Sunday, June 05, 2005

European Unity? Not Quite

What is going on with the European Union? Last week both France and Holland rejected the monstrous 448-article constitution (ours, as you know, has 7 articles). In addition it seems that Italy may drop the Euro, which has been losing against the dollar, and returning to the Lira (Italian Welfare Minister Roberto Maroni has said that "during the last three years, the Euro has turned out to be inadequate..."). In the same week, Germany's Economy Minister also spoke out against the Euro. He claims, says the UK Telegraph, "that the perverse effects of monetary union were strangling German industry." France and Germany have record high unemployment rates. The Bank of Italy predicts that there will be no economic growth throughout 2005. What has happened to the promise of European unity?

Of course the unity was never there in the first place. Europeans would like to present a united front but the individual desires and identities of the members are too powerful to allow for that. Heritage Foundation Research Fellow John Hulsman explains that the two extremes are France and England. France would like to see a socialist, protectionist anti-American Europe, while England would like the Union to be pro-America and pro-free trade.

With the introduction of the 448-article constitution, written largely by former French President Valery Giscard d'Estaing, Europeans finally had a chance to vote on the EU. The failure (and impending failure) of these votes demonstrates the Europeans’ dissatisfaction not only with the constitution, but with the introduction of the Euro, about which they were not asked, about the 10 new members, about which they were not asked, etc. Europeans are finally given a chance to protest the inch-by-inch destruction of their individuality as nations.

World bodies are generally failures. The United Nations is a failure and always has been. The UN can’t do anything of value because the members cannot agree on what should be done.

The EU also has too many members, and makes the additional mistake of attempting to legislate away the rights of individual citizens of individual countries, which citizens object to -- the Dutch want to be Dutch, not European; the English want to be English; the French want to be French (for some reason).

In order for the EU to avoid becoming an embarrassing reminder of European disunity two things have to happen: First, the EU has to get smaller. Second, the EU has to stop looking at itself as a governing body. Each nation remains sovereign and governs itself -- keeps its own currency, its own individual laws, and its own constitution. The EU therefore becomes an economic agreement, as it used to be in the common market days.

The odds are against the EU rescuing itself, though, because the rescue would run contrary to two nearly inviolable laws of bureaucracy: 1) Once it is large, it will only get larger. 2) Once it has power, it will only get more power. This means that the EU is headed for disaster, which is not necessarily a bad thing. (The last thing the world needs, of course, is another super-power to balance the United States). The EU may remain on the scene for many years, just like the United Nations; nevertheless it is likely that, once again like the UN, it will stop being taken seriously long before its demise.

33 Comments:

At 7:32 PM, Blogger Alec Brandon said...

A couple of areas where you are wrong. First of all, on the matter of failed international bodies, I find it funny that you prove how ALL international bodies fail by talking about just one. Tell me, the WTO is an international body, it is unbelieveably successful, the United States cowers to its decisions.

So what is the point of this observation? Well, economic partnerships, mutually beneficial economic partnerships, that are overseen by a supranational body, are very effective. This is what the EU is now, the new constitution would change that, and understandly tough pill for some nations to swallow.

Also mutually beneficial military partnerships are very successful. NATO was insturmental in defeating the Soviet Union, and adding dozens of ex-Soviet Satillites has only strengthened it. Just a note here.

But you infer far too much from the recent rejections of the EU constitution. No country is going to wish to go back to its original currency, it is far too efficient, and mutually beneficial to all of Europe to have a common currency. There is a lousy arguement to be made about why individual currencies are better, but you don't make an arguement about why it is good for any euro country to have its own currency. The only thing you say is that the Euro is losing value against the dollar, this is a good thing for Europeans, it makes their exports more affordable.

But it would be a great thing if the whole world was on one currency and was run by Alan Greenspan. That would be so efficient, oh man.

Anyways, on the issue of size: There is nothing bad about the EU's expansion, if their decision was about EU expansion, people did not vote no because of the size, they voted no because of Turkey, which is a whole other issue.

Those are all just corrections.

But lastly, I have to disagree that the EU will not recover, mostly because the EU already exists, it already has a governing body. Also people's reasoning for rejection had little to do with the EU itself, and much more to do with issues it felt were not being looked at.

With the help of some economic solutions to unemployment problems and some pension system reform, the EU should be back on track. It is just mutually beneficial, and pretty damn efficient too.

-Mr. Alec

 
At 10:48 PM, Blogger Commander Mike said...

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At 10:48 PM, Blogger Commander Mike said...

The furor over absolutism has been an acutely frustrating cultural phenomenon: pregnant with great possibility, touching on vital and fascinating issues, yet initially formulated in a one-sided and ignorant manner that will dig a grave in which to bury liberty and freedom within a short period of time. What's important to note, however, is that Mr. Dan's solutions share many of the same characteristics. One of my objectives is to provide an antidote to contemporary manifestations of choleric tribalism. He is careless with data, makes all sorts of causal interpretations of things without any real justification, has a way of combining disparate ideas that don't seem to hang together, seems to show a sort of pride in his own biases, gets into all sorts of fatuous speculation, and then makes no effort to test out his speculations -- and that's just the short list! Last summer, I attempted what I knew would be a hopeless task. I tried to convince Dan that it is singularly apt that your support of my opinions is an ideal way to tell flippant loan sharks just what you think of their nonsense. As I expected, Dan was unconvinced. I sometimes joke about how only froward gadflies ever aver that his beliefs (as I would certainly not call them logically reasoned arguments) are "grandly compelling", "articulate and persuasive", or "a vital contribution". But seriously, his shell games are an icon for the deterioration of the city, for its slow slide into crime, malaise, and filth.

