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Innovation, Entrepreneurship and the Global Marketplace

April 21, 2004
Robert W. Galvin, Peter A. Thiel, Daniel J. Edelman

Contents

Introduction by David Theroux
Peter A. Thiel, Co-Founder, PayPal, Inc.
Daniel J. Edelman, Edelman Public Relations Worldwide
Robert W. Galvin, Chairman Emeritus, Motorola, Inc.
Questions and Answers Innovation, Entrepreneurship and the Global Marketplace

David J. Theroux
Founder and President, The Independent Institute

Good evening ladies and gentlemen. Good evening.

My name is David Theroux. I am the President of the Independent Institute. I’m sorry to interrupt your discussions, but I wanted to take this opportunity to welcome you. We’re delighted that you could join with us this evening for our dinner event: “Innovation, Entrepreneurship and the Global Marketplace.”

For those of you who are new to the Independent Institute, the Institute is a non-profit, scholarly, public-policy research organization that sponsors in-depth studies of major social, economic, environmental, legal, and international issues. The results are published as books and other publications. And we sponsor many conference and media projects based on that work.

Eighteen years ago we founded the Independent Institute to examine the actual nature and consequences of government policy without regard to the prevailing popular or political biases, trends, or phobias. We wanted to create an organization that would support scholars who wanted to explore important areas that might otherwise be ignored, including issues that normally might be considered “out-of-the-box,” controversial perhaps, but which we believed were crucial to our understanding and aim to get at real answers and lasting solutions. As a result, the Institute was founded to cut through what many of us consider to be the intellectual poverty, noise, and spin of interest-group public policy in the U.S. and elsewhere.

To do so, we established what some people, I think, would agree is a new kind of research institute: one of a kind, frankly, especially in the public-policy field, which is so dominated by highly partisan advocacy groups of almost every stripe. The result was starting an organization with no financial backing from any interest group: industry, labor, government, or otherwise. In fact, we had no “angels” at all.

But we had a deceptively simple ambition. The ambition was to do work that was solely based on one, and only one, criterion. And that criterion was peer-reviewed scholarship and science. In effect, we became the first “garage” think-tank. And today we have over 140 fellows at universities in the U.S. and around the world.

We invite you to join with us and learn more about the Institute’s program. We hope you’ll enjoy getting beyond the stereotypes of Left and Right, into the realm of innovative, bold ideas. We believe that such ideas are the key to a brighter future.

For example, in your gift bag, you’ll find a copy of a book of ours from Oxford University Press, called Entrepreneurial Economics. It’s this book here. The book applies simple yet powerful economic principles to improve health, wealth, security, and happiness of people, taking on such diverse problems as genetic testing, health and wealth insurance, intellectual property rights, legal gridlock, urban transit, intelligence gathering, investor protection, and even the shortage of human organs.

The book is a project of one of a number of new centers that we’re organizing at the Independent Institute. This one is called the Center on Entrepreneurial Innovation, inspired by the deep commitment and enduring legacy of the late Willard W. Garvey, who was committed to educate the public, especially young people, to advance the practice of market-based entrepreneurship. The Center on Entrepreneurial Innovation networks with scholars, media, business and civic leaders to advance the creative phenomenon of entrepreneurship and the dynamic process of markets.

I also want to invite you to pick up a complimentary copy of our journal, which is called The Independent Review. There are copies right outside the ballroom, in the lobby where we had our reception. You’ll also find a copy of the cover artwork of the next issue in your gift bag. This particular issue’s cover story is on who exactly predicted the high-tech crash, and who predicted the boom before it.

Throughout our work, we seek to push at the frontiers of our knowledge, redefine the debate over public issues, and foster new and effective directions for government reform. To do so, the Institute draws its support from a diverse range of foundations, businesses, and individuals. And we welcome you to join with us.

In the course of our work, the Institute also takes special interest in recognizing individuals whose contributions are so unusual, so noteworthy, so effective that we believe they merit special attention. And tonight’s honoree is one of those people who exemplifies this in every respect.

However, before we begin, I want to note that in making tonight’s dinner possible, the assistance of many wonderful people was crucial. I would like to take the opportunity to mention and thank some of these people now.

First of all, the Dinner Committee was co-chaired by five distinguished business leaders who I also want to sincerely thank. If each of the co-chairs would stand and remain standing as I introduce them—and please hold your applause until I finish.

The first is Bill Bowes, Founding Partner at U.S. Venture Partners. Thank you, Bill. Dixon Doll, Managing General Partner of Doll Capital Management. Thank you, Dixon. Craig Johnson, Co-Founder of the Venture Law Group, Heller, Ehrman, White and McAuliffe. Thank you so much, Craig. Bill Spencer, former CEO of International Sematech. And thank you very much, Bill. And Walter (Pete) Alpaugh, Chairman of the Executive Committee at Cincinnati Equitable Insurance Company, who unfortunately couldn’t be with us tonight.

Thank you, each of these gentlemen. We’re most grateful. [applause]

I also want to thank the many members of the Dinner Committee. We are very privileged to have quite an excellent group this time for our dinner, each of whose participation really helped in forming the basis for tonight’s event.

I further want to thank Peter Howley, who is a member of the Independent Institute’s Board of Directors, and who was so really helpful in our lining up the committee. I want to thank Don Munro, who also assisted in assembling the list of invitees that we put together.

I want to thank Allied Domecq World Wines and Mumm Napa for the wonderful sparking wine that we enjoyed at the reception. Maybe some of you enjoyed it too much, but I think that’s fine. I also want to thank the people at Sterling Vineyards, who very generously and graciously provided the superb wine for tonight’s dinner. Maurice Kanbar and Skyy Sprits also donated generously the Skyy Vodka that we enjoyed at the reception. You’ll also find the donation of fine chocolate confections by See’s Candies at your place.

And most especially, I want to thank John Campbell, Nichelle Beardsley, and the entire staff of the Independent Institute, who worked so hard in coordinating the many details involved in ensuring that everything would run smoothly tonight.

We also invited the Governor [laughter] and the Mayor to join with us, and they’ve actually sent us some greetings, which I’d like to read real quickly if I could.

