The USA is a great nation for entrepreneurship and innovation, it has the best science in the world, the most creativity in the arts, it is the number one economy in the world, it has an energy unrivaled by other nations and we have chosen to move to this great nation with our family. So everything that follows must be seen as friendly criticism from a person who loves this country.
Now most of my friends in the USA agree on what is great about this nation. But when I speak to some American friends they seem to be unaware of the shortcomings of the USA compared to others, and this is what I would like to focus on. Here are some quick examples.
The USA ranks 38th in life expectancy which is shocking considering that it has the best medical science in the world. And this generation is the first one that will live less than the previous generation. The average American is expected to live two years less than, say, the average Spaniard. This is partly because the USA has a medical system that leaves 50 million people uninsured and many others under-insured or worried about losing their insurance (my wife Nina, for example, can’t get medical insurance to have our next baby because pregnancy is considered a pre-existing condition and we moved to USA when she was already pregnant). It is also partly because the USA is the nation with the highest percentage of its population obese, over 30%. The WHO studied overall level of health and concluded that Americans rank 72 in the world. Family structure is also weak as the USA has the highest divorce rates in the world. Moreover inequality is on the rise: as this Wikipedia article argues, the top earning 1 percent of households gained about 275% over a period between 1979 and 2007, compared to a gain of just under 40% for the 60 percent in the middle of America’s income distribution.
The USA has a legal system that is extremely expensive and unreliable and tends to favor those with resources to pay for it. The USA spends almost half of what the whole world spends in the military and since WWII (in which the USA did an amazing job), other military interventions have been of dubious value for such a huge investment, especially Iraq and Afghanistan. The USA leads all developed countries in executions by death penalty, it has a love for guns that makes its murder rate unusually high for a developed nation, it has the highest incarceration rates of the developed world mostly focused on one ethnic group, African Americans. The USA has more people in jail or parole than Madrid has people. And while the USA has most of the best ranked universities in the world, according to PISA scores the USA ranks very poorly compared to other developed nations. The USA is also the largest polluter in the world together with China but a leader on a per capita basis. The American lifestyle is great but not scalable to the world as a whole. Replicating this lifestyle on a global basis will lead to extreme competition over resources and high environmental damage.
Yes, the USA is great nation. I am happy to be here teaching at Columbia– this country probably has the most educated elite in the entire world. It has incredible business creativity and it is home to the Apples and Googles of this world and in this sense, they are an example for the whole world to follow. It also has individuals who are among the most driven in the world and who want to succeed and do as much as they can. But it has a number of very important issues to address, many of which were not part of the 2012 presidential debates (climate change for example) and which seem to rarely be part of the conversation with many of my American friends.
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Yesterday I had lunch Fernando Sulichin, a pretty successful Argentine movie producer. Here is his filmography in IMDB. During our brunch I found out that Fernando Sulichin has made a career among other things out of producing movies based on interviews with an unusual collections of world leaders. Indeed during lunch Fernando told me that over the last year he had met with Rafael Correa, Cristina Kirchner, Evo Morales, Hugo Chavez, Fidel Castro and Ahmadinejad. In the majority of cases these meetings took place as part of interviews together with Oliver Stone and Sean Penn. As those leaders happen to be a group that I particularly dislike and as we are both Argentine Jewish you can imagine that our discussion was intense. The high point was when Fernando told me he had seen Ahmadinejad more than 10 times in his life and described him as a “humble” person. I think it is relevant to state that both Fernando and I are Jewish as many of these presidents have expressed negative opinions towards Jews, starting with Mahmoud Ahmadinejad who finances two armies, Hezbollah and Hamas whose stated objective is not a home for the Palestinians which I greatly support but the destruction of the State of Israel. Moreover Ahmadinejad questions the holocaust (today is Holocaust Memorial Day), is in favour of other Islamists of women’s dilapidation and denies the existence of homosexuality in Iran.
