Universities Built Silicon Valley (with Margaret O’Mara)

American research universities have been a powerhouse of innovation, especially once the government stopped sitting on grant-funded patents

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Most Americans have some idea that our university system, as expensive as it is, is still the envy of the world and a source of science and engineering innovation. But that wasn’t always so. Margaret O’Mara joins the show to discuss how these tech hubs developed in the mid-20th century through a combination of military funding and private research centers. The incentive for university-based research received another major boost in 1980, when Congress deregulated its patent holding policy.

This is the second in a three part series on the origins of Silicon Valley.

Why did California play such a surprising role in America’s innovation economy? How did World War II shape the growth of Silicon Valley? What is a non-compete agreement in an employer contract?

Further Reading:

The Code: Silicon Valley and the Remaking of America, written by Margaret O’Mara

Animated timeline shows how Silicon Valley became a $2.8 trillion neighborhood, written by Corey Protin, Matthew Stuart, and Matt Weinberger

The Origins of Silicon Valley: Why and How It Happened Here, Stanford Engineering

Related Content:

Immigrants Built Silicon Valley, Building Tomorrow Podcast

On Innovation: Don’t Ask for Permission, Building Tomorrow Podcast

Out of Poverty: Sweatshops in the Global Economy, Free Thoughts Podcast

[music]

00:05 Paul Matzko: Welcome to Building Tomorrow, a show where we contemplate what the future could look like if we embrace bold, free, and compassionate policies. Our last episode was about how immigrants built Silicon Valley, something that was possible because of significant border deregulation in the 1960s. Now, if you enjoyed that episode, go give us a good rating on iTunes, or wherever your podcasts. For part two of our investigation, we’re going back to college. You know that place where you played beer pong, tailgate at football games. I mean, hit the books in the library every night and studied hard to make your parents proud of your excellent grades, right? Our university system, it really is a marvel, a destination for students from all over the globe. But the university we’re familiar with today looks radically different from American universities of the past. That’s a product of changes in the mid-20th century that not only created what are known as research universities, but also generated a tremendous amount of innovation. Silicon Valley would not have existed in its current form without them.

01:07 Paul Matzko: The most famous of these new-fangled universities was Stanford University, which grew from an educational backwater into the beating heart of Silicon Valley. Now, this would’ve astonished Americans in the early 20th century who would have assumed that Boston area schools, like MIT and Harvard, would continue to dominate scientific research. To figure out why Stanford specifically and central California more generally played such a surprising role in America’s innovation economy, I needed to find an expert. So I decided to talk with Margaret O’Mara, a Professor of History at the University of Washington and the author of a recently released Penguin Press book, The Code: Silicon Valley and the Remaking of America. Welcome to the show, Margaret.

01:47 Margaret O’Mara: It’s great to be here. Thanks for having me.

01:49 Paul Matzko: Okay, so we’re talking about Silicon Valley in a particular location in California. Of course, that’s not the only tech hub in the US. And in fact, long before Silicon Valley was synonymous in people’s minds with technology, innovation, there was the Route 128 Corridor outside Boston that had that distinction because of all the research at MIT, Harvard, and major corporate research labs. So why was it that the baton was in a sense passed? Why didn’t Silicon Valley just grow in Massachusetts or expand in Massachusetts rather than… Why that move to California?

02:22 Margaret O’Mara: That’s a great question. Yeah, if you go back 100 years when there was a lot going on in Boston, Harvard, MIT, early companies like Raytheon that were spinning out of those institutions. And meanwhile out in the Valley, it was best known for growing fruit. It was the nation’s capital of prune production.

[laughter]

02:42 Margaret O’Mara: That was really what made its name. But where things started to turn significantly was with World War II and the Pacific Theater, which of course there’s a great deal of military activity up and down the Pacific coast before the war, but particularly escalates during the war. And then after the war, of course, the World War II was succeeded by the Cold War. And an unprecedented turn by the US government into not only kind of ongoing enlargement of military spending and the growth of what Dwight Eisenhower famously dubbed the military-industrial complex, but also the US for the first time getting in the business of supporting and investing in basic scientific research, and development, and education. And a lot of that money flowed to higher education institutions.

