Notes - The New Geography of Innovation

Mehran Gul | January 11, 2026

Chapter 1: The Precocious Student

The Rise of Tencent and Global Expansion

The chapter opens with the transformation of Tencent from a fledgling internet startup into a global technology conglomerate. In 2000, David Wallerstein, then a consultant for the South African firm Naspers, sought to acquire Tencent, which at the time only had one product, the desktop messaging service QQ. While the initial offer was rebuffed, Naspers eventually invested $34 million for a 50 percent stake in 2001, a bet that grew to be worth over $200 billion, marking one of the most successful investments in capitalist history.

Tencent’s growth exploded in 2011 with the launch of WeChat, a mobile "superapp" that combined messaging, social media, payments, and retail, becoming essential to daily life in China. Under Wallerstein’s leadership as Head of International and later Chief eXploration Officer (CXO), Tencent shifted from licensing foreign technology to investing heavily in global as. The company has evolved into the largest game vendor in the world, holding stakes in major studios like Riot Games (League of Legends), Epic Games (Fortnite), and Supercell (Clash of Clans). Beyond gaming, it is a significant shareholder in Spotify, Universal Music, and has produced major Hollywood blockbusters like Wonder Woman and Venom. By 2021, Tencent's listed investment portfolio reached $190 billion, including stakes in Tesla, Reddit, and Snap.

Geopolitical Decoupling and the European Stance

The arc of David Wallerstein’s career mirrors a broader shift in the global economy where China has moved from being a recipient of foreign direct investment to the world’s second-largest contributor of outbound investment. This expansion has triggered significant friction with the US, which has implemented restrictions on Chinese investors and equipment manufacturers like Huawei. For instance, in 2024, the US Department of Defense briefly identified International Dataup (IDG) as a "Chinese military company". Conversely, US regulators have banned private funds from certain Chinese tech investments, leading firms like Sequoia Capital and GGV Capital to split from their China operations.

Europe occupies a more ambivalent position in this rivalry. While wary of security risks, European leaders often view China as a necessary economic partner and an unlikely "savior" for cash-strapped startups. A prime example is Lilium, a Munich-based electric flying car business that was saved from potential bankruptcy by a $175 million cash infusion from Tencent. Despite pressure from the US to decouple, European figures like Hermann Hauser (co-founder of Arm) argue that ignoring the world's largest economy is "stupid" and that Europe must maintain "strategic autonomy". However, tensions are rising, as seen in the German government’s blocking of semiconductor acquisitions and Finnish gaming giant Supercell navigating the complexities of being owned by a Chese giant while operating in the West.

The Brain Trust: MSRA and AI Leadership

China’s scientific capabilities have transitioned from producing high-volume, low-quality research to world-class breakthroughs. A pivotal moment occurred in 2015 when researchers at Microsoft Research Asia (MSRA) in Beijing published the ResNet paper, which introduced "skip connections" to train deep neural networks. ResNet is the most cited computer science paper ever and a fundamental component of advanced AI systems like AlphaZero. MSRA, often called the "Whampoa Academy of the Chinese internet," has served as a cradle for China’s tech elite, including top executives at Alibaba, ByteDance, and SenseTime.

Child prodigy Ya Qin Zhang, a founding member of MSRA and former president of Baidu, now leads the Institute for AI Research (AIR) at Tsinghua University. Tsinghua, originally funded by Boxer Rebellion indemnities, has become a source of national pride and is ranked as one of torld's top STEM universities, alongside other Chinese institutions that now produce more research publications than the US. This academic rise is supported by returnee scientists and an increasing indigenization of R&D. For example, Zhipu AI, a startup spun out of Tsinghua, has raised $400 million to develop large language models that compete directly with OpenAI.

Deployment: Speed, Execution, and Agility

While the US is still perceived as the leader in fundamental invention, China holds a distinct advantage in deployment—the speed and efficiency of adopting and scaling new technologies. Kaifu Lee, a prominent venture capitalist, describes Chinese entrepreneurs as "gladiators" with a spartan work ethic that makes Silicon Valley companies look "lethargic". China has scaled adoption in sectors like 5G, mobile payments, and electric vehicles beyond the rest of the world combined. In Xiong’an, a city built from scratch south of Beijing, the entire infrastructure is designor autonomous mobility, featuring driverless buses and a sandbox for testing new technologies.

Chinese companies are also notably agile. Ya Qin Zhang illustrates this with a comparison: while a simple request for wireless projectors at Microsoft resulted in months of planning with no result, the same request at Baidu was fully implemented across 500 conference rooms within two weeks. This agility is matched by a consumer base that is uniquely receptive to change. The "Lived Change Index" highlights that someone born in Shenzhen in 1990 has experienced 322x per capita GDP growth, creating a population that demands and expects rapid technological progress. This has resulted in standard consumer experiences like free same-day delivery and the total integration of online and offline retail via QR codes.

The Role of Government: Competence and Control

The Chinese government acts as both a benefactor and a hindrance to innovation. It possesses a rare level of administrative competence, particularly in building the infrastructure on top of which private companies thrive. This performance underpins high levels of public satisfaction, with a 15-year Harvard study showing 95 percent satisfaction among citizens. However, state-owned enterprises (SOEs) still dominate the economy, accounting for 60 percent of listed market cap, which can crowd out private startups.

