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7 February 2023

A reckoning for Silicon Valley

Malcolm Harris’s new book shows how Californian capitalism has thrived by exploiting an unequal world. But could the “Palo Alto model” prove the agent of its own destruction?

By Nick Burns

The first thing that strikes most outsiders visiting Silicon Valley is how unremarkable it is. Synonymous in global parlance with technological innovation and profit, this swath of suburbs between the cities of San Francisco and San Jose presents few visible differences from the California norm. Most of the tract houses here are not much bigger, certainly not more beautiful: but they do cost more – the average home value in Palo Alto, the unofficial capital of the Valley, is nearly $3m.

Quiet, oak-lined streets, strip malls, office parks half-hidden behind redwoods: there are few outward signs that this is, as the journalist Malcolm Harris puts it, “one of the highest concentrations of capital of any kind in world history” – the region responsible for the semiconductor, the personal computer, the smartphone, and many of the world’s largest companies.

In Palo Alto, high-tech hyper-capitalism seems to have skipped the mass-industrial stage of historical development – leaving a strange patchwork of rural vestiges and progressive industry. Tesla’s California offices are located in an out-of-the-way, low-slung building in the Palo Alto hills, next to a stable. Poverty is shunted across the motorway to East Palo Alto – or further afield. The Bay Area’s high property values are pushing its labourers into the fringes of exurban sprawl.

In treatments of Silicon Valley’s technology industry, a shift (sometimes called the “techlash”) has occurred over the past decade from a more boosterish tone during the Obama presidency to a more critical approach in recent years. But many of the books written about Silicon Valley are studies of one company or individual, or just a few of them – John Carreyrou’s Bad Blood, on the fraudulent blood-testing company Theranos; or Sebastian Mallaby’s The Power Law, an upbeat account of the region’s venture capitalists. Few studies shed much light on the profound oddity of Palo Alto itself, nor do they locate Silicon Valley’s contemporary status in historical context, through the kind of critical analysis employed by the late historian Mike Davis in his landmark history of Los Angeles, City of Quartz (1990).

[See also: Who killed Silicon Valley bank?]

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Harris’s Palo Alto: A History of California, Capitalism, and the World sets out to do precisely this: the publisher’s press release announces that the book does “for Silicon Valley what Mike Davis did for LA”. To that end, Harris ranges across the academic and popular literature to chart the region’s history from the precolonial era to the present day – with occasional detours, as the ambitious subtitle suggests, through related developments in northern California and the world.

Palo Alto’s story is one of dizzying success for some and cruel mistreatment for others. Harris emphasises structural forces over individuals and pays attention to the victims of Palo Alto’s growth, as his narrative proceeds from the Gold Rush and the founding of Stanford University in 1885 to the 20th-century arrival of prosperity through technological innovation, government funding and a distinctly Californian style of capitalist production. Caught under the wheels of the region’s progress are groups such as Native Americans, black families facing housing discrimination, and labourers in the area’s fruit orchards and, later, semiconductor plants.

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Palo Alto takes on a subject of great significance in the contemporary world and brings to bear a promising method, copious reading and the insight of a native son (Harris was raised in Palo Alto). But its inferiority to Davis’s book – which it seeks to emulate – is unmissable. Most glaring is the mismatch between the book’s stated purpose and its actual content. “The impersonal force that animates this chapter, this book, this state, this country, this period of world history isn’t fate or human nature; it’s capitalism,” Harris writes, adding: “What interests me is not so much the personal qualities of the men and women in this history but how capitalism has made use of them.”

But far from the “structural analysis” the book purports to be, in its basic structure it resembles a set of biographical studies. Harris spends much of the book describing characters such as Leland Stanford (1824-93), the railroad baron who founded Stanford University; the US president and fervent anti-communist Herbert Hoover (1874-1964); and leading Silicon Valley figures such as Steve Jobs and Peter Thiel.

