SILICON VALLEY: Blaming the Victim by Michael S. Malone
What’s wrong with Silicon Valley?
Don’t ask Business Week.
One of the things you deal with living in a ‘hot’ community like Silicon Valley is the biennial arrival of journalists parachuting in to take a quick read and then make sweeping pronouncements about the overall health of the place.
I’m sure folks in New York, Washington D.C. and Hollywood suffer through this far more than we do, but it’s all a bit dispiriting sometimes – especially when you realize that most of the world is accepting this nonsense as gospel.
I first encountered this back in the 1980s at the San Jose Mercury-News. Back then, long before it was its current dying husk of a paper, the Merc was the fastest-rising new star in the newspaper pantheon. Ambitious young reporters from all over the country vied for positions at the paper, believing it to be the crucial final step before jumping to the New York Times or Washington Post. And, of course, once they got to the Mercury-News, the crucial thing was to quickly build a big clip file of sweeping, big-picture type stories – jus the kind of stuff to appeal to editors Back East.
The result was that every few months, the Merc seemed to ‘discover’ Silicon Valley in its backyard for the first time (and not just the Valley: an in-house parody issue carried the headline “Mexicans Discovered in San Jose”). It was always the same breathless profile of Apple or Atari or Sun Microsystems, as if they were brand new enterprises, instead of old news. Not surprisingly, the ‘silicon’ in Silicon Valley – semiconductors – was rarely written about . . .that was too complicated a topic.
The same thing happened again in the late 1990s, during the dot.com Bubble, when the national media suddenly determined that the Valley was the Big Story and sent teams of reporters and camera crews out to San Francisco to cover those wacky web guys. Then, when the Bubble burst in 2000 – a natural, if in this case supercharged version, of the standard boom-bust cycle of tech – they declared the tech revolution over, packed their bags and went home . . .thereby mostly missing the even more important Web 2.0/Social Network boom two years later.
In truth, it’s been kind of nice not to have been much noticed by the national media the last few years.
But now, the cycle seems to have begun again. This time, the Big Story seems to be a ‘failure of innovation’ in Silicon Valley. Or more precisely: “What’s Wrong with Silicon Valley?” the current cover story in Business Week magazine.
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1. Pajamas Media » What’s Wrong With Silicon Valley?:[...] Read
Jan 9, 2009 - 1:43 pm 2. uburoisc:I’m headed there to work on a new start-up this Monday; SV is far from dead.
Jan 9, 2009 - 3:33 pm 3. keithacita:been here 30 years…too much focus on mindless entertainment now. let’s build things again.
Jan 9, 2009 - 6:19 pm 4. Pat:Mr. Malone is spot on. Another Business Week author, Beth Lacey, wrote in October, “After… forced reckoning with bad past decisions, VC will emerge stronger. Entrepreneurs… will still need venture capital.”
Contrary to Marx and Keynes, “need” does *not* create supply. As JB Say correctly discovered ca. 1820, it is supply which creates demand, and increasing statism only chokes the ability to supply.
VC requires the longest range thinking & planning; which in turn, requires a stable economy - devoid of the government-created business cycles, ever-changing & more draconian congressional regulations, and the unpredictable whims of SEC, Justice, FDA, FCC, etc. More statism will destroy VC once and for all, along with every other sector as it’s now threatening to do.
Yet Business Week blithely sticks their heads in the sand to instead blame the victims for their egregious “bad decisions.”
The illusion of cheap credit conjured by the Fed’s artificially low rates following the market tumble of ‘01/’02 caused the current bust, and now Washington is administering even more of the same poison.
Worse than the media, however, are most businessmen who sanction their own destruction by remaining silent or by contributing to political campaigns that promise more statism. Only last July 18th, for example, Mark Heesen, President of the National Venture Capital Association was quoted in the Wall St. Journal as saying that the SEC’s “heart was in the right place.” The SEC is anti-freedom and needs to be abolished.
