Hi Daniel. Good to see you again. So today we try really differently. We do a monotheatical Europe podcast. Okay, sounds great. Love that.
Straightforward. You are European. You have created one of the most successful and biggest European companies. Your role model has always been Silicon Valley. Why do you care about Europe? Well, I think it starts kind of with where you started, which is I'm European. I'm born here. I've been incredibly fortunate to grow up in Sweden, but also because of many other advancements in technology, whether it's airplanes and trains and so on, been able to experience the amazing culture of Europe and, for me, it is the greatest place on earth. It is the culture, the diversity, it's the food, it's so many things. It's the languages. It's just an amazing place to be.
Interesting that you're saying that because I totally agree. I think it is the beauty of Europe, the quality of life, also in a way the safety of life, you could say also a certain balance, a social balance, diversity, intellectual property, all that defines Europe. And at the same time, we have to acknowledge that if we look to the performance of Europe, it's not doing so well. Europe is not delivering on proportional growth, is not delivering on innovation, is not playing an instrumental part in AI developments. Europe is overregulated, Europe is too bureaucratic. America is almost giving up on Europe. The world is kind of almost looking down at Europe because people don't get it why Europe is not performing better. So what's wrong? Where's the problem? Why is that?
Yeah. It's an interesting framing and obviously it's one that I also hear a lot. It's the sort of in a much simpler framing. I think people call it Europe is the museum of the world. And I just don't know that I agree with the framing. I totally see what other people are seeing that there's better economic growth elsewhere than perhaps what Europe has delivered in the past 20 years. And we certainly have our share of challenges. But I think every society does. I think certainly America does. I think certainly many of the Asian countries do as well. So for me I choose to look at this as sort of the glass half full rather than the glass is half empty. And what I see instead is that the world has, if you really dumb it down over the past 20, 30 years, essentially all come down to the power of the internet and the power of software eating the world as Marc Andreessen famously said. And if you look at the progress in economic terms, that's been the major driver. Certainly Europe has underperformed. But I think the key portion for me that I think is the most important one is it's not underperformed on the basis of talent. It's underperformed on the basis that we haven't built amazing software and internet companies here at the same scale that for instance the US or China has. So I kind of look at it and say much of the economic progress really comes down to that. Going forward, I think the most important thing we can do is obviously rectify that and to take a famous Wayne Gretzky quote: skate to where the puck is going, not necessarily to where it is at the moment. And if we do that and we do that well, I think Europe has amazing potential.
Daniel, would you consider yourself a European patriot or are you first and foremost Swedish? What is your identity?
Yeah, it's one where I struggle with it even myself quite a bit. On the one hand, I am incredibly Swedish. I have two Swedish parents. I have a wife that's Swedish as well. So in many ways I'm incredibly Swedish, but I was born in the early 80s which means I was an internet native generation. And so for me I'm truly a globalist in that sense too where the internet, many of my friends I met on the internet and later formed deep friendships with all over the world. The European part of myself actually is more of a recent take. Even during COVID, not being able to travel as extensively as I had been, I sort of reaffirmed my love for Europe in a much bigger way. So these days I would definitely say that I've realized more and more having traveled the world just how amazing Europe is and how much I care about both protecting what we already have but honestly also making sure that Europe in the future is prosperous.
I mean we both love Europe and I think for good reasons. We said it, the lifestyle is unique and it could be the magnet for talent from all around the world. But if our love is honest, we also have to admit that it's not doing that. Europe is not the magnet for the best talent all around the world. And so we have to be honest, something is wrong or in any case Europe is performing below its potential. And you could say, my mother used to say it, the ultimate form of love is criticism. So let's focus on the room for improvement. What needs to change in order to unlock the real potential of Europe?
Well, structurally and fundamentally, I do believe that we in Europe are underinvesting in research and development, so R&D. And in every way, I think we're underinvesting in science. I think we're underinvesting in research. I think we're underinvesting corporate R&D projects to try to grow our corporations much better, too. And we can obviously try to dissect why that is the case. But I think one of the more foundational structural things that is incredibly important if you go back to the early 20th century is that much of the R&D and much of the innovation essentially was financed by banks and banks had that charter within them to actually take a lot of risks and enable a lot of new businesses to come up. And there was a great push by governments to invest in research to a great extent. If you look at what's certainly happened over the last 20, 30 years, a lot of that has changed with the advent of venture capital as a new form of financing R&D, with regulation on the banking side that means that banks no longer play the same role in innovation that they used to. And then with the hyper capital markets which really look towards very hyperefficient companies which tends to also be capital efficient companies, which means things like R&D and other things may not be invested to the same extent. So if you take the confluence of all of these things together, I believe that it's just a structure where Europe hasn't really adapted to the same extent that it should be and therefore we've underinvested in research and that means we've underinvested in innovation. And if we're underinvesting in innovation, I certainly believe that's the pinnacle and the most important ingredient for us to get right in order to get prosperity right because that leads to growth, new jobs, a future positive outlook.
When we last spoke about Europe and its investment culture, you suggested a very concrete thing basically saying if we would save 1% less and invest that into startups, we would have a different environment. Can you elaborate a little bit on that?
