A History of Silicon Valley

Table of Contents | History pages | Editor | Correspondence
Purchase the book

(Copyright © 2010 Piero Scaruffi)

Conclusions

by Piero Scaruffi

Piero Scaruffi's Conclusions

The computer that drives a smart phone of 2010 is a million times cheaper, a hundred thousand times smaller and thousands of times more powerful than a mainframe of the 1970s. In less than four decades the computing power that one can buy with the same amount of money has increased a billion times. The amount of data that one can store for $100 has also multiplied astronomically (one teradata for $100 in 2010 versus 28 megabytes for $115,500 on the IBM 1301 Model 1 of 1961, where one tera is one million megas). The number of documents that one can print and mail has also increased by several orders of magnitude. The speed at which a document is transmitted has decreased from days to milliseconds, down nine orders of magnitude. The amount of free information available to the user of a computer has escalated from the documents of an office in the 1960s to the 30 billion webpages of the Web in 2010.

Originally, computing meant speed. A computer was a machine capable of performing computations in a fraction of a second that would have required many humans working for many days. Fifty years later this simple concept has led to a completely different understanding of what computing meant. Computing power now means two things: access to an overwhelming amount of knowledge, and pervasive worldwide communication. The former has created a knowledge-based society, in which problems are solved by tapping into a vast and dynamic archive of knowledge; in a sense, the same utopia as artificial intelligence. The latter has created virtual communities. It is not obvious anymore how these two effects related to computing speed, the original purpose of computers. The computer has transformed human society into a digital society, in which humans are creators, archivists, relayers and browsers of digital data which encode world facts into Boolean algebra; a vastly more efficient way of encoding the world than the previous paper-based society. At the same time progress in telecommunication technology, and in particular the convergence of telecom and IT, has turned the innocent phone into an all-encompassing personal assistant that is only marginally used for voice communication.

Silicon Valley is widely viewed as the symbol of this revolution.

However, computers were not invented in Silicon Valley, and Silicon Valley never had the largest hardware company, nor the largest software company, in the world. Silicon Valley did not invent the transistor, did not invent the integrated circuit, did not invent the personal computer, did not invent the Interner, did not invent the World-Wide Web, did not invent the browser, did not invent the search engine, did not invent social networking. Silicon Valley did not invent the phone, did not invent the cell phone, did and not invent the smart phone. But, at one point in time or another, Silicon Valley was instrumental in making them go "viral".

Silicon Valley's startups were good at exploiting under-exploited inventions that came out of large East Coast and European R&D centers and somehow migrated to the Bay Area: AT&T (an East Coast company) invented semiconductor electronics and Shockley ported it to Mountain View, IBM (an East Coast company) invented data storage at its San Jose laboratories, Xerox (an East Coast company) perfected human-machine interfaces at its Palo Alto research center, the government invented the Internet and chose the SRI as one of the nodes, CERN (a European center) invented the World-wide Web and the first USA server was assigned to the SLAC, and so forth.

In fact, Silicon Valley's largest research centers were never truly "research" centers but rather "R&D" (research and development) centers, and more oriented towards the "D" than the "R". Nothing comparable to AT&T's Bell Labs or to IBM's Watson labs (each of which produced Nobel Prize winners, unlike, say, HP Labs or Xerox PARC). One could argue that the "R" of Silicon Valley was done at Stanford University and U.C. Berkeley, but even those two research centers produced no significant invention in the realm of high technology, nothing comparable to the transistor or to the World-Wide Web. They were much better at incubating businesses than at inventing the technology for those businesses.

The biggest of all myths must be dismissed at the onset: we must recognize that Silicon Valley invented very little. Computers were not invented in Silicon Valley. Robots were not invented here either. Silicon Valley did not invent the transistor, the integrated circuit, the personal computer, the Internet, the World-Wide Web, the browser, the search engine, social networking, nor the smart phone. Neither biotech nor greentech are from Silicon Valley. Silicon Valley was instrumental in making them go "viral." Silicon Valley has a unique (almost evil) knack for understanding the socially destabilizing potential of an invention and then making lots of money out of it; Schumpeter's "creative destruction" turned into destructive creativity. That's, ultimately, what people mean when they talk about Silicon Valley as a factory of innovation.