You might have heard the story that Dan once agreed to help us provide people the wherewithal to insist on a policy of zero tolerance toward vandalism. No one has located the document in which Dan said that. No one has identified when or where Dan said that. That's because he never said it. As you might have suspected, we have a dilemma of leviathan proportions on our hands: Should we think outside the box, or is it sufficient to restore the ancient traditions that Dan has abandoned? People often ask me that question. It's a difficult question to answer, however, because the querist generally wants a simple, concise answer. He doesn't want to hear a long, drawn-out explanation about how it's possible that Dan doesn't realize this because he has been ingrained with so much of fanaticism's propaganda. If that's the case, I recommend that we provide you with vital information which he has gone to great lengths to prevent you from discovering. Dan can't seriously believe that he can walk on water, can he? It's an interesting question, and its examination will help us understand how Dan's mind works. Let me start by providing evidence that from secret-handshake societies meeting at "the usual place" to back-door admissions committees, Dan's gofers have always found a way to sidetrack us, so we can't discuss the programmatic foundations of Dan's maladroit, uncivilized pleas in detail. Taking that notion one step further, we can see that it's our responsibility to make plans and carry them out. That's the first step in trying to address the real issues faced by mankind, and it's the only way to put to rest stentorian and incoherent cop-outs such as Dan's. Dan wants to stigmatize any and all attempts to take steps toward creating an inclusive society free of attitudinal barriers. Who does he think he is? I mean, his circulars do not represent progress. They represent insanity masquerading as progress.

He has been trying for some time to convince people that we have no reason to be fearful about the criminally violent trends in our society today and over the past ten to fifteen years. Don't believe his hype! Dan has just been offering that line as a means to blame our societal problems on handy scapegoats. I want to keep this brief: He doesn't believe in the right to free speech, except for people who agree with him. To top that off, he demands obeisance from his bootlickers. Then, once they prove their loyalty, Dan forces them to produce a new generation of hateful ingrates whose opinions and prejudices, far from being enlightened and challenged, are simply legitimized. Certainly, denominationalism is irrelevant here. Regular readers of my letters probably take that for granted, but if I am to put to rest the animosities that have kept various groups of people from enjoying anything other than superficial unity, I must explain to the population at large that he has frequently been spotted making nicey-nice with the worst types of prurient, rotten card sharks there are. Is this because he needs their help to mete out harsh and arbitrary punishment against his adversaries until they're intimidated into a benumbed, neutralized, impotent, and non-functioning mass? There aren't enough hours in the day to fully answer that question, but consider this: Dan's ploys are geared toward the continuation of social stratification under the rubric of "tradition". Funny, that was the same term that his hirelings once used to inject his lethal poison into our children's minds and souls.

So Dan thinks that I'm too cruel to prevent the production of a new crop of noisome airheads? Interesting viewpoint. Here's another: Narrow-minded control freaks (like Dan) are not born -- they are excreted. However unsavory that metaphor may be, every so often, you'll see Dan lament, flog himself, cry mea culpa for seeking to boss others around, and vow never again to be so disrespectful. Sadly, he always reverts to his old behavior immediately afterwards, making me think that he recently claimed that his undertakings are Right with a capital R. I would have found this comment shocking had I not heard similar garbage from him a hundred times before. Dan is like a broken record, using the same tired cliches about family and education and safer streets, yet he recently stated that a plausible excuse is a satisfactory substitute for performance. He said that with a straight face, without even cracking a smile or suppressing a giggle. He said it as if he meant it. That's scary, because he is always prating about how people don't mind having their communities turned into war zones. (He used to say that he is the best thing to come along since the invention of sliced bread, but the evidence is too contrary, so he's given up on that score.) His associates compress his double standards into brief, highly reductive, definitive-sounding phrases, easily memorized and easily expressed. But there is a further-reaching implication: Dan should think about how his propositions lead nefarious jabberers to replace our timeless traditions with his indecent-to-the-core ones. If Dan doesn't want to think that hard, perhaps he should just keep quiet.

Most of you reading this letter have your hearts in the right place. Now follow your hearts with actions. Honest people will admit that Dan minces to the twang of a different zither. Concerned people are not afraid to carry out this matter to the full extent of the law. And sensible people know that Dan doesn't want us to begin a course of careful, planned, and coordinated action. He would rather we settle for the meatless bone of classism. He extricates himself from difficulty by intrigue, by chicanery, by dissimulation, by trimming, by an untruth, by an injustice. It is probably unwise to say this loudly, but you may make the comment, "What does this have to do with slimy, batty nobodies?" Well, once you begin to see the light, you'll realize that Dan may suck up to disorganized flibbertigibbets right after he reads this letter. Let him. By the end of the decade, I will let Dan know, in no uncertain terms, that what he insists are original canards are nothing more than warmed-over versions of interdenominationalism.

Two quick comments: 1) It is not my goal to turn a deaf ear to need and suffering, but the opposite, and 2) just the other day, some of his deranged, impolitic lapdogs forced a prospectus into my hands as I walked past. The prospectus described Dan's blueprint for a world in which pretentious vendors of nativism are free to deny us the opportunity to take steps against the whole careless, pompous brotherhood of pertinacious geeks. As I dropped the prospectus onto an overflowing wastebasket, I reflected upon the way that we can divide Dan's prognoses into three categories: unruly, dotty, and loquacious. By this, I mean that I, not being one of the many unprincipled moochers of this world, am convinced that there will be a strong effort on Dan's part to divert our attention from serious issues in a matter of days. This effort will be disguised, of course. It will be cloaked in deceit, as such efforts always are. That's why I'm informing you that I have to laugh when Dan says that a totalitarian dictatorship is the best form of government we could possibly have. Where in the world did he get that idea? Not only does that idea contain absolutely no substance whatsoever, but he got into a snit the last time I pointed out that perennial crybabies like him wouldn't fare well without a legal skirt to hide under. That should serve as the final, ultimate, irrefutable proof that if everyone does his own, small part, together we can derail Dan's crotchety little schemes. Even though supposedly distancing himself from pharisaical flimflammers, Dan has really not changed his spots at all. Before you declare me petty, let me assert that his mind has limited horizons. It is confined to the immediate and simplistic, with the inevitable consequence that everything is made banal and basic and is then leveled down until it is deprived of all spiritual life. In the past, it was perfectly clear to everyone with insight and without malice that I am flat-out tired of his psychological bullying. Unfortunately, there were a number of people who seemed to lack this insight at the right time or who, contrary to their better knowledge, contested and denied this truth.