Jan 9, 2009 - 11:48 pm 5. marty:Everyone with any technical depth and expertise has been saying this for years; but research funds keep dwindling. DARPA keeps funding ever more useless projects with crackpot goals and private industry walks away from anything truly new. There has been nothing new in computing or electronics, let alone basic science, for a decade. All we see are refinements of long known technologies. Maybe when people stop buying, the same way as they have stopped buying Detroit cars, someone will listen. Research requires risk and smart people; not just a business plan and a bunch of hucksters trying to make a quick buck without knowing anything about what they propose to do. Silicon Valley is a joke, and has been for a while. California laughed and called Detroit the rust belt, well I guess the Valley will be the chip belt.
Jan 10, 2009 - 1:01 am 6. marty:One last thought, you are dead on; government needs to get out of our lives and leave us alone. Government people are clueless about most things, especially technology and medicine. The less the government does, the better we will all be. And we sure need a LOT less regulation.
Jan 10, 2009 - 1:05 am 7. SAF:I have to agree with Mike. To wit:
I’ve talked to many venture guys since Sarbannes-Oxley was passed and the effect is that many will not invest in a venture that doesn’t have a demonstrate-able billion dollar market. The reason: cost of compliance.
I personally have seen Intel try and sink start-ups that remotely threaten there position in the micro business.
I personally have seen a biotech start up at inception ask the FDA for a ruling on their technology. At the time the FDA said it was clearly a device that needed no FDA approval. A few years later when they came to market with exactly the product they told the FDA they would produce the FDA turned around and demanded compliance. Sinking the company.
And of course everyone remembers Martha Stuarts conviction on insider trading. At the heart of it was a drug that got FDA disapproval because it only was effective 20% of the time. Now the drug cured lung cancer for terminal patients. So if your genetic make up was of the right variety it cured you and if it wasn’t you would die anyway. So the brilliant FDA sentenced 100% of the terminally ill patients to death as opposed to saving the life of 20%. Eventually they recanted their stupidity and the drug got approved, but not before almost putting the company that created it out of business.
Fundamentally we have way too many laws and they are, in aggregate, ineffective. What generally happens is the law is either not enforced or people get around it. SO the answer by government usually is more laws rather than fix and enforce what we have.
Sarbannes-Oxley has not stopped fraud and all the rules and regulations that exist did not stop Madoff from pulling off the greatest Ponzi scheme in history.
We have all these great financial rating agencies and auditors yet they all failed to see and warn of the financial turmoil that befell us. Only a couple of years ago GM had an A credit rating and was the largest auto company in the world. How did it get to bankruptcies door without the signs being there two years ago?
The mechanics to fix all of this is easy:
1. Simplify and fix the laws so that anyone can understand them
2. Enforce the laws
3. Realize that risk reward cannot be repealed
4. Educate the population in the need for diligence when it comes to investing and spending their money
5. Take away all financial guarantees so people really understand they need to be diligent
Of course I realize such a sweeping overhaul of America is not politically possible. But more dumb laws and regulations will not work.
Jan 10, 2009 - 8:28 am 8. Tom:I spent the first 30 years of my life in Sunnyvale, CA. I caught blue-belly lizards in the apricot orchards as a kid before all the orchards disappeared.
That innovation is still there, BUT big government is also, and the culture is so secular and leftist that it just has too much local and national red tape. I am a huge enemy of SOX. It has so much stupid unnecessary requirements that won’t do an ounce to get rid of bad people at the top of a company. That idea that you can legislate happiness at the federal level exists at the local level too.
Just driving by the school I attended in the early 70’s I noticed all the signs, zones, controlling influences of a overly mature society. The playground equipment is all ’safe’ but they have gone overboard. Everything is culturally risk-averse and as a result entrepreneurs have to factor in all of the other costs with these new costs into their business plans.
This place needs more freedom, not less when it comes to business and high-tech. It’s sad that as a region becomes so rich financially, it invariably becomes soft. That’s Silicon Valley, where the old money lives now.
Those entrepreneurs have to jump even more unnecessary hurdles to get stuff going. Good luck to them.
