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Silicon Valley’s Brave New Economic Order

A recent study suggests the United States is starting to resemble an oligarchy more than a democracy, and the trend’s cradle is unmistakably Silicon Valley.
(Illustration: Manoel Magalhaes/Capital & Main)

(Illustration: Manoel Magalhaes/Capital & Main)

In Silicon Valley, there are the good billionaires and the bad billionaires. Or so the standard press coverage would have you believe.

On the side of the angels is, say, Mark Zuckerberg, who announced last year that he and his wife were donating $120 million to public education throughout the Bay Area because “the world’s most innovative community shouldn’t also be a home for struggling public schools.” (Last month they also donated $75 million to San Francisco General Hospital.) Or Salesforce CEO Mark Benioff and his wife, who, since 2010, have given combined gifts of $200 million to the University of California’s Children’s Hospitals in San Francisco and Oakland.

On the flipside is Vinod Khosla, a co-founder of Sun Microsystems turned venture capitalist, who enraged surfer dudes everywhere by purchasing a prime slice of beachside property near Half Moon Bay, locking the gate that had previously provided public access to Martin’s Beach and hiring security guards to deter anyone from jumping over. After seven years and counting, the courts have finally ordered him to let the public back in.

As Silicon Valley continues to generate extraordinary wealth—it posted the country’s fastest rate of job growth last year, according to a new report from the regional development group Joint Venture Silicon Valley—it is also establishing the blueprint of a new socioeconomic order. A recent Princeton University study suggested the United States was starting to resemble an oligarchy more than a democracy. The trend’s cradle is unmistakably Silicon Valley, where the billionaires are most densely concentrated and where the problems of inequality in a powerhouse economy are starkest.

The advent of super-PACs and unlimited independent expenditures makes it possible for billionaires to play a much longer game and to reap far greater successes as long as they are patient.

“What worries me is the future,” said Vivek Wadhwa, a fellow at Stanford Law School and a prominent booster for the tech industry. “Technology is widening the gap between the rich and poor.... As more billionaires come up and become more powerful, the gap gets wider. Property values have increased so much that regular people can’t afford to live here any more—even the tech superstars can’t afford to live here. You see the social unrest. It’s shockingly obvious that something is wrong over here.”

More important than what we think of this or that billionaire may be the fact that they are proliferating, the middle class is shrinking, the underclass is struggling to make ends meet and the entire balance of society is being thrown out of whack.

“It’s as if the economy has lost its spine,” the chief executive of Joint Venture Silicon Valley, Russell Hancock, wrote recently, “and this has important implications for the kind of community we become.”

The trend is national but only in Silicon Valley do companies like Google or Apple have more money than local governments and spend accordingly. Zuckerberg and fiber optic telecommunications entrepreneur David Welch have become players in the education debate—not only because they want to, but because they can. They can outspend school districts and—especially in Welch’s case—out-lawyer the teachers unions, which is a dramatic shift from standard democratic practice and perhaps more important than whether or not their cause is just.

“It is possible to admire individual billionaires but also fear their overall influence in elections, governance and public policy,” Darrell West of the Brookings Institution wrote in his 2014 book Billionaires: Reflections on the Upper Crust. The problem, West elaborated in an interview, is both systemic and profound.

“Billionaires are completely unrepresentative in terms of what they care about,” he said, citing a slew of political science literature showing America’s super-rich to be to significantly to the right of the public on the role of government, taxation, and other core issues. “We have to worry about them pushing ideas that benefit themselves as opposed to society as a whole.”

Reading intentions up close, on a case by case basis, can be deceptively tricky. Khosla, for example, may be the bugaboo of the surfing community, but he’s also a signatory to the Giving Pledge, the exclusive group of billionaires founded by Bill Gates and Warren Buffett who have promised to give away 50 percent of their net worth to charitable causes. Khosla’s passion is the environment.

Google, notoriously, set up its own private bus system to bring commuters in from San Francisco to its Mountain View headquarters—a move that made life easier for its employees but enraged San Franciscans who felt the company was artificially inflating their housing prices. When the Google buses were besieged by protesters a year ago, the company not only agreed to pay a modest tax to the San Francisco Municipal Transportation Agency but volunteered an extra $6.8 million to help struggling young people pay for their monthly passes. Much more recently, Google has instituted a free bus service for the public in Mountain View.