Don't look at Silicon Valley to guess what the next big thing in high-tech will be: it is being invented somewhere else.

Silicon Valley will pick it up if it promises to revolutionize the lives of ordinary people. There are many places in the world where much more sophisticated technology is created, from nuclear power plants to airplanes. But personal computers, web services and smart phones (and, in the near future, biotechnology and greentech) have changed our lives in a more invasive and pervasive manner. Somehow those are the technologies in which Silicon Valley excels. It is not about the complexity and sophistication of the technology, but about the impact it will have on human society. In a sense, Silicon Valley "loves" socially destabilizing technologies. Silicon Valley has a unique (almost evil) knack for understanding the socially destabilizing potential of an invention and then making lots of money out of it. That's, ultimately, what people mean when they talk of Silicon Valley as a factory of innovation.

Can i open a polemic parenthesis? Just about everybody in Silicon Valley will tell you that "inventing" is much easier than turning the invention into a mass product. This is obviously a biased opinion (since the latter is what Silicon Valley does well, and the former is what Silicon Valley rarely does). Turning an invention into a mass product involves creating and running a company, which is complicated enough, and then manufacturing the product and marketing it, which are both processes that have become increasingly complex in a globally competitive economy. People who come from business schools can spend hours praising the superhuman endeavor required to perform these tasks. Personally, i am more on the side of science and of the inventor: i find that all of this business-school bombast amounts to something quite trivial that requires low intellectual skills. It's just that the people who perform these business tasks are not terribly bright, so they think their jobs are very complex. These are people who would never understand Einstein's equations (most of them don't even understand how and why their own products work), whereas Einstein would easily understand their business strategies, except that he would get bored out of his mind. I don't want to disparage Silicon Valley's entrepreneurs and venture capitalists, but, honestly, i think that a low intellectual level helps become a risk-taker, and make a lot of money. End of the polemic parenthesis.

There was nothing intrinsic in the Silicon Valley model that made it work for computers in particular. Whatever it was, that model worked for high-tech in general. Silicon Valley represented a platform for perennial innovation that could be applied to other fields as well (such as biotech and greentech). It just so happened that it started with "infotech", the first massively destructive industry since the electrical revolution.

The Silicon Valley model until 2000 could be summarized in three mottos: "question authority", "think different" and "change the world". Silicon Valley did not exist in a vacuum. It paralleled important sociopolitical upheavals that started in the San Francisco Bay Area and then spread all over the world, such as the free-speech movement and the hippie movement. Alternative lifestyle and utopian counterculture had always been in the genes of the Bay Area, starting with the early pioneers of the Far West. The propensity towards independence and individualism predates Silicon Valley's start-ups. That propensity led to the "do it yourself" philosophy of the hobbyists who started Silicon Valley. The hobbyists came first. Then came the great engineering schools, the massive government investment, the transfer of technology from the academia to the industry, and, at last, massive private investment. All of this would not have happened without that anti-establishment spirit, that propelled the Bay Area to the front pages of newspapers worldwide during the 1960s, for the first time in its history. Many of today's protagonists of Silicon Valley are, consciously or not, part of or children of the generation that wanted to change the world. They did.

The history of the high-tech industry in the Bay Area, from Philo Farnsworth to Peter Thiel, is largely the history of a youth culture, just like the "other" history of the Bay Area, from the Gold Rush to the hippies, is a history of a youth culture. The protagonists were often extremely young, and almost invariably contributed the most significant ideas in their youth (just like rock musicians). One cannot separate the evolution of that youth culture and the evolution of the high-tech industry: they are each other's alter ego. In fact, the two biggest technological waves and financial bubbles were started by young people for a market of young people (personal computers and Internet, i.e. hobbyists and dotcoms). They represented the ultimate feedback loop of youth culture.

