Hedge: A Greater Safety Net for the Entrepreneurial Age

by Nicolas Colin

For three decades we ’ve been living through a paradigm shift. Our world is moving from the fading Fordist age to the ever-strengthening digital age. This shift is as unstoppable as the one that once brought us from railroads and steel mills to Fordist factories. And its impact on our lives is just as radical. In this context, the lessons from history are Providing economic security for the many generates prosperity for all. But this can only be done with the right safety net supporting both households and businesses against the risks brought about by the digital age. There are those who long to re-establish the standards and regulations that marked the post-war boom. Others, especially in tech, realize that the institutions we know are anachronistic and no longer fit for today’s challenges. Alas, neither group is considering the real A complete redesign of our safety net that will let it do its critically important job without getting in the way of progress. Moving toward that new design is what Hedge is all about. Advance Praise “An eye-opening primer to the technological present, proposing bold solutions for a ‘Safety Net 2.0’ and a better future for all.” — Carlota Perez , author of Technological Revolutions and Financial The Dynamics of Bubbles and Golden Ages . “ Hedge brings together a deep reading of the history of economic development through transformational technology with Nicolas’s own direct experience as a co-founder of The Family.” — William H. Janeway , Senior Advisor, Warburg Pincus, author of Doing Capitalism in the Innovation Economy . “A sharp and historically grounded analysis of how technology and the political economy of the West have evolved in tandem.” — Kim-Mai Cutler , Partner, Initialized. “An important book which poses profound questions about the social and political effects of technological change.” — Sir Nick Clegg , former UK Deputy Prime Minister. “ Hedge should become part of Silicon Valley’s playbook, because we urgently need to come together and find ways to uplift humanity in these times of radical change.” — Vivek Wadhwa , Distinguished Fellow at Harvard Law School and Carnegie Mellon University. “Carefully documented yet contemporary, Hedge makes for compulsive and thought-provoking reading, which will hopefully stir you into action.” — Azeem Azhar , Founder, Exponential View .

Genres: Business, Nonfiction

338 pages, Paperback

Published July 2, 2018

Reviews

[Chris Beiser · Rating 3 out of 5]

I should be upfront that I'm likely being harsh on this book. I'm a hardline, silicon valley Georgist crank, and I have very strong opinions about the ideas discussed. I think it's a good step in the correct direction, and many people would benefit from it. There is legitimately good content in this book. It is a bit hard to find though.

I think the biggest weak points are a lack of imagination about policy possibilities, several major blind spots with regards to the structure of American society, and even from this pro-entrepreneurial sort, a typically European fear of change and creative destruction.

It also suffers from a deep misunderstanding—and this is de riguer, but I can't help mentioning—of how China deals with the problems he talks about—crucially, not by helping individuals hedge, but by reducing the magnitude of the short that everyone is born with. It would benefit greatly from a serious exploration of the economics of the Chongqing experiment.

To those in Silicon Valley who don't need a recap of how startups create value, I would recommend starting from chapter 8 or so.

===

Update:
Nicholas sent me a message asking about the "major blind spots with regards to the structure of American society." I have copied my response below:

I'm sorry for the very late response on this one. I apologize for any inaccuracies in my response, but I have tried to address what my notes suggest is relevant.

The biggest issue that stood out to me was a failure to understand the centrality of racism to suburbanization and American social safety net policies. It's easy to point to that the minimum wage was originally passed with, in part, the express intent of ensuring that immigrants couldn't undercut "American workers." But it also played out in white flight, redlining, in anti-density politics in suburbs, in the school system, segregation in the New Deal and the GI Bill, etc. Unions too, were almost universally segregated. You describe this grand American social safety net, but almost none of it was ever available to African Americans, and in many cases it functioned only because it was a transfer from them.

There are other details too—page 129 refers to employees as having "long term contracts," which basically don't exist in the US. 171 refers to the "extremely low unemployment rate in cities such as San Francisco," which is very hard to square with the enormous crowds of homeless people I see every day here. 187 refers to an "altruistic, slightly quaint sense of dedication found in most civil servants," a disposition entirely foreign to the states.

There are omissions that seem strange, but forgivable—the ways in which municipalities rely on fees extracted from the poor, the ways in which occupational licensing—most notoriously, of African hair braiding—are enforced through state violence, the near-complete lack of discussion of Reaganism proper. They did, however, seem to hint at a kind of filling-in-gaps quality in certain bits of the narrative though—is it really Reagan's tax structure, and not Nixon's ending of Bretton Woods, that should be given credit for the growth of trade and the development of the third world? and so forth. Hence—blind spots.

