Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: Is it oversimplifying it to say that more inventors should work backward from existing systems rather than forward from like their ideas about how things should be?
· Palmer Luckey
[00:00:00] S1: I think you need to think about -- existing systems in terms of the institutions and the people and the traditions and the politics, yes. The technology, probably no. Obviously, you can learn from existing technology. But in my experience, it's good to trust people when they tell you what their problems are, but don't trust what they think the solution is. There's so many companies that look at the solution space that exists and then say, "Oh, I can do that somewhat better. I can do that somewhat cheaper." And the reality is, is that rarely our impactful business is built on doing something a little better or a little cheaper. If you're not that different from those guys, it means they're going to have an easy time adapting from you whatever you come up with because you're not competing with what they have today. You're competing with what they're going to have after they look at what you're doing and then cross-implement it or learn from what you're doing. That's a thing that a lot of start-ups miss. They say, "Oh, look at this, like Oracle division doing this thing, the small side of Oracle, I think I can do better than that service." And I have to remind them, first of all, guys, let's say it takes you 2 years to build that. You're not competing with what they have today. You're competing with what they have in 2 years. And then what you're really competing with is what they have in 3 years after they look at what you've built as you start to eat some of their customers and then they're going to build something in response. So you got to kind of think 2 or 3 steps ahead with these things. And if you build something that's totally different, they're going to have a very hard time adapting to it. Maybe one good way to look at it is a lot like bacterial infection. If you build something that is the same shape as existing things, it's going to be a lot easier to get infected. If you can build something that is a radically different structure, it's much harder for people to copy what you're doing or attack what you're doing.
· Patrick O'Shaughnessy
[00:00:00] S0: When you first approached the problem, what was most broken about national security?
· Palmer Luckey
[00:00:00] S1: It mostly comes down to an incentives problem. Everyone has the wrong incentives and organizations and people and organisms usually do what they are incentivized to do. So government bureaucrats don't get fired for doing things the way that their predecessor did them even if that's the wrong way to be doing them. There's no competition in many of these government agencies. So it's not like they're worried about a more efficient competitor. There's no FDA 2 and Pentagon 2 that's competing with them and trying to drive down costs and accelerate schedule. The incentives on the government side are out of whack. The incentives on the private contractor side have been created by government, which largely is awarding cost-plus contracts, which incentivize contractors then to have high costs to build the most expensive systems they can justify to never reuse work. Because if you reuse something you've already built in the past, you're not getting the plus on the cost of building a brand-new thing. And so I'm not saying that people wake up saying, "Oh, I'm screwing taxpayers today." But you naturally build an entire organization that is incentivizing people to spend as much as possible and to do work over and over again as many times as it can be justified. That combination of things was really the problem. It was government giving private companies the wrong incentives. And then bureaucrats not being willing to do things that are outside of that existing set of incentives because they're worried it's going to be bad for their career. Why would you take a bet on a small company? If you bet on Boeing and then they spend hundreds of billions of dollars and fail, that's how it goes, sometimes you fail. If you bet a 1,000th of that on a small company that has never delivered a product but has a very promising path to making something that is much better and then that fails, everyone's going to say, "Wow, that was a really stupid bet, why did you ever even think about doing that? Of course, that was never going to work. They have no proof of performance." This is a problem that is self-reinforcing. The United States used to be very good, taking small companies that were building powerful things and turning them into large companies that could do those good things at scale. But since the end of the Cold War, we've lost that muscle.
· Palmer Luckey, Patrick O'Shaughnessy
There's been massive consolidation in the defense industry. 80% of the money goes to just 5 companies, 30% of major weapon systems contracts have literally one bidder, meaning no competition even on the private side. How can you have good outcomes in a world like that? [00:00:00] S0: Just trying to think about a framework to discuss the state of weapons technology or the history of weapons technology with you. And the cleanest I could come up with a stupid consultant 2x2, where on one axis, you have offensive versus defensive technologies dominating. And on another, you have democratic versus very non-democratic. Musket's on one end, everyone has the same amount of power. And on nuclear weapons on the other, one person has a gazillion times as much as the Musket guy or something. Is that a good way to think about where we might pop through history and weapons technology? Is there some other way that you would approach thinking about an era and weapons technology?
· Palmer Luckey
[00:00:00] S1: Offensive and defensive is definitely the right scale. Distributed or not distributed, I'm not sure. That I actually think matters less by weapon system and more by the power dynamic of the nation. There's a question here, are the people aligned with the government or are they opposed to the government and to what degree? If you have them where there are neutral parties that accept each other's existence, that's one thing. Let's say you have a country like Ukraine where implausibly to the Russians, they had formed a strong national identity, and there were people who were willing to die in large numbers for their country. That's a case where there's people who are very much aligned with the broader goals of their nation. On the other hand, if you look at a lot of African nations, even a lot of Middle Eastern nations, you have a huge mismatch between what the political class wants and what the every man wants. And so I think a better access is actually more like democratic versus autocratic technologies. In that, there are a lot of technologies that are much more useful for controlling your own population than for preserving their rights against hostile actors. There's a lot of countries whose military effectively is an internal peacekeeping force to crush dissent. That's actually what it's for. And there's a lot of tools made by companies like SenseTime in China that are fundamentally -- they are not useful for going to other countries and preserving our rights. They're not useful for defending yourself from an invader. They are only useful for controlling people in your nation. This is one of the reasons that China is exporting these technologies in the same way that the Soviet Union exported AK-47s, which you could say are on this distributed and offensive side, if you were to look at it that way. But the reason they were actually doing that is they wanted to arm nations with the tools that they needed to keep their civilian population in check and keep them in power and they wanted to threaten them and say, "Hey, if you ever get out of line, we're going to stop providing you with these arms and systems you need, and then you're going to immediately get a violent revolution and you're probably going to get killed." It was a great motivation for people to stay stuck to the Soviet Union.