The eccentric independent is truly the protagonist of this story. Silicon Valley could not have happened in places that were not friendly towards the eccentric independent. For example, Europe was a place where employees had to wear a suit and tie in order to succeed. Therefore Europe created an upper class of people who were better at dressing up, and not necessarily the ones who were more knowledgeable, competent and creative. In the Bay Area even billionaires wore blue jeans and t-shirts (before and after becoming billionaires). Silicon Valley could not have happened on the East Coast either, for the same reason that the hippies and the free-speech movement were not born on the East Coast: the Bay Area was permeated by a unique strand of extravagant and idiosyncratic anti-establishment sentiment and by a firm belief in changing the world. The one place that came close to replicating Silicon Valley was Route 128 near Boston, which was also the second most anti-establishment place in the nation.

However, the East Coast was similar to Europe and dissimilar from Silicon Valley in another respect: vertical instead of horizontal mobility. Europe and the East Coast encouraged employees to think of a career within a company, whereas Silicon Valley encouraged employees to think of switching jobs all the time. In Europe there was little motivation to hire someone from another company, since one could not recycle that person's skills legally, and it was even illegal to start a new business based on what one learned at a company. Hence Europe created big companies where people's main motivation was to get promote to higher and higher positions; and, typically, away from engineering. This praxis had the double effect of "detraining" engineers (as they were shuffled around in search of better-sounding titles, and typically landed non-technical positions) while limiting the flow of knowledge to the internal departments of a company, whereas in Silicon Valley engineers continuously refined their technical skills as they moved from company to company while at the same time facilitating a flow of knowledge from company to company.

Perhaps this was the ultimate reason why in Europe an engineering job was considered inferior to a marketing job or even to sales jobs, while in Silicon Valley the status symbol of being an engineer was only second to the status symbol of being an entrepreneur; and so was the salary, while in Europe marketing/sales people or even bank clerks made more money and had better prospects than engineers. Europe converted tens of thousands of bright engineering talents into mediocre bureaucrats or sales people (in a suit and tie) while Silicon Valley converted them into advisers to the board or founders of companies (in blue jeans and T-shirt).

It certainly didn't help Europe that it relied so much on the three "big Bs" (big government, big labor and big corporations) while Silicon Valley despised all three. However, the history of Silicon Valley and of computing in general shows that big government can be the greatest engine of innovation when it is driven by national interest (typically, in times of war) and that big corporations do work when they can afford to think long-term (for many years most innovation in computers came from AT&T and IBM, and in Silicon Valley they came from Xerox). Big labor was always absent from Silicon Valley, but in a sense it was volunteered by the companies themselves (the HP model).

The roles of big government, big corporations and big labor in the success of the Japanese computer industry (that had to start from scratch in the 1950s) and in the failure of the British computer industry (that had pioneered computers in the 1940s and had all the know-how necessary to match developments in the USA) are probably instructive. In both cases the government engaged in sponsoring long-term plans and in brokering strategic alliances among manufacturers, and in both cases initial research came from a government-funded laboratory. However, the outcomes were completely opposite: Japan created a vibrant computer industry within the existing conglomerates, whereas Britain's computer industry imploded within two decades.

Between Japan and Silicon Valley it is debatable which region benefited more from government aid. The Japanese conglomerates were certainly nurtured and protected by the government, but their main customer was the broad market of consumers. From Sony's transistor radio to Samsung's smartphones the revenues of East Asia's high tech were coming from selling millions of units to millions of people. Silicon Valley innovation, instead, was routinely funded by the government (specifically by DARPA): the money that started Fairchild, Oracle, SUN, Netscape and many others was coming, ultimately, from contracts/grants with/from government agencies, whether NASA, CIA or (more often) DARPA.

In 1977 California had more high-tech jobs than New York and Boston combined, but both Los Angeles and the Bay Area also benefited from more defense contracts than New York and Boston combined.

When the Cold War ended and military funding began to drain, Silicon Valley found a great substitute in advertising (thereby treating technology like what it was becoming, i.e. entertainment). In retrospect, Steve Kirsch's Infoseek, that in 1995 pioneered "cost-per-impression" and "cost-per-click" advertising, might prove to be a milestone event in the history of the region, fueling a boom (of free services and products) comparable to the Gold Rush, the Oil Rush, etc.

