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Interviews from a multicultural perspective that question the way we understand America
In most European countries, you have label laws that impose strict constraints on the way you can fire people. These laws have been implemented in France in 75, in Germany in 76, since then, in Europe. Every single disruptive innovation that has appeared since 75 is American or Chinese. And there's one piece of law that each country should change, is the condition of dismissal, what is called technically employment protection laws, for engineers. People highly qualified, highly paid. I'm not talking about 90% of the population.
If you're tired of arguing with strangers on the internet, try talking with one of them in real life.
Welcome to Back in America, the podcast. This episode was recorded live in New York City on Friday, November 7th, during the Central Alumni Days. Right. So let's dive into our topic today, Oliver. Many Americans are convinced that something unique about their country foster entrepreneurs. They say that a culture shaped by hundreds of years of immigration has enriched skills and cemented a strong work ethics.
And yet, in your views, the reason Europe has not birthed more global tech giants has little to do with this culture. Now you've got 25 minutes to help us understand why Europe is missing from the magnificent seven. So you're a tech entrepreneur and corporate executive. You live in New York City since 2014. And you advise company in artificial intelligence. You trained at Ecole Polytechnique.
You served at the European Commission and then as an industrial advisor for Prime Minister Lionel Jospin, helping integrate Airbus and managing tough restructuring cases. In industries, you launched mobile TV at Alcatel du Saint, co-founded a video chat startup used by Microsoft, IBM and SoftBank. And you led the US division at Atos. You now lead the Foundation for Economic Studies of Disruptive Innovation. And your book, Europe, Tech and War, won the Daniel Strasser Prize. So your core claim is very clear.
The cost of failure hold back European innovation. Anything to add to this little introduction? Thank you for this very kind introduction. Over the last three years, I've dedicated my time and efforts on understanding why Europe is so lagging in tech. And everything I'm going to explain today is the result of in-depth research with economists based on facts, based on data. It's unusual.
It's strange. It's surprising. It's shocking. And that is why I'm working full-time with another economist here in New York on these issues to substantiate them and give political leaders, public opinions, economists real data to justify that typically it's not a cultural issue, it's something else. And we absolutely need to solve this issue of Europe's lag in tech, French lag in tech and Europe's lag in tech as compared to China and to the US.
And you say that the issue is legal, right? So if you had just one regulation to change, what would that be? It's very simple. In most European countries, you have labor laws that impose strict constraints on the way you can fire people. Where in the US, I'm going to use direct words. call that restructuring or I'm calling, like in the US, firing people. These laws have been implemented in France in 75, in Germany in 76 in response to the
first oil shock. They have stopped disruptive innovation since then in Europe. Every single disruptive innovation that has appeared since 75 is American or Chinese. And I will try to explain why I came to these conclusions after in-depth investigation. So to respond to your question, if there's one piece of law that each country should change is the condition of dismissal, what is called technically employment protection laws for people like us, engineers, people highly qualified, highly paid. I'm not talking about 90% of the population.
No need to change anything for 90% of the population. I'm only talking about us. And when you want to let 1000 engineers go in Germany, it's four years in average. So that makes me think of this quote from an editorial you published in The Economist. And you mentioned the experience of Apple, who for six years tried to develop autonomous cars. And finally, they decided to give up on autonomous car and they had to fire 600 employees, I believe, despite the fact that this company is doing pretty well.
Their stock is going up. So what do you make of that? I started working in France with large tech groups. I worked for Alcatel-Luzon for 10 years. I had to let people go because we were moving from fixed telecommunication to mobile telecommunication, which was software. And fixed telecommunication at the time were electromechanical. There was no way we could retrain engineers who had done 20 years in electromechanical
engineering to software. So we laid off 100,000 people over 10 years. And that cost 10 billion. It was the same amount as R&D for Alcatel for 10 years. It killed us. It simply killed us. I had the same experience at Atos. Atos was the leader in managing data centers.
When the cloud arrived, the business disappeared. And Atos was unable to move to managing cloud activities because it was not the same skill. It went bankrupt because it couldn't afford the restructuring in Germany and in France. It is bankrupt. I was three years ago delivering AI data centers to Meta in November 2022 when ChatGPT was released. Meta reacted within three weeks. They laid off 20,000 people, a quarter of their workforce.
