285. Can Europe escape American tech dependency?

0:00Where is the intellectual energy from the left and the centre-left? If you keep miscasting the past, you don't have the intellectual wherewithal to ask what you need to do next, which is why they're now governing in this haphazard way. They've replaced policy with sanctimony. And if you replace policy with sanctimony, you don't produce better policy. This is where we're stuck at the moment. And certainly, and I, you know, I led a centre-left party for eight years. And the whole of Silicon Valley, not just Mark Zuckerberg, but all that you saw that in the inauguration, have decided to, rather than shun politics, have decided to embrace at least MAGA politics for a whole bunch of reasons.

0:37The single biggest thing that drives their behaviour is competition with each other. And remember, the Brexit wars were basically a battle. It was a triumph of nostalgia over a claim of the future. The economy was growing again. We were looking more competitive as a nation. And then we voted to leave the European Union. We're delighted to say that this year the rest is money is powered by Octopus Energy. So we're joined by its founder and CEO, Greg Jackson. Hiya, Greg. You travelled with Prime Minister Keir Starmer on his latest trip to China. Why? There's a lot of people who quite rightly think we're naive if we don't understand the threats we face from China.

1:15But it's equally naive not to understand that Chinese technologies can now transform so many industries. And if we don't understand what they're doing and find ways to work with them, we're going to get left behind. Look, the reality is it used to be about China stealing our secrets. But now their own investment in technologies means that solar panels are 400 times cheaper than they were 40 years ago. Batteries for electric cars are 10 times cheaper than they were 12 years ago. So if we can find ways to work with this, we can bring costs down for British people, and that's got to be a good thing.

1:50Greg, thank you very much. Now on with today's episode. For adults with Crohn's disease or ulcerative colitis symptoms, every choice matters. Tremphaya offers self-injection or intravenous infusion from the start. Tremphaya is administered as injections under the skin or infusions through a vein every four weeks, followed by injections under the skin every four or eight weeks. If your doctor decides that you can self-inject Tremphaya, proper training is required. Tremphaya is a prescription medicine used to treat adults with moderately to severely active Crohn's disease and adults with moderately to severely active ulcerative colitis.

2:28Serious allergic reactions, increased risk of infections or lower ability to fight them, and liver problems may occur. Before treatment, get checked for infections and tuberculosis. Tell your doctor if you have an infection, flu-like symptoms, or need a vaccine. Explore what's possible. Ask your doctor about Tremphia today. Call 1-800-526-7736 to learn more or visit TremphiaRadio.com. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more.

3:06Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.

3:34Hello and welcome to The Rest is Money with me, Robert Peston. Today, I'm delighted to be joined here at the South by Southwest Tech Conference in trendy East London. I'm joined by the former Deputy Prime Minister, Nick Clegg. also the former, I don't know whether he's the right-hand or left-hand person of Mark Zuckerberg at Meta. And we've had the most gripping conversation about why he left Meta. I think he was slightly more revealing about the circumstances and what he really thinks about Silicon Valley than I might have anticipated. But then the meat of what we talked about was this AI industrial and social revolution that we're living through and whether the UK and Europe can compete, whether it's too late and how important it is to create tech champions in the UK and Europe if we're going to get our living standards up.

4:40So an absolutely fascinating conversation. Here's my conversation with Nick Clegg. Former deputy prime minister, former leader of the Dems. I mean, people describe you, I don't know if it's quite right, as a sort of number two meta left as Trump was taking power. It's weird that as Zuckerberg moves into Trumpian mode, liberal Democrat Nick Clegg leaves the company. As you say, I can't believe the events were connected. Of course they were. I mean, so when I arrived in Silicon Valley, so Miriam and myself and our three boys, we moved physically, moved there in the autumn of 2018. It was a completely different time.

