Joel Kotkin, in the Spectator, finds the former hub of innovation today sunk in decadence and decline.

‘We used to build the future. Then we designed it, now we just think about it’

The collapse of Silicon Valley Bank is the latest indicator that the Valley – site of nothing less than an economic miracle in recent decades – is now in big trouble. Other signs include mass layoffs in the tech sector and a post-pandemic real estate downturn. The Valley, it seems, is entering a period of decadence that raises the prospect of long-term decline.

The start of this decline has coincided with a shift from the physical to the virtual. The Valley’s roots were in the old engineer-driven economy, one connected to the rest of the country, and to working-class America – somebody, it’s easy to forget, has to make the hardware. Today tech is dominated by a cognitive elite of Ivy Leaguers, management consultants and MBAs. ‘We used to build the future,’ Leslie Parks, who formerly directed redevelopment efforts in San Jose, once told me. ‘Then we designed it, now we just think about it.’

But the Valley has slowly left the industrial battlefield – it has lost over 160,000 manufacturing positions over the past two decades. It bought into the idea that the unique genius of its financial and corporate culture would be enough for it to thrive and profit as production headed first to Japan, then China and, more recently, to other parts of North America.

This is a familiar story. Consider, for example, how British industry lost its edge: the Industrial Revolution created a new class of tycoons; then the tycoons’ sons sought a return to the aristocratic past, eschewing dirty factories for elegant postings in the City or a relaxed life in their country estates. More recently, Detroit’s world-beating automotive industry squandered its technological and manufacturing advantages in a rush, pushed by Wall Street and its own financial managers, to earn easy profits from inferior products.

To be clear, the Valley is not done as a major tech centre. It still boasts a venture capital community, a remarkable concentration of engineering and other management talent, powerful universities and the headquarters of some of the biggest companies in the world. And it remains home to many of the tech giants that now exploit their monopolistic advantages. But that is not the same thing as being the place where the world looks for a vision of the future, as it once was. Even if the Valley still matters, it may no longer dominate the future as its denizens once assumed it would. Instead, it will face fierce competition for tech supremacy – from other countries, and other parts of this one.

This reflects two different phenomena: rising competition from other regions – and an internal rot that has infected the Valley. In its first few remarkable decades, the Valley was defined by its openness, its culture of competition and connection to the general economy. The people who built it, such as David Packard and Bill Hewlett, Fairchild Semiconductor co-founder Robert Noyce, and Apple’s Steve Jobs were, foremost, industrialists. They had a vision of how to use new technology to enhance productivity and make money.

Over the last decade or two, the Valley has outsourced much of its industry. Apple produces two-fifths of its products in China, more than four times what is made in the United States. Other tech giants don’t make anything. Rather than trying to build a better mousetrap, big tech now makes much of its billions off surveillance – the source of the wealth generated by Google and Meta – and by disintermediating retail businesses. It is a far cry from the optimistic promise of a better tomorrow on which the Valley was built.

Three tech firms now account for two-thirds of all online advertising revenues, which now represent the vast majority of all ad sales, controlling in some cases upwards of 90 per cent of the market. Even in bad years, they can persist by laying off employees, relying on inertia to garner income without worry of competition in what the author David P. Goldman neatly summarises as ‘the transformation of disruptive tech companies into rent-seeking monopolies.’

Many progressives persist in seeing the Golden State, and particularly Silicon Valley, as harbingers of a better, greener, more egalitarian future. In the words of two leading academics ‘California Capitalism’ remains ‘distinctive,’ ‘a model of an environmentally friendly economy that epitomises fiscal responsibility, innovation’ as well as ‘inclusive, sustainable, long-term growth.’

This vision could not be further from reality. The stranglehold of mega-firms and the associated Wall Street and venture capital money machine has undermined competition in fields from video games to artificial intelligence to cloud services to the metaverse and AI. To be sure, there’s some competition among the giants, much as there was between aristocratic clans in Europe or Japan’s feudal daimyo, but there are vanishingly diminished opportunities for the sort of startup that made up much of Silicon Valley Bank’s deposit base. Tech today is largely a game played between giants who, if they see promising technology, simply acquire it. Tech entrepreneur turned author Antonio García Martínez has called the contemporary Valley ‘feudalism with better marketing,’ a ‘highly stratified’ quasi-medieval society ‘with little social mobility.’ With control of key markets, firms that columnist Michael Lind refers to as ‘toll-booth companies’ can exact money from consumers who have little choice of going elsewhere – a bit like feudal lords. And if these barons compete, it is against one another. Largely ignored has been the impact of these changes on the people who live in the Valley. In the Eighties and Nineties it was heralded as ‘an exemplar of middle-class aspiration.’ No longer. And that, too, is thanks in part to deindustrialisation.

The kinds of tech jobs being created in the Valley produce opportunities only for a narrow subset of highly skilled, well-connected or credentialed employees. The Bay Area has been described as ‘a region of segregated innovation.’ Lower- and even mid-level workers at firms such as Google sometimes sleep in their cars while others have been forced into mobile-home parks or even homeless encampments.

RTWT