03:36 Paul Matzko: California had another advantage over Massachusetts, which is that the state had prohibited what are known as non-compete clauses in employment contracts. Those contracts allow companies to lock their employees into their jobs by prohibiting them from going to work for competitors. So if you were, say, I don’t know, an engineer at eBay, you couldn’t go work in a similar job at Shopify or at a start-up. That’s bad for innovation. But the place without non-compete agreements then had a real advantage in attracting top-tier talent, who liked the flexibility and security of being able to move between employers at will. So I asked Margaret about the implications of California’s non-compete ban.

04:18 Margaret O’Mara: Yeah, so when you ban non-compete agreements and look for… Most of the states in the United States don’t ban them, but essentially you allow people to hop from one company to a direct competitor without being penalized. You’re able to do that. You’re able to job hop and you’re able to job hop within an industry and within closely related industries. So what it does is it allows a lot of cross-pollination from company to company. And the [chuckle] cool thing, the crazy thing about this whole thing is that the… California’s non-enforcement of non-compete clauses and employment contracts is not a product of the tech revolution. [chuckle] It wasn’t anything that had to do with it at all. In fact, this is crazy accident of history, it dates from the late 19th century when California was crafting its first Constitution trying to reconcile these different systems of Mexican/Spanish/English/American legal systems.

05:15 Margaret O’Mara: And it’s just happenstance. [chuckle] It happened to be that way. But it turned out that was one of a number of particular conditions in California, I’m sorry, California-specific things that really enabled this very particular business culture of sort of small to medium sized enterprises in the beginning, and now are including larger enterprises as things move on. It enables the free movement of people. And the free movement of people and capital is absolutely, in many dimensions, absolutely critical to the American tech story and particularly in California. It’s done it… Enabled that in this sort of funny, “Who knew?” I think back in 1870s, the people who were writing California’s Constitution never would have imagined [chuckle] that they were enabling this sort of thing.

06:00 Paul Matzko: It seems like there’s two stages in the history of Silicon Valley. And today, folks are most familiar with this later stage, which is everything built on top of the internet, a lot of software applications and kind of digital tech. But the Silicon part of Silicon Valley is a reference to the first stage, where it is stuff being produced for the military, hardware, integrated circuits, semiconductors, microchips. That… So it seems like the conversation about how we got to Silicon Valley, it might be a different story because we’re talking in a sense about two different eras in Silicon Valley. Do you have any thoughts about that?

06:40 Margaret O’Mara: Yeah, I mean they’re definitely… I think of Silicon Valley 1.0 and 2.0 that really, in a way, it’s just not… Not just a matter of switching from being a hardware-focused place that was also happened to be a manufacturing center to a place that was all about software, was and is all about software, but it’s also one of scale. If you look in really up through the 1990s, the Valley was… Look, it wasn’t unimportant. It was making important things that a lot of people used. It had these companies that were on the covers of magazines, It was a big deal. But when you… And I really only fully kind of realized the difference when I was putting the book together, which starts in the 40s and ends with pretty much yesterday, how the scale just… It just scales up so massively in the 21st century that these companies become bigger and richer, and their products are… Look, it’s impossible, pretty much impossible to get through your day in the modern United States even if you decided, “I’m gonna delete Facebook. I’m gonna be a luddite. I’m not gonna have anything to do with these things.”

[laughter]

07:50 Margaret O’Mara: You know what? Even if you’ve decided you’re gonna live radically offline, you went and bought something at a store whose transaction software was powered by Microsoft or Amazon.

08:00 Paul Matzko: Yeah, yeah.

08:00 Margaret O’Mara: It’s almost impossible to avoid the products of the big five. Three of which are based in Silicon Valley, two of which are based here in my town of Seattle. And that’s different. But they’re really connected, and I think they’re connected in a number of ways. One is sort of technological. Look the… You know the… What… The hardware is, enables the software and vice versa, and of course the hardware business doesn’t go away. You still have Cisco making routers.

08:30 Paul Matzko: Sure.

08:30 Margaret O’Mara: You still have all these big, giant companies that don’t get as much attention. Like, Intel continues to be one of the most important tech companies in the world, and it’s making hardware, and it’s been around since the late ’60s. But another really important connective tissue. And I think this is… I find this very important in understanding why these companies and their leadership, the choices they’re making, the business strategy they’re adopting, is very much shaped by the business culture that was established really with the semiconductor industry in the ’60s and ’70s. These idea of growth going fast, getting zero to one, getting… Creating a market and taking it over which has been incredibly successful, and it quite frankly is one of the reasons that some of today’s tech giants are getting in trouble.