Think of all the lives that could be saved if we would just enable patriots to use their freedoms to save their freedoms. I once told Dan that it's time to get beyond lies, dissembling, and propaganda deliberately spread by Dan and act according to the plain truth. How did Dan respond to that? He proceeded to curse me off using a number of colorful expletives not befitting this letter, which serves only to show that many people respond to his heartless artifices in the same way that they respond to television dramas. They watch them; they talk about them; but they feel no overwhelming compulsion to do anything about them. That's why I insist we comment on a phenomenon that has and will continue to agitate for indoctrination programs in local schools. At the risk of shocking you further, I shall point out that he doesn't want us to know about his plans to replace love and understanding with masochism and post-structuralism. Otherwise, we might do something about that.

A true enemy is better than a false friend. Of course, this sounds simple, but in reality, the real issue is simple: I, hardheaded cynic that I am, am so mad at him right now, I could spit nails. Dan wouldn't hesitate to sacrifice his most loyal helots if it made it even slightly easier for him to rescue racism from the rubbish heap of history, dust it off, slap on a coat of cheap sophistry, and market it as new and improved. And here, I maintain, lies a clue to the intellectual vacuum so gapingly apparent in his ramblings.

It's really not bloody-mindedness that compels me to guide the world into an age of peace, justice, and solidarity. It's my sense of responsibility to you, the reader. All the deals Dan makes are strictly one-way. Dan gets all the rights, and the other party gets all the obligations.

He contends that he is a martyr for freedom and a victim of narcissism. Excuse me, but where exactly did this little factoid come from? For the record, Dan has been known to say that society is supposed to be lenient towards heinous liars and cheats. That notion is so dishonest, I hardly know where to begin refuting it. His proposed social programs provide a vivid example of how one of the uppity remarks we often hear from him is that every word that leaves his mouth is teeming with useful information. And that's why I'm writing this letter; this is my manifesto, if you will, on how to discuss the relationship between three converging and ever-growing factions -- drugged-out, unforgiving urban guerrillas, nerdy bribe-seekers, and self-serving evil-doers. There's no way I can do that alone, and there's no way I can do it without first stating that we must reach out to people with the message that to my mind, his taradiddles show a degree of barbaric sickness that even I didn't expect. We must alert people of that. We must educate them. We must inspire them. And we must encourage them to contribute to the intellectual and spiritual health of the body politic. If, five years ago, I had described a person like Dan to you and told you that in five years, he'd do away with intellectual honesty, you'd have thought me cold-blooded. You'd have laughed at me and told me it couldn't happen. So it is useful now to note that, first, it has happened and, second, to try to understand how it happened and how if Fate desired that he make a correct application of what he had read about barbarism, it would have to indicate title and page number, since the rabid fool would otherwise never in all his life find the correct place. But since Fate does not do this, I've heard of crazy things like metagrobolism and snobbism. But I've also heard of things like nonviolence, higher moralities, and treating all beings as ends in and of themselves -- ideas which his ignorant, unthinking, intrusive brain is too small to understand. This letter has gone on far too long, in my opinion, and probably yours as well. So let me end it by saying merely that Mr. Dan's foot soldiers want so much to outrage the very sensibilities of those who value freedom and fairness that the concept of right vs. wrong never comes up.

 
At 3:54 PM, Blogger SinaMoravej said...

are you kidding me about the euro?
heres how the value of the euro goes

1999: 1 euro=1.18
2000: 1 euro=.85
2001: 1 euro=.95 (.84 by end of july)
2002: 1 euro=about 1 dollar
2003: 1 euro=1.18
2004: 1 euro=1.3668 (december)

the value of the euro has been rising rapidly and some analysts believe it'll reach 1.60 by the end of 2005.

 
At 6:50 PM, Blogger Alec Brandon said...

They are wrong, the euro has dropped against the dollar lately. On Monday it rose slightly, but since January it had dropped 16 cents (http://www.forbes.com/business/services/feeds/ap/2005/06/06/ap2077308.html)

But honestly, Europeans WANT the euro to lose value against the dollar, it is killing them right now, no one will buy their exports and no one will invest in their economy.

-Mr. Alec

 
At 8:22 PM, Blogger SinaMoravej said...

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At 8:48 PM, Blogger Alec Brandon said...

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At 8:56 PM, Blogger Alec Brandon said...

Excellent synopsis of why you feel the way you feel Dan, and puts things properly into perspective.

Fareed Zakaria

http://www.fareedzakaria.com/articles/articles.html

In English, a double negative usually means yes. but not in European. Last week's double "no"—from France and the Netherlands—has for all practical purposes killed the new European constitution. Most Americans are not quite sure what to make of this. The clearest and loudest voices have been gleeful. Conservative commentators have delighted in the results, seeing them as a defeat for Jacques Chirac and his dreams of an alternative to American hyperpower.

The European constitution is a badly written, confused document whose death no one need mourn. But as Princeton's Andrew Moravcsik has written, the constitution would have changed little, codifying existing arrangements in almost all areas. There are two exceptions: a more coordinated and unified approach to crimefighting and foreign policy.