They had 80,000 people. They laid off 20,000 people. Everything was done within three months. They hired immediately about 10,000 AI engineers. They stopped plenty of projects like the Metaverse that had become irrelevant because ChatGPT was such a success. So they had to refocus entirely on AI. And they are investing every year between 50 and 80 billions now in AI infrastructure.
So the amounts are amazing. But the capacity to do that is due to the fact that they made space within their company to recruit AI engineers. And the opposite example, which is fascinating to me, is SAP, the European leader in software. Five billion of R&D every year. It's an amazing company. They were faced with the same shock that ChatGPT created. Oh, we need to focus on AI.
They are trying to lay off 2% of their workforce per year. And they're blocked by the trade unions in Germany and by the law in Germany. Google is investing 80 billions per year in AI. Meta 60. Microsoft around 80. SAP announced they were investing half a billion per year in AI. So the consequence, again, the ratio between the investment in US companies and the investment in European companies in AI is 1 to 100.
It's not 1 to 10 or 1 to 2. It's 1 to 100. We have to stop that. We cannot continue as Europeans investing 100 times less than our Chinese and American competitors. You have tech shocks all the time. The iPhone with a tech shock. The cloud with a tech shock.
AI is now a tech shock. You have to reinvent yourself at full speed. It takes weeks in the US and in China. It takes years in Europe. And we die. So going back to Europe, I mean, your plan for a cheaper way and a faster way to shut down projects. And yet I want to take the example of Philips, who lost its chip leadership after multiple
rounds of restructuring. How would you preserve that? Would you make sure that long-term, long-cycle research teams don't disappear because of those cuts? That's a very interesting question. And the best way to explain it is, for me, the analogy with a car. To drive a car, imagine you have very poor brakes. You cannot brake easily.
The consequence is not that you're going to brake less. The consequence is that you don't accelerate. You don't take speed. You don't go on risky roads. You don't go in mountain roads. You go on very stable motorways. So the impact of having no brakes is not on reducing speed. It's on acceleration that is prohibited.
That's obvious for you when I'm talking about a car. But when I'm talking about a company, it's not obvious. Introduction to the topic is, hey, Philips tried to reduce its workforce. It's awful. No, it's not awful. It's the way it should be. Interesting because it explains where Europeans are good at. Europeans are excellent on predictable motorways with full of light and no turns, which are
basically industries that were invented before 1920. The car industry, the aeronautic industry, the energy industry, the chemical industry, all the big companies we have in Europe have been created between 1850 and 1930. There's no exception. When it comes to these companies, it's all about driving safely on a motorway which is predictable. It's mature. Innovation is very high.
R&D is very high. But it's incremental innovation. We invented the car in 1900 and we have improved the Volkswagen Golf for 120 years. It became an amazing car. But it's still the same technology as in 1900. When you go to tech, what I computed is that the rate of failure at Amazon, at Microsoft, at Google, at Salesforce, at Dropbox and all the companies that are active in tech, the rate of failure is around 80%.
You launch projects knowing you put billions in projects like the Metaverse or the automotive or all the companies that have invested in AI chipsets and that failed, like Microsoft, Google, TPU, and all these investments have failed because Asinvidia was ahead. The rate of failure is 80%. It's like driving a car in a mountain road where you have to make U-turns all the time. We Europeans cannot do that because we cannot break. You cannot go on a motor in a mountain road where you have to go up and down turn all the time, which is exactly what I described at the reaction of Meta facing the shock of
Chad GPT. It's a total U-turn. You have to be able to stop projects all the time. Stopping projects mean letting people go. So the figures that are interesting, and again, these figures are... I'm sorry if I go... No, sorry, I'll stop there. I'll let you go.
Well, I really want to revisit this question of culture. If we agree that the US age comes from personal debt pressure and clean bankruptcy reset and that in Europe you keep your social solvency, what do you think creates the semi-hanger for risk? I usually get the question about culture. I also get questions about the fragmentation of the European market. I get questions about lack of capital in Europe, lack of pension funds. And we've been...
I was a European official of the European Commission or for the French prime minister 30 years ago. We were listening to the same stories. The European market is fragmented when you solve that or there is not enough capital for investment in startup. Same stories for 30 years, at least 30 years. Again, I'm going to use another analogy here. Imagine you arrive in a country where everybody is thinking about how to grow crop and they're
thinking we need more fertilizer, that's subsidies. We need better seed, that's startups. We need better interaction with universities, central, creating plenty of lot. We need to bring a better culture of agriculture to train better our farmers. And a guy like me arrives saying, yeah, but there's another issue. There's no water in the fields. So there are plenty of factors that enable to grow crop. What I'm pointing at is not to dismiss the other factors.
