Johan Norberg – TALKS WITH PETRI
Johan Norberg talks about the misfits, rebels and innovators that push the reluctant society into progress, the role of entrepreneurs and why this is a scary moment in time. He also reveals why founders are only getting 2.2 per cent of the value they create and who’s getting the rest.
Johan Norberg is an author, lecturer and documentary filmmaker who specializes in the big questions, from liberty and progress to entrepreneurship, globalization and the hidden dichotomies shaping the world. He is a native of Sweden, a Senior Fellow at the Cato Institute in Washington D.C. and the European Centre for International Political Economy in Brussels. He is a frequent commentator in Swedish and international media. In 2018 he received the Walter Judd Freedom Award, previously awarded to luminaries such as Garry Kasparov and Ronald Reagan.
Norberg has written over 20 books covering a broad range of topics, including global economics and popular science. His breakthrough title, In Defence of Global Capitalism (2003), was published in over 25 countries. His latest book, Open – The Story of Human Progress (2020), is a grand odyssey through history’s ever-changing tides of connection and isolation, exchange and protectionism, open borders and closed minds. It has been praised by The Economist as ”amusing as well as illuminating”, ”clear, colorful and convincing”.
His previous book, the celebrated Progress: Ten Reasons to Look Forward to the Future (2016) was chosen as the Book of the Year by The Economist, Guardian and Observer. It has been translated to 20 languages (so far).
(NOTE: The text may contain errors, misconceptions and even comical unintended contexts. Please use it only as a reference to the actual audio conversation from where it has been transcribed.)
Petri: Hey Johan, how are you doing?
Johan: I’m very well, thank you. How are you?
Petri: Not bad at all. I’m just thinking why we have to always fail in order to succeed?
Johan: Because I think that any type of learning process must be built on experiments and often crazy experiments to go any further. You know what why nightingales sing so well? Researchers recently looked into this. Nightingales up here in the North, they don’t want to spend the wintertime here.
They move to Africa for a while. And the interesting thing is that the researchers have found that they keep on singing. Male nightingales keep on singing in Africa, even though they don’t fight over the females there. They don’t fight over territory or anything. So, why do they do it? Well, they’ve learned that they sing in weird ways, crazy ways. New syllables and noises and most of it doesn’t make any sense.
And it turns out that the nightingale’s they spend the wintertime experimenting with new strange noises and new songs. And most of them fail miserably. They don’t make any sense. It wouldn’t attract any female nightingale, but once in a while, they find that great pitch. And then they return to Sweden or Finland and they sing that great song and they get new territory and lots of females, and that’s how they win out in the end.
So even the nightingales have to experiment and most of the time fail to make progress. Well, then I think it makes even more sense for humans to do it.
Petri: In your latest book, you are also saying that Homo Sapiens is basically just an entrepreneur by another name. What do you mean by that?
Johan: Yeah, I think we are traders by nature. We’ve come this far only because we innovate and we imitate. And that’s the two things that really sets us apart from, well, even from the nightingales and everybody else in the animal kingdom. We have an amazing ability of systematising knowledge that we learn from our experiments and our failures and to learn from each other and to imitate the others and the great ideas that they have so that anytime someone stumbles on to a better idea we all learn from it.
Compared to animals, we are not very quick. We’re not very strong. We don’t have a natural panzer. We can’t even fly. We were bad at swimming, but we do have something else. We have each other and the ability to borrow and steal the best ideas and insights from others and combine it with our own and then move forward.
Petri: I think you call that in the book as a culture. That’s the definition of culture, isn’t it?
Johan: Yeah, this is cultural evolution. I mean, every animal has this natural evolution whereby the body and the instincts and what have you develops and then in some sort of adapting to the environment, but then thanks to three things that developed specifically in human beings: intelligence, communication, and cooperation we stepped on to a new level of cultural evolution. You can see that in your mirror. When you look yourself into the mirror, you can see why we are superior. Because we actually have whites in our eyes. We have white sclera surrounding the cornea of the eye, and that sets us apart from the other animals.
Chimpanzees and the other apes, they have brown sclera so as to hide their gaze from others. In contrast to human beings, at some point in our evolution, we started to benefit from broadcasting our attention to others. Whereas the chimpanzee wants to hide. If they find, look there’s prey to eat or potential partner, they want to hide it so that they can get it for themselves and nobody else steals it.
But because of our ability to cooperate, it makes sense that everybody else notices when I look at potential prey, for example, or a predator, because then we can cooperate in circling it, throwing stones at it and thereby we can make much faster progress than everybody else and learn from what everybody else is seeing and doing.
Then we can accumulate so much knowledge and whenever anybody stumbles onto something that improves the world, well, the rest of the world can learn from that as well.
Petri: What was the most surprising thing you learned while you were doing research for the book?
Johan: In a way, the big surprise that I built a lot of the book around is about a previous misunderstanding that I had about the world, where I thought of modern development, The Enlightenment, The Industrial Revolution and onwards liberal democracy as a very Western Eurocentric development.
And that’s because just like so many others, I started to read history in reverse. Because it happened here I wanted to find what were the stepping stones and the ladders that we climbed to reach this place. And then obviously it’s not difficult to find it. That’s sort of the Renaissance of the Italian city-states, Magna Carta and the Roman Empire and the Greeks.
