14 Conference Report #techonomy14

Two Friends on Innovation, Obstacles, and Future Revolutions

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  • From left, David Kirkpatrick, Reid Hoffman, and Peter Thiel

    From left, David Kirkpatrick, Reid Hoffman, and Peter Thiel

  • From left, David Kirkpatrick, Reid Hoffman, and Peter Thiel

    From left, David Kirkpatrick, Reid Hoffman, and Peter Thiel

Speaker

Reid Hoffman
Co-founder and Executive Chairman, LinkedIn

Peter Thiel
Investor and Entrepreneur, Thiel Capital

Moderator

David Kirkpatrick
Founder and CEO, Techonomy


Kirkpatrick: If you want to talk about people who have made transformative change, from whom we can learn, Reid Hoffman and Peter Thiel are probably as good examples as you could come up with, regardless of where you looked. As I mentioned before, we were really pleased to give you all Peter’s book, just, the things that Peter’s done—and please, Peter and Reid, join me on stage while I continue. I was going slowly because I didn’t know long it would take to bring all of the chairs on stage.

[APPLAUSE]

Kirkpatrick: It’s great to see you, thank you for coming. Peter co-founded PayPal and Palantir, provided early funding for Facebook thanks to Reid, of course, LinkedIn and Yelp, LinkedIn being Reid’s company. You know, I wanted to just tell you one of the things that I—one of the things that I took away from Peter’s book, which I really thought was the summary sentence, really, in the third to last paragraph, or somewhere near the end, he said “We cannot take for granted that the future will be better, and that means we need to work to create it today,” so, that’s why Peter’s here. Reid is somebody that I’ve known for a long time. He was a huge help to me when I wrote my book about Facebook. Peter I also interviewed for that book. They were both very helpful, but Reid, just, was a real rock on that project, and of course founded LinkedIn. So, these guys went to college together. Most people probably don’t know that, but maybe you do. At Stanford, and then they’ve subsequently partnered in a variety of ways in the technology industry, and I’ve just mentioned some of the things they’ve accomplished. So, I really want to find out where they agree, and where they disagree, and also, given that we—I don’t know how much of the back and forth you guys just heard before, but there were a lot of serious worries just expressed about where society’s heading, the nature of media, the nature of our common life, I think, and I’d just be curious if either of you had—well, first of all, I forgot. I was going to ask you each to do your 90 seconds. So, since you’re nodding, why don’t you go first?

Hoffman: So, the question is, opportunity and threat, so, both of them. Essentially, the intersection of biology and computing, you may call it biohacking. The opportunity set is obviously, massive transformation in medicine. Being able to cure cancer. Being able to do, you know, there may be pluses and minuses along longevity. That’s probably—Peter thinks there’s only pluses. On the minuses side, viruses, incompetent action, that someone could spread, or—you know, kind of, bio-terrorism is obviously in some sense much more frightening than nuclear terrorism. “12 Monkeys” as a film, as an example. So, I think that the thing that’s been most on my mind is, I think that that sort of technological progress towards the intersection of bio and computing is inevitable, so what do we do to maximize the positive outcomes and minimize the negative ones.

Kirkpatrick: Fascinating. Glad we have our Techonomy Bio Con. Peter?

Thiel: Well, you know, I’d actually sort of generalize Reid’s point to say that, I think it’s really this question of technology generally, that I think we could be seeing decades of phenomenal progress in all sorts of different dimensions, and—well, I think there’s some worries about it. I’m much more worried about the cultural and political reaction against it, and I think, if I had to sort of frame it slightly negatively, I think we live in a society in which all the culture, all the politics hates science and technology in all forms. The easy way to see this is, you just look at all the science fiction movies. They always show technology that kills people, destroys things, doesn’t work, is dystopian. The future is going to be a combination of “Terminator,” “Matrix,” “Avatar,” and “Elysium.” I watched the “Gravity” movie the other day. You would never want to go into outer space, you would just want to be back on a muddy tropical island somewhere, and I think that’s—it’s not blaming Hollywood, I think it simply reflects the broader culture, so Silicon Valley and what it represents is radically countercultural. It’s very much at odds with what people in the Western world actually think about the future or what they want, so, I think we have this, you know, we have this sort of—it’s like a Zeno’s Paradox–type situation, where you have on the one hand accelerating technological change, or at least the potential for that, and then a culture and a political system that’s incredibly reactionary and incredibly hostile to it.