Furthermore, the government maintains tight control over the private sector through approval-based IPOs and sudden regulatory shifts. The 2021 "crackdown on everything" wiped out a trillion dollars in market value from tech firms, as the state targeted cryptocurrency, for-profit tutoring, and gaming (which it labeled "spiritual opium"). This shift marks an ideological transition from the Gilded Age of "letting some people get rich first" to "Common Prosperity," aiming to curb "barbaric growth" and inequality. To maintain its edge against the US, the government has adopted a "whole nation" approach to technology, though it must balance this with its desire to control the power of big tech at home.

Chapter 2: Steeples of Excellence

Is it still the Valley?

While China's technological rise is undisputed, the trajectory of the United States remains a subject of intense debate. Naysayers have been writing obituaries for Silicon Valley for years, claiming the region has hit a wall due to monopolies, toxicity, and a reliance on precarious labor. Critics like Michael Moritz suggest that US tech workers have become distracted by social issues and work-life balance while their Chinese counterparts maintain a ferocious work ethic. Conversely, a left-leaning narrative argues that the Valley has lost its creative, progressive streak by becoming too market-oriented and commercial. Victor Hwang observes that the region's culture has shifted from "missionaries" pursuing dreams to "mercenaries" focused on personal branding and wealth extraction.

Hwang distinguishes between "farms," which are controlled systems optimized for specific outputs, and "rainforests," which are chaotic, diverse environments primed for the evolution of new species. He argues that the Valley is losing its magic as it transitions from an entrepreneurial rainforest into a more rigid, farm-like setting. Despite these concerns, there is a hope that the Valley's greatest legacy will be having taught the rest of the world how to innovate before its own influence faded.

High-Profile Departures and Domestic Rivals

The perception of decline is fueled by the departure of major figures like Elon Musk, Peter Thiel, and Larry Ellison, who have moved to states like Texas, Florida, and Hawaii. Keith Rabois describes this shift as a "Detroit correction" for the Bay Area, suggesting that while the region itself may be struggling, the future of technology remains bright and will be more widely distributed. Rabois champions Miami as a safe, vibrant alternative where founders can focus on work without the distractions of government failure or crime.

New York City has emerged as a primary rival, ranking second in billion-dollar companies and exits. Chainalysis, a digital forensics firm valued at $8 billion, exemplifies the trend of companies choosing the East Coast for its proximity to regulators and the financial sector. The company was born from the collapse of Mt. Gox, an early crypto exchange in Tokyo that suffered a massive hack in 2014. Chainalysis helped law enforcement eventually crack the case a decade later, tracing the stolen funds to a Russian-based exchange.

The AI Wave and "Cerebral Valley"

Alphabet Chairman John Hennessy remains unconcerned about rumors of the Valley's demise, noting that the region consistently produces the "killer apps" that define new eras, such as semiconductors, PCs, and smartphones. He identifies Artificial Intelligence as the next epoch-defining technology, with the Bay Area firmly in control. This new wave is moving faster than any previous technological shift.

While the South Bay was the center of the dot-com era, the AI revolution is centered in San Francisco's Hayes Valley, now dubbed "Cerebral Valley". Industry leaders like OpenAI, Anthropic, and Databricks are clustered within a two-mile radius. Even Y Combinator moved its headquarters to San Francisco to be closer to this dense concentration of AI innovation.

Hardware and Talent Edge

The US lead in AI is acknowledged even by Chinese experts like Ya Qin Zhang, who notes that while China is strong in algorithms and data, it trails in compute and talent. Nvidia, based in Santa Clara, has cornered the global market for compute, with its chips being used nineteen times more in research than all other chips combined. High-end Nvidia GPUs like the H200 can cost over $40,000, and the company effectively acts as the sole "arms dealer" in the AI war. US export controls on these chips have created a "cat and mouse game," though Chinese firms sometimes skirt regulations through cloud providers or foreign subsidiaries.

The US also holds a definitive advantage in global talent. Over half of all billion-dollar tech companies in the US were founded by immigrants, and two-thirds of the Valley’s tech talent was born overseas. While Chinese and European universities have improved their research output, the US university system remains the premier gateway for the world's best minds. Just six American tech companies are collectively worth more than all companies listed on all mainland Chinese stock markets combined.

The Historical Foundations of "The Farm"

Silicon Valley’s dominance is rooted in deep historical developments, starting with the death of Leland Stanford Junior in 1884, which led his father to found Stanford University in his memory. Leland Stanford Senior, a railroad tycoon, donated over 8,000 acres of farmland, ensuring the university would be one of the largest landowners in the region. Long before it was a tech hub, the area was the world's foremost exporter of fruit, earning the nickname "the valley of heart’s delight".

The modern tech ecosystem was architected by Frederick Terman, who envisioned "steeples of excellence" by focusing on science and engineering. Terman’s work during WWII leading the Radio Research Lab at Harvard gave him the insight to forge a military-industrial-academic complex at Stanford. He encouraged graduates like William Hewlett and David Packard to start companies near campus, and he established the Stanford Industrial Park to facilitate this. Fairchild Semiconductor, founded by the "traitorous eight" who left Shockley Semiconductor, became "patient zero" for the Valley's flat hierarchy and equity-based compensation culture.