Rather than demonstrating, in the tradition of Marxist historiography, how prominent figures function as the avatars of certain classes or formations of capital, Harris relies on hastily contrived postscripts to stitch his character portraits together into a history. On the early Californian figures Johann Sutter and John Frémont: “The point isn’t even that they were bad men because they stole and enslaved, though they were and it’s worth saying so.” On Amadeo Giannini, Italian immigrant to San Francisco and founder of what became Bank of America: “The point of this story isn’t that he was a bad man.” Stanford was nothing but a “historical vector”; Jobs and Bill Gates are “more meaningful as personifications of impersonal social forces”.

As to what the point is supposed to be, and what these impersonal social forces are, we receive few hints. Harris wants to tell us that Palo Alto’s heroes are actually villains, but he also wants to tell us their villainy is irrelevant because they are mere pawns in a capitalist game. Yet he declines to relate in much detail the rules of that game. For most of its 700 frustrating pages, Palo Alto refuses to be the very thing it insists that it is: a history of capitalism.

Harris’s hopelessly mixed metaphors torture the reader. Leland Stanford’s “curses” are “diluted and sprayed over hundreds of people by the crop duster of education”. Californian agricultural capitalism “pedalled the state’s non-white labour like a bicycle”. Stanford’s horse-breeding technique “pumped out new and improved horses by the tablespoonful”.

[See also: How 2022 killed the myth of the tech genius]

The book’s weaknesses are all the more blameworthy for the richness of its material. Consider Harris’s treatment of the “Palo Alto System”, the ruthless yet innovative horse-breeding approach in question, pioneered at Leland Stanford’s stock farm on what later became the campus of Stanford University. “Instead of optimising for adult speed,” Harris describes, “they optimised for visible potential,” making horses trot at a younger age. The real risk of injuring colts, ruining their future potential, was compensated by the shortened production cycle and the ability to recruit outstanding talent at a young age. Besides producing champions, the offspring of the new breeding system fetched high prices – soon other breeders were keen to adopt similar methods.

Characteristics of the Palo Alto System – its emphasis on capitalist rationality, speculative value and notions of unequally distributed inherent potential, exploitable for profit – would become themes in Palo Alto theory and practice across the region’s subsequent history. Working with humans instead of horses, Stanford scholars devised IQ tests and eugenic theories that gained wide acceptance, for a time.

But instead of treating this millionaire’s pet project as a curious harbinger of later trends, Harris writes as though subsequent figures were closely following a blueprint set at the stock farm, referring to a wide range of practices in later periods – from Hoover’s approach to international mining, to wartime memos by Bell Labs’ William Shockley – as examples of the “Palo Alto System”. This tic both flattens the historical insight and overstates its importance.

A self-described “California communist”, Harris’s politics, where they emerge in the book, amply illustrate the susceptibilities of this school. In a rambling section on the New Left during which Palo Alto disappears from view for long intervals, Harris describes the 1969 occupation of Stanford’s Applied Electronics Laboratory by radicals encouraged by the Maoist professor H Bruce Franklin as a “real victory” against the military-industrial complex, and a blow struck for the “decolonial struggle” in Africa. The local defence industry turns out, however, to have little trouble weathering the student stunts, which soon “petered out” for the summer. Unperturbed, Harris maintains that “though the Palo Alto empire did not fall in the 1970s, the communists and Third World liberationists could point to important victories” in that decade. His first example is the Cuban Revolution, which began in 1953.

The book closes with an earnest policy proposal: that Stanford’s land be retroceded to local indigenous groups. What chance of success does such a proposal enjoy? “Unfortunately,” Harris informs us, “I do not think the Stanford board of trustees… will return the university lands.” But wouldn’t it be nice if they did? This late lapse into sentimentality – a fitting bookend to Harris’s opening, equally earnest assertion that Palo Alto is “haunted” not only by the spectre of communism but also by supernatural forces – hardly suits the sober realism that the book’s subject demands.

[See also: Elon Musk was never really the world’s richest man]

It is nonetheless worth salvaging the book’s useful observations. Its account of Palo Alto’s historically troubled relationship with the US East Coast, the centre of American finance and the home of its Ivy League elite, explains contemporary developments, such as Elon Musk’s public clashes with journalists at established media outlets (which are concentrated in New York City and Washington DC).

