David speaks with Luca Dellana, an author, business consultant, and lecturer who helps companies increase their revenue through better people and risk management. Luca has been featured at Nudgestock, the largest behavioural sciences conference, as well as on Econtalk, among other platforms. More than 25,000 people around the world read Luca regularly. He’s the author of over ten books, with his latest being Winning Long-Term Games: Reproducible Success Strategies to Achieve Your Life Goals.
They talked about:
📉 The cost of risk-taking
⚙️ How over-regulation kills innovation
🎲 How to make vision a team effort
📣 How populism hinders long-term success
💸 Luxury beliefs and the reality of prosperity
⚖️ How scarcity shapes our perception of prosperity
This is just one part of a longer conversation, and it's the second part. You can listen to the earlier episode here:
Part 1: *🎙️* Trust, Skills, and Winning Long-Term Games with Luca Dellana (Episode 129)
You can also check out Luca Dellanna's first appearance on The Knowledge Podcast here:
🎙️ Ergodicity and Decision-making with Luca Dellanna (Episode 59)
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🎧 Listen on Spotify:
📹 Watch on Youtube:
📄 Show notes:
[00:00] Introduction
[06:25] Why big companies struggle to innovate
[11:54] Why bold ideas matter, even if they fail
[16:25] Why Europe’s long-term bets often fall short
[20:55] The hidden problems with Europe’s business culture
[23:23] Why Europe needs to take more risks
[28:47] Why governments struggle with long-term planning
[31:30] The key to aligning company vision with daily work
[33:54] How to make safe choices a real priority at work
[36:47] How incentives drive risky behavior
[38:26] Short-term wins aren’t always best
[41:25] Why people oppose tax increases
[43:40] Prosperity isn't guaranteed
[45:38] Luxury Beliefs vs. Economic Realities
[49:37] How scarcity shapes our perception of prosperity
[55:19] How prosperity fuels inequality
[1:00:53] The real solution for healthcare systems
👤 Connect with Luca:
Twitter: https://twitter.com/DellAnnaLuca
Website: https://luca-dellanna.com/about/
Latest Book: Winning Long-Term Games | https://amzn.to/3OQuD9T
Upcoming Book: Poverty and Prosperity | https://luca-dellanna.com/books/preorder
👨🏾💻 About David Elikwu:
David Elikwu FRSA is a serial entrepreneur, strategist, and writer. David is the founder of The Knowledge, a platform helping people think deeper and work smarter.
🐣 Twitter: @Delikwu / @itstheknowledge
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📖 Free Book: https://pro.theknowledge.io/frames
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📜 Full transcript
Luca Dellanna: The reason why we don't think clearly about some situations with scarcity and abundance is because we don't know what's possible. We don't know how prosperous we could be if we got a few choices right. And we don't know how poor we could be if we get a few choices wrong.
This week I'm sharing the second part of my conversation with Luca Dellana. Luca is a wonderful person, a wonderful friend. I love having him on because we have such interesting conversations. Luca is a consultant, he's an author, he's a lecturer, primarily helping businesses to generate more revenue by focusing on people and risk management.
You may have come across Luca through being featured at Nudstock, which is one of the largest behavioral sciences conferences, and he's also made several appearances on Econ Talk with Russ Roberts, who hopefully will one day be on the podcast as well. And Luca's also featured on a ton of other platforms. He's written several books including Ergodicity and Winning Long Term Games, which you'll see on the shelf behind me here.
First of all, we had a separate first part of this conversation, which we released a few weeks ago. You don't have to have watched that to be able to get through this, but I would still highly recommend you go and listen to that because that was also a great conversation.
But in this part you're gonna hear us talking about many of the ways in which behavioural sciences, behavioural economics influence our lives as individuals on a company level, on a organisational system level, on a country level. And we talk about this through many different paradigms, but largely this idea of do you optimise for the short term? Do you optimise for the long term? And what changes when the incentives change?
So for example, we talk about how you can get misaligned incentives within companies. Specifically in two types of ways where you see this in tech companies a lot, people trying to build something in order to get a promotion rather than trying to build something that is the best product for the business long term and similarly you very often have shareholder pressure on CEOs to try and make money now rather than trying to generate the best long term outcome. And so that operates on a team level on a company level. You also see it on a wider ecosystem level if you think of the venture capital Ecosystem where you might often see scenarios where startups are forced to try and generate returns for investors in the short term, which short circuits their ability to grow for the long time. And then similarly, if you scale that up to the country level.
Again, there's the perversion of incentives where elections are held very regularly in some countries every four years, some countries every five years. So instead of trying to build something that maybe it'll take 20 years, but it will be for the best of everyone in the country. Instead, they might just focus on, okay, what can I deliver that's going to get me good election results? So you get loads of these situations and you see it play out.
We also talk about this idea that you know, we look at Europe as an example, and why does Europe seem to fail with innovation? What is happening there? Is it that they are being too safe and too secure, too restricted through regulation, trying to be very safe? If you listen to actually the past conversation that I had with Luca, we talk about Ergodicity. We talk about this idea that sometimes instead of trying to optimize to win right now, in this one scenario, there's an approach you could take to try and win in all of the possible universes for all the possible outcomes, and it might be a safer approach, but it's a more guaranteed approach, and so we kind of went back and forth about, is that really what Europe's trying to do, or are they actually being reckless through their regulation, and actually they are almost regulating themselves out of innovation completely, so we had a really good conversation about that.
We also talk about this idea of, okay, if we're thinking long term, how do you get people aligned on that? How do you get people aligned on a long term vision where we can make sure that everyone is incrementally? Contributing to some kind of long term goal and how that can feed into on a country level this idea of populism, first of all populism apparently creates bad outcomes, but what is the gap? There seems to be a shrinking gap between populism and democracy. The outcomes that both of them can generate especially in today's world.
We then talk about how to balance the way that we use risk over different time horizons, so when we're optimizing for the short term versus optimizing for the long term.
And actually I make a case that there can be some times where it might be better to optimize for the short term instead of the long term. So definitely listen to understand why I said that.
And then finally, we got onto the idea of Luca's next book, which is about poverty and prosperity. And this idea that I think in many different ways. First of all, we can form the wrong baseline ideas about what the natural status of things is. Is the natural status of things poverty or is it prosperity?
