This absence is particularly galling for Russians because they take great pride in their national scientific and technological prowess—and not unjustifiably so. America laments its lack of engineers, but in the Soviet Union engineering, math, and physics were the most valued degrees. And the country as a whole wasn’t bad at putting that knowledge to work; after all, the Soviets made it to outer space before the Americans did, and they built a nuclear arsenal bigger than the American one.
That meant that when communism collapsed, a lot of smart observers thought Russia’s liberated scientists would lead a new wave of innovation or, at the very least, offer a stiff challenge to India as an outsourcing center. To understand why that hasn’t happened, at least not in a big way, consider the story of Serguei Beloussov. When the Soviet Union collapsed, he was perfectly poised in a position between insider and outsider. He was from an academic family in St. Petersburg, but he had made it to the Moscow Institute of Physics and Technology, the country’s premier math and technology school. Like many of the oligarchs, he began experimenting with entrepreneurial ventures while he was still in college, organizing national tours for his university’s judo club, among other things, mostly for pocket money.
Beloussov has done well. Today, he owns two software companies, with a global workforce of one thousand. His best-known product is software that allows Windows programs to run on Macs. But Beloussov isn’t an oligarch. And that is because he wasn’t as good as they were at responding to revolution.
“In Russia, all the property belonged to the state and the most money was made by people who were involved in privatization,” Beloussov, wearing dark jeans and a long-sleeved red T-shirt advertising Parallels, one of his companies, told me.
“Business is about money and that is where the money was. Then, ten years ago, the big scarcity in Russia was brick-and-mortar businesses and many of my engineers would come to me and say, ‘I want to open a chain of drugstores’ or ‘I want to build homes.’ Then, five years ago, many businessmen decided to work for the government.” Only now, he thinks, is it starting to make real sense to work in technology.
Beloussov has no illusions about his own decision to focus on building actual computers and then computer software from the very start. Sipping his nine p.m. espresso in a crowded Starbucks in downtown Moscow, he told me, “I was young and stupid”—he was twenty-two at the time. “If I had invested my first money in privatization, that would have been much more profitable.”
Contrast Beloussov’s decisions with those of another smart technologist who saw a market opportunity in the late 1980s in the Soviet Union to write computer software: metals and oil magnate Viktor Vekselberg, today worth $12.4 billion.
Vekselberg made his first small fortune in 1988—when Gorbachev’s USSR took its first tentative step into capitalism with the cooperative movement—by writing and selling his own computer software program. Within three months he had earned enough, he told me, “to buy an apartment, a car, and a dacha.”
He and his five partners next devised a more complicated deal involving salvaging copper wire from scrap heaps in western Siberia (familiar to them because their Moscow institute did a lot of work for the oil fields there), then exporting the copper and using the revenue to import IBM computers, which his group loaded with their own software and sold to Russian companies. The business was hugely lucrative—Vekselberg said he and his partners made a hundred dollars for every single dollar invested—and within a year they had made $1 million. “That sounds funny today,” he mused, “but in those days it was huge money.”
If this were a Silicon Valley story, Vekselberg and his partners would probably have gone on to become serial software entrepreneurs. If this were a story about India, they would probably have moved on to technology outsourcing. If they were Chinese, they might have used that first million to build a factory. But this was Russia, and Vekselberg was turning out to be one of the country’s most adept businessmen, so he saw and jumped on the biggest opportunity: privatization. “People didn’t know what to do with privatization vouchers, so we bought up vouchers and used them to participate in privatization auctions. That is how we bought our first real assets, beginning with aluminum factories, and from there on we built our real business.”
Beloussov says it isn’t his nature to look back, but that his partner “still regrets that we didn’t participate in privatization. But it was just impossible for us to understand conceptually.”
Today, the Kremlin has given Vekselberg the job of building a Russian Silicon Valley. But Beloussov warns that if the price of oil stays too high, that won’t be possible. Most of Russia’s technologists have figured out the value of responding to revolution: “Too high a price for oil is bad for an innovation economy,” he said. “If the price is too high”—he later told me the ceiling he estimates is around one hundred dollars per barrel—“all the engineers will want to work at the banks and at Gazprom.”