Now I am not saying that we didn’t agree on anything with Fernando as there were many areas in which surprisingly, we thought alike. When we spoke about Bush’s 8 year government we agreed that his politics were bad for world peace and increased confrontations between anti-north American troops and the USA. We also agreed that Iran´s policies towards women and gays are repugnant. We agreed that it is true that Latin American leaders many times confront ruthless multinational corporations that have been accused of bribing. We also agreed that Israel itself was too aggressive and its invasions of Lebanon and the Gaza strip could turn out to be counter productive even for Israel´s objectives of self preservation. It is interesting that while Fernando frequently meets with enemies of Israel he does not hide the fact that he is Jewish and is in favor of the survival of the State of Israel.
But where we strongly disagreed is that Fernando truly believes that Hugo Chavez is a democrat just because he won the election. I instead insisted that democracy should be understood from the bottom up, democracy it is not just an election but the distribution of power throughout society: independent legislators, independent judges, honest mayors and governors, cities and state legislatures, freedom of the press. I was appalled when Fernando argued that the Venezuelan regime was akin to that of Norway. I was also very surprised when Fernando argued that we can be tolerant with corruption of the leaders he frequently visits as all presidents steal while in government. I said that I did not believe that Aznar or Zapatero, to name two Spanish presidents had Swiss bank accounts where they deposited the money they stole while in government while I was almost sure that his favorite global leaders did have them.
Having said all this it was a very interesting lunch and I guess the world can only be a better place if we not all agree. And in the end we were both hopeful that Obama and Hillary Clinton together are maybe able to pull off a miracle here and a new relationship develops between left wing Latin America, the Muslim World and USA.
As Israel fights in Gaza and I, as a Jew, question the morals and effectiveness of this military campaign, as I objected that of the invasion of Lebanon in 2006, I still hear the old appeasement song. I hear it again, again, and again from my Jewish friends. Hitler, Hitler Hitler. Hezbollah is Hitler, Hamas is Hitler, Iran is Hitler, the Palestinians are Hitler, the Arabs are Hitler. They are all Hitler. They are all for the systematic extermination of the Jewish people. And when voices are heard in Europe, USA and other regions; when commentators disapprove of the methods used by the Israeli government when dealing with Hezbollah and Hamas, my Jewish colleagues are quick to dismiss those as opinions of antisemites. In their mind people who disagree with the foreign policy of Israel are simply waiting for the enemies of the Jewish people to complete the work they left undone by the Nazis. For them the Palestinians are not a people with valid claims to a country but instead a neo Nazi group that was created to make sure that Hitler´s final solution gets finally….implemented.
Now let´s compare the situation of the Jews to that of the African Americans for a moment. African Americans deserve to be mentioned in the Jewish debate because they were, as recently as 1960 in USA discriminated against in the most virulent forms. The country that now has an African American President did not allow African Americans to sit in an empty bus seat because it was reserved for whites. And in the previous century African Americans were sold as cattle and enslaved for life, frequently raped and killed without charges. As such the history of African Americans is comparable in horror to that of Jewish history.
Yet somehow, the vast majority of African Americans do not believe that slavery or mass prejudice could ever happen to them again. But unfortunately, many Jews still believe that another dictator intent on wiping the Jewish people out of the planet could arise at any moment in the world. Some believe that this could even happen in the United States. Indeed it is clear that Obama´s Muslim ancestry was an issue for Jews in America as some saw that Hussein middle name as a clear sign that it maybe him who endangers Jewish life as we know it. As unlikely as it sounds I have Jewish friends who still argue that Jews are safer in Israel than in USA or worse that Jews in USA are safer in USA thanks to the existence of Israel, something that if true, it´s probably true the other way around. Most Jews still argue that the State of Israel exists to provide a safe heaven to the Jews of the Diaspora, an argument whose validity has long expired. Now, surrounded by hundreds of millions of enemies, I believe that without the Jews of the Diaspora, and especially without the Jews in the United States the State of Israel would be in worse trouble. As military technology improves and becomes available for all it is hard to see how 5 million Jews can defend themselves against so many rich and well armed enemies. The chances that Jews are picked up country after country by Neo Nazis and exterminated as it happened during WWII is as probable as the chance that the same happens to Gays, Blacks, native Americans or any other minority that used to be discriminated against. Instead, the chances that Islamic Terrorists or Islamic states end up defeating or greatly damaging Israel with the use of advanced weapons over the next 20 years are significant. And it is my opinion that invasions such as that of Lebanon or Gaza increase the possibility of this tragic event happening. If there is ever another holocaust again in my view it will sadly happen in Israel.