Regional Advantage and Venture Capital

AnnaLee Saxenian explains the Bay Area’s success over rival hubs like Boston's Route 128 through its unique corporate culture. California's refusal to enforce non-compete clauses allowed employees to move freely, turning the region into a network of interconnected nodes rather than a cluster of isolated, vertical corporations. This fluidity allowed the Valley to jump from one technology to the next, regenerating itself even after the Japanese outcompeted the US in semiconductors in the 1980s.

Sebastian Mallaby emphasizes that venture capital was the differentiator that supercharged this engine. By chasing "L-shaped returns"—where one massive win compensates for nine failures—VCs democratized entrepreneurship and manufactured courage. This model eventually spread, giving rise to the tech powerhouses of China and beyond.

Chapter 3: Busting Monasteries

DeepMind and the Birth of London’s AI Hub

When DeepMind was founded in 2010 in a small office near Russell Square, London was an unlikely birthplace for a world-leading artificial intelligence startup. At the time, the UK had only eight billion-dollar tech companies, and venture capital investment in Silicon Valley outweighed London by a ratio of seven to one. DeepMind struggled to find local funding, relying primarily on overseas investors.

In 2014, Google acquired DeepMind for approximately $500 million, a deal initially seen as a validation of British tech credentials. However, in hindsight, many view this as a bargain for Google, which acquired what is essentially a strategic national asset—comparable to a Manhattan Project for AI—at a fraction of its potential value. Some experts argue the UK would be significantly better off if DeepMind had remained an independent company, rather than becoming a subsidiary dependent on an offshore patron for compute and capital.

The UK as a Global "Third Place"

The UK currently holds a podium finish as the third most important tech economy in the world, trailing only the US and China. It is the clear leader in Europe, attracting more venture capital in 2023 ($22 billion) than Germany, France, and Sweden combined. Despite this, the gap between the UK and the tech superpowers remains immense. In 2024, the total value of all British tech companies was roughly one trillion pounds—about one-third the market value of Apple alone. The combined value of all European tech companies is less than that of Microsoft.

Cultural mindsets further distinguish these regions. Europe is often described as a "citadel society," more concerned with preserving tradition and the old order, while the US is a "caravan society," characterized by mobility and a drive for the new. This manifests in compensation structures: US startups typically grant employees 20% equity, whereas European rounds offer only 5% to 10%. This lack of widely distributed equity means that when a company like Skype exits, it creates far fewer millionaires (eleven) compared to a US counterpart like PayPal (over 100), limiting the "virtuous cycle" of wealth being recycled back into new local startups.

The Transformation of King’s Cross and the "New Palo Alto"

London’s tech heart has moved from the "Silicon Roundabout" to King’s Cross, a former industrial wasteland once plagued by poverty and crime. A £3 billion urban renewal project transformed it into the Knowledge Quarter, a high-density vertex of culture, commerce, and technology housing Google’s largest campus outside the US, the Wellcome Trust, and the Crick Institute.

Venture investors now define a pan-European super-region called the "New Palo Alto," a geofence encompassing a four-hour train ride from King’s Cross. This region includes 41 million people and seven of the world's top thirty universities. Startups like Faculty choose London over Silicon Valley because it offers access to a diverse talent pool that is not yet "white hot" or monopolized by big tech giants. Furthermore, London’s density allows founders to be within twenty minutes of the centers of government, finance, and culture—a physical proximity impossible in the sprawling Bay Area.

Regional Disparities and the "Golden Triangle"

A significant challenge for the UK is the Matthew effect, where advantages compound in specific areas to the detriment of others. Eighty percent of all tech investment in Britain is concentrated in the "Golden Triangle" of London, Cambridge, and Oxford. London alone contributes a quarter of the UK’s entire GDP. Without London, the rest of Britain would be poorer in per capita terms than every single US state. Successive government attempts at "Levelling Up" have struggled to counteract the hollowing out of northern industrial towns as tech and finance consolidate in the south.

Innovation Beyond the Mainstream: Radix and Graphene

Despite the southern concentration, notable breakthroughs occur in the regions. In Stoke-on-Trent, the startup Radix is developing Distributed Ledger Technology (DLT) as a scalable alternative to blockchain. Radix processes transactions in parallel rather than sequentially, addressing the bottlenecks that limit Bitcoin to 7 transactions per second (TPS) compared to Visa’s 2,000+ TPS.

In Manchester, researchers isolated graphene, a 2D material 200 times stronger than steel and a thousand times lighter than paper. While graphene is a superior conductor to silicon and could revolutionize semiconductors and batteries, industrial-scale manufacturing remains a challenge. These examples show that the UK’s research university strength is deep and not limited to the Golden Triangle.

Technological Sovereignty and the Fate of Arm

The UK’s most consequential tech company is Arm, whose chip designs are used in 95% of the world's mobile devices. The proposed $40 billion takeover of Arm by Nvidia in 2020 sparked a national outcry, with critics fearing the UK would become an "American vassal state" if its strategic intellectual property were controlled by a US monopoly. Although regulators eventually blocked the deal, Arm chose to list on the New York stock exchange rather than in London, highlighting the ongoing difficulty of keeping high-growth assets domestic.