09:21 Paul Matzko: Yup.

09:21 Margaret O’Mara: Because they have had this head of growth… This growth mindset and this focus on, “This is what we’re doing, we’re building products, we’re building the best possible product, we’re bringing it to the best, biggest market possible.” And not realizing that if you build an incredibly powerful search algorithm or you build an incredibly viral social network that actually that can have negative externalities that you don’t expect when it gets that big and that pervasive.

09:54 Paul Matzko: But the story of the rise of Silicon Valley, it’s not just a California story. It’s also, specifically, a Stanford University story. Step back to California and the history of why Silicon Valley? So we’re in the prune fields or prune orchards?

[laughter]

10:10 Paul Matzko: I don’t know how prunes grow. Prune orchards of California. You have Stanford University there, but you actually have a great line in your book. Like, today we hear the word Stanford, we think, “Oh. Ivy League, top-tier university.”

10:26 Margaret O’Mara: Yeah, yeah.

10:26 Paul Matzko: But you have a line in the book where you described Stanford as, “Outsiders were a touch more surprised by Stanford once written off as the sentimental folly of a 19th century robber Baron and his wife, a school best known for its pretty scenery, rugged football team, and Herbert Hoover,” which is a great line.

[laughter]

10:43 Paul Matzko: How does… So, Stanford’s there, and clearly Stanford plays an important role in the story. How does Stanford become that kind of central player?

10:54 Margaret O’Mara: Yeah, Stanford plays an absolutely critical role in this story. It’s the hub. And it’s not just the institution; it’s the structure of the institution which was set up by that sentimental robber Baron, Leland Stanford, and his wife, Jane, and also by the leadership, the mid-20th century leadership, the choices that individual leaders made at Stanford to really remake it into what became the ultimate Cold War University. If you dial back back to Stanford’s founding, and it opened in 1890, it was found… You look at it’s founding grant, which actually you can go and Google, you can find it online. It’s really interesting to look at the document itself. And it’s very, very different from, say, the founding mission or the guiding mission of Ivy League schools like Harvard. Harvard and Yale were founded in the 17th century to educate [chuckle] future clergymen and lawyers. They were liberal arts institutions for the elite.

11:51 Paul Matzko: Yeah.

11:52 Margaret O’Mara: And they’ve had a certain… Their mission has been shaped by that subsequently. Stanford on the other hand was a product of the 19th century industrial age. It says explicitly in the founding grant. I’m gonna paraphrase this, but effectively the purpose of this university is for its students and graduates to really bring something useful into the world. And there was a great deal of latitude when you get sort of… Fast forward, half a century. This is an institution that, on the outside, kind of looks like a lot of other, and is trying to be like a lot of other elite private institutions, but hasn’t quite gotten there yet, but it… There is a lot of latitude that its leaders have and kind of how it structures itself. There are no rules on kind of making sure you have a full roster of Humanities departments, for example.

12:45 Margaret O’Mara: And so a really instrumental person in this story is a guy named Fred Terman who was actually a born and bred son of a faculty member at Stanford who becomes a faculty member there, an engineer, electrical engineer, and becomes Dean of Engineering and then later becomes Provost. And during World War II, he is back in Boston actually, in Cambridge working like many other engineers on the war effort related to the Manhattan Project and other things. And an effort that was led by Terman’s Graduate Advisor, a guy from MIT named Vannevar Bush, with a very funny, funny first name, and Terman realized that Bush was working with Presidents Roosevelt and Truman to build a science… Sort of permanent science complex where the government was going to start on a permanent basis, putting a lot of money into colleges and universities, and both as contractor and also for education. And so Terman comes back to Stanford in 1945 and says, “We gotta get in on this action [chuckle] effectively. This is gonna be our ticket.”

