in just trading and inspiring support in other countries for their regime. They don’t want to be bothered when it comes to domestic affairs.

When I wrote the book that was two years ago, it seemed as if China was succeeding on every front, especially because of Trump orchestrating the failure of the American Empire. Today I would say the current situation makes many people less bullish on China because the economy’s slowing down. Xi’s regime is tightening the bolts a bit too much.

Ben: When you say ‘tightening the bolts’, you mean …?

Nicolas: Well, imposing surveillance and…

Ben: Yes. Okay.

Nicolas: …repressing freedom of expression and there was a long time during which even Western media played along because everybody wanted to be friends with China. But now what we’re witnessing in Western media… it’s all out. Now we can write at length about Muslim people being forced to work and the Uyghurs and so on, which you didn’t read as much about that few years back because there was still…

Ben: Is that a Trump effect because of the trade war, and I guess the sort of indirect pressures he is applying around the world to do less with China?

Nicolas: I think it’s the Trump effect. I think Trump has precipitated the realization that maybe the U.S. will have to become self-sufficient, and maybe large US tech companies will have to renounce competing in China. And so if you don’t need to compete in China anymore, why bother trying to make friends with the regime? It’s useless. So it effectively becomes a mandate for those who are genuinely shocked by the treatment of the Uyghurs to write at length about that, because it doesn’t go against the economic interests of the U.S. as a nation, because they’ve renounced doing business in China. I’m not sure it’s true for every U.S. company, but I think that the radical change those past two years has been that well, it would be nice if we could do business in China, but since it’s too difficult, let’s just renounce it and reposition our entire economy.

Ben: You write a lot about how innovation is a three-player game, so you have the State, Capital and the Entrepreneurs, and you also talk about how the state best deploys resources when they are mission-oriented. Is the Green Deal, which I’m not sure something you’ve talked about much or written about much, is the Green Deal the mission to galvanize those three players? In particular, is it Europe’s opportunity to create something, our new industrial sector or a new group of companies that can be world beating?

I like to be a bit more radical and talk about ‘war’. What matters is that we must wage a war against something, because being in a state of war is extremely liberating for entrepreneurs. You don’t have to waste too much time explaining what you do if you’re in a state of war, as opposed to what many entrepreneurs do all the time, which is trying to explain what they’re trying to do and no one is understanding.

Nicolas: So to be fair, those are not really my ideas, but rather those of economists like William H. Janeway and Mariana Mazzucato. The idea that the entire thing that we call entrepreneurship, or VC-backed entrepreneurship, is in fact enabled by the state spending a lot of money in basic research, infrastructures, and so on. And that most of that world, the world of entrepreneurs, owe their biggest successes to the state having set a goal and having mobilized an entire nation towards reaching that goal.

And so, Silicon Valley can be seen as a byproduct of the US trying to best the Soviet Union on many fronts, including technology, and because it was a matter of life and death, the price that you had to pay was not really in a question. And so the U.S. Government was ready during the Cold War to spend whatever it took to discover new technologies, to implement those new technologies not only in the military, but also at a larger scale. And all those people who make fortunes in Silicon Valley were just piggybacking on that effort.

Mariana uses the concept of the mission. So we must be on a mission together if we want the state to provide the direction as to where entrepreneurs should go, and what kind of problems they should try to solve. I like to be a bit more radical and talk about war. What matters is that we must wage a war against something, because being in a state of war is extremely liberating for entrepreneurs.

First of all, war is preceded by speeches and explanations and slogans that everyone listens to, and so when you are an entrepreneur participating in the war effort, whenever you talk to anyone — an investor, a customer, potential customer, your mother, your friends — they all understand what you’re trying to do because it’s all part of an effort that everyone understands deep inside. So you don’t have to waste too much time explaining what you do if you’re in a state of war, as opposed to what many entrepreneurs do all the time, which is trying to explain what they’re trying to do and no one is understanding.