Last but not least, the Bay Area managed to attract brains from all over the world. The competitive advantage derived from immigration was colossal. Brains flocked to the Bay Area because the Bay Area was "cool". It projected the image of a dreamland for the highly educated youth of the East Coast, Europe and Asia. Because the Bay Area was underpopulated, those immigrants came to represent not an isolated minority but almost a majority, a fact that encouraged them to behave like first-class citizens and not just as hired mercenaries. the weather and money certainly mattered, but what attracted all those immigrants to the Bay Area was, ultimately, the anti-establishment spirit applied to a career. It made work feel like it wasn't work but a way to express one's self.

And, as usual, luck has its (crucial) role: had William Shockley grown up in Tennessee instead of Palo Alto, maybe he would have never dreamed of starting his company in Mountain View, and therefore neither Fairchild nor Intel nor any of the dozens of companies founded by his alumni and the alumni of his alumni would be based in the Bay Area, or in California at all. All the reasons usually advanced to explain why Silicon Valley happened where it happened neglect the fact that the mother of all "silicon" startups was based there simply because Shockley wanted to go back where he grew up.

Some myths about Silicon Valley have been exaggerated and some truths have been downplayed.

Mentorship, to start with, was not as important as claimed by the mentors. It was customary that the founder of a successful company received funding to start another company. This did work in terms of profitability, because the star-appeal brought both investors and customers, but it rarely resulted in technological breakthroughs. Recycling a successful entrepreneur was just an advanced form of marketing. In practice, the vast majority of quantum leaps forward in technology were provided by young newcomers who knew very little about the preexisting business.

Another factor that has been over-emphasized is the importance that the military industry had in transferring high technology to the Bay Area. While this is certainly true, and certainly accounted for an initial transfer of engineers from other parts of the country to the Bay Area, there is very little that the military industry contributed to what today is Silicon Valley. In fact, very few startups originated from the big military contractors (if nothing else because their employees are under much stricter non-disclosure agreements) and even those few startups mostly worked for the military establishment from which they originated, a business model that dominates the technology parks around the Pentagon in Virginia, which might or might not have been a blueprint for what happened in Silicon Valley.

One factor in the evolution that is often underestimate is (as odd as it might sound) how important the shortcomings of the established industry leaders have been to foster innovation. Apple completely missed the advent of the Internet, Google completely missed the advent of social networking and Facebook will soon completely miss the "next big thing". Each of these blunders helped create a new giant and an entire new industry. If Apple had introduced a search engine in 2000, perhaps Google would never have existed, and if Google had introduced a social-networking platform in 2004, perhaps Facebook would never have existed. Each of them had the power to easily occupy the new niche... except that it failed to notice it. In most cases the founders and CEOs of Silicon Valley companies are visionaries in the narrow field in which they started, but not very skilled at noticing seismic shifts in the overall landscape.

The Bay Area was uniquely equipped with the mindset to subvert rules and embrace novelty. However, history would have been wildly different without the government's intervention. The Bay Area constitutes a prime example of technologies that moved from military to civilian use. The initial impulse to radio engineering and electronics came from the two world wars, and was largely funded by the military. The first wave of venture capital for the high-tech industry was created by a government program. It was governments (USA and Britain) that funded the development of the computer, and NASA (a government agency) was the main customer of the first integrated circuits. The Internet was invented by the government and then turned into business by the government. Generally speaking, the federal government invested in high-risk long-term projects while venture capitalists tended to follow short-term trends. The government of the USA was the largest venture capitalist of Silicon Valley, and the government of the USA was also the most influential strategist of Silicon Valley; whereas, one could argue, venture capitalists mainly created speculative bubbles. However, even the "bubble ideology" has a positive function in Silicon Valley: it accelerates business formation and competition.

The golden question is why Silicon Valley worked for some sectors and not for others. It failed in laser applications, although it had a head start, and it never made a dent into factory automation (despite a head start in robotics). My guess is that the individual is not enough: it takes a community of inventors. The defense industry created that community for the radio engineering and the semiconductor industry. The venture capitalists are creating it for biotech and greentech. Factory automation, however, despite the potential of causing one of the most dramatic changes in human society, was largely left to the heavy industry, that was not based in the Bay Area. The Defense Department created that community elsewhere. The Japanese government created it in Japan. Nobody ever created it in Silicon Valley. The whole premise of numeric control (coupling processors with sensors) remains largely alien to Silicon Valley.