All of that said, I would like to note that while I never agreed with the overall case of the book, there have been a few claims that, as time has gone on following reading this one, have proved unexpectedly useful in the long run, and I'd like to thank you for those.

[Moritz Mueller-Freitag · Rating 4 out of 5]

Hedge is a book that surely hits a nerve in times of COVID-19. When the pandemic began throttling the global economy earlier this year, millions of workers suddenly found themselves unemployed and relying solely on state benefits. Governments across the world were forced to pass historic emergency relief packages to keep businesses and individuals afloat. In the US especially, the pandemic exposed serious gaps in the social safety net and reminded voters that even extreme precautions can’t fully protect them against unforeseen systemic shocks. The painful lesson: In the absence of a strong safety net, we’re left fighting for ourselves.

Even before COVID-19, the welfare state was in need of reform. What remains of the postwar safety net is outdated and crumbling. It was built in the first half of the last century and once based on three institutional pillars: (1) Social insurance programs that were designed to hedge individuals against critical risks (healthcare, unemployment and retirement benefits); (2) a financial system that was mobilized to serve the masses and increase consumption (mortgages for homes, loans for cars and other expensive appliances); (3) and trade unions that helped workers obtain a fair share of the economic pie through collective bargaining. Since the 1970s, these pillars have either been dismantled or become unfit to provide shared economic prosperity.

In Hedge, Nicolas Colin provides a socio-institutional framework for how to fix the welfare state for the digital age. He argues convincingly that we have to imagine a radically new mix of social insurance programs, financial innovation, and worker empowerment mechanisms to better manage risks and provide economic security. The solution won’t be magic-bullet mechanisms like universal basic income or top-down technocratic policies by the state. Instead, we need a bottom-up reinvention of the safety net, aided by forward-looking regulation and driven by entrepreneurs who leverage technology and harness the “multitude” (empowered consumers).

The book is a good cross-section of the incredible content that Colin has published over the years in his newsletter and TheFamily papers. My only knock on the book is that I would have structured some of the chapters differently and that the solution sketch remains loose on the specifics. Hedge equips entrepreneurs and policymakers with a historically grounded framework for upcoming decisions but stops short of providing concrete solutions or policy recommendations. Then again, I might be asking for the impossible. The job of VCs and public policy experts is not to predict the future but to see the present very clearly. Colin does just that, and quite successfully so!

[Agustín Armellini Fischer · Rating 3 out of 5]

“The new line is drawn between those who look back with nostalgia, trying to hold on to past practices, and those who embrace the new paradigm and propose new institutions to fit the new conditions. This blurs the previous connection between certain values and goals and the specific means of attaining to them. Though the goals may remain unchanged, the adequate and viable means to pursue them change with each paradigm shift.”

There are many things I disagree with the author of this book. Still, I think he does a great job at pointing out the pain points we face in what he calls the Entrepreneurial Age. It is not only about how governments and old industries might slow down innovation, but more about how disruption can shake society and cause collateral effects that make people’s life more unstable.

Colin’s solution to these problems goes through looking back at previous technological revolutions to understand the reasoning behind the measures taken back then to solve what seem to be similar problems. I can’t disagree with the approach really, there are many things we learn from history; but what I do not completely agree with is the idea that those solutions taken where the best. It is quite hard to make an argument against that since in the end any other solution would be hypothetical so we would only fantasize about the results it would have brought. This is completely understandable since the nature of the problem we are trying to solve is complex; so complex indeed that we still don’t understand the scope of it.

I like some of the specific solutions suggested in this book which are quite pragmatic compared to other more complex solutions such as the universal basic income. It still feels though like we are putting patch over patch to solutions that still don’t solve core unchanged problems (healthcare, housing, poverty, education).

Fun read.

[Hampus Jakobsson · Rating 4 out of 5]

1. Well written economical history of how the safety net of yesterday was built and why.
2. Some good arguments why that won't work today.
3. A sketch on how we could build a new safety net.

I somehow expected more solutions and less backward-looking, but at the same time the problem is complex and I think Nicolas Colin did the best contribution we have at the moment. The sketch is all we have, and how we got here is needed to understand how to fix it.

The issue is pressing, and we see it in our elections, in how we treat the climate, and how vulnerable society is. A book well worth reading.

