BUSINESS FEATURES EDITOR
PULLING a dollar from his wallet, Peter Thiel, the 43-year old co-founder of PayPal and an early investor in Facebook, flaps it to make his point: “Giving people freedom with money is really something deep and fundamental. Government may still have a monopoly on printing these notes, but so long as you have globalisation without one world government, so long as people can move it freely from place to place, that monopoly is much less powerful.”
We are sitting in the Berkeley’s Blue Bar. Thiel – played in Hollywood’s The Social Network by Wallace Langham – is in London with Max Levchin, his old PayPal colleague, for the Economist’s innovation awards. They have been collecting a business process award for PayPal, which revolutionised money transfers for the masses and is now part of eBay. PayPal was founded twelve years ago – in internet terms putting it back almost in the Jurassic age – but Thiel says “it seems a world ago and also just yesterday. Some memories of that time are just indelibly etched in my mind.” The idea they had was simple enough – email + money – but Thiel saw from the beginning its potential. Heady dreams of forming a new global currency or making it impossible for corrupt governments to steal their people’s money may not quite have come to fruition, but Thiel still sees it as an achievement that gave people more freedom about which currency to use.
Still, Thiel, a serial investor and polymath who was educated at Stanford and born in Germany, is not content. He thinks we all need to worry about how slowly the world is changing. To Thiel, the financial collapse was partly a crisis of technological achievement: people have been betting on extraordinary advances to drive economic growth to cover their debts, and the advances are simply not materialising. We may feel that we are living in a world of amazing new gadgets, but the latest iPhone is a distraction from the absence of an AIDS vaccine or a lunar colony.
“Globalisation is essential,” argues Thiel. “There is no good future in which the world is separate. But emerging market integration is overemphasised, and what is underemphasised is the technological innovation that can prevent some Malthusian struggle over resources.” For Thiel, this side of the equation is the responsibility of developed economies and we have been falling badly behind.
Some academic evidence supports Thiel’s pessimism. In 2005, Jonathan Huebner produced a graph (right) that shows the rate of innovation peaking as long ago as 1873. In the same year, Ben Jones at Northwestern University discovered innovators were making their first breakthroughs later and later in life, slashing the years they had available for further creative insights. That latter finding makes sense to Thiel, who recently launched a fellowship that will grant twenty entrepreneurs under twenty years old $100,000 each to pursue their innovative ideas. “Somehow innovation has to be restarted. Some of the world’s most transformational technologies were created by people who stopped out of school because they had ideas that couldn’t wait until graduation.”
Is the tendency for the cleverest to spend too much time studying instead of innovating part of the reason that Britain has failed to produce its own equivalent of PayPal or Facebook? “The one reason I think is very important why Silicon Valley is so innovative is that it is not considered a bad thing to be an entrepreneur there. In London, at a party if you say you’re an entrepreneur, people are more likely to wonder what’s wrong, or are you unemployed. My guess in the UK is that it’s a social thing. Under what circumstances would the Queen have an event at Buckingham Palace talking to young engineers about building things? Maybe in the Victorian days, but now?”
Thiel also blames the stranglehold of regulation for holding back new developments – he sees the online world’s speedy progress as in part a result of its low-regulation. “Imagine if Twitter had to go through the FDA drug approval – how efficacious, how does it affect the brain, phase II, phase III trials.” But Thiel is trying to remedy this through his venture capital fund, the Founders Fund, which is investing in biotech and even SpaceX, which is developing low-cost space launch vehicles.
“The idea of a better future seems to be a dated idea,” says Thiel. “George Osborne’s cuts are the right thing to do: where technological innovation has stalled you can’t take on more debt.” But cuts can only be the beginning. Thiel is trying to drive the frontiers of human achievement forward. If he is right, if the developed world has built itself a low-growth trap of over-regulation, over-education and risk-aversion, we all need to be worrying more about the relationship between our poor innovation levels and the global economic outlook.
PAYPAL | A BRIEF HISTORY
● First meeting
Max Levchin attends a finance lecture at Stanford given by Peter Thiel
Confinity is founded by Levchin, Thiel and Luke Nosek
Elon Musk founds the payment company X.com
Confinity launches its milestone project, PayPal
Confinity merges with X.com
X.com changes its legal name to PayPal
eBay buys PayPal for $1.5bn
After selling PayPal, Thiel founded Clarium Capital, a global macro hedge fund, that in April 2010 had returned 210 per cent since inception, but had a hard ride in 2009. Funds under management were $7.8bn in 2008, and the fund now manages around $1bn.
In 2004, Thiel co-founded Palantir Technologies, which takes some of the ideas that made PayPal’s fraud rate so low and applies them to data analysis in other contexts, most notably the analysis of terrorist networks and the behaviour of the financial markets.