Back in America

 

In most European countries you have labor laws that impose strict constraints on the way you can fire people.

These laws have been implemented in France in 75, in Germany in 76. Since then in Europe, every single disruptive innovation that has appeared since 75 is American or Chinese. If there's one piece of law that each country should change is the condition of dismissal. What is called technically employment protection laws for engineers people highly qualified, highly paid. I'm not talking about 90% of the population.

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 This episode was recorded live in New York City on Friday, November 7th. During the central alumni days,  

 Right. So let's dive into our topic today. Oliver. Many Americans are convinced that's something unique about their country, foster entrepreneurs.  They say that a culture shaped by hundreds of years of immigration as enrich skills and cemented a strong work ethics. And yet, in your views, the reason Europe has not birthed more global tech giants as little to do with this culture. 

Now you've got 25 minutes to help us understand why Europe is missing from the magnificent seven. So you are a tech entrepreneur and corporate executive. You live in New York City since, 2014 and you advise company in artificial intelligence.

You trained at Ecole Polytechnique. You served at the European Commission and then as an industrial advisor for Pre Minister Lionel Jospin helping integrate Airbus and managing tough restructuring cases in industries. You launch mobile, mobile TV at alcatel Lucent co-founded the video chat startup used by Microsoft IBM and SoftBank, and you led a US division at atos.

You now lead the foundation for economic studies of disruptive innovation and your book, Europe Tech and War, won the Daniel Stressor Prize. So your core claim is very clear. The cost of failure hold back European innovation. Anything to add to this little introduction?

Thank you for this very kind

introduction.

Just to add  one point. Over the last three years, I've dedicated my time and efforts. On understanding why Europe is so lagging in tech. , And everything I'm going to explain today is, the result of in-depth research with economists based on facts, based on data it's unusual. It's strange, it's surprising, it's shocking. And that is why I'm working full-time with another economist here in New York on these issues to substantiate them and, give. Political leaders, public opinions economists, real data to justify that.

Typically it's not a culture issue, it's something else. And we absolutely need to solve this issue of Europe's lag in tech, French lag in tech, and Europe's lag in tech as compared to China and to the us.

And you say that the issue is legal, right? So if you had just one regulation to change.

What would that be?

It's very simple. In most European countries you have labor laws that impose strict constraints on the way you can fire people. Where in the US I'm going to use direct words. I'm not going to call that restructuring or I'm calling like in the US firing people.

These laws have been implemented in France in 75, in Germany in 76. In response to the first oil shock, they have stopped disruptive innovation. Since then in Europe, every single disruptive innovation that has appeared since 75 is American or Chinese. And I will try to explain why I came to these conclusions after in depth investigation.

So to respond to your question, if there's one piece of law that each country should change is the condition of dismissal. What is called technically employment protection laws for people like US engineers people highly qualified, highly paid. I'm not talking about 90% of the population. No need to change anything for 90% of the population.

I'm only talking about us. And when you want to let 1000 engineers go in Germany, it's four years in average.

 

So  that make me think of this quote from an editorial you published in The Economist, right? And you mentioned the experience of Apple, who for six years tried to develop autonomous cars.

And finally they decided to give up an autonomous car and they had to fire 600 employees. I believe despite the fact that this company is. Doing pretty well. Their stock is going up.  So what what do you make of that?

 When I started working in France with large tech groups. I worked for Lucian for 10 years.

I had to let people go because we were moving from fixed telecommunication to mobile telecommunication, which was software and fixed telecommunication at the time were electro mechanical, there was no way we could retrain engineers who had done 20 years in electro mechanical engineering to software.

So we laid off 100,000 people over 10 years, and that cost 10 billions. It was the same amount as r and d for Alcatel for 10 years. It killed us. It simply killed us. I had the same experience at Atos. Atos was the leader in managing data centers. When the cloud arrived, the business disappeared and Atos was unable to move to managing cloud activities because it was not the same skills.

It went bankrupt because it couldn't afford the restructuring in Germany and in France. It is bankrupt. I was three years ago delivering AI data centers to mea in November, 2022 when chat GPT was released, Metta reacted within three weeks, they laid off 20,000 people. A quarter of their workforce.

They had 80,000 people. They laid off 20,000 people. Everything was done within three months. They hired immediately about 10,000 AI engineers. They stopped plenty of projects like the Metaverse that had become irrelevant because Chad GPT was such a success. They had to refocus entirely on ai, and they're investing every year between 50 and 80 billions now in AI infrastructure.

