Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, you know,
Speaker 1: I don't know what's going on right now with the
Speaker 1: broader I'll let you finish well. There are so many
Speaker 1: different ways that sentence could have done. We could start
Speaker 1: every episode with I don't know what's going on anyway.
Speaker 1: I don't know what's going on right now with the
Speaker 1: broader American economy, but I do sense that the tech
Speaker 1: industry Silicon Valley is in a real downturn. It seems
Speaker 1: so um, I shouldn't laugh, because obviously, for a lot
Speaker 1: of people, this is very very serious. We've had a
Speaker 1: number of tech companies coming out and saying that they're
Speaker 1: going to be firing literally thousands of people in this downturn.
Speaker 1: And what's kind of remarkable about it is this is
Speaker 1: something a lot of people we're kind of expecting. You know,
Speaker 1: these are all growth companies. They tend to do very
Speaker 1: very well during periods of low interest rates. Once rates
Speaker 1: start going up, we see the pressures sort of added on,
Speaker 1: and then we see these cyclical downturns, right and you know,
Speaker 1: like the story of the twenty ten with tech was
Speaker 1: really the first industry to come sort of roaring out
Speaker 1: of the gate, and that recovery and the broader use
Speaker 1: economy never had a great recovery in that decade, but
Speaker 1: tech was absolutely booming. And so there is this flip.
Speaker 1: And you know the other thing is like, when I
Speaker 1: think of Silicon Valley or Tech, you know, I have
Speaker 1: certain ideas of like what a boom looks like and
Speaker 1: all these amazing perks and free dried cleaning and free
Speaker 1: steak dinners if you stay at the office, and free
Speaker 1: bean bags, all of it. I don't have a great
Speaker 1: intuitive sense about what a downturn looks like Silicon Valley, right,
Speaker 1: And I think it's never really been promoted as part
Speaker 1: of Silicon Valley. It's always, you know, come to this place,
Speaker 1: create a start up out of your garage or whatever,
Speaker 1: and become a billionaire and enjoy all this money and
Speaker 1: all these perks. But as we just mentioned, it is
Speaker 1: a cyclical industry. There are as many downturns as there
Speaker 1: are upturns at this point, and yet they don't get
Speaker 1: as much attention. No, there's definitely it's a boom bust industry,
Speaker 1: and you know, I've talked about many times my first
Speaker 1: memory of markets or during the dot com bubble, and
Speaker 1: then there was the bust and we sort of forgot
Speaker 1: about tech for a while and all these companies but
Speaker 1: they kept plugging away. But yeah, I don't know really
Speaker 1: what happens to this industry in a downturn, And I
Speaker 1: think it's like an interesting question. I don't know when
Speaker 1: it will rebound, but right now we're definitely in one. Yeah,
Speaker 1: So we have really the perfect person to talk to
Speaker 1: us about previous downturns. That's right. So we met this
Speaker 1: guest recently. We were out at the Berkeley Forum on
Speaker 1: Corporate Governance and we talked to her there and we
Speaker 1: just had to talk to her again for the podcast
Speaker 1: itself because it's very interesting, someone who's very informed on
Speaker 1: this question. We're going to be speaking with Margaret O'Mara.
Speaker 1: She is a professor of American history at the University
Speaker 1: of Washington and she's also the author of the book
Speaker 1: The Code, Silicon Valley and the Remaking of America. So
Speaker 1: a great person to talk to about the history of
Speaker 1: the valley, the history of tech, and all the changes
Speaker 1: it's undergone. So Margaret, thank you. So much for coming
Speaker 1: on the Odd Lots podcast. It's great to be here.
Speaker 1: Thanks for having me. Yeah, we had to after chatting
Speaker 1: with you recently out in San Francisco, had to have
Speaker 1: you on the show. So you know, we do have
Speaker 1: this idea of like what what what tech, what these
Speaker 1: firms do in the boom times and it sounds pretty great.
Speaker 1: So it's pretty fun. Makes everyone want to flog to
Speaker 1: San Francisco or you know, the valley and be part
Speaker 1: of this world. But uh, we don't really talk about
Speaker 1: the other side as much. We instead we sort of
Speaker 1: forget about it. But obviously there for every boom, there
Speaker 1: must be a bust. Yeah, what goes up must come down.
Speaker 1: Which was actually uh I was reminded of it was
Speaker 1: that was a song of one of the many commercials
Speaker 1: of pets dot com, which was maybe the emblematic dot
Speaker 1: bomb story of the last big notable downtown durn In
Speaker 1: tech which was the dot com boom and then the
Speaker 1: dot com bust. Yeah, this is a cyclical industry. Grows fast,
Speaker 1: grows hot, and uh and then there's a cooling period.