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Created in 1953 in honor of George C. Marshall, architect of the postwar plan that aided the reconstruction of Europe, the Marshall Scholarship is a glittering academic prize available to American postgraduates to study in the UK. Awarded on the basis of “high ability,” the honor is all about brainpower. In the spring of 1990, one of the Americans singled out for that distinction was Reid Hoffman, a California native who graduated from Stanford that year. Hoffman was a quintessential Marshall scholar: he’d earned his bachelor of science in symbolic systems and cognitive science, a hard-core double major, and he’d won the Lloyd W. Dinkelspiel Award, a yearly honor recognizing two students who’ve made “an exceptional contribution” to undergraduate education. Hoffman arrived in Oxford proud of the prize, excited about what he could learn at that university’s renowned philosophy department, and committed to a life of the mind. “When I graduated from Stanford, my plan was to become a professor and a public intellectual,” he said. “That is not about quoting Kant. It’s about holding up a lens to society and asking, ‘Who are we?’ and ‘Who should we be, as individuals and a society?’”
But twenty years later, Hoffman, who went on to become one of Silicon Valley’s most successful entrepreneurs and investors, told me that the worst risk he ever took was that decision to go to Oxford. It was what you might call a risk of omission, or, as Hoffman put it, “the risk I didn’t know I was taking.”
Going to Oxford on a two-year Marshall Scholarship didn’t seem to be a gamble at the time—quite the opposite. “I was focused on my CV,” Hoffman said. “Everyone will appreciate I went to Oxford and was a Marshall scholar and these sorts of things.”
Here’s the rub. While he was at Oxford pursuing his intellectual passion and building his CV, like the good superstar in training he clearly was, Hoffman realized that the world was changing and the old rules no longer applied. “Being in Oxford was in a sense taking a massive risk by taking me out of Silicon Valley,” he said. “That was when the online revolution was starting. And being present—being in the network when things are happening, where the opportunities are, is really critical.”
Hoffman was lucky. His undergraduate years in the Stanford cognitive science department and having a stepmother who worked in Silicon Valley’s venture capital industry meant that even amid Oxford’s dreamy spires he was able to figure out that a revolution was taking place more than five thousand miles away. That revelation struck him with such force that today Hoffman still muses over whether, once he realized the action was elsewhere, it was the right decision to stay at Oxford and finish his degree rather than hightail it back to the Valley and its revolutionary vanguard: “I think I made the right choice in one sense and the wrong choice in another.”
Once he had his degree, though, Hoffman was determined not to miss out. As a Marshall scholar he was poised to enter the managerial aristocracy and almost certainly become, given his analytical talents, a superstar. But Hoffman wanted more. He wanted to be part of the revolution he saw happening. To do so, he real
ized, he didn’t need a first job with a blue-chip company, he needed to move back to Silicon Valley and get in on the action.
“I actually took myself off the track that lots of my friends have done,” Hoffman told me. “You know, become partners at McKinsey and these kinds of things.”
But stepping off what Hoffman calls “the career escalator” didn’t mean slacking off. Once he returned to the West Coast, Hoffman pursued revolution with the same straight-A fervor he had demonstrated in the more structured worlds of Stanford and Oxford. He moved back home with his grandparents and madly tapped into his network. He called old friends. He even got his stepmother to call old friends on his behalf—a nontrivial leg up, since she was a venture capitalist and had once worked with Brook Byers, one of the name partners in Kleiner, Perkins, Caufield and Byers, the VC firm that is to the Valley what Goldman Sachs is to Wall Street.
Going back home intensified Hoffman’s belief that a revolution was happening and that he was at risk of missing it. “‘I wish I was here a couple of years ago, when it was really kicking off,’” Hoffman recalls thinking. “‘Wow, other people are already doing this. This thing’s moving. I’m way behind.’” Hoffman’s response, he said, was to decide that “I need to run fast. And the need to run fast is a good impulse to have.”