Jan 10, 2009 - 11:06 am 9. Joan:So - please tell me why CA voters (an especially the fragile flower intellectuals in Palo Alto and Berkeley) continue to elect the heavy regulators in the Dem party? Not to mention the No Tax Too Small to Raise crowd in Sacramento.
“The Government” is only those folks who have been elected and appointed by those elected. The same folks who swoon and slobber over Obama will moan about the loss of tech innovation while they are packing their bags to move out of state because Arnold & Co are going to raise taxes far and wide.
It’s in the hands of the Voters.
Jan 10, 2009 - 4:06 pm 10. Ian Thorpe:Does it not occur to you that perhaps people saw through business plans that, requiring us all to change our hardware and software every three years and simply said “enough”.
Think of the failure of Vista (because XP will do more than most people will ever want or know how to do) which means people did not buy a new PC when they were suppoed to which means profits are squeezed and R&D budgets cut.
Jan 11, 2009 - 8:10 am 11. eric in DC:The basic problem was that the BW article buried the lead - the problem with Silicon Valley in Washington. Not simply in the libertarian “interference” mode that Malone describes, although that’s relevant, but also in its abdication of the basic research funding that drove a couple of decades of innovation that arose out of Silicon Valley. At the same time, there is some corporate responsibility for ignoring the long-range and focusing upon quarterly earnings as basic research is also eviscerated within corporate budgets. Perhaps IBM is an exception - but then again, that’s a NY company with a Silicon Valley outpost.
Jan 11, 2009 - 12:19 pm 12. Nick:I’m sorry, but you people need to get out of this circle jerk and realize that America still has the best talent in the world and most of them are located in Silicon Valley. America is far from losing the lead in tech, as you’ve stated, we still have an entrepreneurial spirit and brains. R&D builds more computers or more internet startups, R&D leads to products you can probably imagine. What you are probably looking for is funding for “Blue Sky Research”, things you can’t imagine. This term is used when we have funding that doesn’t lead to products. These funds are crucial to engineers and scientists and shouldn’t be ignored. I fear that VC only will only lead to a product driven market instead of a market that will lead to major worldwide breakthroughs. DARPA funds blue sky research (probably why you hate it), if you want to kill tech in america, kill blue sky research funding. Only then can we truly allow communist china to overtake us ;-).
Jan 11, 2009 - 11:26 pm 13. GaryB:I think that government incentives and investment can have a place in technical development when a project is of significant importance to the country but poses significant risk of failure. The development of aircraft during World War II, for instance, is an example of this. However, a lot of true innovation takes place much farther down the food chain, in small privately owned businesses, garages and even dorm rooms — all places that tend to be unaffected by either SOX or government incentives.
Jan 12, 2009 - 11:26 am 14. Don:I don’t want to hear any whining from Silicon Valley. They are the dolts that lead the charge in electing the very people that have them in a stranglehold of regulations. Smart my a**. I hardly consider twitter a revolution in technology.
Jan 13, 2009 - 6:57 am 15. Never Yet Melted » What’s Wrong With Silicon Valley?:[...] article lit the fuse of Edgelings at Live from Silicon [...]
Jan 13, 2009 - 7:40 am 16. WestWright:Excellent article Mr. Malone. Many already know that the problem is Statism, Big government/corporate Statism, however the small mindedness of fascism by the Collectivist is destroying the innovative nature of this country. Beware, entrepreneurs are pioneers and they will find a way to be what they are and will find a home where they are most appreciated. CA may have given fly over country another capture of the greatest resource available, Entrepreneurism.
Jan 13, 2009 - 8:32 am 17. gbolcer:DARPA in the 60’s had a time horizon of 50 years; 80’s it was 15 years. VC firms in the 90’s had 5 year ROI business plans leading up to the .com which wanted returns in 12-18 months. Venture funding wants the next, unique and defensible big thing, but they aren’t willing to put in the 3-5 years funding to see it through to the market. Venture Capital means risk–taking a risk on something that *might* pay off. When the industry only cares about their management fees and investments that they can guarantee, then they aren’t taking risks anymore.
Jan 13, 2009 - 2:09 pm