Are they doing it out of the goodness of their hearts, or for corporate PR? In the absence of a clear answer, it is perhaps easier to note that private interests are, one way or the other, muscling in on territory once occupied exclusively by elected officials. Critics of big money in politics worry less about stunts like venture capitalist Tim Draper’s ballot initiative to split California into six states—he didn’t gather enough signatures to qualify—than the under-the-radar stuff that happens away from the media spotlight, often in smaller jurisdictions or in other states. The advent of super-PACs and unlimited independent expenditures makes it possible for billionaires to play a much longer game and to reap far greater successes as long as they are patient.

The problem comes more clearly into focus with a wider lens: The 30 percent of Silicon Valley residents who struggle to make ends meet, the homeless encampments in East San Jose and on University Avenue in Palo Alto, the endless commutes for service workers and the lack of many services that cities cannot afford to operate in the shadow of the tech giants, the gross disparities in wealth between men and women, between whites, blacks, and Latinos, the way San Francisco has been hollowed out as a city and become the dormitory and playground for the Silicon Valley communities in the outer suburbs.

The politics of this region tend to be progressive, and political leaders have done their part to sound the alarm or try to redress the balance. San Francisco’s Human Services Agency recently measured inequality in the city and found that San Francisco ranked somewhere between Rwanda and Guatemala. Leaders in San Jose, Sunnyvale, and Mountain View have increased the minimum wage. But they are pushing against an overwhelming tide of money flowing unevenly into the region, and into the economy as a whole. Billionaires nationally give more money to Republicans than Democrats, and that’s also true of political action committee money in Silicon Valley, which showed a slight tilt toward the GOP in the 2014 election cycle. In other words, the big money is often out of synch with the prevailing political mood—and acting more to exacerbate inequality than to counter it.

According to the Joint Venture Silicon Valley study, the median income of high-wage earners was about 4.4 times greater than that of low-wage workers last year—a factor higher even than in San Francisco and the rest of the Bay Area, and much higher than in California as a whole.

Billionaires, generally speaking, are only so interested in such dominant social trends, preferring to focus on issues like health or education that speak to their personal passions without thinking as hard about the overarching governmental structures that can promote excellence in those areas. They lobby hard to resist regulation and taxation of their businesses, for example, often to great effect.

According to Darrell West, the emphasis on education can be explained, in part, by the fact that 70 percent of America’s billionaires are self-made and feel a great debt to the education they received.

Their ideas of reform, however, are often rather different from that envisaged by school district superintendents or education policy think tanks. “Many of them support charter schools. They are not fond of teacher unions,” West said. “They push policy prescriptions that are very pro-market and pro-technology as a way of disrupting the existing system.”

That’s obviously true of Welch and his Students Matter group, which has campaigned against tenure for underperforming teachers, but it is at least partly true of Zuckerberg also. The Facebook founder said his first priority in funding Bay Area schools was “towards initiatives that provide computers and connectivity in schools, as well as teacher training and parent outreach to make these a really valuable addition to the learning experience.”

West described a phenomenon he calls “impact philanthropy”—essentially, billionaires combining what they believe to be a charitable pursuit with their own business interests. Bridging the technology gap between rich and poor is, in some sense, a way of expanding their own market reach.

The political possibilities have expanded greatly since the Supreme Court’s Citizens United ruling five years ago. It used to be conventional wisdom in California that billionaires had deep pockets but short attention spans. When Michael Huffington and Al Checchi ran unsuccessfully for statewide offices in the 1990s, they were barely heard from again. The same has been true of Meg Whitman and Carly Fiorina since their own unsuccessful runs for, respectively, governor and U.S. Senate.

“Billionaires and wannabe billionaires tend to get disconnected. They don’t see the suffering under their noses,” Vivek Wadhwa said. “When you see beggars on the streets of Palo Alto, it’s not what you’d expect of the technology capital of the world. This could be India, or Bangladesh. Most of the billionaires just look beyond it.”

This post originally appeared on Capital & Main, a Pacific Standard partner site, as “Silicon Valley's Brave New Economic Order." It is part of a month-long series exploring how economic inequality is transforming California, and what can be done to rebuild our vanishing middle class.