aperture|Podcast #1 — with David Galbraith, Partner at Anthemis Group

Playing Devil’s Advocate (#1)

Ben Robinson sits with David Galbraith, Partner at Anthemis, and they talk about big topics — fintech, internet business models, economics, politics, the climate — but through the prism of what people are missing or what are they not asking themselves.

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Full transcript:

David Galbraith: So, at Anthemis my role is to play the devil’s advocate and… what that means is, I don’t come from a traditional investment background, but I come from the other side of the table as an entrepreneur. And what that means at Anthemis is playing the role that often taken by analysts looking for insights and opportunities but taking it one step further and saying… well, what are the kind of businesses that we could build, or people could build in these gaps, and then saying if those example businesses match the deal flow we’re seeing and if doesn’t, could we build something in the Foundry that matches that deal flow. So, what I do is come up with insights, look up market opportunities on those insights, and then where appropriate actually say, well… here is an example business that could be created in this market opportunity.

BR: And how do you stop yourself from entering into group-think. I mean, how do you know if you’re really spotting gaps, like what information sources do you use, for example?

DG: Well, I’d almost go back further and say “What’s wrong with group-think”? The reason that group-think is bad is you get stuck in something that’s immutable. An opinion that if it was right at the time, isn’t right now because environment is changing and what we’re seeing is we’re in a very disruptive period in human history and therefore organisations need to be complex adaptive systems. Like biological ones… they need to react to the changing environment. So, the reason you don’t want group-think is you don’t want to get stuck in way of doing something when the environment is changing.

BR: And how to you test yourself that you’re not entering… how do you not slip into group-think?

DG: So, my background obviously was always as a designer, as an architect before as an entrepreneur. And, when you’re doing something creative… like, if you go to the heart surgeon and say — please, can you operate on my heart in an interesting and unusual way — it’s not a good idea, but that what’s you want from an architect, to do something in an interesting and unusual way, to do something different. So, creativity is doing things that are different, and if you’re doing things that are different it means, by definition, you’re not in group-think mode, you’re thinking about things differently, you’re playing devil’s advocate. And, we know, if we look at the statistical evidence that backs up this idea of thinking differently about things, which is, Geoffrey West from Santa Fe Institute in that book Scale that was released last year, he realised that cities outperform companies. Because cities have weirdos in them, they have people that question the group-think.

So you need a bit of noise, you need a bit of contrariness and one of the things I do at work is to provide a bit of that contrariness and noise. Sometimes it’s a bad thing, it’s not good to have too much of that, but sometimes it is a great thing.

BR: Yes, because you are an agitator and not everybody likes that. So, Anthemis is chiefly looking at fintech. What are the sorts of gaps that you see in fintech, what are people missing, what are people not investigating in fintech? What are the opportunities that aren’t so well documented?

DG: In some ways ‘fintech’ was an irritating term for Anthemis, because Anthemis was predicated on the fact that capital flows are a bit like information flows. They are foundational, they are things that… the internet in the U.S. certainly was built on new ways of communicating, new information flows. And then, you had fintech that was really just the digital-era version of existing finance. So the more important thing is what is the internet of capital look like? What do the capital flows look like when they’re inter-networked? And that’s really at what we’re looking at, we think of a much bigger opportunity.

BR: And… can you expand on that? What do you think it looks like? Put it another way, do we already have some examples of the internet of finance?

DG: So, a lot of people thought the internet of finance would be blockchain. I don’t think so actually, I think this period mirrors exactly what happened with communication and information which is around year 2000 there were a lot of decentralized systems around communication… there was Napster and things like Gnutella, and the whole of Web 2.0 came when that collapsed into… not being a decentralized version of the internet, but looking at the applications that have happened around things like file-sharing and they you got YouTube, Spotify and all the social networks.

So I think what’s happened, and maybe happening again with blockchain, is that it’s not the decentralization that is important, but the idea of internet of money. And I think the internet of money actually has appeared, and it’s the Chinese internet model. I think that the Chinese platforms are not predicated on advertising, they are predicated on payments. And therefore we’re seeing something that is — because advertising is something you do to drive money eventually to people buying things — a payments version of the internet is more foundational and I think we’ll see that the Chinese internet is more resilient and a better model going forward.

BR: Yes. Because it seems to me, when you think about it, having a model that is built on advertising has a number of flaws, right? Because first of all you’re serving the advertising, you’re not serving the consumer, so it creates a conflict of interest. Secondly, it’s a race for attention and we’ve seen what that can do for things like the quality of news and sensationalism and so on. And also it seems to me that you’re putting an unnecessarily small limb on the side of any business, because really… how big is the advertising revenues as a percentage of GDP? So I agree with you that it’s much better to have the internet built on payments — micro-payments — but I suppose the group-think now is that the U.S. internet is moving away from advertising to subscriptions and… I suppose my question is why does it move to subscriptions and why does it not move to micro-payments? Is it a function of the underlying architecture, the legacy and the cost of that architecture, which the Chinese were able to leapfrog and get ahead? Is that the difference?