On foreign policy, the constitution would actually have changed little. Europe's currently powerless High Representative of foreign policy was to become an equally powerless "minister." It wouldn't change the fact that neither Jacques Chirac nor Tony Blair would ever delegate serious policymaking to a Brussels bureaucrat. When things get serious, as with Europe's negotiations with Iran, look who negotiates: the foreign ministers of the Big Three powers. The High Representative gets to go to conferences on the Middle East peace process.

This is the irony of last week's votes. It was a revolutionary moment that will keep things as they are. In fact, one could argue that Europeans cast their votes in the full knowledge that it would have changed nothing in their day-to-day lives. That means it provided the perfect opportunity for a symbolic protest vote. But symbolism does matter. And the signal that has been sent is threefold.

First, it's a signal against economic reform. If you want to understand why people voted against the constitution, listen to the advocates of rejection. Virtually no one campaigned against a more unified foreign policy (which has more than 70 percent support in poll after poll) or more coordinated police work (which, post-9/11, is also extremely popular). Almost all those leading the "no" movement spoke out against one thing above all—the free-market-oriented reforms that Brussels is associated with.

Throughout Continental Europe, the people who vote in favor of "Europe" in one way or another tend to be urban, educated and, above all, involved in private business. That's because they have seen that it is Brussels that created a common market, lowered tariffs and deregulated industries. It is Brussels that now aggressively urges further reforms—such as the so-called Lisbon Agenda.

The only European voice that claims Brussels is an enemy of the free market is Britain's Europhobic Tory press and its fellow travelers in the United States. So The Wall Street Journal editorial page bizarrely asserted last week that the constitution "would have enhanced the leverage of French socialism on the Continent." The Journal must believe that all of Europe's business groups and entrepreneurs (who supported the constitution) and all of Europe's labor unions, pensioners and protectionist groups (who opposed it) suffer from what Friedrich Engels called "false consciousness." I tend to think that European entrepreneurs on the ground have a better sense of what Brussels has meant than New York editorialists.

The second signal that this vote sends is against immigration and labor mobility. The "no" from Holland is clearly related to this. The nightmare unfolding in that country is that a large segment of its North African immigrant population is proving to be illiberal, unwilling to assimilate and, increasingly, violent. Against this grim backdrop, the Dutch look at an ever-expanding Europe of lowered borders with great suspicion. There is a related backlash against foreign aid. The Dutch are now the largest per capita contributors to Europe and believe that the EU's expansion has taken place on their backs.

Finally and related to these first two: the most emphatic signal from last week is about Turkey. Turkish membership in Europe has suffered a mortal blow. The most potent arguments on the campaign trail were anti-Turkish, and politicians will take note of that. In two years, the likely leaders of both Germany and France (Angela Merkel and Nicolas Sarkozy) will be staunchly opposed to Turkish membership in the EU.

Of course, what Europe desperately needs is more of all the trends that are producing populist paranoia. It needs more economic reform to survive in a new era of global competition, more young immigrants to sustain its social market and a more strategic relationship with the Muslim world, which would be dramatically enhanced by Turkish membership in the EU.

Perhaps the European project has been too elitist and its leaders too unwilling to explain their actions to their populations. But before we start singing paeans to people power, let us hear what the people actually said and ask ourselves, Is this good for Europe, for the United States and for the world in general?

 
At 8:57 PM, Blogger Alec Brandon said...

Oh and by the way, it is time for my weekly check up on your China comment. Tell me, are you not responding because you realized how wrong you are?

-Mr. Alec

 
At 10:03 PM, Blogger Alec Brandon said...

What happened to the good ole days Dan, when you would mock me and I would mock you back. What happened to the days when your frequent readers would sick themselves on me. I must say I miss it.

Possibly this may cause a growth in your responses, I will level the playing field. Here is my blog: mralec.blogspot.com

Feel free to post whatever you want on it.

-Mr. Alec

 
At 5:41 AM, Blogger Matthew said...

There seems to be much talk about how the Euro is such a great thing for Europe. Maybe some of you should get out and talk to the average citizen in Europe. The fact that the Euro is stronger than the dollar means nothing for the average European. That does not help them in their everyday life.
Imagine this: You have 10,000 francs in a bank account and suddenly when you switch to the Euro you have, lets say, 5,000 Euro. Ok no big deal except.... the beer you bought at the local pub last night for 3 francs now cost 3 Euro. Oops! Somebody got screwed. Kind of a big value difference there. The problem with the Euro is that the prices on goods did not change with the Euro. My wife and I were both in Germany when they switched over. Needless to say a lot of Germans were very, very pissed off.
The average European has been screwed by the Euro. Citizens can now afford even less than before. Its bad enough most can not afford to buy a home or even have kids. The only time the Euro's value when compared the dollar is convenient, would be if they traveled to the U.S. Although, I guess it is easy to sit in the U.S. and say these things though. You do not have to live with the consequences of a flawed money system and flawed socialist programs that suck away all your money. Go live in Europe for a few years, you may change your mind.

 
At 6:55 AM, Blogger Commander Mike said...

The three big powers on the Internet now are Yahoo, Google, and Microsoft. Average age of their founders: 24. So it is pretty well established now that grad students can start successful companies. And if grad students can do it, why not undergrads?

Like everything else in technology, the cost of starting a startup has decreased dramatically. Now it's so low that it has disappeared into the noise. The main cost of starting a Web-based startup is food and rent. Which means it doesn't cost much more to start a company than to be a total slacker. You can probably start a startup on ten thousand dollars of seed funding, if you're prepared to live on ramen.

The less it costs to start a company, the less you need the permission of investors to do it. So a lot of people will be able to start companies now who never could have before.

The most interesting subset may be those in their early twenties. I'm not so excited about founders who have everything investors want except intelligence, or everything except energy. The most promising group to be liberated by the new, lower threshold are those who have everything investors want except experience.