And there you have it. One nice single trajectory that put us here. But then when I started to read history, I stumbled on to a couple of problems with this attempt to read history. One of them being that I had to explain away one thousand years for basically nothing happened in Europe.
Even went into reverse our development, our scientific knowledge, our commerce and so on. Also, the fact that these things, these stepping stones, these ladders so to speak, they happened in almost every other culture historically, and that was a little bit troubling to my perspective.
I could see that it happened in the pagan cultures. It happened in Confucian cultures. It happened in the Muslim Abbasid caliphate, and it happened in Catholic and Protestant places. The Song dynasty in China 1000 years ago when Europe was so poor that most of it wasn’t even interesting to raid for nomads on horseback.
At that time, the Chinese Song empire already had the nautical compass, the printing press and they fought with gunpowder. The three inventions that Karl Marx thought ushered in Western bourgeois capitalism, writing in the 1860s. That tells you we’ve had golden eras everywhere throughout history. It’s just that in most places they were destroyed by the establishment and by reactionary backlashes. It didn’t happen in Europe and that’s what set us apart. Not any sort of simple trajectory.
Petri: But it was not because of a lack of trying. That’s what I learned from the book as well. There were these incumbents and people in power who wanted to keep things because it was so good for them.
Petri: But you can probably explain how did that happen because I think that was really fascinating. I can see parallels for what’s happening here at this point as well. Let’s check the history first.
Johan: Yeah, it’s in every single culture. There is something called Cardwell’s law after the technology historian, Donald Cardwell and it says that innovation always faces resistance from the groups that think they stand to lose from it. And that’s often political and religious elites. We think that their power is threatened or old businesses with old technologies and workers’ skills and trade unions who don’t want any sort of innovation.
There’s always this tension within every culture between open and closed. And then in certain places that backlash, that Cardwell’s law, it faces so much resistance that it’s destroyed. But in some places, it managed to survive. Often, we think that there must be something about the European elites, religious and political and commercial elites, during the Renaissance, The Enlightenment and The Industrial Revolution that they must have been wise or thought about things more long-term than in other places.
But no. When you look at the record, they fought just as hard as the Chinese emperors and the caliphs and the robber barons in other cultures. It’s just that the European elites were much worse at doing this. They failed. They couldn’t keep up with that innovation. And that’s partly just because of luck. Because Europe was a more decentralised place with more independent political entities, independent cities, universities, and always some sort of rivalry between them, which meant that when the Chinese emperor thought that now we are being threatened by this innovation, let’s stop it. Then the whole continent abided by his ruling. But when the French king said the same thing, the troublemakers could always move across the border and move to the Dutch Republic or England. It was always difficult to coordinate oppression and repression in Europe. I think one of the most fascinating examples in history is how China gave up it’s the greatest armada that the world had ever seen. They travelled the world half a century before Columbus
Petri: With bigger boats, they were 150m at least?
Johan: Yeah. The flagship of Zheng He, it was some 135 meters compared to Columbus’ Santa Maria, 20 meters. So basically the rudder of Zheng He’s flagship was bigger than the whole of Columbus’ boat. That whole venture they could have discovered the new world was all shut down because of a power struggle within and among the rulers and China and the emperor just said stop.
And the greatest armada that the world had ever seen rotted, and some of it was burned. And some tried to do that in Europe as well. They weren’t that interested in pumping lots of resources into these dangerous and risky ventures. Columbus had a hard time trying to find his route to Asia as well.
He couldn’t find anyone in his own Italy to sponsor his trip. He asked the Portuguese King, and the Portuguese King said, no, that’s stupid. Let’s not do that. Had this been China, that would have been the end of it. But he could continue in a fragmented Europe to search for sponsors. He went to England and to France and he was turned down again and he went from king to king for some 20 years until eventually, the Spanish king said, yeah, why not? Let’s try this. And the rest, of course, is history.
Petri: This is exactly like another day in startup life.
Johan: You had exactly 20 years of going from king to king or investor to investor.
Petri: Knocking on doors and nothing is working and everybody’s against you. And nobody’s interested in what you’re doing because it’s too weird, too strange. So you just keep on pushing.
Johan: Exactly. At least you can take some comfort in the fact that you don’t have one single person to go to, the Chinese emperor, where you have to kowtow to him and try to impress him. There are alternatives.
Petri: While you were doing your research, did you find out how close it was? How dangerous was the situation? Because when China closed down, it was Genghis Khan who took bits and pieces from all the cultures. And didn’t he actually then bring it back to Europe and all the developments which were happening?
Have there been close calls in a sense that they could lose all or most of the knowledge? Become like Tasmanians.
Johan: Yes, it has been very close. And I would say that probably sometime in the late 16th century and early 17th century, it was very close that Europe went the same way as these other cultures that failed. And that was because then it was fairly close that a single royal house got control over the whole continent.
And this was then the Habsburg family. And they reigned on so many different thrones at that time. They were in Spain and the control then Belgium and the Dutch, and they control the Holy Roman Empire and Austria and so on. They were fairly close in attacking and submitting France to its rule as well.