DG: Yeah. I mean, at the lowest level, the transaction cost is much higher in the U.S. When you link your… if you use PayPal or Venmo, your money is going through an intermediary which is the credit card company, and the deal they made with the credit card companies meant that that they were no longer allowed to promote linking directly to your bank account. So the transaction cost is much higher — and so the only way of then selling media, rather than paying people to watch it through advertising, is to bundle it into subscription packages. But you don’t need to do that in China, because the transaction costs are so much lower, and because the friction is taken out of the system where offline transactions happen so much more easily through people’s smartphones as well. All transaction in China happen in this fundamentally more fluid fashion — which is a bit like when… Eastern Europe went straight to mobile telephones instead of landlines and had a more sophisticated system than parts of Western Europe. I think we’re seeing the same thing happen with the internet, which is the Chinese internet went straight to a more efficient model.

BR: And it will be difficult for, let’s call it the West, particularly the U.S., to catch up, right? Without replacing all of the infrastructure which is so embedded. Just think of all the terminals, everything that’s been built around it. It’s a very different thing to unpick. But that’s why I’m going to bring you back to the crypto question, because if you listen to crypto advocates, they will say that — sure, the U.S. internet, again to use that term, was built on the wrong foundations but the way to get around it is crypto because the advocates will argue that it’s near free, it’s almost completely divisible so you can really manage the most micro of payments. But you wouldn’t buy that argument, you don’t think crypto is the answer to the problem of re-building the right foundations for the internet?

DG: Well… crypto, in its purest form as Bitcoin as digital gold — it’s great, that’s a great use case. Digital gold, it works, crosses borders, it’s purely electronic, amazing thing. But the latency in those transactions is thousands of times slower than the payment system that WeChat has and the volume is thousands of times smaller as well… and the theoretical volume is thousands of times smaller, so it doesn’t… I would argue that we already have an efficient centralized system that’s purely electronic and works.

BR: True. That’s always been my, I suppose misgiving about blockchain, which is — to apply blockchain to payments just seems the wrong use case. For the reasons you said — maybe blockchain will become much more scalable over time but right now it’s just simply not scalable enough to handle payments. And why would you want a distributed ledger anyway for payments? A much better use case seems to me to be settlement versus payments, for example.

Just quickly — because I want to come back to the questions on WeChat and AliPay and so on — just on blockchain, what use cases do you see as interesting for this technology?

DG: Well, there’s the same kind of use cases if we think of what are the use cases for BitTorrent or things like that — that’s decentralized peer-to-peer networks that appeared. And they were actually lastly obscure areas of security or… they weren’t the use cases that people thought they initially were. They had some kind of network advantages, but if you look at things that were originally decentralized, like Skype, they ended up centralizing it. So I think the uses cases… if I was to pick up one use case beyond digital gold for blockchain, it would be things that create resilience by being decentralized, so it might be things like firmware updates for IoT devices where you make it very difficult to hack… like a camera that someone’s bought of Amazon that has had a trojan put in it because you’d have to hack every camera in the world. Those kind of use cases where there’s safety in numbers… they seem to be quite interesting.

BR: Yes. And it feels like we’ve gone through the hype cycle with blockchain, where everybody was going crazy about blockchain a few years ago… and now it feels like we’re almost in the sort of trough of disillusionment, so it’s almost contrarian to now be bullish about blockchain. Have you become more bullish over time or do you still see it a technology largely looking for a use case?

DG: Well, as I said, it just feels very, very similar to the previous wave of decentralization that I think, most people are not as old as me that work in technology, and therefore don’t have the muscle memory of knowing what happened post-Napster, post-BitTorrent. That era was wonderful, that era actually paved the way for Facebook and all these things. So, that’s why I’m so excited to see what is happening in China because it seems to me that this is history rhyming.

The second chess move for GDPR and Article 13 is catastrophic. Basically they’ve just killed the ability for Europe to create its own platform to challenge the U.S., for example.

BR: Just to go back to China, then. How can Europe and the U.S. catch up with the big Chinese players like WeChat, like Ant Financial?

DG: So Europe is caught in the middle between having no platform-scale company and by that I mean — there seems to be something when you have a USD +50bn company that it creates its own ecosystem around it and there’s a phase change there that becomes self-fulfilling. That happened with Google and Facebook. Amazon is a bit different, because it’s obviously transactional. But if we look at Google and Facebook which, in the Western world dominate, it might be that the we’ll see that the transactional stuff that China starts to encroach in Europe — so it might be that Europe has Google for search and we might actually end up having a Chinese platform for payments, unless let’s say Facebook has payments built into Whatsapp.

BR: And it’s the future of the internet then… for, you know, for the thousands and thousands of fintech companies out there — finding a route to market through Amazon in the U.S. and Ant Financial everywhere else, then?

DG: So I think you need to own a name space to become dominant in transactions. That’s why I personally have a bias towards consumer-side of things rather than technology. And so PayPal originally used the name space of email addresses as a proxy for bank account, and then phone numbers became that proxy for bank accounts instead. And the interesting thing is that the control of the phone number ended up not being held by the telcos, i.e. Whatsapp has shown that you can own that. So Facebook owns identity, Facebook now enters into this space. I don’t understand why it hasn’t earlier. I don’t think Apple is the natural winner here, I think Facebook is.