And we talk about this idea of luxury beliefs, how we can develop some twisted ideals by not really appreciating the mechanisms behind prosperity and the mechanisms behind poverty.
And finally, we talk about the distribution problem. And this idea that, you know, tying a lot of these strings together, how do we solve the Matthew principle? This idea that the rich get richer, the poor get poorer. And that applies not just on an individual level, but also on a country level. And somehow when you invest more into certain countries, let's say London within the UK, it has a multiplicative effect over time where London continues to get richer and continues to need more investment because more people want to move there. You have to keep investing in there. Whereas for some other countries, it is the reverse. It has over time a brain drain effect where not only do you not invest in them now because it seems better to invest elsewhere, but because of that more people leave and then that becomes cyclical.
So really, this was a really great conversation. I think you're going to love it. You can find Luca online on Twitter @DellannaLuca and you can go to his personal website at lucadelano. com We'll have all the links to his stuff below. You can get the full show notes, the transcript, and read my newsletter at theknowledge. io.
And if you love this episode, please, please do share it with a friend and don't forget to leave a review on Apple Podcasts or Spotify, wherever you listen to podcasts, because it helps us so much to find other listeners just like you and to make more episodes that you'll love and have the guests that you'll love and all of those wonderful things. So.
David Elikwu: Let me give you two examples that I think may be a bit more realistic or more common that I think can potentially be, I don't know if it's a counterfactual, but the idea that one that comes to mind very easily is product managers in FAANG companies. So you have a lot of these big startups. You have people at Google, Facebook, et cetera. And there is this duality where as much as it shouldn't be a dichotomy between the two. The reality is that what it looks like in order for you to get a promotion is you need to be able to show that you've built something. You need to have shipped some kind of product. What that ends up looking like is that instead of taking multiple years to actually improve the overall product for the end user, each person is on their own individual timeline or each, each group, each team, and their job is actually just to ship some stuff. And so they will just ship out something random that ends up failing and they don't really care because that's, that wasn't the point for them. And there's this sense in which for the end consumer, or perhaps for the, the longevity of the company, this is suboptimal. It makes no sense that you have so many teams launching all these mini projects and shipping all these features that you have a feature update and they've changed the shape of the buttons slightly. There was a whole team that was dedicated to that. Why? This is a waste of everyone's time. Like there's no tangible benefit to the end user for having this team spend all this time faffing about doing this one little thing, but internally being able to say, I did this thing and it touched this many users. That is your promotion case. And that actually helps everyone do well internally. I think, again, it's just about the incentives because it's not necessarily the case that you say, Oh, this only happens because the company is bad. It just happens, maybe a particular type of scale, but just because the incentives are misaligned.
Another example that comes up quite frequently, maybe with CEOs is it could be one thing, and this might differ depending on the type of company. You can look at Berkshire Hathaway is a good example. They play for the longterm. And so because the investors in Berkshire Hathaway know that they are playing for the long term. They are not demanding short term results, but I don't think that's the common case. For most businesses, the investors, the board, the shareholders, they are saying, where are the results? Why hasn't this company been growing? It doesn't always seem acceptable for the CEO to turn around and say, Don't worry. We're playing a game for the next 10 years. We are not going to see any results for the first six years, but between year six and year 10, we're going to have astronomical growth because we've spent so much on R and D and we've spent a lot of this time building for the future. You know, that, that CEO will get fired. You know, they will say, what's going on? It looks like actually the profits are going down because you're spending so much investing in the future, what's all this money that you're putting into AI or into Bitcoin or whatever.
Funny enough. Okay, this might not be a good business example, but I think Michael Saylor is a good example of this in the sense that he had been, I think he's now one of the longest standing CEOs of a major company in the U.S. And he was running a business that wasn't actually, was doing okay. And had been doing okay for a very long time, but nothing crazy. And then at one point in time, he decides that instead of holding the company's reserves in cash, he's going to start holding it in Bitcoin. And he did this from, from years ago. This seems silly at the time. Why on earth are you doing that? And over the years that their position has grown. And I think he now owns more than 1 percent of all the Bitcoin in circulation, which seems insane, but now it seems wildly profitable, but at the time it would have seemed insane.
And I think if you don't have the right kind of board that's on board with that, which most boards probably wouldn't be, then you don't get that kind of outcome.
Luca Dellanna: Yeah, so I'm not too familiar with Saylor so I cannot comment on that but going to the Google example, with the big caveat that it's a company that I only know from third parties, like I don't have any direct experience with. But the thing is that there is not only two options. Well, one option is you ship those products that no one wants, but are good for your curriculum and for your advancement is in the company.
And the other option is you just do kind of like an anonymous job and that's it. There is also third pathway, which is the pathway of finding ways to build real value within the company or to move outside. Again, if you check on a two year time horizon, probably the person who, who seems to get first test the most is the project manager who shipped that 35th chat app that Google launches and no one uses, but I'm not convinced that the thing keeps holding true of longer timeframes.
This is one thing. And then the second thing is that other advice is, well, if you can try to find a job where you are more aligned with the company and your own success, a job in which when you work it, you both do good for the company and you do good for your long term. So it's a, it's a work in which you build skills, you build relationships and you build trust. And this seems a bit banal because there are quite a few jobs in which you build one of the tree. But there are not so many jobs and especially so many teams within the company, because it also goes on a team by team basis where you get to build or treat.
But I really think that a job in which you get to build the skills, trust, and relationships is an extremely, extremely powerful job.
David Elikwu: I want to return to one of the points I made before, which I may not have communicated clearly, now that I think about it better.
This idea of systems. And I think, so for example, someone could make a case that a major reason that America has had the growth that it's had over the past, you could even say centuries, but particularly over the past few decades has largely been because of technology, because of startups, because of people making these asymmetric bets that I'm going to spend how many years working on something that doesn't have a great likelihood of success. But if it works, the outcomes are great. And for each individual person on their individual timeline, that might not be the best possible bet. And again, we have survivorship bias here where, you know, for each individual person on their own individual timeline 99 people might fail for every one that succeeds. But from the economy's perspective and even within the economy, let's just say Silicon Valley as a proxy, within a system the best outcome for the system is actually to encourage that behavior, because as long as we can keep encouraging enough people to take these risks, to take these bets, the outcome for everyone, technically, in a sense, get better. And it's a weird backwards framing that there can be a sense in which the system imposes this way of thinking on the individuals, and it's predicated on that. As soon as you stop, perhaps, you know, this is just a case that someone might make. As soon as you stop promoting this entrepreneurial spirit and the spirit of risk taking and the spirit of doing things that are non ergotic where for you, the outcome could be terrible, but for the system, the outcome could be great. The more that we encourage this, the better the rewards for the system, even if we lose some people along the way.
