Category Archives: Innovation

Start-Up Nation: Israel

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Thanks to an opportunity I got to meet with the Israel Chief Scientist, and the fact I was offered Start-Up Nation at the end of the meeting, let me give you my views on this very interesting book. But first a few things about Israel and innovation.

As the map (adapted from John Kao, Harvard and showed at the OCS meeting) indicates, Israel is an innovation superpower. Cisco, Intel, Microsoft, Novartis, Nestle and many others are located there. Check Point is just one of the many start-up success stories. Israel has more start-ups quoted on Nasdaq than Europe and venture capital is very active there. Finally the office of the chief scientist manages and funds the public side of innovation in Israel. All this is perfectly analyzed in the book Start-Up Nation that I have just read.

I thought I knew a lot about Israel, but the book is rich in anecdotes. The history of Israel is well described and innovation was probably a necessity to survive. If there is a point I appreciated less is the importance the authors give to the military. They may be right, that’s not the point, but I thought the topic came too often in the chapters. This remains a great book and a must read for anyone interested in high-tech innovation and entrepreneurship.

I’d like now to quote a few things I liked. It’s not structured at all, but I invite you to read the book!

From the Introduction

Google’s CEO and chairman, Eric Schmidt said  that the United States is the number one place in the world for entrepreneurs, but “after the U.S., Israel is the best.” Microsoft’s Steve Ballmer has called Microsoft “an Israeli company as much as an American company” because of the size and centrality of its Israeli teams.”

The authors begin by explaining that adversity and multidimensionality as much as the talent of individuals, are critical:  “it is a story not just of talent but of tenacity, of insatiable questioning of authority, of determined informality, combined with a unique attitude toward failure, teamwork, mission, risk, and cross-disciplinary creativity.”

Chapter 1- Persistence

The usual joke Americans need to put, but it is a good one!
Four guys are standing on a street corner . . .
an American, a Russian, a Chinese man, and an Israeli. . . .
A reporter comes up to the group and says to them:
“Excuse me. . . . What’s your opinion on the meat shortage?”
The American says: What’s a shortage?
The Russian says: What’s meat?
The Chinese man says: What’s an opinion?
The Israeli says: What’s “Excuse me”?
—MIKE LEIGH, Two Thousand Years

– No inhibition about challenging the logic behind the way things have been done for years.
– A rude, aggressive culture which tolerates failure.
– Israeli attitude and informality flow also from a cultural tolerance for what some Israelis call “constructive failures” or “intelligent failures.”
– It is critical to distinguish between “a well-planned experiment and a roulette wheel
(During the meeting with the chief scientist, there was a similar argument: “if we have a 5% success rate, we’d better give the responsability to donkeys to choose and if it is 70% success rate, we do not take enough risks”)
– Amos Oz talks about “a culture of doubt and argument, an open-ended game of interpretations, counter-interpretations, reinterpretations, opposing interpretations. From the very beginning of the existence of the Jewish civilization, it was recognized by its argumentativeness.”

Chapter 2- Lesson from the military

– Narrow hierarchy and autonomy gives a lot of responsibility to individuals, authority is discussed
– People are mature earlier.
– No need to wait for order to act.
– “The key for leadership is the soldiers’ confidence in their commander. If you don’t trust him, if you’re not confident in him, you can’t follow him.”
– “If you aren’t even aware that the people in the organization disagree with you, then you are in trouble”

– “Real experience also typically comes with age or maturity. But in Israel, you get experience, perspective, and maturity at a younger age, because the society jams so many transformative experiences into Israelis when they’re barely out of high school. By the time they get to college, their heads are in a different place than those of their American counterparts.”… “The notion that one should accumulate credentials before launching a venture simply does not exist.”