BR: I guess Facebook didn’t because — well, interesting how things played out but I supposed they didn’t want to take on big regulatory burdens. It was a very asset-light platform, very scalable and…

DG: Yeah — and they didn’t own the phone number name space originally, that’s basically what they got with the Whatsapp acquisition. And Whatsapp does have payments in India, but only in India. So whether that will become more predominantly everywhere, I don’t know. But, again, the reason this hasn’t taken off in the way it has in China is that the incumbents are there already so it’s far, far harder to suddenly make people buy things with their smartphones and QR codes in Europe and the U.S., than it is in China.

BR: Just on Europe, to go back to that for a second. This isn’t the first time that I’ve heard you say that Europe lacks internet age platforms — and it’s a big problem and I think it’s quite like going into the industrial era without having any Fiats or Citroëns or Renaults. Are you more or less bullish than you were before, because it seems that we’re moving away a bit from the consumer internet to something that’s a bit more industrial internet, and that seems like somewhere where Europe might fare better?

DG: So I think the fact that China has different internet from the U.S. means that possibly South America and Europe can now decolonize from being colonized by U.S. platforms. I think it’s actually optimistic in that sense. We’ve created a duopoly instead of a monopoly and because of that — it either means that Europe is either corner of ice and basically we’re caught in that horrible space between China owning one half and the U.S. owning the other — or that playoff means that there are now opportunities for Europe to do platform-scale companies. They may not be social media companies, I think they’re more likely to be financial.

retirement is the biggest shift anyone can possibly image. To put a number on it — the committed pension liability shortfalls in developing nations are $450 trillion. That’s half a quadrillion dollars. So when people talk about billion dollar market opportunities — this is a half a quadrillion dollar shift in money

BR: When we look at the financial companies that might come out of Europe, what kind of spaces are we looking at? Because I suppose there are certain things that Europe does very well that maybe the U.S. and China doesn’t do so well. I mean, for example they’re both single-currency territories, while Europe is a multi-currency territory — which I think lends itself to maybe start-ups that do things around currencies…

DG: No, I think Europe is actually more homogeneous than that. In Europe people actually do have the same currency across many countries but they don’t speak the same language. And so, what America did was — it was a single-language culture which created the modern idea of what popular culture and popular entertainment was, in terms of media. So, when you had media and communication — that works very well in the U.S. And certainly, even in Anglo-Saxon countries, like Britain exporting pop music to America, it worked very well. In Europe, people don’t speak the same language, but there are common standards for insurance across the whole of Europe — while in the U.S. there are different insurance licenses required state by state. So you have a much bigger single market for things that are the language of money. I actually think that the opportunity there — the regulatory opportunity — means that single financial platforms for insurance, for banking are much more viable in Europe.

BR: So the regulators, I guess, have been more proactive in Europe than in the U.S. particularly, in trying to encourage new types of competition, I guess generally but also in banking with PSD2. Where do you stand on some of these regulations? Are they helping or making matters worse?

DG: There are well meaning initial ideas for things like PSD2, but I feel like Article 13, that recent copyright regulation, it’s absolutely crazy. Because the secondary effects are… it means that you create such a bureaucratic burden that no small company can afford that. So it favours only large companies so it plays into the hands of the existing platforms.

BR: Same thing with GDPR as well, I think, no?

DG: Certainly true, but to a lesser extend. You could in theory comply with GDPR. As a small start-up is really hard, but it’s practically impossible to comply with Article 13. So yeah, I think these regulations have been created by people who, in the game of chess, when they look at how the effects of regulations play out… there’s often an initial effect and then a secondary effect and then so on. The second chess move for GDPR and Article 13 is catastrophic. Basically they’ve just killed the ability for Europe to create its own platform to challenge the U.S., for example…

BR: Changing gears slightly. One of the more interesting companies in the Anthemis portfolio is Kindur. I read a blog article that you wrote about Kindur and one of the things that you spoke about in that blog is the enormous size of the pension/retirement market — and it’s not one where many fintech seem to be focusing right now. Why aren’t more fintech companies focusing on the pension market and trying to reform it? Is it just because it is complex and… ?

DG: There’s two reasons, one I think a profound reason, the other one quite trivial. If we take the more profound reason first is that most people think technology companies, because of the word technology — and what we’ve seen with the internet is not the kind of research and development that was coming out of Bell Labs and Xerox Park. What we’ve seen is commoditized technology being used to create new applications. And those applications have existed in big markets of change. My devil’s advocate role is to be not so interested in blockchain or A.I. — I’m interested in markets. In shifts in markets in places like mobility, or education, or retirement. And retirement is the biggest shift anyone can possibly image. To put a number on it — the committed pension liability shortfalls in developing nations are 450 trillion dollars. That’s half a quadrillion dollars. So when people talk about billion dollar market opportunities — this is a half a quadrillion dollar shift in money. And because of that, there will be massive opportunities.

