America has always seen itself like a shining city on a hill, an exceptional country that does not have to follow the old rules. And since the birth of the modern Internet in the mid-1990s, technological exceptionalism made Silicon Valley the city of the economy on a hill – a place where normal rules didn’t apply.
Giants like Facebook, AmazonAnd Google have become some of richest companies in history, considered by many to be indestructible money-making machines. Even as the nation struggled with a “jobless recovery” after the Great Recession of 2008, Big Tech was the Ayn Randian sector proving that America had the best of all capitalisms. The technology has been criticized for harming Americans democracy, youth mental healthand even contribute to long-term economic stagnation. But the sector argued that its innovation made it exceptional enough to operate in its own quasi-libertarian golden state – that regulatory burdens should not apply and its geniuses should be free to work without impediments. They pointed to the FAANG outperforming the S&P 500 as evidence.
For a while, things seemed to work. Buoyed by more than a decade of near-zero interest rates, capital was seemingly all over technology. Then the first pandemic sent tech stocks soaring even higher. But that party ended a year ago, when Mark Zuckerberg’s Meta Empire suffered the biggest drop in a single day of any publicly traded company in American history. The big tech companies have since become exceptional in every bad way: the rest of the once-powerful FAANG companies see record declines in market capitalization; and tech giants laying off thousands and thousands of workers, even as the rest of the economy grows. Meanwhile, the ultimate venture and innovation asset, cryptocurrencies, has lost around two-thirds of its value, as the crypto’s “market capitalization” has shrunk by $3 trillion to about $1 trillion in a year marked by several huge collapses.
The idea, too, that the big brains of innovators in our startup economy are truly exceptional took a hit last week, when the “thought leaders” who populate the venture capital industry fell victim to the financial panic. the most fashionable. The explosion of Bank of Silicon Valley has been implicated lax Federal Reserve regulationsrules weakened by a Powerless Trump-era Congress, mismanagement by bank executives, and even, oddly, on “awakening” Or too much telecommuting. The SVB was not a normal bank, and its relatively unstable depositor base made it particularly vulnerable, as Nobel laureate Douglas Diamond recently pointed out. said Fortuneby Shawn Tully. But the fact remains: the panicked inhabitants of this shining valley tried to withdraw 42 billion dollars in one day. As a joke paraphrasing Zuckerberg which was circulating last week said it: The tech industry has moved so fast that it has broken its own bank.
It was clear long before the collapse of SVB that there had been a change in the financial regime – of “all bubble” from the era of easy money to a unprecedented global tightening monetary policy. Perhaps now, in the midst of this sober reassessment, is the time to challenge the wishful thinking about risk that was rampant in the age of technological exceptionalism, and pull it out of the mainstream of innovation. American.
What is innovation?
The idea of technological exceptionalism is based on what author Sebastian Mallaby has called “power law“, the belief that investors and inventors could lose on 100 companies as long as they succeed on the 101st – or as Meta CEO Mark Zuckerberg put in 2016the desire to “choose hope over fear”.
This philosophy has fueled many risky bets on unprofitable tech stocks, misguided startups, and directionless cryptocurrencies, like the era of cheap money meant investors were comfortable betting on increasingly absurd companies, from Theranos to Juicero to We work. The detritus of this irrational era includes thousands of “zombie” companies And cryptocurrencies, companies that are no longer economically viable but have somehow managed to survive by taking on more and more debt. And that time has left us with various other costs to calculate, including that of what Shosanna Zuboff called “surveillance capitalismas smartphones and social media increasingly invade people’s time.
“Innovation at all costs is never a long-term strategy,” said Robert E. Siegel, senior lecturer in management at the Stanford Graduate School of Business and himself a venture capitalist. Fortune. “It’s a strategy at a time when capital is cheap and there’s scum in the market…SVB’s implosion is a punctuation mark at the end of an interest rate supercycle. low interest where capital was looking for returns and there was so much money flowing into high-risk, high-return assets like corporations and startups.
The check matured last year with a strong interest rate hikes to fight the inflation that has slammed into technology like a hammer. Large companies including Meta, AmazonAnd Apple all lost hundreds of billions in market capitalization last year, while venture capital spending fell 31%.
“Less Stupid Adventures”
Despite the self-destructive lavishness of technology in recent years, innovation isn’t necessarily dead in the United States. This is not possible, as the country is preparing for great competition from China in everything from AI For climate technology. But the kind of innovation practiced by the tech industry will have to work very differently if it is to survive. This will likely mean putting the idea of technological exceptionalism to bed once and for all.
Meta’s Mark Zuckerberg called 2023 a “year of efficiency,” while Amazon, Googleand other tech companies furiously cutting unnecessary departments and projects, including the Donquixotic Moon Projects employees used to clamor to work, not caring about return on investment.
This pivot to efficiency makes sense in anticipation of a possible recession. It could also be the pruning the U.S. innovation sector needs to stay alive, said Stanford University’s Siegel. “We’re going to see less dumb companies,” he said. Fortune. “You’re going to see this because there will be less money to spend. Fewer bad ideas will be funded and there will be less surplus.”
Tech probably won’t have to figure out how to innovate more efficiently either, as it’s invited DC to come and fix it. Whether Congress or the Federal Reserve are up to the task of overhauling regulations remains to be seen.
“I’m cautiously optimistic,” said Charlie O’Donnell, a partner at New York-based venture capital firm Brooklyn Bridge Ventures. Fortune. About a third of the roughly 70 companies in O’Donnell’s portfolio were exposed to SVB’s collapse, and he said he welcomed thoughtful oversight from the venture capital world: “Ultimately , you just want to know what the rules are,” he said. “You just want stability.”
All of this means tech can’t go back to normal anytime soon, but the industry can learn from the trauma of the past year. Despite the challenges ahead, innovation in the United States is far from dead. It’s time to adapt.