Speaker 1: So I mentioned interest rates in the intro, but you know,
Speaker 1: I don't think it just boils down to that. Can
Speaker 1: you maybe talk about what is the common thread in
Speaker 1: terms of sparking bus in tech, Like, what is it
Speaker 1: that tends to set these things off sets the industry
Speaker 1: into contraction. Yeah, well, there's some things that are very
Speaker 1: particular to the industry, and then there are macroeconomic conditions
Speaker 1: that are that are sparking at two. It's usually you know,
Speaker 1: they're always working in combination. I think a common thread
Speaker 1: is there's a big market run up um and a
Speaker 1: lot of froth and excitement and and excitement about you know,
Speaker 1: companies that are are legitimately you know, minting money by
Speaker 1: doing usually by doing something new and a new class
Speaker 1: of products. And also around that surrounding that some some
Speaker 1: businesses where the you know, fundamentals aren't strong and they're
Speaker 1: being buoyed by this general enthusiasm in the market. We
Speaker 1: saw this in the sixties with what was then called
Speaker 1: space age stocks, all these transistorized electronics that these companies
Speaker 1: kind of the first gen of Silicon Valley companies that
Speaker 1: were very much attached to defense electronics and NASA and
Speaker 1: the space program. You know, so you have a little
Speaker 1: you have some froth, and then of course macro economic
Speaker 1: conditions are are shaping that too. You have low interest
Speaker 1: rates that are giving, you know, incentivizing investors to go
Speaker 1: and play the stock market, and and tech seems like
Speaker 1: a good uh, a good bet. And there's also you know,
Speaker 1: usually a boom is fueled by an entry of a
Speaker 1: new group of companies and particularly platforms and products that
Speaker 1: are high growth, whether it be the space age stocks
Speaker 1: the sixties, or the personal computers of the early nineteen eighties,
Speaker 1: or the commercial Internet of the nineties, or more recently
Speaker 1: and and for quite some time. This is a very
Speaker 1: long boom we're coming off of, you know, the big
Speaker 1: platform companies of quote unquote big tech. So you kind
Speaker 1: of need this sort of like nice confluence of story
Speaker 1: in macro, like you need the investor enthusiasm. Low rates
Speaker 1: probably help in some way, but there also has to
Speaker 1: be like a thing that people get excited about for
Speaker 1: because low rates itself, what did you know we're talking about,
Speaker 1: like it kind of joked about, like the bean bags
Speaker 1: and all the perks. Isn't that always been part of
Speaker 1: the booms? Like how long have they been sitting on
Speaker 1: bean bags out there? Maybe sitting on bean bags for
Speaker 1: a while Um, I mean the bean bag goes back
Speaker 1: to the early seventies. Uh. And and you know it's
Speaker 1: this it's this interesting kind of but you know, if
Speaker 1: you think about maybe not bean bags themselves, but this
Speaker 1: idea of a different sort of corporate culture, more informal
Speaker 1: corporate culture, non hierarchical get that goes way back. I
Speaker 1: mean in in case of the Valley, you know, you
Speaker 1: can maybe start that with Hewlett and Packard and the
Speaker 1: famous HP way, the what they called management by walking
Speaker 1: around no corner offices, shirt sleeves. Tie ties still had ties,
Speaker 1: but we took off the jacket. Um. And this was
Speaker 1: in the nineteen fifties. You know, Hewlett Packard was you know,
Speaker 1: founded in a garage, iconic garage startup in nineteen thirty nine.
Speaker 1: By the fifties, it's a publicly traded company. It's extremely successful.
Speaker 1: And Hewlett and Packard are very kind of self consciously
Speaker 1: working against the organization man paradigm that was the you know,
Speaker 1: that was corporate capitalism in the nineteen fifties. So so that, um,
Speaker 1: you know, setting that creating a culture where management and
Speaker 1: the rank and file engineers are all kind of on
Speaker 1: the same side is uh. It's taking the culture of
Speaker 1: the engineering lab and transferring that into a corporation. And
Speaker 1: it also was you know, I think philosophically too, it
Speaker 1: was this was the high water mark of private sector unionization.
Speaker 1: People like like Dave Packard, we're very much against unions,
Speaker 1: just saw them as you know, that's a sign that
Speaker 1: something's wrong with a company if if you can't find
Speaker 1: a way to get along, and that instead that employees
Speaker 1: of all rank should be rewarded with stock options, they
Speaker 1: should have a stake in the ownership of the company.
Speaker 1: So it was a different model and that that kind
Speaker 1: of percolates through I mean HP, there are a lot
Speaker 1: of HP veterans that go on to start venture firms,
Speaker 1: start other companies, and they bring that laid back California
Speaker 1: more sort of ostensibly egalitarian and corporate culture with them.
Speaker 1: Can you give us some examples of what companies tend
Speaker 1: to do during an industry downturn, Like, is there a
Speaker 1: typical playbook that stands out to you with your you know,
Speaker 1: decades of historic knowledge, or like does it tend to
Speaker 1: vary by firm and firm culture, So for instance, I
Speaker 1: could see, you know, if your business starts coming under pressure.
Speaker 1: There's obviously an incentive to cut back on spending, maybe
Speaker 1: start to trim your workforce and lay people off. But
Speaker 1: there might also be some companies that are especially aggressive
Speaker 1: and decide we're going to try to write this out
Speaker 1: as much as we can and just use this as
Speaker 1: an opportunity to take market share. Yeah, and I think
Speaker 1: it depends a lot on the financial position you're coming
Speaker 1: into the downturn with, and and particularly if you're an
Speaker 1: early stage company. I point to Google as the you know,
Speaker 1: the ultimate example of a company that benefited from a downturn,
Speaker 1: notably the dot com bust. Google's founded in kind of
Speaker 1: late on the cycle of the hype cycle of all
Speaker 1: these dot com startups, and they secure this unbelievable seed
Speaker 1: round of million dollars split fifty fifty between Kleiner and Sequoia,
Speaker 1: which you know, these big firms don't do deals together,
Speaker 1: but everyone wanted an end and so they had, you know,
Speaker 1: they kind of had this foundational capital. And then the
Speaker 1: all of these other companies go out of business. And
Speaker 1: two things that you need back then in two thousand
Speaker 1: one or so is you need people. Ever you always
Speaker 1: need people, um, and so Google is able to acquire
Speaker 1: engineers for less than they would have had to pay otherwise.