And one of the more banal changes there is that the existing model of pensions which started when Bismark introduced them and the idea was that you got a pension if you’d outlived your normal lifestyle and then it morphed into this idea of along holiday after you stop working. That’s not possible now because the support ratio, i.e. the number of people working for the number of people retired is a lot less. So you can’t have people having a bigger holiday unless there are people paying for that holiday. And that’s why there is this shortfall. The only way to do that is to shift from a pension that pays out a defined amount to basically contributing… defined-contribution pensions where you contribute a certain amount and you get whatever you put in, back out. That’s what’s happening and because of that people will have to manage their own retirement — it won’t be management by someone else. And that’s where someone like Kindur comes in. It takes something that… people are not going to be able to do this because it’s going to be difficult — but they’re going be forced to do it, therefore you need a product like Kindur to do it for people.

And just so I close that out… the reason why that hasn’t been been done by other people is because most people that do start-ups are young, they’re not pensioners, and they’re not thinking about their pensions, so this has been overlooked…

BR: But there are a lot of people that are working on this, but sort of on the earlier stage of that, which is “now I`m making more contributions, I should be putting them into ETFs and vehicles that have lower fees”. So there’s a lot that’s happening in the early stage of saving for retirement, but much less that’s happening in the Kindur space…

DG: Absolutely, that was exactly the opportunity that Rhian from Kindur identified, on the asset management side, on the way up — on the accumulation of assets — there’s tones of stuff. On the decumulation of assets, and making sure you don’t run out of many, on making sure — as she says — you can retire fearlessly, there was nothing.

BR: Do you think that we have a massive pension crisis — I mean $450 trillion I think you said is the shortfall. So presumably, at some point, this is going to come to bite.

DG: Yeah.

…on the other side, is this idea that you can have a purely capitalist environment and not look after people who are unlucky, that’s just mad. And it does create inequality. You want people to create wealth, and create opportunities, but you also need a safety net.

BR: So when is that… so does that happen without massive social unrest?

DG: Probably not… but there are all sorts of things that can cause social unrest, like climate change… and pensions is just one of them. Human beings have been very good at getting out of trouble historically, I hope they do at this one. But yeah, it’s definitely up there in terms of things that could cause unrest. When people realise they’re not going to be able to have the same lifestyle as their parents and that they’re going to have to work a lot longer, and things like that, yes it could cause civil unrest.

BR: Will come back to some of these topics, but at the root of some of this is inequality, right? Because plenty of people will have large pensions — and almost magnifies the inequality. Because it’s a contributions based system and… the more you earn, the more you’re able to contribute and the better your pension. And so it will prolong and magnify the inequality.

DG: And the inequality is not really where people currently think of it — right or left. In the sense that, you know, Jeremy Corbyn in the UK — the Labour Party leader — his pension is worth about £2 million. If he was to buy an annuity, that would pay the same, and I`m sure that he wouldn’t maybe think of himself as being that wealthy. But a lot of people that have these defined-benefit pensions they’re worth an enormous amount of money.

BR: It’s almost like the lens through which we’re looking at inequality is wrong because we look at inequality in pay, whereas inequality in assets is much bigger if we include pensions.

DG: Precisely, and I think that basically what we’ve seen is this big shift to assets. Many people would look at assets like houses and think that these people are very wealthy because they’re in the 1% and they’ve got all these assets, but they’re not including pensions as being an asset — if you’ve got a defined-benefit pension.

BR: Just to get into the topic of inequality. It seems to me that there might be a significant gap in the thinking, because pretty much if we want to be crude — you’ve got The Left that wants to, if we talk about pensions, they want to tax people more to fill the pensions gap, tax people more to redistribute more money — and then if we take The Right, they want to do the complete opposite, they want to accelerate growth through lowering taxes, and cutting red tape and so on. Because these opinions have become more and more extreme, and there seems there’s so much white space between them… is there a middle ground? What is the middle ground that sits between those two increasingly polarized views of how you reduce inequality?

DG: Well the middle-ground is to communicate to both sides the benefit of the other. If you were to talk about capitalism to people vs. Marxism — well actually an investment bank is a good example of a Marxist organisation because it pays its employees at the expense of the people who own it. And technically being in a rock band is a very capitalist enterprise. If you sort of phrase it that way you sort of capture people who wouldn’t think of themselves on neither side of that. The second thing, on the one side we know that free enterprise and free choice about what you want to do as a job, creates wealth and all sorts of benefits — and we want to live in a world where you can choose what you want to do.

That being said… it requires luck. And so, on the other side, is this idea that you can have a purely capitalist environment and not look after people who are unlucky, that’s just mad. And it does create inequality. You want people to create wealth, and create opportunities, but you also need a safety net. So we need both of those things. That’s why I describe myself as a moderate, because I see things as “it’s complicated”. Like most things in life, it’s not capitalism vs. socialism, but rather what it the play-off between encouraging people to create things and rewarding people who do things but not punishing people who are unlucky.

BR: Yeah, and that’s seems to me to be the overlooked middle-ground. Which is, unless we grow the pie there’s less to redistribute in the first place. So we have to grow the pie. We have to encourage risk-taking, we have to encourage wealth accumulation. But I agree with you, I think the bit that everybody neglects is the safety net — universal healthcare provision and so on. That will encourage that risk taking in the first place and not penalize people those who are unlucky. But very few people are talking about that.

