After 20 years of what appeared to be unstoppable growth, the US technology industry spent last year underperforming the rest of the economy. Product failures in new industries like virtual reality and cryptocurrency, layoffs across the board, lower stock prices and the bankruptcy of Silicon Valley Bank create a teachable moment to talk about the culture and direction of the tech industry.
Beginning in the mid-1950s, the technology industry embarked on a 50-year journey of invention, entrepreneurship, empowerment, and transformation. It produced new industries and huge productivity gains for the rest of the economy. Americans got used to new technologies, embracing each new generation, confident that it would make their lives better.
To an increasing degree over the past dozen years, the tech industry has tapped into the confidence of consumers and policymakers to change the game. Instead of empowering users, many new technologies exploit human weakness. They used data and app design to manipulate users’ choices and sometimes behavior, undermining their autonomy. Rather than creating new industries, technology has exploited data, low-cost capital, and lack of regulation to extract value from consumers and existing industries. Technology has become a zero-sum industry.
Despite press coverage of the harm stemming from internet platforms – including political and social polarization – cryptocurrency’s questionable business practices and the flaws of artificial intelligence systems, policymakers have failed to regulate or legislate. Equally important, consumers have chosen to trust even the most unreliable technology companies. We know there’s something wrong, but we haven’t insisted on change yet.
The recent collapse of Silicon Valley Bank illustrates a technology industry culture that repeatedly prioritizes profit over the public interest. SVB was a community bank. It claimed that half of all startups had accounts there, as did a large percentage of venture capitalists and executives. For decades, SVB has embraced Silicon Valley culture, providing unique services to its community. And until very recently, Silicon Valley was loyal to its bank.
Explosive growth in the startup world after the 2008 financial crisis translated into massive deposit growth that stalled a year ago when the Federal Reserve announced its plan to raise interest rates to curb inflation.
Four factors contributed to the collapse of the SVB. If the Fed hadn’t raised interest rates by 4.75% last year, the SVB wouldn’t have gone bankrupt. Had Congress not passed a law in 2018 that relaxed regulation of banks like SVB, SVB would not have failed. Had SVB employed good risk management, it would not have failed. If bank regulators had done their job during a period of rapidly rising interest rates, the SVB would not have failed. But even with all four flaws, SVB shouldn’t have failed.
SVB failed because the community it supported from the beginning abandoned it at a critical moment. A group of venture capital firms that included Peter Thiel’s Founders Fund warned about the SVB and urged their portfolio companies to withdraw funds immediately – $24 billion was launched in just over a day.
Some in the tech industry would have you believe that the SVB meltdown — as with other technology failures — is not connected to Silicon Valley’s culture and business practices. This is nonsense, and there are lessons to be learned.
One lesson is that loosening regulations in large sectors — such as the reversal of Dodd-Frank’s 2018 financial reforms — rarely ends well. It can reasonably be concluded that government regulations, such as those surrounding vaccines, play an essential role in consumer safety, which becomes less obvious the longer they are effective.
The vast majority of major players in technology were now not in operation when the deregulation boom began in 1981, but no industry has exploited laissez-faire government policies more effectively than technology. Industry leaders have consistently shifted the burden of their product harm from themselves to those affected by their products.
Another lesson is that technological progress is not inevitable. Historian Melvin Kranzberg once noted that “technology is neither good nor bad, nor is it neutral.” Technology is the work of human beings and reflects their priorities, incentives and values. If we want technology to be a force for good, we need to ensure that the priorities, incentives and values of the people who create it are consistent with the national interest. We haven’t done this for at least 20 years.
A third lesson is that higher interest rates and increasing geopolitical tension may not support the strategies adopted by startups over the past decade. This can be a blessing in disguise.
The industry will always argue that more regulation would slow innovation. The counterargument is that much of the innovation of the past dozen years has done significant social harm.
Consider all the tech startups since the 2008 financial crisis and ask yourself how we should calculate the damage to society. Some of the most prominent tech segments have done great damage to consumers, including cryptography, AI, self-driving cars, facial recognition, deep fakes, and social platforms capable of violating your privacy and tracking your every move. Most startups have done something good, but many use the good as bait to enable business practices that lead to evil. They do this because of misaligned priorities, incentives, and values.
This brings us back to the Bank of Silicon Valley. The people whose calls to withdraw funds triggered the bank run are successful, rich and careless. If Silicon Valley’s leaders are unwilling to support the SVB, one of their own and a valued and unique partner in their ecosystem, it’s safe to assume their business objectives would not consider, much less act for the greater good.
Why would we entrust the leadership of an industry central to our economy to people who have no interest in the public interest? Silicon Valley Bank’s history also suggests that they don’t understand banking, a system that plays a central role in their success. What else do they not understand?
The solution to this damaged culture is regulation in three areas: public safety, privacy, and individual choice and competition. Congress has a long history of legislating in all three areas. Engineers do their best work when faced with constraints – and it’s time to give them some.
Roger McNamee is co-founder of Elevation Partners and author of “Zucked: Waking Up to the Facebook Catastrophe”.