Invest Like the Best with Patrick O'Shaughnessy
· 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.
· Palmer Luckey
This idea that, "We are the thing that allows you to keep your people in check, and without us, that is over." China is pursuing a similar strategy. They're going to African nations and saying, "Hey, we're going to help build out this infrastructure in your ports, on your roads, in your police force, in your military. We're going to build AI camera systems that track dissidents for you. They track where they're shopping, where they're going, where they're riding trains. We're going to allow you to monitor all their communications on the telecommunications side. So let us sell you telecommunications gear, and you get all these back doors that allow you to control people who're trying to come after you." But a bargain with the devil that they're making is, "Oh, and by the way, if you ever do anything that's counter to Chinese interests, we're going to pull all of this and you're going to lose all your tools for controlling your population and you're going to be dead inside of a week." And say SenseTime is on the autocratic, authoritarian side of that scale because it has almost no application in preserving freedom or in deterring an invasion. It's only for controlling your own people.
· Patrick O'Shaughnessy
[00:00:00] S0: How would you describe what is important for America, through as many lenses as you want to take? It just seems like such an interesting time where we were the world police force for so long, and that maybe seems to be waning. We still seem like we can project power more than anybody else by a lot. But what matters in your estimation? What are the dimensions or the variables that matter most for America and its interest today from the defense perspective?