DG: I think in France, I don’t think many people in France have a problem with a good baker’s shop producing great bread and caring about it. And actually that’s a very French thing to think about — that kind of small retail being very good and very honest. The problem most people have is with things that aren’t really capitalism — where you have big organisations that create monopolies or game things.

BR: Just on the topic of growth. Clearly, if we’re to tackle inequality, I mean there’s been no better system for reducing inequality than globalization and capitalism, right? I just want to read a statistic here, in the last ten years, according to the U.N., 750 million people have been lifted out of extreme poverty. So growth is really an engine for reducing inequality. My question to you is — there are a lot of people, a lot of thinkers who position growth as the antithesis of protecting the climate. Almost like those things cannot be done simultaneously, like they’re mutually exclusive. Again, are we wrongly positioning the trade-offs? If there isn’t a scientific way to remove that trade-off, than we need to find one?

DG: Two things — one is can you get growth without consumption of resources that if you consume them, you mess things up. Because if we look at the standard green argument, psychologically what does that looks like to a lot people is “how do you stop consuming?” Which, of course, causes issues because we haven’t figured out a way for human beings to exist with the benefits that have happened through growth without consumption.

BR: And also, it amplifies that inter-generational argument — the sense that this generation won’t have the same benefits particularly as the previous generation, the baby boomers. They had big retirement pension, as you said, also they were able to consume as much carbon as they wanted. It aggravates that sense that this generation might feel aggrieved.

DG: I’ll come back to the argument about growth and why I think there is a model that works with growth. But to your point about what’s happening with people feeling aggrieved — this is developing countries that people are feeling aggrieved. More people have been lifted out of poverty, globally, than any period in history — and yet you’ve got people saying “hang on — what about the 1%, inequality, what’s happening with houses in London costing an unaffordable amount of money?”.

Well, that’s in developing countries, and I think the way to look at this — the thought experiment that I have is imagine two glasses of water. One glass has got a little bit of water in it, and the other glass is almost full. And the water in the glasses is inequality. The glass with a little bit of water, with a little bit of inequality, is what most developed countries look like. The glass with a lot of water in it is what most developing countries look like. And then you globalize… you mix those two glasses together. Of course, what it looks like…. even if you pour some of that water away, the glass with the little bit of water now has a lot more in. Looks more unequal.

BR: But isn’t that just another way for making the argument for a safety net, because I think the problem with that analogy is that it assumes that is a zero-sum game, right? You’ve just put water from one glass to the other.

DG: No, no, I’ve assumed that you’ve put some of the water out. I’m saying that even if it’s not a zero-sum game, you still get the perception as you globalize that some people in the developing countries, which were insulated by being part of these nation states that were very wealthy, and suddenly they loose out. And I think that’s part of what’s happening in politics…

BR: But clearly the overall level of economic activity has gone up. And so, the challenge is — that’s why I mentioned the safety net — because the challenge is how do you use globalization to create living standards that make sure you don’t have much inequality?

DG: Well you probably, as you globalize, you need to remove the existing pockets where people game the system— offshore, taxation — things like that. We’ve seen a period of globalization, global trade. If you believe that increasing the flows of things creates wealth then you have to assume it’s a good thing — globalization — but you also have to accept that it has downsides for people who were benefiting from the pockets of wealth in the past.

And the only thing we can do is create technological progress. And the only way we can create technological progress is through growth. So we have to consume more, ironically…

BR: I made us digress. To come back… this potentially false trade-off between growth on the one hand and the environmental protection on the other. You were saying that — you were posing the question of whether you can protect the environment and continue to consume.

DG: When I said that our psychological model is that we live on the planet and it is this single thing — i.e. it’s a finite, closed system. And we’re digging stuff out of the ground — fossil fuels — and expanding them and damaging the environment. Mentally, what that model looks like is that it’s a closed system with finite resources.

That’s not actually the way it works… we’re an open system. We have a bunch of high energy photons raying down from the Sun — and actually, several times more photons are re-radiated out in the infrared, out in the space. So the Earth is an open system, sitting between the Sun and the heat sink of space. And in that open system, we have an unlimited amount of energy. The second thing is that we’re sitting in an energy gradient, between cold space and hot Sun. In terms of the physics of this, what it means is that we don’t actually consume any energy.

Zero energy is consumed by all of the people on Earth. We don’t consume any of it. We just benefit from being in this gradient. So this mental model of consumption is actually just a colloquial, not a scientific term. We don’t consume energy — by definition energy is conserved. This is not a new idea, this is a Newtonian idea. What we have done though, is we have destabilized this open system such that it might create a runaway heating effect. We could consume an unlimited amount of solar energy, and consumption is not a bad thing in itself. What’s wrong is the wrong type of consumption — that pollutes or creates global warming. We need to create a form of consumption, the right form. It’s not amount the amount, it’s about the type of consumption.

BR: And do you feel — I mean there has been massive progress in solar, right? McKinsey said that by 2030 it will be cheaper to use solar to generate energy than using coal. But in general, people have become more skeptical of the role of technology can play in solving climate change — or that’s the way it feels.