5:19It was, Silicon Valley was still quite sort of, quite sort of happy-clappy, bit hippy-dippy, you know, very much left leaning for sure, for better or for worse. But crucially, social media was a social thing. It was like about human beings. Can you fast forward to now and the whole of Silicon Valley, not just Mark Zuckerberg, but all that you saw that in the inauguration, have decided to, rather than shun politics, which is what they did for a long time, in my view, sensibly, they've decided to embrace at least MAGA politics for a whole bunch of reasons, some no doubt high-minded and some more self-interested.

5:56and crucially the product or certainly the product in the company I work for has changed utterly from being a sort of human-centric product to one which is now much much more about content often synthetic content being algorithmically recommended to you so there were absolutely no hard feelings or anything but it just was like just not it was just a very good time after seven years for me to move on I mean to put it mildly it was not exactly the kind of thing that appealed to me making the case for it was going to become difficult well I didn't even try actually i tried to make the alternative case which was which was that i think in the long run for these big monster companies and as much as you care about their longevity um uh i think they for their own business interests i'm not talking about my old life as a politics because i wasn't i wasn't employed as a politician no but i actually just think as a matter as a sort of business person i don't think it's sensible business to flip-flop every time the political weather changes in Washington, in the US that is.

6:54Now, it's particularly difficult for social media companies because in the US, which is quite different to here in the UK, people are totally split. I mean, about one half of the country thinks that companies like Meta actively censor and suppress their view of the world. And another half who yell at them and say, you're not censoring enough to keep us safe. There's a much more polarized debate there. And I think if you're sort of holding the ring in that kind of context, dealing with something as sensitive about speech and where speech moderation ends and free expression begins and so on, it's more sensible to try and, you know, refrain from jumping into one political camp or another.

7:36I think you might be interested in this, and I'm not sure if you pick this up in your conversations in the US. Silicon Valley is always susceptible to ludicrous hyperbole, often, by the way, hyperbole, which they then go and act upon, which for better or for worse, but they're not politicians. And oddly enough, I was often in these conversations where I was the only person who'd ever been elected to anything. And what was so interesting at the time of the Trump 2 victory was the absolute self-confident assertion from the most senior tech bros across Silicon Valley, which was, this was not an ordinary election.

8:10This was a paradigm shift. There was a turning of the page in the Republic. Everything was different after than compared to before. And they need to adjust accordingly. And then I would say in a rather sort of world weary way, are you really sure my experience is that the pendulum in politics, it might get more fragmented, it might, but it tends to keep swinging. And I thought, well, this is just not something I can help with if they think that like the pendulum of politics has been arrested. When it comes to essentially how people are going to feel and think that they can't think further than the next day, it is odd.

8:43But it's by the way, well, it is. Actually, it's not that odd when you think about it. A lot of them are engineers. They build systems. They're innovators. They're incredibly competitive business people, competitive with each other. The thing that was often forgotten outside the US and California is the single biggest thing that drives their behavior is competition with each other. It's by the way, it's human nature everywhere. I bet you'll compare yourself to your peers in the media. You're right. I've always been so intrigued by these entrepreneurial characters who for whom the money also their wealth is the score.

9:22I mean, some of the reasons they become so monstrously wealthy is because obviously they accumulate wealth well beyond what any of them could actually use. Right. But they want to have more than the competitor. um actually funny enough my experience i don't i mean i guess if i say anything sort of um forgiving about this much vilified industry i'm sure people will yell at me but i i actually not sure if it's just money in the bank am i going to be remembered in a thousand years time as the person who helped inhabit mars i mean literally i think they do not do not underestimate the kind of almost loft it's by the way why they all have this sort of undergraduate fascination with ancient Rome.

10:00They want to live in a world where great men, and it's always men, do great things while the rest of us Lilliputian individuals, you know, scurry around in the sort of lower divisions, and for which then, you know, statues are erected, which will last for hundreds of years. That sort of almost legacy perspective drives their behavior much, and we can mock it or whatever, but that drives the behavior much, much more than have I got an extra few billion compared to my The power that comes with that kind of wealth is distorting democracy. There's no question about it. Let's remember, I personally think one of our problems in this country is we've forgotten ambition.

