Is Silicon Valley too big?

From New Internationalist Easier English Wiki
Jump to navigation Jump to search

Is Silicon Valley too big?


Illustration: Volker Straeter

Wendy Liu investigates:

Over the past few decades Apple, Microsoft, Amazon, Alphabet, and Facebook have become part of the global economy. Like the financial industry, these high-tech companies are now very important to the system.

But the other side of Silicon Valley is venture capital. Big venture capital funds are looking for the next billion dollar business opportunity, and are investing in any team with an OK idea and the right connections. US investment recently hit its highest level since the dotcom time.

People who want to keep this situation as it is want us to believe that it’s not another bubble – this time it is different.

But this doesn’t look at the role of the bigger economic trends. With low interest rates after 2008, and general economic stagnation, there is too much capital which needs a place to go. At the moment, technology seems like a good investment and investors are interested in anything related to technology in the hope that it will pay a return.

Is this sustainable? That is unlikely. I think there are three main threats to Silicon Valley: consumer dissatisfaction, bad management, and worker organization.

Right now, the strongest problem for consumers is privacy. The Cambridge Analytica crisis means people are looking more closely at Facebook’s business model. The result could be consumers not using Facebook or regulators investigating. But consumers have little power, especially as some platforms seem too big to fail.

There is a lot of bad management in Silicon Valley - bad behaviour or investing in a bad idea. Theranos was once valued at $9 billion but is now near to liquidation, after its blood-testing technology was shown as fraudulent. Zenefits ($4.5 billion) was fined by the government for not following insurance laws. Snapchat lost $720 million last year and is now cutting staff. And there is a long list of once good-looking new tech companies that have recently failed. If this continues, it could affect all of the economy, as venture capital usually comes from sources like pensions and university endowments.

Lastly, the possibility of worker organization in the industry is starting to be a problem for business models. Companies like Amazon, Deliveroo, and Uber keep consumer costs low as they exploit underpaid, overworked, and vulnerable workers. But these workers are starting to take direct action and start legal challenges. It’s not yet clear if workers can get better conditions before their jobs go to automation, but there is the possibility for big changes in business models.

But Silicon Valley will not solve the problem of too much capital needing investment. Just like the financial problems before 2008, it’s a temporary solution, and there will be a crisis soon enough.

Wendy Liu is a software developer and economics co-editor at the UK-based New Socialist. @Dellsystem


This article has been simplified so the words, text structure and quotes may have been changed)