The reason why I firmly believe in the right of Israel to exist but oppose the recent policies of the Israeli government including the invasion of Lebanon and of Gaza is that I believe that both invasions are unethical and tactically wrong. They are unethical because in both cases Israel is attacking, killing and greatly damaging the infrastructure of other countries or quasi countries (Lebanon and Gaza) in retaliation for dangers that are minimal. Casualty ratios of 900 to 13 can hardly be called a war regardless of the fact that human life should be impervious to mathematics. In Spain where I live we take higher number of casualties from Islamic and Basque terrorists. I am not happy to live in Madrid 10 minutes from an airport that was partly blown up a year ago with 2 casualties. But I do not want my government to send helicopters to Bilbao to shoot missiles at the Basque terrorists who are guilty of that crime. Such action would only make it more likely for ETA to recruit members and grow. Where 5 are killed, 50 others would arise. Moreover, in asymmetrical warfare of the kind that Israel fights, the danger to Israel is not that it is defeated by the regular armies of its neighbors, the danger is that its neighbors evolve to have better and better terrorist weapons and that next time Israel is hit with 4000 missiles these actually hit their targets. I am concerned that Israel is precipitating the evolution of Hamas into a more sophisticated enemy. And it is only a matter of time for terrorist technology to get better. Terrorism is defeated by making it harder for terrorists to recruit and evolve, not by attacking terrorists hidden among the general population with regular armies and killing hundreds of children whose siblings will grow up with the single minded purpose of destroying you. Terrorism is defeated as we do in Spain by patiently making the case for terrorists weaker, not by military force.
Furthermore I see another risk and that is that as Israel escalates in violence the Muslim world unifies against it. Yes I do know that Fatah hates Hamas and that the Muslim world is divided in all sorts of battles. I do know that in the last 20 years over a million Muslims have died killed by Muslims and less than 10,000 killed by Jews in all sorts of Muslim-Muslim conflicts such as the Iran Iraq war or the constant Sunni and Shia conflicts. But there are many Muslim leaders out there who are waiting for a unifying theme to get to rule whole Muslim world. Osama Bin Laden tries, Ahmadinejad tries, and unfortunately the theme of exterminating Israel grows more popular every year. Indeed Ahmadinejad seems to have better than Osama Bin Laden because he picked Israel and not USA as his stated enemy and now Al Qaeda seems to also be shifting in that direction.
So before invading a country, destroying its infrastructure, because they kidnap some soldiers as in the case of Lebanon, or because they throw potentially lethal rockets after a truce as in the case of Gaza, I think that Israel should think about how easier it makes the life of Islamic terrorist recruiters when it retaliates with tremendous force. Terrorists feed on anger and invasions, air bombardments, massive killings are certainly valid reasons for the attacked population to be angry about. Jews should learn from African Americans and realize that it is possible to be discriminated in the past, to be hated in the past, to be enslaved in the past, to be abused in the past and somehow…not be hated in the future. That if you lose a few soldiers is bad, but creating the conditions to lose your whole country is worse. Jews seem to talk about history as if it is destiny when instead I believe it is the destiny of the current generation of Jews to change history forever and make peace. Jews should learn to distinguish from the people who hate them because of territorial claims and the rest of the world who temporarily hates them because of the way they react against people who have territorial claims. These claims, while not valid in the case of the Lebanese, are pretty valid in the case of the Syrians and the Palestinians and as Jews we must acknowledge this and move back towards Oslo. Jews should learn that the reason why most people in secular Europe dislike us Jews is for the aggressive policies of the State of Israel. Jews should not confuse disagreement with Israel´s foreign policy with the virulent racism that characterized societies of 70 years ago. This type of racist thinking is historically over. It´s over against African Americans and its over against Jews. Indeed it´s so over that in the current anti Israel demonstrations in Europe the right wing parties, traditionally known as Neo Nazis were not present. Moreover I am convinced that if tomorrow Israel and Palestine learn to live in peace most people around the world will forget about both countries. They will be as relevant to the world as Croatia and Serbia are today. An irrelevance that is surprisingly great as a country tries to rebuild its future in a peaceful manner.