Market Rate

I once claimed that nerds were unpopular in secondary school mainly because they had better things to do than work full-time at being popular. Some said I was just telling people what they wanted to hear. Well, I'm now about to do that in a spectacular way: I think undergraduates are undervalued.

Or more precisely, I think few realize the huge spread in the value of 20 year olds. Some, it's true, are not very capable. But others are more capable than all but a handful of 30 year olds.

Till now the problem has always been that it's difficult to pick them out. Every VC in the world, if they could go back in time, would try to invest in Microsoft. But which would have then? How many would have understood that this particular 19 year old was Bill Gates?

It's hard to judge the young because (a) they change rapidly, (b) there is great variation between them, and (c) they're individually inconsistent. That last one is a big problem. When you're young, you occasionally say and do stupid things even when you're smart. So if the algorithm is to filter out people who say stupid things, as many investors and employers unconsciously do, you're going to get a lot of false positives.

Most organizations who hire people right out of college are only aware of the average value of 22 year olds, which is not that high. And so the idea for most of the twentieth century was that everyone had to begin as a trainee in some entry-level job. Organizations realized there was a lot of variation in the incoming stream, but instead of pursuing this thought they tended to suppress it, in the belief that it was good for even the most promising kids to start at the bottom, so they didn't get swelled heads.

The most productive young people will always be undervalued by large organizations, because the young have no performance to measure yet, and any error in guessing their ability will tend toward the mean.

What's an especially productive 22 year old to do? One thing you can do is go over the heads of organizations, directly to the users. Any company that hires you is, economically, acting as a proxy for the customer. The rate at which they value you (though they may not consciously realize it) is an attempt to guess your value to the user. But there's a way to appeal their judgement. If you want, you can opt to be valued directly by users, by starting your own company.

The market is a lot more discerning than any employer. And it is completely non-discriminatory. On the Internet, nobody knows you're a dog. And more to the point, nobody knows you're 22. All users care about is whether your site or software gives them what they want. They don't care if the person behind it is a high school kid.

If you're really productive, why not make employers pay market rate for you? Why go work as an ordinary employee for a big company, when you could start a startup and make them buy it to get you?

When most people hear the word "startup," they think of the famous ones that have gone public. But most startups that succeed do it by getting bought. And usually the acquirer doesn't just want the technology, but the people who created it as well.

Often big companies buy startups before they're profitable. Obviously in such cases they're not after revenues. What they want is the development team and the software they've built so far. When a startup gets bought for 2 or 3 million six months in, it's really more of a hiring bonus than an acquisition.

I think this sort of thing will happen more and more, and that it will be better for everyone. It's obviously better for the people who start the startup, because they get a big chunk of money up front. But I think it will be better for the acquirers too. The central problem in big companies, and the main reason they're so much less productive than small companies, is the difficulty of valuing each person's work. Buying larval startups solves that problem for them: the acquirer doesn't pay till the developers have proven themselves. They're protected on the downside, and they still get most of the upside.

Product Development

Buying startups also solves another problem afflicting big companies: they can't do product development. Big companies are good at extracting the value from existing products, but bad at creating new ones.

Why? It's worth studying this phenomenon in detail, because this is the raison d'etre of startups.

To start with, most big companies have some kind of turf to protect, and this tends to warp their development decisions. For example, Web-based applications are hot now, but within Microsoft there must be a lot of ambivalence about them, because the very idea of Web-based software threatens the desktop. So any Web-based application that Microsoft ends up with, will probably, like Hotmail, be something developed outside the company.

Another reason big companies are bad at developing new products is that the kind of people who do that tend not to have much power in big companies (unless they happen to be the CEO). Disruptive technologies are developed by disruptive people. And they either don't work for the big company, or have been outmaneuvered by yes-men and have comparatively little influence.

Big companies also lose because they usually only build one of each thing. When you only have one Web browser, you can't do anything really risky with it. If ten different startups design ten different Web browsers and you take the best, you'll probably get something better.

The more general version of this problem is that there are too many new ideas for companies to explore them all. There might be 500 startups right now who think they're making something Microsoft might buy. Even Microsoft probably couldn't manage 500 development projects in-house.

Big companies also don't pay people the right way. People developing a new product at a big company get paid roughly the same whether it succeeds or fails. People at a startup expect to get rich if the product succeeds, and get nothing if it fails. [1] So naturally the people at the startup work a lot harder.

The mere bigness of big companies is an obstacle. In startups, developers are often forced to talk directly to users, whether they want to or not, because there is no one else to do sales and support. It's painful doing sales, but you learn much more from trying to sell people something than reading what they said in focus groups.

And then of course, big companies are bad at product development because they're bad at everything. Everything happens slower in big companies than small ones, and product development is something that has to happen fast, because you have to go through a lot of iterations to get something good.

Trend

I think the trend of big companies buying startups will only accelerate. One of the biggest remaining obstacles is pride. Most companies, at least unconsciously, feel they ought to be able to develop stuff in house, and that buying startups is to some degree an admission of failure. And so, as people generally do with admissions of failure, they put it off for as long as possible. That makes the acquisition very expensive when it finally happens.

What companies should do is go out and discover startups when they're young, before VCs have puffed them up into something that costs hundreds of millions to acquire. Much of what VCs add, the acquirer doesn't need anyway.

Why don't acquirers try to predict the companies they're going to have to buy for hundreds of millions, and grab them early for a tenth or a twentieth of that? Because they can't predict the winners in advance? If they're only paying a twentieth as much, they only have to predict a twentieth as well. Surely they can manage that.

I think companies that acquire technology will gradually learn to go after earlier stage startups. They won't necessarily buy them outright. The solution may be some hybrid of investment and acquisition: for example, to buy a chunk of the company and get an option to buy the rest later.

When companies buy startups, they're effectively fusing recruiting and product development. And I think that's more efficient than doing the two separately, because you always get people who are really committed to what they're working on.