Needless to say, it is difficult to tell which of those factors were essential to Silicon Valley becoming what it became.

There's another element to the success of Silicon Valley that is hard to quantify: the role of chance in creativity. Because of its lifestyle and values, Silicon Valley has always maximed the degree of chance. Work is often viewed as play, not duty. Fun and ideals prevail over money and status. Hence chance, hence creativity. From this point of view the importance of the arts is often underestimated: the Bay Area was famous as a refuge for "crazy" artists way before it became known as an incubator of startups. Like every other phenomenon in the world, Silicon Valley does not exist in a vacuum.

The golden question is why Silicon Valley worked for some sectors and not for others. It failed in laser applications, although it had a head start, and it never made a dent into factory automation (despite a head start in robotics). My guess is that the individual is not enough: it takes a community of inventors. The defense industry created that community for the radio engineering and the semiconductor industry. The venture capitalists are creating it for biotech and greentech. Factory automation, however, despite the potential of causing one of the most dramatic changes in human society, was largely left to the heavy industry, that was not based in the Bay Area. The Defense Department created that community elsewhere. The Japanese government created it in Japan. Nobody ever created it in Silicon Valley. The whole premise of numeric control (coupling processors with sensors) remains largely alien to Silicon Valley.

There have been attempts at creating "Silicon Valleys" around the world: Malaysia's Multimedia Super Corridor, Dubai's Internet City, Bangalore's eCity, China's Zhongguancun Science Park, Russia's Skolkovo (begun in 2010), etc. The closest thing to Silicon Valley outside the USA has probably been Singapore, whose GDP of $182 billion (2008) is less than half of the Bay Area's GDP of $427 billion. However, venture capitalists invested $1,370 per capita in the Bay Area (2006) versus $180 in Singapore (nonetheless ahead of New York's $107). Another close second could be Israel, a country rich with venture capitalists and high-tech companies; but Israel has been entangled in the perpetual political turmoil of the Middle East.

The only country that can compete with the USA in terms of mass-scale innovation that has changed the daily lives of billions of people is Japan. However, Japanese innovation has mostly come from conglomerates that are a century old. It is hard to find a Japanese company that emerged thanks to a new technology and became a major player. The whole phenomenon of venture capitalists and high-tech start-ups has virtually been inexistent in Japan.

Much has been said of the role of East Asian governments in the astronomical growth of their economies. Little has been written about how much those economies owe to Silicon Valley. Both the venture capitalists and the startups of Silicon Valley contributed to creating the very economic boom of East Asia that then they set out to exploit. Silicon Valley literally engineered the high-tech boom in Taiwan and mainland China as much as those governments did. Those economies have become not what they wanted to become but precisely what Silicon Valley needed: highly efficient futuristic science parks with all the tools to cheaply, quickly and mass produce the sophisticated components needed by Silicon Valley companies. Ditto for India: the large software parks such as the one in Bangalore have largely been shaped by the demand of software coming from Silicon Valley, not by a government-run program for the future of software technology. (Whenever such programs exist, they often embody precisely the goal to serve the demand coming from the USA). The "Golden Projects" of mainland China of the 1990s, that created the high-tech infrastructure of that country, would have been pointless without a major customer. That customer was Silicon Valley. Asians are proud to point out that (in 2009) their continent employs 1.5 million workers in the computer industry while the USA employs only 166,000. That is true. But they forget to add that most of those 1.5 million jobs were created by Silicon Valley. Foxconn (or, more properly, Hon Hai Precision Industry), founded in Taiwan in 1974 by Tai-Ming "Terry" Gou to manufacture plastic and that in 1988 opened a pioneering factory in China's then experimental city Shenzhen, became the world's largest manufacturer of electronics by 2009, with revenues of $62 billion that dwarfed Apple and Intel, employing 800,000 people (more than the whole Bay Area). However, its main customers were Apple, Intel, Cisco and Hewlett-Packard, besides Sony, Microsoft and Motorola. In 2005 Taiwanese companies produced 80% of all personal digital assistants, 70% of all notebooks and 60% of all flat-panel monitors. This, of course, also translated in an interesting (and somewhat unnerving) social experiment: Silicon Valley was generating and investing ever larger sums of money, but creating an ever lower number of jobs. The investment and the profit was based here, but the jobs were based "there" (Asia). In fact, unemployment in 2010 was close to 10%, one of the highest in the entire world. One could see a future when the low-level workers of the high-tech industry would start moving out of Silicon Valley towards Asia. (The same was true of the other industries, from energy to biotech).

