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The dark heart of Silicon Valley

Mon, 10th Feb 2014

Silicon Valley is the envy of the world. The flywheel of US capitalism, it hums with energy, ambition and wealth that are magically transmuted into a seemingly endless stream of start-ups that want to change the world.

But what if is it’s gone into reverse?

The Financial Times recently carried two op-ed pieces, one querying the direction of capitalism and the other querying the direction of Silicon Valley, on the same day. They made a hint of a link between the two. But it’s time to spell it out.

To be plain, the real issue that’s emerging from Silicon Valley is not the gentrification of San Francisco and the disdain of überrich nerds for the area’s ordinary inhabitants. It is that the Silicon Valley innovation machine is increasingly focused on enterprise that is at best socially useless (does anyone need another social network or photo-sharing app?). You can go further. Scratch the shiny high-tech veneer and the Big Tech companies that we are in awe of are increasingly looking like something much grubbier, sucking sustenance out the economy rather than enriching it. Like the banks, in fact.

The engines driving the rogue flywheel are Moore’s Law, a polarising economy and a perverted sense of corporate purpose.

Moore’s Law, whose consequences continually take us by surprise, describes the exponential growth of computing power, doubling every 18 months for the last 50 years. It has given us the internet and Big Data; coming soon to a fridge, thermostat and waste bin near you, the ‘internet of things’ which will turn homes and indeed whole cities for good or ill into interconnected devices.

Meanwhile, thanks again partly to the internet, we live increasingly in winner-takes-all economies. Globalisation and naked power have help to strip out self-correcting feedback; for winners and losers alike, the process of winning or losing has become self-reinforcing.

Finally, partly as a result of the exercise of this taken-for-granted power, the tacit assumption has grown up that the economy exists to serve companies, rather than the other way around. Profit has become its own justification. But the decoupling of corporate from the wider social welfare has had consequences that are only now becoming apparent. One of the most important is the wholesale outsourcing that has savagely depleted what Gary Pisano and Michael Shih call the ‘industrial commons’, the technological and institutional infrastructure that supports innovation. The result is a hollowed-out economy in terms of both techology – Amazon couldn’t build a Kindle in the US if it wanted to – and, increasingly, employment.

To this fermenting brew Silicon Valley has added its own special, and diabolical, ingredient. Ironically, it stems from the hippy-libertarian mantra that ‘information wants to be free’. Dutifully following that idea, Google’s Sergey Brin took a momentous sideways step: by giving away the service and making money from advertising, he reasoned, he could have it both ways – information stayed free and he could have his money-making business too.

As it turns out, despite Google’s ‘Don’t do evil’ mantra, this was a pact with the devil. At a stroke, making information free altered the relationship with users from customer to product: Google’s (and Facebook’s, Yahoo!’s and Twitter’s) real customers are advertisers to whom they sell personal data gleaned from us as users. In effect, the business model of some the most powerful companies in the world is surveillance. (As The Observer’s John Naughton has noted, tapping into the servers of the internet giants ‘must have seemed a no-brainer to the NSA. After all, Google and Facebook are essentially in the same business’.)

The second consequence, warns internet seer and virtual reality pioneer Jaron Lanier, is that it bodily removed whole swathes of  information from the formal, monetised economy and dumped it in the informal one where the only entities that could profit from it were the owners of the massive computers where it was centralised. The first casualty was the press – why would anyone buy a newspaper when you could read it free on Google or Yahoo!? But consider also something like Google translation.

Google translation is powered not by a marvel of artificial intelligence but by anyone who has ever translated a phrase, article or book from or into a foreign language. A giant mash-up, it works by comparing all the similar translations it can find and choosing the most appropriate. In other words, it takes the real work of human translators and moves it ‘off the books’. Writes Lanier: ‘The act of cloud-based translation shrinks the economy by pretending the translators who provided the examples don’t exist. With each so-called automatic translation, the humans who were the sources of the data are inched away from the world of compensation and employment.’

In this way the internet companies are benefiting from shrinking the economy across a whole raft of the ‘creative industries’ which were supposed to thrive online – publishing, music, video, photography – but whose denizens now find themselves subsisting on the margins of the paid economy. At its peak Kodak employed 45,000; when Instagram, today’s photography poster-child, was bought by Facebook for $1bn, it had a payroll of 13. Even computer jobs are in retreat as the benefits of economic activity accrue to a tiny number of massive concentrations of computer power at the apex of internet commerce.

If anything, the process is speeding up. At Davos, no less than Google’s Eric Schmidt warned that automation was eating its way up the food chain. ‘The race is between people and computers, and the people need to win. I am definitely on that side in this fight, it is very important that we find the things that people are really good at,’ Schmidt said, which in the circumstances is a bit like a fox simultaneously licking its lips and sobbing over the mysterious death rate of chickens in the hen coop.

Many, including Lanier, believe that part of the answer to what he sees as the hijacking of the internet must be to give individuals property rights over their personal data. Without such a reversal, he foresees the demise of a middle class steadily squeezed out of employment – and, when the 1 per cent can outspend the rest of the 99 per cent, the end of democracy too. Another, and critical, part is to challenge the assumption that what’s good for business is automatically good for society and the relentless economic and technological determinism that go with it. Otherwise, unthinkable as it might sound, Silicon Valley could turn from miracle into the economy’s black hole – a zone of (highly profitable) economic destruction from which only a fortunate 0.01 per cent get out alive.

 


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