“We wanted flying cars, instead we got 140 characters.”
– Peter Thiel, in his 2011 manifesto “What Happened to the Future.”
Anyone living in California who’s paying attention knows what venture capitalist Thiel meant. While a handful of Silicon Valley social media entrepreneurs have amassed almost indescribable wealth, and fundamentally transformed how humanity communicates, investment in boring things like roads, bridges, tunnels, ports, aqueducts, reservoirs and railroads – the list is endless – has stagnated. Especially in California. Flying cars? Forget about it. Go tweet.
Why? Why the neglect?
(1) For starters, why invest in moving atoms around, which is messy and might incur the wrath of powerful climate change activists, when you can move electrons around in new and exciting ways and make billions? Silicon Valley entrepreneurs are making a rational choice to prefer manipulating characters to manufacturing cars.
(2) And when it comes to innovations that do involve atoms, that is, actual manufactured goods, Silicon Valley entrepreneurs are lobbying for mandates that force people to purchase internet enabled home appliances, connected to smart meters, that punitively bill consumers who, for example, operate their clothes dryer or dishwasher at the “wrong” times.
(3) Public money that might be used to backstop private investment in infrastructure is being used instead to pay over-market compensation to California’s state and local workers, who now receive pay and benefits that on average are twice what California’s private sector workers earn.
To justify this neglect, California’s governor Brown has been the cheerleader for a culture of austerity. But there is an alternative that would lower the cost of living for all Californians, and even make it possible to lower public sector compensation without lowering their living standards. That is a culture of abundance.
The culture of abundance used to be synonymous with the Silicon Valley. “Better, faster, cheaper” used to be the mantra that informed innovation in the Silicon Valley. And throughout history, the human condition has marched fitfully but inexorably upwards because human creativity and innovation made everything we needed better, faster, cheaper. So how can we invest public and private funds to create cheap and abundant water, energy, transportation and housing?
One untapped source of investment are California’s public employee pension funds, which collectively manage nearly $800 billion in assets. Investing just a fraction of these assets in revenue producing civil infrastructure could have a decisive positive impact. Using water as an example, along with a crumbling distribution infrastructure, there are well established water markets in California. Investing in sewage reuse, seawater desalination, and aquifer and reservoir storage for runoff could eliminate water scarcity in California.
There are several interlocking benefits to investing pension funds in California’s infrastructure. For the pension funds, these would be safe investments that over time would yield more than typical fixed income investments and in fact may exceed their target returns of 6.5% or more per year. For California’s workforce, building and operating these assets in water, energy, and transportation would create tens of thousands of high-paying jobs. For California residents, these assets would create abundance instead of scarcity, and lower the cost of living.
With respect to the environment, increasing the diversity and quantity of water and energy supplies would create climate resiliency, and in nearly all cases – since this factor is of great concern to many Californians – these operations would be either “carbon neutral” or very nearly so.
The challenge to rebuilding California’s infrastructure is not primarily financial. Attracting pension fund investment might be the centerpiece of finding the capital for these projects, but there are all the traditional sources of funds, namely bonds and private investment. The bigger challenge is cultural. Joel Kotkin, writing for the Orange County Register, vividly frames the cultural challenge we face:
“California is on the road to a bifurcated, almost feudal, society, divided by geography, race and class. As is clear from the most recent Internal Revenue Service data, it’s not just the poor and ill-educated, as Brown apologists suggest, but, rather, primarily young families and the middle-aged, who are leaving. What will be left is a state dominated by a growing, but relatively small, upper class, many of them boomers; young singles and a massive, growing, increasingly marginalized “precariat” of low wage, often occasional, workers.
This social structure can only work as long as stock and asset prices continue to stay high, allowing the ultra-rich to remain beneficent. Once the inevitable corrections take place, the whole game will be exposed for what it is: a gigantic, phony system that benefits primarily the ruling oligarchs, along with their union and green allies. Only when this becomes clear to the voters, particularly the emerging Latino electorate, can things change. Only a dose of realism can restore competition, both between the parties and within them.”
Californians must be convinced that the “better, faster and cheaper” mantra that used to define the Silicon Valley, and the cost-cutting virtue of innovations that have uplifted humanity throughout history, can again be our cultural guiding principle. They must be convinced that good jobs and affordable abundance are possible without overly compromising our culture that cherishes the environment. They must be convinced that these “green” values have been taken too far; that they are a cover for condescending, statist oligarchs.
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Ed Ring is the vice president for policy research at the California Policy Center.