As China is rapidly emerging as an economic world power, its government has spent more than any other country in creating technology parks. I personally don't believe China (as it is now) stands any chance of creating its equivalent of Silicon Valley. I explain why to my Chinese friends by simply pointing to what China does to my website: my website is banned in China (for whatever reasons unknown to me). Obviously it is not the only one: millions of websites are banned in China. Here are some of the consequences: 1. There is an enormous amount of know-how that doesn't percolate through Chinese society (for example, my website has many resources about Silicon Valley); 2. It is impossible to raise a generation of creative kids when they can only "consume" what the government selects and mandates (that is a recipe for raising very dumb citizens); 3. On top of other reasons, this is a very strong reason why virtually no educated foreigner dreams of emigrating to China for the rest of their life the way millions of us foreigners decided to move to California. Three key factors in the success of Silicon Valley are automatically removed when a government decides to ban websites at will: know-how, creativity and immigration.

If that is how Silicon Valley came to be, not much is left of it in 2010. "Hobbyists" have slim chances of emerging. In the age of marketing, the entry point for starting a business and going viral is not negligible: venture capitalists tend to invest in "safe" companies and in tested management teams.

The creative eccentric of the 20th century has been replaced by a generation of disciplined but unimaginative "nerds" who would be helpless without a navigation system and a cell phone (or just without air conditioning). Government intervention in high-tech has been scaled down (as a percentage of the industry), with the result that there is less investment in long-term projects, and the public mood against "big government" leaves few hopes that the trend can be reversed any time soon. Immigration laws, economic downturns and a chronically weak dollar have greatly reduced the number of graduate-level immigrants from other developed countries. Even the few who study in the USA and would like to stay have a hard time obtaining a work visa. The time-consuming and humiliating procedure to obtain a green card discourages even those who do obtain a work visa. It is impressive how many of the innovators of the Bay Area were not native of the Bay Area. Immigration has been a true engine of innovation. At the same time, the tightly knit community of Silicon Valley has been ruined by the massive immigration of opportunists who don't have that spirit, and by the outsourcing of jobs to India that has disenfranchised the engineer from her/his company. That problem has been exacerbated by the two recessions of the 2000s, which created a culture of extreme pragmatism in the industry. The proverbial family-style management pioneered by HP has turned into a 60-hour workweek with virtually no vacation days and indiscriminate layoffs whenever needed. Both companies and employees have become opportunists instead of idealists.

Fairchild, HP Labs, Intel, Xerox PARC, Apple and so forth built companies not so much around a technology as around their human resources. They hired the best and nurtured highly creative environments. By 2010 the chances of an engineer being hired by a company depended much more on how well her/his resume had been written by her/his "head hunter" (employment agency) than on the real skills and I.Q. of the engineer. In fact, any "headhunter" (employment agency) could tell you that the correlation between skills and chances of being hired was very low, whereas the correlation between a good-looking resume and chances of being hired was very high. Such is the way in which the labs of the 21st century are being created in Silicon Valley. The growing power of lawyers introduced another degree of distortion in the system: the chances of being laid off by a company were becoming inversely proportional to how much one was willing to pay for an attorney. An attorney was more likely to obtain something from a company on behalf of an employee than the employee through her or his work. This is beginning to replicate the problems that Europe has with unionized labor, except that it is much more expensive to defend one's job in the Bay Area through a lawyer than to defend one's job in Europe through the unions.