The first is from the new Governor of California, which I understand is now called Cal-E-fornia. [laughter]

[applause]

And from the new Mayor of San Francisco we received a certificate of honor presented to Robert W. Galvin, with today’s date. It says:

[applause]

So before I leave you to enjoy the rest of your meal, I want to refer you to the dinner program. In the back of it you’ll find background information on the major speakers that we will have tonight, and you’ll see information about their broad experience and credentials and so forth.

On the tables you’ll find question cards, and we would invite you to use those to submit questions. And you may have questions regarding tonight’s topic in relation to the background of our speakers. Those of you with questions are asked to please have them ready to be picked up during the meal, before the actual talks begin so we won’t have to interrupt that. And we’ll have people circulating in about a half an hour to pick up your questions.

So, thank-you again for joining with us. Please enjoy your meal. [applause]

As some of you may know, the Independent Institute doesn’t hold annual dinners. We actually only hold these kinds of events from time to time, and we do so when we feel there’s someone whose work and effort we feel is truly noteworthy and worthy of celebrating. And as I mentioned earlier, we believe that Bob Galvin fits this criteria to a T. He’s labored for decades as a technology pioneer and entrepreneur, and much more on a global basis. And we’re particularly pleased to have the opportunity to recognize actually just some of his achievements.

Joining Bob this evening is another entrepreneur who is quite early demonstrating many of the same characteristics: a businessman, a scholar, firmly rooted in principles, who is making major waves in quite a number of fields.

Our first speaker tonight is Peter Thiel, who is Founder and Managing Member of Clarium Capital Management, a global macro hedge fund. The fund has been profiled in Barron’s, The Financial Times, and Institutional Investor, and Peter’s commentary on the markets is regularly featured on programs like Kudlow & Cramer, Your World With Neil Cavuto.

Although still shy of 40, in fact well shy of 40, Peter has already had a deep and varied career in finance, including derivatives trading for Credit Suisse Financial Products in New York and London, and a securities law practice at Sullivan & Cromwell, one of New York’s most prominent business law firms. But Peter is perhaps best known for co-founding PayPal in 1997. Within just a few years, he established PayPal as the world’s preeminent electronic payment services provider, and he distinguished PayPal as one of the few Internet firms to achieve profitability, selling it to eBay in 2002 for $1.5 billion.

Peter received his B.S. and J.D. from Stanford University, and sits on the Board of Visitors of the Stanford Law School, as well as on the Board of Directors of The Independent Institute.

I first had the pleasure of working closely with Peter when he co-authored the Independent Institute’s book critiquing political correctness in higher education, entitled The Diversity Myth. He continues to apply his analytical mind to a variety of interests. And I am very pleased to present Peter Thiel. [applause]

Peter A. Thiel
Co-Founder, PayPal, Inc.

Thank you very much. Thank you very much, David, for that incredibly gracious introduction. I feel like anything I say is going to be an incredible letdown after that. And I must confess that I always feel a bit intimidated being in front of a group as distinguished as all of you who are here tonight.

And one of the things that’s so difficult is that I’m always asked to sort of tell people lessons about things that we learned from PayPal, or lessons about being an entrepreneur or an innovator, or about the global marketplace. It’s actually very difficult to abstract. The reality is that each of these companies is very unique. You can’t actually necessarily apply that much from them.

So while I’m going to say a few things that are a little more general in nature, I thought it would be helpful maybe just to start by telling the particular story of PayPal; how we built the company, how we started it. We may have been brilliant, we may have been very lucky. Perhaps it was a combination of the two.

The company was started, as David mentioned, in the late ’90s by myself and another friend of mine. We recruited a number of our college friends—to the point where I was the only person of the founding team who was over 23-years old. Everybody else basically was not aware of the things that they weren’t allowed to do or couldn’t do, and so we set out to basically create a new world currency, or as we more modestly like to describe it, a financial operating system for the world.

Some of you may be familiar with the PayPal product. Some of you may not. But the basic idea was to link money and e-mail. It was a very simple idea. It was basically the idea that you could send money to anybody with an e-mail address, and it seemed like a pure product that was designed for the pure Internet world of 1999.

Money is the ultimate virtual product. You don’t need to have a storefront or anything like that. All you needed were some great Web designers, some top-notch engineers. You needed to get a Website up, and then people could start sending money from one person to the next, anywhere in the world.

We concluded that because we weren’t old enough, nobody else would take us seriously, so we had to figure out a way to launch the product without working with big companies, without working with banks, or telephone operators, or anything like that. And so we had to somehow get a grassroots adoption of the product to start.

And we created what’s called, in the industry lingo, a viral product, where as people use the product, they’d get other people to use it. And it was very simple. You’d register with a product. You’d give us your credit card number. You typed in the e-mail address of the person to whom you wished to send money, and then the recipient would get an e-mail saying, “You’ve got cash.” And at that point, the recipient would have every incentive to sign up. And as a result, you could start with a small number of people, and you could gradually grow the product as people sent money to one another for various reasons.

We also concluded that just to help the process along, we’d pay people upfront to get them to sign up. We’d give you $10 if you signed up, and we gave you $10 for everybody you referred. So it cost us $20 to acquire each customer, and while it felt like an insane thing to do, and there were all sorts of concerns about there being adverse selection, and you were just selecting for people who only wanted to get paid free money. It was actually cheaper than all the other advertising opportunities that were available.

The product was launched in October of 1999. At the time, the company had 24 people. And we basically started with those people e-mailing money to their friends, to their acquaintances. And then it started to grow with this very smooth exponential curve, where the user numbers—at first it was a very small number, but it was basically compounding at about 5 percent to 7 percent per day. And if you do the math, [laughter] it grows pretty quickly.

And so it was by mid-November, we were up to a thousand people. By December 31st of 1999, it was up to 12,000. By February 2nd of 2000, it was up to 100,000. By mid-April of 2000, it was up to a million. It was a smooth, quasi-exponential curve.

It turned out, actually, that people found it to be very useful in a lot of contexts, especially among small businesses that needed to receive payments from other people where all they knew was their e-mail address, and it was a way for people who were micromerchants, in particular on eBay, which subsequently bought the company, to buy and sell things from one another.

The company, incidentally, has kept scaling and scaling. Currently there are about 46 million people worldwide using the PayPal service. It’s available in about 38 different countries. So it continued to grow and grow. But the initial stage was this pure cascading growth trajectory.