And obviously this is very tough to think about on an individual level, but I'm interested to know what you think about that and being someone that might be in such a system, how can you, because you talked about balance and being able to find this balance between, okay, maybe you do some things for the long term, some things for the short term, but there is a strange sense in which sometimes, or there are some systems in which, going back to what I was saying with the two months mindset or the two years mindset, you kind of have to have a moonshot mindset where it's like, we have to go to the moon. And if you have enough people saying we have to go to the moon, then you get to the moon as a collective. But a bunch of people may not get to the moon as individuals.
Luca Dellanna: Yeah, so I think that you're highlighting a very important, like, phenomenon. I'm slightly more optimistic on, like, I see a bit more alignment on this in the sense that it's probably better to be a failed entrepreneur inside a country or a company whether there are successful entrepreneurs rather than to be in a company where there are no entrepreneurs at all.
Like with exaggerating a little bit, I think that you could say it as it's better to be a failed entrepreneur in the U. S. than an employee in Europe. In the sense that even if it looks like you lost, you actually won. Because someone else that it's close enough to you won as well. So the question, I think, the real question to me is, the company is correct that the more it encourages entrepreneurial spirit within itself, within a limit, probably the better it would be the outcome for the company.
In addition to that, I think that the company can also think on, and how do we make so once that this approach is better, not just for the company, but also for the employees inside the company that failed, that failed in their teams.
It's an interesting observation. Like in my book, one of the point I make is the idea of working in a way in which even if you fail, you make a step forward, which is the idea, for example, that if you spend six months on a new book or on a new app or something like that, there are two ways in which you can fail.
There is the way in which you fail, and you broke trust, and you learned nothing. And so, that was always the time. Or, you can fail in a way in which, yeah, you failed, but along the way, you gain skills, you gain relationships, and you build trust. Where people know that even if you fail at that specific thing. There are still someone that they want to work with more than they wanted to work before. And I think that this is like part of that it's important to, well, from the side of the company to build environments like this, from the side of the employee to go work in environments like this and so on.
David Elikwu: So going back to the idea that you mentioned that, you know, the risk that you optimize for in the short term is not the same as the ideal risk to optimize for in the long term. Why do you think Europe isn't doing that great? I think, you know, I love Europe. I'm sure you do too. But I think quite consistently, there's a lot of areas in which, and I think this comes back to the paradigm we were hinting at before, where again, I'd just love to get your thoughts on this.
There is a consistent sense in which sometimes the long term game, and maybe this goes back to the quote that you gave of Naval, where it's like things that look like 3D chess in retrospect, we're actually just keeping options open. But I think quite specifically, so the example that I would give with this is electric vehicles. Now, europe has technically been investing in electric vehicles for a while. We've known about electric vehicles for a while. Europe has supposedly been looking at the future of electric vehicles. So they have been taking a long term view, but it seems like they chose the wrong protocol to base their network on. North America had a different protocol and there's a different protocol that's become widely used that is not the one that Europe chose. And so Europe made this decision quite early on. And I say Europe specifically because it's a standard throughout Europe. But it ends up being, I guess, because of the number of regulations, just slower and harder to roll out and not, there's not enough charges. And now the, I think I was looking at some charts earlier today, the projections for how the market is struggling, the car market compared to China, for example, is incredible. And it looks like actually, not only is it difficult now, it's actually going to be very difficult for a large number of years in the future. And there's a way that you can look at that and say, China was playing the long game, they were playing the 3D chess of again, now that you look at it in retrospect. Very early on China had massive subsidies for their companies to improve their cars, but actually since then they stopped. And so for most of this period, the subsidies haven't been that much.
So for example, I think percentage wise, the average Chinese electric vehicle costs about 45 percent of the equivalent in Europe. But if you remove the subsidies for the majority of this period, it's only down to 44%. So actually the amount that they're subsidizing is not very large, but because right at the beginning, when the technology was still quite nascent, the subsidies were much larger. I think it incentivized a lot of people to start looking into it. Even though the breakthroughs didn't happen then, and a lot of the benefits were not accrued then, at least it got more companies to start trying to build something in that space. Then after that, when it becomes more of a common thing, they don't need to subsidize it as much because there are actually enough companies that are already invested in trying to build a solution for that space. And so suddenly down the line, it looks like, oh, wow, they were playing 3D chess. How did they manage to have all this infrastructure? How did they manage to have such a cheap cars compared to Europe?
I think, yeah, this is what I'm, I'm muddling through which is, how is it possible that sometimes while you're looking at the future, you can still get things wrong when you're trying to play the long game. And there are some other people who are also trying to play the long game and there are things that they do that might seem crazy at the time or seem uncommon at the time that end up being right, but it can't always be the case that you should say, anytime someone looks like they're doing something crazy they might be the ones that are right when you know in a lot of these situations. Europe seems to take I would call the sensible path quite consistently. And you might translate sensible in different ways, but usually it's, it's a sensible risk of us path in a, in a lot of circumstances. I think that's what a lot of EU regulation is aimed at. It's aimed at minimizing the long tails, right? You kind of want to get the best average outcome but sometimes that ends up worse for the economy. So I'm interested to know what you think of that.
Luca Dellanna: Yes, I think, since you talked about Europe and electric cars, so one problem is obviously like the excess of regulation. Another problem is that you mentioned that Europe has started looking at electric cars relatively early, which is, which is good. The problem is that not only it opened the option of electric cars, but it also completely closed the other option, the diesel vehicles, I think that it introduced regulation that said by 2035 or something like that, we stop selling the combustion engine. And so I think that part of the thing is that Europe is not playing 3D chess is not playing 2D chess is playing 1D chess. Where it limits the option so much that the pieces on the chessboard are basically in a bottleneck and they cannot move and therefore they cannot go very very fast.