Speaker 1: And also just you know, the talent was now available,
Speaker 1: there was more oxygen in the labor market. And they
Speaker 1: also needed computing power. This is before cloud computing, right,
Speaker 1: that is when you had to go buy a piece
Speaker 1: of hardware and server blades and high powered CPUs to
Speaker 1: to power your search engine. And so they were able
Speaker 1: to do that as well. They were the sort of
Speaker 1: their capital expenditures ultimately gave them a lot more runway
Speaker 1: and a lot more time to not have to turn
Speaker 1: a profit. Was you know, they were really advantaged by that.
Speaker 1: And you know, I think thinking about kind of company
Speaker 1: behavior in a downturn. You know, we see when we
Speaker 1: talk about Silicon valley, oftentimes we're thinking about the very
Speaker 1: big consumer facing platforms, right, the ones that ordinary people
Speaker 1: were that were interacting with every day. And there are
Speaker 1: many different Silicon valleys, There many different parts of the
Speaker 1: of the whole industry. If you look at the dot
Speaker 1: com bust, for example, there were companies, you know, semiconductor
Speaker 1: companies that were still hiring people. There were other you know,
Speaker 1: hardware kind of the people who were doing the fundamentals
Speaker 1: were still there was that the transition to commercial internet
Speaker 1: was still very much underway. There was a lot of
Speaker 1: real there were so many, you know, important use cases
Speaker 1: that have been proven in the early days of the
Speaker 1: commercial Internet that there was still a lot to be
Speaker 1: done and a lot of business to be had. It
Speaker 1: was just these very giant, you know, splashy consumer facing
Speaker 1: websites and and platforms that went out of business that
Speaker 1: were the ones that got a lot of the menine
Speaker 1: what about you know, just in terms of so layoffs
Speaker 1: and other restructurings. Do the bean bags go away? Do
Speaker 1: do the ties come on? Like like, is there a
Speaker 1: sort of I don't know, reun liberalization of culture in
Speaker 1: a downturn where it's like, okay, we have to get
Speaker 1: serious here. Yeah, you know, I think that the I
Speaker 1: wouldn't say the ties come back on. There have been
Speaker 1: times when the ties come back on, you know, I
Speaker 1: think the most the standout example is is Apple. If
Speaker 1: you go back to the eighties, the mid eighties Apple,
Speaker 1: when it's growing fast, John Scully is brought in from
Speaker 1: Pepsi as this literally the guy in the suit. So
Speaker 1: that's a great example. Could we have like, right, could
Speaker 1: we all have this perception of Steve Jobs, and then
Speaker 1: they bring in a Pepsi executive to running Yeah, the
Speaker 1: guy who sold sugar water. Yeah, there was lots of
Speaker 1: lots of grumbling about that. And then of course, kind
Speaker 1: of spectacularly and famously infamously, he and the board fire
Speaker 1: Steve Jobs shortly thereafter, because Max sales that the Macintosh
Speaker 1: comes out with a splash. We all remember that per
Speaker 1: Bowl add the iconic Super Bowl ad and the Mac
Speaker 1: being this game changer. But what's forgotten in that story
Speaker 1: is that it had a big splash but actually did
Speaker 1: not kind of flatlined a bit. It wasn't another Apple, too,
Speaker 1: which was the first giant hit that Apple had, and
Speaker 1: Apple was getting IBM had gotten into the personal computer business.
Speaker 1: Remember with those Charlie Chaplain ads that were everywhere. Anyone
Speaker 1: who was, you know, around in the nineteen eighties might
Speaker 1: remember those. And so they were eating Apple's lunch, and
Speaker 1: so so Scully, you know, the suits are brought in,
Speaker 1: Jobs is fired, and then Apple has a pretty dismal
Speaker 1: decade after that, and Jobs comes back and it is
Speaker 1: brought back in CEO, and then after that it's up
Speaker 1: into the right and that arc. Actually I think has
Speaker 1: um squashed the suits and so so to speak, that
Speaker 1: the answer. But I think to your question, there is
Speaker 1: a real, you know, more conservatism in terms of spending
Speaker 1: and due diligence. I think, you know, the tail that
Speaker 1: always wags valley dog is venture capital. Right, Um, what
Speaker 1: are the vcs doing? What are they hunting? How much
Speaker 1: you know, what are they spending on? How much do
Speaker 1: they have to spend? And they are really kind of
Speaker 1: driving what you know, first, they're picking the winners or
Speaker 1: the potential winners, and they're also you know, what they're
Speaker 1: demanding of of founders and their portfolio. Companies will change
Speaker 1: in a downturn and there'll be a lot less tolerance
Speaker 1: for the splashy parties with ice sculptures, for sure. This
Speaker 1: was something that Jason Callicanis brought up on our podcast,
Speaker 1: which was, you know, it's easy to criticize a lot
Speaker 1: of tech companies for expanding too much during the boom,
Speaker 1: but his point was this is what investors, ie venture
Speaker 1: capital was asking of them. They was all about growing
Speaker 1: market share and it's not until you know, things start
Speaker 1: to pull back that there's really that pressure on companies
Speaker 1: to maybe either start spending money or actually produce a profit. Yeah,
Speaker 1: that's exactly right. The venture capital world m is you know,
Speaker 1: a lot of these vcs were once operators to right,
Speaker 1: so you know where do vcs come from? And some
Speaker 1: of them are have backgrounds in banking, but some of
Speaker 1: them were founders themselves or people who were you know,
Speaker 1: part of the core teams of companies that were very
Speaker 1: successful and they turned that into the you know, the
Speaker 1: high tech venture capital model. The Silicon Valley style of
Speaker 1: venture capital model that starts in the sixties is is
Speaker 1: one that is not just money, it's expertise, and it's
Speaker 1: and it's importing very particular type of culture and cultural
Speaker 1: values that is very growth focused, moving fast and break things.