The other thing is that you don’t have as many enemies, as many obstacles in your way. You read a lot of stories about entrepreneurs trying to disrupt an industry and having incumbents against them, lobbying the government to enact stupid regulations that make it impossible for startups to enter that particular industry. But in fact, if you’re in a state of war, you can point out those incumbents that are lobbying the government to enact stupid regulation. Instead, they’re going against me that is part of the war efforts, and so as such they are enemies of the nation, and so it becomes more difficult if you in a state of war to resist the rise of startups and to slow down their success.

I think we need to find another war, and that’s why I’ve introduced this idea of Europe as a developing economy, because we have many examples in the recent past of countries that have managed to develop their economy by waging a war against under development, because being underdeveloped is humiliating. You see yourself as poor, lagging behind, and so each leader comes up and says, we’ll fight a war against this under development, and that will take a lot of effort.

Ben: So to reframe the question then, should Europe wage a war against climate change?

Nicolas: Well, I don’t know. I think Europe is not that impacted by climate change, too… Well, nobody knows. So far, it’s been a miserable failure. We’ve failed at inspiring a fighting spirit when it comes to climate change. I think in countries such as Australia that’s burning at the moment, it will become soon, quite easy to make people realize the connection between that abstract thing that is climate change or global warming, and what’s happening around them and actually threatening their life, and suddenly it becomes a matter of life and death. And that’s what war is about.

But in Europe, we were lucky in a way that we’re in the part of the world that will be the less impacted by climate change, except maybe for the Netherlands, who are in danger of disappearing altogether. So I think it’s difficult to inspire that fighting spirit in a region such as Europe where people see the world burning far away from them, but don’t feel really concerned, and it’s even difficult for them to realize the connection between the immigration waves and the fact that some of those immigrants are actually fleeing regions that are deeply impacted by climate change.

So I think we need to find another war, and that’s why I’ve introduced this idea of Europe as a developing economy, because we have many examples in the recent past of countries that have managed to develop their economy by waging a war against under development, because being underdeveloped is humiliating. You see yourself as poor, lagging behind, and so each leader comes up and says, we’ll fight a war against this under development, and that will take a lot of effort. And that will implement radical reforms like what happened in South Korea in the 1970s, or Taiwan in the 1960s. And then you deliver economic development as a result of having waged a war against under development. So you need to find something that resonates in people. It’s either problems that they experience on a day to day basis like housing is unaffordable in large cities where all the jobs and all the opportunities are concentrated. Maybe the French president that would wage a national war against housing and affordability would inspire that fighting spirit, and would manage to implement radical measures like expropriating real estate owners in dense urban cities. Maybe, I don’t know…

Twenty years from now, we are not sure we will still have prosperity because if we don’t have the growth drivers that are large, successful tech companies that accumulate value and realize that value into wealth, and a social contract that orchestrates redistributing that wealth at the scale of entire societies, then we will be lagging behind. And that’s the lesson of the history of technological revolutions.

Ben: So I understand better what you’re trying to achieve by calling Europe a developing economy, and I remember the newsletter that you had where it was called something like they had stopped celebrating sort of second tier IPOs because we shouldn’t dress up where Europe really is in terms of tech, particularly vis-a-vis the U.S. and vis-a-vis China.

Nicolas: Yes, exactly. That’s it. It’s still good to live in Europe. We have good public services, good infrastructures, good hospitals. Most things are affordable, except for housing in Paris and London and Munich, but the fact is, we have that today but 20 years from now, we are not sure we’re still have all those things because if we don’t have the growth drivers that are large, successful tech companies that accumulate value and realize that value into wealth, and a social contract that orchestrates redistributing that wealth at the scale of entire societies, then we will be lagging behind. And that’s the lesson of the history of technological revolutions. It’s not because you dominate in a given paradigm that you’ll be the dominant economy in the next paradigm. You need to do what it takes to reposition your entire economy, to redesign your social contract to make the most of the new technology of the day and Europe has been failing miserably on that front. And that’s why people like me like to insist on the fact that yes, there are some successes, some promising things happening, but we’re still lagging way behind the U.S. and China and we need to have more of a fighting spirit to catch up on them.

