I was having brunch with a couple of friends who are lawyers, and we were talking about desirable and undesirable places to live. Seattle (where I may be moving in early 2015) scored high on every list, and one of the attorneys said something to the effect of, “I’d love to live there, but it’s next to impossible to get a job there.” Getting a law job in Seattle is, apparently, ridiculously difficult. This surprised me, because law is even more pedigree-obsessed than VC-funded technology, and where there’s pedigree obsession, there’s placism. Placism, for law, seemed to favor New York and D.C. to the exclusion of all else. There were some attorneys making lots of money in entertainment law (or as divorce lawyers) in Los Angeles, but it wasn’t prestigious to be in a “secondary” market. That seems to be changing, with locations like Seattle and Austin– desirable places to live, no doubt, but not law hubs– becoming very selective, and some moreso than New York.
Ten years ago, in large-firm corporate law (“biglaw”) New York was the place where attorneys wanted to stay as long as they could. Even though the pay wasn’t substantially higher– when adjusted for cost of living, it was invariably lower– the prestige was strong and followed a person for life. The best outcome was to make partner in one’s New York firm. Perhaps 1 in 10 was offered the brass ring of partnership. The next set, those who were clearly good but wouldn’t get partnerships, would move to firms in “secondary markets” and become partners out there. It was acceptable to move out to Austin or L.A. or Seattle, in your mid-30s, if Manhattan partnership wasn’t in the cards, but few planned for it. Law is even more pedigree-obsessed than VC-funded technology, and so placism is pretty major, and the going assumption has, for a long time, been that the best students of the top law schools will invariably end up in New York.
It seems to be changing. More attorneys are considering New York their backup choice, not wanting to put up with the long-hours culture and high rents. It’s no longer considered unusual for top talent to favor other locations, and some of those smaller markets are developing a reputation for being much more selective than New York, the old first choice.
Does anyone care to guess how this might apply to technology?
Silicon Valley isn’t stable
Balaji Srinivasan gave a talk at Y Combinator’s Startup School entitled “Silicon Valley’s Ultimate Exit”. In it, he decried the four traditional urban centers of the United States: New York, Boston, Los Angeles, and Washington, DC. He named that stretch “the Paper Belt”, a 21st-century analogue of the “Rust Belt”. See, all of those cities are apparently run by dinosaurs. Boston is the academic capital, but MOOCs are rendering in-person education obsolete. D.C. is apparently no longer relevant, under the theory that the decline of nation states (which will occur over the next 200 or so years) might as well be concluded to have already happened. New York? All that media stuff’s being replaced by the Internets. Los Angeles? Well, Youtube and iTunes and Netflix have already disrupticated Hollywood, which might as well be relegated to history’s dustbin as well (except for the fact that someone still has to make the content).
Silicon Valley’s arrogance is irritating and insulting. I’m not exactly lacking when it comes to intellectual ability, and on several occasions, I’ve interviewed for a position in the Valley (for the right job, I’ll work anywhere). On multiple occasions it has happened this way: I knock the code sample out of the park, on one occasion submitting one’s considered one of the 3 best submissions. I nail the technical interview. I get the offer… and it’s a junior position because, whatever I accomplished up to this point, I didn’t do it in California. The effect of placism is very real in technology, and it’s strongest in the Valley.
I don’t see this elsewhere. Banks and hedge funds don’t care if you’re from a rural village in China. If you’re smart, they respect it. They have the intellectual firepower to recognize intelligence. What about the Valley? Surely, I’m not saying that the people in the Valley are dumber? Well, it’s not quite that. As individuals, I don’t think there’s a difference. There are A-level intellects everywhere, whether you’re in the middle of Nebraska or in the Valley or on Wall Street. The problem, instead, is that the Valley has a passive-aggressive consensus culture, which means you need to impress several people to get the green light. In New York, it’s typical for an influential person to say, “I like this guy, and those who don’t won’t have to deal with him, but I think he’s fucking brilliant”. In California, that doesn’t happen. This gives intellectual mediocrities (who can, likewise, be found in Valley startups and on Wall Street) a certain show-stopping power (“I don’t think he’s a team player”, “she’s not a culture fit”) that they don’t have, to the same extent, on the East Coast.
For traders and quants, pedigree isn’t all that important. It can get you in the door, but it ceases to matter after that. In the Valley, pedigree matters much more, because recognizing individual excellence challenges the “collaborative culture” and the “laid back” mentality that California is “supposed” to have and, if you can’t bring up a person’s individual firepower, you start defaulting to credentialism and prestige. Not all Stanford grads are geniuses (see: Lucas Duplan). On the East Coast, it’s socially acceptable to say, “He’s fucking stupid and I’m sure his parents bought him in.” That’s a pretty clear “no hire”. In California, you can’t say that! Instead, in the California culture, you end up having to say something like, “Well, his problem-solving skills aren’t what I expected, and I think he’d be unhappy in a technical role, but I guess we can give him a product position and tap the Stanford network.” To me, that’s a “no hire” but, to many managers, that sounds like a ‘yes’.