13:55 Margaret O’Mara: And so he, working with the then President of Stanford and other leaders of Stanford, really remade the entire curriculum, beefed up the physics, beefed up engineering, built whole programs that were centered around cutting edge digital technologies like Silicon Semiconductor Manufacturer and really became a leader in… And a partner with industry, and partnered with industry in ways that were unheard of at the time. And I’m not… I don’t wanna advocate… I don’t think every public or private university should wanna do exactly what Stanford did. They kind of made some sacrifices along the way. You can’t be good at everything. And it was and is a very technically-focused institution, and that’s not necessarily what, say, a public university like the University of California at Berkeley was able to or should do. There’s a public mission of higher education that sometimes can go against this very utilitarian build-it-up so you’re the ultimate in electrical engineering and physics.

14:56 Paul Matzko: Some people say, “Well, why didn’t Berkeley… ” I mean, Berkeley’s absolutely really critical to the tech story, but Berkeley functions in a very different way than Stanford does, in part because it’s a public university. And Stanford, as a private institution, had a great deal of latitude to remake its curriculum, to focus, to build up its focus on sciences and engineering in a way that was absolutely perfect for the times, took advantage of all of this money flowing westward from the Defense Department and the Atomic, what was the Atomic Energy Commission which is now the Department of Energy. All of these big federal agencies that are just pouring money into advanced scientific research and development. And Stanford just saw that opportunity, and its leaders grabbed it and ran with it.

15:46 Paul Matzko: And that flexibility is, I mean, I was struck reading your book. Terman and, I suppose, others in the leadership there really were willing to try new things. One of which was not just in the Academic Department, it was their Office of Technology Leasing. Which from what I can tell, I mean, these days most schools have one of these units that license their research out to corporations. Maybe explain for our audience, what are those? Why was this such a pioneering thing that Stanford was doing? I think theirs is 1970?

16:22 Margaret O’Mara: Yeah, the 1970… Yeah, and so Stanford was ahead of the game and, well, was not alone in thinking about ways to commercialize the technologies that are coming out of its labs. And this sort of story of tech transfer is… It’s an IT story for sure. I mean, Google’s Foundational Technologies were licensed by Stanford and greatly enriched Stanford when Google went big, [chuckle] but it is also very much a biotech story. So I think that this is where we get into another core industry that’s growing up in and around the Valley and in other parts, other tech hubs during the ’70s and into the ’80s, which is biotech. And that is one, and when you’re thinking about computer hardware and software, the story is not just that of the technology itself; it’s also the people who develop and build that technology. And on the IT sort of that side of things, Stanford’s perhaps greatest spin-off has been the people, its graduates, the people who graduated from there, not necessarily the things that were germinated in its labs.

17:29 Margaret O’Mara: But on the bio side, you have to have the academic. You need to have a lab to develop the foundational products for biotechnology. It’s a very different process of product development and marketing, and it’s a longer time frame. And that is where making it easy for the products of government-sponsored university research to be commercialized was absolutely instrumental in encouraging a revolution in biotechnology, and then seeding a whole new set of companies, both in the Valley and elsewhere, that have transformed medicine and also have been incredible business success stories on their own.

18:20 Paul Matzko: Now, Stanford made those changes for a pretty basic reason: It was the Great Depression. Finances were tight, and so the university sought corporate sponsors for basic scientific research. Later on, as we’ll discuss in our next episode, they look to the military for funding which had all kinds of ramifications for good and for ill. Incentives do matter, but that’s not only true on the institutional level; it matters on the level of individual researchers as well, and those individual incentives were about to drastically change. You see, prior to the ’70s and ’80s a university-based scientist received relatively little financial reward for the research they performed. Now, sometimes corporations would buy patents off of researchers, but the big companies had all the leverage in the negotiations. On the other hand, if you took government research grants, the laws that then stood said that the government owned most of the resulting patents, leaving nothing for the researcher themself. But in the 1970s, two things changed on both fronts. First, in 1970, Stanford created the first Office of Technology Licensing, which was a university clearing house for patentable research. If your research led to a patent, in exchange for splitting any proceeds from that research three ways between the researcher, their department, and university, the university would license out the use of the patent, though not ownership, to companies that wanted to use that basic research.

19:45 Paul Matzko: The other change came in 1980, when Congress passed a key bipartisan piece of legislation called The Bayh-Dole Act, which meant that the government no longer claimed patent rights for projects supported with government grants. I asked Margaret about how these two developments changed the incentive structure for researchers. And maybe you can describe for our audience what it was like… Now, this is both the story about before these kind of licensing offices at universities, but also before what was known as the Bayh-Dole Act of 1980, so it’s at the tail end. One is the development of these offices is at the beginning of the ’70s; one is at the tail end of the ’70s. My understanding is it dramatically changes the incentives for university researchers and for universities themselves when it comes to encouraging innovation. Why was that?