And at that point, some historians say we could have gone the same way because then they would have oppressed in a synchronised fashion across the whole continent. The 30 years war at the same time, it almost ruined Germany and Austria, wasn’t much left there. We saw increased oppression from both Protestants and Calvinists, and Catholics have tried to keep it up with others and independent-minded eccentrics like Giordano Bruno were killed and famously Galileo Galilei had to apologize for his thoughts. So, it was close. We were saved perhaps in this version of the story, perhaps it wouldn’t have worked long-term anyway, but we might have been saved by the Dutch. Because the Dutch, they rebelled against the Habsburgs at this time. They didn’t like the idea that the Spanish Inquisition and the high taxes were coming for them. They rebelled and they started to fight back. And during a couple of decades, through innovation in finance and in ship-building, they managed to create out of nothing.
Basically, they had nothing. They didn’t even have land. They had to build it with shovels. But with innovative methods and commerce, they build the richest country on the planet. And they fought back the Habsburgs and created the independent Dutch Republic. And because of that, they also basically invaded England in 1688. The British, they don’t want to admit to this, but that’s actually what happened during the glorious revolution because England and France were very close to an alliance to destroy the independent-minded Dutch. But then William of Orange, the Dutch leader, invaded England with more than 400 ships with the help of the British parliament. That saved England from the possibly authoritarian despotism of the Stuart Kings. Then England became more Dutch and was more open for The Enlightenment and The Industrial Revolution as well.
Petri: In the book, you also mentioned that the Dutch fleet was enormous. It was bigger than what was 50 million people from other nations together. There was Germany, France. and was it Spain as well at least? And 1.5 million people managed to do that. I am actually sitting now in a place with this pretty much the 1.5 million.
Estonia. And Estonia is kind of leading the digital revolution from the government side. Could Estonia be the new Dutch in a way that now we are entering into the digital area because of Coronavirus this year kicked-started this phenomenon that everybody is pretty much isolated and now we need to do virtually everything? And then nation borders and physical locations don’t matter that much. Do you think there’s something like that happening or do you see anything from the history that we could maybe learn or see that could happen?
Johan: Yes, this is the lesson of history. It’s not about numbers. It’s about those numbers representing innovation and ability to create the new. The Dutch, they were 1.5 million people, but they managed to create a fleet that was bigger than the combined fleets of Spain, Portugal, France, England, and Germany, with a combined population of something like 50 million people.
And the difference was that the Dutch had institutions that made it possible for innovative and eccentric people to come up with new ideas and then quickly to find through decentralised sources funding for them and to put them into practice. For example, they had better ship-building techniques.
They reduced the time of cutting beams by something like 90%. And they did it at half the cost. Whereas in all those other places, in Spain, Portugal, France, England, and Germany, they protected the old shipbuilders through guilds and regulations. And therefore they weren’t as innovative. And therefore the Dutch could resist simultaneous French and English invasion in the 1670s. That tells us something about a country like Estonia today. It’s not really, I mean, there’s some strength in numbers, obviously. The more people, the more people that can stumble on to new ideas, but if you are open if your systems are open and your minds are open, then you can maybe look to the rest of the world through exchange and communication, and constantly being in tune with what goes on in other places and use and borrow and steal their ideas and combine it with your own. The openness of a place like Estonia could be the decisive factor in the long run.
Oftentimes actually, if there are fewer of you and perhaps even feeling a little bit vulnerable, close to major powers that sharpen minds a little bit. And it makes you perhaps a little bit more open to innovative ideas that can make you more powerful.
Petri: Was that the case with the Dutch as well? I think they took quite a bit of immigrants. So it was not just that they did all the brilliant things. They got a lot of other people to help them and that was the innovative platform if you will. This is the same thing in Estonia. It’s a tiny place. The local market is so tiny that you cannot do anything here. If you want to have any success, you have to go immediately abroad. So the mindset is exactly that you have to go elsewhere. And there’s not much here to do by itself. Is this the only way to actually make this happen or are they actually in history lessons where you could come from a rich environment and not out of necessity, could it be Norway?
They have all the oil money, and now it’s not exactly the necessity to do things in a sense as in some other places in the world.
Johan: Yeah, I think that it’s not the resources that you have. It’s not even the people you have. It’s what you do with it. And again, go back in history to the Dutch. Everybody thought that they would fail because they were few. At first, just 1 million. So they got 500 000 immigrants and increased their population that way.
They didn’t have any natural resources. They didn’t even have land, but they had openness to new ideas and to openness to surprises. And that works, that functions everywhere where you create these links with the rest of the world. And back then, it was often a Republic of Letters where your most innovative thinkers and engineers began to correspond through the new commercials postal system with people in other parts of the world and thereby accumulating more ideas and knowledge.
Now, obviously you can do that better with digital technology. The one thing that doesn’t work is oil money. That’s having too much natural resources. That’s bad for you in several different ways. One of them is that it poisons every discussion. I can’t enter a taxi from the Oslo airport without facing a discussion with the driver about what to do with the oil money.
It focuses people on the wrong things on distribution, on spending rather than on creation. And also there’s always this temptation and vulnerability that destroys other sectors of the economy because talent and resources go into that sector. And also it then has an effect on your currency.
It gets more difficult for other exports than that particular one. Oftentimes, those countries with too much resources just end up fighting over the spoils instead of creating new ones. Now, Norway was lucky because they found oil a long time after they had created stable institutions of rule of law and democracy.