Looking at it in early 2000, the thought really was that this product is going to literally take over the whole world, and that we’re going to replace every government currency in the world. We’re going to replace all the finance; this is going to be the new currency. It’s growing so quickly that by the end of the year we will have more or less taken over the whole planet.

And there was a talk I gave almost exactly four years ago at the financial crypto conference in Anguilla, where there were these libertarian- and anarchist-type people. And they’d been trying to come up with this new digital payment, digital currency type idea that would be free from all sorts of government constraints, and they’d been working at it for seven, eight years. By early 2000, there were people giving theoretical papers on why this could never be done. And when Max, my co-founder, and I arrived and announced that we’d figured it out, there were a number of people who were not too happy. But the goal was to actually try to build something like this.

It scaled. I would say unfortunately there was a transition point, and in the spring of 2000 we had, you could say, a rendezvous with reality, or with politics, or with the way the world really works, or perhaps the way the world really works and really shouldn’t work. Something like that.

The first part, of course, was that there were some basic things at the margins that started to break down. It turned out we had customers and needed to do something with all these customers. And so they were calling in nonstop on the company phone lines. By April of 2000, you could not use any of the telephones in the office– if you picked up a phone, there was a customer calling in. You could only use cell phones at the office. It grew far beyond anybody’s expectations, it was so successful.

But on a more sinister level, what we next encountered were Russian mobsters who were interested in figuring out ways to steal money. And there were all sorts of variations on this, but the standard variation was that a mobster would break into an unsecured database, and steal a thousand peoples’ identities.

So they’d steal your name, your credit card number, your social security number, all that stuff. They’d set up a thousand different PayPal accounts in those peoples’ names, and they’d charge each of those people $500 and collect half a million dollars in their account. And from there it would get wired to the Bank of New York, and from there to Kazakhstan.

And we had this long, long race with the Russian mob in terms of how do we stop these people. One of the core technology innovations we developed in 2000 was to develop a powerful anti-fraud technology that could actually stop all this fraud from happening.

And so there were a lot of rather colorful stories. I remember my mother was accosted by this guy, Igor Yagolnitser, at a local chess club, [laughter] and it took me about a year later to figure out that our anti-fraud technology, which was named Igor, was named after this person. [laughter] He had threatened my mother that if he didn’t get his money out of PayPal, because we’d frozen his account, he was going to report us to the police. [laughter] So we solved that problem. Business continued to scale very nicely.

But probably the biggest challenge that we ran into as entrepreneurs was the government regulatory apparatus. And this was certainly the thing that I, perhaps, would have least expected.

Government regulation failed to accomplish anything positive that one might have expected, and then of course, all sorts of negative things occured. The positive place where it failed was in providing security. The natural thinking was that when people are defrauding you, you can go to the police. Maybe Mr. Yagolnitser is not going to go to the police, but maybe we can go to the police and report Mr. Yagolnitser. We proceeded to do that. The FBI showed up at his home and concluded he was totally innocent. We’d given them Web pages. They were asking us, What’s a banner ad?

There was a jurisdictional dispute between the FBI office in San Jose and San Francisco over which of them had jurisdiction over Kazakhstan, and which could handle it. [laughter] So there were some very serious sorts of problems.

So on the positive side, if we had not come up with a technology solution to fraud, we would’ve simply gone out of business. They might’ve arrested various low level people, but we would never have gotten the money back.

On the more critical side, the kinds of issues one ran into were incredibly arcane, unworkable banking rules. Rules about payment systems. As David mentioned, I had been trained as a lawyer, and I guess I’d been ideologically fairly libertarian before starting the company, but I sort of became completely fanatical in this process.

By early 2002, we were spending about half a million dollars a month in legal fees to deal with all the various regulatory pressures. The company was doing well. In 2002 it made about $200 million in revenues, $35 million in profits. There were 20 different law firms on the payroll representing patent lawyers, banking lawyers, anti-trust lawyers, labor lawyers, and immigration lawyers. You had payments lawyers as distinct from banking lawyers. You also had various patent, intellectual property things, and so on down the line. It was a really extraordinary sort of a situation.

The company, to make the long story short, did not end up taking over the world in quite the way we had originally envisioned. It was still by many measures a great success andhad a very successful IPO in early 2002. PayPal was acquired by eBay in October of 2002 for one and a half billion dollars as we were, basically, the cash registers on eBay. About two-thirds of our volume was on eBay, and about two-thirds of the people on eBay were using PayPal.

Now, I’m very happy that in the title for your talk tonight, you had nothing about the government or ways in which the government can help entrepreneurship, or innovation, or the global marketplace, because I do think that one of the lessons is that on every single level there’s never been an innovative idea the government did not “like.”

The craziest version of this that I have to recount in the PayPal context was on the banking regulatory side in the middle of the IPO. I’ll give you the full chronology since it was so crazy.

A BusinessWeek article said that PayPal was a great company but nobody knows whether they’re subject to banking rules. There were four states that had not decided whether PayPal was subject to banking rules— California, New York, Idaho, and Louisiana. There was a mid-level banking bureaucrat in Louisiana who said: “I don’t really know what they’re doing, but if they’re doing illegal banking, they have to stop.” [laughter]

And at that point, the SEC Commissioner—and we haddrawn, unfortunately, a very short straw in getting our SEC regulator—he was scanning the Internet for stories about PayPal because he had concluded that all companies in the U.S. were run by crooks and that it was his duty to prevent all companies from having IPOs, and he was going to stop us from doing it no matter what. So he proactively called up the people in Louisiana and said, “Why aren’t you working to shut them down?” And they were intimidated by this call from someone in D.C., and said yes, we’ll probably do that. And a few days later when we talked to the SEC, they asked, “Have you disclosed in your document that you’re being shut down in Louisiana?” We said, well, that’s news to us. But he said, “Well, I have the fax right here. I’ll send it to you.”

And then at that point I got on the phone and tried to track down the banking commissioner in Louisiana in the middle of Mardi Gras. [laughter] And I think it was perhaps the single most successful achievement I had at PayPal when I managed to track down the banking commissioner of Louisiana in the middle of Mardi Gras and convince him that perhaps this was not a wise step for Louisiana and that they did not want to get a reputation as a technologically backward state. [laughter]

But at any rate, when one steps back and thinks about stories like PayPal’s, when one thinks about the whole new economy, I think there were a lot of mistakes that were made. There were a lot of people who were naïve and idealistic and who built businesses that ultimately did not succeed. I think that needs to be conceded. All of that happened.