10:39We're so jaded, we're so cynical, we're so fearful of anything new. Not everything is rubbish, but I was just making this contrast. And one of the things I found very striking when I moved just individually, personally from Westminster, which is a place, as you know, just enveloped in, suffocated in, sort of smothered by the past. And remember, the Brexit wars were basically a battle. It was a triumph of nostalgia over a claim of the future. When I then moved to California, which all, of course, looks as if it was built last Tuesday, the thing I found so refreshing was that everyone I was talking to were, instead of arguing about conflicting claims on the past, which is what Westminster and the Brexit debate was about, were all competing with each other about rival claims to the future.

11:26And again, it's easy to kind of mock and titter because it can be so pompous and so lofty and so on. But there was actually something very energising about being a place that just constantly worries about what comes next, not arguing about where we've come from. And I do think, look, we're a more ancient democracy and we're a country which obviously has gone through a huge number of changes over the last hundred years and so on and so forth. But I do think that fresh kind of start again ambition and zeal does generate extraordinary innovation. I agree with that. And one of the things that I spent a lot of time actually agonizing about is, you know, how we create the ecosystem so that we can again have world leading companies.

12:19Now, you know, you and I, similar-ish kind of generation, you will remember that in the late 90s, early 2000s, the UK had a significant number of the world's biggest companies. And now we more or less have zero, right? I mean, AstraZeneca is periodically in the top 50, depending on what's happening to its share price. You know, BP, if oil price is high, you know, for a period looks as though it's a big company. But, you know, we've lost world leadership when it comes to so many industries. You know, I think you and I agree about this. The most important industrial, economic, social revolution of our lives.

12:59I passionately believe that artificial intelligence is changing everything. I mean, one of the things you've been thinking about, talking about, in fact, today is can Europe compete? And indeed, can the UK compete? Where, in your view, are we? And what more do we need to do? If you think competing matters, which I do, what do we need to do? I think, by the way, there's a lot of breathlessness about AI. It's super important, very important technology, but it's not perfect. Current paradigm, which is the sort of what's called, without getting too technical, that's transformer-based probabilistic technology where you tokenize huge amounts of data, and then you probabilistically through a mathematical formula project what the next token response is to a human prompt.

13:48That is the paradigm we're in at the moment. If you, again, we can claim whether we think of the right analogy or not, but if you assert that that's the equivalent to a new industrial revolution, Britain basically doesn't have a single steam engine of its own. We don't have a single, I mean, France has got Mistral. That's basically about it in Europe. And we're not going to. Here's the key point. The American hyperscalers are now spending every five to six weeks on their own AI data infrastructure, what we as a nation spend on defense in a year. So we're not going to. So the question then becomes, what do you do instead?

14:22I think we've got some fantastic strengths, our universities, our language, our culture of innovation. I'm now involved in venture investment. We've got actually a very lively venture scene. You've got a very lively tech startup scene. What we're very bad at, very bad at, is scaling stuff up. So you're right that, you know, one of the things that we routinely do in the UK is we come up with brilliant ideas and they turn into businesses. And then at just the moment where they might achieve world scale, they sell out, you know, notoriously DeepMind to Alphabet, Arm to SoftBank, and then listed on the US Stock Exchange.

15:11We've got right now some amazing young businesses. I mean, there's this business, Ineffable, which is doing what's known as reinforced learning and is actually trying to make massive knowledge breakthroughs not using large language models. It seems to be a very intriguing business, and it's been valued already at multi-billions. It's been in existence for literally a few weeks. It's a David Silver business. We've got Demis Sibis' new business, Isomorphic, which is cutting-edge development of new medical treatments. Again, multi-billion valuation in only a few months. These are British-based businesses.

15:58Only a fraction of their finance, however, is coming directly from UK institutions, which worries me. Yes, I think there are three things we broadly need to do. One, if we're not going to build these transformer models from scratch, double down on all what I call the post-LLM innovations likely to happen. The second thing I do is, and actually Tony Blair touched on this in his essay last week, whenever it was, focus on deployment and adoption of AI. This is a game of scale. The physics of AI is very, very expensive. It's expensive in energy, water, capital, compute capacity, infrastructure. You need scale.