They just made it. They survived, but it’s not for everybody because it often poisons your culture.
Petri: You’ve been travelling quite a bit, doing internationally, globally things for many years, decades. Can you give some advice, knowing so much about the history and knowing that we are having challenges this year starting the new decade. And sometimes it’s a good time to start new businesses, sometimes a good time to build new things when there’s a lot of volatility in the market and also in the political systems around the world. What is a good place to have as a base? If I could move anywhere in the world now where should I start my business? What is a good place to build something? I could actually probably get people around the world now they can live wherever they like, but you know, where should I headed?
Is it Europe? Or are we going to what happened to China after the Song dynasty?
Johan: Well, Estonia is not a bad place to be with the kind of mindset that exists there compared to too many other places. The problem with much of Europe is that it’s so fixated on past triumphs. Old empires that were successful now being somewhat nostalgic and fighting to protect their old model.
That makes sense from a human perspective. You want to do that obviously, but that might make it difficult for you to reach the next level and to see the new opportunities that are being created. Estonia doesn’t have that. It’s a much younger generation with a better spirit, I would say.
But I think that there are countries like that all over the world. But the great risk as a business, as a country, as a household is that you become used to your own successes and they devour you. They destroy you because you constantly want to repeat the same kind of thing. And that’s how many great societies and businesses have been undermined historically.
You want to protect the old. It’s so easy to become the Kodak of the world destroyed by the digital camera. Then obviously the great irony of that story is that Kodak was one of the pioneers with a digital camera. They had it. They could do it. They could develop it, but they just thought, nah, that’s not our business model.
We make the most money by just selling film to analogue cameras. And that I think is what we do in all our societies. Protect what we’ve already created in a great way. Unfortunately, then that might leave us all as Kodaks in the long-run because sooner or later someone else is going to pick up that digital camera, develop it and turn it into something better and then you will be destroyed.
Perhaps it’s better if you destroy your old business model than if you let yourself be destroyed by others.
Petri: Have you been studying Africa lately? Is that the new golden opportunity for everyone?
Johan: When I talk to people in several African countries, they tell me that they are surprised that so few Europeans go there. And they’re telling me that the Chinese do. Obviously, the Chinese government and Chinese businesses in a big way, but not just that, it’s also kind of the Chinese backpackers almost looking for new opportunities in a scary wild environment where it seems difficult and dangerous to make headway, but obviously that’s where you can make enormous profits in the long run, if it works out right. It’s a very difficult and unstable political situation in so many countries. And that’s the reason why we avoid it, but that’s also what makes it interesting. And to me, at least, it’s somewhat depressing that we don’t see a younger generation of Europeans making the same kind of choices.
Petri: Sweden I think is quite a peculiar case. Sweden was really poor some hundred years back. Then it became one of the richest countries in the world and had one of the lowest tax rates as well. And a lot of success and then something else happened as well. The welfare state kicked in, but now Sweden has been renewing again.
How can you do that? Can you explain it? Because that’s quite exceptional. Or am I mistaken here or have I just missed all the other nations who can do the same thing?
Johan: No, I think you summarised it in a good way. It’s not unique, but perhaps Sweden is a little bit more extreme than others. Because until 1850, we were poorer than other countries and with more heavy government interventioninto the economy. And then we opened up faster and more than almost any other country: radical deregulation and opening up of the economy. And then we had 100 years of rapid economic growth faster than any other country than Japan. Then we became more extreme the other way again, thinking that look now we’ve built all this wealth, so let’s just begin to redistribute it and think about how to consume it.
It was a miserable failure. Because suddenly the country that had grown faster than any other country began to lag behind the others rapidly. And we didn’t create a single net job in the private sector for almost 40 years. When we saw the results of that, and especially in the great financial crisis of the early 1990s in Sweden, from the left to the right politicians agreed that, wow this was a spectacular failure. Let’s not do this again. Let’s go in the total opposite direction. And then there was a consensus on opening up Sweden again, deregulating, lower taxes. And we got back to more of an entrepreneurial Sweden again. It’s not that different from what other countries have done, but we’ve done it faster and more dramatic in every step, in every part of this long history. That tells you something about Sweden, that we have a tradition of looking for consensus. You don’t want to be the odd man out in a country like Sweden. We are a traditional homogenous population of small property-owning farmers. You want to be like the neighbours.
So when they became socialists, you wanted to be a socialist. When they became radical laissez-faire liberals, you want to as well. So it’s like we have these more dramatic turns. It’s more difficult to find critics and to be accepted by others when you critique the order of the day. But once a sufficient number of people have changed their mind, you want to change as well. That sets Sweden apart a little bit apart from other countries.
Petri: That’s really fascinating to see also that Scandinavia, the Nordics are pretty much leading the innovation in the startup field on the global scale as well if you look into Europe. Obviously, the US is leading in the total numbers, but they are sucking in people from all over the world and everybody’s moving in there. Most of the people, at least used to be doing that, immigrating and going to Silicon Valley and then listing their companies and selling them there. But Sweden has been really powerful in that sense as well. And is it cultural, or is it the immigrants?
Because I don’t think now Finns are doing the same. It’s not exactly the Danes and certainly not the Norwegians. What is it in your drinking water?
