Question: Bill Gates believes that the free market fails to encourage innovation in areas where there’s a long timeframe. Do you agree?
Peter Thiel: Well, I think that markets classically fail in cases where there are public goods that provide benefits that people cannot capture. The big debate is how big these public goods are, where they exist, things of that sort. I do tend to think that things that have incredibly long time horizons often do involve market failures. So if you think about basic science or coming up with new theories of mathematics, these are not the kinds of things which are necessarily a well-defined market to pay people.
At the same time, I think one of the places where I would disagree with Gates is that it is not at all clear that we have a government that is doing this much better. And so even though I think markets are often not thinking on a long-time horizon, I think that our government structurally is doing even less so. When we have a government where we have people who are up for election at most once every six years for a U.S. senator, that’s a time horizon that is much shorter than in a market that, you know, a company is looking at 10, 15, 20 years which is a time horizon over which a stock price is typically valued.
Question: Is there a better way to encourage long-term innovation?
Peter Thiel: There is a lot that could be done with the market. I think, we want people to have long-term time horizons and so I think to some extent it is... there’s a cultural question, there’s people should be thinking of their life, you know... life is long. It doesn’t end in six months or three years or whatever the next line on your resume is, it’s something that for most of us we can expect to go on for quite a number of decades ahead. And so I think somehow people should be encouraged to think about a very long time horizon and I think this is true for businesses, it’s true for governments and it’s true for people doing things in the non-profit sector.
Question: Will technology reshape capitalism in the future?
Peter Thiel: Technology and capitalism are very much linked. I would frame the link a little differently. I think that capitalism probably works best in a technologically progressing society. In the developed world, technological progress means that you can have a situation where – where people – where there’s growth, where there’s a way in which everybody can be better off over time.
If you have technological progress, that will encourage more capitalist system. On the other hand, if you don’t, if things are stalled, you end up with much more of a zero sum type thing, where there’s no progress and basically everybody’s gain is somebody else’s loss. And that, I think, tends to encourage a much less capitalist system, and that’s where you sort of get a you know, what are often called a bull market in politics, but politics becomes more important, people become more interested in using the government to get things for their particular interest group and the whole thing can sort of spiral downwards instead of – and become a vicious cycle where more government regulation leads to less technology, leads to demand for even more politics to redistribute the pie that’s no longer growing.
We have seen technological progress in the last few decades in computers, the internet, and we’ve seen a lot less in areas like transportation. So you know the fastest airplanes was the Concord in 1970 they’ve gotten slower over the last 40 years. Medicine, healthcare has seen some progress but it’s been pretty limited the last 20 years where the development of new drugs and treatment seems to be badly stalled. Energy is an area where there’s been very limited progress and the actual cost of oil was $3.00 a barrel in 1973, and today it’s around $85 a barrel, even inflation adjusted, the real prices have gone up because somehow we have not been making enough progress in developing the technologies for alternative and cheaper types of energy.
As a Libertarian, I tend to think it’s interesting at least that a lot of these sectors correlate with places where there’s heavy government regulation. A government is not regulated – the computer industry where the internet they thought that, you know, Bill Gates working with his computer in his parent’s garage was not a really interesting or important thing, not worthy of scrutiny or regulation. It didn’t matter. That’s been the same perspective people had, by and large had with respect to the internet since the mid-90’s and so we’ve had a lot of progress and innovation there.
Health care on the other had has been subject to massive regulation and strangely had the most progress in some ways where you have cheaper treatments at better quality in things like cosmetic surgery and things like that which are less regulated and again deemed to be unimportant by the government.
So I think the regulatory load on technology has gotten to be quite high and there is this very important question of how much progress we’re likely to see in the next few decades.
From my perspective, the critical thing is actually to figure out a way to get the technology engine restarted. I think that we would like to have less government regulations to enable that. And if it gets restarted, you can have a more capitalist-type system. But I do think that if technology is stalled out, we will probably see at some point a resumption of the trend toward more government even though it’s more unlikely, in my opinion, to fix things.