Another problem with Europe, in my opinion, is that it's extremely slow, painful, and hard to reallocate talent. For example, a company is born in Europe, it succeeds great, it struggles, well, it's extremely hard for the workers and the resources that are invested in this company and working in this company to be reallocated to places where they would add more value. Like in the U. S. that company will close, and probably also in China, I'm not so familiar with China, but the company that struggles will close and the workers will go work for the company that's more productive, that has better systems. And instead in Europe, they will stay much more bogged down in this marshland of struggling companies. So I think that this is the second problem.
And then the third problem is the idea that when you dig down, like at a high level, what you see are regulations and high strategy moves. But when you dig down, and for example, you go inside a plant, and you look at how things are done. So not what they are working on, but how they are done. Or you go into a meeting room, and you look how discussions are held. Like, is the discussion flowing? Is it actually progressing? Do the progress updates, meetings, advance the objectives? Like, these very down to earth things which are irrelevant from policies and so on, you see that there is some slowness or some lack of focus on the important, even there. And I think that that's something which is very underestimated.
David Elikwu: I think it's interesting how. Yeah, it kind of goes back to what we're saying, how do you think that this balances with some of what we were talking about, this idea that, okay, here is what I assume a European politician might say, which can sound similar to some of what you might suggest, Europe organizes policies in such a way that in 99 out of a hundred universes that's, okay, there's not going to be some catastrophic failure. There's not going to be one long tail event that is extreme. But the average, but I think because they play so conservative and so safe in some ways, and the regulation is so much and so constricting, then you don't even get halfway, if you know what I mean. It would almost be better to be willing to sacrifice some outcomes where you have worse short term results to have that long term.
So the long term game that they think they're playing ends up being worse than if you were potentially playing a short term game, like, I don't know, there's a very strange dichotomy there because on the flip side, like you say, they introduce regulations throughout, even in the UK, throughout the EU, there's regulations about when combustion cars will be going out of service, et cetera, that might seem like short term, but they would say it's long term because actually we're thinking of the climate and the very, very far future. And so what they are optimizing for is, Oh, how can we make sure a hundred years from now, there is a much higher guarantee that we don't have negative effects from climate change, that might mean doing some things that seem drastic in the, in the short term. Actually, if you were just to do some things better in the short term, let's say on a 10 to 20 year horizon, you could have better long term outcomes.
I think austerity is another good example of this throughout Europe, particularly in the UK. You have loads of system where they just make cuts and they're saying, Oh, actually, you know, we, we can't have some money for, for the future. If we don't make all these cuts today, people have been saying that for most of my adulthood, like the last 15 plus years, I just keep hearing people say, Oh, we have to make all these cuts to social services. There was too much money before. So we have to reduce it. And as a result, the entire economy has stagnated that for that whole period. We haven't seen any growth. And when do you come out of that cycle? If that's the mindset. So it's almost, and maybe you might contest this, but it seems like, sometimes that their time horizon is actually too long. If you take far too long a time horizon, you don't get to perhaps reap some of the intermediate results. And I think maybe a parallel of this in the startup world could be maybe the COVID period is a bad example, but we'll use it just because it's readily available. There were a lot of businesses that you could have invested in during that period where, and again, survivorship bias will color some of this where, okay, if you made the right investments during the last four years, you could have made a lot of money, more money than in the prior period, and also more money than perhaps right now. But the vast majority of those businesses also went bust. So you had to pick the exact right ones, but there is a potential that you say, let's say you had, I don't know, $10,000 to invest or something. If you made a reasonable investment during that period, you could have made a much more money, which then now enables you to do even more. Let's say, whereas if you had played it safe and very conservative. You didn't make the most of, there was a specific window of time. So let's say you wanted to buy a house or you wanted to make some kind of investment, that zero interest rate period was the best possible period to make that kind of investment because now it no longer exists. So even if it was not the best, it didn't seem like the best option then, it ends up being the best option now. And actually, if you had taken a slightly short term approach and optimized for something that didn't seem like it would be good long term. Maybe you overextend a bit and you get a house that might not seem most affordable at the time. It's definitely not affordable now. If you know what I mean. So I'm interested to know what you think about that.
Luca Dellanna: Yeah, I agree in spirit, but I disagree with some terms in the sense that I don't think that Europe is risk conservative. I think that Europe is reckless.
Reckless in the sense that the number one risks, like one of the top risks that loom on a country is economic stagnation. And they are not managing this risk at all. Zero. They're even causing economic stagnation. And in this sense, I mean that they're reckless. They're like risk conservative with things which are kind of like second importance, and they're reckless with the things that matter.
The same I would say with with the idea of long term short term like Nuclear, for example, that Europe is mostly phasing out like, nuclear will be like the long term approach to solving climate change and instead Europe is focusing on the short term approaches, which is Building the North. The wind that Tobins and these kind of things which are shorter term in the sense that those are a project that you can build in a, in a few years. A nuclear plant you need, you need decades to start it up and to start to make it profitable. But that's long term. And in fact, that's what Europe is not doing.
So I think that down to heart, it's. It's mostly a problem of also incompetence. Because like, I would struggle seriously to think about the name of a European politician which is in a position of power and is competent.
David Elikwu: Yeah. I was going to ask about this. Do you think it's just that it's a self reinforcing system? Because A big question I have with this is that there are a lot of these people where perhaps if they were in the private sector, or let's use nuclear as an example, I can't even, I don't know any smart people that don't think investing in nuclear is a good idea. But there are people within government that have previously worked in the private sector, which would lend you the assumption that they are actually intelligent. And if you looked at them in that context, you would say this is a smart person. So what happens exactly that when this person goes inside this system, suddenly we get all these bad decisions that, and quite consistently with a lot of them, to all the people commentating, they seem like bad decisions, but somehow they keep making the decisions. I don't understand why there's this persistent gap between the, like, what is different about the incentives, or is it like the long term thinking that means that with relative consistency, the decisions made by governments, I think this even happens in the US, this happens around the world in lots of different contexts, where the decisions made by governments don't align with what people would think is the best outcome for individual people.
