Silicon Valley, China, and The Perils of Unrestricted Capitalism
2020–01–04
Wealth Creation at What Cost?
Rapid economic growth and the creation of new markets is exciting. These modern-day gold rushes can occur when governments relax market-hampering regulations or privatize markets that were previously dominated by public offerings, or when a new product or technology produces new opportunities for value creation and capture. Over the past 20 years China and Silicon Valley have paralleled one another in terms of stratospheric GDP growth and new economic opportunities. But both have illustrated the pitfalls of rapid thoughtless economic expansion.
An autocratic regime focused on growth-at-all-costs in China has blurred lines between government and private enterprise. In parallel, Silicon Valley tech behemoths have flexed their political muscles, extracting concessions and favorable tax treatment from state and local governments. Cultural heritage in both geographies is being destroyed, as diverse communities are replaced with a tired homogeneity. Both China and Silicon Valley have made a deal with the devil, trading their souls for endless wealth creation for the few.
The Rise of China
Modern China, the most populous nation on earth, is clearly a superpower. The political order, referred to as“Socialism with Chinese characteristics”, might as well be called“government-enabled uber-capitalism”. Regulations are flouted and enforcement ignored so long as GDP growth remains above 6% year-on-year. The distinctions between private enterprise and the public sector have disappeared and everything is for sale, from rhino horn to business-oriented hitmen. Policies designed to repatriate foreign talent and to entice international business have resulted in intellectual property theft on a grand scale.
At current trends, the Chinese economy, currently around $15 trillion, will surpass the US economy ($21 trillion) within the next decade. The Chinese political establishment will enact whatever policies it deems necessary to maintain this level of growth. Environmental destruction on a grotesque scale and untold cruelty to rural poor and non-Han Chinese minorities cannot get in the way of progress.
China now has nearly as many billionaires as the US, but the average citizen remains significantly less well off than in any other developed nation. Even in a supposedly communist system, unprecedented wealth creation has predictably led to unprecedented economic inequality.
Silicon Valley
Silicon Valley has been a leader in semiconductor-enabled innovation for decades. However, the explosive growth and astronomical valuations seen over the past ten years are on an entirely different scale. Taken together, the largest companies in the region are worth more than all but 18 other developed nations.
These technology giants, largely focused on controlling and monetizing consumer data, have made the Bay Area an economic powerhouse. Local business incentives, combined with some strong lobbying and Trumpian corporate tax codes, have enabled these enormous companies to pay an effective tax rate of…ZERO. Netflix, Amazon, SalesForce, and others paid almost no corporate taxes in 2018, and 2019 is sure to be even more shocking. Bay Area tech companies now wield sufficient power that they can literally change laws to suit them. Technocrats and entrepreneur-oligarchs have built a new political order to suit their needs.
Consumption as a Virtue
Once systems for capturing wealth (and hiding it from the tax man) are perfected in booming economies, the order of business turns to spending said wealth. China’s appetite for luxury goods has skyrocketed, from supercars to endangered species. China’s economy is eating the world and the newly created Chinese wealth is quite literally eating what’s left of elephant, shark, tiger, and rhino populations. Designer stores full of Chinese tourists can be found from Venice to Alberta, Cape Town to the Sydney.
Silicon Valley, likewise, is not exactly known for being understated. The sudden creation of wealth and influx of technology professionals has led to an explosion of home prices and rents. The Bay Area now boasts 55 of the 100 most expensive zip codes in the country, including 94027, where median home prices are over $7 million. Families who have roots in the area are being displaced. Homeless rates have skyrocketed. Former artist enclaves and counterculture neighborhoods are being bulldozed for concrete-and-glass corporate headquarters.
The economy in the Bay Area is booming, the California economy is now more than $3 trillion, most of which is due to the technology sector. Despite this, the state has the highest poverty rate in the nation, averaging 18.1 percent over the past three years. As salaries for young tech professionals soar and spending habits keep pace, the cost of living is making things increasingly desperate for low and middle-income workers. Population growth is now the lowest since 1900; despite unprecedented prosperity, workers are quite literally fleeing.