20:38 Margaret O’Mara: Well, it’s interesting. Yeah, it sort of turns… It’s a real reformulation of what government-funded research is for. And when you go to the ’40s, the ’50s, the ’60s, government research or academic research sponsored by government contracts was not seen as a pathway to future entrepreneurship and wealth building. It was competing with the Soviets in scientific production and building better…

[laughter]

21:05 Paul Matzko: Guns, really, yeah.

21:07 Margaret O’Mara: Yeah. But building up the science complex of the United States. Commercialization wasn’t completely out of it, but that wasn’t the main end. When you get to the ’70s and the ’80s, there’s now this… Part of it is the talented scientists and engineers realized that they could stay in academia and they could make a certain amount of money and they could do this, or they could commercialize what they’re doing and have this incredible entrepreneurial future. Stanford was, aside from… Even before it had to offer the technology licensing, was ahead of its time in allowing its faculty to consult for industry as well as hold their day job as faculty members. So they were able to essentially make some money on the side [laughter] and to be on corporate boards, to be technical advisors, to get a piece of the action. And so that is… Now, there are these commercial incentives for scientific people, personnel, to do things outside of academia. So that’s one thing. That’s one thing that’s precipitating this turn towards, “Let’s find a way to make this technology more easily commercializable.”

22:19 Margaret O’Mara: But the other thing, and this is where, again and again, you need to integrate the story of tech with the broader story of American history and particularly American political history, but also business history, to really understand what’s going on. So think about the ’70s. What’s going on in the ’70s? Well, first of all, the Vietnam War is not loved by anybody. Wherever you are in the political spectrum, you’re pretty much against it. So there’s a very unpopular war and a consequent decline in military spending after the war, real cut-backs and then the size of the military. So those contracts aren’t flowing anymore like they used to. There isn’t as much military activity. A pivot during the Nixon era towards government investment in health, creation of the NIH, these other health agencies that are seeding new discoveries, again, stimulating new innovation that is potentially commercializable. And then you have a crisis in American business, right? American manufacturing. You’ve got competition from Japan, you’ve got oil crises, stagflation.

23:25 Margaret O’Mara: And so policymakers in Washington, and we see this throughout the Nixon and the Ford administrations but also into Carter, are like, “Okay, what can we do to stimulate a new generation of industry, and how can science-based industry help bring the economy back?” All of these things are feeding into increased pressure for the rules to be changed on how all of what’s being conceived in university labs, how you can commercialize it. A lot of the big universities that have a lot of research… University of Wisconsin was really ahead of the game, was really the first mover in technology creating a tech transfer office; but also Stanford, MIT, other big dogs are starting to do some of this commercialization that really, by the time you get to Bayh-Dole in 1980, it universalizes something that some of the elite research institutions have already figured out a way to do. It’s significant that Bayh from Indiana and Dole from Kansas are the two sponsors of it. The reason that they were in it was not just because they cared about the commercialization of scientific research, but also because they wanted the universities and institutions in their states to be able to share in… To commercialize as easily as these other big players were doing. So in a way it was a kind of effort to democratize the process of commercialization and spread it across the country.

25:00 Paul Matzko: These two changes, university licensing offices and the Bayh-Dole Act, had huge effects. Consider the difference for university researchers themselves. Licensing offices leveled the playing field as they negotiated with big corporations resulting in more money for inventors themselves. Before this, average revenue for an inventor was about 15% of proceeds. That more than doubled to 33%. And University started making bank too, with Stanford’s licensing revenues in the 13 years prior to 1970 totaling a mere $3,000. In the 50 years since, that number has been more than $2 billion. Bayh-Dole had perhaps an even greater impact. Before 1980, these government-held patents were woefully under-utilized. Consider that when the law was passed, federal agencies owned 28,000 active patents, but fewer than 5% of them were licensed.