There may be a cultural issue, I can come back on that. But there's one factor that is necessary and that is missing. It's a simple one. It's like water in the field. If you don't have water, you can put best fertilizer, nothing will grow. What is the water? It's profitability. When you're in Europe and you invest in tech with a rate of failure of 80% and it costs
you three to four years to stop an activity, there is no way you can build a profitable business case. It's simple math. Try to build a business plan for 10 projects with eight of them which will fail. I'm talking about hundreds of millions. I'm not talking about 10 people. And two succeed, eight fail. The two who succeed generate fantastic profitability and fantastic value in the stock markets.
But eight fail, it costs six months to close in the US and 38 months in average to close in France. 31 in Germany, 48 in Italy. There's no profitable business case possible. So the issue that I consider very similar to water in the field is profitability of investment. There is no possible profitable investment in tech in Europe today with three exceptions. And we'll come back to culture.
Switzerland, no constraint on dismissal. Denmark, no constraints on dismissal. Sweden, limited constraints on dismissal. These three countries have the European culture. They speak the same language, German and French. Danish, but let's take the Swiss. The Swiss invest twice more than the US in tech and biotech. We in France invest four times less than the US.
To give the figures, France invest .4% of GDP in tech and biotech, the US 1.5% and Switzerland
3%, Denmark 1.9%. So there is no culture issue in the figures. Denmark and Switzerland are socialist countries. Denmark is a socialist country. Switzerland is not. They have fantastic support pro-education issue. The social model is the same as in France. The only difference is employment protection law.
UBS laid off thousands of people, tens of thousands of people when they required a fee. Cost 1.1 months of salary. When a French company lays off, when BNP Paris Bar lays off in France, it's 38 months of cost, not of dismissal. I'm not talking about the severance pay. I'm talking about the total cost for the company. It's 38 months in France. It's two months in Switzerland.
It's three months in Denmark. These countries invest massively in tech and biotech. We don't. So what is the culture a factor? Certainly, but the figures tell something else. I want to jump. So we compared Europe, we compared France to the US. Let's talk about China.
China has a radically different model, and yet they are extremely successful. I don't know China well. I've been exposed to the competition of China when I was working for Alcatel. We were sure in 2005 that Huawei was a copying, small, miserable competitor. We were super arrogant, same as Motorola, Lucent, Nortel, Ericsson. We were all super arrogant. China, they're copying, yes. They're paying the ass.
Just cheaper. And in 2007, almost 20 years ago, we got a call from Verizon and another one from Vodafone telling us Huawei is twice cheaper as usual. They're one year ahead of you in R&D. 2007, remember this date. It's very strikingly. For the first time, a Chinese company was ahead of all the Western companies on tech.
Major shock for all of us. Alcatel died, Siemens died, Lucent died, Nortel died, Motorola died. Out of the eight Western leaders at the time, five have died. The only surviving ones are Cisco, Ericsson, and Nokia, and they're struggling. The Chinese had implemented a French-like industrial policy with Huawei, like Pompidou in the 60s and 70s, catching up and getting better. Amazing. So I thought like anyone that the Chinese had an amazing industrial policy and that
we should do the same. And then I read a book called The Power Law by Sebastian Malaby, which explains how the Silicon Valley was invented in the 50s and 60s, and then how China innovated in tech.