Speaker 1: Breaking things has been a Silicon Valley mantra since the
Speaker 1: early years of the semiconductor industry because by necessity you
Speaker 1: had to move really fast and be incredibly agile and
Speaker 1: lean and ready to pivot at any moment and moving
Speaker 1: really aggressively to get a chunk of the market. And
Speaker 1: so that sensibility has uh even you know, the hyper
Speaker 1: focus on growth. I think that's that that that's the
Speaker 1: origins of that and that you know, and of course
Speaker 1: that was an utterly different business than than what the
Speaker 1: dominant business of Silicon Valley, which you know, software dominant
Speaker 1: dominant rather than hardware dominant. But nonetheless, I think founders
Speaker 1: get a lot of heat for excess, but someone gave
Speaker 1: them the money to do it. So I think it
Speaker 1: was like the day we met in San Francisco several
Speaker 1: weeks ago or maybe the day after, and it was
Speaker 1: just like the complete implosion of f t X. And
Speaker 1: the reason I ask is, you know, one of the
Speaker 1: other things that's sort of like crumbling here. And again
Speaker 1: I don't know if it's how cyclical it is, but
Speaker 1: you know, I associate Silicon Valley with this like the
Speaker 1: cult of the individual, the individual founder, particularly so the
Speaker 1: f SBF cult obviously the Steve Jobs called maybe the
Speaker 1: Mark Zuckerberg cult at some point the Elon Musk cult.
Speaker 1: Who started that? Where did that come from? The yeah,
Speaker 1: where did that come from? Well? That is really deep roots.
Speaker 1: I mean I think this is you know, this goes
Speaker 1: extends beyond and before the Valley itself and kind of
Speaker 1: American culture, American political culture a a a nation born
Speaker 1: of revolution and uh that is always lifted up and
Speaker 1: mythologized the you know, the so called self made man
Speaker 1: um you know, the since the nineteenth century, I mean
Speaker 1: that this has been these you know, the heroes have
Speaker 1: been these, these you know, individual geniuses, whether it be
Speaker 1: Thomas Edison or or you know, going forward and and
Speaker 1: of course the you know, the real story is whether
Speaker 1: it's John Wayne style Cowboy or the great inventor Edison.
Speaker 1: They yes, you have an iconic, charismatic, extraordinary individual, but
Speaker 1: also you have an individual who's got good timing, has connections,
Speaker 1: has a whole team behind them that is part of
Speaker 1: an ecosystem. And that the secret of Silicon Valley is
Speaker 1: the fact that it's this extraordinary ecosystem and networks of
Speaker 1: people again that you know, we think about, you know,
Speaker 1: these these founders, whether it be uh, you know, Jobs
Speaker 1: or Musk or you know, on and on and on.
Speaker 1: They're all people who you know, of of standout talent
Speaker 1: that also were lucky and had had some help and
Speaker 1: have a team. And I think Jobs and Apple are
Speaker 1: really great example, um when we go back to the
Speaker 1: beginning of Apple found you know, founded in a garage
Speaker 1: like many a computer startup at that moment, and Jobs
Speaker 1: and was um were like you know, there were a
Speaker 1: lot of guys doing what they were doing. Some of
Speaker 1: them were in fact building technically better machines. But what
Speaker 1: none of those other ones had was Steve Jobs. Not
Speaker 1: Steve Jobs his own capacity to do all this himself,
Speaker 1: but the fact that he recognized in his you know,
Speaker 1: while he's still walking around barefoot with his beard, that
Speaker 1: he needed to hire the very best marketing person in
Speaker 1: the valve, like he needed to get the very best
Speaker 1: venture capitalist. He needed to get a really good operator
Speaker 1: with experience he could take them from a garage and
Speaker 1: turn them into a real company. And that is what
Speaker 1: he did, and all those people made Apple into what
Speaker 1: Apple was and allowed Jobs to be the storyteller in
Speaker 1: chief and be the ultimately the transformative figure he became.
Speaker 1: So I have a slightly different crypto related question. But
Speaker 1: since you brought up, since you brought up personal computing,
Speaker 1: and this is something that stands out in your book,
Speaker 1: this idea that Silicon Valley time and time again kind
Speaker 1: of frames these new technologies as some sort of revolution.
Speaker 1: So the personal computer was going to revolutionize our work lives,
Speaker 1: the dot com boom was going to revolutionize access to information.
Speaker 1: Crypto was going to be this big new financial system.