Hoffman: Actually, so, a nuance—

Kirkpatrick: Oh, if I don’t have to do anything, that’s great.

Hoffman: So, optimism and fear—I think keeping the optimism is something we agree on. I think the fear is maybe not—it may be reinforced by culture, but I don’t think it’s inherently cultural. I think one of the things we find as a biological species is, we have a much more intense trigger to change being negative, because the fear of death is more important than the improvements, and then that compounds into, “Oh, that’s new, that’s fearful.” So, the question is overcoming the fear with optimism. So, I think I agree, in the broad brush, but on the—on the question of, is it just, like, we have a broken culture, and you could just wave your wand and the culture would then be all optimists and no fear. I think it’s that fear of death, and fear of change, that kind of underlies it. That’s harder to change.

Thiel: I don’t have any simple solutions to how you change the politics or the culture. I think that is the incredibly tense dynamic that is at work.

Kirkpatrick: So, Peter, if you are so worried about this negativity towards technology, is that one of the primary motivations for publishing this book? Because it really is an exhortation to innovate. I mean, there’s no question it’s a celebration of innovation, and an exhortation to try harder and do bigger things.

Thiel: Well, certainly I think one of the ways that—my best answer for how to change the culture is for people to actually succeed in doing things that are good for the world, and that make it better. That’s sort of—I think it’s too hard to start a mass movement that convinces a whole society to change. I think you can convince small numbers of people to start new companies and do new things, I think that’s how you gradually change the discourse in one way or another.

Kirkpatrick: I want to ask him one more thing about the book, and then I want to hear what you think about this. You know, one of the things that is a massive part of the book is this idea of monopoly and competition. You’re really pro the one that normally people are down on, monopoly, and very negative about something that most people accept is just a really positive thing, competition. Why did you focus so strongly on that, and what was it that you were thinking that entrepreneurs, which is clearly one of your primary intended audiences—why did they need to hear that message?

Thiel: Well, I think this idea that you have two kinds of companies, you have companies that are monopolies and you have companies that compete—I think this is the most important idea in business that people don’t talk about, and they don’t talk about it because the people of monopolies lie about that, and the people who are in crazy competition also distort that fact, and pretend that they have better businesses than they actually do. So I think it’s a very poorly understood fact, and I do think that—we can debate at what point monopolies are good or bad for society, but I think from the inside, if you’re starting a business, if you’re a founder or entrepreneur, you always want to have a monopoly. You want to be doing something that’s so different, that’s so much better than the rest of the world that there’s actually no competition at all. You know, if you want to compete like crazy, you should open a restaurant in San Francisco.

Kirkpatrick: You’re also really down on opening restaurants, that’s also clear from the book.

Thiel: Well, I’m never going to do it again.

Kirkpatrick: What was that?

Hoffman: He’s not—he’s opened a restaurant.

Kirkpatrick: You are opening a restaurant?

Hoffman: No, has, the past tense.

Kirkpatrick: Oh, you did. So, do you buy this thinking about monopoly? What’s your reaction?

Hoffman: So, first, 100-percent agreement on the function that most people, in the entrepreneurial and venture business scale are essentially trying to build something that is like a monopoly, although exactly how you define a monopoly is one of the interesting characteristics here. The way that they try to define it is such things as they say, well, unfair competitive advantages, or network effects, or other kinds of things which are attributes, because as Peter points out very accurately, the folks who think that they might be a monopoly, or like a monopoly, describe themselves as small fish in large ponds, and there’s so much competition, you know, nothing—nothing to see here, move along. These are not the monopolies you’re looking for. [LAUGHTER]

And then the people who actually have a lot of competition—“We dominate,” you know? And I forget the examples, but it’s like, rap music, Southern bakery, whatever combination—I forget the example we use in the book. But, you know, we dominate this niche, which actually, in fact, means we have lots of competition.

Thiel: The only British-Nepalese fusion cuisine in Half Moon Bay.