And he explained that with the exception of Huawei, which is my experience, Alibaba, Tencent, Baidu, TikTok are all the result of investments not by the Chinese government, not of industrial
policy, but of American venture capital firms in the year 1990s and 2000. Morgan Stanley,
Sequoia, Andreessen Horowitz, they all invested like hell in very small startups, hundreds of startups. One of them was Jack Ma. One of them was TikTok. It's US-like investment
at incredible levels of risk. One out of 100 will succeed at best. That created the fantastic
success of China today. Beyond that, I don't believe a single figure coming from the Chinese authorities, so I decided not to investigate the topic of China. I investigated South Korea, Taiwan, Israel, all amazing example of small countries, very small countries as compared to the Chinese market, to the US market. Fantastically successful in tech, like Switzerland, like Denmark. This
is what France should do, be as successful as Taiwan in tech. If Europe doesn't change its law in the next five years, what will happen to European economy by 2030? There's a very easy analogy that will help you understand why I decided to stop working three years ago and to focus on that. It's China again. China in 1800, at the Napoleon time, when he said, when China will wake up, the world will tremble. China was the world leader economically. The best exporter exported tea, China, porcelain. It exported, I forgot
another element, it was the strongest economy in the world, China, 1800. It missed a technology revolution, steam engine, just missed it, decided to miss it. The emperor in 1800 decided not to integrate any European technology. It ended up in civil war as of 1900 and famine
in the 20th century. This is exactly the possible future of Europe today. We're missing the
industrial revolution. Our industries, like the car industry, are going to be disrupted, like the China industry of porcelain was disrupted by European technologies. The car industry, which is generating millions of jobs in Europe, is being disrupted by EV in China and autonomous driving software from Shenzhen and San Francisco. For me, it's dead. Renault, Stellantis, Peugeot, Volkswagen are going to be very weak or die, like the Chinese exporters of China or tea died. So the consequence of this situation for Europe can be absolutely dramatic. But
there is hope, because Switzerland and Denmark show that we can be leaders in tech with the European social model without changing much, just your protection as engineers. That's all we have to change. Yes, you're laughing, but help me, please. Exactly. And that's why, so we've got two quick questions before we end and open the floor to questions. What can we all do to help you push your ideas? These ideas are rejected by 90% of every single population in Europe. There was a referendum
in Italy in June when we were together, Mark and I, early June, referendum on employment protection. 90% of the Italians voted for more rigid protection. It's the same in Germany, same in France, same in the UK. So we need to change public opinion. I'm talking to prime ministers, presidents and so on. The ideas I'm pushing have been incorporated by Draghi, by Funderlain. Everybody knows, nobody can do anything as long as the European populations
are like that. We need to reassure them it's only us that have to change our protection
not them, not the voters, not the blue collars at Renault, not Zunique. They don't need to change, we need to change and we need to reassure them and let them vote for that, move the public opinion from 90% to 50% or 40%. We need help to do that. We need plenty of things that are described in my website. So if you can help, go to my LinkedIn profile which is Oliver Cost, not Olivier, or go to the foundation I created called FESDI.org and contact me
and we'll try to do that. We need to change that in France and in all European countries. Finally, what is America to you? My home now. My kids are here. I'm a lawyer. I'm a lawyer.
And I've been impressed by how easy it was to do business here. It's fantastic. And I'm terrified of the political evolution. So I keep my French passport in case I have to
leave back. But we need to help Europe avoid the future of China in the 19th century or Spain in the 20th century. Same reasons. Okay. Thank you. If you can help us. Thank you.
As I am editing this podcast, I realized that the second part, the Q&A with the audience, did not get a proper recording of the question. So I had to use an AI voice to read those questions and I hope you don't mind too much. I agree and I know that the topic I'm addressing
is as difficult as gun laws in the U.S. Americans want to keep their guns to be protected. And Europeans want to keep their employment protection to be protected. So there's a vicious circle here. My best response at this stage is your salary will be multiplied by three if you
accept to lose your protection. You're an engineer. The average salary of an engineer in Europe is 100K. The same engineer in the U.S. with the same skills, the same peaceful work with plenty of labor days and memorial days and long weekends and so on is 300K.
So the obvious, and this is obvious in the figures, in France the investment in R&D, in people like you, in R&D in tech is 4 billion per year. In the U.S. it's 350, 100 times
more. It should be, if we do the reform that I'm proposing, we see the impact in Denmark.
We see within five years the R&D boomed more than times two within five years. Crazy. I promise you the volume of money that will come to France to finance your research will be multiplied by five or ten if we do the reform because it will become profitable. And then your salary will not be 100K. So that's the compensation that the other side of the coin, you will use protection but you will never face unemployment. Never. Because we need people like you to develop the new product. I was like, the difficulty in managing
teams in the U.S. is that they leave. So you're constantly trying to improve their salaries and hiring more, hiring more. The difficulty is to hire. I hope the politicians that you're trying to convince are not going to listen to you because I have another scenario which is the following. If you take the engineers and all the bright minds in Europe and you tell them, okay, you have no social protection, you have nothing, but the rest of the population does have it. If I were in their shoes, I would do exactly what I've done myself as an entrepreneur. I would move to the U.S. right away. So I think the scenario described is going to create an even more major brain
drain than what it has done so far. I disagree with you. I do not propose to stop social protection for engineers. Not at all. Denmark and Switzerland provide unemployment
benefits at a much higher level for a longer period for engineers than in France. It's called flex security. What I'm proposing is not to stop the social protection, the social system at all. The social system in Europe is based on five pillars. Free education, no change. Pension systems, whatever they are, no change. Unemployment benefits. I suggest to improve that, to increase the unemployment benefits in France as compared to what it is today following the Danish or the Swiss example. The fourth pillar is free health care and the fifth pillar is the protection of employment. The fact that when you have a CDE in France, it takes one year to fire you. And in Switzerland, it's just immediate.