So the amounts are amazing, but the capacity to do that is due to the fact that they made space within their company to recruit AI engineers. And the opposite example, which is fascinating to me, is SAP, the European leader in software, 5 billion of r and d every year. It's an amazing company. They were faced with the same shock that chat GPT.

Created. Oh, we need to focus on ai. They are trying to lay off 2% of their workforce per year, and they're blocked by the trade unions in Germany and by the law in Germany. Google is investing 80 billions per year in ai mic, metel 60, uh, uh, Microsoft around 80. SAP announced they were investing half a billion per year in ai.

So the consequence, again, the ratio between the investment in US companies and the ra, in investment in European companies in AI is one to 100. It's not one to 10 or one to two, it's one to 100. We have to stop that. We cannot continue as Europeans investing. 100 times less than our Chinese and American competitors.

You have tech shocks all the time. The iPhone with a tech shock. The cloud with a tech shock. AI is now tech shock. You have to reinvent yourself at full speed. It takes weeks in the US and in China. It takes years in Europe and we die.

So going back to Europe, I mean, your plan for a cheaper way and a faster way to shut down project.

And yet, I want to take the example of Philips who lost its chip leadership after multiple round of restructuring. How would you preserve the, that, how you would, would you make sure that long term, long cycle research team don't get. Don't disappear because of those cut.

It's a very interesting question, and the best way to explain it is for me, the analogy with a car to drive a car.

Imagine you have very poor breaks, you cannot break easily. The consequence. It's not that you're going to break less, the consequence is that you don't accelerate, you don't take speed, you don't go on risky roads, you don't go in mountain roads. You go on very stable motorways. So the impact of having no breaks is not on reducing speed.

It's on acceleration. That is prohibited. That's obvious for you when I'm talking about a car. But when I'm talking about a company, it's not obvious. Your introduction to the topic is, Hey Phillips tried to reduce, reduce its workforce. It's awful. No, it's not awful. It's a way it should be. Interesting because it explains where Europeans are good at. Europeans are excellent on predictable motorways with a full of light and no turns, which are basically industries that were invented before 1,920. The car industry. The the, aeronautic industry, the energy industry, the chemical industry.

All the big companies we have in Europe have been created between 1850 and 1930. There's no exception

when it comes to these companies. It's all about driving safely on a motorway, which is predictable. It's mature. Innovation is very high. R and d is very high, but it's incremental in innovation. We invented the car in 1900 and we have improved the golf Volkswagen Golf for 120 years. It's became an amazing car, but this still, still the same technology as in 1900 when you go to tech.

What I computed is that the rate of failure. At Amazon, at Microsoft, at Google, at Salesforce, at Dropbox and all the companies that are, active in tech. The rate of failure is around 80%. You launch projects knowing you put billions in projects like the Metaverse or the alternative driving, or all the companies that have invested in AI chip sets, and that failed like Microsoft.

Google TPU and all these investments have failed because, Nvidia was ahead. So the rate of failure is 80%. It's like driving a car in a mountain road where you have to make U-turns all the time. And we, Europeans cannot do that because we cannot break. You cannot go on a motor, on a, on a, on in a mountain road where you have to go up and down, turn all the time.

Which is exactly what I described at the um, uh, uh, reaction of meta facing. The shock of charge GPT. It's a total u-turn. You have to be able to stop projects for full all the time. And stopping projects mean letting people go. So the figures that are interesting, and again, these figures are, I'm sorry if I, if I go No, so I'll stop there.

I'll let you go.  

Well, I really want to revisit this question of culture, right? And if we agree that the US edge come from personal debt pressure and clean bankruptcy reset, and that in Europe you keep your socio solvency, what do you think creates the semi hunger for risk?  

I usually get the question about culture.

I also get question about the fragmentation of the European market. I get questions about lack of capital in Europe, lack of pension funds, and we've been I was a European official of the European Commission, or for the French Prime Minister 30 years ago. We were listening the same stories. The European market is fragmented.

We need to solve that. Or there's not enough capital for investment in startups. Same stories for 30 years. At least 30 years. And again, I'm going to use another analogy here. Imagine you arrive in a country where everybody is thinking about how to grow crop, and they're thinking we need more fertilizer.

That subsidies, we need better seed that startups we need better interaction with university. Creating plenty of labs. We need to bring a better culture, of agriculture to train better our farmers. And a guy like me arrived saying, yeah, but there's another issue. There's no water in the fields.