Speaker 1: And yet with every boom, you know, as we've been discussing,
Speaker 1: there does tend to be a bust and a lot
Speaker 1: of disappointment. Can the tech sector can silicon value like
Speaker 1: maintain this revolutionary narrative or this revolutionary idea if people
Speaker 1: are sort of becoming more experienced with booms and bust
Speaker 1: or maybe it's just me getting older, but it feels
Speaker 1: like we've gone through a number of these disappointments at
Speaker 1: this time. Yeah, we have, but yet we we key
Speaker 1: up again. Um. You know, the revolutionary declarations are always
Speaker 1: somewhat overblown. But also you know, think about all the
Speaker 1: devices we're using, um, even to conduct this conversation, and um,
Speaker 1: they it is extraordinary the rate of technological growth and
Speaker 1: development of computer hardware and software in a very short
Speaker 1: amount of time. And so some of the storytelling and
Speaker 1: the hype and the amount of capital that's been infused
Speaker 1: to make that come to be has you know, there's
Speaker 1: there's a there's a they're there. You know, it's interesting
Speaker 1: and one of the hallmarks of these you know, the
Speaker 1: latest generation of revolutionaries is in a way they're they're
Speaker 1: answering a problem, they're fixing the errors of a past generation,
Speaker 1: whether it be uh, Steve Jobs or Bill Gates, as
Speaker 1: these new style CEO s rising up like phoenix is
Speaker 1: out of the ashes of stagflation in the seventies when
Speaker 1: big business and C suites of all kinds were pretty unpopular.
Speaker 1: And here's something very very different, kind of promising to
Speaker 1: change the world and empower you. Um, these are the
Speaker 1: new types of business enterprise that are so alluring in
Speaker 1: many different ways to politicians and media and two ordinary
Speaker 1: users and to a kind of baby boomers who are
Speaker 1: kind of looking for self actualization in there the things
Speaker 1: they buy and now have the income to buy it.
Speaker 1: And if you fast forward, even just looking reflecting on
Speaker 1: FTX and same bank and Freed and his very very
Speaker 1: rapid downfall, you know, part of his rapid ascent was,
Speaker 1: you know, bankman Freed was not only a you know,
Speaker 1: he's he's rising at a time when when the the
Speaker 1: last generation of wonder boys are starting to get more tarnished.
Speaker 1: Right that there's the tech lash, there's critique of of
Speaker 1: Zuckerberg and and Um and Bezos and these other people
Speaker 1: who once were at one time viewed more generally uncritically.
Speaker 1: And and also you know, I think SBF was a
Speaker 1: standout in the crypto world where there were a lot
Speaker 1: of people that seemed like hustlers, you know to the
Speaker 1: outside observer, and here was someone who seemed more you know,
Speaker 1: was proclaiming, you know, he was philanthropic, altruistic, and a
Speaker 1: lot of blue chip investors and leading vcs bought into
Speaker 1: that very in a very very big way. So you know,
Speaker 1: it sounds like another you know Tracy as like, well, okay,
Speaker 1: you see these booms and busts over the time, and
Speaker 1: there's the tech lash and everything, and then it's like, okay,
Speaker 1: you know, the sort of like see do failed crypto revolution.
Speaker 1: You go cynical over time. But I take it another
Speaker 1: theme of silicon values. Every downturn, people think, oh, this
Speaker 1: time it's over, Like that was the last boom and
Speaker 1: this is the final post. Yeah. If I had a
Speaker 1: dollar for every premature obituary that's been written, I mean
Speaker 1: for over the years. At the end of the nineteen sixties,
Speaker 1: the stock markets cooling, um, the the defense spending um
Speaker 1: that once was driving so much of the really almost
Speaker 1: the entirety of the economy of the valley is contracting,
Speaker 1: and Vietnam is Vietnam and deeply unpopular. And and so
Speaker 1: Lockheed which was the you know locked now lockeed Martin,
Speaker 1: then just Lockheed, which was by the way, the biggest
Speaker 1: employer in the valley from the mid fifties through the
Speaker 1: end of the Cold War. It's Space and Missile's division
Speaker 1: that was down in Sunny Vale. They laid off thousands
Speaker 1: of workers and there were you know, local press was like,
Speaker 1: well that's it. It was fun, alright, guess we're guess
Speaker 1: we're moving on. And the same in the seventies when
Speaker 1: vcs could just not get not raise funds at all.
Speaker 1: There was just no money. They were resorting to desperate
Speaker 1: measures like licensing their technology to Japanese companies, which ten
Speaker 1: years later they really regretted. But even at the in
Speaker 1: the late eighties, end of the Cold War, you know,
Speaker 1: defense again, defense spending contracts dramatically. That was California's thrown
Speaker 1: into a mini recession in the early nineties because of that,
Speaker 1: you know, and also the PC market, which was ghosts
Speaker 1: was so hot, had kind of plateaued and there was
Speaker 1: no next thing that was clearly there. And then a
Speaker 1: few years later you have the commercial Internet, so so
Speaker 1: you know, the out of the ashes comes something new.
Speaker 1: But it's very easy to could declare it's all over,
Speaker 1: um and I and and now what's really interesting? I
Speaker 1: think what's I think it is important while we make
Speaker 1: these historical comparisons to to show some contrast between then
Speaker 1: and now out I mean, now we have the scale
Speaker 1: is much bigger, The impact is much more significant. You know,
Speaker 1: the scale of everything, whether it be hiring or layoffs,
Speaker 1: is much bigger. And the way in which these companies
Speaker 1: are affecting kind of every dimension of our lives and
Speaker 1: the global economy is is at a scale that wasn't
Speaker 1: even present in the dot com boom or bust. Another
Speaker 1: thing that's happening now, and you know, we've obviously been
Speaker 1: focused on the retrenchment of venture capital and private investment,
Speaker 1: but one thing that's happening now is you have a
Speaker 1: lot of government investment coming on stream, and you have
Speaker 1: things like the Chips Act, which basically aims billions, if
Speaker 1: not trillions of dollars at ramping up US chip making
Speaker 1: capacity and other vital technology capacity and things like that.