A dense network – the whole country is one degree of separation (Yossi Vardi)

Chapter 5- Order and chaos

– Singapore’s leaders have failed to keep up in a world that puts a high premium on a trio of attributes historically alien to Singapore’s culture: initiative, risk-taking, and agility; in addition to being real experts who can improvise in situations of crisis.
– Innovation is fundamentally an experimental endeavor (improvisation over discipline)
– Learn from mistake with no fear of losing face.
– Nobody learns from someone who is being self defensive
– Fluidity, according to a new school of economists studying key ingredients for entrepreneurialism, is produced when people can cross boundaries, turn societal norms upside down, and agitate in a free-market economy, all to catalyze radical ideas.

Chapter 7 – Immigration

Immigrants are not averse to starting over. They are, by definition, risk takers. A nation of immigrants is a nation of entrepreneurs.—GIDI GRINSTEIN

Sergey Brin spoke in an Israeli high school: “Ladies and gentlemen, girls and boys,” he said in Russian, his choice of language prompting spontaneous applause. “I emigrated from Russia when I was six,” Brin continued. “I went to the United States. Similar to you, I have standard Russian-Jewish parents. My dad is a math professor. They have a certain attitude about studies. And I think I can relate that here, because I was told that your school recently got seven out of the top ten places in a math competition throughout all Israel.” This time the students clapped for their own achievement. “But what I have to say,” Brin continued, cutting through the applause, “is what my father would say—‘What about the other three?

The authors mention the seminal work of AnnaLee Saxenian (Regional advantage, the New Argonauts). As a few examples of Israel tech. diaspora mentioned in the book:
– Dov Frohman – Intel – 1974 –  Wikipedia link. Apparently Israel has been the core of Intel innovation in the past decade and Intel is the largest private employer in Israel.
– Michael Laor – Cisco – 1997 –  Linkedin profile. Cisco has acquired 9 israeli start-ups since Laor came back (more acquisitions than in any other country except the USA)
– Yoelle Maarek – Google –  http://yoelle.com now at Yahoo!

But one should not forget Mirabilis/ICQ (see below)  or Check Point. Check Point was established in 1993, by the company’s current Chairman & CEO Gil Shwed, http://en.wikipedia.org/wiki/Gil_Shwed at the age of 25, together with two of his friends, Marius Nacht (currently serving as Vice Chairman) and Shlomo Kramer (who left Check Point in 2003 to set up a new company).

Chapter 9 – Yozma

Another member of the tech. diaspora: Orna Berry – PhD USC – Unisys-IBM then Ornet and Gemini then OCS chief… The VC industry was really launched through the Yozma effort as well as Israeli incubators. Gemini was the first Israel fund. See the wikipedia article about venture capital in Israel.

Another quote on start-ups vs. more mature industries: “In aerospace, you can’t be an entrepreneur,” he explained. “The government owns the industry, and the projects are huge. But I learned a lot of technical things there that helped me immensely later on.”

Chapter 12 – Transdisciplinarity

“There’s a multitask mentality here.” The multitasking mentality produces an environment in which job titles—and the compartmentalization that goes along with them—don’t mean much.
– “Combining mathematics, biology, computer science, and organic chemistry at Compugen”
– “Putting this together required an unorthodox combination of engineering skills.”

The term in the United States for this kind of crossover is a mashup. And the term itself has been rapidly morphing and acquiring new meanings. … An even more powerful mashup, in our view, is when innovation is born from the combination of radically different technologies and disciplines. The companies where mashups are most common in Israel are in the medical-device and biotech sectors, where you find wind tunnel engineers and doctors collaborating on a credit card–sized device.

But the authors do not forget to mention that Israel is A country with a motive

Role models

Though Israel was already well into its high-tech swing by then, the ICQ sale was a national phenomenon. It inspired many more Israelis to become entrepreneurs. The founders, after all, were a group of young hippies. Exhibiting the common Israeli response to all forms of success, many figured, If these guys did it, I can do it better. Further, the sale was a source of national pride, like winning a gold medal in the world’s technology Olympics.