Hoffman: Yes, exactly. Right, so, that is, I think, 100-percent correct. The thing that I think is, where there’s interesting room for discussion, where Peter and I might have some divergence in views, is one is the question is, okay, so, is a monopoly simply defined by high profits or not, and is a monopoly inherently a good thing or not. Now, I think one of the things that Peter points out very well is, in order to get an investment in the future, you actually have to have a combination of incentive for investors and an incentive for company for pouring the money back into creating something. So, you don’t have some ability, especially in a monopolistic context, to generate real profits, and to really cause that investment, both from investors and internally—that’s a very difficult thing to be mammothly invested in the future. And so the knee-jerk “Oh, profits are bad, monopolies are bad” is idiotic, and is, I think, justly attacked. On the other hand, the question is almost a definition between what you might think of as an ephemeral or fragile monopoly and actually a monopoly that doesn’t have to work, right? Because an ephemeral, fragile monopoly—many tech things that are described as monopolies—are actually, in fact, working really hard, because they’re worried that if they don’t, five years from now, they will no longer have their position.

Kirkpatrick: Only the paranoid survive.

Hoffman: Yes. And that actually creates a very good cycle of innovation and reinvestment, but if they can essentially sit on their laurels, not do anything, collect a massive tax, that creates less innovation. So the question is—

Thiel: There’s obviously lines between good and bad monopolies. The common sense intuition that I have is they become bad when it’s totally static. It’s good as long as it’s dynamic, and you of course have the question of, at what point does that shift. If you’re like a troll collecting a toll on a bridge—maybe Comcast, something like that—that might be the bad monopoly category, and then you sort of debate about some of the larger tech companies over recent decades, whether they were bad, or—they were going to fall apart on their own anyway, so were they, not quite ephemeral, but not permanent—there’s something between ephemeral and permanence. There’s a big spectrum here.

I would say that one of the things that this monopoly perspective led me to that’s very interesting is, when we think about the history of innovation more broadly, over the last 200, 250 years, it is a sobering fact how many of the inventors, creators, of new things—how little they actually captured, so much of the time. To succeed as an inventor, as a founder, as an entrepreneur, two things have to be true. You have to create x dollars of value for the world, and you have to capture y percent of x. In most cases, y equals zero. So, the Wright brothers didn’t make any money, nor did anyone else in the Aviation industry for the next hundred years, to first approximation. Cumulative profit’s about zero. If you look at the first industrial revolution, late 18th early 19th century, where the efficiency of factories was increased by 7–10 percent a year, relentlessly, for decades. The whole, all Britain was transformed from 1780 to 1850. In 1850, most of the wealth in Britain was still held by the landed aristocracy. The factory owners did not make much money, it was all competed away, and if we look at the last decade in Silicon Valley, there is this very striking contrast between the software businesses and the clean-tech businesses, where you could certainly argue that clean-tech was an important innovation to get right, but the microeconomics of it were such that it was really hard to come up with something that was so decisively better. You know, I’m not sure you’ve even gotten to an ephemeral monopoly stage with any of them. Most of innovation is actually more like clean-tech. Software is one of the very few categories where the inventors—where y was greater than 0 percent.

Kirkpatrick: So, what’s your diagnosis from that? Because then, that would suggest, because you would want to actually have the right incentives for investors. That would suggest that you would want to do something that would create the right incentives for investors, given that they’re not essentially capturing the value themselves.

Thiel: Well, it’s all towards the directions that you know, as a set of facts. I think we often tell ourselves—it would be a mistake to say that software is more important than everything else, because we live in a financialized world, so we measure the importance of things by how much money people have made in them, and we often ignore the microeconomics. If you’re an Albert Einstein, you come up with general relativity, you don’t get to be a billionaire. You don’t even get to be a millionaire. Instead, we have these ideological claims that scientists should be like monks, and they should take a vow of poverty, and they should dedicate their lives to science, and it’s all the microeconomics. You can’t capture any of the value. Y equals 0 percent throughout most of science.

Hoffman: Well, just, the interesting question there is—I completely agree with you, there have to be rewards structured. You can’t monopolize on dollars, which surprises me a little bit, actually, ideologically, from your point of view, since you’re—you know, when Peter and I met at a philosophy class at Stanford, Peter claimed that he would spend his life dedicated to advancing the spirit of capitalism, so this is an interesting follow-on to that.

Thiel: I’m pro capitalist.

Hoffman: This is an interesting follow on to that. The second part of it is, it’s kind of a question of—for example, things like general relativity. It’s unclear how that actually ends up in a company, or product result, so you have to have the incentives that aren’t necessarily a company or a product, as a result for doing that. Usually, to create those incentives, you actually have to have some kind of tax and redistribution system, which you tend to be somewhat negative on, so this is the reason I’m asking what the corollaries are.