Speaker 1: How much does that like help in a downturn? Can
Speaker 1: the government money basically come in and fill the whole
Speaker 1: left by retrenching venture capital. Mm hmm, it can um well,
Speaker 1: just generally, you know, independent of of the commercial boom
Speaker 1: and bus cycle. Government money is absolutely it's always been
Speaker 1: a critical thread, a critical part of the Silicon Valley story,
Speaker 1: a critical part of the history of American technology and
Speaker 1: technological development. It has you know, you go, Silicon Valley
Speaker 1: is Silicon Valley. It is what it is because of
Speaker 1: military spending, which is sometimes a weird idea to get
Speaker 1: your head around when you think of the value, you
Speaker 1: think of kind of free market capitalism and its finest,
Speaker 1: but actually it has its origins in this defense spending,
Speaker 1: which created a critical mass of of sort of small
Speaker 1: electronics R and D in the valley and and also
Speaker 1: took Stanford from being kind of a reasonably good mid
Speaker 1: level research university into the powerhouse. It became. I mean,
Speaker 1: the people on the ground, including Stanford administrators, were making
Speaker 1: helping make that happen, taking advantage of these new streams
Speaker 1: of money. But what what government does, and we see this,
Speaker 1: let me pull out the space program is a great,
Speaker 1: great example. We always talk about, you know, we need
Speaker 1: another moon shot. Well, let's talk about the real moonshot.
Speaker 1: And see how that that worked in the Valley political economy,
Speaker 1: because I think sometimes it's easy to sort of say, oh,
Speaker 1: it's all free market, or when the government comes in,
Speaker 1: it's a you know, totally different type of political economy.
Speaker 1: And in the case of the Valley and actually more
Speaker 1: broadly American um American economic history generally, it's it's a
Speaker 1: kind of a blend of public and private that's very
Speaker 1: distinctive and very American. So, you know, the sixties, you
Speaker 1: already have a lot of electronics spending in the Valley.
Speaker 1: Then um spot Nick rockets into orbit. In the fall
Speaker 1: of seven, the Soviets get the first satellite into space.
Speaker 1: They be the US, and everybody's hair is on fire.
Speaker 1: It is it is a huge black eye for the
Speaker 1: Eisenhower administration. Is it is bad. There's also a great
Speaker 1: anxiety about reports that the Soviets are outpacing the US
Speaker 1: and producing missiles, the so called missile gap. That gets
Speaker 1: Washington in a panic. So the money starts a flowing.
Speaker 1: There is lots and lots of money coming out. And
Speaker 1: then Kennedy comes into office and says, we are going
Speaker 1: to reach the Moon by the end of the nineteen sixties.
Speaker 1: And then all of a sudden, there's this intense demand
Speaker 1: for very small, light fast electronics, which are exactly what
Speaker 1: the valley is specializing in. And so this is really
Speaker 1: the beginning of the semiconductor industry. The true first clusters
Speaker 1: of startups are are they're building integrated circuits. They're selling
Speaker 1: to NASA, but they're they're doing it. These are you know,
Speaker 1: these aren't big lumbering defense contractors. They're startups and there
Speaker 1: are a lot of them, and they're competing for this business.
Speaker 1: And so there's this incredibly competitive industry that is essentially
Speaker 1: you now have an incentive to to develop and produce
Speaker 1: a new product that doesn't yet have a commercial market,
Speaker 1: and and it's put the government has put a thumb
Speaker 1: on the scale as a customer and as a as
Speaker 1: as a funder of research, and it it just drives
Speaker 1: all of this activity up and down the chain from
Speaker 1: basic research to apply to universities in companies large and small.
Speaker 1: And then you know, the net net of all that
Speaker 1: space spending for the semiconductor industry is they went from
Speaker 1: building these bespoke two thousand dollars and upward integrated circuits
Speaker 1: that nobody had a could afford on that you know,
Speaker 1: no enterprise could afford or really thought they needed. And
Speaker 1: it they scale a production, they drive down costs, they're
Speaker 1: able to turn it into a commodity product. And that's
Speaker 1: you know, that's what I think the potential for government spending.
Speaker 1: How So now is these we're kind of silicon valleys
Speaker 1: entering a different age and you have this new these
Speaker 1: new flows not just for semiconductor research and development, but
Speaker 1: also green energy too. That's has a lot of potential.
