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Making the West Great Again
The United States is a country that’s always been dear to my heart. Just like Bill Clinton and Al Gore’s “information superhighway” led me to study computer science, my curiosity for the US as a whole was also inspired by the 1992 presidential election. Following that year’s campaign, I read extensively about American politics and history. Then I chose American studies as a major when I pursued my education at Sciences Po (a leading Paris-based university specialized in political science and public administration). When I later started working in the tech industry, my knowledge of the US helped me decipher the history of Silicon Valley, the spirit of the frontier, the strengths of the US political and legal systems regarding innovation, and the unique and inspiring American entrepreneurial culture.
And yet today there are worrying signs that suggest America could lose it all in the coming decades. I obviously don’t wish that fate for a country I admire so much. But every day that passes since Donald Trump’s election inspires in me this uneasy feeling: we’re witnessing the fall of the American Empire. Many see this unexpected turn of events as an opportunity for Europe. Myself, I mostly feel sad that I have to witness a great nation go down the terrible path of debasement and destruction. And I dread the damage for the entire Western world and the values we all cherish.
According to the great political scientist Louis Hartz[115], one key to understanding the US is that it was originally founded as a democracy. Unlike Europe, which was burdened by its aristocratic heritage, that democratic legacy enabled the uniquely American set of values that for two centuries was the hotbed of such vibrancy and prosperity. Alas today there are signs of a shift leading to an unprecedented aristocratic ethos in the US: suppression of the estate tax; disinterest in busting monopolies; subsidies for dying, unproductive industries[116]; circumventing democracy in the interest of the rich and powerful; creating tariffs. What we’re witnessing today very much looks like the end of what Louis Hartz calls the “liberal tradition in America”[117].
There are also signs of the US now lagging behind in terms of development. The inequality gap is widening[118]. Infrastructures are crumbling. Life expectancy is decreasing[119] for the first time in decades. In certain parts of the country, the population is afflicted by the extremely worrying opioid crisis[120]. The government looks like it has been circumvented by a clique of plutocrats that are as obsessed with exploiting the state for their own interests as they are indifferent to the economic insecurity experienced by their fellow citizens[121].
When Barack Obama was president we could expect the US to lead the Western world into imagining an upgraded version of the Great Safety Net—precisely what happened during the New Deal. But with Donald Trump in the White House, such a scenario has become highly improbable. So I now see three scenarios when it comes to the future of the Western world.
In the first, it would be China, rather than the US, which imagines and builds a ‘Great Safety Net 2.0’ and offers it as an example to follow—first in Southeast Asia, Central Asia and Africa, then maybe in Europe. China has many assets that indicate it could succeed on that front. It is unified and stabilized by an old civilizational heritage and a strong regime, enjoying unparalleled (if authoritarian) stability in a world otherwise dominated by chaos.
As it has emerged from the depths of under-development and the shock of Mao’s Cultural Revolution, China is also unencumbered by the legacy institutions that still dominate Western societies. And so it’s better positioned to imagine a new set of institutions that make the most of the current techno-economic paradigm. We can already see the outlines of a Chinese version of a modern-day Great Safety Net with the deployment of a national pension system[122], the widespread role of trade unions affiliated with the Communist Party[123], the fast-paced innovation in consumer finance[124], the diversification of the housing market[125], the first hints of interest in upgrading the healthcare system[126], and the ambiguous experiment that is China’s now-notorious social credit system[127].
Additionally, China is not inward-looking anymore. Some have doubted that, unlike the US at the time of the Marshall Plan, China would have the slightest interest in trying to expand its social and economic institutions elsewhere in the world. What they don’t realize is that with its vast economic footprint, the Belt and Road Initiative, and a deeper engagement with global institutions, China is not simply in a position to imagine a new Great Safety Net for the new age for itself. It also has the means and drive to implement and promote it on the world stage.
The problem, obviously, is that a Great Safety Net 2.0 imagined in China will probably not comply with Western liberal democratic values. With China as the core of the age of ubiquitous computing and networks, Western nations would be confronted for the first time with a dominant economic and strategic power that doesn’t share their history and political heritage.
Furthermore, if the Great Safety Net 2.0, that of the twenty-first century, is imagined in China rather than in the Western world, Western nations might be the last to embrace it. More likely it will be deployed in other countries, those best capable of leapfrogging, before it’s replicated in Europe and the US (if at all). And as a Great Safety Net is key to economic security and prosperity, China taking the lead will eventually lead to a sharp reversal in development trends, with the West falling behind while the Chinese world leaps forward.
In a second scenario, it is Europe that would forge ahead and tackle the new institutional challenges without relying on the US anymore. But this scenario is uncertain at best. As world leaders and experts look at Europe, what they see is a continent in disarray—one that is “disappearing into itself”, as it was once put by Kevin Rudd, the former Prime Minister of Australia (and an expert in many things related to China)[128]. There is the economic and financial imbalance following the budgetary crisis in Greece. There is the decision by British voters that the UK would leave the European Union. And now there are the tensions due to the rise of populism in many countries across the continent, including the authoritarian turn by some governments in Eastern Europe.