Johan: I think there is something cultural. And I think that is a result of having been a very trade-dependent country for a long time. Lots of imports, lots of exports. We learned early on that our big businesses are major multinational companies that were the old manufacturing kind that were all created some 130 years ago. They were dependent on openness. We were too small a country to come up with the best way of creating steel or telephones, but we can borrow it from other places. And we had too few consumers to rely on our domestic markets. We had to go abroad. We had to be constantly attuned to what was going on in other places.
There’s some cultural link. Even when we were fairly politically closed society, we had open minds to what was going on and still, it’s the case that when international companies want to try new products, they often try Sweden because we’re fairly early adopters. And when you have eyes that wide open to what’s going on in other places in an almost sometimes a little bit nervous fashion, you’re afraid that you might miss the next big thing. Then it gets easier to catch the next wave and to integrate the ideas that are being presented elsewhere and that comes with the business travellers and the immigrants and the outsiders and to make them your own.
The moment we started then again to open up the economy in the 1990s they could begin to turn those ideas that they often borrowed elsewhere. And they could build new major companies again: Skype, Spotify, King, Mojang, and so on.
Petri: It seems that a lot of the nation-states are closing up. They are building walls. If not physical, then they put in some other types of walls around them. And this is catching like a virus. How do you see this decade going? Are we now globally going to close down or where are the new Dutch cities?
Is there hope to have this new Renaissance coming? Or how do you make sense of this mess where we are at this point looking forward to the next 5-10 years?
Johan: This is a scary moment in time. It reminds me of historical episodes where those golden eras in certain cultures began to feel the forces of closed becoming more aggressive and they turned inward which resulted in nothing more than losing access to the brains and the skills and the innovations of other cultures. And that was the beginning of the end for those places.
There is something similar going on right now. The great backlash against globalisation and open societies generally. We can see both radical left and radical, populist right that have one thing in common that they don’t like surprises.
They don’t like diversity. They don’t like the fact that we live in open societies where what happens next could come from anywhere. They have a Perfect plan for our future. And, that’s always very, very scary. This could be a transitory moment. It could be a fleeting moment that just passes by.
I think those moments are often related to a sense of crisis for the old model. Historically often, great depressions or invasions, natural disasters or pandemics. And in a way, we have now been living in a perfect storm of crisis like this. We’ve had the Great Recession, the financial crisis, an old political establishment lost a lot of voters’ trust.
We have a new geopolitical situation where it feels a little bit more scary to be Western than it used to. Terrorism. The migration crisis. We’ve had the pandemic. And all these things traditionally lead us to being more closed-minded because when we become afraid of the world, it triggers a societal fight or flight instinct. We want to pick fights with someone, with scapegoats or foreigners, or we want to hide behind walls and tariff barriers because traditionally that’s how we survived that particular threat. Because that particular threat was often a predator or a rading tribe.
Now, of course, it doesn’t make sense because the threat is a virus or a lack of innovation or something like that. And then it doesn’t make sense to fight or flee but rather to cooperate and to find better ideas from strangers rather than beating them up. But tell that to our stone-age brains.
That’s the difficult thing. And then we become attracted to the demagogues. Those who want to tell us that they, and only they, can protect against this dangerous world. When that happens in one place, it triggers the same instinct in other places. Everybody wants to fight and flee in the same manner.
And then there’s in Europe, an opportunity for the authoritarians and populists. Now, often that doesn’t sustain itself because something else happens. The economy gets back on track. We managed to deal with the virus. We have a new breed of politicians who manage to defend openness in a new and better way.
And that’s the end of it. But once in a while, the fence-sitters, who haven’t made up their mind, end up on the closed side and begin to build those walls and create a more hostile international atmosphere and begin to stifle open minds and free speech. And that’s the end of those civilisations.
Let’s hope that’s not one of the periods that we’re in right now. The one thing that makes me an optimist about the world as a whole is that the world is a little bit fragmented. We can screw up big time here, but there will be other countries and other places who will continue to make scientific progress, technological innovation, and great business progress.
The good news is it’s going to survive somewhere. The bad news is it might not be us.
Petri: And that’s the thing I picked up from the book as well, that the fragmented is good because then you have a more robust, complex system overall because there are more chances that somebody will make it like what happened in Europe earlier in The Industrial Revolution and the Renaissance times.
That gives hope for us and the overall tone of books is optimistic. But at least I cannot avoid the fact that much of the progress is just by lucky coincidences and the uncertainty kicking in. It’s not by human cleverness. It’s more like that we just couldn’t do anything else. And it just happened to us.
Johan: This is something that never ceases to amaze me. When you look at all the great things that all of us agree created a better world for all of us. Everybody hated it originally. Nobody wanted it. Almost, except a few eccentrics because we hadn’t seen the proof that it works and will improve our world.
We only saw that it threatened the old way of doing things. So it could be the first vaccines and we still see hostility against that. Everything from the credit card to the Internet, from the bicycle to the car. The great majority and the elite thought that this is worthless, impossible or stupid to quote a management book with the best book title ever.
Had we had a vote with everybody, should we apply these new technologies and goods and services, obviously everybody would say no. The latest one I heard about recently was the invention of the fork, to eat with. We had the knife all the time, but the fork was much more controversial.