Thiel: Certainly, if we had a government that spent things, I would much rather have it spend money on basic research, instead of wealth distribution, but we live in a society where utilitarian considerations always dominate, and so if you look at the budgets, it’s the nondiscretionary part that keeps growing. The discretionary part would be the part that does the kinds of things that we’re talking about, but utilitarianism stops you from doing anything of the sort.

Kirkpatrick: I wanted to ask you, given that you’re a libertarian, and given that government has cut back so much on R&D, you do bemoan frequently—not as much in the book, but you certainly, a lot in recent years, have bemoaned this idea that there’s just not enough transformative technology emerging, and many would say that it’s partly because government cut back. But you’re actually agreeing with that, so your libertarianism is not so complete that you would not want government to spend money on that?

Thiel: Well, I’d want it to take money it’s spending elsewhere, and dedicate it to this. That’s politically impossible in our system, because whether you’re on the left or the right, you will always prioritize utilitarian considerations over anything that’s fundamental and oriented towards the far future.

Kirkpatrick: You mean in politics.

Thiel: In politics. All the polls, all the people will vote—it always prioritizes redistribution to actual investment.

Kirkpatrick: So, this issue of government’s response, we were talking about briefly before, and actually a number of people who were up here were referring to it. So, you’re very pessimistic about the ability of government to adapt to this modern economy that you two are such successful partisans of. Is that, are you pessimistic or optimistic about government, and how it—

Thiel: Well, there’s always a glass quarter-full version, where I think there’s tremendous room for improvement here. It’s hard to imagine that it could become less adapted than it currently is. Yeah, there is an enormous gulf between Silicon Valley and Washington, D.C. The way they think about things is very different, the way they think about problems is very different. We tend to think questions about science and technology are important topics. People in D.C. don’t even think they’re important. It’s not even that we disagree on the details, we even disagree on the weightings you’ve attached to things.

Hoffman: Yeah, I mean, the short answer is, government—especially Congress—having an intelligent technology strategy is—it’s very hard to see your path to that. Now, I think it’s super critical. I mean, think about, for example, EMRs, or think about electronic medical records, what you could do. A corollary to one of the things I’ve been thinking about is, I think it would be far better for all genetic information to be available on a database for being able to do personalized information. There are negative consequences that need to be thought out, need to be protected against, you know. What if you have a predisposition to this medical condition, or how that could be used for identification, but the ability for a government to execute intelligently on—what do you think your technology strategy should be, given that technology pace is accelerating? So, for example, cost genetic sequencing is going down faster than Moore’s Law. I think it’s extremely important, but also very difficult to make happen.

Thiel: Just look at the people in it. There are 535 Senators and Congressmen. I looked this up the other day. It may be a generous estimate—35 of them have a background in science, engineering, technology, very broadly defined. The rest of them, I mean, they don’t understand that windmills don’t work when the wind isn’t blowing, or solar panels don’t work at night, and so if you’re dealing with people who are basically in the middle ages, they’ll just change the conversation to something very different.

Kirkpatrick: It’s pretty sad. You know, one of the things that really came to my mind in reading Peter’s book is, what does it mean for big companies? Because that’s still what the economy primarily is comprised of, and you focus so much on startups, and yet at Techonomy we think a lot about how can companies transform themselves, and be more innovative, and renew themselves. I was just up at Microsoft this week. They really are trying hard to renew themselves in some very impressive ways, but do you believe big companies can do that?

Thiel: Absolutely, and there have definitely been many cases of this. It’s, I think that the role of leadership is very important on this, and the examples where this has happened has involved cases where the founders have come back to run the company, and so I think—

Kirkpatrick: What about in P&G, where the founder can’t come back?

Thiel: That’s a problem, but Steve Jobs coming back to Apple, 1997. That was a reasonably—they had thousands of people, they had lots of product lines, and as the founder, he had the authority to say, we’re shifting completely from home computers to consumer electronics. I think Amazon’s a big company, I think Google’s a big company. I think these are going to be very successful founder-led companies that will continue to innovate. I think if Microsoft really wanted to change, you should get Bill Gates back to run it.