DG: I take the opposite view — we could take the negative view and say “look, there are too many humans and we should all die out”. Let’s assume that killing everyone is not what we want to do because that’s not a nice idea. Some people may want that, but that’s a lot of suffering so let’s just assume that is off the table and we have to keep everyone alive, alive. The only way that we have got through problems in the past was through technological progress. And so if we assume that the only way we can get outside of this problem which is pressing is through technological progress, then if we have a model which is about conserving and efficiency — we’re going to reduce technological progress, and that would have been a viable model, if climate change wasn’t inevitable. But if we assume that climate change — that we’ve hit a point of no return and it’s going to happen if we do nothing. Then we can’t do nothing, we have to do something. And the only thing we can do is create technological progress. And the only way we can create technological progress is through growth. So we have to consume more, ironically…

But the only way we can consume more and create that technological progress without making the problem worse is if we consume in the right way — through things like solar. So we have to create the environment that exacerbates consumption, ironically, but make sure we don’t do things like burn coal.

BR: If we’re challenging existing thinking — then very few people are talking about increasing consumption. But it seems again that we’ve got polarization between on one side people who just deny climate change and on the other side people who, I suppose, engage in false science— trying to argue for much lower consumption, arguing against nuclear. For me, it’s very difficult to make the argument — for me the best argument against nuclear is that the waste needs to be stored for hundreds and hundreds of years…

DG: If we didn’t have climate change, if climate change wasn’t inevitable, we should be decommissioning nuclear power stations, clearly, because they have non-guaranteed but potentially catastrophic pollution risk. But the problem is… we know that they solve here and now the climate change risk. So it’s completely coupled. If we didn’t have the climate change risk, we shouldn’t be building nuclear power stations and we should make sure that everything is focused on pollution and a sustainable environment in that way. But we have this very pressing thing — where we might need to geo-engineer the environment, i.e. we might need to make some unpleasant choices to make sure we don’t all die and then fix the mess afterwards. That might unfortunately be what we have to do.

…if we switch to organic tomorrow two things would happen: half the population will die and the second thing is that the environmental impact would increase, i.e. we would produce more global warming.

BR: It seems such an irony that Germany, for example, which has been such a pioneer in solar has now turned against nuclear and burning more, ironically, coal, right? On another point, where do you stand on the whole GM vs. organic? Because I suppose we’d all like to consume fewer pesticides in our food and so we can make the case for organic — but it’s producing lower yield and therefore is not really compatible with a growing population and the need to feed everybody etc. So where do you stand on that?

DG: Like most people, I do actually buy quite a lot of organic food — for the reasons that you don’t want your children to be eating pesticides and all that. So, parking that aside and not being completely hypocritical about what I’m about to say is — I think it’s complicated, like all these things. If I take the devil’s advocate argument — I don’t want my kids to eat nasty pesticides, but I’ve got no problem with ammonia-based fertilizers being used versus… dung. For me what I don’t agree with is this extreme view of organic — where everything is bundled into this notional idea that everything natural is good and everything mineral is bad. By natural we mean organic vs. mineral. Organic food says “all things that are organic are good and all things that are minerals are bad”, i.e. all chemicals are bad. It’s just not that straightforward. And we know that if we take that extreme view, we reduce yield, and — so if we switch to organic tomorrow two things would happen: half the population will die and the second thing is that the environmental impact would increase, i.e. we would produce more global warming (there are certain aspects of pollution that would reduce, certainly).

So we need to find a model that deals with the complexity here. And one of the ways of dealing with that complexity is maybe create a less extreme version of organic that isn’t based upon this tribal idea of chemical vs organic, but is to do with what are the real things that reduce pollution, and what are the real things that reduce climate change effects and actually can feed everyone on Earth. So one of those example — to get back to like investing and things we might invest in — is, if you bundle… let’s say you put a bunch of IoT sensors in a field that look at how every single individual plant in that field should be dosed for pesticides, then you create a bigger yield with less pesticides going in the ground. Now, if the person selling those pesticides isn’t selling pesticides but they’re selling crop yield, and they bundle say financial product for crop insurance with digital product for measuring the data for the plant, with the pesticide, as a service, on-demand, then you can actually create a win-win scenario where less stuff goes in the ground that’s toxic, and there’s more yield, and also more money is being made.

BR: And what other areas are there where, I suppose a populist/tribal view of science is holding us back from making major breakthroughs — also related to where we need to rethink business models?

DG: Everywhere. I mean… you look at vaccinations. And the reason they’re tribal is…. Homeopathy has the same narrative as vaccination. It’s just part of a different tribe — the non-science, back to nature tribe’s view, of vaccination. So if we could somehow reconcile these things, the narrative is the same. Homeopathy is just a vaccination that doesn’t work… or has no evidence that it works, I should say.

BR: Why did people turn their backs on science?

DG: For real reasons, a lot of scientific things like putting pesticides in the ground. There were a lot of good things, but there were a lot of bad things. And so some people got nostalgic and said that maybe what’s wrong with our lives is that we’re stuck on our smartphones and eating food that makes us ill and things like that.

My vision for a smart city is something that would look like a medieval hilltop town in Italy, and not something like Fritz Lang’s Metropolis.