25:57 Paul Matzko: Contrast that with a control group, the small number of patents funded by government grants that the government did allow companies to freely use. They had a utilization rate of 25 to 30%, five to six times higher. Now, in addition, there were entire fields of research that languished prior to Bayh-Dole because policymakers… Well, they’re a risk-averse set of people who tend to be focused on any potential downsides to the exclusion of potential upsides to innovation. When government held the patents, researchers and companies were constantly worried that Congress or federal agencies would prohibit or delay development of new technology. For example, this was a constant concern in early biotech research into recombinant DNA. That fear of political tinkering was lessened, although not removed, after Bayh-Dole. But I’m afraid that these crucial deregulatory and market responsive decisions just might not be possible any longer in our current political environment, so I asked Margaret, who actually worked in politics prior to becoming a historian, to compare the political context of the 1970s and ’80s with today in terms of openness towards pro-innovation policy.

27:08 Paul Matzko: It’s such a striking moment in terms of the political economy that at this moment, late ’70s, early ’80s, there’s this bipartisan pro-tech movement. Bayh-Dole, you’ve got everyone from Michael Dukakis to Al Gore to Ronald Reagan. You have from both political parties across the political spectrum, there are folks who are in favor of certain forms of deregulation for the sake of technological innovation and finding commercial applications that will help the economy grow because of the economic doldrums. Everyone wants to get out of the ’70s economy, which was not a great time for lots of good reasons. But today, it feels like we’re moving into the inverse of that, which is… You can maybe see the first inklings of a bipartisan anti-tech push, which is concerned about over-commercialization and people… Economic growth at the cost of exploitation. Do you see a parallel, kind of an inverted parallel, there? How do you think about that yourself?

28:17 Margaret O’Mara: Yeah, I think it’s so interesting, just in the swing from both parties being such champions of tech and really been… All the things that the tech industry has been able to do in the last quarter century, both for good or for ill, have really been a consequence of both Republicans and Democrats. They’ve been arguing about a lot since the ’90s and the ’80s, but the one thing that a lot of them tended to agree upon was we need to create a runway for Silicon Valley companies to grow. Now what we have is the consequences of that growth, and it’s been a great deal of economic concentration. The parallel that this makes, what this reminds me of a lot is… I go back to Teddy Roosevelt, I go back to the first decade of the 20th century. This reminds me a lot of the political dynamics that we saw in the progressive era, the response to the first gilded age, the growth of a whole set of new tech, high tech industries, railroad, steel, oil, brand new industries that hadn’t existed before, that had grown in a essentially deregulated environment to become enormous and to become inescapable.

29:27 Margaret O’Mara: An American of 1905 could not live… They could not go to the grocery store without having to pay prices that were essentially set by the Sugar Trust or one of these giant conglomerates. They couldn’t get on a train to go to the next town without… The ticket they were paying was set by these giant railroad companies, and on and on and on. And so, there was a political backlash to that. There is a… On both parties. You go back to, again, to the first decade of the 20th century. You have Teddy Roosevelt and you have Woodrow Wilson, both with different ideas about the means to, the way to respond to the growth of large companies, but both have regulatory responses of some kind. Roosevelt is less a trust buster than he gets a reputation for. He was more of a regulator. He believed in guardrails. You could be big, but you just need to have some rules of the road. Where Wilson was a Jeffersonian all the way. He wanted to small, small, small, break them up. Out of that moment come the regulatory agencies that are still the ones that we’re turning to to say, “Okay, Federal Trade Commission, what are you gonna do about Facebook?”

30:41 Margaret O’Mara: So I see, in a way, it’s not surprising to me that this has been the response, and that it’s a bipartisan response. And economic concentration is, it can have a… It can quash innovation. There are reasons that we try to find some way to create a countervailing force against that, so that there’s still opportunities for the next generation of entrepreneurs to get a foothold in the market.

31:11 Paul Matzko: Now, we’re historians so future prediction not really in our bailiwick, but are there any contemporary trends in American society, economy, politics, that make you wonder if that next major tech hub might be somewhere else in the US or somewhere else in the world, and… I guess I’m asking where do you think the next cities of knowledge might be?

31:33 Margaret O’Mara: It’s really interesting, I’ve been really kind of a Debbie Downer on that question for a long time. When people are like, “How do you… How can we build another Silicon Valley?” And I was like, “Well, you can’t, really,” which is… I realized I could have had a multi-million dollar consulting career had I had a different answer, but I’m too much of a truth-teller, I guess.

31:49 Paul Matzko: [chuckle] Oh, man.