“There’s a legitimate way to make a profit because you’re inventing something,” says Erel Margalit “You talk about a way of life—not necessarily about how much money you’re going to make, though it’s obviously also about that.”

“Indeed, what makes the current Israeli blend so powerful is that it is a mashup of the founders’ patriotism, drive, and constant consciousness of scarcity and adversity and the curiosity and restlessness that have deep roots in Israeli and Jewish history. “The greatest contribution of the Jewish people in history is dissatisfaction,” Peres explained.

Again “Not just talent, but tenacity, insatiable questioning of authority, determined informality, unique attitude toward failure, teamwork, mission, risk and cross-disciplinary creativity.”

As a conclusion

“So what is the answer to the central question of this book: What makes Israel so innovative and entrepreneurial? The most obvious explanation lies in a classic cluster of the type Harvard professor Michael Porter has championed, Silicon Valley embodies. It consists of the tight proximity of great universities, large companies, start-ups, and the ecosystem that connects them—including everything from suppliers, an engineering talent pool, and venture capital. Part of this more visible part of the cluster is the role of the military in pumping R&D funds into cutting-edge systems and elite technological units, and the spillover from this substantial investment, both in technologies and human resources, into the civilian economy. … But this outside layer does not fully explain Israel’s success. Singapore has a strong educational system. Korea has conscription and has been facing a massive security threat for its entire existence. Finland, Sweden, Denmark, and Ireland are relatively small countries with advanced technology and excellent infrastructure; they have produced lots of patents and reaped robust economic growth. Some of these countries have grown faster for longer than Israel has and enjoy higher standards of living, but none of them have produced anywhere near the number of start-ups or have attracted similarly high levels of venture capital investments. What’s missing in these other countries is a cultural core built on a rich stew of aggressiveness and team orientation, on isolation and connectedness, and on being small and aiming big. Quantifying that hidden, cultural part of an economy is no easy feat. An unusual combination of cultural attributes. In fact, Israel scores high on egalitarianism, nurturing, and individualism. In Israel, the seemingly contradictory attributes of being both driven and “flat,” both ambitious and collectivist make sense when you throw in the experience that so many Israelis go through in the military. There is no leadership without personal example and without inspiring your team. The secret, then, of Israel’s success is the combination of classic elements of technology clusters with some unique Israeli elements that enhance the skills and experience of individuals, make them work together more effectively as teams, and provide tight and readily available connections within an established and growing community.

If you have arrived here, you were interested enough in this long article. Logically, your next move would be to buy Start-Up Nation!

Advice to entrepreneurs

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I found instructive to compare two short videos from the STVP. The first one is dated 2002 and shows Larry Page, the co-founder of Google. The seconde one, with Aaron Levie, has just been published on january 19, 2011.

And here is a comparaison

Larry Page vs. Aaron Levie
  • Work with the right people, great people you are compatible with
    		•
  • Do not compromise. Be passionate
    		•
  • Have a healthy disregard for the impossible
    		•
  • Do something which was impossible 3 years ago
    		•
  • Do not follow the hype. Good ideas always get funding.
  • If you feel comfortable, you are probably not doing the right thing.

    • Clearly passion, ambition but also self-confidence are ingredients of entrepreneurship.

    Another very good post on the topic is Should You Really Be A Startup Entrepreneur? by Mark Suster, where the reality of entrepreneurship is superbly described.

    Is there something rotten in the kingdom of VC?

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    Following my recent post, Is there something rotten in the state of IP, I could not avoid to add this provocative statement despite all my respect for venture capital. When Kleiner Perkins, one of the best West Coast VC (not to say one of the best VC ever), Charles River, one of the best East Coast VC and Index, one of the best European VC co-invest in an IP company (a “Patent Risk Manager”) such as RPX, I thought there had been a major event. And Randy Komisar who is mentioned in my latest post is on the board… Now RPX is filing to go public so as I do usually, here is the cap. table. All these data remain subject to the IPO date and share price which I just had to imagine… You may also be interested to know that the founders of RPX come from Intellectual Ventures…

    Is there something rotten in the state of IP?