BR: Changing topics again — you wrote a really great piece on Medium about designing smart cities. What are we missing, or again how should we think differently about urban planning?

DG: I mean, I could go on forever about this, having been an architect. So, if I summarize the tl;dr of that article is that most people have a tendency to fetishize technology so when most people think of smart cities, they think of things being full of futuristic technology. I would argue that’s a very primitive and old-fashioned way of looking at smart cities that came from Fritz Lang’s Metropolis or something like that, like a hundred years ago. I suspect that one of the big trends and the things that can happen because of the modern type of technology that we use is very miniaturized and small… is that we reduce the amount of infrastructure. My vision for a smart city is something that would look like a medieval hilltop town in Italy, and not something like Fritz Lang’s Metropolis. We’ve been fetishizing technology and assuming that smart cities look like some of the neo-cities in China, and I would argue that a truly smart city looks much more like something… natural.

BR: What a lot of people say about the future is that the automobile completely changed the layout of cities and so autonomous vehicles would do so again. And you didn’t mention autonomous vehicles, and if you follow the logic of autonomous vehicles is that cities will become more dispersed because we’re not worried so much about distances because we can sleep in our cars, we can chat in our cars. But your vision of an Italian hilltop village or city suggests we will be living in closer proximity.

DG: Well, multiple things. The autonomous vehicles, we have a secondary thesis about autonomous vehicles and it has nothing to do with urban use of these vehicles, but it has to do with being used between towns and cities.

BR: So in place of trains…

DG: Yeah, so, specific… again, when I talk about tech insights and then doing opportunities and then come out with example companies. The example company or idea we looked at there was a dedicated self-drive lane on a freeway between San Jose and L.A. And if you look at that as a serious proposal — it does a few things: one is, you could do it now as self-drive, without waiting for Level 5 autonomy, so at Level 4.

BR: As if you’ve got lanes for trucks that work perfectly well, right?

the grid layout of cities was largely about people in cars not getting lost. We don’t need that anymore because of GPS systems. The concept of getting lost has gone… forever.

DG: Precisely. You can do it now. You can do a self-drive lane providing you make sure that the non-self driving cars can’t go in that lane. So it’s basically a bus lane, but with a curb so you can stop things going in it. The cost of producing that is a tenth of the cost of high-speed rail, because you don’t need to do any gradient leveling or the kinds of things that needed to be done for European high-speed rail networks. So it’s a lot cheaper and it can be done now. You can do self-drive now. And you can also create a system that’s a bit like the… service-design like the channel tunnel, where you park on the side and then you switch to autonomous, and then you park on the side again and wake up and you drive to the end destination. So you can do point to point. As soon as you do point to point, with the one vehicle, self-drive, and you have this middle-zone where you’re on a self-drive dedicated lane on a freeway, you can double the speed. And doubling the speed means that you suddenly can get from a place in San Francisco to a place in L.A. quicker that you can by flying. And that’s the biggest short-haul route in the U.S. You can suddenly take a million people that use the plane out of the sky and put them in an environment which would have let’s say, no carbon emissions, because you would make it electric self-drive. And you’ve created a wonderful thing.

The second thing is that, bizarrely, the model for financing this comes from France. So when we think of Europe, high-speed trains and things like that. But most of France’s motorways or freeways are privatized, or semi-privatized I should say. The way they’re financed let’s say by a sovereign wealth fund is that the sovereign wealth fund comes in and they’re allowed a capped return over a certain period of time, and once that return has been achieved for financing a toll road, it goes back to the state. In the U.S., less than 10% of freeways are privatized or have toll-roads. So, the idea of taking this model to the U.S. in terms of financing and creating dedicated self-drive lanes might happen. This sounds futuristic, sounds like something, yeah great in theory, well actually it’s happening now.

BR: Sounds like much less futuristic and much more feasible than boring into the ground to dig tunnels.

DG: Exactly. So it’s a much lighter touch of doing futuristic transportation than a hyperloop, and it is happening. The Chinese are doing it. There’s a 60 miles route between Beijing and one of its satellite towns which is going to have a dedicated self-drive lane on a freeway.

BR: Just one more question on smart cities, then. You still see us living in close proximity — because, I guess, there’s so many spill over effects from high-urban density and also, probably, way lower carbon footprint.

DG: Well, if you look at specific examples of less infrastructure in a city. So, a lot of the city was designed around cars, like we say. I think in-between designed could be designed around cars and bits of cities will be, let’s face it. But the layout, the grid layout of cities, was largely about people in cars not getting lost. We don’t need that anymore because of GPS systems. The concept of getting lost has gone… forever.

BR: And I suppose the grid system came at massive expense in terms of parks and…

DG: It’s not organic, yeah. We don’t need grid cities anymore. They can look much more organic. We don’t need to worry about people getting lost in this labyrinthine sort of medieval style of town. We can build those again and they can be practical. That’s a specific example. And we don’t even need any traffic lights, or signs, all these things can go away… we don’t need all this physical infrastructure anymore because of some of the smarts that are being put in smart cities.

BR: Can you… because it seems that those labyrinthine, old medieval cities… they are like that because they grew gradually without design. So can you design those features into future cities?