Back in the late 1970’s something happened to the Santa Clara Valley. Increasingly it became referred to as the Silicon Valley, because the emerging silicon based semiconductor industry found its first home in plants nestled along the southern shores of the San Francisco Bay. Boasting what are among the finest universities in the United States – Stanford and Cal Berkeley – and the best weather in the world, high technology companies began choosing the San Francisco Bay Area in the 1940’s and never looked back. Where once there were endless orchards of Prune, Apricot and Cherry trees, a sprawling ecosystem of high tech companies and venture capital firms now attracts talent from everywhere on earth. The Silicon Valley became, and remains, the epicenter of the most dramatic technological advances in history.
For the first 25 years or so, certainly through the end of the 20th century, the mantra in the Silicon Valley was “better, faster, cheaper.” Entrepreneurs were creating entire new industries, as digital technology enabled “mini-computers” to replace mainframes, and “work-stations” to replace mini’s, which were in-turn replaced by PCs and laptops, which are themselves being replaced for many applications by smart phones. But as we move to the “internet of things,” and as the Silicon Valley ecosystem matures from a jungle of creative destruction to a forest where a handful of gigantic firms wield unprecedented economic power, the “better, faster, cheaper” mantra is fading away.
Artists rendering of Apple’s new headquarters (public domain image)
With “levered free cash flow” of $51.9 billion over the past year, Apple can easily pay their
service employees enough to make unionization unthinkable. What’s their real agenda?
Silicon Valley’s new breed of entrepreneurs have realized they don’t necessarily have to compete for customers who will voluntarily choose their products over those offered by their competitors. They have realized the government is a customer with very deep pockets, that more regulations will empower big companies and destroy the emergent ones, that environmentalist mandates will force consumers to buy their products as they forge OEM relationships with manufacturers of durable goods, that the security state is a voracious consumer of high technology, and that public bureaucrats can be sold billions of dollars worth of educational hardware and software.
The Silicon Valley’s new breed of “entrepreneurs” have realized something else, too. They’ve realized that as they evolve from competition to cronyism, big labor can be a powerful political ally.
A recent report in the San Francisco Chronicle entitled “Unions and tech: A most unlikely political alliance forms,” sums up the new reality. Author Joe Garofoli writes, “Led by the 1.4 million-member Teamsters union, some in labor are ready to support friendly tech companies when the corporations face regulators in San Francisco, Sacramento and beyond. Support from the Teamsters will make labor-backed Democrats much more receptive to the needs of a tech company. ‘Labor supports their employers in a lot of cases,’ said Rome Aloise, Teamsters International vice president. ‘We fight with them, but we support them — because they’re the creator of jobs, which creates members for us. On the other hand, for the ones that don’t pay decent wages and benefits, we’re not going to be supportive of them.'”
This has little or nothing to do with wages and benefits. The firms where the Teamsters have already gotten a foothold, eBay, Zynga, Yahoo, Genentech, and Apple, can easily afford to offer their drivers pay and benefits that render union dues a superfluous drain on their paychecks. And if these well heeled high-tech corporations haven’t granted their drivers and other service employees stable hours and competitive pay, that is a shameful omission they ought to correct without union intervention. They should, they could, and they would. But they don’t want to. Because what this is really about is acquiring political power.
A few examples should suffice to convey the nauseating threat heralded by this new reality:
When the crony “greens” want to force every toilet and faucet manufacturer to install sensors to micro-monitor indoor water consumption, when the crony “education reformers” want to force every home school parent to purchase laptops wired with approved educational software, when the crony security and law enforcement “innovators” want to sell more drones and remote sensors to look into our backyards and listen in on our living room conversations – the unions will be there, adding their political muscle, public and private, to make sure our elected representatives do the right thing.
If union activism in the Silicon Valley was merely about wages, benefits, work hours, and dignity, they would have a legitimate role to play. Ideally, in those situations, private sector unions earn their clout by acquiring and retaining members voluntarily in a right-to-work environment. But unions, unfortunately, care just as much about power and organizational aggrandizement as the big corporations they purport to fight. That’s why they thrive in the powerful places where they are needed the least, in monopolistic entities with captive markets who can afford them – government and giant corporations – entities that realize union alliances will help them intimidate the political objectors, appease the union controlled pension funds, and obliterate the commercial competition.
The dawning unionization of the Silicon Valley is an ominous development. It must be challenged. The people who run Silicon Valley should consider what will happen when there’s an economic downturn, and labor contracts curtail their options to restructure. They should ask how their new allies will view utilization of self-driving cars and countless other labor saving innovations. They are putting the culture of “better, faster, cheaper,” at mortal risk, a culture that has enabled unprecedented global prosperity, and has the potential to offer wondrous new achievements for decades to come.
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