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    I have been surprised not to read more about Intellectual Ventures’ recent legal actions. You can read more about the companies they are suing for infringing IV’s IP.

    If you do not know about Intellectual Ventures, you should know they have filed or bought about 30’000 patents or patent applications and raised billions of dollars. Until now, nobody really knew why, but their recent actions show IV is just another patent troll.

    Around the same period, Paul Allen has been dismissed by a judge about the complaint he had filed for another patent infringment. More here. I should add I read about both pieces of news thanks to the Xconomy web site.

    This is an opportunity to say that I have never been a big fan of IP, intellectual property, patent applications and copyrights. I do not have good alternatives to propose, but innovation is often more a matter of speed and being more advanced that being protected by IP. I am aware it is not so simple though. I have worked in the field for a while and I still give general courses on the topic. Those interested may click on the picture below or on this link.

    Intellectual Ventures was founded by Nathan Myhrvold, who was formerly CTO at Microsoft. Not need to add which role Paul Allen had at Microsoft. All this could be funny when you think about the fact Microsoft success was not based on patents (and Microsoft did not suffer that much from all the people who copied all their software…)

    Early mornings on innovation at the Swiss National Radio

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    I was invited this morning on RSR, the (french-speaking) Swiss National Radio, to talk about innovation and start-ups in their morning (5am to 6am!) Petits Matins. For those who know about the topic, nothing fundamentally new, with the slight exception that I learnt recently that a common feature to many entrepreneurs would be dyslexia (two studies were made in the USA and the UK). In total, a 30-minute conversation on my favorite topic, that you may listen on the RSR website if French is a language you like. Many thanks to Manuela Salvi, the talended RSR journalist.

    More importantly, I could invite a guest on the phone at 5:45am (what a gift!) I was delighted to let Peter Harboe-Schmidt talk about his novel The Ultimate Cure, a beautiful thriller with a Lausanne-based biotech start-up as the background. I had already mentioned that book on this blog. Peter just announced the novel had just been translated in French.

    Steve Blank’s on entrepreneurship

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    Steve Blank is famous in Silicon Valley as an entrepreneur and teacher of entrepreneurship. In particular, he has a Secret History of Silicon Valley which shows the importance of the military and cold war in its development.

    He recently published a very optimistic blog When It’s Darkest Men See the Stars.

    He claims entrepreneurship barriers are changing. These were:
    1. long technology development cycles (how long it takes from idea to product),
    2. the high cost of getting to first customers (how many dollars to build the product),
    3. the structure of the venture capital industry (a limited number of VC firms each needing to invest millions per startups),
    4. the expertise about how to build startups (clustered in specific regions like Silicon Valley, Boston, New York, etc.),
    5. the failure rate of new ventures (startups had no formal rules and were a hit or miss proposition),
    6. the slow adoption rate of new technologies by the government and large companies.

    And we are facing a new world he calls “The Democratization of Entrepreneurship” and he sees
    – A Compression of the Product Development Cycle
    – Startups Built For Thousands Rather than Millions of Dollars
    – A New Structure of the Venture Capital industry
    – Entrepreneurship as Its Own Management Science
    – Consumer Internet Driving Innovation

    I reacted on his blog and wrote this: I have to admit I am puzzled. Let me elaborate.
    On the positive side, the optimism expressed is very refreshing and I felt really good after reading it. I tend to agree with the lower barriers to entrepreneurship, and probably I kept my sun glasses in the dark too long, so I do not see the stars. (But I will think this is a great article that I want to mention to my own little network.) But on the other side, I am concerned that the same barriers still exist in biotech, semiconductor (and most hardware products if they embed radical innovations) or even in cleantech/greentech (which by the way maybe be more a bubble than a real new field). In these fields, product development is as long, VCs are afraid sometimes of the capital requirements, Richard Newton, the Berkeley professor (http://www.eecs.berkeley.edu/~newton/presentations), had noticed a long time ago, that most talents go out of these tough fields to easier or more promising fields (it was from electronics to internet in the 90s). It might be that we do not (have to) innovate as much in these classical fields anymore, in which case you are totally right. But if not, we are just moving to the low hanging fruits of innovation, and we are blinded by superstars but do not see the myriads of others (needs, opportunities) we should also focus on…

