Hi, it’s Nicolas from The Family. Today, I’m discussing the gravest topic, war—in this case, against COVID-19. How do wars change the course of history?
⚠️ The paid version of European Straits launched last week! In addition to this free edition, my new valued paying subscribers receive a Monday Note as their work week is about to begin, and a set of Friday Reads that dig deeper into various topics related to investing in European tech startups.
If you haven’t subscribed, that’s perfectly OK! Still, here’s what you’ve missed so far 😉
An in-depth discussion of how entrepreneurs can break into the law firm sector and what strategic challenges they should expect, given the recent shuttering of Atrium.
A primer on Peter Zeihan’s new book Disunited Nations, his thesis that the US is essentially retreating into itself, and the consequences for large tech ecosystems in Europe.
My take on the ongoing battle between Elliott Management’s Paul Singer and Twitter CEO Jack Dorsey, and what it reveals about the future of US tech giants.
My focus in the next Friday Reads will be on “Investing in a time of crisis”, which sounds appropriate considering what the world is going through these days. If you don’t want to miss it, time to subscribe!
As for today, I had to balance important tech-related topics with the broader global context, and I think the best angle to embrace it all is to discuss the gravest subject: war 👇
1/ Two weeks ago, if you had asked the typical urban, educated individual about the most critical challenge of the day, they would probably have answered “climate change”. But today, things have changed a great deal, and the most pressing challenge is fighting COVID-19.
When new patients come in with pneumonia, a symptom of advanced coronavirus infections, doctors have little time to decide whether to assign them intensive-care beds, ventilation machines or respirators that could make the difference between life and death. Some doctors have said that they sometimes make the call on who gets treatment based on the age of the patient. In some areas, hospitals are suspending other treatments to focus personnel on the contagion [emphasis mine].
And here, in Bruno Maçães’s excellent Coronavirus and the Clash of Civilizations:
For all the talk about European values, Italy seems to have embraced large parts of the Chinese response to the coronavirus. Movement in the country is now severely restricted, after measures exceeding anything ever tried in a European country since Word War II. Travel is allowed only for “urgent, verifiable work situations and emergencies or health reasons.” To encourage people to stay in, bars and restaurants are allowed to open only during daytime, and only if it is possible to keep a distance of at least a meter between customers. All museums and cultural venues are closed, as well as nightclubs, cinemas, theaters, and casinos, which have been shut since the weekend.
2/ Yet COVID-19 and climate change are somehow linked. Consider:
The widespread epidemic has already contributed to curbing global trade and inciting people to stay home. Going forward, there will probably be some hysteresis (a fancy word to say that things won’t go back to “normal” and that both global trading and travelling/commuting will become less frequent).
Beyond lower mobility rates, there’s a systemic link. What happens over the next few months could see some nations being better prepared and having an improved capacity to solve most wicked problems, including climate change. Because that is what wars do: some countries are brought down; others are upgraded.
3/ Wars create lots of casualties. It’s inescapable, and it’s ugly. But as historians and economists have shown us, some wars make decisive contributions to progress.
There are three things that only waging a war can bring about, and that together make a real difference:
Alignment. When you’re at war, everyone is in sync, pursuing the same goal. It might not seem obvious at first, but even black market smugglers contribute to the war effort by mitigating one of its most adverse impact on civilians, the scarcity of essential goods.
Polarization. Being at war makes it easy to divide the world in two: you’re either with us or you’re against us. Everyone standing in the way of whatever the war requires can be declared an enemy of the state. Wars remove institutional and political resistance to change.
Infinite resources. When you’re at war, there’s no discussing the price. Because wars are a matter of life and death, it’s difficult to make the case for a cost/benefit analysis. You want to prevent profiteering, but you can definitely tolerate a LOT of waste.
4/ If, like me, you work in the tech world, you might think this is all quite abstract. But war is exactly what gave birth to Silicon Valley! Let’s go through the three items again:
Alignment. The Cold War made it easy for Stanford’s Frederick Terman to convince the military that they should fund prototypes and startups. His primary motive in doing so was to direct more money toward his beloved university. But nonetheless, there was an alignment of interests.
Polarization. The decision to establish the National Science Foundation (NSF) was made at the outbreak of the Korean War in 1950. It had been delayed for years by arguments over who should allocate funds, but waging war in Korea led to a swift crushing of the resistance.
Infinite resources. Government spending via the military or the NSF followed by venture capital threw LOTS of money out of the window. Most of that was wasted in experiments that didn’t go anywhere. But it took all that waste to give birth to the US tech industry as we know it.
5/ Although the private sector contributes to winning wars (and Silicon Valley is a prime example of that), governments still play the most important role, for at least two reasons:
Governments are able to appropriate all that money, even if it means raising taxes (usually quite heavily in times of war). It’s no coincidence that our modern tax systems are the byproduct of past wars (in several countries, personal income tax was introduced to pay for World War I).
Government leaders are the ones most able to address an entire nation and inspire its citizens with fighting words—that is, a forward-looking message that inspires both alignment and polarization. Think: Winston Churchill, Charles de Gaulle, Franklin D. Roosevelt—even George W. Bush.