16:40And we are just too small on our own. It's as simple as that. If you want to compete with China and America over the next decade, we have to find a way without reopening the Brexit debates of 2016 to create a tech single market. But you're absolutely right about that, of course. But there are two, you know, you've got to break that down, right? So, of course, the fundamental reason why America leads the world in large language models AI is because it has the most important single market in the world. And that's been, you know, why did America lead in investment banks? Because it's got an enormous domestic market.

17:25You know, why does it lead in so many other industries? But the paradox about Europe is, you know, obviously there's been an enormous cost to the EU leaving the European Union economically, a big cost. But Europe itself has been nowhere. You know, yes, you're right. Mistral in France may be a second tier player over the over the medium term. Right. But you only have to go back to the Draghi report about why Europe is not competing to realise that we're, you know, that Europe itself has to change and reform if it's going to be a player in these new industries. Hugely. And of course, it's just immense.

18:13I mean, I find it teeth gnashingly frustrating to see this pretty, I mean, it's not perfect, a pretty good plausible blueprint from Mario Draghi and Enrico Letta. And basically, it's just sort of gathering dust. It will, by the way, movement will come. At what point will European leaders, including our own, have a panic attack about this and actually change? Well, that, I think, is actually the several trillion dollar question. My increasing fear is it might only happen after a major fiscal crisis, because at the moment, I don't understand why the body politic, whether it's here or in Paris or Berlin, does not respond much, much more radically.

18:53And again, I do think that sort of seems to me to be the background frustration that Tony Blair was channeling. You know, this is existential to us. Most people know what they need to do. We need to become the sum of our parts again in this part of the world. And when I say it's not just the EU, it's Norway, Ukraine, maybe even parts of the Middle East. You need to create a sort of Eurovision approach to Europe, maybe without Australia. We are big enough. We have enough talent. My experience, I don't know what you find, is that an increasing number of politicians across the spectrum, oddly enough, I think the left and the centre left is the most sort of out of step with this need.

19:31They don't really sort of. But I think a lot of people now understand that to develop that scale, to develop those deep liquid capital markets, to get we've got in this country, we've got pension funds, amazing pension funds that don't invest either in Britain or crucially, they don't invest despite signing up to something called the Mansion House Accord. They don't actually do what they've said they would do and invest. I think it was quite a small amount, 5 % of their capital into a more risky asset, private equity VC and so on. So if we have our if our own pension funds are not prepared to put their money into really high growth sectors.

20:06So it is a national scandal. And you're right. And you're right. The way that the government is approaching this, in my view, is the wrong approach. what you have to do is create a regulatory framework in which these pensions feel empowered to take more risk. At the moment, the regulatory framework, you know, broadly discourages all that. I bumped into Jeremy Hunt the other day, I think, who quite rightly is very proud of having, I think, brought the pension fund industry together for the so-called Mansion House Accord, where they signed up to making this commitment. Minimal commitments. Well, I've done nothing, basically, or next to nothing, maybe if you have.

20:41And funnily enough, we both reflected, though we were both, I suppose, small little liberals of different hues and persuasions. So not generally the first kind of people to call for market intervention. I said, I've come around to the view that if it requires some more heavy handed intervention to get the pension funds to actually help great British businesses to scale up to your point. It's this lack of so-called scale up capital. There's another area which I'm not sure that you find this, but if you go to France, what they did, I think it was under François Hollande, interestingly enough, they basically swept together all their different pots of public money.

21:16It's a very sort of French dirigiste, centralized approach. But on this instance, they're often wrong. They might be right. And they put it under the aegis of something called the BPI, the bonk something, something, something. And it's basically a very big, large scale French investment entity into different asset classes. We, instead, have invented lots of different pots of money. So you've got a few hundred million for, what is it, sovereign AI. You've got a wealth fund. You've got a British business. And everyone's ticking their boxes in different ways. Everybody, of course, protects their patch.