At the same time, I really believe that this was the right way to go. We are headed towards a global economy. PayPal was critical towards that, in terms of creating a seamless way for people to move money around the world. We’re headed towards a global marketplace. And I think the only way that a global economy can ultimately work is if it is based on free trade, on the free exchange of different people, and so on down the line.

If you don’t think of it in economic or free market in terms, if you think of it only in political terms, then you run into nothing but paradoxes. It seems to me that the fundamental paradox about globalization is that on a political level what we see happening is that the entire world, the entire human community, is in some sense being networked, being grouped together; but of course, this grouping is not at all unified. There is no sense in which everybody in the world is the same. The reality is that people are very different. They don’t agree; and it’s not possible to get political agreement for different people.

And because of that, I think the only way that the world can become unified in some sense is through technology. Technology is driving us towards a single, seamless humanity, but it’s not possible to reach that by political means. And in fact, if anything, everything that counts as political represents a counterforce to globaliztion.

One of the definitions of politics that I’ve come to believe is very true is that politics fundamentally achieves unity by identifying a collective enemy. While it always sounds very reductionist when you frame it that way, I think there is a disturbing amount of truth to it. The British really didn’t say they were British until the 14th century, when they discovered that there were the French people whom they really hated. And before that time, they’d all been Anglos and Saxons and Normans because they all hated each other. And so on down the line.

The reality of human nature is that people are unique, they’re different, they’re individuals, and because of that it’s not possible to achieve any kind of fictitious, political unity around a positive good. It’s only possible to achieve unity around negative goods, around collectiveenemies, and external enemies, and things of that nature.

Now, the paradox is that this could work in a tribal context. It may not have been just. It was maybe wrong in a lot of ways, but it could sort of work in a very narrow sense. But it can never work in a global context, because when you’re talking about the entire planet, there is no outside left. I’m assuming we’re not going to have an invasion by aliens from outer space, because that’s probably the one way you could achieve political unity. You could have peace on Earth by starting an interplanetary war. That’s not an option. For one thing, I don’t think the aliens will arrive in time to save us from ourselves. For another, I think that’s not reality.

And so what you see instead is this very fundamental conflict. If you look at organizations, like the United Nations, that are designed to achieve some kind of world political system, people always say thatthese organizations are ineffective because they do so little. I would say the reality is that no open, global political organization can achieve anything when it has to unite against outsidersbecause on a global basis there are no outsiders. That’s the fundamental paradox of the global economy. It is radically incompatible with politics.

And that’s why I believe that as technology progresses in the 21st century, and as we continue to see the globalization of the world economy, we will come to see government more and more as a reactionary force, as a force that is standing in the way of progress. And we will have to make a very drastic choice.

The current system is not stable. We have this weird hybrid of trying to preserve political regimes in which people are defined byan “us versus them,” insider versus outsider, mentality with a global marketplace in which people are trying to figure out a way for everybody to get along with everybody else on the planet.

You can’t have both. You have to choose between politics and the hidden motive of Western civilization, which in some sense is being driven most clearly by technology. That’s a very fundamental choice. We know that the way of politics, and government, and things like that, runs by a sort of murder and madness; that’s a sense in which government is an almost literally demonic entity in the world we’re living in today. This is not an option. We must go the other way.

I’ll end on a very libertarian note. I don’t believe that there is anything about this that is historically predestined in one way or another. I think it’s up to individuals to choose which of the two they want.

And I would encourage people to choose entrepreneurship, to choose innovation, to choose the global marketplace, and to choose the authentic vision that the new economy encapsulated very well. Thank you very much. [applause]

David J. Theroux

Thank you very much, Peter.

At the Independent Institute’s conference center in Oakland we hold many events on different policy issues. Several years ago, before PayPal, Peter gave a talk with another economist, his name is Richard Rahn, on virtual money. And at that time, he had a firm called Confinity, which was merged, and that’s part of what PayPal came from. But it’s interesting to go back and read that transcript, and see what’s happened since.

Our next speaker is also a true pioneer, in his case in communications. He has known and worked with many top business leaders. He joins us tonight to share with us his vision of the work and impact of our honoree this evening.

Daniel Edelman is the Founder and Chairman of Daniel J. Edelman, Inc., the highly respected, largest privately held and sixth largest public-relations company in the world. His firm has won 35 Silver Anvils, awarded by the Public Relations Society of Americafor outstanding programs, and was selected in 2003 as Agency of the Year by both the Holmes Report and Inside PR magazine.

Dan graduated Phi Beta Kappa from Columbia College and earned an M.S. degree from Columbia Graduate School of Journalism. He is the recipient of Columbia University’s Distinguished Alumnus Award and the John Jay Award. He is the 1992 Jewish United Fund of Chicago Communicator of the Year. The Arthur Page Society inducted him into the Hall of Fame in 1997. And he has received the Gold Anvil Award from the Public Relations Society of America, the highest award awarded in public relations.

In 1999, he also received the first-ever Outstanding Achievement Award from the China International Public Relations Association. And his awards just go on from there. I’m very pleased to introduce Dan Edelman. [applause]

Daniel J. Edelman
Edelman Public Relations Worldwide

Thank you. That sounded like I was going to make a speech, but that’s going to be Bob. Thank you very much. Bob heard that I was going to make some remarks tonight, and he said: “I want to talk to you. I have something very important to discuss with you. Will you please make it one minute?” So my one minute is almost over. But I’ll take advantage of Mr. Theroux’s invitation to talk five or ten minutes. It’s really a pleasure for Ruth and me to celebrate the presentation of the Alexis de Tocqueville Award to our good friend Bob Galvin, especially when he’s here with his bride, Mary, and quite a few members of their family who are also here.

Before I got to know Bob, I had the experience of meeting his father, Paul Galvin, the founder of Motorola. He headed up the Electronics Industry Association at the time, and we were invited to compete for the account of the Trade Association. We were competing with big firms. I went there alone. Our firm was very small; it had just been founded a couple, or three years ago before that. I don’t know how the heck we got on the list. Mr. Galvin was sitting at the head of the table; and when I finished, he peppered me with a series of questions, and I really perspired over that. I sweated it out, however, but we didn’t win the account.