6/ What we should be worrying about these days, especially in the West, is the unprecedented inability of our governments to pull those two levers of appropriating and inspiring:
They can’t mobilize lots of resources because of their huge deficits and a widespread, systemic resistance to increasing non-military government spending. It’s usually OK to spend and fight literal wars, but when it’s a figurative war that you can win only by collectively paying for testing, sick pay, treatment, child care, and elderly care, that’s another story.
They can’t even address the whole nation because we’re now in an age explained in Martin Gurri’s Revolt of the Public. Whatever the situation, most of the public just isn’t listening anymore. And those who are still listening don’t believe or trust what they’re hearing. And so it’s very hard for any leader, no matter their level of personal charm, to inspire an entire nation.
7/ Indeed, it’s been striking to witness the contrast between the typical political response in the West and what’s been happening in Asia:
What we’ve heard from most Western governments is essentially more of the same: “Let’s announce a plan”, “Let’s convene a high-level meeting with 20-30 scientists and ministers”, “Let’s visit some hospital to show that we care”, “Let’s say that everything will be alright”.
Meanwhile, Asia (that is, Mainland China, Hong Kong, South Korea, Singapore) has implemented radical action: extreme social distancing, with people simply staying at home; large-scale, decentralized testing (testing people where they are instead of asking them to come wait in line, which clogs the whole system); building extra capacity when needed.
8/ Maybe this is how wars move the needle: progress is already here, just not evenly distributed! And so the cards are promptly reshuffled:
On one hand, there are the most advanced countries, whose leaders think they can tackle the challenge without changing much on other fronts (the way of life, the tax system, the healthcare system). Being advanced is a curse because it comes with overconfidence in the idea that you don’t need to change course.
On the other hand, there are developing countries which are used to building additional state capacity (that’s what economic development is all about) and are thus able to make the most of the opportunity: upgrading the state and fostering innovation in the private sector, simultaneously.
9/ This all leaves two questions regarding our focus here. First, can European governments rediscover the spirit of being developing nations so as to use the current crisis as an opportunity to foster innovation and deliver progress?
As I wrote a few months back in Europe Is a Developing Economy, succeeding in the current techno-economic transition can be seen as waging a war against under-development, just as several East Asian countries saw things a few decades ago—a great story well told in Joe Studwell’s How Asia Works.
Unfortunately, there are few reasons to be optimistic:
It’s easy to draw it all on a napkin, but then you need the economic and political power to implement radical measures…Are European leaders able to deliver? Honestly, I don’t think so—and a frequent objection to Studwell’s argument is that it was all implemented by authoritarian regimes like Park Chung-hee’s in South Korea or the Communist Party’s in Mainland China. But do we have an alternative to European leaders tackling that challenge in a democratic context? I’m not sure I’d like to see it.
(As an illustration, here’s the big picture about Italy’s data by Stefano Bernardi.)
10/ Second, if governments are failing us, or if they’re just not being listened to because we live in Martin Gurri’s world now, can civil society, empowered by technology, take charge and deliver?
That’s the optimistic view recently shared by Sakunthala Panditharatne on Twitter, where she suggests tech-driven progress in healthcare and education could be the ultimate response to the current crisis. On an intellectual level, there are not that many people who trust entrepreneurs to tackle the challenges of the day. But a look at history reveals that entrepreneurs have always played some kind of role in helping nations winning wars. Here are Saku’s words:
Without the internet, perhaps decline might have been inevitable…I’m not actually sure any government action can break calcification in the US. But that’s fine, the dynamic tech economy will reach health and education soon enough. [I also feel that] most of the “rebuild community” stuff follows straight from economic recovery. Communities are most often rebuilt around workplaces—though maybe this time around they will be built around education as well, and much of that happening online.
And let me quote Nils Gilman as a conclusion for you to ponder:
📕 With the help of my colleague Zineb Mekouar, we launched a 6-part seminar titled Les Jours heureux to nurture the conversation around the French version of my book Hedge: Un contrat social pour l’âge entrepreneurial. Two of those events have already happened, and the videos are now available online. You can watch me talking (in French 🇫🇷) about:
Sadly the current COVID-19-related situation has prompted us to suspend all public events at our Paris office, and so the next part of Les Jours heureux, which was supposed to be about innovating on the housing market, is postponed until after we’ve won the war 😉 In the meantime, you can still buy the book online, read it, and send me feedback! Here’s the link to Amazon FR.
📡 By the way, our closing the office doesn't mean you can't experience some of our events! We're moving them online, to the extent possible, thanks to a partnership with Hopin. The first two online conferences will be taking place later today (Wednesday, March 11), so don't hesitate to join!
As mentioned last week, the comprehensive reading list attached to the European Straits weekly essay has been moved to the Friday Reads paid edition. Subscribe if you want to receive that list on Friday and learn more about the war against COVID-19!
Still, if you’re interested in learning more about the close relationship between war and innovation, here are four books that I recommend:
The Entrepreneurial State: Debunking Public vs. Private Sector Myths (Mariana Mazzucato, 2015)
VC: An American History (Tom Nicholas, 2019)
The Code: Silicon Valley and the Remaking of America (Margaret O’Mara, 2019)
From London, UK 🇬🇧