21:47If scale is the issue, what you shouldn't be doing with public money is chopping it up into lots of bits. So I'm really worried about, you know, the government's approach to investing in these younger businesses. I mean, we had actually, I thought, a very impressive young minister on the podcast, Kanishka Narayan, who is the sort of tech science minister. Dr. Kyle, I have no doubt, is really committed. He wants to be, you know, the Secretary of State who creates the conditions in which we do get in the UK a trillion pound or trillion dollar business. We're a million miles running a trillion dollar business at the moment, but he really wants to create that.

22:29So he said they talk the talk, right? But then look at sovereign AI, right? So he has put money into two businesses, ineffable and isomorphic. Look, it may be that the taxpayer ends up making a fortune out of these investments, right? Isomorphic and inevitable. And if it does, great, right? But that is not, you know, the whole thing that government should be doing. What they should be doing is making a judgment about, you know, business that may be fresh out of a university. Is it going to get the finance at the right price to take it to the next stage? I'd like to see government taking real risk.

23:12And we just don't, you know, the problem is the treasury is always risk averse. Yeah, it's very odd. We do almost, exactly. So you, instead of aggregating the money at scale, we chop it up. We apply very risk averse criteria to it when we should actually be using it to leverage greater risk, which otherwise might not be supported. And I agree with you, just duplicating what are oversubscribed rounds, of course. I mean, listen, by the way, I get the political instinct. And you want to be, you want to be a, so, and you want to be able to sit around the cap table and sit around. But can I just say, you mentioned something earlier, which is something which I'm still wrestling with.

23:46You mentioned DeepMind and Arm. So these are two amazing British companies. Demis' company and the company out of Cambridge, of course, basically helped invent the smartphone revolution. And you said, well, but on the other hand, maybe that's, you know, like Arm is still domiciled here. Its IP is still here. Sure, its market is elsewhere, where it receives capital is elsewhere, but that's because America's a lot bigger than us and it's always going to be. Demis Hassabis, much to his credit, is still here. He sold to Google because he couldn't find anyone to give him the compute capacity. And the reason I say that is not to rehearse all the arguments around that, but we shouldn't only conceive of sovereignty as either you stay only in the UK or you're no longer sovereign.

24:31If you want world-beating companies, we're going to have to accept that we're going to be sharing them with the world. Nick, there's so much we need to talk about, but we're just going to go to a quick break.

25:07Great brands, great prices. That's why you rack. Study and play. Come together on a Windows 11 PC. And for a limited time, college students get the best of both worlds. Get the Unreal College Deal. Everything you need to study and play with select Windows 11 PCs. Eligible students get a year of Microsoft 365 Premium and a year of Xbox Game Pass Ultimate with a custom color Xbox wireless controller. Learn more at windows.com slash student offer. While supplies last, ends June 30th. Terms at aka.ms slash college PC. Whatever your thing, it could be anything. Canva helps you make that thing a thing.

25:49Canva is a simple online tool thing. It's a way to design with our magic AI tool things. You can social media your thing, generate images or videos of your thing, make decks or presentations to show your thing. Whatever needs to be done for your thing, Canva can make it an even better and bigger thing. Canva, the thing that makes anything a thing. Just had a conversation with Marianna Mazzucato, who I'm sure you'll have come across, an influential economist. She thinks the other thing that we ought to be doing more is recognizing when we create within our universities, publicly funded, or within our research institutions, many of them publicly funded, incredible IP with commercial, huge commercial potential, and making sure that some of that value just automatically is owned by all of us, and it would have to be via the state.

26:54So one of the things that is quite, I don't know how much of, essentially the isomorphic or the ineffable IP flows from university research, probably not that much given the more recent track record of silver and hasabis. But there is a world, it seems to me, in which the state ought to be hanging on to just a share of some of these businesses as they are created. Well, I think to be fair, though, that's maybe why they put some money into exactly what you, I mean, that would be the argument in favor. Look, I'm totally open to that. Probably, maybe because I spent 20 years in politics, I'm a little less enamored than Professor Matsukato is about the capacity of the state sometimes.