So there are plenty of factors that enable to grow crop. What I'm pointing at is not to dismiss the other factors. There may be a cultural issue. I can come back on that, but there's one factor that is necessary and that is missing. It's a simple one. It's like water in the field. If you don't have water, it can put best fertilizer.

Nothing will grow. What the water? Its profitability. When you are in Europe and you invest in tech. With a rate of failure of 80% and it costs you three to four years to stop an activity, there is no way you can build a profitable business case. It's simple math. Try to build a business plan for 10 projects with eight of them, which will fail.

I'm talking about hundreds of millions. I'm not talking about 10 people, and. Two succeed. Eight, fail the two who succeed, generate fantastic profitability and fantastic value in the stock markets. But eight fail. It costs six months to close in the US and 38 months in average to close in France. 31 in Germany, 48 in Italy.

There is no profitable business case possible. So the issue that I consider very similar to water in the field is profitability of investment. There is no possible profitable investment in tech in Europe today with three exceptions. And we'll come back to culture Switzerland. No constraint on dismissal, Denmark, no constraints on dismissal.

Sweden, limited constraints on dismissal. These three countries have the European culture. They speak the same language, German and French, or Danish. But let's take the Swiss. The Swiss invest twice more than the US in tech and biotech. We in France invest four times less than the us. To give the figures, France Invest, do 4% of the GDP in tech and biotech, the US 1.5% and Switzerland, 3%, Denmark, 1.9%.

So there is no culture issue in the figures. Denmark and Switzerland are socialist countries. Denmark is a socialist country. Switzerland is not. They have fantastic. Support pro education history. The social model is the same as in France. The only difference is employment protection. Law.

UBS laid off thousands of people, tens of thousands of people when they acquired. ES. Fees cost 1.1 month of salary when a French company lays off. When BBA lays off in France, it's. 30 way 38 months of cost. Not of dismissal. I mean, I'm not talking about the severance pay , I'm talking about the total cost for the company.

It's 38 months in France, it's two months in Switzerland, it's three months in Denmark. These countries invest massively in tech and biotech we don't. So what is the culture? A factor? Certainly, but the figures tell something else.

I want to jump. So we compared Europe, we compared France to the us.

Let's talk about China. China has a radically different model, and yet they are extremely successful.

I don't know China well, I've been exposed to the competition of China when I was working for Alcatel. We were sure in 2005 that Huawei was a copying, small, miserable competitor. We were super arrogant.

Same as Motorola loosened. No, tell Ericsson, we were all super Oregon. China, the copying. Yeah, a pain in the ass. Just cheaper. And in 2007. Almost 20 years ago, we got a call from Verizon and another one from Vodafone telling us Huawei is twice cheaper as usual. They're one year ahead of you in R&D 2007.

Remember this date, it's very striking me. For the first time, a Chinese company was ahead of all the Western companies on tech. Major shock for all of us. Alcatel died. Siemens died. Lucin died. Nortel died. Motorola died. Out of the eight Western leaders at the time, five have died.

The only surviving ones are Cisco, Ericsson, and Nokia, and they're struggling. The Chinese had implemented a French like industrial policy with Hui. Like poi do in the sixties and seventies, catching up and getting better. Amazing. So I thought like anyone, that the Chinese had an amazing industrial policy and that we should do the same.

And then I read a book called The Power Law by Sebastian Mallaby which explains how the Silicon Valley was invented in the fifties and sixties, and then how China innovated in tech. And he explained that with the exception of Huawei, which is my experience, Alibaba, Tencent Baidu TikTok are all the result of investments not by the Chinese government, not of industrial policy, but of American venture capital funds in the year 19 nineties and 2000.

Morgan Stanley Seko Andresen Horowitz. They all invested like hell in very small startups, hundreds of startups. One of them was Jack mouth, one of them was TikTok. It's us like investment at incredible levels of risk. One out of 100 will succeed at best. That created the fantastic success of China today.

Beyond that, I don't believe a single figure coming from the Chinese authorities. So I decided not to investigate the topic of China. I investigated South Korea Taiwan, Israel, all. Amazing examples of small countries, very small countries, as compared to the Chinese market or the US market.

Fantastically successful in tech like Switzerland, like Denmark. This is what France should do, be as successful as Taiwan in tech.  

If Europe doesn't change, its slow. In the next five years, what will happen to European economy by 2030?

There's a very easy analogy that will help you understand why.