And Pessimists Archive, one of the great podcasts on innovation, explains that when the first folks arrived, people said, no, that’s disgusting and it’s immoral and it’s dangerous. You might hurt your mouth if you use it. And some said it’s the work of the devil because it looked like one of his tools.
And when president John Quincy Adams began to use a fork in the dining room of the White House in the 1830s, I guess were there, people said, this is the end of the American democratic experiment because now we use forks. And obviously, it’s hilarious to hear about how people fear new technologies and innovations.
But we are not that different from them. We react in the same way when we hear about genetically modified crops or gene-editing or electronic scooters, or whatever. Because we can always imagine, when we sit in our own living-room, great disasters coming from this and how it ends our traditional way of life. But it’s very difficult to see how it can be used in a good way and how people can deal with the problems that will appear sooner or later. And that’s an important insight about human nature. Progress comes from eccentrics. And it’s only when they opened up a crack in the great wall of conservatism and managed to do it for a long time, that the rest of us see that, wait a minute, this is pretty good. Let’s use this. Let’s make sure that everybody gets access to it. Because that tells us something about our inherent reactionary, the reactionary in all of us and why we have to restrain it to leave room for progress.
Petri: There were also these staggering statistics. 2.2% is the amount of social value the original innovator, the entrepreneur, is actually getting from whatever he’s doing to enhance and improve the society. Do you remember, is it looking back many decades, centuries or is it just from the recent times that you only get that tiny amount of the total value created?
Johan: This is actually a quite shocking statistic. It’s from William Nordhaus, economist and Nobel Laureate, who looked at innovative businesses what he called the Schumpeterian profits after the Austrian economist, Joseph Schumpeter, and his idea that progress comes from creative destruction that we implement new technologies and business systems that make the old ones obsolete looking at the recent decades where did the profits end up? The surplus that was created, how much ended up in the pockets of the greedy entrepreneurs and how much ended up with consumers and the rest of society with savings and the ability to produce more? His conclusion from this model that he’s building, is that something like 2.2% of the value of their innovation is given to the greedy entrepreneurs. Just two, just a little bit more than 2%, despite their first-mover advantage, despite often patent protection. It means that the rest of us just sitting at home, watching Netflix and eating pizza, we got 98% of the profits from these new technologies and business systems that were created and better business models because the profits for the entrepreneur is quickly competed away.
Because almost immediately people start to imitate it and create something similar. But the benefits to the rest of society that remains there in place for all of us, which obviously begs the question: why do they do it? Why do they work so hard and risk all their savings and alienate friends and family by working day and night to come up with strange new inventions and goods and services?
Even if they’re lucky, they get 2% and the rest of the world who complain about their greed gets 98% of it. Well, it must just be that they have an exaggerated belief in their own abilities. One of the things that make entrepreneurs tick. Or it could be the joy of discovery and creation, but that’s so much. Or it could be, and I think it comes down to a little bit of everything. If you manage to do it, if you manage to revolutionise a particular sector, create new revolutionary technologies, you create so much value. So many billions that even 2.2% of that makes it all worthwhile.
Petri: Indeed. And also the one puzzle I never figured out is that maybe you can help me and tell me when you have made those successes, 2.2%, then maybe that’s tens of millions or hundreds of millions or even billions in some few cases. What’s the urge then to give it all back to society? Can you explain that to me?
Johan: This is a very strange phenomenon. I hear it all the time from successful businessmen. They say that look now I’ve become so wealthy through my endeavours. So now it’s time to give something back to society and to engage in charity or some other projects. And, that’s just fine if that’s what you want to do. If you think this is the best use of your resources to improve the world. That’s great. But I will never understand this urge to think that after having been successful, you have to give something back to society. Wait a minute, you just created businesses and goods and services that created enormous value 98% of which went to society. You got 2%. If anything, society should give something back to you. This is the same sense of shame that religious and Marxists thinkers have always tried to attack business people with that there’s something bad about succeeding and about wealth in itself.
That’s a great shame because the very fact of making profits means in a free market, where you got those resources from people who voluntarily bought your goods and services. Then making a profit is proof that you have given something to society. It’s proof that you have used certain resources, natural resources, the time of yourself and of workers. You have used them in a better way than anybody else could do at that time. You have made sure that those resources are being used in the most efficient way to give something to society, to consumers and to other businesses. You should be praised for doing that, not feel ashamed.
Petri: Another thing related to the other side of the coin…I’m now directly quoting from the book: “two-thirds of the average person’s material wealth is determined by where in the world they happen to work.” Two-thirds, that’s huge! Imagine you’re a coder somewhere in Asia or Africa or wherever two-thirds of your wealth is not dependent on your skills it’s dependent where you can work.
Johan: And that tells us something about the importance of the whole ecosystem of a functioning dynamic economy. It’s not you alone. It’s not what you have. It’s how you can combine it with what everybody else has there. It’s the capital and the human capital in that society, and definitely the institutions.
