The End of Silicon Valley and American Tech Dominance

During the last few months, I have become fascinated with cryptocurrency, blockchain, Hyperloop, artificial intelligence (AI), and some other intriguing cutting-edge technologies. My research into these technologies revealed something really fascinating: almost none of the work on them was being done in Silicon Valley.

Almost all the cryptocurrency and blockchain research was being done far from American shores in places like China, Moscow, Israel, London, Switzerland, Lichtenstein, and gasp Estonia. The hotbed of cryptocurrency startups in North America is not San Jose, but the suburbs north of Toronto.

Nor was it just crypto, it turns out that much of the cutting-edge AI research is taking place in the United Kingdom. Even our super-patriotic president has conceded America’s second-place status in AI. Last year when Donald J. Trump; and his son-in-law Jared Kushner, needed cutting-edge data-research to help win an election they turned to Cambridge Analytica – a British firm associated with the historic university.

Tech is Fleeing Silicon Valley

Beyond that, the two most recognizable Hyperloop firms; Virgin Hyperloop One, and Hyperloop Transportation Technologies (HTT) are based in Los Angeles. Hyperloop One’s test track and research center is located in North Las Vegas, Nevada, a dismal industrial suburb of Sin City.

HTT’s research is being done in Toulouse, France, another Hyperloop test facility is run by Haardt Global Mobility in the Netherlands. A new Hyperloop company called Arrivo is planning to build its’ test track and development in Commerce City, Colorado, a working-class suburb of Denver.

Nor is it just companies that are fleeing Silicon Valley, many of the bright minds that create them have joined the exodus. A prime example is blockchain engineer Preethi Kasireddy, who wrote an interesting Medium piece entitled Why I’m leaving Silicon Valley. She decided to move to LA after becoming bored with Silicon Valley and realizing its creative mindset can flourish anywhere.

Tellingly, one of Kasireddy’s biggest complaints was of the sterile money-obsessed cultured in Silicon Valley. She is not the first, the most famous Silicon Valley refugee in LA is Elon Musk; who moved there nearly 20 years ago after selling his stake in PayPal (NASDAQ: PYPL).

Musk’s rocket factory SpaceX is located in Hawthorne, a Los Angeles suburb, located in gang-infested South Central. Although Elon’s auto company Tesla Motors (NASDAQ: TSLA) is based in Silicon Valley – at least for now.

My guess is that these two will not be the last Geeks to decamp from Silicon Valley; Kasireddy noted that Alphabet, Amazon, and other tech giants have opened campuses in LA. Some of the same companies are setting up shop in other places such as Denver, and Boulder, Colorado, as well.

Is Silicon Valley the New Detroit?

Those who have studied the history of American business know all this happened before in America’s capital of urban decay – Detroit. Back in the 1920s and 1930s, Detroit was America’s center of cutting-edge technology with several innovative auto companies.

Innovative companies in old Detroit included Packard; which introduced the first cars with air-conditioning and automatic transmissions before World War II. During its’ heyday; Packard was the world’s top luxury car brand and the favored ride of dictators like Mao Zedong and his nemesis Chiang Kai Sek.

Other lesser automakers of the 1930s and 40s included; Hudson which made mass-production cars fast and reliable enough to be used as race cars in early NASCAR, Willy’s (inventor of the four-wheel drive), and Studebaker. The quality of some of their work was unmatched, during World War II Packard engines were used in fighter planes and torpedo boats. Studebaker trucks were the secret weapons that kept the Allied armies supplied in World War II.

Is Detroit’s Fate Silicon Valley’s Future

All that changed during and after World War II when a handful of centralized bureaucratic corporations took over the American auto industry. The Big Three; Ford, General Motors or GM, and Chrysler were able to squeeze out the smaller competitors and squash innovative startups like Tucker.

By the early 1960s, the Big Three had a monopoly on auto production and sales in the United States and the results were predictable. Creativity and innovation disappeared from the American road. Cars were designed by committees and marketing departments, not by gearheads.

Technological innovation gave way to style, instead of designing or building better cars; American auto companies added unnecessary features like tailfins to increase the price. New models were rolled out each year with little or no improvements, but trumpeted by the fawning press as icons of American progress. This practice is eerily reminiscent of tech companies’ constant release of new models and features; which add little functionality but are accompanied by media circuses.

The hot and innovative car designs and exciting brands started coming from Europe. Movie stars like Clark Gable; who had previously driven Duesenbergs, started buying Mercedes, Porsches, and Jaguars. Wealthy Americans were willing to pay GIs serving in Europe in the 1950s to bring Mercedes home with them – my dad remembers doing that.

Worse was to come, by the late 1960s the Big Three were failing at their core job of producing reliable transportation for the masses. Cocky imports like Volkswagen, Volvo, and Toyota began running television ads mocking the Big Three and their products. They soon attracted millions of loyal customers across the United States by selling basic cars that actually ran and required little maintenance.

More tellingly, the world’s dictators; who needed fast and reliable cars to get out of town in case of revolution, started buying Mercedes. A Mercedes-Benz model from the 70s even earned the nickname dictator for being the favored ride of such dubious characters as Idi Amin. By the mid-1970s the only world leader seen in an American luxury car was the President of the United States, whose buying choices were dictated by politics.

Average people followed suit, school teachers, factory workers, and students started buying Hondas, Datsuns (today’s Nissan), and Toyotas. Mercedes, Audis, and BMWs replaced the Cadillacs and Lincolns in the parking lots of America’s country clubs.

Will Silicon Valley share Detroit’s Fate?

By the 1980s, the American auto industry was on the ropes, and one of the big three; Chrysler had to be bailed out by the government to avoid extinction.

Today, the world’s largest car companies; Toyota and Volkswagen are Japanese and German. More tellingly, there is almost an entire generation of Americans who will never buy an American car.

All this will remind some people of today’s Silicon Valley which is increasingly dominated by few gigantic bureaucratic companies. Google (Alphabet), Apple, Microsoft, Oracle, and Facebook are increasingly acting like the Detroit Big Three; with massive bureaucracies, huge headquarters, massive market share, lots of publicity, and little innovation.

Predictably, when one looks at the lists of companies participating in the various blockchain and cryptocurrency research efforts the names of the Silicon Valley giants are conspicuously absent. What research and development those companies undertake is increasingly centralized, bureaucratic, and directed towards projects that require massive infrastructure such as self-driving cars.

Will the disaster in Detroit be repeated in Silicon Valley; with a few bureaucratic tech giants unable to compete with nimble foreign adversaries and begging for government protection? There might be a time when San Jose is a sea of urban decay and grass grows in the courtyards of the abandoned Googleplex and the deserted Apple Park.

Only time will tell, but the growing flight of young and creative people from Silicon Valley should be watched. It might be a sign that America; or perhaps the Bay Area, is about to lose its edge in technology.