Decided to stop working three years ago and to focus on that. It's China again. China in 1800 at the Napoleon time. When he said China were the world leader economically. So the best exporter exported tea China porcelain it exported I, I forgot another element. It was the strongest economy in the world, China 1800. It missed. A technology revolution. Steam engine. Just missed it. Decided to miss it.

The emperor in 1800 decided not to integrate any European technology. It ended up in Civil War as of 1900. And famine in the 20th century, this is exactly the possible future of Europe. Today, we are missing the industrial revolution.

Our industries, like the car industry, are going to be disrupted. Like the China industry of porcelain was disrupted by European technologies. The car industry, which is generating millions of jobs in Europe. Is being disrupted by EV in China and autonomous driving software from Shenzhen and San Francisco.

For me, it's dead ante per Volkswagen are going to be very weak or die like the Chinese exporters of China or tea died. So the consequence of this situation for Europe can be absolutely dramatic. But there is hope because Switzerland and Denmark show that we can be leaders in tech with the European social model without changing much.

Just your protection as engineers. That's all we have to change. Yes, you're laughing, but help me. Please.

Exactly. And that's what, so we've got two quick question before we end and open the floor to questions. What can we all do? To help you push your ideas.

These ideas are rejected by 90% of every single population in Europe.

There was a referendum in Italy in June when we were together, mark and I, early June referendum on employment protection. 90% of the Italians voted for more rigid protection. The same in Germany, same in France, since in the uk. So we need to change public opinion. I'm talking to Prime Ministers, presidents, and so on.

The ideas I'm pushing have been incorporated by Dragee, by Thunderer Lion. Everybody knows nobody can do anything. As long as the European populations are like that, we need to reassure them. It's only us that have. To change our protection. Not them, not the voters, not the blue colors at Renu, not, uni.

They don't need to change. We need to change and we need to reassure them and let them vote for that move the move the need, move the public opinion from 90% to 50% or 40%. We need help to do that. We need plenty of things that are described in my website. So if you can help go to my LinkedIn profile, which is Oliver Cost not Olivier, or go to the foundation I created called FESDI.org and contact me and we'll try to do that.

We need to change that in France and in all European countries.

Finally, what is America to you? My hope now

my kids are here. And I've been impressed by how easy it was to do business here, which was fantastic. And I'm terrified of the political evolution. So I keep my French passport in case I have to leave back.

But we need to help Europe avoid the future of China in the 19th century, or Spain in the 20th century. Same reasons. Okay. Thank you. If you can help us. Thank you.  

Open up for questions for about 10 minutes.

 As I am editing this, uh, podcast, I realized that the second part, the q and a with the audience did not get a proper recording of the question, so I had to use an AI voice to read those question, and I hope you don't mind too much.

  📍 📍 Convince me, that when you're going to lay me off that I'm still gonna be okay.

Like what's the human cost? Um, and maybe those rigid laws in Europe are not too bad for the consumer. Like we see the American. Consumers count on, uh, protection.

I agree and I know that the topic I'm addressing is as difficult as gun laws in the us.

Americans want to keep their guns to be protected and Europeans want to keep their employment protection to be protected. So there's a vicious circle here. My best response at this stage is your salary will be multiplied by three. If you accept to lose your protection, you are an engineer. The average salary of an engineer in Europe is a hundred k.

The same engineer in the US with the same skills, the same peaceful work with plenty of labor days and, memorial days and long weekends and so on is 300 K. So the obvious and this is obvious in the figures in France, the investment in r and d in people like you in r and d in tech is 4 billion per year.

In the US it's 350, 100 times more. It should be if we do the reform that I'm proposing, we see the impact on Denmark. We see within five years the r and d boomed more than times two within five years. Crazy. I promise you. The volume of money that will come to France to finance your research will be multiplied by five or 10.

If we do the reform, because it'll become profitable and then your salary will not be a hundred k. So that's the compensation that the other side of the, of the coin, you will use protection, but you will never face unemployment. Never. Because we need people like you to find to to develop the new product.

I was like, the difficulty in managing teams in the US is that they leave. So you're constantly trying to improve their salaries and hiring more.

Hiring more the difficulties to hire. 📍

 I hope the politicians that you're trying to convince are not going to listen to you. Because I have another scenario, which is the following.

If you take the engineers and all the bright minds in the in Europe. And you tell them, okay, you have no social protection, you have nothing, but the rest of the population does have it. If I were in their shoes, I would do exactly what I've done myself as an entrepreneur.

