Why Silicon Valley is not the second coming of the Gilded Age.
I love +Steven Johnson
's rebuttal of George Packer's piece in the New Yorker, which repeats the tired refrain about Silicon Valley solutionism and the bizarre notion that Silicon Valley is dominated by Randian libertarians. (I think Johnson is absolutely right in his definition of a new kind of political persuasion, which he calls the "Peer Progressive", and describes beautifully in his new book Future Perfect
In this piece, I particularly liked Johnson's take on wealth creation in Silicon Valley. While Packer decries the tens of thousands of millionaires as creating a new upper class, Johnson points out something more profound and important:
"Then there’s the issue of inequality, which is where Packer starts, observing the rise of homelessness and the staggering cost of real estate in the area. No doubt about it, the explosive rise in wealth and income inequality in the U.S. may well be the single most pressing problem that we face, the slow but steady reversal of the last century’s rising tide. Packer deserves serious props for shining a light on that disturbing trend. But here again, I think he gets the Silicon Valley part of the story wrong, even if his motives are in the right place. Early in the piece, he cites a telling statistic: “There are fifty or so billionaires and tens of thousands of millionaires in Silicon Valley.” Think about that for a second: tens of thousands of millionaires, almost all them created by companies that didn’t exist two decades ago.
"Why did that happen? Sure, companies went public or sold for staggering sums, but companies have been going public or selling out for generations without creating tens of thousands of millionaires along the way. The defining difference between Silicon Valley companies and almost every other industry in the U.S. is the virtually universal practice among tech companies of distributing meaningful equity (usually in the form of stock options) to ordinary employees. Before companies like Fairchild and Hewlett-Packard began the practice fifty years ago, distributing stock options to anyone other than top management was virtually unheard of. But the engineering tradition that spawned Silicon Valley was much more egalitarian than traditional corporate culture.
There’s a great book on this topic, called In The Company Of Owners
, that documents just how distinct the Valley is from the rest of U.S. corporate culture. The top 100 tech companies granted 19% of their total ownership to non-senior-executive employees (i.e., everyone excluding the CEO and four lieutenants.) For the rest of corporate America, that number was 2%. In other words, when it came time to share rewards with ordinary employees, the Tech 100 were ten times more generous than low-tech firms. This is actually one of the hidden strengths of the tech sector in the US: its companies are much more competitive precisely because they are much more egalitarian in how they share their wealth internally. I would be surprised if there were any new industry in the history of capitalism that distributed its economic rewards to its employees as widely as Silicon Valley has. Billionaire founders or CEOs are nothing new. But multi-millionaire middle-managers? That’s something else altogether.
"This is the paradox that Packer elides with his New Gilded Age narrative....
"For Packer, the lesson seems to be: the excesses of the digital-era super rich give us a case study in the growing problem of inequality throughout the U.S.. But you could reasonably draw the exact opposite lesson: that one way to deal with rising inequality is to make the rest of corporate America act more like Silicon Valley."
I totally agree. The reason we have lost the middle class is because workers don't share in the success. Supposedly, it goes to the shareholders, but the dirty secret is that much of the gain goes to the management. A great book on the topic is Lynn Stout's The Shareholder Value Myth