A similar struggle for "tech sovereignty" is seen in Graphcore, a Bristol-based company making AI chips (IPUs) designed to compete with Nvidia’s GPUs. Despite Nigel Toon’s optimism about European research, Graphcore struggled with a lack of growth capital and export restrictions to China. It was eventually sold to SoftBank in 2024 at a significant loss, illustrating the "Catch-22" where companies must either take foreign capital to survive or risk failure.

Values-Driven Ecosystems as a Competitive Edge

A growing sentiment in Europe suggests that its future lies not in replicating the "move fast and break things" Silicon Valley model, but in creating a values-driven ecosystem. This approach prioritizes rights, privacy, sustainability, and equity. DeepMind’s internal friction with Google—evidenced by secret plans like "Watermelon" to gain autonomy—stems from a desire to ensure AI research is not used for military or surveillance purposes. This European "reformation" aims to build companies that are profitable and innovative while remaining "good" in the eyes of the public, contrasting with the single-stakeholder capitalism of the US (shareholders) and China (the state).

Chapter 4: Hyper Gap

The Rise of Coupang and Bom Kim

The story of modern Korean entrepreneurship is epitomized by Bom Kim, who dropped out of Harvard Business School in 2010 to return to South Korea and found Coupang. Although his initial venture, a magazine for Harvard alums, had failed, Kim sought a "short window" to create a massive impact in his birth country. Coupang underwent multiple iterations—transforming from a Groupon clone to an eBay model, and finally into a logistics-heavy version of Amazon.

Coupang’s success is built on extreme logistical efficiency tailored to Korea's dense urban environments. Its "Dawn Delivery" service ensures packages ordered before midnight arrive by 7 a.m., and it simplified returns by allowing customers to leave items outside their doors without labels or boxes. By its 2021 IPO, which valued the company at $84 billion, Coupang had become the country’s largest online retailer, serving half of the South Korean population.

The Miracle on the Han River: Historical Context

South Korea’s technological rise is an exponential growth curve achieved in a single lifetime. In the late 1970s, the nation was a repressive military dictatorship where citizens under 50 were effectively prohibited from international travel. The country emerged from decades of brutal Japanese occupation and the catastrophic Korean War, which left it as one of the poorest nations on earth with living standards below those of sub-Saharan Africa.

The subsequent transformation, known as the "Miracle on the Han River," turned South Korea into a member of the G20 and a global top-ten economy. The nation shifted from being an ethnocentric state to a "global pivotal state" (GPS), a middle power defined by its technological exports like Samsung smartphones and Hyundai electric vehicles.

The Chaebol Era and the Republic of Samsung

The primary engines of this miracle were the chaebols—sprawling, family-owned industrial conglomerates like Samsung, LG, Hyundai, Lotte, and SK. Under the military junta of Park Chung-hee, the government forged an alliance with these firms, providing subsidies and loans in exchange for rebuilding the national economy.

Samsung stands as the most dominant of these entities, accounting for a full fifth of Korea’s total GDP and exports. Often cynically called the "Republic of Samsung," the company allows a citizen to live an "all-Samsung life," being born in a Samsung hospital, living in a Samsung apartment, and eventually being buried in a Samsung funeral parlor. Samsung’s evolution from a seller of noodles and dried fish to a high-end design powerhouse was signaled by the 1993 Frankfurt Declaration, where Chairman Lee Kun-hee famously told his staff to "change everything but your wife and children". Today, Samsung is the world's largest smartphone manufacturer and maintains a "frenemy" relationship with Apple, acting as its largest component supplier.

Crisis, Reform, and the Platform Giants

The chaebol-led model faced a reckoning during the 1997 Asian Financial Crisis, a traumatic event that required a $58 billion IMF bailout. In a massive display of patriotism, 3.5 million Koreans donated 226 tons of household gold to help pay off the national debt. The crisis was blamed on the collusive link between government and business, prompting President Kim Dae-jung to pivot toward backing venture-backed startups to diversify the economy.

This shift birthed a second generation of tech giants: Naver (a search engine like Google) and Kakao (a messaging and "everything" app). Kim Beom-su, the founder of Kakao, became the face of self-made wealth in a country dominated by inherited fortunes. However, these platform companies eventually drew public ire for mimicking chaebol behavior, such as "gabjil" (high-handedness) and aggressive expansion into 175 subsidiaries. This led to a "reversion to mean," where the billionaire founders of the platform era faced the same regulatory crackdowns and arrests as the old chaebol bosses.

The Third Generation: Hybrid Companies and the Hyper Gap Mindset

The current generation of Korean tech is defined by "hybrid companies" that maintain a dual presence in both the United States and South Korea. These firms focus on frontier disciplines such as artificial intelligence for cancer detection and gene-based therapies.

Key players include:

• TwelveLabs: Utilizing AI for complex video search.
• Sendbird: A unicorn providing communication APIs for apps like Reddit and Hinge.
• GenEdit: Developing precision delivery systems for CRISPR gene editing.
• Moloco: A billion-dollar ad-tech firm spanning both the US and Korea.

The animating principle of this new era is the "hyper gap"—a government-sponsored drive for Korean companies to be so far ahead of their competition that rivals simply give up. Despite these ambitions, the sector faces an existential demographic challenge: South Korea has the world’s lowest birth rate (0.72), which poses a significant threat to long-term market size and talent pools.