From an early period, the great enemy of Palo Alto’s inventors has been the eastern establishment – and eastern capital. In the 19th and early 20th century, the money that they needed to market their inventions had to come from the centre of US economic life, on the eastern seaboard. The early radio innovator Lee de Forest, who had a stint at Palo Alto’s Federal Telegraph Company in the early 1910s, found himself caught in a series of intellectual-property disputes over his patents with East Coast companies – and often finished on the losing side. As later inventors encountered similar problems in seeking to bring their inventions to market, rancour towards the east of the US spread.

The solution that emerged to this quandary was an uncomfortable one for Palo Alto’s many believers in laissez-faire economics. Military contracts presented a convenient means of escaping dependency on eastern capital. Military investment began with telegraph research and development during the First World War and expanded from the Second World War onward, as federal money supported both new firms such as Varian Associates and established outfits such as Hewlett-Packard. A booming semiconductor industry soon became independent of public funds.

As Silicon Valley’s population expanded in the postwar years, low-density urban planning kept visible industry away from middle- and upper-class areas. In the early 1950s, Stanford prohibited smokestacks and buildings taller than two storeys for its industrial tenants, intending to preserve the rustic charm of the area, seeing this as key to its success. Such was the foundation for Palo Alto’s distinctive unobtrusiveness.

But if the new style of private enterprise emerging in Silicon Valley was government-funded, it was hardly of a piece with the postwar economic bargain, in which comparatively strong labour unions encouraged the distribution of prosperity across a wide spectrum of society. The new Silicon Valley model, by contrast, involved a highly divided workforce, with mostly white high-skilled workers rewarded with high wages, stock options and other benefits; and a mostly ethnic minority assembly-line workforce given no such advantages. Carrying on in a California capitalist tradition that includes the railroad companies of the 19th century and the agribusiness concerns of the 20th century, owners sought to employ multiple groups of immigrant or ethnic minority workers, trusting (in many cases correctly) that differences of culture, language and legal status would impede unionisation efforts.

This model remains popular among the region’s companies: consider the difference between the perks and job security available to full-time employees at Uber (headquartered in San Francisco) as compared to the company’s drivers. US technology companies, whether based in Silicon Valley or elsewhere, continue to deny greater protections to this more proletarian side of their workforces. Uber and its rival Lyft have spent lavishly to speed the passage of a California ballot measure which would reverse a state law compelling them to classify their drivers as employees; Amazon continues to resist unionisation at its warehouses.

Though a mature Silicon Valley has acquired its own supply of “venture” capital to allocate to promising start-ups, its reliance on federal money has not ended. Tesla’s early growth leaned heavily on government subsidies for electric vehicles.

[See also: “Unions are helping improve conditions for drivers like me”]

Silicon Valley’s style of capitalism – a divided workforce, a focus on speculative potential and “talent”, and a habit of removing industry to a safe distance to preserve the appearance of suburban calm – has proven a winner in today’s unequal global environment. (It also benefits from not having a symbolic location like Wall Street to attract popular protest.)

Even the widespread tech-industry lay-offs brought on by recent high interest rates may not end the run of success for the region’s technology industry. What might do so is the problem facing California more broadly – the decreasing social tenability of an economic system characterised by swelling asset prices and rising living costs.

As the trappings of success recede beyond many Californians, with home prices ballooning and little work available in a dominant technology industry that employs few full-time employees relative to its economic weight, California is shrinking, even as its homeless population swells. The most recent data show a drop of 114,000 residents over the past year, with the lower middle classes fleeing to cheaper states as California threatens to become an enormous gated community. Internal migration within the US cannot provide a solution to these imbalances forever. When this avenue is exhausted – if not before – a true reckoning will come for Silicon Valley.

Palo Alto: A History of California, Capitalism, and the World
Malcolm Harris
Little, Brown, 720pp, £30

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This article appears in the 08 Feb 2023 issue of the New Statesman, Silent Sunak