Review Of Zero To One By Peter Thiel

by: Hazel Henderson

Summary

Hazel Henderson review of the new book: Zero to One.

Looking toward business of the future.

Offering ideas beyond textbook economics.

Zero to One: Notes on Startups, or How to Build The Future by Peter Thiel, with Blake Masters, Crown Business, NY, 2014

Silicon Valley, with all its IT prowess and digital invasion of so many sectors of industrial societies, has produced few systemic global thinkers. Author Peter Thiel, co-founder of PayPal, reveals in Zero to One a maturity beyond his earlier libertarian visions of constructing sovereign technological island habitats far from the reach of governments. Thiel, like Jaron Lanier, former chief scientist at Microsoft(NASDAQ:MSFT), author of Who Owns the Future (2013), is not afraid of facing up to all the new global issues: from the future options for humanity, technological choices, artificial intelligence, automation and jobless growth to critiquing current financial models obsessed with hedging and diversification. Thiel sums up current finance, where his new company, Palantir, monitors fraud and insider trading: "Finance epitomizes indefinite thinking because it's the only way to make money, when you have no idea how to create wealth" (p.70). Well said!

Thiel's title, Zero to One, describes his view on the two main kinds of innovation and progress: horizontal, extensive progress means copying things that work: i.e., going from 1 to n. Vertical intensive progress means doing new things - going from 0 to 1. German-born Thiel uses globalization as an example of horizontal 1-to-n, with China as a paradigmatic example, with its 20 year plan to copy things that have worked in the developed world, from railroads to air conditioning to cities. Thiel cites technology as producing progress through vertical intensive innovation, not limited to computers and IT, but technologies that address real global challenges, including in the fundamental energy sectors driving all societies. Thiel sees the rapid globalization since 1971 with only limited technological development mostly confined to IT. I agree and would also point to how Silicon Valley has in the past decade fallen into the horizontal mode, trivializing and copying many business models with little relevance to addressing real world problems, as I discussed in "What's the Matter with Google?"

Thiel deeply re-thinks conventional economics and its obsession with competition, which he sees as leading only to reducing company profits, similar to the conclusions of Chris Anderson in Free (2010) and Jeremy Rifkin in The Zero Marginal Cost Society (2014). In reality, Thiel sees monopoly in a more positive light, whether in search dominated by Google or the longer-term planning allowed by government-sanctioned monopolies and programs such as the Interstate Highway System, the Space Program, public utilities, etc. Thiel points out that monopolies can better afford to behave ethically than companies facing textbook competitive markets.

Thiel's contrarian views are refreshing, especially his critiques of economic theories which fostered the blind cult of competition and avoidance of the implications of Vilfredo Pareto's discovery of power laws operating ubiquitously, leading to wider inequality in 80-20 distribution patterns. Pareto's discovery: exponential equations describe severely unequal distributions - is the law of the universe (p. 84). These power-law distributions are producing widening inequality within and between many societies - still not acknowledged by the World Bank, the IMF and in WTO rules. Thiel's analysis of the dotcom bubble mirrors my own: the good news was that it revealed that money and ROI were being trumped by IT, the bad news was the dotcom startups were trivial, copy-catting models, ignoring profit in favor of their absurd metrics of page views, top heavy ad budgets, most of which deserved to fail. My Foreword to What If the Boomers Can't Retire by statistician Tip Parker elaborates on this, just as the dotcom bubble burst in 2000.

Thiel sees four key approaches to our global common future. Indefinite Pessimism: every culture has a myth of some decline from a golden age. Indefinite pessimists look into the bleak future but have no idea what to do about it (Europe since the 1970s). Definite Pessimism: the future will be bleak; we must prepare for it (e.g., China). Definite Optimism: The future will be better than the present if individuals plan and work to make it better. I count myself in this cohort, Mapping the Global Transition to the Solar Age. Indefinite Optimism: which Thiel sees has dominated American thinking since 1982, when a large bull market began and finance eclipsed engineering. The indefinite optimist thinks the future will be better but doesn't know exactly how, won't make specific plans and expects to profit in the future without any reason to design it concretely. "Bankers make money by rearranging the capital structures of already existing companies. Lawyers resolve disputes over old things…And private equity investors don't start new businesses; they squeeze extra efficiency from old ones with incessant procedural optimizations" (p. 68). Thiel also sees the Baby Boom generation example where they rode the power laws of technological progress with little effort and high expectations. He understands the need to shift to green, renewable energy but doesn't fully explain why the first wave of cleantech companies failed: that 90% of government subsidies, about $500 billion annually, still favor incumbent fossilized sectors and nuclear power (see the Green Transition Scoreboard®).

Thiel's critiques are well targeted and led to his confrontation of academia with his Thiel Fellowships, rewarding young people for dropping out of college and starting new businesses. Zero to One is an important new view, particularly on finance and start-up companies, such as those his Founders Fund venture capital firm has backed, including Facebook (NASDAQ:FB), SpaceX and AirBnB. His Thiel Foundation works to advance technological progress and long-term thinking about the future.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.