I had the reverse of this experience when (as part of my consulting practice) I was hiring an engineer for a startup. He was a 20-year-old college graduate, sharp as fuck and probably a better programmer than I was, but socially inept. I said, “he’s brilliant, but would need some mentoring on the social aspect of the work”. To make it clear, I was being as honest as I could be, and my recommendation was to hire him. Unfortunately, my “he’ll need social mentoring” was taken as a passive-aggressive way of saying “no-hire”, rather than a completely honest acknowledgement that a good candidate had (minor) imperfections. He wouldn’t have been hired anyway, nor would he have liked the place, so it didn’t matter in the end. Still, it shocked me that such a minor note against someone (I said, “he’ll need social mentoring”, not “he’s an incorrigible fuckup”) could be taken so far out of proportion.
The point of this digression is that, because people in the Valley refuse to communicate meaningfully, and because of the consensus-driven culture, the rank-ordering of potential candidates that is actually used is the one already furnished. For younger candidates, that’s derived from educational pedigree. For older ones, it comes down to job titles and companies to some small degree, but much more important is location. Placism rules in the Valley.
There’s nothing stable about that, in my view. Academic institutions have lifelong contracts (tenure) with professors and gigantic capital investments, so universities tend to stay put. (Universities that are too prolific with branch campuses, such as NYU having an Abu Dhabi campus, destroy whatever prestige they might otherwise have.) The seat of the U.S. government is, likewise, unlikely to leave D.C. except in event of an unforeseen catastrophe. Hollywood’s geographical advantage (its proximity to a diverse array of terrain types) is still major, because the cost of travel with a film production team is extremely high. New York? New York won’t lose finance (the exchanges are there) and, even if it did, it would still be New York.
That’s something that the Valley, with its arrogant placism, doesn’t get. Let’s say that New York’s financial industry takes a catastrophic dive. We see apartments once valued at $50 million selling for $4 million, and rents dropping to Midwestern levels. And then? Creative people will move in, rapidly, and restore life to the city. New York isn’t beholden to one industry. It will always be New Fucking York. Unless we see a recurrence the 1970s general abandonment of cities by the American population (and, in my lifetime, we probably won’t) the worst-case scenario for it is that it becomes like Chicago: an also-ran city that is, in spite of its lack of “paper belt” specialty, thriving and an excellent place to live.
New York can lose its status as the prestige center of biglaw. It could even lose Wall Street. (That would be a disaster for New York property owners, but the city itself would be resilient.) Silicon Valley, on the other hand, is fucked if the placism of venture-funded technology inverts. That just might happen, too.
Inversion of placism tends to happen when the young and creative decide that the advantages of living in the “prestigious” place are not worth the disadvantages. The rents are too high, the culture is too elitist, and upward mobility is too low. The progeny of well-connected families still end up in the prestigious place (New York biglaw, Valley technology) but the successes of the next generation head elsewhere. Sometimes, they choose another location; others, there’s a sense of diaspora for a while. The Valley could easily lose its singularity. It’s not a great place to live (it’s a strip mall) and it’s far too expensive for what it offers. In truth, everything about it is mediocre except, to some extent, the work; but 95 percent of the work is mediocre (who wants to work in operations at IUsedThisToilet.com?) and getting the other 5 percent requires an advanced degree from a top-5 CS department, or elite connections. A few good people have those and will be able to stomach the Valley, but most good people come from no-name schools (not because the no-name schools are better, but because most people come from no-name schools) and don’t know anyone important out there. In 2010, talented and naive 22-year-olds were willing to move out to the Valley and provide cheap, clueless, highly dedicated labor under the naive (and wrong) assumption that a year at a startup would have them personally introduced to Peter Thiel by the founders. Is that trickery going to work in 2016? I doubt it.
Starting about now, it’s going to become increasingly evident that the talent wants to be outside of Silicon Valley if the same quality of job is available elsewhere. In fact, being in Silicon Valley after 35 will mean one of two things: astronomical success, or dismal mediocrity, with no middle ground. Being in California, at that age, and not being part of the investor community (either as a VC, or as a founder able to raise money on a phone call) will be a mark of shame. If you’re good, you should be able to move to Seattle or Austin, no later than 30, and get the same quality of job. If you’re really good, you can get that kind of job in St. Louis or Nashville. Aside from the outlier successes ($20 million net worth, national reputation) who can make a Silicon Valley residence part of their personal brand, it’ll be the mediocrities who stick around the Valley, still trying to catch a break while ignoring the hints that have been dropped all around them.