The man was direct, no-nonsense. And I know some of the further generations of the Galvin family are here—he’s somebody you would’ve been very proud of. I’m sure that you didn’t have an opportunity to get to know him. Maybe some of you did. But I would wonder where we all would’ve been if we didn’t have the car radio that he created, which we had to use on our dates, and we used with pleasure, or where we’d be without his earlier product, which enabled you to plug the radio into the electricity and to have it work. We were using batteries before then.

Bob is quite different from his father in many ways, but like him, he’s extremely creative, and a builder. He took Motorola from a few hundred million dollars in annual sales to $27 billion, and make it the first company into television, transistors, paging, cell phones, semiconductors, and numerous other high-tech products, such as electronic engine controls and computer systems.

He took the company worldwide in the ’60s. I’ve been traveling throughout Asia for many years, and there was hardly a city that you’d get to that didn’t have a big Motorola billboard at the airport or in a key location downtown. It was truly global.

He’s been engaged in every facet of public service; he evenfocused on alternative systems of energy before that became a national issue, which it certainly is today. He has taken on many other important responsibilities, being one of the two saviors of the Illinois Institute of Technology, located in Chicago.

More recently Bob has been an author. You’ve heard about his book, America’s Founding Secret, describing the Scottish Enlightenment, which Bob points to as the source of much of the knowledge absorbed by our Founding Fathers, who created our democracy and market economy, and I’m sure Bob will be talking about that a little bit as he speaks tonight.

I’ve heard Bob speak on many occasions. At the Economic Club in Chicago dinner some years ago I sat near him on the dais. I noticed he had a card with ten bullet points on it, and he referred to that a little bit, but he spoke without notes, as I am with notes. I’ve heard him speak on the Scottish Enlightenment and on other subjects.

He said if I talked too long, he’ll talk shorter, so I will try to move along as fast as possible so that you get the benefit of his words.

He’s received dozens of awards from universities, business associations, industry—even the French Legion of Honor. It’s so appropriate for us to honor him with the Alexis de Tocqueville Award. De Tocqueville, when he came to the United States to write that famous book on Democracy in America, was just 29-years old. He was an original thinker andpragmatist who believed in individual freedom—and Bob reflects those wonderful characteristics.

Ruth and I have had the privilege of being close to Bob and Mary Galvin for more than 40 years. Bob put it at 45 tonight when we were talking earlier. He was president of the Chicago Chapter of YPO, and engineered my nomination to succeed him. We’ve played tennis, and he’s a fierce competitor. And I learned tonight that he sculls.

In addition to playing tennis quite regularly, he does sculling, which I was reminded—I hadn’t heard the term for some time—is in a boat. You’re on your own. It’s like rowing. And Mary does it, too. Bob characterized her as being the only great-grandmother, probably, who’s sculling regularly.

We’ve joined Bob and his family on many evenings in connection with family celebrations, events at one of our homes, or civic dinners. And of course, most of you know they’re parents, and grandparents, and great-grandparents of a lovely brood of Galvins, and many of them you can recognize from the Galvin look.

For many years, we were owners of property at John Gardner’s Tennis Ranch in Scottsdale, Ruth and me in a casita, and Bob and Mary and their children and grandchildren in a beautiful home on top of the hill. They fully deserve that because Mary literally discovered the place, and she and Bob convinced John Gardner to make Scottsdale his second tennis resort, a larger version of the one he was running in Carmel.

Your honoree tonight is a man of great talents, wonderful character, and a humanist. He has excelled in business and in public service. He’s warm, friendly, modest, and democratic. I’m pleased to join you in honoring him tonight, as Ruth is, my good wife. Thank you very much. [applause]

David J. Theroux

Thank you very much, Dan. I know that there’s quite a number of people in the audience who’ve also known Bob for many years and can testify in many other respects.

The globalization of markets, as Peter was talking about, has certainly accelerated , as we’ve witnessed with the new revolution in technology, especially high technology. And our next speaker is one of its true pioneers. Dan has sketched a picture for us of a unique man: a man of integrity, a man of intellect, a man of vision, a man of enormous accomplishment, and—perhaps some of this will come out in the Q&A period—a man of compassion, a man of great humility, as Dan mentioned.

In the gift bags that you have, there’s also a sheet in there, which is just sort of a snapshot of some of the comments we’ve gotten from people who couldn’t join us tonight. I’d like to read a few of them.

In addition to his stunning successes leading Motorola, Bob has served as Chairman of the Board of Trustees of the Illinois Institute of Technology, which Dan was referring toand at the Santa Fe Institute.. He is Vice Chairman of the Universities Research Association. Many of you may have seen the complete bio that we put up on our website and also sent to many people. It was far too long to put on the dinner program. He is the recipient of over ten honorary degrees. Under his leadership, Motorola was the first company-wide winner of the Malcolm Baldrige National Quality Award. He’s a member of the National Business Hall of Fame. And I should mention that Bob was also a founding member of YPO and CEO.

But we honor tonight Bob most of all because of how he has achieved his success: through adherence to the highest of principles and dedication to helping others learn the meaning and importance of these ideas. His current work memorializing the origins and findings of the Scottish Enlightenment is reviving interest in a group of pioneering thinkers whose insights are, if anything, even more relevant today than they were when they were first written in the 1770s and afterward.

Most recently, as you know, Bob is the author of this book—there’s also a copy in your gift bag—entitled America’s Founding Secrets, on the Scottish Enlightenment. It’s not the first book on the subject. It won’t be the last. It’s not an in-depth scientific or scholarly work. But it’s a very important book, because what Bob has done is he’s essentially written a book which is sort of likean executive summary for people who are busy. How do you communicate to busy people the key insights of this group of people that have had such a profound influence on life in the United States and worldwide? Few of these people have the time to read Adam Smith’s The Wealth of Nations or other works.

So throughout his career, Bob has exemplified the term “a scholar and a gentleman.” And I am honored and pleased to present to you Bob Galvin. [applause]

Robert W. Galvin
Chairman Emeritus, Motorola, Inc.