The present dislike for Jews around the world is not because of rampant global antisemitism but because most non Jews and non Muslims believe that Israel is reacting too strongly and too unfairly to the aggression it receives. Of course Israel has the right to defend itself. But while at the beginning of its history the world saw Israel as a country trying to survive, now the world sees Israel as a country using excessive force against the right of another country to exist. The best hope for Israel is that Palestine has a strong leader, that Israel can deal with in matters of security. Even as enemies Israel and USA are better off when the enemy is a state and not a terrorist entity. Until such leader arises Israel will not be safe but Israel must know that this leader will be somebody that is hard to deal with. History has many former terrorists who became respected leaders including some of the founders of the State of Israel. A strong leader who focuses on peace maybe difficult to deal with, but it will not be hard as fighting the Hamas Hydra that Israel is currently confronting.
While not all Americans love Europe, many, mostly from the Blue States, do. People in San Francisco or New York City dream of spending part of their life in Italy, France, UK or Spain, and some do make it over. Not many go to the extreme of moving over here and giving up their US nationalities as I did. But after 9 years of being a tech entrepreneur in Europe and being forced to choose between Spanish or US citizenship, I chose Spanish and stayed in Madrid. As a tech entrepreneur, I found Europe, in general, and Spain, in particular, to be a fertile ground for me. The European market is huge, bigger actually than the US market. And over here, I built Viatel in the UK, Jazztel and Ya.com in Spain, Einsteinet in Germany (the only company that I sold at a big loss) and now Fon.
Europe is great for an American tech entrepreneur because wealth here is better distributed, people are more educated and there are less competitors. Since being an entrepreneur is not very well regarded over here, US entrepreneurs find more open niches; but on the negative side, the market in Europe is much less homogeneous than in USA, local cultures make it hard to launch pan European products and there are all sorts of taxes, market distorsions and restrictions that surprise a US entrepreneur.
So let´s go over the caveats. The first one that I would like to focus on, one that is particularly brutal, is the issue of unlimited personal liability of the entrepreneur. On the rest of the article I will refer to laws in Spain, but I do believe that what I am about to tell you about Spain applies to most of the rest of Continental Europe as well.
USA has a lenient view of failure. Failure in America is not seen as a lifelong chronic disease but as a test of character. VCs in the States look for people who have had a combination of successes and failures, as they are more prepared to deal with the tough realities of business life. In Europe, however, failure is seen as just that, failure, a stigma that stays with you for the rest of your life. So far, I have never managed a business that had to liquidate. In all cases, even during the crash of 2002, I was able to refinance, renegotiate and keep companies going. Even at Einsteinet we were able to preserve most of the jobs. We sold the company at a loss, but the loss was limited to the capital invested by myself and my partners mostly at Goldman Sachs. Recently, thanks to the crisis, I have been hearing horror stories of what happens to entrepreneurs who fail in this Continent vis a vis personal liability. It is not nice.