To make matters worse, in 2010 rumors began to circulate that since 2005 some of the major Silicon Valley companies (Apple, Google and Intel) had engaged in a dirty scheme of not hiring each other's employees, a case that eventually ended in court in 2014. So much for Silicon Valley's vaunted job mobility. Furthermore, it was becoming common practice for companies to have their employees cede all rights on their inventions, a practice indirectly expanded by a new patent law (the "the America Invents Act" of 2013) that made it harder for individuals to apply for a patent.

The academic environment offers mixed news. On one hand it still acts as an incubator of start-ups. On the other hand each college and university has greatly expanded the activities for students to the point that it has become a walled city. Students do not find the time to stick their neck outside the campus. This does not encourage interaction with other cultural environments. One can argue that such a closed system is designed to create hyper-specialists and stifle creativity.

Meanwhile, the infrastructure of Silicon Valley, and of the USA in general, risks falling behind the ones in the most advanced European countries of Asia and Europe. Gone are the days when it was Asians and Europeans who would marvel at the transportation, the technology and the gadgets of Silicon Valley. It is now the other way around. Silicon Valley does not have anything that even remotely resembles the futuristic clean and fast public transportation of Far Eastern metropolises (the magnetic levitation trains, the multi-layered monorails, the bullet trains). Its households have to live with one of the slowest and most expensive "high-speed" Internet services in the world. Cellular phone coverage is poor everywhere and non-existent just a few kilometers outside urban areas. US tourists abroad marvel at what the Japanese and the Germans can do with their phones.

There are other fields in which the Bay Area suffers from national diseases. Incredibly stupid immigration laws are keeping away the best brains of the world and sending away the ones that manage to graduate in the USA. And this happens at a time when countries from Canada to Chile have programs in place to attract foreign brains. At the same time, a growing wealth gap has created an educational system that disproportionally favors the children of the rich: if a student graduates from Stanford, most likely s/he is from a rich family, not necessarily a world-class student.

Unlike the other high-tech regions of the world, the (boring, nondescript) urban landscape of Silicon Valley was the epitome of no creativity, no originality, no personality, no style. It is difficult to find another region and time in history that witnessed an extraordinary industrial boom without producing a single building worthy of becoming a historical monument.

That fact probably goes hand in hand with with another blatant fact: the high-tech industry of the Bay Area has produced no Nobel Prize, unlike, say, the Bell Labs, another high-tech power-house.

There was another dimension in which Silicon Valley had changed significantly. Until the 2000s Silicon Valley had never witnessed a case in which the leaders of a technological/business revolution where all based in Silicon Valley itself. Intel was dominant in microprocessors, but its competitors (Motorola, the Japanese) were located outside California. HP was a major personal-computer maker but its competitors were located outside California (IBM, Compaq, Dell, the Japanese and Taiwanese). Apple and Netscape were briefly dominant in their sectors (personal computers and browsers) but they were quickly defeated by the Microsoft world. Oracle faced competition from IBM (based on the East Coast) in databases and from SAP (based in Germany) in ERP. The 2000s, instead, witnessed a concentration of power in Silicon Valley, as the companies vying for supremacy were Google, Apple and Oracle. Google was becoming the monopoly of Web search. Apple was becoming the reference point for hand-held communication devices. Oracle was becoming the behemoth of business software. Each of them was trying to impose not only its products but its view of the world as the world moved towards cloud computing. Google was Internet-centric. Apple was device-centric. Oracle was server-centric. Each indirectly assumed that their business models were not compatible: two had to die. It was the first time in the history of Silicon Valley that not two but three local firms were engaged in such a deadly struggle. This constituted a moral rupture in the traditional "camaraderie" of Silicon Valley.

The 2010s were also the first time ever that Silicon Valley was not about "being small" but being big: Intel (the number-one semiconductor company), Oracle (number one in ERP), Apple (most valuable company in the world), Google (by far number one in web search), Facebook (by far number one in social networking), Cisco (number one in routers) and HP (number one in personal computers) were large multinational corporations, the kind that did not exist in Silicon Valley in the old days. Silicon Valley was originally about "being small". As Silicon Valley becomes a place for big corporations, the attitude towards risk-taking might change too.

