History
Will Kirkland

Decentralizing Computers and Capitalism

Silicon Valley and the Politics of the Free Market, 1971-1984

  • Faculty Advisor

    Michael Allen

  • Faculty Advisor

    Lydia Barnett

Published On

May 2017

Originally Published

NURJ 2016-17
Honors Thesis

Figure 1: Key companies and organizations in Silicon Valley, 1966-1995. Author drawing.

ABSTRACT

Historians have argued that the late 1970s and early 1980s are a turning point in American politics. The broad consensus around Keynesian state stewardship of the economy and Fordist compromises between labor and management led to a free market movement favoring limited government intervention, de-unionization, and deregulation. Scholarship on this conservative turn has focused on the political and social realm but not fully analyzed the role of economic structures and business practices. This project analyzes the role that Silicon Valley played in the free market political project of the late 1970s and early 1980s. By locating Silicon Valley’s rise within its broader context, it brings an influential force of late 20th century American business and technology in conversation with political forces marking the country’s turn to the right. It discusses how Silicon Valley developed into a haven of free market politics and culture over the 1970s and brought its insurgent, high-tech vision of capitalism to Washington in the late 1970s and early 1980s. This thesis argues that Silicon Valley contributed to the rise in economic and social inequality in the United States over the past four decades.

INTRODUCTION

In canned fruit advertisements and real estate promotions from the first half of the 20th century, the Santa Clara Valley was known as “the Valley of Heart’s Delight.”[6] Nestled between the redwood-rich Santa Cruz and chaparral-covered Diablo mountains of the Coastal Range, the Valley was one of the most productive fruit growing and canning regions in the country.[18] In the middle of the century, as waves of white middle class Americans came to California, boosters marketed the “Valley of Heart’s Delight” name to promote the suburbs slowly replacing the fruit orchards.[8] At the same time the white middle class made its way West, money poured in from the East in the form of Defense Department funding, bound for the university and corporate research labs sprouting up in the Valley’s suburbs.

6. California Packing Corporation, “The Valley of Heart’s Delight,” promotional video, 1949, 18 min., accessed 3 March, https://archive.org/details/GoldenHa1950.

18. Tsu, Cecilia. Garden of the World: Asian Immigrants and the Making of Agriculture in California’s Santa Clara Valley. Oxford: Oxford University Press, 2013.

8. Gilder, George. Wealth and Poverty. New York: Basic Books, 1981.

The following decades saw a new industry develop in those labs based around a technology paving the way for the Digital Age: semiconductor transistors. By the early 1970s, the rapidly growing semiconductor industry so dominated the economy and landscape of the Santa Clara Valley that it spawned a new moniker, named for the chief element in integrated circuits and microprocessors. Unlike the agricultural industry it replaced, “Silicon Valley” prioritized white-collar work and mostly employed white men with degrees from universities that were closed to most women and racial minorities. But for those invited to take part, Silicon Valley offered unparalleled opportunity. The high-tech Gold Rush made the Santa Clara Valley the fastest growing region in the California economy in the 1970s. By the 1980s, Silicon Valley had become a business and technology phenomenon. Its companies graced national magazine covers, received prime placement in investment portfolios, and featured prominently in political stump speeches. Few signs remained of the orchards that gave the valley its first nickname, save the whimsically named Apple Computer.

The Bay Area high-tech industry has never shown a particular fondness for history. Accelerating at the pace of Moore’s Law toward its own version of techno-utopia, Silicon Valley has often cast itself as the standard-bearer of an inevitable future—not unlike the way liberal democratic capitalism presented itself after the collapse of communism and the beginning of the polemical “End of History.”[7] Silicon Valley’s post-historical vision is to remake the world in its image. Silicon Valley’s world is one in which “ideas” are the dominant economic metaphor, market forces drive social change, and consumer technologies—placed in the hands of every human on the planet—are the vehicles of enlightenment and progress. Its vision, the Bay Area historian Theodore Roszak has written, reaches for a new Jeffersonian democracy. It chases the paradoxical goals of decentralized individualism and complete interconnectivity.[17]

7. Fukuyama, Francis.“The End of History?” The National Interest, Summer 1989.

17. Rosask, Theodore. The Cult of Information: A Neo-Luddite Treatise on High-Tech, Artificial Intelligence, and the True Art of Thinking, 2nd ed. Berkeley: University of California Press, 1994.