Chapter 5: Smart Nation

The Rise of Sea Ltd and Forrest Li

The story of technology in Singapore is often epitomized by Xiaodong "Forrest" Li, a business student from Tianjin who was deeply moved by Steve Jobs’ 2005 commencement speech at Stanford. After a failed first gaming venture called GG, Li launched Garena in 2009 with two friends, focusing on an online gaming platform with a chat feature. Garena secured a major partnership with Riot Games and a 40 percent investment from Tencent, which provided the financial "rocket fuel" necessary to dominate the Southeast Asian market. In 2017, the company released Free Fire, a "battle royale" game specifically optimized for low-end mobile phones in emerging markets. Free Fire became a global sensation, downloaded over a billion times and generating more than $4 billion in revenue, outperforming even the highest-grossing movies.

Li used this cash flow to expand into ecommerce with Shopee and fintech with SeaMoney, eventually consolidating the entities under the parent company Sea. Sea’s 2017 debut on the New York Stock Exchange marked it as the first billion-dollar tech company from Singapore to list in the United States. Despite a period of extreme volatility where its stock price lost 90 percent of its value, Sea remains the largest internet company in Southeast Asia.

The "Second Rocket" of Immigration

The success of companies like Sea is viewed as a direct result of Singapore’s macro policy choices, particularly its longstanding strategy to import foreign talent. Lee Kuan Yew, the nation's founder, described high-skilled immigration as a "second rocket" necessary to boost the country’s limited domestic talent pool. All of Sea’s key founders—Forrest Li, David Chen, and Gang Ye—were immigrants from China who arrived in Singapore via government-run scholarship programs. Li’s move to Singapore was specifically prompted by his wife’s scholarship bond with Temasek Holdings, the Singaporean sovereign wealth fund. This strategy has transformed a small island with no natural resources into one of the wealthiest nations in the world per capita.

A Developmental State and "Authoritarianism Lite"

Singapore’s unique history began in 1965 when it was expelled from Malaysia, a "moment of anguish" that led to a centralized achievement model of governance. The state maintains an all-encompassing presence in daily life, regulating everything from gum chewing to social interactions between ethnically diverse neighbors. This "authoritarianism lite" or dirigiste tendency extends to the tech economy, where the government practically built the venture capital industry from scratch via the Technopreneurship Innovation Fund (TIF) in 1999.

However, Singapore faces a discrepancy: while it is technologically advanced, its indigenous private sector remains relatively weak compared to its financial sector. To address this, the government offers a massive "alphabet soup" of grants, such as Startup SG Founder, which provides a 5:1 investment ratio for new entrepreneurs. A side effect of this generosity is the rise of "grantrepreneurs"—founders who survive on state support alone, which can inflate valuations and keep bad ideas alive longer than necessary.

Regional Expansion and the Grab Case Study

Because Singapore is too small to be a global market on its own, it functions as a springboard into Southeast Asia for companies like Carousell, Ninja Van, and PropertyGuru. A prime example of this is Grab, which was founded in Malaysia but moved its headquarters to Singapore after receiving a $10 million investment from Temasek. Grab eventually forced Uber out of the region, acquiring its local operations and becoming the first regional startup to cross a $10 billion valuation. Singapore is now the leader in the ASEAN-6 venture landscape, holding more private equity and venture capital assets than the rest of the region combined.

Geopolitical Balancing and "Connector Countries"

In the era of the US-China trade war, Southeast Asia has emerged as a critical "buffer," or a "four-corner" trade model. Products are often routed through "connector countries" like Vietnam or Thailand to sanitize them from Chinese associations before they head to Western markets. Similarly, major Chinese firms like Shein and ByteDance have relocated their headquarters to Singapore to appear less "Chinese" and avoid Western scrutiny.

Singapore maintains a delicate balance, relying on the US for security and China for economic prosperity. While it chose Ericsson and Nokia over Huawei for its 5G infrastructure, it remains China's largest foreign investor. The region is also becoming a semiconductor powerhouse, with Penang, Malaysia, attracting billions in investments from Intel, Broadcom, and Micron due to its long-standing manufacturing expertise.

The Smart Nation Initiative and GovTech

Singapore distinguishes itself globally through the Smart Nation initiative, a whole-of-government approach to digital transformation. Unlike other governments that outsource IT, Singapore’s Government Technology Agency (GovTech) maintains an in-house team of over 1,000 developers. Key projects include Singpass, a national digital identity system used by 97 percent of the population to access 2,000 services, and a "Digital Twin" of the entire country called Virtual Singapore.

The government actively recruits top-tier talent from firms like Google and Meta, though it faces constant pressure from the private sector trying to poach its best civil servants. Hongyi Li, a former Google product manager and grandson of Lee Kuan Yew, notes that he returned to Singapore's public sector because he felt the "smartest people were working on the dumbest problems" in Silicon Valley. Ultimately, the Singaporean model is difficult to replicate because the city is the state, allowing a level of horizontal and vertical integration that larger nations cannot achieve.