If there are institutions like rule of law, safe property rights, freedom to experiment and innovate, that makes a huge difference. Even if you have exactly the same kind of education and human capital depending on where you are it determines two-thirds of the average person’s material wealth, because it’s not enough to be a brilliant engineer or author or doctor if you are surrounded by people who cannot create the complementary ability, technology that makes your skills really valuable to other people. That’s one of the reasons why migration, if it works out well, is one of the quickest ways of improving wealth in the world, by making sure that people who lack opportunities in countries with bad institutions, if they can only move across the border to a place where it’s better then they can increase their wealth by some two-thirds. That’s why some economists talk about open migration is really a trillion-dollar bills on the pavement that we could just pick up by making sure that people end up in a place where their skills are really used to the best of their advantage.
Petri: Do you think that’s going to happen this decade? Because the physical location doesn’t matter anymore. Technically if you can, obviously not all the jobs and all the work, services can be provided remotely, but pretty many can be. Is that something you see that starts to happen or can happen or what are the things you think can be also hindering the development?
Johan: The web and the digital world has made it possible for us not to kill distance, but to at least slightly decrease its obstacles to making people meet. Anything that can be digitized we can now work from a distance with one another and make it happen in a better way. And that’s obviously of great importance to the whole world and to everybody involved.
However, not everything can be digitized and much of our service economy is based on things like meeting other people. I mentioned doctors, you have to be there, to at least some degree, close to the patient.
Petri: I would love to have a remote dentist.
Johan: We’re not quite there, not yet. But that dentist can obviously read up on new knowledge about what goes on with teeth. Even though that information comes from the other side of the world, make use of technology that is being developed elsewhere. But that meeting is necessary. It’s still mostly for information that we’ve reduced distance to that extent.
I also think that we’ve learned something from this pandemic. It’s wonderful that it happened now and not 20 years ago because then we can do podcasts like this and we can meet with our colleagues, associates and friends online. But at the same time, there’s so far, at least, the lack of the kind of surprise meetings that often takes place in offices and cafes and lectures where you bump into people where you suddenly hear those things that you didn’t expect, where you’re suddenly surprised by the talent and the charisma of that particular person that you didn’t expect to meet. And the kind of water cooler effect…
Petri: Can I pause for just a second because we have a mutual friend and he’s been actually in an episode as well. Hampus Jakobsson, he explained in the episode that he was coming from New York flying, I guess to Europe, and he just happened to have a professional clown next to him in the airplane.
Johan: Things that only happen to Hampus!
Petri: Yeah. This was just a quick comment for people who haven’t listened to that episode. It’s worth listening as well. I’m not going to tell what happened there so you have to go and listen to it yourself.
Johan: That’s exactly what I’m talking about. We need to meet that surprise clown on the plane once in a while because that broadens our perspective. And if we only walk around in our online world where we just look for the things that we know that we’re interested in. There will be a lack of serendipity that makes many great things happen.
I’ve met so many people who’ve told me that their business was the result of going to this sort of market fair, this seminar thing where they thought that they were there to meet the speaker. But it was really the people that they met during a coffee break that gave them this new insight or they changed business cards and then suddenly came up with the next thing to do.
And we’re not quite there when it comes to the digital world yet. We could be if we continue with virtual and augmented reality and continuing with some version of Star Trek’s Holodeck, where we can create openings for the serendipity. But so far, I don’t think that Zoom, Google Meets, Teams are getting us there.
Petri: Going back a bit to history, but not to the public history, more like personal history. The way you’ll be describing the role of the entrepreneurs has not always been like that. I think if I understood correctly, you had the opposite view and that opened up the world of history for you as well. Can you elaborate a bit?
Johan: Yes, that’s right. If I sometimes sound like a missionary when it comes to things like entrepreneurship and global progress, it’s because I have the missionary zeal of a convert who started to believe in the opposite.
Petri: A tiny Marxist inside!
Johan: Something like that. And when I started to learn about the world, the one thing I knew was that big things were bad and big governments, but also big business and industry really ruined the world, created an awful bad work environment and polluting the planet as well.
I wanted to believe that there were some good old days in the past when we lived in harmony with one another and with nature. I really only started to change when I learned history because I had thought of the past before the Industrial Revolution as a nice excursion to the countryside, that’s much better than polluted cities, right? Only I had thought that I would be able to carry antibiotics there and indoor plumbing.
Petri: Maybe an iPad as well?
Johan: Exactly! My favourite bands and so on. When I read history, I understood that that was not really the case. And when I read up on my ancestors’ history in Northern Europe, I realised that they didn’t live ecologically. They died ecologically because when they had bad weather over there, that meant starvation. Because they didn’t have modern infrastructure. They didn’t have large scale trade. They didn’t have high yielding crops or artificial fertilizer and so on and so on. And that got me interested in the horrors of history and understanding that I should be lucky to be alive right now because most people throughout history had a life expectancy around 30 years and by now I’m older than that.
I should be really grateful for this development. 90% of the world’s population lived in extreme poverty. Now, it’s lower than 9% despite incredible population growth. And that created an unending obsession with progress and the people in the institutions that make it possible because we cannot take it for granted. Because there’re just a few generations that have experienced this kind of opportunities that we take for granted now and then. So that’s why I’m a bit of a missionary.
Petri: What is your favourite word?
Johan: I love the word atmosphere. It could be because it’s an old Joy Division song I like. But there’s some sense of openness in it and I like the sound of it: atmosphere. There’s some openness in it or perhaps horizon, which is somewhat similar.
Petri: What is your least favourite word?