Hoffman: So, the thing that I would emphasize, and slightly modify what Peter just said is, I think you need someone who has a founder mindset and acts with the moral authority. That doesn’t actually have to be the founder, right? It’s easy when it’s that case. You can identify the person. But I think that there are cases where someone—now, and the system tends to argue against that, because the system tends to be—

Thiel: By system, let’s be clear. The system is the board of directors, which consists of people who are typically political actors of one sort or another. They would like people who don’t have any rough edges, they’d like people who don’t say controversial things, so you will get politicians to run these companies, who are not likely to make that spec.

Hoffman: So while I—well, the way I would have put the point you just made, because, probably some of the points—some of the way you just said it, I wouldn’t say it, but the way I put it is, generally speaking, what happens when you have a committee is, the committee values protecting against the downside, rather than the upside. So they would rather have the company coast for another 10 years, even if it’s sacrificing its ultimate figure, because it doesn’t look like there’s a failure on their watch, versus taking a big risk which might fail, which has a huge negative implication, versus upside. That’s the kind of structural thing that usually founders break, and you need to have someone who will break that economic reward curve in order to succeed in innovation.

Thiel: Are there any companies that are not founder-led where you think that’s being executed well on?

Hoffman: I think Bob Iger at Disney is doing pretty well. I don’t think, I think it’s uncommon, and it’s much more common among founders, but I think, you know, Iger and Disney is one I would think of. I have to think about it. It’s a short list, yes.

Kirkpatrick: I have a more specific way of asking the question to Peter. You know, because you talk about monopoly as such a great thing, and the way to monopolize is to start with a very small, constrained market and build upon that, and keep monopolizing in it as you build it out. It struck me, as I was reading, that that is super hard for an existing big company to do, because big companies want big markets, so just the mindset of being able to target a small market and dominate it and monopolize it, or whatever term you want to use, and then build off from there, almost sounds by definition impossible for big companies. Do you think big companies can do that thing? Leaving aside whether the founder’s there or not. Let’s talk about GE, which is represented in the room, for example, or a company like that. Could they do the kind of thing you described for monopolies themselves?

Thiel: Well, this is the Clay Christensen innovator’s dilemma type challenge, where often you’ll be biased against the seemingly small opportunities at present, and you will be focused on things that are too big, and that are hard to move the dials. Yeah, I do think it’s a steady, ongoing challenge, because it’s always a question of the internal politics. You could presumably have a small team of people work on the small, new market, but then there’s the question, would they get blocked by everybody else in the company, and would they really get the resources to push on this, and so you always end up with these internal political things. I mean, to flip this around, it’s always a mystery, there’s something of a mystery, why you ever have startups at all. You know, when we started PayPal, one of the most common questions I got was, “It sounds like kind of a good product, but obviously the banks are just going to do this. How will you ever compete with the banks?” Because the banks are much bigger, they have more resources, they have more money, they hire lots of talented people, and I think, I think the answer why you have startups at all is because large, existing institutions are too screwed up politically, both governmental institutions and large corporations, to actually execute. That’s why we have startups.

Kirkpatrick: Reid, you look at this differently—

Hoffman: Well, let me actually also answer this question.

Kirkpatrick: Well, I want to ask you about your book too, because your book, “The Alliance,” was really almost written for those people, right? How do you think about managing your people so that you can stay vital and keep your people creative, etcetera.

Hoffman: So, two things. One is, I think it is a question of leadership. I think the question of leadership is, the CEO needs to designate some set of people who can drive an innovation separate from what you can describe as political interference from the rest of the organization, and with leadership that can happen. And I usually don’t use Jobs as an example, but Jobs and the iPod is a good example of, I’m going to after this mp3 player market, I’m going to do that—the amount of money they spent launching it was the entire amount of money spent marketing all of mp3 players before, so it was kind of a bet on what the future looks like. “The Alliance,” the principal question is that the only way you can have an adaptive company is if you have adaptive people. Adaptive people are no longer looking for how can I check into a 30, 40 year lifetime job, so they are looking for how is their career transformed, so you actually have to have an explicit conversation with them about, essentially, doing tours of duty about how, you do something really important here, that also helps your career, and maybe you’ll sign up for 30, 40 years of tours of duty, but you operate that way.

Kirkpatrick: So, is that a way of saying that you think of what companies are, really, is a collection of individuals who can be motivated and achieve anything depending on how they’re managed? Because if that’s the truth, that’s a very different view than what Peter had.