Luca Dellanna: Well, I think that there are three, three factors. So the first factor is that, of course, if you're a politician, it's a huge, huge, huge game of compromises, and you are bound by what the population won, will vote for in the next election. Like, imagine that I become a politician. Despite thinking that I would have a lot of ideas, my ability to bring them forward would be seriously constrained by the fact that I need to work with a few other hundred people, that I need to vote every single thing that I propose, and we all can only stay in the game as long as we do things that a very short term the electorate vote wants.
So one, one thing is this. The second thing is that a lot of people who do well in the private sector are actually, I dare say, not that smart, in the sense of smart as in independent thinking, they are smart, but in the sense of making systems that are already their work in the direction of the default of the system.
And the thing is that when you're in a company, usually those systems, they work in the direction of, of growing the company or at least solidifying the company. Whereas when you get into the government, this pre existing systems, they tend to work in directions that yes, solidify the government, but not necessarily strengthen the country.
So I think that there is this second point. And I think actually only these are the two main points.
David Elikwu: One question. When you think in a, in the context of a company, for example, and let's say you're a manager, you have a team and you want them to take the long term view, how do you get people to align on taking that approach?
Because I think, the distance that you have as an individual from whatever that goal looks like, I know there's the common example, I think you've, you've mentioned in the past of let's say you have like the janitors working on part of the space project and there is a common framing, which is something like, Oh, actually, the reason why we're able to go to space is because even if you ask the janitor, why you're working here, they're going to say, because I'm helping people to go to space because even though I'm playing this small part, it's part of a wider hole.
I think the reality is that Most people in most workplaces don't feel like that. And even though the board and the company directors might come and give this grand vision of here's where we're going for the next five years or 10 years, the individual person is just thinking about, man, I've got to feed my family. I'm just trying to get my promotion. I'm just trying to, you know, come here, do what I need to do and go home.
So how do you balance these two different perspectives?
Luca Dellanna: Yeah, let's go back on this, on the example of politics. Imagine that I decide tomorrow to go into politics and I campaign with the idea of making Europe great again. And I win by a landslide and everyone votes me, chanting, let's make Europe great again. I get elected, and then I'm like, do you guys want to make Europe great again? And they're like, yes. And then I say, okay, so that means that to make it great, we will need to have to cut the pensions and invest in these and increase job flexibility. And they will tell me like, no, actually we don't want that.
Now, the problem is that the same happens in companies. You often get the boss that says, let's say that safety is the core value of the company. And the boss tells the employee I want you to always behave very safely and take the safe choice and blah, blah. And then the employee, at the back of his mind, he's asking the question to the boss, does it mean that you want me to operate the cranes lower, which means slowing down production if it means it's safer? Do you want me to buy this equipment which is safer but costs also more? And the thing is that when the employee asks himself this in the back of his mind, the boss is always saying, of course not. I want you to be as productive as possible.
Now, the thing is, is it true though? Because a lot of bosses actually. When they say I want you to take the safe choice, they actually mean it. Not all of course, but more than we give it credit for. How do I know? I know it because the most common type of job that I have is a boss that wants their employees to do the right thing, but is not able to make them do the right thing. That's the number one way in which I earn my living, like, in which I get contact. And this is weird because when I was at university, I also had this model in which, ah, capitalist bosses, they always think about profit and the employees they need to work unsafely. And then what I discovered is that, well, for the three years I worked in Frankfurt, and then it also happens now, but in the three years I worked in Frankfurt, all the time, the people paying us a lot of money. It was because they had one question. We were specialized in workplace safety. And the question was, I want and I need my employees to be more safe, but they wouldn't do that. So the question is, how do you get them to be more safe or anyway to think more about the long term? And the answer is, that conversation that they have at the back of their mind, you need to make it explicit and to have it in front of them.
What does it mean? It means, imagine that I'm the boss and I'm telling the employees, I want you to, to be safe. And then they are yes. And then I need to address all the little conversations that are happening in their mind with concrete examples. For example, I need to make explicit that if an equipment which is safe costs more, I want them to buy it. Unless I say this thing explicitly, they will not believe me or they will not do it. And not only that, because they might still not believe that I truly think that. Maybe they think that I'm just saying it because that's what my compliance checklist says. And so the next thing we need to do is that we need to make the situation happen in which they make a choice, and I reinforce the right choice or call out the wrong choice.
How do you make it happen right now? You play a hypothetical. So you say, imagine that you need to select between this, this, and that equipment. And they have this, this, and this cost, and this, and this, and this property. Which one do you select? And then if they select the one which is the safest, and you tell them, great, and you enforce the behavior, they will get the message. Even better, if they select the one that's the cheapest and you tell them, no, I would have wanted you to select the one which is safe, that's when it will click. But that's something that needs to happen in person. You cannot do it with situation with tools that scale such as training courses, compliance questionnaires and whatnot. It needs to be done face to face with the boss and the employee playing a real as concrete as possible hypothetical scenario.
David Elikwu: Okay. Cause I was going to say, you know, very often you still get this, let's say in banks or in some circumstances where. For example, you, you tell your group of traders, we don't want you to take unnecessary risks. We don't want you to do this. We don't want you to do that. But the reality is that from the perspective of the employee, they feel like there's some doublespeak there.
They feel like, okay, you're going to say this, but actually you still want the bonuses to be high and you still want me to be productive. And so I will still end up taking the risk when, when the time comes, because I know that ultimately that will be better rewarded than doing the safe thing, even though you tell me on paper, you want the safe thing and we do the compliance and the regulations and all of this, but when push comes to shove, most people will still do the risky thing.
Luca Dellanna: Exactly, exactly. That's exactly the principle. And for example, the same must apply to politics. If we really want our politicians to do the things that matter, we need to tell them, and we need to call them out the moment that they don't do them. And unless that, they will never believe that when we elect them saying make Europe great again, we actually want it.
And the truth is that a lot of people, they don't want it. Or better say, they want their country to be great, but they are not prepared to pay the cost for. Just like almost everyone wants to lose weight, but few people think that losing weight would actually improve their life. Given all that it takes to lose weight.
And the same thing, a lot of people, they say, I want my country to be great, but they don't believe that their life would improve if the politician actually did what's necessary to make their country great.
David Elikwu: Yeah, this is a really good point actually. Do you have any recommendations on how we do that? Obviously, you're not a politicist, but what do you think about how we practically do this in terms of specifically fixing this actually on a population level? Because before we were talking about the politicians and oh, they make some mistakes, things like this, but actually very often now people talk about populism, right?