The basic problem for start up entrepreneurs in Spain (and probably most Continental European countries) is that there is no such thing as “bankruptcy”, in the legal sense of the word. This is a huge problem for start ups because, as we know, most of them fail. So, for example, if you start a company in Europe, try hard for five years to make it, but run out of money in the end, the company is not perceived as a bankrupt company in the American sense of the word. In Europe going bankrupt is the same as firing all the employees and you as the founder, PERSONALLY owe the money that has to be paid to the employees for letting them go, even if the business has done nothing wrong. I know, it sounds crazy, but this is the case. So Spain, for example, had a construction boom for the last 5 years that ended in a bust, and now entrepreneurs are having to close down businesses. But when they do, they have to sell their home or do whatever to pay the severance pay of the employees. Because in this case not only the employees can sue you (through the Seguridad Social) and force you to sell your home, car, and deprive your own family of whatever they need, but if you don’t have money to pay now, they can hunt you down for the rest of your life. You never recover, you can never declare bankruptcy. You can never start anew. If you start a new business and begin to do well, whatever you make then goes to pay for your past losses in your past business. Spanish law ties your future endeavors to your past endeavors. You never get a clean slate. If you had say 1000 employees, which is what I have had in my other companies, you could owe tens of millions of euros for the rest of your life to them. Even though you did not do anything wrong other than failing to generate a profit, you are held personally liable for poor market conditions. This is an enormous risk for a start up entrepreneur. A risk that grows larger, the longer you are in business, as severance liabilities are not related in any way to employee performance and only related to their duration with the company.
And even if you are lucky enough not to go bankrupt in Europe there are other conditions that dissuade an entrepreneur from starting a business. One of the reasons of the higher unemploymentin Europe than in America is the extremely high social charges. These are 50% higher than in the States. In Spain, a starting level employee who takes home 1000 euros after taxes costs the entrepreneur almost twice as much. In Europe the government takes so much money in between the entrepreneur and the employee that, while take home pay is many times absurdly low, employee cost is generally high. And not only are social charges very high, but salaries are deceiving because, by law, in Spain and in general in Europe you are forced to pay employees 13 or sometimes 14 months for 11 months of work (a year minus a month of mandatory vacation plus an extra month or sometimes two of a mandatory state bonus regardless of performance). So if you are an American entrepreneur and you come to Europe and find out that there are no stock options and bonuses and want to pay them as I have done, you should realize that, even though it appears that there isn´t additional compensation, in reality there are hidden forms of compensation such as extra months and accumulated liabilities through mandatory severance and these are secured by none other than your own children´s college funds, your home and your car. And this is not all.
In Europe for example, medical doctors play a hard to explain role in business. If, in America, the ghosts for entrepreneurs are injury lawyers, in Spain, France and Italy they are medical doctors. How? If a person does not feel like working, they go to a friendly doctor who declares them “depressed” and they can stop working and still get full paid for up to 18 months. At Sybilla, a company that I invested in, we now have many of such employees, all declared depressed by their friendly doctor, and company productivity is seriously suffering. Interestingly the same law does not apply to entrepreneurs. As an entrepreneur you are not allowed to be depressed. This is illegal. If you are nobody pays you. And even when your business fails, you, the entrepreneur (or admistrador in Spain), are not allowed to collect unemployment insurance even if you contributed to the Seguridad Social. In Spain and some other countries entrepreneurs are presumed guilty by default and, in case of failure, everything is seen as their fault even if they truly had a case of mental illness. Mental illness or depression cannot get an entrepreneur away from his obligations to pay, but very commonly gets employees away from their obligation to work.
So while some European countries do have great advantages to start businesses among them, no capital gains tax on businesses owned and sold in over 5 years, starting a business in Europe is riddled with danger. Having built businesses in the States as well, I know that USA has its negative aspects. One would be the “legal tax” of doing business. Legal expenditures for the average business in Europe are in my experience 70% less than in USA. Moreover in Europe you don´t need to worry about frivolous lawsuits nor insure yourself against them. But in Europe we have all sorts of entrepreneur obstacles such as net worth taxes, which are as high as 2% of your global net worth per year, we have a medical system in cahoots with employees, we have social charges that are twice as high, and lifetime liability for business failure.