Ben: And so it’s been only one or two years, but it’s not quite two years but it’s getting on for maybe two years since you published HEDGE, and looking back on it, do you think you should have written a book first about how to build giant tech companies and then this should have come later how you redistribute the wealth dividend?

When you start talking to those politicians about jobs and opportunities, they realize that there’s a connection between the everyday life of their voters, their constituents, and those small startups are trying to scale up and you can have a conversation that’s more constructive and more serene.

Nicolas: Well, the idea of writing that book was not mine. It was that of one of my co-founders, Oussama Ammar, who told me one day like with Trump, so he had a sense that Trump’s election will amplify the tech backlash worldwide. So his intuition was that now the Americans will start experiencing what entrepreneurs are experiencing every day in Europe, that is hostility, widespread hostility towards what they’re trying to achieve. And because we are French, we built The Family initially in France. We have a technique to counter that. How do we fight the backlash in France? We fight the backlash by changing the conversation from tech companies are disrupting the world to… governments are failing us by not building the right institutions, in which the value created by tech companies will benefit everyone. And when you manage that it’s very effective because you talked to some Civil Servant or some Minister, who is raging against tech companies that oh, they’re not complying with the rules and destroying jobs and we will regulate them to death and you say, well, maybe the problem is not that tech company.

Maybe the problem is that you’ve been failing at the radical imagination that we need to design new institutions for a radically new world, and maybe that’s the key to creating more jobs and to provide more opportunities to people. And so when you start talking to those politicians about jobs and opportunities, they realize that there’s a connection between the everyday life of their voters, their constituents, and those small startups are trying to scale up and you can have a conversation that’s more constructive and more serene.

So Oussama’s intuition was that it’s starting in the U.S. — the tech backlash is crossing the Atlantic and will intensify in the US, and maybe we can share our playbook about changing the conversation from disruption to designing a new social contract with the Americans and HEDGE was written for that. The problem is that it didn’t, didn’t really resonate, because it’s not Silicon Valley’s impulse to switch to discussing social policy when they have problems with the government. But maybe it was a bit too early.

Ben: It was a necessary book, whether it was too early or not. It had to be written and I was just flicking through it in advance of this interview. It hasn’t aged. It’s still fresh.

Nicolas: It’s a very fundamental topic and a very important discussion to have. So I think the book will remain relevant for many years to come. And maybe at some point, people will realize that now it’s the new battle that we need to wage, imagining that new social contract. But had I started by writing a book about building tech companies, that wouldn’t have been of interest for Americans because they know how to do that. And I didn’t know enough about Europe at the time to explain how we should proceed in Europe to catch up.

Now it’s two years later, I’ve been living in London for many years. I’ve been crisscrossing the continent, speaking to many people, including in the U.S. and read many more books. So I have a clear view of how you build tech companies in Europe.

I think government policies have been misguided so far. Government has been focusing too much on how do we support companies, and how do we attract more companies in our local ecosystem, whereas most of the efforts should be on how do we force companies that are starting to grow in our local ecosystem to expand at the pan-European level.

Ben: And I mean, that’s the effort that you’re supporting across Europe with The Family, because it started in France, but you are in Berlin, you’re in the UK, and the proposition has changed too, because it was a platform into which entrepreneurs could plug in to get the support they needed to grow. And since then you are now providing capital into some of this companies, as well as a program to bring talent into Europe, particularly into Berlin. So what’s next for The Family in its mission to support European entrepreneurship?

Nicolas: Well, that’s a tough question because The Family is more than a mission-oriented organization. It’s also a business venture that needs to square up its ambition with the resources that we have. So what we have today is a growing portfolio of startups, some of which are getting quite large, reaching quite a large scale. And so we’re starting to be able to exhibit those as examples of what should be done, and reverse-engineer the best practices that we’ve been experimenting within The Family, but we are still dependent on the state of the pan-European ecosystem. If it doesn’t lift up companies as much as it could, then we’re taken aback by the entire ecosystem. We can race slightly ahead of the pack, but not that much ahead. We are still dependent on where the ecosystem is. So I think today on that front of thought leadership and reflecting on tech companies in Europe, the next stage is to foster that conversation that’s still not happening about building tech companies in Europe. What I see happening is local conversations about how to attract more startups to Paris or to London or to Berlin, which is not very promising, because that’s not the way to do it.