This idea that actually you can just tell the people, I will give you what you want and that's the easiest way to get elected, regardless of whether you're going to do the thing they want or not. And very often, you know, just like you say, I know that recently in the UK, we've had protests from farmers, for example.
And actually, I think that you've had, there's been similar in, in France, but we just, actually, it's not even happening right now, but it's been announced now that it's going to be in the budget that Farmers will have to pay inheritance tax just like everybody else because they were previously exempt. And actually it's still not going to be exactly the same as everyone else. There's lots of caveats and lots of workarounds to the way the policy is being enforced. But there's this idea that, okay, now that this thing is affecting me. We're going to protest. We're going to be in front of the government. We're going to do all these things because this is terrible. This is bad. And just like you say, there are a lot of these policies where if I was to present to you the long term vision of this is exactly what we're doing. Can you not see that in five years, your life could be so much better in 10 years? Your life could be so much better. These are all the great things that you get to have on the other side of perhaps making this change or something like this. People will say, no, nobody wants that. And, you know, people will vote for the person that says, I'm going to get tax cuts. And I think there's a specific example of this.
We've seen it in the UK with the conservative government, but I think you see it also in the U S with Trump, for example, where you hear people say, Oh, but Trump gives tax cuts or something like this. And the person saying it is not in the tax bracket that they would even benefit from the tax cut. And yet, because it seems like there's going to be some benefit that touches them, they might make a decision that in some other aspect of their life would be a worse decision for them. But because they imagined this benefit, then they will make that decision. And this is not to say one thing or the other about who you should pick as a candidate. But it's just this idea that, you know, populism for a reason, but I think Peter Thiel recently made the point that populism is also democracy, it's just a democracy you don't like, right? When lots of people vote for something and you like it, it's democracy. If lots of people vote for something and you don't like it, it's populism. And it's far, far right or far left or far something, right? It's, it's this crazy thing that I don't like. And how do you fix that? How do you do this on a broader scale?
Because I think on an individual level, everything that you're saying makes sense, you know, have to procure a lot of these things. It's very clear when you think about the lesson. Okay. Yes. We should be thinking longterm. In fact, we, we shouldn't be taking the same kind of risk. We should be thinking about things differently, but how do you convince or get people on board with this on a, on a broader scale?
Luca Dellanna: Let's go back to the example of the British farmers. So the problem is that imagine that I am a British farmer. And I truly, and imagine that for some reason, I really want the best for my country. And I truly think that it's unfair that we get the tax, we get this privilege. The problem is that if the government comes to me and he says, we're going to take your money, so one thing is, which I think is, oh, it means less money for me, obviously. But the other thing I will think about, and it's crucial is that, do I trust that the government will use that money well?
And if there is not a track record, of course I would, I would oppose it. And this is something which is, like a problem right now in lot of countries is not more, if not most countries, is that governments do not have the track record of using money well. So when they ask to raise taxes on, increase the pension age or whatnot, there are two problems.
One is the selfish problem of do I end up with less money? And two, there is the other problem, which is not only that, but I also do not trust that you will, use that money well. And of course, if I think that you will only use the money to, to give it to your friends or to promote this cultural initiative I really don't care about or whatnot, I will of course, oppose you getting more money.
And so I think that what's really important is the idea that the government should focus on building a track record of trust and competence. Because unless there is a track record of trust and competence, people will oppose reform purely for the fact that it will have little benefits and much waste.
And so I think that it really goes about building the track record. How do you build the track record? Well, you do two things. One, you cut on wastes, so that there are less examples that people can point about, or the government waste this money. And two, you try to spend it well and to get results and improve results so that you can, you have a track record of, I'm asking you for more money, but things will improve for you. Because unless the track record you do, nothing will change.
David Elikwu: Okay, you mentioned to me some of the next book you're working on, and you've worked on loads of books. This one seems a little different from, from some of what you've written about recently. I wonder if you'd be open to, to sharing some of the thoughts behind it.
Luca Dellanna: Yeah, so this new book is called Poverty and Prosperity. And it will be my first venture into policymaking. It's about the idea that we often think that prosperity is the default. And then because we have evil people, we are poorer. But actually, and this comes from an intuition by Per Beiland, which is a Swedish economist.
He's saying that instead poverty is the default state and if prosperity is something that requires work and constant focus. And so in this book, I begin by showing this, that prosperity requires some level of focus, of course, it's not something that requires, that we should dedicate our life to. Of course not. But if we don't give at least a minimum level of attention to keep building prosperity, well, things can get worse much sooner than we think, just because we've been relatively lucky with these last 50 years, if you live in the, in the Western world.
So I begin with that, and then I go more deeply into different policies, like policies about jobs, policies about prices, about education, about environmentalism. And I try to differentiate between policies that have good effects and policies that have good intentions but detrimental effects. And the whole idea of the book is not much to advocate for certain policies, but to give the readers the tools to have very constructive discussions and to advocate for the policies that they think are best.
David Elikwu: Why do you think we get it so backwards? or why do we not fully appreciate the suggestion that you say of Poverty being the natural state. And I think where I would go with this is, I have been thinking more and more recently about the extent to which, I think Rob Henderson calls it, luxury beliefs, right? I think if you speak to a lot of people today about what they think society should be like and what they think we should have, you know, very recently we just had someone in New York, the CEO of a company who was basically assassinated. And somehow, strangely, you see loads of people celebrating online. And I saw, there was a tweet where someone ironically asked, do people just think that there is some free healthcare out there and the only thing stopping you from having free healthcare is just nefarious CEOs and things like that. And so many people said, yes, yes, of course, you know, the healthcare would be free if, if not for these people.
And this is not a commentary on whether or not healthcare should be free, but the idea that if you just start with the basic building blocks of, okay, there are doctors, doctors need to get paid. If you build the system up from there, at what point does it magically become free? People use examples and they point to Europe.