31:49 Margaret O’Mara: But let me tell you, I’m changing. I think what we’re seeing, particularly in the last few years, is challenging what I had concluded, and I think that was… My conclusion was the right one for a very long time, but I have, especially in the last… Recently just in traveling, and talking to people around the country and around the world, and seeing what’s going on, and the actual… Not just the, “Oh, we’re building a silicon something, and we’re putting… We’re calling it Silicon and that’s it… We’re gonna build this beautiful research park and everyone’s gonna show up.”

32:21 Paul Matzko: Yeah. Yeah.

32:22 Margaret O’Mara: I’ve visited a lot of deadly research parks or research parks that really wanted to be something and didn’t become that. But now, in the last few years, I go and I think this has to do with tech also moving back to the center of cities in the US and the rest of the world where there’s more… It’s not about building a place, it’s about actually building community and building a real vibrant economic agglomeration. There’s stuff going on. I think it has to do with the fact that tech software has indeed eaten the world. Marc Andreessen, his prediction in 2011 was right that software is everywhere, everywhere is a technology company. You can be in Kansas City, you can be in Lisbon, Portugal, you can be pretty much anywhere and you can build a viable tech business.

33:16 Margaret O’Mara: So the geography is really changing. I think the next gen is… The industry is global. Silicon Valley isn’t a place anymore, it’s a global network. But here’s where I’m thinking a lot, and I know a lot of people listening and people I talk to are thinking a lot about China and the other rising tech economy. I look at China and I see a place that is doing a lot of things. They looked at the Cold War US and they took notes. They’re doing a lot of things the US did back then and has doing less of, like investing in advanced technologies, investing in higher education at scale, building cities, building infrastructure at scale. Able to do that because of its structure of government. It’s a lot easier to…

34:05 Paul Matzko: Cut through red tape, I suppose.

34:06 Margaret O’Mara: Build a new neighborhood or build a highway [chuckle] when you don’t have a liberal democracy. There’s that.

34:14 Paul Matzko: For good or for ill.

34:15 Margaret O’Mara: And an amazing amount of entrepreneurship. Meanwhile, the US is taking some of the things that made it great, like investing in R&D, investing in higher ed, both public and private, creating an amazing escalator of opportunity for young people to get on and get educated and do amazing things. Steve Jobs’s dad did not graduate high school. He’s not… The people who are the icons of the industry that we look up to, they were, by and large, coming from pretty modest backgrounds. They were not born on third base. And that has… It has changed. The start-up hustle right now. You wanna go be… Come out of college and start your own company, live on ramen noodles for six months in San Francisco. Well, I hope you have a rich uncle, or I hope you don’t have family back in your home country that you need to send money to, to make sure that their house… They have a roof over their head. It becomes exclusionary, and I think that that’s not liberty, that’s not opportunity.

35:31 Margaret O’Mara: And look, China is not gonna provide that sort of liberty and opportunity, but the US did and it can do that again. I think that involves a real reckoning with what is the role of the state and the role of policy, and the productive, generative, opportunity-creating environment that actually does one better from what we’ve done before. We created opportunity for a whole bunch of Americans, but they were usually guys. They were usually a certain… Came from… There were a lot of people who were left out of that. How can we do it one better going forward?

36:05 Paul Matzko: We at Building Tomorrow would argue that putting a thumb on the scale often means taking a thumb off the scale, looking to markets in the private sector for innovation, rather than relying on government grants, bureaucratic management, and industrial policy. When California encouraged labor, freedom and mobility by banning non-compete clauses, it had positive results. When the US after World War II opted against government-run research labs like those in other countries, and went instead with a hybrid model of government grants for private researchers, it had positive results. When Bayh-Dole took high bound government middlemen out of the patent licensing process, it had positive results. Incentives work, markets work, and the resulting efflorescence of spontaneous order that erupted in Central California sure worked beyond the wildest imaginings of even the most optimistic observers back in the day. In any case, that’s our show. We’ll return in two weeks with the final episode in our Silicon Valley series. Until then, be well.

37:08 Paul Matzko: Thanks for listening. Building Tomorrow is produced by Tess Terrible. If you enjoyed Building Tomorrow, please subscribe to us on iTunes or wherever you get your podcasts. If you’d like to learn more about Libertarianism, find us on the web at www.libertarianism.org.