Hoffman: In part, but it’s also a structural question. So, for example, the way that I gave the analysis to a board of directors was not so much as “these people are political” as much as the usual action of a group decision is risk minimization. It’s how you check off avoiding each risk that everyone manages, so it’s also a structural question of how you operate, so the way you operate in terms of innovation is you say, this one, two or three people, they’re driving the decisions, and they have from the CEO: protection and drive to go do. It doesn’t have to involve the CEO, but it has to be able to do that. So, it’s not just people and their incentives, it’s also the structure of how they’re connected to the rest of the company.

Thiel: In theory I agree with that. In practice, I think it’s—we shouldn’t minimize how tough it is. We may not disagree on that.

Hoffman: In theory, there is no difference in theory and practice.

Thiel: In practice there is. I seem to have heard that from someone, sometime in the past. It was one of Reid’s favorite expressions for quite some time. But I think the challenge in practice is, I often think of the people that are able to drive innovation in one way or another as being quite weak at the political games, and the political processes—the more political processes you set up, it always seems to empower the wrong people. This is one of the reasons I always give advice against taking companies public, because when you take a company public in Silicon Valley, you end up empowering a whole new class of people inside that company, you know, in the accounting department, all sorts of places. Obviously you need these things to work, but it really does shift the balance of power in these ways that are very hard to do anything around, so we can come up with all kinds of processes that in theory work, but that in practice, I think, often end up being self-defeating when the process itself gets hijacked by people who are good at politics and bad at substance.

Kirkpatrick: Who in the audience has a question or comment for these fascinating two fellows? Does anyone have something they’ve been thinking they wanted to ask, because I have plenty more questions. Okay—oh, wait, that’s my colleague. Nobody?

Hoffman: Somebody in the back.

Kirkpatrick: Okay, okay. Can we get the mike? Please identify yourself?

Alsbury: Hi gentlemen, I’m Seth Alsbury, I’m actually with Target, somewhat of an older company. They call me the agitator there, and part of my job is to stir things up, and try and figure out the innovation challenge. So to your point, Reid, I think, about the committee issue, which comes up a lot, if there is a group designated with the charter to innovate for the company, how can that group, if it’s, say, one to three people, avoid the same—if it’s not the one founder, as Peter pointed out, even three becomes an issue, right?

Hoffman: Well, the short answer there is, having a head of strategy, a head of innovation and a small group is almost always—I’ve never seen it work, it’s usually a disastrous failure. The question is, you actually have to be, we’re going and building this product, we’re going and doing this, and it has to be essentially funded, and as an isolated group. And there’s a lot of different ways of doing an isolated group. I don’t know them all, throughout all the industries. One was how Jobs did it, which is, he basically said, okay, he pulled people into a project and put them in a room where only their badges would work. He would go work with them. Part of a thing that happens at Google, and, you know, there’s variation, like there’s when Andy Rubin was building Android, only the Android folks’ badges were working, going into the Android, and basically Larry was like “Look, Andy, just go, this is important to do, just make this happen.” I think the common pattern is, it has to be a product-oriented group, it isn’t a group that says we’re producing a strategy, or we’re producing an innovation plan. We’re building something, we’re making it happen, and it’s empowered by the CEO, and it is completely disconnected from any political process from the rest of the organization. And I think thus far, those are the only patterns I’ve seen work. The CEO often has to have an opinion on the product, on the merits of the product, so it’s not a portfolio, it’s not a financial portfolio, a hundred different innovations without any details on any one particular.

Kirkpatrick: This is another variation on something we’ve said at Techonomy for years, which is that every leader really has to be a technologist in some fundamental way, in the arena we’re now—the world we’re moving into.

Hoffman: Actually, here’s how I would put it: any organization that’s 20 people or more has to have a technology strategy, and that’s not an IT strategy, that’s a strategy for how technology’s changing the landscape around your organization, within your organization, how you’re playing, how you’re recruiting talent, the whole thing. If you don’t have a technology strategy, you’re already in the process of dying.

Kirkpatrick: Already in the process of dying, wow. Okay, back here, please identify yourself.

Dudley: Desiree Dudley, MIT. I was wondering if you guys could comment on the concept of healthy ego strength versus narcissism among prime movers in innovation.

Hoffman: I’m not even sure we know each other. I’m not sure quite what that means, say another sentence?

Dudley: Well, I often work with people who are strong personalities in technology, and I find that it’s a very fine thing to figure out the same characteristics that can move teams, versus finding—at what point is it healthy or unhealthy for the team, and the technology. Do you guys have any comments on that?