    Finland (part 3)

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    Last week, I had lunch with Pekka Roine. This follows my trip to Finland (and my recent posts) where many people advised me to meet this Finn living in Switzerland. He described himself has bbb = big, bald, and bearded… so I answered back I was gg = grey hair and glasses so that we could find each other on the EPFL campus.

    We have one thing in common: we spent some time at Stanford University and he told me something about it. He mentioned this experience was great for 3 reasons,
    – the least important one is that Stanford has the best professors in the world,
    – the second least important is that when you are there, you know at least 200 people who are like you, so you are not isolated,
    – but the most important is that you are away from home and it gives perspective and new horizons.

    Pekka worked for DEC before the company disappeared and experienced the best years of the company. Then he became an independent since 1994 and he has been on the board of 25 companies and also helped in launching 2 VC firms, PTV and Conor.

    So we discussed how to help our entrepreneurs. He believes in Israel and its incubator model where people who know how to run them select 2-3% of the best projects and follow them closely. He told me about this guy who failed his 1st start-up, M&Aed the 2nd, IPOed the 3rd so felt qualified to run an incubator. Good point!

    I am not a big fan of incubator, someone had told me if I meant incinerator, but with a model where the Yozma tools were privatized with the right incentives and people, this is a different story. So is this a way to solve the unsolvable, this chicken and egg problem that we do not have enough role models and entrepreneurs following the right models. Pekka believes in exchanges with Israel, I believe in the Go West which has similarities. There has to be a way we can convince our decision makers at the academic and national level, and we should not stop trying because we are RIGHT, Pekka! We need to create high-growth companies which are the places for the future jobs for our kids.

    There is no doubt that Finns and Finland were inspiring for me!

    A small addition: I just discovered (I mean on November 13) this article from the Helsinki Times, following an interview I had given during my trip.


    Finland (part 2.5)

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    Following my 1.5 previous posts about Finland (https://www.startup-book.com/2010/10/28/israel-through-finland and https://www.startup-book.com/2008/04/03/finland) here are some of the interesting lessons I learnt from my Nordic friends. Let me add I visited Aalto University as well as the University of Applied Sciences in Jyväskylä.

    The main lesson I got there is that small countries such as Finland, Switzerland or Israel need to be open countries. Nokia is a good example of what a small country can achieve but the company is also worrying Finns at the moment as it is losing some traction to Apple and Android. So Finland needs to look for more fresh air. That’s probably why Finland is so open to new ideas from Israel or the USA. You should just check my post of yesterday to see how both countries have been references for Finland.

    At Aalto, I particularly liked a few experiments such as

  • their Venture Garage

  • their Entrepreneurship Society
  • and obviously their trip to SV

    • Will Caldwell is heading a large piece of the effort with his colleagues and I met many passionate people including Pauli, Teemu, Panu, Jari, Paolo, Ramine, Matalie, Juha, Kristo and my apologies to the ones I forget…

    Internationalization does not mean just sending people or businesses out but attracting people in. I was very interested by a recent report, the Silicon Valley Journey, Experiences of Finnish IT Startups from Dot-Com Boom to 2010, on Finns based in Silicon Valley, the experience of which should be used. There is an awareness that we never know enough about how SV is performing and our ecosystems (students, entrepreneurs, investors and support) should always know better about it. And it also means attracting international VCs something Israel (and Switzerland by the way) has been quite good at.