Ben: Is that almost zero-sum stuff?

Nicolas: It’s zero sum stuff, and it means that you resign yourself to rely on a single city for building startups, which cannot succeed because you might find capital you need in that city. You will struggle to attract all the talent you need in that city, and you will certainly not find all the customers that you need in this particular country. You need to be able to cross borders to find customers in other countries and so on. I think government policies have been misguided so far. Government has been focusing too much on how do we support companies, and how do we attract more companies in our local ecosystem, whereas most of the efforts should be on how do we support? How do we force companies that are starting to grow in our local ecosystem to expand at the pan-European level, which is part of the development playbook for South Korea and Taiwan, by the way, back in the 20th century?

You need to prioritize supporting companies that are strong on foreign markets, as opposed to companies that are stuck in your domestic market. So nobody does that because nobody realizes the common points between the current state of Europe and the state of East Asian countries as you did decades back, but I think there’s more and more interest the fact that we have a new EU Commission, the fact that we have the context of Brexit that inspires many questions. The fact that we, as The Family, have more of a platform now to voice ideas and to share them with a larger audience.

Ben: Do you have practical examples of companies and founders that are making those leaps, are crossing those borders?

Nicolas: Not that many. So in a recent newsletter, I mentioned the example of an entrepreneur that’s not part of The Family, but he’s a good friend called Vincent Huguet, so he’s the founder of Malt, which is a freelancing platform that’s very strong in France, and they’ve decided that the next opportunity for large scale expansion was Germany, and they reflected on how to conquer a market like Germany, because Germany is very different. Freelancers are not the same as in France. Corporations are not the same as in France. The geography is different. It’s a decentralized country, as opposed to France being extremely centralized in Paris. And what he decided is that he had to move there, to lead the efforts and be on the front line. And so he moved to Munich, he found someone to manage the French operation and decided to move to Munich to send a very strong signal that Malt is very serious on the German market. And so it’s a signal towards potential customers in Germany, if the CEO lives here, that means they’re serious, and it’s a signal to his organization. That is, if we don’t make it in Germany… I’m committing myself to conquering Germany by settling there with my wife and kids. So Vincent is a rare example. And don’t know of many others actually, but I think it’s too rare, and it’s explained again by cultural differences, problems with languages.

Ben: And a lot of friction.

Nicolas: Yes!

Ben: But you yourself have lived from France, to United Kingdom and now you’re going to move to Germany. So you are practicing what you preach.

Nicolas: Yes. Which is good.

Ben: It is good, yeah.

Nicolas: We’re doing that as a family, so my wife and kids, because both my wife and I have been shifting our work to a place where we can work mostly remotely. So The Family is an organization that is extremely welcoming to remote work. So I work mostly from home, except when I travel for important meetings and so on. Laetitia Vitaud, my wife, has her own company, and that can be operated from anywhere. And then we want our kids to learn many different languages. So we don’t have a problem with leaving France and putting it put them in English school in London and then leaving London and put them in a German school one year from now in Germany. We know that they’ll have the challenge of not understanding a word for a few weeks, and then, because they are kids, they learn extremely fast, and I think it’s the most valuable asset that you can provide children these days.

Ben: Because it’s not about language, it’s about culture.

Nicolas: Yes, language is only the practical tool that you use every day to communicate with others. But when you attend a school in a different country, you are deep inside a very different culture that you learn. You might not be able to describe it, but you learn it instinctively and it makes your brain more effective at adapting to different circumstances.

Ben: Fantastic. Nicolas, thank you so much for coming in to see us in Geneva and being part of this podcast.

Nicolas: Thank you for having me.

Ben: That was really fascinating and enjoyable. Thank you.

Nicolas: Thanks.