Question: Is technological innovation more important for developed countries than developing ones?
Peter Thiel: Technology is probably the single biggest driver of productivity gains over a period of several decades for the developed countries. For example, I think it’s much more important than free trade. I’m in favor of free trade, but I think if you had to make a choice between having technological progress versus free trade, you had one or the other, you should always pick technological progress. I think it’s an incredibly important variable for creating more prosperity.
The developing world does not really need to develop new technologies. For China or India, the next 20 years, the plan is basically to catch up to the U.S., to get 19th-Century plumbing and 20th-Century railroads and to basically just to copy. That is not a strategy that works for the developed world if we’re going to try to improve living standards in the developed world.
So the developing world can just do things that are extensive or horizontal, that basically copy. The developed world needs to do things that are intensive or vertical, where we take our civilization to the next level. And to the extent people don’t believe this is going to happen, you see a lot more pessimism about the future. When you have these surveys of people and they ask, you know, will the next generation of Americans be better off than the current one or worse off? More and more people believe that it will be worse off than... and it’s a lot more than say would have thought this in the late 1960s when people believed there was incredible technological progress and people would be on the Moon by 1980 in a permanent lunar base, and Mars by 1990. By 2001, Space Odyssey, would be at Jupiter and from there it would be on to the stars. And that’s not the kind of future people expect and I think that’s one of the reasons they’re so pessimistic.
It’s not articulated in quite this way, but if people were super-optimistic about technology there would be no reason to be pessimistic about the future. A lot of the political debates we have in the U.S. today, for example, about debt suspending, the debt austerity would not be problems if we had technological progress. If you doubled the debt over the next 20 years in the U.S., and the size of the economy doubled because of technological progress and growth, the two would roughly cancel out and it would all be a totally manageable situation.
On the other hand, one of the reasons I think people are increasingly nervous about all this borrowing is because they think that we are not actually digging ourselves out of the hole, but instead are digging ourselves into a deeper and deeper hole and will not be able to pay it back because we’re not actually creating the new technologies that will enable us to pay back and the money somehow is not really being invested in the future or in progress.
Question: Are we headed toward a more authoritarian government?
Peter Thiel: It’s quite unclear where we are headed. We certainly had a bit of an experiment of going towards more government over the last... the last few years. The experiment doesn’t seem to be working... to be working terribly well. On the other hand, it’s also quite unclear if we go back towards less government if that’s going to work.
Question: Can the government do things to better spur innovation?
Peter Thiel: In the U.S., we fundamentally need to do new things, which I think is harder for the government to do. And moreover, it is not something our government actually is inclined to particularly do. You know, our government is not dominated by engineers, it is dominated by lawyers. Engineers are interested in substance and building things; lawyers are interested in process and rights and getting the ideology correctly blended. And so there is sort of no really concrete plan for the future.
It is, I think, a striking failure on the part of the left especially, which is pushing for more and more government, that there actually is nothing specific that the money would be spent on. If you had Obama go on TV and say that we need to have a manned base on the Moon, or that we will defeat cancer in five years, a la Kennedy or a la Nixon, this would just strike people as bizarre. And so this sort of... the governing class in the U.S. is not focused on technology, does not believe it. So even if you need government to create technology and to build it in the most developed countries and even if it’s the space race where it was heavily government funded is the correct paradigm, the fact of the matter is that our political leadership does not believe in this.
Question: As a libertarian, where is the best place to live and do business in the world?
Peter Thiel: Technology innovation is still... the best place is still Silicon Valley and California is still the best place for technology innovation which is the business that I’m in and you know going to be in for the decades ahead. You know, the worry is, obviously, that this engine gets regulated or constrained and slows down, and in that case I think you have you know, even worse problems in California and the U.S. that they are problems that probably extend to much of the developed world.
Question: Is that why you’re hedging your bets with your investment in the Seasteading Initiative?
