in Entrepreneurship, Technology, Venture Capital

Horizontal Progress vs Vertical Progress

In his new book Zero To One, entrepreneur and venture capitalist Peter Thiel writes:

At the macro level, the single word for horizontal progress is globalization – taking things that work somewhere and making them work everywhere. China is the paradigmatic example of globalization; its 20-year plan is to become like the United States is today.

The single word for vertical, 0 to 1 progress is technology . The rapid progress of information technology in recent decades has made Silicon Valley the capital of “technology” in general. But there is no reason why technology should be limited to computers. Properly understood, any new and better way of doing things is technology.

Elaborating on the theme of Globalization as “horizontal progress” versus Technology as “vertical progress”, Thiel writes:

This age of globalization has made it easy to imagine that the decades ahead will bring more convergence and more sameness. Even our everyday language suggests we believe in a kind of technological end of history: the division of the world into the so-called developed and developing nations implies that the “developed” world has already achieved the achievable, and that poorer nations just need to catch up.

But I don’t think that’s true…most people think the future of the world will be defined by globalization, but the truth is that technology matters more. Without technological change, if China doubles its energy production over the next two decades, it will also double its air pollution. If every one of India’s hundreds of millions of households were to live the way Americans already do— using only today’s tools— the result would be environmentally catastrophic. Spreading old ways to create wealth around the world will result in devastation, not riches. In a world of scarce resources, globalization without new technology is unsustainable.

As I’ve written earlier, this is a fundamental dichotomy: while advanced economies have the knowledge base and networks to deliver such innovation, the market for such innovation lies in emerging markets.

Achieving higher resource efficiency and developing lower-pollution energy sources presents a considerable innovation challenge – and commensurately, an entrepreneurship opportunity. So far, major startup successes that have emerged from India and China have been adept at “globalization” – they’ve taken proven business models from abroad, and executed those models well in their own markets.

The “technology” successes, especially in non-software or Internet areas, have been few and far between – and there are some very good reasons for why this is so. The question is whether emerging markets can become economically developed by globalization alone. As Thiel writes, this won’t be possible – “globalization without new technology is unsustainable”.

Something’s got to give – either we have technological breakthroughs that enable sustained economic growth, or growth itself will become constrained. China is already facing enormous pollution and environmental issues – sample these news reports:

Air Pollution, Birth Defects and the Risk in China (and Beyond)

The pollution constraint on China’s future growth

Environmentalism with Chinese characteristics

China Needs Industry to Enlist in “War on Pollution”

India is a fair distance away from China – and it’s already “choking on air pollution”. So the question is, where will the innovation come from, and which startups will deliver “vertical progress” to help sustain growth in emerging markets?

Also published on Medium.