That's the only piece that I suggest to change. It's called flex security. It's enabling companies to let engineers go within, let's say, three months and not a year and a half in Germany or a year in France with huge costs. That's the only change. And to the opposite of what you had understood from my statement, I suggest not to cap unemployment benefits when you are for two years unemployed. In France, it's capped at 6,000 euros per month. So you had 30,000 euros a salary and suddenly you go down to 6,000 when you are unemployed. In Switzerland, you stay at 30,000 a month. So what I'm proposing is just a slight change in the protection of the employment and no change in all the social systems that exist.
And that is what is so difficult politically in Europe because everybody is very sensitive to this issue. Wilson fell in this topic and Schroeder fell on this topic. So it's very sensitive. Did I convince you? Let's talk later. My question regarding the funding in R&D in
France compared to the U.S., are you saying that in France the investment in tech is 100 times less than in the U.S.? And as a matter of fact, we cannot catch up with the gap in tech with the U.S. because of that, because of money. And don't you think that because we like investment, we could become a lot more creative regarding how we develop our tech? I think about it like in a startup where you lack everything, you have no time, you have no employees, you have no money, and still you manage to build product and make it profitable. Individually, there are plenty of examples of successful European entrepreneurs who manage to do that. The difficulty they face usually is twofold. The first one is
to find customers in Europe. Because customers like Belloria Al Total are careful about not investing in new technologies that have not been proven already because it would mean hiring and having to dismiss later. So it's very difficult to find customers in Europe and it's much easier to find customers in the U.S. I presented the same product to the CEO of BNP, and to a low-level technician at Wells Fargo. It was rejected by BNP. It was adopted by Wells Fargo just because they had to hire people. It was easy in the U.S., not in Europe. The second difficulty faced as an entrepreneur in Europe is that it's difficult to raise money with European VC funds. And why is that? And it took me two
years to understand. It's just because the profitability of the VC funds is defined by the exit price. And the exit price is when you sell to a large group. Large groups are hesitant in buying a startup company when it's 600 people in Germany and it will cost you 120 million to lay them off. So you pay a lower price than in the U.S. which reduced the profitability of the VC funds and explains why you have three times more money in the U.S. invested by LPs and VC funds than in Europe. So it's 150 billion per year in the U.S. It's 7 billion in Europe. In France, sorry. Which is ridiculous. It should be 30 billion. So when you're a startup company, you can grow, you can build up to 100 people
easily with no difficulty. You find money, you find initial customers and so on. And then when you start to scale, it's a nightmare and you move to the U.S. because you find customers and you find money. And why is that? It's because it's profitable for everyone in the U.S. and it's never profitable for BNP Paribas to test a new technology or for Barthek to invest in your company in France. They never made money. They will never make money in the current system. While Sequoia makes IRR at more than 100% a year. It's crazy the amount of money they're making and they're delivering to their LPs. Just water. Water is the profitability of the investment. Large groups, VC funds, LPs, startups, there is
no profitability. There's no water. There's no growth. There's no water. So I'm telling you, you're brilliant. You can invent. But the logic of the current system that you're because it's where you can grow and it's great and it's welcoming. It's amazing. And we are like the commissaire or the commissioner in charge of R&D in Europe told me a few months ago, we are the pépinières in Europe of the U.S. We invent all the small stuff. We create beautiful schools. We pay for everything and you are brilliant. And then everybody who succeeds move to the U.S. because it's better. And that is the situation we have. We're in competition with the U.S. and with China. And the U.S. is attracting everyone. Why? Because
you cannot make money in Europe. It's profitability. There's no water in Europe. There will never be a tech environment, ecosystem in Europe if we continue to kill profitability.
Thank you.
Thank you.
Thank you.
Thank you.