Chapter 6: Small Wonder

The Paradox of Swiss Ingenuity

The central paradox of Switzerland lies in the reconciliation of its top-tier innovation rankings with the lack of visible global tech giants. While it has held the number one spot in the World Intellectual Property Organization’s (WIPO) Global Innovation Index for fourteen consecutive years, few people can name a famous Swiss tech company equivalent to the giants found in the US or China. This disconnect is so profound that Switzerland is often confused with Sweden by the international community; for example, the New York Stock Exchange once accidentally hoisted the Swiss flag to celebrate the IPO of the Swedish company Spotify. Historically, critics have dismissed the nation’s creative output, with Orson Welles famously quipping that five hundred years of Swiss peace and democracy produced nothing more than the cuckoo clock. However, this sterile reputation ignores a contrarian approach to governance and society that functions as an original innovation in itself.

A Systemic Approach to Innovation

Switzerland’s technological prowess is best demonstrated through large-scale public systems rather than individual consumer products. The nation maintains the densest rail network in the world, which has been 100 per cent electric since 1967 and runs primarily on renewable energy. This infrastructure is not just a utility but a symbol of national identity and engineering excellence, exemplified by the Gotthard Base Tunnel, the world’s longest and deepest traffic tunnel. The efficiency of these systems allows for a unique dispersion of the population, preventing urban sprawl and keeping cities like Zurich and Geneva relatively small and liveable. Punctuality is a core brand hallmark, with 92.5 per cent of trains arriving on time, reinforcing a global reputation for technical precision.

Cathedrals of Big Science

Beyond transport, Switzerland hosts some of the most complex scientific endeavors in human history, such as CERN and the Large Hadron Collider (LHC). CERN serves as a global gold standard for scientific collaboration, allowing rival nations to pool resources for fundamental research. It was here that Tim Berners-Lee invented the World Wide Web, a technology that reached global scale specifically because the institution chose to make it a free, non-proprietary public good rather than a commercial product. Switzerland also maintains a high concentration of other advanced research facilities, like the Paul Scherrer Institute (PSI), which uses particle accelerators for everything from quantum property studies to advanced cancer treatments.

Higher Education and Selectivity

The Swiss scientific substrate is built upon a higher education system that prioritizes openness and democratic access. Institutions like ETH Zurich are world-renowned yet charge domestic and international students only a fraction of the tuition of American counterparts. Unlike elite US universities that filter students during admission, Swiss schools typically have a 100 per cent acceptance rate for domestic high school graduates, performing their selection through a rigorous first-year curriculum where failure rates often exceed 50 per cent. This model proves that excellence and equity can coexist, allowing anyone a shot at world-class training without diluting academic standards.

The Shift to Entrepreneurship and Biotech

In recent years, universities like EPFL have shifted toward a more entrepreneurial model inspired by Stanford, actively spinning out deep-tech startups. Switzerland aims to carve a global niche in healthcare, leveraging the presence of pharmaceutical titans like Roche and Novartis. While American firms often focus on "longevity," the Swiss approach emphasizes "health span," focusing on preventative, semi-complex preparations that integrate into healthy lifestyles. This biotech sector is a massive economic driver, with Switzerland being the second-largest exporter of pharmaceuticals globally.

The Magnet for Global Talent

Switzerland functions as a massive recycling center for global talent, successfully luring back citizens who have spent decades in Silicon Valley. This returned expertise often leads to world-class breakthroughs, such as the DP-3T protocol, a decentralized, privacy-preserving contact-tracing system developed during the Covid-19 pandemic. This protocol eventually became the foundation for the exposure notification systems used by Apple and Google, as the tech giants preferred the Swiss privacy-first model over the more intrusive, centralized approaches favored by many other governments. The country also maintains an unusually high concentration of foreign-born academics; for instance, four out of five faculty members at EPFL are immigrants.

Historical Roots of Trust and Brand

The nation's success is deeply rooted in its history as a neutral refuge, dating back to the Huguenots who fled religious persecution and laid the foundations for the Swiss watchmaking, finance, and pharmaceutical industries. Even the controversial history of banking secrecy originated from a principled desire to protect the private sphere from state repression. This legacy has evolved into a global brand centered on trust, reliability, and "Swissness". This brand allows Swiss companies to charge a premium that avoids low-cost competition; for example, while China exports 30 times more watches than Switzerland, the average Swiss watch sells for over $1,600 compared to $4 for a Chinese one.

Future Challenges and Financing Gaps

Despite its high number of Fortune 500 companies per capita—the highest in the world—Switzerland faces challenges in scaling newer startups to the size of its legacy giants. The lack of a "European Nasdaq" and fragmented stock markets across the continent make it difficult for new ventures to raise massive amounts of public capital. Additionally, Switzerland’s status outside the EU limits its access to certain European funding mechanisms like the European Investment Fund (EIF), forcing its startups to compete directly with better-capitalized American firms. To maintain its lead, the country must clarify these international financial relationships and continue leveraging its reputation as the global "economy of trust".

Chapter 7: The New Mittelstand

The Legacy and Future of German Aviation

Germany possesses a deep history in aviation, beginning with Otto Lilienthal, the nineteenth-century "flying man" who developed the world's first series-production airplane. Lilienthal's experiments directly inspired the Wright brothers, even though his career was cut short by a fatal crash in 1896. Wernher von Braun furthered this legacy by developing the V2 rocket, the first man-made object in space, before later becoming the father of the American space program. Despite inventing jet propulsion, Germany eventually ceded its aviation dominance to the United States, where the world's largest aircraft and space companies are now based. Today, the Munich-based company Lilium seeks to restore this standing by producing eVTOLs (electric Vertical Take-off and Landing Aircraft). These compact electric jets aim to transform air travel into a high-frequency urban transport system, functioning more like a bus than a traditional airplane. However, Lilium's journey highlights the difficulties of the German environment, including a lack of growth capital and a conservative employee culture that is often hesitant to leave stable corporate roles for startups. Despite a major financial crisis in 2023, Lilium was saved by a $175 million infusion from Tencent, and its presence has helped establish Munich as the deep-tech capital of Europe.