So what do European entrepreneurs do? Many times they find loopholes but these loopholes even though they are sometimes legal, because we live in the black and white world of Napoleonic laws, they are pathetic to say the least. For example in some case entrepreneurs in Spain are not the legal administrators of their business but find instead people with no net worth to take the job so if things go wrong they are off the hook. And I heard worse things. In some instances, entrepreneurs in the construction industry ask all new employees to sign blank pieces of paper when they join so the entrepreneurs can force them to resign without severance should they need to do so. I know that it sounds insane to an American used to courts that interpret the intent of the law that a simple trick like that would work, but in Spain it works. Another common trick that is illegal but almost normal is that when employees want to resign for their own reasons they ask the entrepreneur to fire them so they can collect unemployment insurance. Another one is that employees who are collecting unemployment insurance offer to work for cash pay but not on the books so there´s no proof that they are working and collecting unemployment and entrepreneurs go along because they save social charges. And this is but a small list of tricks, illegal maneuvers and loopholes that the system of rigid laws, high social charges, and forced severance has created. So when you see unemployment statistics in Europe they tend to be inflated in the sense that there are a lot of people in Europe who are both working and collecting unemployment insurance. The problem is that the employment statistics are also inflated in the sense that there are a lot of fake sick people in Europe who are supposedly employed but who are not working.
Now here is an extreme example. The ultimate American start up, the Hewlett Packard, the company that started in a garage would be illegal in Europe. In Europe everything is regulated. People cannot legally work in a garage. In Germany for example there is legislation that defines what a workplace is. I know that it´s hard to believe but there are even laws that do not allow employees to work further than a few meters away from a window so unless this famous garage has a lot of windows already working in a garage can get your business close. Moreover there is almost a concept of bondage involved in the employee company relationship with a set of rights that creep in and build over time that go against the basic principle of the start up namely of trying new business concepts that may fail. Even eager start up employees who understand that a start up has risks and want to be part of the adventure are not allowed to waive any of these rights. If an employee wanted to sign a piece of paper that said “I declare that I know this is a start up and we don´t have money in this new company to get an office and I accept to work in this garage and I renounce my rights to a window” a government inspector could come and close the whole company anyway. In general I would say that in Europe the concept of trying things out just does not exist, if you try you are liable, if you try you have to behave as an established business. There´s no concept of an incubating business in temporary start up conditions. The moment you are in business you have to abide by the rules of business and this rules are against start ups.
Bottom line, if you are a US entrepreneur or a US company thinking of opening up a branch in Europe you have to learn that while the market here is huge that Europe is a whole new world when it gets to the rules of the game of starting a business. Think less of stock options which in any case are frequently illegal or taxable when they are given out even when they are out of the money, less of bonuses because bonuses are already part of employee compensation and instead interview very very well before you hire because firing is tough and lack of productivity is not reason. In Europe it is not illegal to ask personal questions in an interview, indeed interviewing is much easier in Europe than in America, what is harder is to lay people off. Even if you have a sales person who has been unable to close a single contract it is illegal in Europe to argue that you are laying off this person because he or she produced no sales. In Europe, a sales people are not supposed to sell, they are supposed to show up for work and if they fail to maek sales the fault always, invariably lies with the entrepreneur. When the entrepreneur fires this person it is always a wrongful dismissal that must be compensated for.
Now, to end on a positive note, I can say that in my 13 years of building businesses and managing people in Europe my personal experience has been good. While in one of my portfolio companies there is a high number of people who declared themselves depressed this has only happened with one of the managers who ever reported directly to me. Also, because I never had to close a business, I was not caught personally owing a lot of money to former employees. Employee morale at Fon for example is great and I have not seen any cases of people abusing the system. Moreover, in Spain, and in Europe in genera, there are fortunately very many highly ethical people who don´t abuse the system even if they could. As a result there are many successful entrepreneurs and successful businesses in Europe. But, overall I would say that European society is not business friendly and especially not start up entrepreneur friendly. If you come over, create jobs and do succeed don´t expect the recognition that you get in the States. In Europe, as an entrepreneur, you are much less likely to be seen as an engine of economic growth and more as a person who gained unfair advantage over average folk who are struggling to make ends meet. And, if you are American, even more so. So American entrepreneurs coming to Europe, beware!