I come to events of this nature, where there is bound to be stimulation, hoping to be ready to be responsive. Peter has given us, I think, a superb and thrilling presentation, on his entrepreneurial success and his philosophies. Adam Smith would have liked to have heard his speech on globalization.

But Peter and I don’t see eye to eye on how the world will evolve into the better place that it has to be, so let me give you a contrasting point of view. If you read my book, America’s Founding Secret: How the Scottish Enlightenment Helped our Founding Fathers, you will catch a hint of what I will now elect to speak of publicly for the first time.

The Scots became a superb role model of building nation. The United States is a superb role model of nationhood. There is a chance that if we copy the modus operandi of the Scots, and with the great strengths that were accorded us as a function of the founding that followed them, it would be possible for us to pick two or four nations in need of betterment, and make them better as the Scots made themselves better, and as we made ourselves better. Let me just pick up a couple of themes from my book, and then see if I can make that point to your levels of interest in the differences between how Peter and I look at things.

In the 1500s, the people of Scotland were in dire need. They were in need of hope. They were subject to lordly tyranny. And just two or three people in the country –Hector Boece, John Major, and George Buchanan—said “We’ve got to change the quality of leadership in our country. The monarchs, the princes, the feudal lords, they’re immoral. They’re unprincipled. They’re totally selfish. We must teach our leaders morals and manners.” Imagine that. Changing a whole country by just two or three people.

And they started that; and generation after generation after generation after generation, for 250 years, it was as if there was a force field with a unique, internal magnetic strength that built more and more people among the learned Scots, so much so that in 1750, the Scots were the brightest people ever assembled in one place at one time and were the leading thinkers in all fields of knowledge.

They had made Scotland into the most superior institution, intellectually, in the world - a fact not known by very many Americans. On other occasions when I’ve talked to audiences, such as those that Dan spoke of, I’ve often asked the question “how many of you knew about the Scottish Enlightenment and what they did to build the nation?” There’s only two or three people out of 100 that know about it.

But here was a hopeless situation that built the quality of nationhood with all of the fibers of greatness. Now, it so happened that through a variety of processes that, again, are spoken of in the book, it was possible to transfer the wisdom of the Scottish Enlightenment to our Founding Fathers. How come—maybe you ask the question as I did when I was a student of American history—we were so favored that there did emerge a group of courageous and wise people, just a couple of scores of them, who we called patriots to begin with and founders eventually, who all seemed to just come upon the scene? There have to be first causes. What was the root of their wisdom? The root of their wisdom were those who belonged to the Scottish Enlightenment.

I’m not going to take an inordinate amount of time here this evening to paint that picture for you, but you know the names of James Watt and Adam Smith. You probably don’t know too much about Francis Hutcheson, David Hume, Lord Kames, Dugald Stewart, and a whole slew of other men. These people were, as a collective group, the ultimate generation that had this remarkable wisdom, being the best geologists, the best chemists, the best political thinkers, the best architects and engineers, who built a society that made Scotland a nation to be factored. It lost its independence, but that didn’t mean that it hadn’t shown the way to nationhood.

All that they learned, they imparted to us. And made possible what my father did in founding our modest company, what Peter has done in the achievements with his, and what I know a number you out in this audience have donesimilarly. They did it because the principles learned from the Scots, these roots, were established in this country.

The big lesson of the Scots was the lesson of the role of property—resources—in commercializing societies. That was the pivot point in the history of man when finally a group of wise people said, “yes, we’ve had those who were in agriculture. Now it’s time for commerce, and commerce is the basis of building societies.” Incidentally, a good part of that commerce today is technology-bent.

But it was the role of property that the Scots taught to our Founding Fathers, that first made it possible to establish a country built on commerce, capital, and the creation of wealth through the employment of a subsystem in society called business.

Many of you here are a part of today’s society of business. We would never have been the grand society we are if we had not had the roots imparted to us from the Scots, which is detailed in some useful way in this book, and I recommend it to you. But we picked it up, and carried it farther. We were nothing as a nation.

Now, what did the Scots do, and what did we do that gives hope that others can take the essences of our experiences and turn a stale nation into a vital nation?

The first thing is that you have to admit that what you’re doing is wrong. There has to be somebody in the society who is willing to call out that challenge, and that cadre will be a minority. It was three in the case of Scotland. It was a couple of scores of patriots in our country. It could be any number in the 50 or 60 countries of the world that have to be brought into the real world so they can be a part of that global society that Peter and Adam Smith have talked about.

So my message in relationship to the integration of the synthesizing of the things that can go on directly and subliminally in meetings of this nature is that there are ways of doing things better. The Scots, among other things, had a great ability to work together interdependently and interdisciplinary with regard to their affairs, and that was to have clubs. They had many clubs. The great scholars were members of two or three clubs. They’d meet almost once a week at their clubs. A dissertation would be made, a comment of one kind or another; maybe they would just frolic at that particular meeting.

I see private sector peoples in the current enlightened countries of the world forming groups, in the fashion of a seminar class, that will be available to help flourish the enlightening that may take place in the next country that is ready to join the real civilized world, with a strong commercial base, and yes, even a better legal system, and a better government system. We have to have them all. We have to have success in technology. But Peter, I am of a mind that having fostered technology around the world will not be the seed from which all good will come. It’s going to have to come from principles, such as are acknowledged in this text.

I’m going to make a very strong appeal for the fact that the great ultimate heritage of the Scottish Enlightenment, which taught Americans how to be Americans, is that we can sow the seeds of a commercial civilization free, enlightened, objective, and open-minded, that will create for the next generations over the next 100 or 200 years the emergence of a new class of civilization with all the economic opportunities that go with it.

I am very pleased to have the privilege of being with this august group of leaders and people and friends, and I am so pleased to again be associated with the Garvey family, and many others of my friends from different institutions from around the country, who are all in very strong support of the thesis that is suggested by just the simple idiom that is pictured behind me. We have a great opportunity to take the next step as Boece, Mair, and the others did in Scotland, as our Founding Fathers did here, and to put in the hands of nations elsewhere the application of the principles that have brought us to the point of the great privileges that we are accorded here this evening. Thank you very much. [applause]

David J. Theroux

Thank you, Bob. We have some questions, and if those of you have questions would please use the question cards? We can continue to circulate and pick up questions for both Bob and Peter. The first question is for Bob Galvin, and the question is how do you bridge the technology divide between the haves and the have-nots using the Scottish model?