The Historical Engines of Innovation

The modern German industrial landscape traces its roots back to the unification in 1871 and the subsequent Gründerzeit, or "Founder’s Era". Kaiser Wilhelm I used heavy war reparations from France to fund new ventures, seeding the chemical, pharmaceutical, and automotive industries. This era produced global icons such as Siemens, Bayer, BASF, and Mercedes. While Germany was a top-tier technological power a century ago—inventing the first automobile, television components, and programmable digital computers—it struggled to maintain this pace during the late twentieth-century digital revolution. Two theories explain this relative decline: one suggests that the trauma of three major wars created an irrational aversion to risk, while the other posits that the country became "fat and happy," leading to a generation more interested in work-life balance than disruptive industry.

SPRIND and the mRNA Revolution

To address the gap between scientific research and commercialization, the German government established SPRIND, the Federal Agency for Disruptive Innovation, in 2019. SPRIND is modeled on DARPA and aims to bridge the "valley of death" by funding radical technologies that are too early for traditional market investment. One such technology is DNA origami, which uses folded DNA structure to create nanorobots for targeted drug delivery. Germany’s biotech strength is most evident in BioNTech, which developed the first mRNA-based COVID-19 vaccine. BioNTech’s success was so immense that it flipped its hometown of Mainz from a debt-ridden city to one with a billion-euro surplus and contributed nearly a fifth of Germany's total GDP growth in 2021. This success was bolstered by over half a billion dollars in state support, reinforcing the idea that government intervention is often necessary to launch breakthrough industries.

The Mittelstand vs. Silicon Valley

The backbone of the German economy is the Mittelstand, a collection of over 3 million small and medium-sized family-owned firms. Unlike the U.S. economy, which is dominated by a few massive public corporations, the German economy relies on these private entities that produce half of the GDP and two-thirds of the country's exports. While American companies like 3M go broad with thousands of products, Mittelstand firms go deep, dominating specialized global niches through incremental optimization. These "hidden champions" are world leaders in obscure fields, such as Wafios AG in wire-bending machines or Herrenknecht in tunneling technology. Herrenknecht has completed over 3,600 projects worldwide, far outpacing high-profile competitors like Elon Musk's Boring Company. Similarly, EOS is a world leader in industrial 3D printing and currently owns roughly 50% of the market for 3D-printed rockets. Many of these owners reject acquisition offers to maintain multi-generational family control.

The Cost of Private Ownership

Despite its success, the Mittelstand model contributes to significant wealth inequality. Because these companies remain private, wealth is concentrated in a few families rather than being distributed through the stock market to employees and the public. Consequently, while Germany has a high concentration of billionaires, the average German household is among the poorest in Europe. Furthermore, the model's reliance on self-funding and debt limits the speed and scale of growth compared to venture-backed rivals in the U.S. and China. Mittelstand firms also struggle to adapt to rapid industry shifts; a company perfectly optimized for combustion engine components faces obsolescence in the age of electric vehicles.

The Rise of the New Mittelstand

A "New Mittelstand" is emerging that combines German manufacturing discipline with the speed and scale of venture capital. Established giants are now acting as investors; for instance, the Schwarz Group (owners of Lidl) and Bosch recently led a $500 million funding round for Aleph Alpha, a German AI startup. Munich’s UnternehmerTUM, a startup school sponsored by BMW heir Susanne Klatten, has become a launchpad for "decacorns" like Celonis and successful platforms like Flixbus. These newer companies benefit from a heritage of quality and engineering that remains unmatched globally.

Structural Barriers in Venture Capital

Earlybird, one of the few German venture funds to survive the dot-com bubble, is a primary driver of this new entrepreneurial wave. However, Germany faces structural disadvantages, such as the absence of large pension fund capital available for venture investment. In the U.S., systems like CalPERS provide billions in risk capital, but in Germany, pension payments are immediately distributed to retirees, leaving no capital stock to invest. To find growth, Earlybird shifted its focus to Eastern Europe, leading to the discovery of UiPath in Romania. A modest million-dollar investment in UiPath eventually netted Earlybird over $2 billion, the greatest early-stage venture return in European history.

Automation and the Robot Economy

To combat de-industrialization and high labor costs, Germany has become the most intensive user of industrial robots in the West. Startups like German Bionic are developing powered exoskeletons to enhance human strength in factories and hospitals. While the acquisition of the iconic robotics firm Kuka by China's Midea Group caused political alarm over technological sovereignty, new players are moving from hardware to software. Wandelbots is currently developing robot-agnostic operating systems, aiming to become the "Windows of robots" by making different machines interoperable. This shift reflects a broader race to define the future of the robotics industry.