Johan: Can I mention a Swedish word? Because then I would say nipple, which doesn’t sound too awful in English, but for some weird reason in Sweden, it’s called bröstvårta, which means breast wart. Which is the worst possible word for a nice object, a nice entity that I’ve ever come across.
Petri: What turns you on creatively, emotionally or spiritually?
Johan: Now, I should say something because of my thesis about creativity, about meeting interesting, surprising, talented, gifted people. But that’s not it. I think it’s going out and to run, exercise actually. It sounds very introverted, but that whole experience of I’m doing it and letting the mind just flow, without any particular object in mind and feeling the endorphins that’s when I get most creative. And if I can’t do that, a glass of wine might do the trick.
Petri: What turns you off?
Johan: I think that would have to be closed-minded people. And that includes myself in certain instances. It includes people who agree with me as well, but who face every new challenge and idea with rejection. Just because I don’t recognize it, it’s bad. That’s the one thing that ruins everything.
Petri: What is your favourite curse word?
Johan: Oh wow. I’m not a great cursor. My father has a great curse word and I use that once in a while. It might sound a little bit anachronistic, but it has a tremendous effect on people and it’s by Jupiter. Isn’t that powerful?
Haven’t heard that one before.
Petri: What sound or noise do you love?
Johan: I love the sound of my espresso machine starting in the morning, my Rocket machine. That brings joy to me. Wait a minute. No, another one. My cat, my Cornish Rex, when she’s pairing making that purr sound that might be even better. It sounds a little bit like an espresso machine, actually.
Petri: What sound or noise do you hate?
Johan: You know the sound the computer makes when it doesn’t agree with your command? It might differ from…
Petri: Too well!
Johan: Exactly. And it differs a little bit from computer to computer, but it’s kind of [imagine your worst computer sound here or listen to the audio version].
Petri: Instant feedback!
Johan: Yeah, yeah. Not all feedback is created equally!
Petri: You’re failing!
Johan: Exactly, bad human!
Petri: What profession other than your own would you like to attempt?
Johan: Well for a long time, I thought I should be a musician in an electronic music band like a Kraftwerk version. Perhaps I would still like to try that, but I think it’s closer now to try something else a little bit more humble. I’d love to have a kind of a book cafe serving coffee and wine and discussing books and having authors over for lectures.
That would be my greatest water cooler experience of meeting creative people and avoiding them by looking down into books when I get fed up.
Petri: You should do it remotely. Thus, combining Bolt or Wolt the service is done locally, but it’s remotely just connecting people.
Johan: Yeah, well that could work or perhaps a holiday would make it even better.
Petri: Or sponsorship from Rocket or any auto great espresso machine provider.
Johan: Yes, exactly. That’s the essential.
Petri: What profession would you not like to do?
Johan: I would hate it to be a CEO of a major company because everybody else has a stake in you and you are responsible for everything. And I’m so impressed by people who manage to do it. I think I would drown and lose myself in that.
Petri: If you could be a co-founder of any startup in any era, which one would you choose?
Johan: I’d love to be a co-founder of Plato’s Academy in ancient Athens and pick up great pupils…
Petri: Wow, high ambitions!
Johan: Yeah! Pick up great pupils like Aristotle and so on. Perhaps that’s too high of ambition and they would see right through me…
Petri: That was about the longest establishment. Wasn’t that for many centuries? So it’s probably the oldest company in a course of history in that history in that sense.
Johan: Yeah, that’s right. It wasn’t really formed like a company so perhaps it doesn’t fit your description of a startup like that but it worked for almost a millennia or something like that. It took until the 530s or something like that when the Justinian emperor shut down the Academy because philosophy threatened religion. But being able to create something like that and having Plato there, but particularly pupils like Aristotle who would continue to discover logic and empirical sciences and many of the greatest humanities. That would be nice. But I fear obviously they would look right through me thinking, what’s that guy doing here? How did he ever come into our band?
Petri: Any final words for the audience?
Johan: Well, gratitude, is an underrated virtue. Being grateful for what we have. We also have to be a little bit discontent because from discontent comes progress. We want to solve problems, but if we’re not grateful for what we have, then it’s easy to despair and to become hopeless and to think that nothing ever really works. Nothing can be done about the problems that we have.
That’s where we are when it comes to many issues in our era. Lots of doom and gloom and the planet is going to end soon. And I often think about, look, where would I have been had I been born in any other era? If I had a time machine ending up arbitrarily somewhere else in time, how awful wouldn’t life be if I ended up in the past? If we look at the whole of Homo Sapiens existence as just 24 hours, condense everything that has ever happened into 24 hours. Then everything that created the modern world and the modern lifestyle and our opportunities, our life expectancy of more than 70 years, health, wealth, liberal democracy, individual liberty.
All of those things came in the last 200 years. And if we condense that to 24 hours, that’s just the last second. We’ve had some 86 000 seconds when people didn’t have that. We were born and we live in that final wonderful second. And if that doesn’t make you a little bit grateful for what the world and existence and all the innovators, entrepreneurs, and eccentrics throughout history have given you, then you’re a little bit of a bad person.
Petri: Thank you, Johan! This was an enormously fun, great and a bit hard journey as well. And that’s an inside joke just between two of us.
Johan: I know exactly what you mean. Thank you so much. This was great fun.