[Lavisse Régis · Rating 5 out of 5]

The book aims to launch a global conversation to reinvent the "great safety net", as the one we know today (or let's say the ones, as the safety net varies from one region to another) is becoming obsolete due to the current paradigm shift - what Nicolas describes as the "Entrepreneurial Age".
The attempt is to build new conditions for prosperity and inclusion, as it has been accomplished with the current safety net for the previous era of automobile and mass consumption.
As we are all facing a paradigm shift, the logics, tools and and mechanisms that proved effective become obsolete.
The book also deals with the rise of China, the financial "dark ages" and the tech backlash, as well as Nicolas' favorite themes from digital transformation and tech companies, finance, business strategy, startups, venture capital, regulation and politics.
By combining multiple and deep concepts from various authors (Nicolas frequent readers will recognize for example Carlotta Perez and her "technological revolutions and paradigm shifts") the book provides forward thinking views and propositions for the current paradigm shift.
A must read for anyone interested in understanding the transition we all are facing!

[Pete · Rating 5 out of 5]

Outstanding summary of the political-economic and technological transformations of the industrial age. Forward thinking; historically grounded; informed by a solid interdisciplinary foundation of readings derived from the worlds of academia, business, and journalism; and lucidly written with well chosen examples to illustrate abstract ideas and a refreshing avoidance of unnecessary jargon. Colin makes a strong case for a "Safety Net 2.0" that is suited to our Entrepreneurial Age of digital technologies and the powerful multitudes those technologies connect. Rather than present a blueprint for what such a safety net might look like, Colin asserts with a great deal of faith that a generation (or more) of inspired and empowered entrepreneurs would be up to the iterative task of creating and maintaining the net. I suspect many readers will find such faith misplaced, and indeed I remain a bit skeptical myself, but it must be noted that Colin's argument is not that of a conventional free-market, small-government neoliberal. That Colin falls short of drawing a detailed map of the future does not significantly detract from what is a splendid account of how we got here from the past and why new paths must be developed for the future.

[Sergei Tikhomirov · Rating 3 out of 5]

Read this book because the author is a co-founder of an investment firm "The Family", whose website contains a brilliant 12-chapter essay on entrepreneurship in general and in Europe in particular. I expected the book to be more of the same thing, and in a sense it was.

The key idea is that we are entering a new era - the Entrepreneurial age - when the typical economic interactions will shift. This will cause some turmoil, and in order to help its citizens succeed in new circumstances, governments should develop a new version of the safety net, a process similar to what happened in early 20 century, when workers in mass production demanded better conditions and guarantees (hedge against occasional bad events).

The book starts with the description of the current "tech backlash", provides a brief overview of technological innovation (mostly in the 20 century), and gives advice on what the "Safety net 2.0" should contain.

The book contains many ideas worth pondering: on the role of the government in the new digitized economy, on the prospects of China's domination, on the "proximity services", on the paradigm shift from "settlers" (owning a house and living in it for decades, rarely switching jobs) to "hunters" (renting, moving often, changing jobs often or earning money in the "gig economy" without full time employment). But I was disappointed with the language: it is often simply hard to read (note: I'm not a native English speaker, neither is the author, AFAIK). Sentences are bloated, ideas reiterated over and over... Very long self-invented terms ("the age of the automobile and mass production", "the entrepreneurial age", "the great safety net", "ubiquitous computing and networks", ...) are repeated on every page. The book could have been half the size. As an exercise, I took a random paragraph (the last one in "Dealing a new hand in insurance", chapter 11) and edited it.

Original:

"This vision for social insurance in indeed optimistic. It can only be realized if the right institutions are not only imagined but are actually established for this purpose. Two dangers must be identified and prevented: the first is the temptation to focus on an obsolete approach to social insurance, one that doesn't account for radical changes brought about by ubiquitous computing and networks. The other one would be neglecting to implement a policy designed to encourage the birth and development of a new breed of insurers and providers. Not taking advantage of the transition in the insurance industry would be a serious industrial policy mistake and a terrible missed opportunity. If we are committed to the principle of hedging people against most risks, then dealing a new hand in insurance must be a key part of building the Great Safety Net 2.0."

Edited:

"This optimistic vision for social insurance requires the establishment of the right institutions. Two dangers must be prevented: the temptation to focus on the obsolete approach, and neglecting to encourage the development of new insurers. Not taking advantage of this transition would be a serious missed opportunity. Dealing a new hand in insurance must be a key part of the Great Safety Net 2.0."

I didn't omit any important facts, did I?..

To summarize: some interesting ideas, but needs editing.

[Joe · Rating 4 out of 5]

Interesting both as a European perspective on the history of the 20th century’s social safety nets, and some non-obvious ideas about what might be worth trying to replace them with for the society of the 21st.