I would move to the US right away. So I think the scenario described, is gonna create, an even more major brain drain than what it has done so far.

I disagree with you. I do not propose to stop social protection for engineers.

Not at all. Denmark provide. Denmark and Switzerland provide unemployment benefit at a much higher level for a longer period for engineers than in France. It's called flex security.

What I'm proposing is not to stop the social protection, the social system at all.

The social system in Europe is based on five pillars through education, no change pension systems. Whatever they are. No change unemployment benefits, I suggest to improve that, to increase the employment, unemployment benefits in France as compared to what it is today following the Danish of the Swiss example.

The fourth pillar is free, healthcare and the fifth pillar. Is the protection of employment. The fact that when you are, you have a CDI in France, it takes one year to fire you. And it's Switzerland. It's just immediate.

That's the only piece that I suggest to change.

It's called flex security. It's. Enabling companies to let engineers go within, let's say three months and not a year and a half in Germany, a year in France, with huge costs that the only change and to the opposite of what you had understood from my statement. I suggest not to cap unemployment benefits when you are for two years unemployed in France, it's capped at 6,000 euros per month.

So you had three 30,000. Euros, a salary, and suddenly you go down to 6,000. When you are unemployed in Switzerland you stay at 30,000 of bonds. So what I'm proposing is just a slight change in the protection of the employment and no change in all the social systems that exist. And that is what is so difficult politically in Europe because everybody is very.

Sensitive to this issue fell in this topic and Schroder fell on this topic, so it's very sensitive. Did I convince you, let's talk later.

 

My question regarding the funding in r and d in France compared to the us are you saying that in France, the investment in tech is a hundred times less than in the us. And as a matter of fact, we cannot catch up with the gap in, tech with the US because of that, because of money. And don't you think that because we like investment, we could become a lot more creative regarding how we develop our tech?

I think about it like. In a startup where you lack everything, you have no time, you have no employees, you have no money, and still you manage to build product and make it profitable.

Individually. There are plenty of examples of, successful European entrepreneurs, who managed to do that. The difficulty they face usually is twofold. The first one is to find customers in Europe. Because customers like L'Oreal Total are careful about not investing in new technologies that have not been proven already because it would mean hiring and having to dismiss later.

So it's very difficult to find customers in Europe, and it's much easier to find customer in the US I presented the same product to the CEO of and to low level technicians at Wells Fargo. It was rejected by BNP. It was adopted by Wells Fargo just because they had to hire people. It was easy in the US not in Europe.

The second difficulty you face as an entrepreneur in Europe   📍 📍 📍 is that it's difficult to raise money with European VC funds. And why is that? And it took me two years to understand. It just because, the profitability of the VC funds is defined by the exit price. And the exit price is when you sell to a large group.

Large groups are hesitant in buying a startup company when need 600 people in Germany and it'll cost you 120 million to lay them off so you pay a lower price, than in the us which reduce the huns and explains why you have three times more money in the us. Invested by LPs in VC firms and in the, in Europe.

So 850 billions per year. In the US it's seven billions in Europe. In France, sorry. Which is ridiculous. It should be 30 billion. So when you're a startup, company you can grow, you can build. Up to 100 people easily with no difficulty. It's fine. You find money, you find initial customers and so on, and then when you start to scale, it's a nightmare.

And you move to the US because you find customers and you find money. And why is that? It's because it's profitable for everyone in the US and it's never profitable for BNP Power Bar to test a new technology or for Bartech to invest in your company. In France. They never made money, then they will never make money in the current system.

While Sequoia makes IRR at more than a hundred percent a year, it's crazy the amount of money they're making and they're delivering to their LPs. Just water. Water is the profitability of the investment. Large groups, VC funds, LPs, startups, there is no profitability, there's no water, there's no gross.

There's no water. So I'm telling you, you are brilliant. You can invent, but the logic of the current system and that you're going to move to the us. Because it's where you can grow and it's great and it's welcoming, it's amazing. And we are like the commiss, the commissioner in charge of r and d in Europe told me, a few months ago.

We are the, in Europe of the us we invent all the small stuff. We create beautiful schools, we pay for everything. And you are brilliant. And then everybody who succeeds, moved to the US because, it's better. And that is the situation we have. We are in competition. With the US and with China and the US is attracting everyone.

Why? Because you cannot make money in Europe. It's profitability. There's no water in Europe. There will never be, a tech environment ecosystem in Europe if we continue to kill profitability.

Thank you.

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