    Things were very similar in Jyväskylä, though it is quite far from the main capital city, Helsinki. Just three examples:

    – the mentors such as Jussi Nukari, also an author of “Launching Your Software Business in America”

    – the Protomo experiment which supports local entrepreneurs

    – the entrepreneurship courses given by Sharon Ballard from Arizona (who also challenged me about the efficiency of the SBIR program in the USA, something I had/have been skeptical about 🙂 but this is another story!). Sharon is bringing a typical American attitude to European students. And what I liked there is that it was not just Finnish students, but a group of international young and enthusiastic people!

    My thanks here to Juha Saukkonen who invited me to JAMK and who may have forgotten he was the 1st person to mention the Victa report to me, and thanks to all his colleagues, Asta, Mari, Heikki, Sharon, Jussi, Kari, Marko, and… Juha, Juha, Juha and Juha again.

    Any negative lesson? I feel a recurrent issue about critical mass in Europe. Any country, any region, any city in Europe is trying to promote innovation and they must do it. But are we taking the risk of diluting the effort by not taking strong decisions on a few hot spots, as we do it by the way for education, research or even sports or arts? I do not have any good answer and we all know we have to try and try again. But the USA have one SV only even if they have other clusters in Boston, Triangle Park, Seattle, or Austin. But we do not have our Silicon Valley in Europe. So how much are all these efforts efficient is a tough question?

    Technology = Salvation

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    “Our technocratic elite told us to expect an ever-wealthier future, and science hasn’t. Except for computers and the Internet, the idea that we’re experiencing rapid technological progress is a myth.”

    So speaks Peter Thiel in an interview to the Wall Street Journal Technology = Salvation that I read while traveling to Helsinki to discover the Finnish high-tech ecosystem (I will come back on my trip when I am back home). I did not know Peter Thiel was German, I mean one more European migrant to Silicon Valley. For those who do not know him, Thiel was the business angel in Paypal and then Facebook.


    Zina Saunders

    “People don’t want to believe that technology is broken. . . . Pharmaceuticals, robotics, artificial intelligence, nanotechnology—all these areas where the progress has been a lot more limited than people think. And the question is why.” […] Innovation, he says, comes from a “frontier” culture, a culture of “exceptionalism,” where “people expect to do exceptional things”—in our world, still an almost uniquely American characteristic, and one we’re losing. […] The idea that technology is broken is taboo. Really taboo.

    Peter Thiel is an interesting fellow. A unique character, I am not sure he is a conservative or a libertarian like T. J. Rodgers. You should read the full article (I am not sure the WSJ still offers it for free, but I copied it below) as well as the comments. The reason why I mention this is that it is also a concern of mine I have wrote about in my previous posts on the crisis or about books on the science crisis such as Smolin, or (in French) Zuppiroli or Ségalat

    So here is the full interview but I am not sure the WSJ would like this…

    Technology = Salvation

    An early investor in Facebook and the founder of Clarium Capital on the subprime crisis and why American ingenuity has hit a dead end.

    By HOLMAN W. JENKINS JR.

    The housing bubble blew up so catastrophically because science and technology let us down. It blew up because our technocratic elite told us to expect an ever-wealthier future, and science hasn’t delivered. Except for computers and the Internet, the idea that we’re experiencing rapid technological progress is a myth.

    Such is the claim of Peter Thiel, who has either blundered into enough money that his crackpot ideas are taken seriously, or who is actually on to something. A cofounder of PayPal and an early investor in Facebook (his stake was recently reported to be around 3%), Mr. Thiel is the unofficial leader of a group known as the “PayPal mafia,” perhaps the most fecund informal network of entrepreneurs in the world, behind companies as diverse as Tesla (electric cars) and YouTube.

    Mr. Thiel, whose family moved from Germany when he was a toddler, studied at Stanford and became a securities lawyer. After PayPal, he imparted a second twist to his career by launching a global macro hedge fund, Clarium Capital. He now matches wits with some of the great macro investors, such as George Soros and Stanley Druckenmiller, by betting on the direction of world markets.