Plus this method yields teams of developers who already work well together. Any conflicts between them have been ironed out under the very hot iron of running a startup. By the time the acquirer gets them, they're finishing one another's sentences. That's valuable in software, because so many bugs occur at the boundaries between different people's code.

Investors

The increasing cheapness of starting a company doesn't just give hackers more power relative to employers. It also gives them more power relative to investors.

The conventional wisdom among VCs is that hackers shouldn't be allowed to run their own companies. The founders are supposed to accept MBAs as their bosses, and themselves take on some title like Chief Technical Officer. There may be cases where this is a good idea. But I think founders will increasingly be able to push back in the matter of control, because they just don't need the investors' money as much as they used to.

Startups are a comparatively new phenomenon. Fairchild Semiconductor is considered the first VC-backed startup, and they were founded in 1959, less than fifty years ago. Measured on the time scale of social change, what we have now is pre-beta. So we shouldn't assume the way startups work now is the way they have to work.

Fairchild needed a lot of money to get started. They had to build actual factories. What does the first round of venture funding for a Web-based startup get spent on today? More money can't get software written faster; it isn't needed for facilities, because those can now be quite cheap; all money can really buy you is sales and marketing. A sales force is worth something, I'll admit. But marketing is increasingly irrelevant. On the Internet, anything genuinely good will spread by word of mouth.

Investors' power comes from money. When startups need less money, investors have less power over them. So future founders may not have to accept new CEOs if they don't want them. The VCs will have to be dragged kicking and screaming down this road, but like many things people have to be dragged kicking and screaming toward, it may actually be good for them.

Google is a sign of the way things are going. As a condition of funding, their investors insisted they hire someone old and experienced as CEO. But from what I've heard the founders didn't just give in and take whoever the VCs wanted. They delayed for an entire year, and when they did finally take a CEO, they chose a guy with a PhD in computer science.

It sounds to me as if the founders are still the most powerful people in the company, and judging by Google's performance, their youth and inexperience doesn't seem to have hurt them. Indeed, I suspect Google has done better than they would have if the founders had given the VCs what they wanted, when they wanted it, and let some MBA take over as soon as they got their first round of funding.

I'm not claiming the business guys installed by VCs have no value. Certainly they have. But they don't need to become the founders' bosses, which is what that title CEO means. I predict that in the future the executives installed by VCs will be increasingly be COOs rather than CEOs. The founders will run engineering directly, and the rest of the company through the COO.

The Open Cage

With both employers and investors, the balance of power is slowly shifting towards the young. And yet they seem the last to realize it. Only the most ambitious undergrads even consider starting their own company when they graduate. Most just want to get a job.

Maybe this is as it should be. Maybe if the idea of starting a startup is intimidating, you filter out the uncommitted. But I suspect the filter is set a little too high. I think there are people who could, if they tried, start successful startups, and who instead let themselves be swept into the intake ducts of big companies.

Have you ever noticed that when animals are let out of cages, they don't always realize at first that the door's open? Often they have to be poked with a stick to get them out. Something similar happened with blogs. People could have been publishing online in 1995, and yet blogging has only really taken off in the last couple years. In 1995 we thought only professional writers were entitled to publish their ideas, and that anyone else who did was a crank. Now publishing online is becoming so popular that everyone wants to do it, even print journalists. But blogging has not taken off recently because of any technical innovation; it just took eight years for everyone to realize the cage was open.

I think most undergrads don't realize yet that the economic cage is open. A lot have been told by their parents that the route to success is to get a good job. This was true when their parents were in college, but it's less true now. The route to success is to build something valuable, and you don't have to be working for an existing company to do that. Indeed, you can often do it better if you're not.

When I talk to undergrads, what surprises me most about them is how conservative they are. Not politically, of course. I mean they don't seem to want to take risks. This is a mistake, because the younger you are, the more risk you can take.

Risk

Risk and reward are always proportionate. For example, stocks are riskier than bonds, and over time always have greater returns. So why does anyone invest in bonds? The catch is that phrase "over time." Stocks will generate greater returns over thirty years, but they might lose value from year to year. So what you should invest in depends on how soon you need the money. If you're young, you should take the riskiest investments you can find.

All this talk about investing may seem very theoretical. Most undergrads probably have more debts than assets. They may feel they have nothing to invest. But that's not true: they have their time to invest, and the same rule about risk applies there. Your early twenties are exactly the time to take insane career risks.

The reason risk is always proportionate to reward is that market forces make it so. People will pay extra for stability. So if you choose stability-- by buying bonds, or by going to work for a big company-- it's going to cost you.

Riskier career moves pay better on average, because there is less demand for them. Extreme choices like starting a startup are so frightening that most people won't even try. So you don't end up having as much competition as you might expect, considering the prizes at stake.

The math is brutal. While perhaps 9 out of 10 startups fail, the one that succeeds will pay the founders more than 10 times what they would have made in an ordinary job. [2] That's the sense in which startups pay better "on average."

Remember that. If you start a startup, you'll probably fail. Most startups fail. It's the nature of the business. But it's not necessarily a mistake to try something that has a 90% chance of failing, if you can afford the risk. Failing at 40, when you have a family to support, could be serious. But if you fail at 22, so what? If you try to start a startup right out of college and it tanks, you'll end up at 23 broke and a lot smarter. Which, if you think about it, is roughly what you hope to get from a graduate program.

Even if your startup does tank, you won't harm your prospects with employers. To make sure I asked some friends who work for big companies. I asked managers at Yahoo, Google, Amazon, Cisco and Microsoft how they'd feel about two candidates, both 24, with equal ability, one who'd tried to start a startup that tanked, and another who'd spent the two years since college working as a developer at a big company. Every one responded that they'd prefer the guy who'd tried to start his own company. Zod Nazem, who's in charge of engineering at Yahoo, said:

I actually put more value on the guy with the failed startup. And you can quote me!