I'm talking about from the US perspective. In the UK, technically, yes, healthcare is free quote unquote, you know, I go to the, I haven't paid for anything at the doctor in a while. You do pay for prescriptions for medicine, things like that. But if you're just going to the regular doctor, you're not paying for that. But technically I am paying for that because I pay taxes and everyone that pays taxes is paying for it. So it does get paid for it. So the point is it's not free. It's just, I guess, quote unquote socialized because everyone has to contribute you pay national insurance, money, and that's why you get the NHS. And particularly in the UK, both the employee and the employer for hiring that employee makes contributions to national insurance. And so there is this pot that is growing. That is what allows you to pay for a lot of these things, but these things do need to be paid for.
I think in lots of other circumstances, there are a particular set of beliefs that, you know, you could class as luxury beliefs where, I'm struggling to think of precise examples right now, but very often I am struck when I have some conversations online where people will make some assertion, they'll say something. And I just think, Oh, a very good example is like people say I should be able to live alone. Why is it not possible that in London, I can't buy a flat for myself. And I 100% empathize with that. And I do think, you know, more people should be able to afford homes, et cetera, et cetera. Simultaneously, I also think you live in one of the most expensive cities, not just in the world, but in the history of the world.
There has never been in all of human history, maybe like two or three more expensive cities to live in than London. This is the most expensive it's ever going to be in the history of the world. And you think that you want to be able to live as a one person household and afford everything. When if you go back 50 years, that was, you knew that was impossible. If you go back a hundred years, you had three generations, sometimes even four generations living in one house. This is in the same country.
And so there's this idea that, you know, technology has enabled tremendous progress, but then it's easy to take that progress for granted. And the recent prosperity that we've had, let's say in the last hundred or 200 years, it's so easy to take for granted. Even things as simple as refrigeration, like fridges, air conditioning, these things completely transformed so much of the world, a lot of the economic progress that we've had has simply come because people have air conditioning now where they didn't before, or you have refrigeration now. Even just the idea of, people used to have to ship ice cubes to different countries. Like you would have to ship ice so that people could keep things cool to make things last longer. The fact that you have fridges now enables so much more of global transport and food and all these things. And so on one hand, it's very easy to say, of course, food should be free. We should have all this food. We should have all these things, but then in the process you take for granted all the work that goes into making that possible.
Luca Dellanna: Yeah, so let's, let's discuss the example you made about London. I think that the problem is that prices are misleading, are retiring. Like the core of the problem is that as long as there are more people that want to live in London than houses, than apartments, people will not be satisfied.
As simple as this. Crisis has nothing to do with that. If you think about it, like, it's not because the landlord wants to make more money or anything. I mean, those things matter on top of that, but the bottle, but the big bottleneck is as long as there are more people that want to live in London than apartments, you have a problem.
This is one of the topics I discuss in Poverty and Prosperity is this idea that I'm taking money out of the equation. And I'm showing that as long as there are not enough goods to redistribute amongst people, you will be, we will live in a situation of scarcity and of poverty and of people unsatisfied. As simple as that.
And so the policy should not be much focusing about prices, but it should simply be focusing on, having a supply that matches demand. Satisfying demand in other ways. For example, by building other apps and making other cities nicer and so on. So this is one thing.
The second thing is you mentioned the tweet about healthcare being gated like people think that healthcare is gated by evil people. So that tweet was written by Nils Hoven, I believe, which is an acquaintance of mine, who has a startup on education, which teaches children to read from an extremely young age. And the reason I mentioned that is because very often the reason why we don't think clearly about some situations with scarcity and abundance is because we don't know what's possible. We don't know how prosperous we could be if we got a few choices right. And we don't know how poor we could be if we get a few choices wrong. This is the second thing.
The third thing is that people are used, most people are used in an environment in which small changes of behavior produce no effect. And therefore they think that the world is static. I make an example. If you're an employee and you work super hard for one week, probably nothing will happen to your salary. If it's just for one week, and that might mislead you into thinking that working harder doesn't produce better outcomes, which is false. It's just that you need to keep sustaining that for a longer period. Same thing. If a country, the economy, people get, imagine that in our country, people suddenly produce 2%, 5% less, 5% less productive overnight. What will change in our quality of life? Immediately, nothing. Because the government will just borrow more, people will just borrow more, and we will just buy the extra services and goods from above and nothing will change. And because nothing changes, we might get influenced, misled into believing that, Oh, we can afford 5 percent lower productivity, there's no consequence. The problem is that it does have consequence. It's just that right now in the short term, we can mitigate that by contracting more depth, but it's not something we can do indefinitely. And so I think that that explains a lot of why people think think in this way.
David Elikwu: Is there also an extent to which it is a feature and not a bug in that it's almost a sign of the robustness of the system that, you know, if you, if you had a company and anytime one person makes one mistake, it's catastrophic and the whole thing falls apart, then it's not, it's not the best system. Like there, there's not a much abundance there. There's not much prosperity there, or at least the, the opportunity for prosperity might, might be limited. Yeah. But actually, because you have a strong system that's very robust, that has lots of people, then it's able to withstand that. So even though on the positive side, it might look like, Oh, my contribution doesn't have a massive impact when I do well, but also my failure doesn't have a massive impact when I don't do as well, and that should tell you that's a sign of how much excess there is in the system where, Oh, we have enough prosperity going on to, to be able to withstand some of that. And actually, if that buffer wasn't there. Lots of bad things can happen. Things could be so much worse. And perhaps, and maybe you could explain if there's a pros and cons to this, but perhaps it's a, it's a benefit. This is a, a good thing. It is a great thing that when things go badly, at least on a small scale, they don't have to go badly for everyone. And we can withstand some of that. And so it might, it might seem to be better that even though it looks like your additional work doesn't confer additional benefit, actually at least your additional weakness doesn't confer additional suffering.
Luca Dellanna: Yes, I agree. The problem with, Like, the discriminant is that we need to consider whether the system that provides the safety net. The safety net is actually sustainable or not. Because for example, in most of Western Europe, you do have this strong safety net that kind of like compensates the fact that upward mobility is lower corresponding to the U. S. for example, which arguably is good. The problem is that the safety net is currently not sustainable, meaning that the safety net is there to the extent that it is here today, just because our countries keep borrowing to give the impression of a solid safety net, which is not going to be there for long. And I think that this is something that, that people underestimate.
