Why Peter Theil is Half-Wrong
Peter Theil, cofounder of Pay Pal and current venture capitalist believes that innovation is currently stagnating across most fields except for computers. We’re making progress in the digital world, but stalling in the physical world - in the real world. In his own words:
“Whether we look at transportation, energy, commodity production, food production, agro-tech, nanotechnology — that with the exception of computers, we’ve had tremendous slowdown,”
The argument he makes is that certain movements such as environmentalism, increasing risk aversion, and government regulation have been the primary impediments to innovation:
“I believe we are in a world where innovation in stuff was outlawed. It was basically outlawed in the last 40 years — part of it was environmentalism, part of it was risk aversion,” he says. “And all the engineering disciplines that had to do with stuff have basically been outlawed one by one.”
In general, I agree with this perspective that government regulation is an obstacle to innovation in many fields: e.g. think healthcare, material engineering, financial sector, etc. But, I think that regulation is probably only a small part of the reason there is so much innovation in the realm of the digital, and so little in the realm of the physical.
From an economic perspective, labor and capital is going to where there are the greatest returns - and the greatest value that we can obtain right now is collecting more information, organizing it, and making it easier to access. Imagine you were doing research before the Internet and the World Wide Web were developed - you wouldn’t have had easy, realtime access to the huge troves of research and new ideas appearing around the world (research papers, brief ideas expressed on twitter, ted talks). Just consider how much easier it is to obtain answers to any questions that you may have a whim to know the answers to. So, having seen the powerful transformation of information availability experienced over the last 20 years, and realizing that so much more can be done, at a macroeconomic level it seems to make sense that more time should be spent on building the information platform that will make research in all those other fields much easier. The benefits from organizing information and making it accessible trickle down to all fields, and I think that cross discipline benefit is actually the motive that is causing there to be more innovation in the digital realm than in the physical. Not to mention the power that is continuously gained from improved computing power, and algorithms, that allows analysis of ever lager models and data sets.
Now, there are questions about whether the type of innovation that has been happening on the Internet of late falls into this category. But, I think there’s no doubt that new data is being made available through applications like Twitter, Facebook and Foursquare that create new possibilities for the types of research that can be conducted.
A country’s power (both economic and military) is to a large extent dictated by it’s ability to improve the accessibility, organization and transmission of information. The more efficient it’s informational capabilities, the more the engine of economic growth is revved up. Rich Barton, the founder of Expedia, Glassdoor, and Zillow, gave a talk during the Techstars program I participated in - and he said his goal is to democratize information and help people make decisions. All his businesses follow this thread, and so do his investment decisions seemingly. I think that’s a good frame for evaluating what companies are worth working on.