So there you have it. Want to get hired by Yahoo? Start your own company.

The Man is the Customer

If even big employers think highly of young hackers who start companies, why don't more do it? Why are undergrads so conservative? I think it's because they've spent so much time in institutions.

The first twenty years of everyone's life consists of being piped from one institution to another. You probably didn't have much choice about the secondary schools you went to. And after high school it was probably understood that you were supposed to go to college. You may have had a few different colleges to choose between, but they were probably pretty similar. So by this point you've been riding on a subway line for twenty years, and the next stop seems to be a job.

Actually college is where the line ends. Superficially, going to work for a company may feel like just the next in a series of institutions, but underneath, everything is different. The end of school is the fulcrum of your life, the point where you go from net consumer to net producer.

The other big change is that now, you're steering. You can go anywhere you want. So it may be worth standing back and understanding what's going on, instead of just doing the default thing.

All through college, and probably long before that, most undergrads have been thinking about what employers want. But what really matters is what customers want, because they're the ones who give employers the money to pay you.

So instead of thinking about what employers want, you're probably better off thinking directly about what users want. To the extent there's any difference between the two, you can even use that to your advantage if you start a company of your own. For example, big companies like docile conformists. But this is merely an artifact of their bigness, not something customers need.

Grad School

I didn't consciously realize all this when I was graduating from college-- partly because I went straight to grad school. Grad school can be a pretty good deal, even if you think of one day starting a startup. You can start one when you're done, or even pull the ripcord part way through, like the founders of Yahoo and Google.

Grad school makes a good launch pad for startups, because you're collected together with a lot of smart people, and you have bigger chunks of time to work on your own projects than an undergrad or corporate employee would. As long as you have a fairly tolerant advisor, you can take your time developing an idea before turning it into a company. David Filo and Jerry Yang started the Yahoo directory in February 1994 and were getting a million hits a day by the fall, but they didn't actually drop out of grad school and start a company till March 1995.

You could also try the startup first, and if it doesn't work, then go to grad school. When startups tank they usually do it fairly quickly. Within a year you'll know if you're wasting your time.

If it fails, that is. If it succeeds, you may have to delay grad school a little longer. But you'll have a much more enjoyable life once there than you would on a regular grad student stipend.

Experience

Another reason people in their early twenties don't start startups is that they feel they don't have enough experience. Most investors feel the same.

I remember hearing a lot of that word "experience" when I was in college. What do people really mean by it? Obviously it's not the experience itself that's valuable, but something it changes in your brain. What's different about your brain after you have "experience," and can you make that change happen faster?

I now have some data on this, and I can tell you what tends to be missing when people lack experience. I've said that every startup needs three things: to start with good people, to make something users want, and not to spend too much money. It's the middle one you get wrong when you're inexperienced. There are plenty of undergrads with enough technical skill to write good software, and undergrads are not especially prone to waste money. If they get something wrong, it's usually not realizing they have to make something people want.

This is not exclusively a failing of the young. It's common for startup founders of all ages to build things no one wants.

Fortunately, this flaw should be easy to fix. If undergrads were all bad programmers, the problem would be a lot harder. It can take years to learn how to program. But I don't think it takes years to learn how to make things people want. My hypothesis is that all you have to do is smack hackers on the side of the head and tell them: Wake up. Don't sit here making up a priori theories about what users need. Go find some users and see what they need.

Most successful startups not only do something very specific, but solve a problem people already know they have.

The big change that "experience" causes in your brain is learning that you need to solve people's problems. Once you grasp that, you advance quickly to the next step, which is figuring out what those problems are. And that takes some effort, because the way software actually gets used, especially by the people who pay the most for it, is not at all what you might expect. For example, the stated purpose of Powerpoint is to present ideas. Its real role is to overcome people's fear of public speaking. It allows you to give an impressive-looking talk about nothing, and it causes the audience to sit in a dark room looking at slides, instead of a bright one looking at you.

This kind of thing is out there for anyone to see. The key is to know to look for it-- to realize that having an idea for a startup is not like having an idea for a class project. The goal in a startup is not to write a cool piece of software. It's to make something people want. And to do that you have to look at users-- forget about hacking, and just look at users. This can be quite a mental adjustment, because little if any of the software you write in school even has users.

A few steps before a Rubik's Cube is solved, it still looks like a mess. I think there are a lot of undergrads whose brains are in a similar position: they're only a few steps away from being able to start successful startups, if they wanted to, but they don't realize it. They have more than enough technical skill. They just haven't realized yet that the way to create wealth is to make what users want, and that employers are just proxies for users in which risk is pooled.

If you're young and smart, you don't need either of those. You don't need someone else to tell you what users want, because you can figure it out yourself. And you don't want to pool risk, because the younger you are, the more risk you should take.

A Public Service Message

I'd like to conclude with a joint message from me and your parents. Don't drop out of college to start a startup. There's no rush. There will be plenty of time to start companies after you graduate. In fact, it may be just as well to go work for an existing company for a couple years after you graduate, to learn how companies work.

And yet, when I think about it, I can't imagine telling Bill Gates at 19 that he should wait till he graduated to start a company. He'd have told me to get lost. And could I have honestly claimed that he was harming his future-- that he was learning less by working at ground zero of the microcomputer revolution than he would have if he'd been taking classes back at Harvard? No, probably not.

And yes, while it is probably true that you'll learn some valuable things by going to work for an existing company for a couple years before starting your own, you'd learn a thing or two running your own company during that time too.

The advice about going to work for someone else would get an even colder reception from the 19 year old Bill Gates. So I'm supposed to finish college, then go work for another company for two years, and then I can start my own? I have to wait till I'm 23? That's four years. That's more than twenty percent of my life so far. Plus in four years it will be way too late to make money writing a Basic interpreter for the Altair.