Robert Noyce, the father of the microchip and founder of Intel Corp., whom historian Leslie Berlin has called both the Thomas Edison and Henry Ford of Silicon Valley, once claimed that “high-tech history is almost an oxymoron.” He said “our major activity is to make yesterday’s ‘gee-whiz’ mundane today,” implying that the rapid pace of technological progress made history almost irrelevant. In the 21st century, as the tech industry endeavors to connect all of humanity with its social and consumer networks and to accelerate global change (on its own terms), this view of Silicon Valley’s revolutionary potential abounds in the high-tech enclaves expanding across the Bay Area.[3]

But Silicon Valley did not simply materialize in the post-industrial warehouses of South of Market and the corporate campuses of Mountain View and Cupertino. Like all industries and social phenomena, Silicon Valley has a history. Its seeds were sewn in midcentury electronics companies like HP, the original garage start-up founded in 1939, and Fairchild Semiconductor, the company created by the “Traitorous Eight” rebellion in June 1957. These companies grew in its first decades mostly on federal and state largesse. Defense contracts to make chips for aircraft and intercontinental ballistic missiles funded the region’s semiconductor industry, while Defense Advanced Research Projects Agency (DARPA) funding paid for its research labs to experiment with Space Age computer technology. Central to its growth were lavishly funded universities like Stanford and the University of California, Berkeley, whose academic programs connected mostly white and male computer science and engineering students to Bay Area tech corporations. In hobbyist clubs of the 1970s, members of the same techie cohort built personal computer (PC) prototypes that spawned a new consumer market. Financing PC start-ups were venture capital firms based in Menlo Park and San Francisco, whose funding rounds brought the financial capital of East Coast dynasties like the Whitneys and Rockefellers west and gave it a new California look. By the mid-1980s, the Bay Area tech industry had become a global sensation inspiring “Silicon”-suffixed counterparts across the world.

Not only does Silicon Valley have a history worth understanding and analyzing, but its history also intersects with other historical patterns, movements, and phenomena in significant but underappreciated ways. At the cutting-edge of capitalism and technology for the past half-century, Silicon Valley occupies an important place in recent American history. This project explores how it influenced and is interrelated with another major historical force that has shaped the political and economic landscape. By locating the industry’s emergence on the national stage in the 1970s and early 1980s within its broader national context, it tells the story of how the Bay Area high-tech sector became Silicon Valley, and how Silicon Valley, for the first and not the last time, remade the U.S. economy in its image.

3. Berlin, Leslie. The Man Behind the Microchip: Robert Noyce and the Invention of Silicon Valley. Oxford, 2005.

Silicon Valley from above, taken in October 1982 and featured in National Geographic’s article “High Tech, High Risk, and High Life in Silicon Valley.” Santa Clara and Sunnyvale are in the foreground; Mountain View, Palo Alto, and San Francisco (in the background) follow Interstate 101 northward up the spine of the San Francisco Peninsula.

Silicon Valley and the Free Market Project

As Silicon Valley boomed in the 1970s and early 1980s, it contrasted starkly with the rest of the national economy. Beset by structural challenges from increasing international competition to slowing domestic productivity, the U.S. economy languished in the 1970s. Growth waxed and waned, jolted by energy crises bookending the decade. Inflation and unemployment rates fluctuated in tandem, leading economists to a new portmanteau, “stagflation,” to describe the high inflation, high unemployment reality that the Philips Curve had deemed impossible. Voters became increasingly anxious as both Republican and Democratic presidents struggled to address the symptoms and causes of economic malaise. In 1970, only ten percent of Americans identified the economy as the most important issue facing the country; by 1979, that number had risen to seventy percent.[4]

Against this dismal economic backdrop, two major developments of late 20th century American history took shape. In the Bay Area, the high-technology industry grew into Silicon Valley. It quickly became a business and technology marvel that brought the word silicon out of the periodic table and into the American popular imagination—and brought billions in private capital with it. Around the same time, American politics underwent a paradigm shift. In the late 1970s and early 1980s, a political impulse to reject centralized economic planning in favor of the free market gained momentum. This political-economic movement articulated—or re-articulated—a definition of “free market” that called for less government management of the economy and fewer state interventions in the marketplace.[5] Building on arguments honed in new Washington think-tanks like the American Enterprise Institute and on the napkins of University of Southern California economics professors, this conservative policy movement called for tax cuts, balanced budgets, de-unionization, and deregulation. As the free market project gained traction, American politics and policymaking turned right.

Recent historical scholarship has identified the late 1970s and early 1980s as a turning point in recent American history. Historians have argued that in this period the broad consensus behind Keynesian economic stewardship and Fordist labor-management compromise that had predominated since the 1930s gave way to one that favored limited government and vehemently fought organized labor. Scholars have variously called this conservative turn the beginning of the Age of Reagan or the Age of Neoliberalism, the “rediscovery of the market” or the “last days of the working class.” Their work has focused on the political and social realm, pouring over the intellectual debates, political maneuvers, structural and cultural shifts, lobbying efforts, and backlash movements that led this turn to the right in the late 1970s and early 1980s.