    Those two realms of investing—narrow technology and broad macro—are behind his singular diagnosis of our economic crisis. “All sorts of things are possible in a world where you have massive progress in technology and related gains in productivity,” he says. “In a world where wealth is growing, you can get away with printing money. Doubling the debt over the next 20 years is not a problem.”

    “This is where [today is] very different from the 1930s. In the ’30s, the Keynesian stuff worked at least in the sense that you could print money without inflation because there was all this productivity growth happening. That’s not going to work today.

    “The people who bought subprime houses in Miami were betting on technological progress. They were betting on energy prices coming down and living standards going up.” They were betting, in short, on the productivity gains to make our debts affordable.

    We’ll get back to what all this means. Mr. Thiel wants to meet me at a noisy coffee shop near Union Square in Manhattan. Because a Fortune writer invited to his condo wrote about his butler? “No,” Mr. Thiel tells me. “And I don’t have a “butler.”

    His mundane thoughts these days include whether Facebook should go public. Answer: Not anytime soon.

    As a general principle, he says, “It’s somewhat dangerous to be a public company that’s succeeding in a context where other things aren’t.”

    On the specific question of a Facebook initial public offering, he harks back to the Google IPO in 2004. Many at the time said Google’s debut had reopened the IPO window that had closed with the bursting of the tech bubble, and a flood of new tech companies would come to market. It didn’t happen.

    What Google showed, Mr. Thiel says, is that the “threshold” for going public had ratcheted up in a Sarbanes-Oxley world. Even for a well-established, profitable company—which Google was at the time—the “cost-benefit trade-off” was firmly on the side of staying private for as long as possible.

    Mr. Thiel was early enough in the Facebook story to see himself portrayed in the fictionalized movie about its birth, “The Social Network.” (He’s the stocky venture capitalist who implicitly—very implicitly—sets the ball rolling toward cutting out Facebook’s allegedly victimized cofounder, Eduardo Saverin.)

    Today, Mr. Thiel (the real one) has no remit to discuss the company’s many controversies. Suffice it to say, though, he believes the right company “won” the social media wars—the company that was “about meeting real people at Harvard.”

    Its great rival, MySpace, founded in Los Angeles, “is about being someone fake on the Internet; everyone could be a movie star,” he says. He considers it “very healthy,” he adds, “that the real people have won out over the fake people.”

    Only one thing troubles him: “I think it’s a problem that we don’t have more companies like Facebook. It shouldn’t be the only company that’s doing this well.” Maybe this explains why he recently launched a $2 million fund to support college kids who drop out to pursue entrepreneurial ventures.

    Mr. Thiel is phlegmatic about his own hedge fund, which took a nasty hit last year after being blindsided by the market’s partial recovery from the panic of 2008. Listening between the lines, one senses he faces an uphill battle to convince others of his long-term view, which he insists is “not hopelessly pessimistic.”

    “People don’t want to believe that technology is broken. . . . Pharmaceuticals, robotics, artificial intelligence, nanotechnology—all these areas where the progress has been a lot more limited than people think. And the question is why.”

    In true macro sense, he sees that failure as central to our current fiscal fix. Credit is about the future, he says, and a credit crisis is when the future turns out not as expected. Our policy leaders, though, have yet to see this bigger picture. “Bernanke, Geithner, Summers—you may not agree with the them ideologically, but they’re quite good as macroeconomists go,” Mr. Thiel says. “But the big variable that they’re betting on is that there’s all this technological progress happening in the background. And if that’s wrong, it’s just not going to work. You will not get this incredible, self-sustaining recovery.

    And President Obama? “I’m not sure I’d describe him as a socialist. I might even say he has a naive and touching faith in capitalism. He believes you can impose all sorts of burdens on the system and it will still work.”

    The system is telling him otherwise. Mankind, says Mr. Thiel, has no inalienable right to the progress that has characterized the last 200 years. Today’s heightened political acrimony is but a foretaste of the “grim Malthusian” politics ahead, with politicians increasingly trying to redistribute the fruits of a stagnant economy, loosing even more forces of stagnation.