Thiel: It’s a very fine line, I agree with that, actually.

Hoffman: Yeah. I mean, look, it’s a little bit the distinction between madness and genius, and usually it’s because you ended up being right, and so I think the high line is almost like a venture decision, which is in this market time, what the market opportunity is, this person’s set of skills, including being able to assemble the right network of support around them—do you back them or not? It’s like a venture decision, and that ‘s always an aspect of judgment that’s a combination of what the time looks like in terms of the assets, what the time looks like in terms of the product market fit, and the set of assets that can be pulled together with some probability of getting a shot on goal, and I can’t give a more specific answer because there’s so many different variables in the judgment that it’s hard to give a more specific answer.

Thiel: The disturbing version of this, I think, is that we ascribe heroic leadership to people when they succeed, and then we ascribe all sorts of psychological illnesses to them when they fail, and I do think there is always this crazy dynamic with a lot of the founders in Silicon Valley, where when things go wrong, it is like a primitive tribe, where everyone is running after them, and going to chop their heads off, or something like that. You do have these where there’s a social dynamic, where it’s a very fine line from hero worship to scapegoating.

Kirkpatrick: Before I let you guys go, one of the things I want to hear you both talk about is this issue of the future of jobs and middle class in an increasingly automated age, because I think you, Peter, have sort of dismissed that as a concern. I don’t know if it was in your book, so much as—in the thing you did with Andreessen, you were saying some very negative things about that, and maybe elsewhere too, but it doesn’t sound like you’re very worried about that.

Thiel: So, I think that the history of technology broadly, for the last two hundred years, has been a history in which certain jobs have been lost, but it’s been replaced by other jobs, and I think it’s wrong to exaggerate this. The luddites tried to destroy the factory equipment in the mid-19th century because weavers were losing their jobs to textile factories, but in fact technology had the effect of freeing people up to do other things, and I don’t think—I think it’s premature to say that there’s something radically different about computer technology. If we had strong AI, if you had robots that look like people and that were smarter than us, that you didn’t have to pay anything, I think that would be a scary prospect for middle-class jobs, even I would be worried about that.

Kirkpatrick: But you make it clear in the book, you don’t expect that any time soon.

Thiel: No time soon. And I think the first question you’d ask at that point is not economic, it’s political. It’s “Are they friendly or not?” It would be like extraterrestrials landing on this planet, robocalypse. If you had aliens landing on this planet, you wouldn’t ask the economic question, you’d ask the political question. Now, I think it is true that we’ve had a lot of pressure on middleclass wages in the U.S. and Western Europe over the last 40 years, and I think that coincides much more closely with this era of globalization than with technology, which has been going on for hundreds of years, so I would say people blame too much on technology and that the real problem is with a competition with low-wage workers in India, China, places like that. I’m not against globalization, but I think that’s the real pressure point on middleclass wages, and we shouldn’t scapegoat technology for it.

Kirkpatrick: What about you?

Hoffman: I actually think globalization is in part a result of technology, so I think that technology does have an impact of globalization, although I agree with you that’s the larger impact than the automation of factories and so forth, which has impact. The other thing I agree with you on is, the general reaction that people have to this is, let’s slow down technology, let’s limit it, let’s do that sort of thing. That’s actually, generally speaking, a failing game when other people aren’t going to be slowing down technology, because we’re not solipsists. We don’t exist in the world ourselves, other people are also organizing around it. However, these intermediate zones where there’s this transition from one edge to another are hugely disruptive. People suffer a lot, there is, you do have an uncertainty about how much the middleclass will come back, or how many middleclass jobs there will be. We can have faith that, look, we’ve gone through this pattern before, it will work out, it will be fine, but I think that in that problem, both to minimize the depth and length of the suffering, and also to maximize—I think we want a middleclass society—I do think it’s an important call for, how can we employ technology, you know—rhetorically, Moore’s Law—to help with the transition of the middleclass to new jobs, whether it’s education and training, whether it’s new kinds of jobs, and I think it’s worth putting some energy to that, because I do think that there is, like you said—well, we got through the textile mills, but there was tremendous social unrest. That’s part of the reason that we have the English term luddite, because there was in fact a lot of turmoil going on, and the question is, how do we navigate that better?

Kirkpatrick: I’m going to get in trouble if we don’t wrap this, but it’s been a fantastic conversation. Thank you both for coming. Thank you for doing everything you both do.

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