Tech-Enabled Information Control
The Chinese government has enacted near-perfect control of information within its borders. Internet protocols, careful censorship of television and publications, and a constant propaganda campaign have been optimized. The systems in place now allow a ruling elite to repress dissent, protect their self-interest, and to control nearly 1.4 billion citizens.
Twitter has around 330 million monthly users, Google has around 1.5 billion users, and Facebook has nearly 2.5 billion active accounts. These are staggering numbers. Apart from some hollow corporate pledges, no legislation exists to prevent these corporations from altering the information that users see. 55% of Americans now get much of their news from social media sites, and these numbers likely hold for many other developed nations. These massive technology companies now wield more influence than any government on earth. Their sole prerogative is to add more users and to capture more of their attention.
Like a dictatorial government, these corporations will protect their own existence through information control. Unlike a government, social media giants have no responsibility to their citizen-users, and face no risk of being voted out of office or ousted by an uprising. Ironically, political scrutiny on social media giants has focused on increasing filters on fake news and hate groups rather than preventing censorship. In order to expand their international reach Google, Twitter, and others are now playing along with censorship-happy governments, scrubbing content that doesn’t agree with the party line. In parallel, the Chinese government has set up click farms and bots to promote pro-China content and to bury criticism on these social media sites.
Destruction of Cultural Identities
Diversity is problematic for systems that promote inequality. Oppressed minorities tend to speak out against unfairness and highlight lack of opportunity, and they may express opinions that may run counter to the doctrine of the day. China is a huge country, with several dozen distinct ethnic minorities with wildly divergent cultures. The Chinese politburo has rapidly opened up the homelands of these minorities as “special economic zones” and Han Chinese have poured in to make their fortunes. In the most appalling efforts to eliminate a close-knit Uyghur minority, the central government has implemented a “pair up and become family” system whereby Han Chinese men can share beds with Uyghur Muslim women. There are reports of millions of minorities being held in re-education camps.
Silicon Valley has done no better. As technology professionals have poured in, the very things that made cities like San Francisco desirable are being driven out. Everything that made the Bay Area “cool”, the piecemeal culture established over hundreds of years, has been replaced with young (predominantly white/Asian) tech workers. More than 65% of all tech professionals are white or Asian men. If you examine the executive level, it is closer to 80%.
Those who can’t afford housing and have nowhere else to go end up on the streets, more than 7,500 in San Francisco alone at the last attempted census. The city’s solution? One-way bus tickets elsewhere. Like the ethnic minorities in China, the displaced working class in the Bay Area has no voice to protest, no political clout, and no powerful allies in high places. The only people complaining are those who are missing out on new creation of wealth; those benefiting want to let the good times roll. The Bay Area bohemian will soon be extinct, replaced with a dozen identical project managers or full stack developers. Within a generation, Uyghur culture will be reduced to a handful of souvenir stands in Xinjiang.
The Role of Government
We are witnessing the convergence of a democratic and socialist capitalism. The outcomes are nearly identical. When businesses become large enough and powerful enough to manipulate social and political outcomes, they assume the same role as a coercive central government. I had previously thought that it was ISPs who controlled too much power in the US. I now believe it’s the content curators, the same companies partially responsible for Russian interference in the 2016 election. Without meaningful reform and regulation, we might find ourselves living in the Republic of Facebook or Google-land.
Economic growth should be careful, deliberate, and planned. All members of a functioning society should feel the benefits of an expansion and care should be taken to minimize unintended environmental or cultural damage. The US is not China. In this country, we have the ability to elect officials who will enact laws ensuring that individual freedoms and equal opportunities exist for all citizens. As the good times continue, Americans are thinking with their stock portfolios and 401(k)s. But as technology companies increasingly control everything we see and hear, we had better act while there is still time.