Mountain Partners Interview series: Roland Koch
Every year, we are privileged to meet extraordinary people during the annual Mountain Partners Entrepreneurs’ Day by the beautiful Lake Tegernsee. It is our pleasure to share our discussion with you. Today, we meet Roland Koch. Roland served as Minister-President of the German state of Hesse from 1999 until 2010, Chairman of the Executive Board of Bilfinger SE from 2011 to 2014 and now heads the Supervisory Board of UBS Europe SE. He is also a member of the Supervisory Board of Vodafone Germany and member of the Board of Trustees of the Peter Dussmann Foundation. Additionally, he teaches at the Frankfurt School of Finance and Management as a Professor of Management Practice in Regulated Environments.
MP: Roland, in today's speeches, we heard that American and Chinese tech companies are very dominant. Europe, on the other hand, seems to have little dominant tech companies to counter this. Which regulatory framework conditions should be changed in the EU to create more start-up activity in this industry?
I think one of the central challenges is that in Europe we are discussing a common market, but in many questions, there simply is no common market in the sense that a product is created in Germany that can then automatically be sold in Spain. That can be done in the USA, even in countries like India, and - despite all the difficulties - in China. From a legal point of view, a product that is allowed in Shanghai is automatically allowed in Shenzhen. It is by no means the case that a financial product launched in Frankfurt may be distributed in Vienna or Madrid with the same configurations. Or if you set up a mobile radio system, the data protection, the transmission systems, the frequencies are allocated differently. For a start-up, the question of what the relevant market should be has something to do with scalability. That is a disadvantage Europe has. But it would not have to have it if we were to form an actual common market. What is more, our method of financing is more complicated. I believe that these differences are diminishing, but they are still there. European investors have a different philosophy about whom they give money to. They find the idea absurd to lose money five times to get rich the sixth time. We Europeans are simply different. I would also say that of myself, it is a question of mentality. Furthermore, tax law is, of course, modeled on this very question of mentality. For example, how to deal with loss carryforwards. In principle, investors cannot use the first five losses to their advantage. This is a situation the Americans are not familiar with. I believe that these are the starting points when we talk about regulations. One can only be solved at the European level, the other at the national level in the foreseeable future.
It was probably a good thing that the government didn't know much about the digital revolution, because that way many things could arise that would otherwise not have happened. However, now it has come into being, and now we are talking about how to deal with it from a regulatory point of view.
MP: You still have many contacts in German politics and the issue of digitization has gained in importance over the last years. Do you believe that we in politics are well-positioned in terms of the competencies of the individual politicians?
I believe that there are just as many people in German politics who understand it as there are in American politics. That is the minority everywhere, which is generational. People who are really fluent on the subject are rare. That's how it is. But that doesn't mean that there aren't enough people who have a sufficient understanding and also listen. There could be more. However, I believe that this has been a relevant question over the last twenty years, but now that the importance and dominance of the issue has been recognized and all resources have been broken down accordingly, its importance is diminishing. In Germany, for example, we have a Federal Chancellor who understands a great deal about this. It is certainly wrong to say that people are too stupid for that, but everyone, including the Americans, has a deficit in the question of how we deal with it - in state responsibility. It was probably a good thing that the government didn't know that at first, because that way many things could arise that would otherwise not have happened. However, now it has come into being, and now we are talking about how to deal with it from a regulatory point of view. We have created systems that our tax law does not understand; in other words, the system is impoverished here. We cannot even measure change in terms of economic growth. Our figures in this area have probably all been wrong for years because what is generated economically on the Internet is often not GDP-capable. In addition it needs translation mechanisms, which are to be found very laboriously. The determination of taxation mechanisms is just as laborious, quite apart from the ethical questions that were only symbolically discussed based on the "upload filter" from YouTube. The problem that newspaper publishers have always complained that they should lose their property was never really the core of the problem. The core of the problem was who controls whether foreign property is used and whether this control should be delegated to a private police force. Ultimately, this YouTube "upload filter" is just that: a private police organization. It gives people rights and also takes them, regulates the legal order. This competence was assigned to official organs according to the judge principle. The police, however, have too little capacity for this, YouTube has to do it itself. Then, of course, there is the danger that certain things will be deleted if they displease YouTube. This gives someone a competence that they should not actually have, and they have it on the ludicrous grounds that they are so powerful, which is why they are given the competence. Historically, the logical answer is that someone who is too powerful should not under any circumstances accumulate more competences. However, that has never been discussed. On this point, we are indeed living in a world where most politicians don't even know what they are talking about. Most of them have never downloaded or streamed a YouTube movie. The idea of how a personal world can change and evolve when you move around on YouTube is unimaginable to them. I admit the same for myself. I need YouTube at the University, so I watch a little more and know how to use and download them, but of course, I'm nobody who knows influencers, for example. No name tells me anything. I only see that a different world is emerging there, with considerable leverage effects, which is why it is so relevant. If someone controls that and sets rules there that are very difficult to control, it makes things more difficult.
"A good urban planner sows a meadow or builds a park and after two years looks at the trails. He then moves the paths there. If he has planned the paths elsewhere, he will see that there are paths and beaten paths, but it will not be the case that people use the paths. People will look for their ways."
MP: It is a clear signal that we also have to react much more quickly in politics and that we also have to follow this new world, so to speak, with the body of rules and regulations. If you fail to do so, you hand over power to the companies, which of course are not neutral.
That is, indeed, very complicated. On the one hand, democracy is not fast, the dictator is always faster. If there were a kind and caring dictator, that is a philosophical question, it would, of course, be much more efficient than democracy. However, the new world needs a fast system. So what is the answer? You actually always come to the same interface. What remains of our old life as an individual right that we don't want to influence at all, and where does the power become so great that the user has actually lost his individual right? Do I now make a state regulation or do I allow to put that on the level of a private agreement? And is that, when I put it on the level of a private agreement, the balance of power of those who make the agreement still such that it can become a fair tradeoff? Everything that can be observed with platforms has something to do with scaling, and scaling can lead to more power. This means that the question of whether eye-level will be reached is becoming increasingly unlikely. This is a new world. It took us 150-200 years to understand the old world. It is impossible to believe that the human mind reacts faster just because our knowledge multiplies more quickly. People also always talk about the question of how the human psyche reacts to something. We as human beings always behave in the same way. I keep telling my students: A good urban planner sows a meadow or builds a park and after two years looks at the trails. He then moves the paths there. If he has planned the paths elsewhere, he will see that there are paths and beaten paths, but it will not be the case that people use the paths. People will look for their ways. Of course, you can regulate this with fences, signs and the like, but normally nobody can predict how people will behave over a certain period of time. That can be nice or bad. Regulation has to deal with that.
MP: Thank you very much, Roland.