Because it hasn’t grown large tech companies, Europe also lacks the intimate understanding of the new techno-economic paradigm as well as the economic power that it takes to effectively exert strategic power at a global level. As Kevin Rudd noted, “once you have economic power, it in turn engenders political power; it in turn makes possible to have security power through the acquisition of military capabilities, which in turn generates foreign policy power, which in turn generates strategic power”[129]. Europe still has power due to its economy and its legacy position within the global institutions founded in the aftermath of World War II. But it’s drifting backward in comparison to both the US and China, whose strategic positioning at the global level is immensely strengthened by their harboring today’s largest and most potent tech companies.
The third scenario is that the Western tech industry itself realizes that its interests lie in imagining a new Great Safety Net for the new age of ubiquitous computing and networks—and that it shouldn't wait for feeble Western governments to take the lead. The critical (if transient) role the corporate world played in securing the legacy of the Second New Deal is one precedent. An even more relevant one is that of utopian British industrialists such as Robert Owen (1771-1858), a leader in the development of cooperatives and the trade union movement, and William Morris (1834-1896), who promoted craftsmanship as a way to restore the workers’ dignity and wholeness in a more industrial world[130]. Yet something was lacking in both cases. The grand vision of the New Deal was never completed in the US due to a backlash against trade unions and fierce resistance against deploying universal healthcare insurance. As for the British initiatives in the Victorian era, they never scaled to nationwide social significance.
This is where ubiquitous computing and networks can make a difference. Now non-governmental institutional change seems possible at a large sc
ale because tech people congregate in their own kind of nation—what my friend and partner Oussama Ammar calls the "Internet nation"[131], echoing Balaji S. Srinivasan’s idea that "software is reorganizing the world"[132]. After all, the rise of the printing press and the mass distribution of the written word once lead to the emergence of nationalism and the formation of nation states[133]. Now the power of networks (and related increasing returns to scale) makes it possible for tech people to build their own institutions without relying as much on governments.
In my view, the US tech industry doesn't really have a choice. Not only is it being cornered by the current political situation, but with pro-technology leaders such as Obama and David Cameron gone from the stage, there’s really no Teddy Roosevelt or FDR in sight, is there?
These three scenarios—new institutions being imagined by China, Europe, or the tech industry itself—should be borne in mind as we go further. But for now we need to revisit the recent history of technology to have a shared understanding of what the new age is all about.
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Key takeaways
● The crisis of the Western middle class has been long in the making. It took the form of globalization and financialization before it was accelerated by technology.
● The Dark Ages of financialization led to shifting more risks onto individuals, effectively dismantling the Great Safety Net 1.0 and imposing an excessive burden on the financial system.
● Now that we’re shifting to a new techno-economic paradigm, it’s time to imagine new institutions for prosperity and economic security. The question is: Who will tackle that challenge?
Part 2
The Entrepreneurial Age
Chapter 4
Entrepreneurs and the New Corporate World
“For entrepreneurs, there is no tradeoff between quality and scale. The job is to do both—not one or the other. If it can’t be done, you innovate. Quality without scale is not entrepreneurship—it is a tree falling in the forest with no one around. Scale without quality is also not entrepreneurship—it is business as usual. And it leaves businesses exposed to competitors who steal its customers (and, worse, employees). Anyone who attempts to serve a customer at a new level of quality and scale is an entrepreneur. Anyone who does not, is not.”
—Babak Nivi[134]
A brief history of science and entrepreneurship
My firm The Family has had the good fortune to be seen as a place where people have a real viewpoint on entrepreneurship, technology, and innovation. As a result, we’re often visited by various people who on occasion ask us to provide expertise. Approximately four years ago, a particular category of visitors emerged: local officials and business owners who wanted to build their own Silicon Valley. All were counting on the related entrepreneurial drive to trigger local development, create jobs, and attract outside resources.
The question recurred so often, in fact, that we decided to act upon it. Instead of providing the same answers over and over again (“It’s difficult”, “It took decades”, “There was a particular context”, “There’s only one Silicon Valley”), we decided to write it down once and for all to have a document ready for anyone with questions related to creating the next Silicon Valley[135]. In the process, we learned a lot about the history of entrepreneurship and discovered many facts and ideas that most people ignore[136]. Above all, we unearthed many misunderstandings and clichés that too often pollute discussions on entrepreneurship.
One of the most potent clichés is that innovative entrepreneurship is about science. Many people confuse entrepreneurs with lonely, misunderstood scientists who hunt for breakthroughs in their basement. The vision is entertaining, but it is also misleading. Very few entrepreneurs (if any) are actually like Doc Brown in Back to the Future.