By 2020, this will have more of a “diaspora” shape. There won’t be a new tech hub yet. You’ll see talent gravitating toward places like Seattle, Boulder, Portland, Chicago, Austin, Pittsburgh, and Minneapolis, with no clear winner. Millennials are, if not blindly optimistic, attracted to the idea of turning a second-rate city into a first-rate one. By the late 2020s, it will be clear whether (a) new hubs have emerged or (b) technology has become “post-placist”. I’m not going to try to opine on how that will play out. I don’t think anyone can predict it.
What gives Silicon Valley its current grip on technology? The answer is a concept that seems to recur when aggregations such as democratic elections and markets break down. Cheap votes.
Electoral voting, statistically, can actually magnify the power of a small number of votes. If there are 101 voters and we model 100 votes as coin-flips, the power of the 101st vote isn’t a 1-in-101 chance of swaying the election. It’s about 1-in-13. (Due to the central tendency of the mean, there’s a 7.9% chance that the 100 votes split evenly.) Likewise, the statistical power of a voting bloc increases as the square of its size (in the same as the variance of perfectly correlated identical variables, when summed, grows as the square of the individual’s variance). What this means is that a small number of voters, acting as a bloc, can have immense power.
Another issue is that many voters don’t really give a damn. Low voter turnout is cited as a negative, but I think it’s a good thing. Disinterested people shouldn’t vote, because all they’ll do is add noise. The ugly side effect of this is that societies generate a pool of cheap votes. Ethical reservations aside, there are plenty of people who care so little about electoral politics that (absent a secret ballot) they’d sell their vote for $100. How much is a vote worth? To the individual, the vote is worth less than $100. But, to many entrenched interests, 500,000 votes (which can sway a national election) is worth a lot more than $50 million.
When you allow vote-buying, power shifts to those who can bundle cheap votes together. That’s obviously a very bad thing for society. Such people tend, historically, to be deeply associated with society’s criminal elements, and corruption ensues. This is one of the major reasons why the secret ballot is so important. Anonymity and privacy in voting are sacred rights, for sure, but we also want to kill the secondary market for cheap votes. There’s no real harm in someone selling his vote to his grandma for $100, but if we allow vote-buying to take place, we give power to some unelected, vicious people who use the statistics of electoral practices to subvert democracy.
Markets are the voting systems of capital allocation and business formation, designed as principled plutocracy rather than a democracy. Of course, just as in democracies, there are a lot of cheap votes to go around. Plenty of middle-class people want to park their savings “somewhere” and watch their numbers go up at a reasonable annual rate, but have no interest in dictating how the sausage is made. They don’t know what the best thing to do with their $500,000 life savings is and, to their credit, they admit as much. So they put that money in bonds or index funds and forget about it. Some of that money ends up in high-risk, high-yield (in theory) venture capital funds.
VCs are the cheap vote packagers of a certain 21st-century question: how do we build out the next stage of capitalism, which requires engagement and autonomy within the labor pool itself to a degree that disadvantages giant organizations? The era of large corporations is ending. It’s not like these companies will disappear overnight, or even in 50 years, but we’re seeing a return to small-scale, niche-player capitalism in which a few small companies manage to have outlier success and (if they want it) can become large ones. VC is the process of taking cheap votes (passive capital) and attempting to influence the formation processes of the nation’s most innovative (again, at least in theory) small businesses.
Abstractly, your typical doctor in St. Louis would rather have more small businesses in the Midwest (his children need jobs, and they may not want to move to Mountain View) than in California, and might prefer his capital being deployed locally. But he has a full-time job and is smart enough to know that he’s not ready to manage that investment actively. So, he parks his money in an “investment vehicle” that has the funds redirected to a bunch of careerists in California who care far more about the prestige of association with news-making businesses (hence, the focus on gigantic exits) than the success of their portfolios. His returns on the investment are mediocre, but his locale is also starved of passive capital, which has all been swept away into the bipolar vortex of Sand Hill Road.
Passive investors don’t care, enough, to pull their funding. In fact, it’s rarely individual investors whose capital ends up directly in venture capital. Because of protections (which may not be well-structured, but that’s another debate) that prevent middle-class individuals from investing directly in high-risk vehicles, it’s actually large pension funds and university endowments (increasing the indirection) that tend to end up in VC coffers. With all this indirection, it’s not surprising that passive investors would tacitly accept the current arrangement, which congests Northern California while starving the rest of the country. But is this arrangement stable? I think not. I think that, while it takes time, people eventually wake up. When it happens, San Francisco may still possess its urban charm, but the Valley itself is properly screwed.