4. Berman, William C. America’s Right Turn. Baltimore: Johns Hopkins University Press, 1994.

5. Burgin, The Great Persuasion. Cambridge, MA: Harvard, 2012.

But in focusing on the political and social realm, this scholarship has paid insufficient attention to the economic realm, where shifts in the structure of the U.S. economy and changes in business practices greatly influenced the conservative turn. The few scholars who have focused on the economic realm, meanwhile, have not analyzed the particular role played by Silicon Valley as it emerged in the late 1970s and early 1980s. Likewise, scholarship on the history of Silicon Valley has not placed the industry’s emergence in the broader national context historians often consider. Silicon Valley scholarship has instead prioritized understanding why the regional technology hub in the southwest corner of the San Francisco Bay grew so phenomenally successful.[16] These questions are important to understanding Silicon Valley’s development, but they offer an incomplete assessment of the role that it has played in recent American history. This project lies at the intersection of these two lines of historical analysis, framing the growth of Silicon Valley within the context of America’s political right turn.

Emerging as a high-growth, high-tech phenomenon in an era of sustained economic stagnation and intermittent recession, Silicon Valley both marked and furthered the country’s turn to the right on economic issues in the late 1970s and early 1980s. As a political symbol and an influential lobbying force, Silicon Valley sold a sunny vision of innovative, entrepreneurial capitalism to a country seeking solutions to deep-seated structural economic problems. Silicon Valley offered a shining example of the fruits of the free market to the increasingly popular argument—made not only by conservative politicians like Ronald Reagan but also by neoliberals like the so-called “Atari Democrats”—that the best path out of 1970s economic malaise was to unleash the decentralizing forces of the marketplace.

16. Saxenian, AnnaLee. Regional Advantage: Culture and Competition in Silicon Valley and Route 128. Cambridge: Harvard, 1994; Berlin, The Man Behind the Microchip.

This image of Silicon Valley as a beacon of free market capitalism did not come from the imagination of politicians, but had been purposefully cultivated by the entrepreneurs, executives, and investors who brought the industry onto the national stage in the late 1970s and early 1980s. Though the early semiconductor firms and research labs in the Bay Area had been capitalized by federal defense contracts, Silicon Valley marketed itself as a hub of private sector innovation and wealth creation. It cast its decentralized industrial structure and start-up culture as hallmarks of a new kind of capitalism. As it fought unionization and squeezed productivity, it claimed to represent a new “matrix” management style and flexible labor structure, making the case against the bureaucracy and labor unions that had played central roles in the midcentury capitalist system.[9] In an age of anti-establishment and anti-government backlash festering since the later stages of the Vietnam War and growing in the wake of Watergate, Silicon Valley sold itself as a Western alternative to the financial and political establishment. In part inspired by, and in part actively exploiting the cultural legacy of the Bay Area counterculture of the 1960s, it cultivated an image of technological liberation and Information Age cool. Despite the fact that it was drastically unrepresentative of American society in race and gender in that educated white men filled its employment ranks, Silicon Valley advertised itself as a haven of egalitarianism and meritocracy.

As a model of the unregulated free market capitalism with which it hoped to remake the American economy, Silicon Valley’s immense wealth creation and deep social and economic inequalities underscored the implications of the broader free market project. More than limited government or faster GDP growth, inequality has been ultimate result of the conservative turn in the late 1970s and early 1980s—a turn sustained over successive Republican and Democratic administrations. This period marks the pivotal moment when incomes began to diverge dramatically, middle class wages stagnated, and the benefits of economic growth went increasingly to the wealthiest Americans. As a source and symbol of inequality, Silicon Valley’s place in the conservative turn of the late 1970s and early 1980s was both material and ideational. As its political and economic power has grown exponentially in the decades since, the tech industry’s role in exacerbating inequality has grown with it. Importantly, inequality in tech and in the free market economy at large has mapped along lines of race and gender. The issue of diversity in tech, a headline in 2016 but also the subject of a dedicated U.S. Civil Rights Commission summit in San Jose in 1982, stands as a symptom of deeper inequalities in the American economy—an economy for which Silicon Valley represents a well of inspiration and aspiration.

9. Harvey, David. The Conditions of Postmodernity: An Enquiry Into the Origins of Cultural Change. Oxford: Blackwell, 1990.

