public capital
It was public capital that ignited the Silicon Valley fuse. Or rather the capital of the Department of Defense engaged in a fierce military and space competition with the Soviet Union of Khrushchev and Brezhnev. It is truly a paradox that the most liberal and libertarian place in America owes its immense fortune to the most backward of social blocs, the Eisenhowerian economic-military complex.
That there is almost always a public hand in the engagement of innovation is an indication that Mariana Mazzucato had already discovered in her successful essay entitled The Entrepreneur State. Today Mazzucato's thesis finds full confirmation in a large and accurate study by Margaret O'Mara, a young American historian from the University of Washington.
O'Mara has just published, with Penguin, a well-edited and brilliant book, The Code: Silicon Valley and the Remaking of America. The Code reconstructs the birth of one of the most extraordinary contemporary phenomena, that strip of land where money grows on trees that has taken the name of Silicon Valley.
It was Don Hoefler who renamed the Santa Clara Valley in "Silicon Valley" in the early 70s. Hoefler was a reporter for the periodical "Electronic News" with a thing for slogans. And this came out extraordinarily well for him. The name immediately caught on, and Silicon Valley became a metonym for the entire technology industry.
However, it was not only military capital that incubated the Santa Clara Valley and transformed it into Silicon Valley. An astral conjunction really happened. A series of chemical reactions in the social and economic fabric produced a real big bang. In the valley of the orchards, described in John Steinbeck's novels, a synergy that was difficult to repeat was created between public power and civil society.
It was a visionary technologist and entrepreneur who took up the challenge of innovation. It was also the Californian legislation on economic and immigration law that made the miracle of Silicon Valley possible.
The ingenuity of Fred Terman
The role of electronic engineer Fred Terman can hardly be underestimated, first dean of the Faculty of Engineering at Stanford and then, from 1955 to 1965, rector of the university. Terman is mainly responsible for the construction, in the early 50s, of the Stanford Technology Park in the Santa Clara Valley.
A very large area within which the University granted parcels of land to technological companies that wanted to build their laboratories or open their offices there. The Park immediately became something like an industrial district and an impressive network effect developed there.
Companies such as Hewlett-Packard, Eastman Kodak, General Electric, Lockheed, Xerox and many others began to operate and move their research centers there.
The technologies that have revolutionized our lives were conceived, designed and built in the Stanford Technology Park. They were developed by the technologists of PARC, the Palo Alto Research Center of Xerox. A multinational that was on the other side of America and was trying to anticipate the future that loomed over its core business like a bad tropical storm.
Stanford, the MIT of the west coast
Terman also radically changed the curriculum of Stanford to make it a sort of MIT on the West Coast. The scientific, mathematical and technological disciplines became the backbone of the university. Stanford began to pour into the territory technologists, engineers and developers who fed existing companies with talent and know-how and stimulated the creation of new ones.
A virtuous and mimetic circle that had only been seen in the great industrial revolutions of the past. Terman himself not only encouraged the entrepreneurship of his students, but also invested directly in the businesses that were developing in the Valley.
Terman also began placing Stanford in bids from the Department of Defense, whose contracts greatly enriched the institution in material, immaterial, intellectual property, and human resources.
The indefatigable Terman began courting the most visionary minds in the country to start operations at Stanford Technology Park.
The Wildlings by William Shockley
Eventually, Terman found his hero in physicist William Shockley, the father of the semiconductor. For his research and for the discovery of the transistor effect Shockley was awarded the Nobel Prize for Physics in 1956 together with John Bardeen and Walter Houser Brattain.
That same year, Shockley moved to Palo Alto to care for his sick mother who lived in the town. At 391 San Antonio Road in Mountain View, he established the Shockley Semiconductor Laboratory. An eccentric, erratic and paranoid character - remember Andy Grove's highly influential book on the imaginary of the Valley, Only the Paranoid Survive - Shockley had the right karma to sow the seed that would transform the orchards of the Santa Clara Valley into Silicon Valley. Together with Terman, he is unanimously considered the founding father of Silicon Valley. Some call Shockley "the Moses of Silicon Valley."
In 1957 eight technologists, known to history as the "traitorous eight", left the Shockley laboratory to found Fairchild Semiconductors based in San Josè. Among them were Gordon Moore, creator of the popular Moore's law, and Robert Noyce, the inventor, together with our Faggin, of the integrated circuit. Moore and Noyce left Fairchild in 1968 to found Intel.
If Shockley Laboratory never recovered from this defection, Fairchild Semiconductors became the most important business accelerator in the history of the modern technology industry. Someone took the trouble to survey the number of businesses started in the Silicon Valley area by Fairchild employees. I'm 65.
Fairchild also became the operational, relational, messianic and stylish prototype of business conduct in Silicon Valley. It also outlined a new paradigm for the innovation model.
Fairchild's business and innovation model
O'Mara writes about it.