Peter Thiel: The seasteading initiative that we’ve been talking about for the last few years is a bit of an experimental project. It’s run by this guy, Patrick Friedman, the grandson of Milton Friedman, the famous economist. This is an idea about, can you create experimental new types of communities on the oceans? I think from a technological perspective, something like seasteading is an important frontier for us to look at. We need to be looking at all the unexplored frontiers that have not been taken. And if you sort of go back to the 1960’s, people thought of space as the final frontier, but they also had all these ideas about exploring and developing the oceans, which cover 70% of the Earth’s surface and are largely undeveloped, plans to turn deserts into arable land and reforesting the deserts and so there are all these sort of frontiers that we think are very underdeveloped and it is worth trying to go back to that spirit of trying to move the frontier of human knowledge and progress.
Question: Why do you encourage students with good ideas to take a break from college and pursue their passion?
Peter Thiel: Well the term we use is that people should stop out of school for two years. The program is called "20 Under 20." It’s under www.20under20.org. The one advertisement I will get in here. And it is a two-year fellowship program where we will pay people $100,000 for two years to pursue some particular passion, preferably in a technological area where they can work individually or in a team of up to four people in starting a company or joining some other early stage company. We will encourage people to do this from California because that’s where we think we can help provide them with some mentorship.
But we think that the idea of becoming an entrepreneur is something that is not taught very well in school and is something that people should try to do earlier on. One of the concerns that I’ve had about the educational system is that the enormous amounts of debt it’s putting on people is actually constraining people’s ability to do things that are not as remunerative. And so people are sort of trapped in these sort of professional jobs and are not able to do things that are entrepreneurial or non-profit or just, you know, fun or socially useful and sort of are overly or narrowly constrained. And I think technological innovation requires risk, it requires sacrifice and it may be very hard to do that if you have, you know, this enormous debt burden to try to repay. It’s hard to start a great company if you bought a big house, and it may be hard to start a big company if you are burdened down with enormous amounts of student loans.
And so I think it’s there’s sort of a context that’s specific to our time that we think education needs to be rethought, that education does not just happen in college, but it also happens in developing skills which will enable people to contribute to our society as a whole.
Question: Who is Eduardo Saverin?
Peter Thiel: Eduardo was one of the early people at Facebook. He worked with Zuckerburg in getting the site started, and was responsible for trying to get advertising revenues for the company in 2004, and also helped provide some of the very early seed capital in getting the business started.
Question: What kind of capitalism is it that cuts Eduardo Saverin out of Facebook?
Peter Thiel: I think the portrayal of the film is probably slightly too favorable to Eduardo and slightly too unfavorable toward the people who actually put in the incredibly hard work of building Facebook over many, many years. It is sort of a bit of a caricature of capitalism, that it’s always this zero-sum game where you have winners and losers. That is certainly the way a lot of Hollywood works, where it is this thing where there are only so many celebrities, and you can only become a new celebrity by tearing somebody else down. Silicon Valley, the technology industry at its best, creates a situation where everybody can be a winner. I think Facbook is an extreme example of this where all the people, the early employees, the late employees, the investors, and the world as a whole has benefited tremendously. All the stakeholders have done really well, including Eduardo. The issue the movie was alluding to was in the summer of 2004, when I invested in Facebook. It was structured as a partnership, which is not a way you can actually build a tech company, where everybody has a fixed equity percentage. You need to have some flexibility. You need to have vesting schedules, where the people actually working on the company get equity overtime. So, a lot of effort was spent reorganizing the company from a partnership into a corporation. And I think this sort of structural reorganization where Sean Parker played a critical role in the summer of ’04 was indispensable towards creating this much, much larger company that exists today, in which Eduardo’s stake is worth far more than it otherwise would have been. Well, I think Eduardo has made on the order of a billion dollars at current Facebook valuation, and he should see that as he has done incredibly well and he should try to figure out a way to invest that money and contribute it to things that will make the world a better place in the decades ahead.
Recorded November 15, 2010
Interviewed by Victoria Brown
Directed / Produced by Jonathan Fowler