Yeah. So talking about the glass is half full versus half empty, I think this is a pretty startling perspective. It's undoubtedly so that the US economy has grown much faster over the last 20 years than the European economy has. And if you double click on that, you can see that pretty much all of it has to do with its R&D spend on software, getting all of these things right and really investing in the future. So it's easy then to say okay, they got ahead. But I think it's important to state that where Europe is now, if we look at raw opportunities, we have 33 trillion in savings sitting on the sidelines. That is a massive amount of capital. It's about 10x the amount that the US has in savings sitting on the sidelines. So if we took 1% of that, just 1%, and put that in new innovation, so let's take venture capital as an asset class just one example of this, we would more than double the entire venture capital landscape in Europe. So I think that that's a very simple way to think about that we have a lot of potential levers to pull here in order to shift how we think about R&D, how we think about innovation.
It sounds mathematical but it is in the end very cultural. It requires a different mentality, more of a risk-takers mentality. Why is it that risk is way more popular, way more rewarded in the United States and elsewhere in the world and to a certain degree almost discredited in Europe? If you dare to do something bold and unconventional and you fail, you're basically done. In Europe, the second chance is rare. In America, people are saying, 'Well, nice try. Try it again.' and they encourage you or they would even go that far to say a guy or a girl who failed in doing something will do much better next time. In any case, she or he learned from that experience from that failure and so risk is a positive thing. People are encouraged to take risks and if they fail they are encouraged to try again. What needs to be done in order to change the European mentality in that direction and to make us more risk takers, to create more of a risk-taker culture here?
Yeah, it is actually something that I think a lot about because at the end of the day I completely agree with you. One of the biggest barriers we have in Europe is a mentality barrier. And I think it stems from the fact that we in so many places have essentially been playing a zero sum game. If we in one way need to grow, then clearly something else must lose. But that is just not how I view the world. I think what's so amazing about the concept of the economy is that it can actually grow. It is not a fixed pie. It is a growing pie and growing the GDP is one of the most important things we can do in order to increase prosperity for everyone. I completely agree with you that this is one of the big things that we spend a lot of time analyzing our failures and it certainly has some value, I'm not going to discount that, but in my experience I think we tend to overestimate the downside and underestimate the upside in many cases. In the investing world, there's usually a saying between errors of commission or errors of omission. Omission means basically what you didn't do and it tends to, certainly when you think about technology and as I look back at my 20 years at Spotify, the things I regret the most isn't the mistakes I made, it's the things that I actually didn't do. I think a lot about that. And I think as you rightly pointed out, culturally for Europe, this is a massive thing for us to try to get right. I don't pretend to know how to fix this because I think it's very deeply rooted. But I think one of the big things that media can do is obviously start painting more stories not just of the ones that are failing but about also the ones that are succeeding. And I realize that it probably aren't as engaging of stories to tell, but I think suddenly if we start celebrating more of the successes that exist in Europe, it would be a remarkable positive story. For me, I think it's so cool to think about how take this company ASML. I don't think that is a super well-reported story, how important that company from Netherlands is for the world at the moment. I also don't think it's a well-reported story that Revolut might be one of the most, if not the most important fintech company in the world. Both of these are European companies and we can keep adding more and more of these. There's a German company called Isar Aerospace that had a space launch more recently. I didn't even realize we had a space company in Europe. But it does turn out that there are all of these amazing companies that for whatever reason right now aren't probably getting their stories out there. So I think media has a big role to play in balancing the critical reporting, which I think is important, but also to play the optimist game.
Okay, Daniel, I accept the challenge since you are throwing the ball in my direction, a guy who is in charge of a media company to make sure that we have more encouraging and positive stories just to correct the stereotype that only bad news are good news or only bad news are increasing reach. It's wrong. Actually, it's the opposite. People are pretty fed up by it. And so more uplifting stories, positive stories, sharing success is actually something that even works from a reach point of view. And so absolutely no objections from my side to do so. But we really then need the positive examples. You are definitely one and when you basically launched when you founded Spotify, you took big risks. I would like to understand why. So would you say it is something that is genetic? It's your mother that encouraged you or the genes that enabled you or is it also something that is societal that is cultural that is in the end also political where societies and leaders in society can make a difference. What's your take on that?
Yeah, I think it's obviously hard to self diagnose oneself and certainly I don't know to what extent was genetic versus environmental. But what I can say that I think is interesting is that in the US, entrepreneurs often talk about there being no option than succeeding because failure means essentially you end up on the street. I have had quite the opposite reason for going big on a personal basis, which is I knew that whatever I would do I would not end up on the streets. I would still always be able to feed myself, have a roof over my head. So I figured the option for going for greatness, actually the cost of failing wasn't very high. And the upside if we succeeded, because I loved music and I love technology, to be able to put those two things together and hopefully in a way grow the music industry again which at the time was really hurt by piracy, it just felt like a very good asymmetric opportunity where there was lots of upside and not much downside.
But Daniel, just double click on that point that you mentioned. You said that you didn't feel that risk to end up on the street but that is not because you were born in a particularly wealthy or privileged family according to my knowledge. So what gave you that certainty? What gave you that feeling of I can take risks because I will not end up with nothing? Where does it come from?
Well, I think it comes from in my case the Swedish social model. A little told story is that there was a period of time when I didn't have a job and for a few months I managed to get by with friends, but I was this close to getting on a welfare program. And you're right. I come from a working class. My mother brought me up, she was working in a kindergarten as a teacher, so it's not a super well-paid job. We didn't have a lot of money, but I knew I could always return to her and I could probably get a welfare check to survive and keep doing what I wanted to do. And those didn't feel like bad options to me.