Chapter 8: Importing Genius

The Canadian AI Pioneers

The current global explosion in artificial intelligence is largely rooted in research breakthroughs from Canadian institutions. This relevance is primarily driven by three specific scientists: Geoffrey Hinton at the University of Toronto, Yoshua Bengio at the University of Montreal, and Rich Sutton at the University of Alberta. Their impact illustrates how just a few individuals can define the technological standing of an entire nation, even if they were not born there.

Historically, AI research has been divided by sectarian debates between different methodologies. One side favored Symbolic AI (Good Old Fashioned AI or GOFAI), which relies on hard-coded, human-defined rules. For example, to teach a computer to recognize a cat via GOFAI, a researcher would provide a checklist of physical features like fur and a tail. Conversely, the neural networks approach—which Hinton, Bengio, and Sutton championed—mimics the biological brain through pattern recognition. Instead of rules, the system is fed millions of examples (images of cats) to learn the underlying patterns for itself.

The Persistence of Geoffrey Hinton

Neural networks were marginalized by the academic mainstream for decades. In 1969, Marvin Minsky of MIT published Perceptrons, a book that so effectively criticized the limitations of early neural nets that the field became "borderline disreputable". Adherents were viewed as occultists, and researchers often hid their use of neural techniques by using alternative names like "nonlinear regression" to bypass reviewers.

Geoffrey Hinton famously kept the faith during this era, contradicting the entire US AI establishment in the 1980s. Hinton argued that since the brain is the only intelligent machine we know of, artificial systems should mimic it. Because of this contrarian stance, he struggled to find work in the UK and eventually settled at the University of Toronto in 1987. The ultimate validation came in 2012 at the ImageNet competition, where Hinton’s submission, AlexNet, shattered records in computer vision. This event brought neural networks "in from the cold" and established Deep Learning as the dominant method for modern AI applications, from ChatGPT to autonomous cars.

Building National AI Ecosystems: Vector, Mila, and Amii

Canada recognized that while it invented these breakthroughs, the resulting economic value was flowing toward US and Chinese tech giants. To combat this, the government launched the Pan-Canadian AI Strategy, the first of its kind in the world. This strategy established three core institutes to anchor the country's AI economy:

• The Vector Institute (Toronto): Built around Hinton to bridge the gap between world-class research and commercial adoption. Chair Ed Clark argues that AI is existential for Canada, as the country must transition from a resource-based economy—relying on oil and wood—to an AI-powered one.
• Mila (Montreal): Led by Yoshua Bengio, the world's most-cited computer scientist. Mila focuses on "innovating in innovation," aiming to be faster and smarter than wealthier rivals by rapidly moving academic research into startups. An example is BrainBox AI, which uses Mila-developed deep learning to optimize energy usage in commercial buildings.
• Amii (Edmonton): Anchored by Rich Sutton, the world's leading authority on Reinforcement Learning (RL).

Reinforcement Learning and the Alberta Plan

While neural nets learn from examples, Reinforcement Learning systems learn through trial and error, receiving rewards or penalties based on their actions. This technique is central to DeepMind’s AlphaZero, which achieved superhuman performance in games like Go and chess purely through self-play.

Sutton maintains that RL is the most powerful phenomenon for understanding the mind. He is often critical of large language models like OpenAI’s, viewing them as mere mimics of human behavior rather than true goal-oriented intelligence. In 2022, he unveiled the "Alberta Plan," a twelve-step research roadmap aimed at achieving human-level artificial intelligence within the decade. Sutton views the emergence of human-level AI as a milestone comparable to the rise of life on Earth.

Canada’s Immigration Advantage: Buying All the Lottery Tickets

If Canada has "won the AI lottery," it is because it spent decades buying up the tickets through aggressive immigration policies. All three AI pioneers are first-generation immigrants: Hinton from the UK, Bengio from France, and Sutton from the US. This pattern extends to other Canadian tech titans, such as Shopify founder Tobias Lütke (Germany) and Xanadu founder Christian Weedbrook (Australia).

While many nations focus on keeping people out, Canada’s bureaucracy is designed to bring them in. Canada admits roughly the same number of legal immigrants as the US (~450,000 annually) despite having only a tenth of its population. The country utilizes a points-based system that prioritizes highly educated, lawful talent. Geography provides a natural filter: because migrants cannot easily cross the border on foot, Canada largely receives the educated, middle-income immigrants it actively recruits.

Furthermore, Canada has capitalized on the inefficiency of the US immigration system. While the US H1B visa works like a lottery that leaves many qualified candidates in limbo, Canada offers uncapped, predictable visas that can be processed in weeks. An example of this talent "skimming" is Sara Sabour, an Iranian researcher denied a US visa on political grounds; she moved to Toronto, collaborated with Hinton, and eventually became a prominent research scientist at Google.

From Raw Materials to Global Champions

The Canadian tech scene has evolved beyond the era of isolated successes like RIM (BlackBerry) and Nortel, which failed to foster wider innovation. Today, the ecosystem is a virtuous cycle: Shopify promotes internal angel groups to fund its employees' new startups, while incubators like the Creative Destruction Lab (CDL) get science-based ideas off the ground.

The ultimate ambition is for Canada to remain one of three global AI hubs alongside the US and China over the next 50 years. While Canadian companies have not yet reached the scale of Nvidia or ByteDance, leaders like Sanja Fidler believe it is only a matter of time before firms like Cohere or Waabi join the global elite.