DG: So I’d refer the essay I wrote. Which is a very subtle topic about how things are designed. When I was an architect, things were planned, they were designed as blueprints. But actually if you look at organic, the nature of organic things, they’re designed as recipes. And recipes are sets of instructions where everything looks a little different, and plays out… so that’s not something I can talk about in 5 minutes but I think there’s a fundamental difference between recipe-based designs, which are very natural looking, and blueprints. And for example, when people say colloquially “DNA is a blueprint for life”, no DNA is a recipe for life. And that’s why organic things are have similar recipe or the same recipe but they look slightly different, because the way that recipe is executed over time in an environment means that it has very natural characteristics. Whereas a blueprint means that things look identical every time it is executed.

Basically, the experts weren’t experts because the world had changed and so we had experts in old things that were no longer relevant. We didn’t have enough people that understood the modern world. And so when the experts where not experts, it went to the people who were also not experts so the whole thing was a mess.

BR: Great! So last question. We couldn’t have a podcast with you and not talk about Brexit. Nobody knows quite how it’s going to land — whether we’re going to have a long extension, whether it’s going to happen at all. I think, like me, you were a big opponent of Brexit, not because we didn’t sympathize with people’s sense of disenfranchisement. But because, a lot of the people who voted for Brexit — this won’t be the solution to the problems they face — in fact it’s going to deepen the problems for many of the constituencies that voted for Brexit. So I guess my question to you, a little bit controversial, is should we give people direct decision making power? The UK is a representative democracy, but it seems there’s more and more of a push to give people, in general across the world, or in the Western world, more say on significant matters of political economy. Is that a mistake?

DG: You’ve hit the nail on its head. There’s a very big difference between a representative democracy and true democracy. True democracy is things like referendums. We’ve seen what happens when you have referendums, they can become mob rule. Most people like the idea of democracy, but mob rule I think people would agree it’s not great. We’re sitting in Switzerland, the place where people always said that referendums work. Well actually if you look at Switzerland last week, they’ve agreed to re-run a referendum because the information was wrong to start with. The information was definitely wrong with the Brexit referendum to start with, but they’re not doing what the Swiss do, they say there’s an absolute, no second-guessing.

In this period of change where we’re going through things where we see that Brexit is just a symptom of political change that manifests itself in different ways in Hungary, in Holland, in Sweden, the U.S.

Brexit was a symptom, but it was a symptom where putting it to a true democracy and non-representative democracy was clearly a big mistake unless people could have been told the facts. And that’s why you’ve have experts, that’s why you have representative democracies and part of the narrative and the language you get form the Brexiteers is that “oh, experts don’t matter”.

BR: yeah, the famous Michael Gove’s “we’re sick of experts”

DG: There’s a reason why you have doctors training to be doctors and not everyone can just show up and say I’m a doctor. That’s a form of representative democracy, if you’d like. We need to do the same that we do with doctors — where you need to be a qualified doctor to do something — that we do with politics particularly now.

BR: Exactly. Which is almost we’re moving in a direction towards direct democracy at a time when experts matter more than ever precisely because society is changing so fast.

DG: And at the other extreme end you’ve got the technocracies which are too much the other way. You could argue that China, as a country, is run like a corporation, where maybe it’s too much the other way. So it’s mob rule versus dictatorship, at the end of the day. You need something in between, you need some way to make sure that the technocrats are acting on behalf of people and making informed decisions.

BR: And this push towards direct democracy why did it come about? I mean, there’s an argument that people that used to represent us were better educated, much older and those distinctions have disappeared. Because the population in general has gotten older, more educated. So one of the pressures is that people don’t necessarily see a big distinctions between the political class and themselves. Is that one of the causes or are you much more of the view that it’s done to the changes in the information flows and…

DG: Basically, the experts weren’t experts because the world had changed and so we had experts in old things that were no longer relevant. We didn’t have enough people that understood the modern world. And so when the experts where not experts, it went to the people who were also not experts so the whole thing was a mess. We need new experts, people who understand the modern world and understand the political decisions that need to be taken.

BR: And how are we doing on that?

DG: Terribly. Well, apart from China… despite people saying, it’s making a lot of decisions that look intelligent. But I would argue that we need balance. We need to have the right experts but with a lot of democracy to elect the experts.

BR: Yeah, because if you follow that — I guess you could recast the copyright regulations and GDPR exactly as anachronistic regulations because they were put together by people who think in the old paradigm.

DG: We have industrial age politicians in the digital era. That’s part of the issue.

BR: There seems to be some digital-era politicians coming to the fore in the U.S., but less so in the UK and Europe, right? Do you disagree or see potential that I don’t?

DG: They will definitely happen, people that understand the modern world. Because what we’re seeing now is all the dystopian advantages of politicians that understand the internet through manipulating people through Cambridge Analytica etc., they’re definitely not naïve in how to leverage the modern world, but that needs to happen in a benign way.

BR: I think that’s probably a good place to leave it — which is if anybody listened to this who does understand the digital world and wants to enter the world of politics, now is your time to use these tools for the good.

David, thank you very much for your time!

DG: Thank you.

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