As it turned out, the revolution wasn’t quite over. By 1997, with just four years of technology experience under his belt, Hoffman, still running fast, decided to found his own company, Socialnet.com, an online dating site. Socialnet eventually closed down four years later without making much of a mark, but as Hoffman waded into the start-up world, two friends, Peter Thiel and Max Levchin, invited him to join the founding board of directors of their new company, PayPal. In January 2000, Hoffman went to work there full-time, a decision that made him a multimillionaire just two years later when eBay acquired the company.
But the revolution still wasn’t over yet, and Hoffman wasn’t finished running. “After the eBay/PayPal deal in 2002, I had a plan to take a year off and do some travel,” he recalled. “To clear my head and plot the year ahead, I first took a two-week vacation to Australia. While there, I reflected on the moment, and I concluded I needed to return to Silicon Valley and start a consumer Internet company as soon as possible. There was a window of opportunity I could not afford to miss. For one, the market conditions were ripe. There was lots of innovation still to be done on the consumer Web, yet many entrepreneurs—possible competitors—and investors were on the sidelines, scarred from the dot-com bust. They wouldn’t be on the sidelines forever. Also, my network was strong coming off the PayPal win, and I could relatively quickly organize the resources to get a new company launched.”
That new company was LinkedIn, which went public in 2011, making Hoffman, its cofounder and executive chairman, a billionaire. As a recovering academic, Hoffman has thought hard about the economic forces that have shaped his success. He isn’t just a practitioner of responding to revolution—he is one of its theorists. In a book published in 2012, Hoffman argues that the long-term effects of globalization and the technology revolution “are actually underhyped.” The result, he believes, is that Detroit—once a symbol of progress, today a symbol of despair—is everywhere. “Once-great companies are falling both more frequently and more quickly than in times past. . . . The forces of competition and change that brought down Detroit are global and local. They threaten every business, every industry, every city.”
Hoffman understands that the revolutionary waves he surfs so expertly have created a more polarized society, with both winners and losers. “The gap is growing between those who know the new career rules and have the new skills of a global economy, and those who clutch to old ways of thinking and rely on commoditized skills,” he writes. But even as he paints a macro picture of a volatile world with clear winners and losers, Hoffman holds out the hope that each of us can be one of the winners. His book, called The Start-Up of You, is a cheerful business advice primer whose premise is that all of us should mimic the strategies of billionaire innovators like himself. “You were born an entrepreneur,” Hoffman encourages readers in the opening passage. That doesn’t mean, he is quick to stipulate, we should all start our own companies. But he does urge us to think of our own careers as start-ups and manage them with the same agility that the masters of responding to revolution do.
Hoffman, charmingly, doesn’t think of himself as a superstar in a nation of supporting players—by following his advice, he wants all of us to have our shot. He may, at forty-four, already be a billionaire and a veteran of two successful start-ups (plus one failed one), but he thinks a 272-page book is enough to teach the rest of us “the mind-sets and skill sets you need to adapt to the future.” Indeed, if all of us learn how to respond to revolution, he says—“to manage the start-up of you,” that is—society more generally will flourish: “More world problems will be solved—and solved faster—if people practice the values laid out in the pages ahead.”
Hoffman is smart, likable, and compassionate. It is no accident he founded LinkedIn: he is known as Silicon Valley’s nice-guy billionaire, someone so affable he has figured out how to take the sleaze out of networking. He wants to make the world a better place and he is well aware of the downsides of the revolutionary age we live in. But what’s also striking is Hoffman’s confidence, from his privileged perch, that all of us will be able to thrive in these revolutionary times if only we develop the right mind-sets and skill sets.
That may well be the case. But, as experts in revolution, and the beneficiaries of them, the plutocrats sometimes miss the fact that for people in the middle and at the bottom, times of dramatic change are as likely to bring painful dislocation as they are to bring dazzling opportunity.