Speaker 1: You anticipated my next question, you know, and Tracy mentioned
Speaker 1: the Chips Act, and then there's the Inflation Reduction Act,
Speaker 1: which is going to channel a lot of money to
Speaker 1: green tech. But the common threat of both of those,
Speaker 1: it's like, Okay, part of the reason we seem to
Speaker 1: be doing green tech is obviously concerns our climate, but
Speaker 1: there's also a national security impulse even embedded in the
Speaker 1: Inflation Reduction Act moving the battery supply chain away from China,
Speaker 1: moving it to the US. This idea that there's some
Speaker 1: sort of like global competition about energy tech and energy
Speaker 1: security for obvious reasons. And the thing I'm curious about
Speaker 1: is how does it work in silicon In silicon valley
Speaker 1: when you have this sort of hard nosed geopolitical security
Speaker 1: state defense to Haartman investment driving the show, how does
Speaker 1: that interact, which sort of like hippie California capitalism. M Uh,
Speaker 1: it's yeah. You wouldn't think these two things coexist, but
Speaker 1: they do. You know, this is both smart politics and
Speaker 1: it is real geo politics, right that there isn't a
Speaker 1: national security dimension to high tech spending UM and high
Speaker 1: tech competition, particularly now with China, which is sort of
Speaker 1: this interesting mash up of the competition that the US
Speaker 1: had the Soviet Union in the fifties and sixties and
Speaker 1: the competition it had with Japan and the eighties. Right,
Speaker 1: it's got this both end and Look, the only part
Speaker 1: of the discretionary budget that the US that has kind
Speaker 1: of been safe from austerity and and shrinkage, particularly in
Speaker 1: the last forty years, has been the defense budget. There's
Speaker 1: a reason that DARPA has this outsize role in fueling
Speaker 1: innovation in the valley because it's been kind of the
Speaker 1: one blue sky research funder that hasn't been kind of
Speaker 1: had its budget you know, questioned every every cycle. Uh So,
Speaker 1: I you know, there, there's it makes sense there there's
Speaker 1: you know, putting calling this a defense move um does
Speaker 1: make it in a way politically insulated in a way,
Speaker 1: and kind of creates this allowance for the great deal
Speaker 1: of spending that does need to happen to move the needle.
Speaker 1: But the hippie culture and the defense culture, that, yeah,
Speaker 1: that's a it's a it's a it's always had that
Speaker 1: weird juxtaposition, quite honestly, and I think, you know, part
Speaker 1: of why it's able to do that is because of
Speaker 1: the essentially the indirect nature of so much of the spending.
Speaker 1: And this is again going back to this kind of
Speaker 1: quintessentially American habit of not liking big government, not wanting
Speaker 1: to appear to have big government, and so instead spending
Speaker 1: for economic development, in particular through indirect means, whether it
Speaker 1: be in the early nineteenth century awarding um, you know,
Speaker 1: private entities, the you know, uh contraxt of you know,
Speaker 1: build canals and infrastructure and turnpikes, or or the transcontinental
Speaker 1: railroads right in the night eighteen sixties and seventies, which
Speaker 1: was a kind of a boondoggle, but it got those
Speaker 1: railroads built. Or fast forward to the defense economy, you know,
Speaker 1: the Cold War military industrial complex. Eisenhower called it military
Speaker 1: industrial for a reason. The money was flowing from the
Speaker 1: government through industry and universities and these other private and
Speaker 1: educational institutions, so that the the guys and the bean bags,
Speaker 1: or the kids in the computer lab at Berkeley or
Speaker 1: Stanford weren't necessarily immediately aware of the fact that everything
Speaker 1: that was doing was being enabled by defense spending, which
Speaker 1: you know, in the late nineteen sixties, a lot of
Speaker 1: those kids at Berkeley and Stanford suddenly realized that was
Speaker 1: what was making it all go and that was part
Speaker 1: of why they were protesting and marching against the war
Speaker 1: or they they saw the among other things, that the
Speaker 1: military had essentially taken control of technology and was using
Speaker 1: it for ends of which they did not approve. So
Speaker 1: just on this theme the intermingling of free market entrepreneurship
Speaker 1: and government spending, which is definitely a theme that stands
Speaker 1: out in your book, and you emphasize this point a lot.
Speaker 1: But in in a downturn where venture capital is potentially
Speaker 1: retrenching and the government is ramping up it's spending, is
Speaker 1: there a possibility that more traditional businesses become bigger or
Speaker 1: more powerful compared to you know, the traditional Silicon valley
Speaker 1: tech startup because they have access to maybe deeper pockets,
Speaker 1: or because maybe they have closer relationships with the US government.
Speaker 1: Is that a possibility that we start to see a
Speaker 1: sort of shift in power. I guess m M. I
Speaker 1: mean Tesla Like Tesla versus a traditional carmaker would be
Speaker 1: the obvious example of this, right, yeah, yeah, possibly, But
Speaker 1: there are a couple of things that work against that.
Speaker 1: One is if the government purpose of government spending is
Speaker 1: to incentivize and grow new markets and new technologies and
Speaker 1: to kind of bring bring new technologies online that are
Speaker 1: now just good ideas or really expensive and impractical ideas.
Speaker 1: Oftentimes it's new firms and new entrance that are needed
Speaker 1: to do that. Again, the you know, this is why
Speaker 1: you know, companies like fair Child Semiconductor and National Semiconductor
Speaker 1: get the edge on UM, you know, get the Apollo
Speaker 1: program business because the big incumbents couldn't do it. I
Speaker 1: think the other thing that's in play, and we saw
Speaker 1: this a bit in the Space program too, which is
Speaker 1: that that spending is ramping up at the same time
Speaker 1: that UM. This when Robert McNamara was Secretary of Defense
Speaker 1: for Kennedy and the Johns administrations. McNamara later becomes kind
Speaker 1: of the the face of the Vietnam War and not
Speaker 1: a good way. But in the beginning, he comes in.