And he'd be right. The Apple II was launched just two years later. In fact, if Bill had finished college and gone to work for another company as we're suggesting, he might well have gone to work for Apple. And while that would probably have been better for all of us, it wouldn't have been better for him.

So while I stand by our responsible advice to finish college and then go work for a while before starting a startup, I have to admit it's one of those things the old tell the young, but don't expect them to listen to. We say this sort of thing mainly so we can claim we warned you. So don't say I didn't warn you.

 
At 9:22 AM, Blogger Theorigamist said...

Matthew, anecdotal evidence is a terrible way to argue anything. Here's why:

I went to Italy over Spring break. Stuff in Rome was pretty absurdly expensive, but when I did conversions, all of the stuff was approximately the same as it might be in New York City, for example. In other words, they didn't accidently double the cost of everything in Rome like you say happened in Germany. The high prices were just a result of me being in a tourist area of Italy (and don't even ask about Venice, which is much more aimed at tourism; prices there were absurd). Nobody seemed pissed at all.

That's why anecdotal evidence is not evidence at all. You say people are pissed about it, I say they aren't. We could go back and forth exchanging anecdotes until we see who has more anecdotal evidence, but that is still a terrible way to argue.

 
At 9:27 AM, Blogger Alec Brandon said...

Matthew that is wrong. People can not afford less since the switch over from the euro, in real terms there is no difference. I am sure people bitched about it initially but honestly, who cares? It is better for them, and has been better for them, in the long run.

Also the euro is high now, so would the various currencies of all the euro nations, minus Italy, but they are screwed, but honestly, who cares about Italy, I don't think Italians even do anymore.

-Mr. Alec

 
At 2:27 PM, Blogger Mihai said...

Matthew, beyond anecdotal evidence being unreliable, the scenario you're describing just dosen't make any sense. If you run the bar, you lower the price to 1.50 euros, otherwise you're going to sell a lot less beer and make a lot less money. Even if there was some sort of problem that screwed people over during the transition, the currency would have adjusted by now.

That said, there IS a legitimate and strong criticism of having a common currency in Europe. Ultimately Europe is probably better off with the Euro, but there's a pretty big drawback and plenty of reason to believe it won't go away any time soon.

So, when you create a common currency you create one central bank where there were many, which means there's one interest rate for everybody. In Europe this is a problem, because in some countries the economy is doing just fine (Spain) and in some places it's stagnating (Germany, to keep it short and simple).

For Germany the interest rate on Euros is way too high and for Spain it is way too low. Among other things, the interest rate works against Germany's recovery while causing other problems in Spain, like absurdly high real estate prices (low interest means everybody wants to buy a house).

Alan Greenspan may be really good at running the Fed but I don't think he can make interest rates go up and down at the same time.

The countries in the Eurozone will have their economic ups and downs, but they won't all have them at the same time, which means interest rates in Europe are always going to be screwing someone over. In this case Spain's about to to get screwed over because Germany is more important overall.

In the long run a common currency does create a lot of efficiency, and I doubt anyone's actually going to go back to their old currency, but all sorts of officials might talk about it now and then, probably to put pressure on the central bank to move the interest rate in their direction. That's probably what the Italian guy was doing.

-Mihai

 
At 2:29 PM, Blogger Mihai said...

Oh, and I forgot...

Congrats to Commander Mike: it took longer to scroll to the bottom of the thread than it did to write a post.

 
At 12:01 PM, Blogger allen said...

Unless Commander Mike is Paul Graham save your congratulations - clicky

 
At 12:49 PM, Blogger Mihai said...

Oh, I would never have congratulated him if I thought that took longer for him to write than it did for me to read.

-Mihai

 
At 1:45 PM, Blogger Commander Mike said...

O snaps! My secret identity has been discovered!

 
At 5:12 PM, Blogger F said...

I must say that this is one of Dan's better posts because, for the most part, it limits the number of assumptions and poses a rather good argument.

It appears indeed that the European Union would be better off as an economic pact - it's original intention - rather than as a feeble attempt to compete with the United States (not to say that it would be difficult to compete given the recent downturn in the economy, growing deficit, and trade imbalance). As Dan makes clear, the European Union will likely not recover from the recent blow by two of its original founders. From this point, the EU will probably be defunct as a political power (not that it truly ever was one). Despite this, there is always an off-chance that the Europeans might pull things together. Then again, there is so much to divide them (economy, political philosophy, political dealings, etc.) that that eventuality is again unlikely.

In response to the statement about “all international organizations,” I tend to agree with Dan in concept because, as has been proven by the UN and WHO, international relations in a bureaucratic body is, at best, ineffective (not to mention corrupt - Oil for Food). Perhaps such bodies could function more effectively under better leadership and with fewer represented countries, but as of now, no such efficacy can be seen.

 
At 6:34 AM, Blogger allen said...

As I recall, one of the assumptions that the EU was founded on was the creation of a domestic market large enough, free of trade barriers, to allow European nations to close the current competitive gap with the U.S. and the developing competitive gap with China.

The fly in the ointment was that domestic political forces in the various nations saw no benefit in giving up their protected status. The nation might benefit but the current beneficieries of trade barriers would absolutely suffer so, they dug in. The result was that only where there was relatively little, substantive resistance was the plan able to move forward.

My guess is that something will rise out of the ashes of the EU but not nearly as politically ambitious.

Over time, as the inevitable inefficiency of socialism will take its toll, the trade barriers will start to come down and the resulting trade policies might be tilted in favor of nearby trading partners. But that's by no means certain as the cost of transportation continues its descent.

 
At 12:27 PM, Blogger Nick Speth said...

Wow, Dan! Have you got some long-winded posters on your blog!

The simple fact is that Europeans want to be unified in order to "balance out" the United States, but they've never been unified and I'm starting to wonder if they ever will be.

 
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