    Question: How can anyone know science and technology are under-performing compared to potential? It’s hard, he admits. Those who know—”university professors, the entrepreneurs, the venture capitalists”—are “biased” in favor of the idea that rapid progress is happening, he says, because they’re raising money. “The other 98%”—he means you and me, who in this age of specialization treat science and technology as akin to magic—”don’t know anything.”

    But look, he says, at the future we once portrayed for ourselves in “The Jetsons.” We don’t have flying cars. Space exploration is stalled. There are no undersea cities. Household robots do not cater to our needs. Nuclear power “we should be building like crazy,” he says, but we’re sitting on our hands. Or look at today’s science fiction compared to the optimistic vision of the original “Star Trek”: Contemporary science fiction has become uniformly “dystopian,” he says. “It’s about technology that doesn’t work or that is bad.”

    The great exception is information technology, whose rapid advance is no fluke: “So far computers and the Internet have been the one sector immune from excessive regulation.”
    Mr. Thiel delivers his views with an extraordinary, almost physical effort to put his thoughts in order and phrase them pithily. Somewhere in his 42 years, he obviously discovered the improbability of getting a bold, unusual argument translated successfully into popular journalism.

    Mr. Thiel sees truth in three different analyses of our dilemma. Liberals, he says, blame our education system, but liberals are the last ones to fix it, just wanting to throw money at what he calls a “higher education bubble.”

    “University administrators are the equivalent of subprime mortgage brokers,” he says, “selling you a story that you should go into debt massively, that it’s not a consumption decision, it’s an investment decision. Actually, no, it’s a bad consumption decision. Most colleges are four-year parties.”

    Libertarians blame too much regulation, a view he also shares (“Get rid of the FDA,” he says), but “libertarians seem incapable of winning elections. . . . There are a lot of people you can’t sell libertarian politics to.”

    A conservative diagnosis would emphasize an unwillingness to sacrifice, necessary for great progress, and once motivated by war. “Technology has made war so catastrophic,” he says, “that it has unraveled the whole desirability of it [as a spur to technology].”

    Mr. Thiel has dabbled in activism to the minor extent of co-hosting in Manhattan last month a fund raiser for gay Republicans, but he has little taste for politics. Still, he considers it a duty to put on the table the idea that technological progress has stalled and why. (To this end, he’s working on a book with Russian chess champion and democracy activist Garry Kasparov.)

    You don’t have to agree with every jot to recognize that his view is essentially undisputable: With faster innovation, it would be easier to dig out of our hole. With enough robots, even Social Security and Medicare become affordable.

    Mr. Thiel has not found any straight line, however, between his macro insight and macro-investing success. “It’s hard to know how to play the macro trend,” he acknowledges. “I don’t think it necessarily means you should be short everything. But it does mean we’re stuck in a period of long-term stagnation.”

    Some companies and countries will do better than others. “In China and India,” he says, “there’s no need for any innovation. Their business model for the next 20 years is copy the West.” The West, he says, needs to do “new things.” Innovation, he says, comes from a “frontier” culture, a culture of “exceptionalism,” where “people expect to do exceptional things”—in our world, still an almost uniquely American characteristic, and one we’re losing.

    “If the universities are dominated by politicians instead of scientists, if there are ways the government is too inefficient to work, and we’re just throwing good money after bad, you end up with a nearly revolutionary situation. That’s why the idea that technology is broken is taboo. Really taboo. You probably have to get rid of the welfare state. You have to throw out Keynesian economics. All these things would not work in a world where technology is broken,” he says.
    Perhaps it really does fall to some dystopian science fiction writer to tell us what such a world will be like—when nations are unraveling even as a cyber-nation called “Facebook” is becoming the most populous on the planet.

    Mr. Jenkins writes the Journal’s Business World column.