Robert W. Galvin

The Scottish model is built around enlightenment. Enlightenment is a way of thinking. that is free, open, objective, and rational. The first thing that we’ve got to do in terms of bridging the divide is to cultivate an ability to understand each other, language- or otherwise. The Scots, incidentally, spent a lot of time on rhetoric to get things done. There has to be literacy for the technologies to be readily transferred.

A generation earlier than Peter, colleagues of mine, some of whom are sitting in this room, took technology to the first order of receiving nations who could accept the technology. They are flourishing today. So there has to be an enlightenment with regard to education and literacy so that those to whom we will carry our investments and our services can pick up and do what is clearly understandable. But for that you have to have the basic understanding.

David J. Theroux

Is there anything you’d want to add to that, Peter?

Peter A. Thiel

No. I’ll go with that.

David J. Theroux

Next question is how can the lessons of the Scottish forefathers be applied to America today, particularly regarding globalization?

Robert W. Galvin

The theses of Adam Smith and David Hume, in particular, are as enlightened and applicable to today’s thinking as they were in training people on an introductory basis of what those principles were back in the late 1700s.

So, frankly, just studying the Scottish Enlightenment, studying what the Scots have done is useful. There are, incidentally, a lot of marvelous books on the Scots, of how they have taken their try-to and to-do philosophy and character, and have gone about and have seeded great success throughout the world. So role models are there to be copied.

David J. Theroux

Next question is how do you see the present and future competitive position of the U.S. semiconductor companies?

Robert W. Galvin

You can pick up on any of these you want.

Peter A. Thiel

Well, that would be your area of expertise. I’ll take that one. [laughter]

Robert W. Galvin

There are about 10 or 15 sage semiconductor leaders, executives, technologists in this audience. Maybe I am underestimating the number of outstanding people. I cannot imagine that the United States will ever be less than the equal of the best in the creation of the semiconductor recipes for product development throughout the world.

Among the things that are represented in this room are those who had to do with the establishment of an organization called Sematech, its distinguished leader is sitting among us, among others. We taught ourselves in that organization how to get better at what we were already doing rather well.

The American spirit is such that it will always do things of that nature, as well as individual and independent activities. I see America as being a continuing equal of the best, often moving ahead to the best. Thank goodness there is remarkable competition in two or three other nations of the world that will keep us on our toes.

David J. Theroux

The U.S.A. has to maintain leadership in the global economy. What is your take on outsourcing?

Peter A. Thiel

Well, I think that certainly the Adam Smith line that comes to mind is that no country has ever done well that was endowed with great harbors and chose to throw rocks in them to prevent people from importing and sending things to them.

Very much the same thing I think that is true of free trade applies to the free movement of labor. You know, there are a lot of internal challenges with outsourcing; there are people who are going to be displaced, but the reality is that if you don’t do it, it’s much worse. If the U.S. is to remain competitive, we need to be able to outsource, and the U.S. needs to focus on doing things better in other ways. And it needs to see this as a challenge for us to get better at doing things, rather than see it as an obstacle.

You don’t become better, if you have great harbors, by throwing rocks in them and preventing people from importing things. I think Smith was right about that.

Robert W. Galvin

I would coin a phrase, and that would be re-sourcing. That’s different than the resources that are property-based things. The nature of the world is that whatever was the source today moves to a different location tomorrow. We used to have most of our industry in New England. It moved to the Midwest. It moved to the South. It was always dislocating to the location left behind.

But then let me quickly turn the subject into one that was literally a part of what Peter was talking about, and that is, what do the governments do? Fortunately, we have a constitution. The Constitution is the main law of the land. And I respectfully suggest that what the world is going to be learning is that anything that one does to attempt to artificially control sourcing will prove to be unconstitutional. No state can pass any law that will stand with our Constitution that penalizes someone who does outsourcing. That’s interfering with international relations. You can’t do that under our Constitution.

We aren’t going to be able to do it in relation to other world laws, either. It is unconstitutional to worry about it. It’s going to happen. [laughter] And that hasn’t surfaced, but I respectfully suggest: watch for it. That will become a very major player in finally settling things down, and getting people to realize we’ve got to do what Peter has talked about. We’ve got to go out there and compete.

And incidentally, one of the things that is occurring, and it will occur with greater frequency, is the bringing of jobs into the United States from those institutions outside of the United States who have the resources to invest in our country and will come and put new peoples into work on new subjects. So this is going to balance itself out.

David J. Theroux

Yes, some of you may have seen some of the news reports. It turns out that last year China, on net, outsourced more than any other country to India. It’s an interesting statistic. The next question is:. I understand that you were involved in trade negotiations that resulted in making the commercial Internet feasible. Is this true, and if so, can you recount the saga?

Robert W. Galvin

That would have to be you, Peter. I wasn’t.

[laughter]

Peter A. Thiel

I wasn’t either, so. I think neither of us invented the Internet. [laughter]

David J. Theroux

In reference to the Scottish Enlightenment, how do you combine your spiritual practice with your professional practice?

Robert W. Galvin

The premise that the Scottish Enlightenment represents, in effect, almost a theology of some kind within our regular practice—I can’t quite derive the genesis of the question, but I do acknowledge that in the course of the Scots becoming the very talented people that they became, and that ultimate generation around 1750, they got there as a function of having been viciously tested by the religious Reformation.

The Calvinist thesis of predetermination was beginning to challenge men’s ability to think. Every church in Scotland attempted to teach a greater fear of the wrath of God than the other. And the fact of the matter is that the religious movement that took place in the period of time of roughly the 1600s—John Knox was living in the 1500s—but in the 1600s and the 1700s provided a stressful effervescence that made for a remarkable emergence of other intellectual as well as theological thinking that made a difference. I haven’t applied that to an individual, but it had a marked impact on making the Scottish Enlightenment better than it would have been—better than it could possibly have been if it had not been stressed by the religious Reformation.