David Elikwu: Do you have, maybe this will be one of the last questions I ask, but in the book, I know you're still working on it, but any suggestions for how we solve the distribution problem? Because we talked about it in terms of housing and I think it, it actually appears in a variety of areas, and it's probably one of the most common problems, actually, and in fact, it is the, it's a negative externality of the prosperity, the fact that prosperity compounds, you know, you have the Matthew principle, the rich get richer, the poor get poorer, this idea that when a city or a state or a nation becomes prosperous, more people want to go there. And so it gets more prosperous. And it attracts the best minds, things like this, but this also has lots of negative externalities. One that I can think of from when I was traveling around Europe, I was traveling in the kind of the Balkan region and some of these ex USSR countries. So I went to Bosnia, I went to Macedonia, which is now North Macedonia, et cetera. And just through some conversations, you, I think I learned a lot that, of things that maybe I took for granted. So for example, I went to Macedonia and this was perhaps just after Brexit. And I remember someone telling me about how bad, how upset they were that North Macedonia had joined the EU and they were like, this is terrible. It's having a really negative impact on the economy. And from my perspective, I was like, Oh, you know, surely this is a good thing. You have free, the free movement. And this is specifically what they were talking about. The idea that this is, there's free movement. And then it clicked while we were having that conversation that we were speaking from opposite sides of the coin, because I live in London. When we say free movement, I live in the place that people are coming to most of the time. And if I want to go to somewhere else, this is more for leisure and it's, it's for fun. For him in North Macedonia and in many. Similar countries in Europe that are in similar positions. What you then have is a brain drain because actually, if you have free movement, the place that you want to go and work is the place where prosperity is maximized. And that's a different place.
So actually, the people that could have contributed the most to the economy will then move to some other country. And that has a compounding negative spiral because those people would have been earning more if they had stayed. And because they've moved, the taxes that they would have been paying have also moved. And so now you actually have an economy of people that are earning less, that are able to contribute less. And so less is able to be reinvested into the economy, into the community. And as a result then, you know, less investment begets, you know, worse outcomes, and so then it becomes a bit of a spiral. And so I think they, I think they had a difficult economic moment. I would say something quite similar about the UK as well. We haven't had that kind of reckoning yet, but it is quite obvious that I suggested the other day on, on Twitter, London should just become a city state.
And I think I've said that before, but it becomes a bit more and more obvious in the same way that I remember years ago when I was applying for the job that I ended up getting in corporate law, I joined, you know, a great firm. One of the interview, when I had my final interview, they were asking me, you know, how I would solve, we were talking about Grexit at the time, right? Because at the time people were thinking about Greece leaving the EU. And my suggestion was that actually Germany should leave. At least leave the common currency and they should revert to the Deutschmark. And the reason I gave is that Germany, at least at the time, for years, they'd had massive surplus. And what that means is that it essentially raises the average for the, for the entire Eurozone. And so while you have many countries within the Eurozone that were struggling, Germany was actually almost artificially inflating the Euro value by doing so well. And that just made their struggles even worse because, you know, that they didn't have that parity there. And so actually if you remove Germany, then the average can lower. And there's a much better average for everyone else that's in that system.
And in some ways you could say the same about London as much as obviously, I live in London, so it sounds negative to say. So many resources, when we think about where investment gets made in the UK. go to London because a lot of people live in London. A lot of money for the UK is made in London. Most of the taxes are generated from London. And so it makes sense that London should have the best transport system and all of these things. The more prosperous London gets, the more people seem to invest in it. Rather than investing in all the other areas and going back to what we were saying before about the housing problem. And you were mentioning actually the big problem is housing shortage, which I agree with, but actually I think there's another aspect to the problem, which is if it was more attractive to live in Newcastle. Or somewhere else in the UK, down to live in London. Not necessarily more attractive, but more relative to wherever I am in life.
So let's say I wasn't earning that well, and I was just on a, you know, meager salary or something like that. Actually, if I could make a decent living just by moving to one of these other cities, then a lot of the people that are trying to live in London and raising the prices there could actually just be more evenly distributed. Their taxes would go more locally to other areas, and there'd be more reason to invest in train lines. I think I saw a new story maybe last week or so, where they were interviewing people because there's a train, I think it's somewhere in or near Manchester where there's a stop and the train only stops there once a week. But they built the train station. So there's a train station there. There's only one train a week and nobody knows anyone that takes the train from that station. So no one really knows why this station exists, but they put it there because I don't know, who, knows.
And again, it's this kind of idea where if more people lived in some of these places, then there would be more trains and the economy would be doing better, but instead they're having to suffer a little because yeah, it's not worthwhile living in some of these places.
Luca Dellanna: I wanted to link back to what you mentioned before about the two different healthcare systems, like the European one and the American one. And I think that like most of the debate sadly is about which system is better, but I think that much more important is to have a system that's efficient and doesn't waste much.
Like, I think that American system efficient or European system efficient are both widely superior to both American system and efficient and European system and efficient. And, and I think that so much of the energy we focus about discussing high level policy could instead just be about simply How do we reduce waste? And how do we make the small things locally more efficient or more productive?
David Elikwu: Yeah, that makes a lot of sense. I think I remember seeing a little while ago, something in the UK where the output for some NHS trusts you know, part of the healthcare system went up by a ridiculous number percentage simply because they started filing some papers online that previously, you know, people were just shuffling about and it just seemed like the simplest fixed. Why would you not just have some of this information, you know, instead of having it on paper, just having it on a, on a computer somewhere.
And I think, in order to do that, they had hired someone, they were paying someone like a hundred thousand pounds and their job was to make it more efficient and they implemented this very simple thing and suddenly it was more efficient and you could say, oh, this is great to have this person. But also it's a sign of how much inefficiency and slack was already in the system that you could save so much money just by doing this one very simple thing. So yeah, it's a interesting problem.
Luca Dellanna: Yeah, exactly. Like, I sit in my local hospital, they always complain that they don't have money, but then they also pay the salary for a guy whose job is simply to this, to give hand sanitizer to the people who got in. And like, it would literally be replaced by the bottle.
I think that we should just discuss a little bit less about those grand use schemes and policies and just think about the small local improvements we can make to save money and make things more efficient and get the more out of what we have.
David Elikwu: Thank you so much for tuning in. Please do stay tuned for more. Don't forget to rate, review and subscribe. It really helps the podcast and follow me on Twitter feel free to shoot me any thoughts. See you next time
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