When the Texas-based Randall Stephenson, CEO of AT&T, visited the Council on Foreign Relations in its elegant town house on the Upper East Side of New York, to describe the mobility revolution and its immense commercial potential, one of the council’s members asked him a question that underscored the difference between these two outcomes.
The questioner was Farooq Kathwari, the CEO of furniture manufacturer and retailer Ethan Allen. Kathwari is one of Citigroup’s dopamine-rich risk takers: he arrived in New York from Kashmir with thirty-seven dollars in his pocket and got his start in the retail trade selling goods sent to him from home by his grandfather.
Here’s what he asked Stephenson: “Over the last ten years, with the help of technology and other things, we today are doing about the same business with 50 percent less people. We’re talking of jobs. I would just like to get your perspectives on this great technology. How is it going to overall affect the job markets in the next five years?”
Not to worry, Stephenson said: “While technology allows companies like yours to do more with less, I don’t think that necessarily means that there is less employment opportunities available. It’s just a redeployment of those employment opportunities. And those employees you have, my expectation was, with your productivity, their standard of living has actually gotten better.”
Unfortunately, at least in the short term, that benign scenario isn’t turning out to be true. The technology revolution is certainly making both Ethan Allen and AT&T more productive, and delivering windfalls to the bosses able to navigate that change. (Stephenson’s compensation in 2010 was $27.3 million.) But both companies have been shedding workers. AT&T has fifty thousand fewer workers today than it did before the financial crisis.
Kathwari has made a point of continuing to manufacture in the United States—70 percent of Ethan Allen’s products are made in North America. But to remain competitive—“Most of our competitors manufacture outside the U.S.,” he told me—Kathwari has turned to technology. His seven North American plants have taken the place of twenty; over the past eight years, Kathwari’s workforce has shrunk by about half.
“The big question is what it does to the people, because it creates unemployment,” Kathwari told me. “If you look at it from
an individual business perspective, you are saying, Great! Technology is key to survival from an individual company point of view. But in the long run we can only be successful if the country is working. Business leaders should be concerned.”
Even for those workers who do find new jobs, the consequences of being fired are brutal. Three economists analyzing the 1982 recession have found that U.S. workers take an average 30 percent pay cut when they find a new job after being laid off. Even after twenty years, their earnings were still 20 percent lower than those of peers who kept their jobs in the recession. In emerging markets, the cost of change can be even higher: in the 1990s, the decade when the Russian oligarchs became billionaires, the incomes, health, and birth rates of ordinary Russians plummeted. India’s economic rise has coincided with an epidemic of suicides among its rural farmers. The same is true of inland China, which has been left out of the coast’s economic renaissance.
Our democratic impulse is to imagine that economic forces affect us all equally and that there exists a set of “management skills”—the equivalent of knowing how to read or to add—that serve all of us equally well. But the tougher reality is that economic transformation—the waves of revolution we are living through—has a very uneven impact. As Nobel laureate Michael Spence put it, “Your education isn’t fungible the way an investment portfolio is.” Soros can respond to revolution by cutting his losses and making a different bet; finding a new profession at forty-five, after your old one has been rendered redundant, isn’t so simple.
We are living through a tale not of two cities but of two economies. Hoffman makes the essential point that the winners of the old economic order are among those whose lives and careers are being disrupted. “For the last sixty or so years, the job market for educated workers worked like an escalator. After graduating from college, you landed an entry-level job at the bottom of the escalator at an IBM or a GE or a Goldman Sachs. . . . There was a sense that if you were basically competent, put forth a good effort, and weren’t unlucky, the strong winds at your back would eventually shoot you to a good high level. For the most part this was a justified expectation.” Hoffman is right about both those expectations and the disappointment of the upper middle class stuck on a jammed career escalator. But what about the telecom or furniture factory workers Kathwari is worried about? Even if they see the revolution coming, do they have the room in their father’s home and the contact book of a venture capitalist stepmom to help them respond to it?
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