In fact, for much of the nineteenth century, science and business grew worlds apart. On one side, scientists were producing knowledge and conducting experiments in university laboratories or their homes. On the other, as stated by Olivier Zunz, mechanical tinkerers invested “in labor-saving machinery and interchangeable parts to produce large quantities of technologically complex products”[137](otherwise known as the “American system of manufacturing”). Countries such as France and Germany, which had already created formal engineering schools, were pioneering new forms of cooperation between academia and business. But in general scientists weren’t interested in entrepreneurship and there was not much use for science in the entrepreneurial world.
From 1875 onward, the transition to the age of steel and heavy engineering changed those conditions. Learned societies, notably of engineering, began to position themselves at the crossroads of science and business[138]. Local ecosystems of technology-savvy investors had to exploit available science to form opinions on new technological ventures[139]. Scientists began to express an interest in their work’s applications in the business world, and entrepreneurs were now paying more attention to science.
Because entrepreneurs and scientists remained in two different categories, however, the rise of a more entrepreneurial approach to inventions needed a functioning market for technology where technological assets, both tangible and intangible, could be bought and sold at arm’s length[140]. Key institutions such as patent law and licensing contributed to making that market efficient. Andrew Carnegie’s Edgar Thomson Steel Works—the steel mill whose construction Carlota Perez marks as the Big Bang of the new technological age[141]—was built in 1875 in Pittsburgh, using the process for manufacturing cheap steel patented by Englishman Henry Bessemer twenty years earlier. Like Alexander Graham Bell (whose invention, the telephone, was turned into a corporate empire by the likes of Theodore Vail[142]), Bessemer ultimately had to rely on others for his invention to become the cornerstone of a new industry. The market for technology made it possible for scientists to work with entrepreneurs.
Yet at some point, the bigger corporations brought about by consecutive techno-economic transitions decided that they wanted to employ their own researchers rather than buying from lone inventors on the market. During the twentieth century, the rise of big, integrated corporations was facilitated by key trends: the structuration of modern industries and the emergence of the Great Safety Net that made steady mass consumption possible. Those trends contributed to concentrating the necessary resources — financial, human, technological — in unprecedentedly large corporate firms. In time, those firms developed an approach for managing research and development within their organizations.
It was not an easy task. Scientists were obviously eager to access the capital-intensive research facilities that only big corporations could pay for. But most of them were reluctant to relinquish ownership of their work. Similarly, individual autonomy was a key condition for success in the world of science, which contradicted the core principles of Frederick Taylor’s scientific management.
To make up for the contradiction, scientific research had to be undertaken within specific departments. Strict separation was a way to provide autonomy to the researchers rather than locking them into the main organization. It was also a way to isolate the main organization from the apparent chaos that reigned in the realm of scientific research.
In 1925, Western Electric Research Laboratories and part of the engineering department at AT&T were consolidated to form Bell Telephone Laboratories, Inc., later known as Bell Labs. Corporate labs such as this, Lockheed’s Skunk Works, and Xerox PARC all ultimately fit the same model: a separate entity in a corporate organization within which talented researchers were given a measure of freedom in the hope that their findings would help consolidate the parent company’s long-term competitive advantage. Science was seen as a privileged way to improve existing products, achieve efficiency gains, launch new products, and conquer new markets.
The history of corporate inventions reveals the importance of in-house research in the progress made by technology all along the twentieth century, from the weapons systems that helped the US win World War II[1
43] to technological breakthroughs in synthetic fibers, avionics and energy and on to the transistor that was invented by John Bardeen, Walter Brattain, and William Shockley at Bell Labs. With those successes, research and development gradually became an issue of organizations rather than the market.
World War II also brought about a massive upheaval of public spending in science. After the war, following the advice of science policy overlords such as Vannevar Bush[144], governments started to design new programs to support science’s industrial applications. The result was an obvious bias for large organizations rather than small businesses or new entrepreneurial ventures. Like the widespread (and controversial[145]) R&D tax credit, most programs targeted big corporations rather than the lone inventors and tinkerers who had made possible the techno-economic transitions of the nineteenth century. And when the government did try to support technological research in the more entrepreneurial parts of the economy, it often failed due to an excess of paperwork and risk-averse decision-making processes[146].
As a result, during most of the twentieth century, those with a scientific background didn’t really consider entrepreneurship as an option. If they were attracted to innovation, they had to be ranked at the top of their class, join a big corporation, and innovate within it and on its behalf. Entrepreneurial innovations, those undertaken by lone individuals, looked like they would be permanently marginalized. If you were smart enough and wanted to make a difference through technology, the corporate labs were where you had to be. The nineteenth century was the century of entrepreneurial tinkerers and lone scientists; the twentieth was the century of corporate researchers.
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