Speaker 1: He comes in from Ford. He was the president of Ford,
Speaker 1: and he was part of a group known as the
Speaker 1: whiz Kids at Ford that were these number crunching efficiency experts,
Speaker 1: and he came in He's like, we gotta make this
Speaker 1: whole contracting more efficient. And he actually wanted to kind
Speaker 1: of get away from single source contracting and kind of
Speaker 1: bring more oxygen into the system and get more more people,
Speaker 1: more more firms competing for the business, so that would
Speaker 1: drive down costs and and that's part of actually created
Speaker 1: this opportunity for these small companies. What's happening right now,
Speaker 1: I think in a kind of analogous way is one
Speaker 1: of the things that the both the Chips Act and
Speaker 1: the Inflation Reduction Act or trying to solve for is
Speaker 1: the intense geographic concentration of tech on the two coasts
Speaker 1: right So within that, you know, we have this new
Speaker 1: spending that's kind of regionally focused to build tech focused
Speaker 1: economies in places that don't have them, and also you know,
Speaker 1: putting chip plants in Ohio, right, Like, there's this sort
Speaker 1: of very deliberate economic development strategy going on. We saw
Speaker 1: some of this, quite a bit of this in the
Speaker 1: early Cold War too. I mean that the Southern States
Speaker 1: and sun Belt states that also happened to have some
Speaker 1: pretty powerful senators Hello Richard Russell of Georgia. Uh that
Speaker 1: you know that got these defense facilities that were transformative
Speaker 1: for the economy. Right. So there's sort of this geographic
Speaker 1: strategy that the Biden administration and um uh those the
Speaker 1: sort of are trying to uh kind of push out.
Speaker 1: And there's a lot of obviously a lot of local
Speaker 1: leadership and regions that have been left behind in many ways,
Speaker 1: particularly formally industrial regions and the in the Midwest and
Speaker 1: elsewhere that are you really trying to build out their infrastructure.
Speaker 1: So I'm looking to see kind of what that does
Speaker 1: to um, kind of disrupts this geographic pattern that's so
Speaker 1: intensely concentrated. Margaret, thank you so much for coming out
Speaker 1: odd lots so glad we got to hand this conversation.
Speaker 1: It was really fun. Thanks for having me. Thanks Margaret. Yeah,
Speaker 1: that was great, Tracy. I really like talking to Margaret.
Speaker 1: You know, one thing that is very useful with the
Speaker 1: historical perspective is this time it's different, or this time
Speaker 1: it's really over. That that's like a pervasive view that
Speaker 1: it's not just now, it's not just post dot Com.
Speaker 1: That from the very beginning, people always say, oh, that
Speaker 1: was it, that was the last boom bust. There one
Speaker 1: day there will be another boom. Well, I agree with that.
Speaker 1: I do wonder whether or not, like people's experiences tend
Speaker 1: to be tempered by the disappointments of the last downturn,
Speaker 1: but maybe not, because I mean, here we are in
Speaker 1: and all of crypto is falling apart. People have been
Speaker 1: comparing that to the dot com boom for ages, so
Speaker 1: clearly memories of dot Com era. They eventually that was
Speaker 1: like twenty years ago. It feels like only yesterday, okay.
Speaker 1: But also like her example of whether or not it
Speaker 1: starts to affect culture with the PEPSI CEO forgot that
Speaker 1: that was pretty funny. Yeah, and just you know again,
Speaker 1: like what the saving I don't know if it's the
Speaker 1: saving grace or you know, where where would you be
Speaker 1: bullish right now? You're probably bullish on the areas that
Speaker 1: can sell something to the US government, something that might
Speaker 1: have like a defense capacity, something that might have an
Speaker 1: energy capacity, something that might have a semiconductor capacity, etcetera.
Speaker 1: So there will be new markets, but maybe the exciting
Speaker 1: things are not going to be as consumer oriented as
Speaker 1: we got from the boom in the right. It kind
Speaker 1: of reminds me of that market's mantra, don't fight the FED, right, like,
Speaker 1: don't don't fight the U. S. Government. It's pouring trillions
Speaker 1: of dollars of money into particular. Don't fight the Pentagon.
Speaker 1: There we go. Don't fight the d O E loan,
Speaker 1: don't fight jigger shot at the Daily Loan protras, don't
Speaker 1: fight the military industrial complex. That is good life advice.
Speaker 1: Shall we leave it there? Let's leave it there? Okay.
Speaker 1: This has been another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe Wisn't Though. You can follow
Speaker 1: me on Twitter at the Stalwart. Follow our guest Margaret O'Meara.
Speaker 1: She's at Margaret O'Meara. Follow our producer Kerman Rodriguez at
Speaker 1: Carmen Arman, and check out all of our podcasts at
Speaker 1: Bloomberg under the handle at podcasts, and if you want
Speaker 1: more odd Lots content, go to Bloomberg dot com slash
Speaker 1: odd Lot or Tracy and I post the transcripts, we blog,
Speaker 1: and we even write a weekly newsletter. Go there, subscribe
Speaker 1: and read it. And I wanted to let you know
Speaker 1: about a special event that we're holding four listeners. My
Speaker 1: co host Tracy Alloway and I will be speaking with
Speaker 1: past guest Josh Younger, as well as Columbia law professor
Speaker 1: levmanand in a special live episode of the odd podcast
Speaker 1: on November We're gonna be holding it at Bloomberg h Q,
Speaker 1: and you're welcome to come mingo join. We're gonna have cocktails,
Speaker 1: canapas and other stuff on that day along with the
Speaker 1: live recording. So if you're interested in attending a live
Speaker 1: episode of the Odd Lots podcast as well as meeting
Speaker 1: me and Tracy, as well as meeting our guests, and
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Speaker 1: It's also on Bloomberg dot com slash odd Lots. Sign
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Speaker 1: age Q on November twenty nine. Thanks for listening to
Speaker 1: the