Inequality in the Information Age

In the first decades of the 21st century, the connections between Silicon Valley and the politics of the free market are headline news. Amidst a tech boom cycle driven by social media and the so-called sharing economy, Silicon Valley has become a flashpoint of American capitalism. Silicon Valley titans from to Larry Ellison to Evan Spiegel are the high-tech faces of a New Gilded Age, the standard-bearers of a system of unparalleled opportunity and inequality.[10] “Unicorn” start-ups like Uber and Airbnb are “disrupting” established industries and bringing dynamic market pricing (and profits) to transportation and accommodation. Along the way, they have redefined the “employee” as they have driven down costs and squeezed contract pay.[11] The 2013 Google bus protests that made headlines in San Francisco, meanwhile, have cast Silicon Valley as a microcosm of the deep social, political, and economic inequalities exacerbated by the unregulated marketplace. The industry’s response has been at times muted and at others cynically unapologetic. In January 2014, legendary venture capitalist Tom Perkins wondered in the Wall Street Journal whether the protests marked the emergence of a “progressive Kristallnacht”—a reference to the 1938 event that precipitated the Holocaust.[14]

11. Lien, Tracey.“Uber Will Pay Up to $100 Million to Settle Suits With Drivers Seeking Employment Status.” Los Angeles Times, April 21, 2016.

14. Perkins, Thomas. “Letter to the Editor: Progressive Kristallnacht Coming?” Wall Street Journal, January 24, 2014.

But while Silicon Valley has become a flashpoint of capitalism and inequality in the 21st century, its connections to the politics of free market are not new. Before Jesse Jackson and the Rainbow PUSH coalition decried the lack of diversity in tech, the U.S. Commission on Civil Rights held a two-day set of hearings in 1982 on “Women and Minorities in High Technology.” Noting that management in Silicon Valley was 86 percent male and 88 percent white, one speaker observed that Silicon Valley was “a land of uneven opportunity”—much like the hyper-competitive, dislocating free market economy it represented.19 Before the satirical characters in HBO’s Silicon Valley boasted at TechCrunch Disrupt to be “making the world a better place,” real Silicon Valley multi-millionaires of the early 1980s claimed to be “making this world a better place” with “products that extend human capability” and “[free] people from drudgery.”1 Before Mark Zuckerberg and Tim Cook went to Washington, D.C., Robert Noyce and Steve Jobs lobbied Congress in the late 1970s and early 1980s, seeking tax cuts and tax credits. Before Peter Thiel affirmed his affinity for Ayn Rand and her cutthroat vision of disaster capitalism to The New Yorker, Gordon Moore told Fortune that Silicon Valley entrepreneurs were the “real revolutionaries of the world.”[13]

13. Packer, George. “No Death, No Taxes,” The New Yorker, November 28, 2011.

As their industry grew in the late 1970s and early 1980s, tech entrepreneurs and investors helped to re-orient the American economy around the free market and helped to bring their industry’s microcosmic inequalities to the U.S. economy at large. In their valiant “rebellion against excessive taxation and regulation,” Ronald Reagan proclaimed that Silicon Valley entrepreneurs were giving “far more to society than they will ever recover”—as they collected millions in equity shares and stock options.[15] Silicon Valley evangelist George Gilder wrote in Wealth and Poverty in 1981 that they were raising “the banner of human creativity and new technology as the way to triumph over the trials of the day.”[8] In this framing, consumer gadgets, freer markets, and limited government were the solutions to the deep-seated structural problems of the 1970s. In the course of “solving” those problems, the free market project and the tech industry embraced the unregulated marketplace’s inequalities in opportunity and outcome in their celebration of productivity and profit. That Silicon Valley occupied its own cloistered social and political world, its ideas and values ricocheting in an educated, white, male echo-chamber of wealth and privilege, contributed to its embrace of the free market politics.

This project documents and analyzes the role that Silicon Valley played in the nation-wide political project to reshape economic policy and politics around priorities of the free market in this period of political change. It first traces the development of the Bay Area tech industry in the 1970s and analyzes the free market vision that it cultivated in the late 1970s and early 1980s. It documents the influence of key companies like Intel and Apple Computer and pays special attention to the role that the industry’s West Coast geography and countercultural roots played in shaping the its “revolutionary” vision of capitalism. This project then analyzes Silicon Valley’s first foray into national politics in the late 1970s and follows the lobbying presence it built up in Washington in the early 1980s. Finally, it discusses Silicon Valley’s triumphant emergence onto the national stage in the early- to mid-1980s. It looks at the way the media, the investment community, and politicians capitalized on the Silicon Valley vision—a vision, in Reagan’s words, of “high tech, not high taxes.” Together, the entrepreneurs, journalists, investors and politicians documented in this project tell the story of how Silicon Valley developed as a model and vision of free market capitalism and how it was mobilized by a political movement seeking to shrink the size of government and unleash the decentralizing, dislocating forces of the marketplace.

15. President Ronald Reagan, “Radio Address to the Nation on Small Business,. October 5, 1984.

8. Gilder, George. Wealth and Poverty. New York: Basic Books, 1981.

The 1982 Consumer Electronics Show in Las Vegas, Nevada, where Commodore International unveiled the Commodore 64, the best-selling personal computer in history.

ABOUT THE AUTHOR

Will Kirkland