“Most importantly, Fairchild created a business model that thousands of entrepreneurs followed for decades to come. The model is this: find external investors willing to invest capital, give ownership to employees and the market, undermine the existing market structures to create new ones. Fairchild's founders took a big gamble in abandoning a living legend like the Nobel Prize winner to go it alone. But it turns out their timing couldn't have been better. Just three days after the Traitorous Eight officially set up their new venture, the Soviet Union launched the Sputnik satellite.
Perhaps, more than other factors, as O'Mara states, it was precisely Sputnik that brought the Valley into orbit as well as itself.
The role of big government in the land of libertarians
At that point, in the strip of land between San Francisco and San Jose, money began to grow on trees. Shocked by Sputnik, the nation's military and political leaders began to realize that whoever controlled the technology could control the world. And indeed it was and is so.
The Cold War began to fight for technological supremacy and the American government's bet on Silicon Valley proved successful. The Valley gave the United States an unbridgeable advantage over the Communist bloc that had humiliated it in the Space Race.
Something similar was repeated during the Reagan administration with two bloated government capital programs: the Strategic Defense Initiative (SDI) and Darpa's Strategic Computing Initiative (SCI). O'Mara writes again:
The large amounts of money that poured in through SDI and SCI contracts in the 80s show that defense was the engine of "big government" roaring in the hoods of the shiny sports cars of the Valley entrepreneurs. It didn't appear because they benefited from media coverage that portrayed them as hackers and adventurers.
Less than half a century after those events, the five largest Silicon Valley groups have a market capitalization that is worth more than the UK's GDP. Their power makes governments tremble, as Sptunik once did.
Fully mobile
Legislation was also one of the great vectors of Silicon Valley. In 1958 Congress passed a law, the Small Business Investment Act, which offered generous tax breaks to the kind of startups that proliferated in Stanford's shadow.
But even more decisive was the California legislation which had outlawed the non-competition clause in employment contracts. This prohibition made it possible for talents and brains to move from one firm to another without fear of lawsuits, reprisals, or recriminations. The non-competition clause which tends to protect the investment of established companies can also be a robust enmeshment to the expansion of innovation.
Thanks to the freedom of movement enshrined in California State law, the best minds could give continuity to a project regardless of their job location. They remained owners of their own ideas and experiences and were free to pursue them in the ways they wished.
Furthermore, to retain brainpower, companies were encouraged to invest in talent and skills. This necessity sustained high wages and made the Valley an irresistible magnetic field for the brightest and most ambitious minds on the planet. An explosive mixture.
The creativity that this state of affairs unleashed established the technological supremacy of Silicon Valley over other technological hubs such as those that sprung up on Route 128 in Boston or in the Austin, Texas area.
The Contribution of “Non-Americans”
No less important was the passage of the Immigration and Naturalization Act of 1965 which opened the doors to the entry of specialized personnel and talents from all over the world. In the decade 1995–2005, more than half of Silicon Valley business founders were born outside the United States. Even today, "non-Americans" are an impressive component of the Valley's managerial elite.
Sundar Pichai, CEO of Google, hails from India. Satya Nadella, the star of Microsoft's renaissance, was also born in Hyderabad, India. Sergey Brin, president of Alphabet, was born in Moscow. Elon Musk, Tesla and Space X, was born in South Africa. Safra Catz, CEO of Oracle, is from Israel. As comes from an Israeli Kibbutz Adam Neumann, founder of WeWork. Pierre Omidyar, founder of ebay, was born in France to Iranian parents. Jerry Yang, founder of Yahoo, is from Taiwan. As is from Taiwan Steve Chen of YouTube. Eduardo Severin, co-founder of Facebook, is from Brazil.
Peter Thiel, the philosopher from Valle and co-founder of PayPal, was born in Germany. Garrett Camp, co-founder of Uber, is Canadian. The other founder, Travis Kalanick, has Czech and Austrian ancestry. The current head of Uber, Dara Khosrowshahi is Iranian-American.
The two most famous Steves in computer history, Steve Jobs and Steve Wozniak were sons of immigrants. Jobs' birth father was from Homs in Syria, which is now a pile of rubble. Woz's parents were of Ukrainian and Polish ancestry. Adoptive father Jeff Bezos was a Cuban émigré.
Two Silicon Valley legends are the sons of immigrants. Larry Ellison, founder of Oracle, is the son of an Italian-American. Andy Grove, Intel's legendary CEO, is of Hungarian descent.
What future for the Valley?
One wonders if Silicon Valley — a place, but also a state of mind — can still maintain its supremacy for years to come? China is pouring huge amounts of money into the tech sector. European regulators are starting to move aggressively to curb the power of big American tech groups and heavily regulate their activities in the old continent.
In the United States, the Justice Department is considering launching an antitrust case against the most representative groups in Silicon Valley. Republicans appear determined to curb any form of immigration into the United States, even of brains. This could sever the vital flow of human resources of all nationalities that has sustained the tech industry since its inception.
We just have to conclude with the words of Stephen Mihm of Georgetown University, one of the most brilliant observers of the contemporary world.
“If Silicon Valley is to preserve its dominant status, it's time to remember the words of Andy Grove, the iconoclast CEO of Intel: “Only the paranoid survive”.