Peter A. Thiel

One of the things I would underscore is that while there are some definite differences between my perspective and Bob’s, one thing that I very much agree with is that in the late 18th century, the Enlightenment direction was the only rational direction that people could possibly go in. The historical context was one where in the early 17th century you had seen Europe almost destroy itself in the wars of religion and there had to be some sort of ability to try to take a step back from that and try to figure out some slightly different basis on which a people could work together and get along. So I think there was a historical context, the preceding 100, 150 years, that really, for the late 18th century, made the Enlightenment the only possible direction, at least for that point in time.

David J. Theroux

The next question is: Adam Smith critiqued government privileges and proposed the evolution of so-called mercantilism. Would you describe the U.S. today as neo-mercantilist? [laughter]

Robert W. Galvin

I really don’t know. I know that what the private enterpriser is doing. I know what the Peters are doing. I know some of you are in your businesses now. I know what we did, and my colleagues that are continuing in our institution are doing.

I think that we are not, in this instance, struggling with a philosophy. I think we’re dealing with a very wonderful principle, and that is that commerce is the way to afford a free society. Then you have to have the structuring of, and the ingraining of, principles in that free society.

Those who are engaged in commercialization have to realize that it is their great contribution to society to make affordable everything else in society. We have to do that by playing to the whole market. We call it global, and we’re learning how to do that. The Peters have learned a lot about it, as have my colleagues in other of our tables in this room. We’re learning about it.

So I don’t know what to call it, but I do know that it’s very simple that we have to create wealth wherever we can honorably do it, and that wealth will ultimately end up being reasonably shared by those who have the literacy to participate with us in a civilized way.

Peter A. Thiel

Let’s see, I basically agree with that. I think fundamentally, mercantilism does not make sense. At the same time, I think it’s actually a close call politically in terms of what’s happening. If you look at the electoral breakdown of people in the U.S. Congress, we probably have a slightly pro-protectionist bias. It’s probably more protection than it has been at any time I would guess in about close to 20 years. So I think the case that Bob is making needs to be made a lot more forcefully than it has been.

David J. Theroux

Two last questions. This one’s a little off the subject of the Enlightenment. This is a question for Peter. Please name and describe some of the stranger Internet company ideas you’ve come across.

Peter A. Thiel

Oh, my. This would be a long litany of things. I think one of the strange dynamics that happened, culturally, was that you basically had all these incredible new businesses that were being built in Silicon Valley. And elsewhere in the world, people were trying to copy Silicon Valley and do something similar. And what they copied was often not the entrepreneurial or the innovative piece, but the piece that was strange or different. And so you ended up in many places with companies that tried to simply copy the most bizarre features, because they thought that that was what was the defining piece of the new economy.

So the strangest ones I actually ran into were outside the United States. PayPal originally was combined with this company called X.com, which had branded itself around a single letter name. There was a company I ran into in France that got about 100 million euros in funding, so it was a significantly funded company that decided to brand itself with a single letter. They thought that was the most important thing. Nothing about the product or anything like that, just the single letter. And in Paris, and they called themselves ZeBank, and they used the letter Z.

And everything about the bank was done in a way that was different from the way it was normally done. The front page Website had cartoon chimpanzees holding bags of money, and it was meant to be a bank that did not take itself or your money too seriously. [laughter] And indeed, the name itself was designed to basically make fun of French people. So it was ZeBank, sort of make fun of pretentious French people, and so on down the line.

Down to every detail, they were going to do it differently. Take the 35-hour maximum workweek in France. Well, the company decided that to compete it would attract people who do not want to work that long, so it had a shorter workweek than 35 hours. And so that was the mantra.

And I think the takeaway on a higher level is that when you look at businesses, one of the important questions is what kind of a role model you choose, and who is it that you want to copy, who is it that you want to emulate. And it’s not just who you’re emulating, but it’s even on a somewhat more detailed level as to what exactly it is that one is emulating. There’s no categorical answer to that, but it’s a fairly important question.

At the tail end of the boom, it went very badly wrong, where people copied crazy things that other people were copying crazily from other people in turn, and it just sort of veered in really bizarre directions.

David J. Theroux

OK, last question. Speaking of the French, the question is please comment on the connection in thought between Frederick Bastiat and the Scottish Reformation. I assume he’s talking about the Scottish Enlightenment. And I suspect this also relates to Say and other French liberal economists.

Robert W. Galvin

I’m sorry, I didn’t catch the beginning item that is supposed to compared with the Scottish.

David J. Theroux

Please comment on the connection in thought between Frederick Bastiat and the Scottish Enlightenment.

Robert W. Galvin

I don’t know what the factors were of the first, and therefore I am not credentialed to answer the question. I’m sorry, I don’t understand the question, and therefore I can’t comment. I’m sorry.

David J. Theroux

Bastiat was a member of the French Parliament, and was an economist who wrote various books. And there was a whole French classical liberal tradition. It’s an interesting comparison, because the English would not read the French, and so in many respects, they developed separately. And even to this day, most Americans aren’t aware—in fact, most French are not aware of this tradition.

I hope all of you will get a chance to read Bob’s book, because it is a quick read, as Bob mentioned. It’s a book that I recommend to anyone who is busy.

But the reason why we’re here is not just to talk about Bob’s book. The reason we’re here is because we clearly appreciate and admire Bob Galvin for a career that has been exemplary in every aspect of his life, which has been quite diverse.

So, Bob, all of us want to thank you sincerely for all of your work. And to express our gratitude, I want to take this opportunity to present you with an award the Independent Institute only gives occasionally. We’ve only given in it to four other people over 18 years.

As Dan Edelman mentioned, it’s named after the 19th century classical liberal, Alexis de Tocqueville. In your gift bag you’ll find a one-page sheet description of de Tocqueville and his work. And as Dan Edelman mentioned, de Tocqueville is the author of perhaps the greatest book ever written on liberty, called Democracy in America.

Hence: “In deep appreciation and recognition of your outstanding global contributions in advancing business excellence, free-market entrepreneurship, education, moral principles, economic and social welfare, and your unwavering dedication to the principles of individual liberty as the foundations of free and humane societies, we proudly present to you the Alexis de Tocqueville Award.” [applause]

Ladies and gentlemen, I want to thank you for your kindness, generosity and participation in making our dinner possible tonight. I want to thank again all the people who made the dinner possible, on the committee, who were co-chairs, who donated, and so forth. We look forward to your participation in future programs of the Independent Institute. Thank you so much, and good night. [applause]

END OF EVENT