The whole spirit of innovation has clearly changed. As far as the history of Silicon Valley is concerned, one can see that computing technology was hijacked twice. The first time the technology invented by corporations and governments (from the transistor to the Internet) was hijacked by independents who turned it into a global grass-roots movement with the potential to dramatically change human society. The second time the technology was hijacked by corporations and government that turned it into an advertising and surveillance medium.

Having spent a month in Dubai, i started realizing how similar Silicon Valley has become to that city-state. Dubai is a very efficient society neatly divided in three classes: a very small group of very rich people (in that case, the natives, starting with the sheik's family), a very small group of highly-skilled and hard-working people which is responsible for running the business (mostly Westerners who spend one or two years there), and finally a large population of quasi-slaves (mostly from Islamic Asia) that perform humble tasks with very little knowledge of the bigger scheme of things. Silicon Valley has basically produced a similar three-tier society: a small group of financiers, a small intelligentsia that is responsible for inventing the business, and then a large population of quasi-slaves with regular, uneventful lives who simply implement the business without knowing much of the bigger scheme of things.

In concluding, not much is left of what made Silicon Valley what it is now. Silicon Valley has become a much more conventional and crowded metropolitan area. It actually "looks" much less "modern" than other metropolitan areas. Its vast expanse of dull low-rise buildings is hardly a match for the futuristic multi-layered transportation systems and/or the impossibly-shaped gravity-defying skyscrapers of Shiodome (Tokyo), Pudong (Shanghai), Zayed Road (Dubai), or just La Defense (Paris).

However, the exuberant creativity boom of the previous decades has left a durable legacy: a culture of risk-taking coupled with a culture of early adoption of new inventions. And it is more than a culture: it is a whole infrastructure designed to promote, assist and reward risk-takers in new technologies. That infrastructure consists not only of laboratories and plants, but also of corporate lawyers, marketing agencies, employment agencies ("head hunters") and, of course, investors. After all, the culture of "inventing" was never all that strong in the Bay Area, whereas the culture of turning an invention into a success story has always been its specialty, and it may even be stronger than ever.

The spirit of Silicon Valley survives in one notable aspect. Nothing motivates people more than telling them that "it can't be done". Tell someone that it can't be done and the following day there will be a new startup.

It has in fact become easier than ever to start a company. The entry point is getting lower and lower. It is inevitable that sooner or later Silicon Valley will produce the Mozart of the Web, the child prodigy who will create a successful website (and therefore business) at age 8 or 10.

Silicon Valley is the engine of a world in which people are plugged into the Web because of a smartphone, search for information because of Google, socialize on the Web because of Facebook, shop on the Web because of eBay and pay on the Web because of PayPal. Soon that world will also offer biotech tools for "human life extension" and greentech devices for ubiquitous low-cost energy. Silicon Valley is not booming anymore: it has become the very process of booming. Silicon Valley was an alternate universe. It is now gobbling up the rest of the universe.

Finally, a word about a curious historical fact. The Bay Area was famous for crazy artists and even crazier young people, best represented by the beat poets of the 1950s and the hippies of the 1960s. The Bay Area, since the times of the Gold Rush, was also a unique ethnic mix. The Bay Area also pioneered the gay and women liberation movements. However, the young people who went on to change the world with their companies and products were almost all "nerdy" male WASPs: it almost feels like the sociopolitical revolution started by the long-haired thrift-clothed multi-ethnic working-class sexually-promiscuous rebels of Berkeley and San Francisco was hijacked by the short-haired well-dressed WASP upper-class straight male engineers of Silicon Valley. The legacy of the quasi-communist deeply-spiritual rebels was a work environment that was much more casual/relaxed (moccasin slippers, colorful t-shirts and khaki pants instead of suits, ties and white shirts) and less bureaucratic/feudal than on the East Coast; but the young people working and succeeding in that environment were coming from a wildly different ideological perspective, very much in favor of the dominant capitalist, materialistic, mass-consumption, white, bourgeois society that the rebels had antagonized; and the worst affront was that the hijackers were funded by the military establishment (the rebels had been waving and wearing the peace sign). Silicon Valley was and is, first and foremost, a contradiction in terms.

Arun Rao's Conclusions

In progress.
(Copyright © 2010 Piero Scaruffi)

Table of Contents | World News | History pages | Editor | Correspondence