Podcast: The Real History of Silicon Valley and the Lessons It Holds for Innovation Policy Today, With Margaret O’Mara

The dominant narrative about Silicon Valley, and U.S. tech innovation generally, is that it sprang from garages of quirky but committed entrepreneurs. Yes, but… What many don’t realize is how important federal investments were in kick-starting the growth of Silicon Valley and other tech hubs in the past. Rob and Jackie discuss this history and its potential lessons for federal policy to spur growth in other parts of the country today with Professor Margaret O’Mara, author of The Code: Silicon Valley and the Remaking of America.

Mentioned

• Margaret O’Mara, The Code: Silicon Valley and the Remaking of America (Penguin Random House, 2020).
• Robert D. Atkinson, Mark Muro, and Jacob Whiton, “The Case for Growth Centers: How to Spread Tech Innovation Across America” (ITIF, December 2019).
• Adams Nager, David M. Hart, Stephen Ezell, and Robert D. Atkinson, “The Demographics of Innovation in the United States” (ITIF, February 2019).
• Apple 1984 Super Bowl Commercial Introducing Macintosh Computer.
• Margaret O’Mara’s website: www.margaretomara.com.

Auto-Transcript

Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, founder and president of the Information Technology and Innovation Foundation. We’re a D.C. based think tank that works on technology policy.

Jackie Whisman: And I’m Jackie Whisman. I handle outreach at ITIF, which I’m proud to say is the world’s top ranked think tank for science and technology policy.

Rob Atkinson: And this podcast is about the kinds of issues we cover at ITIF from the broad economics of innovation, to specific policy and regulatory questions about new technologies. In this episode, we’re focusing on how technology concentrates in certain places and how to spread it to more places across America.

Jackie Whisman: Rob, you coauthored a report last year, “The Case for Growth Centers, How to Spread Tech Innovation Across America,” so I know you have a lot of ideas on this topic, as usual.

Rob Atkinson: I actually do. So the report goes into a lot more detail than we will, but it’s on the ITIF website and the Brookings website. But we argue that it’s time for the federal government to take more aggressive steps to spread tech hubs to more places across the country. Not that every place can be one, but there are a few places that are pretty close to being a strong supporting, self supporting tech hub and with a little bit of a push, we think that they could get there. Our guest today literally wrote the book on the history of Silicon Valley and how it was shaped by individuals and government and how it shaped technology in America. And we’re really excited to have her here.

Jackie Whisman: Yes. Let me tell you about her. Margaret O’Mara is the Howard and Francis Keller Endowed Professor of History at the University of Washington. And she’s a contributing opinion writer at The New York Times. She writes and teaches about the history of U.S. politics, the growth of the high tech economy and the connections between the two. Her most recent book called The Code: Silicon Valley and the Remaking of America is a Rob Atkinson favorite. She’s been called one of the most consequential historians of the American led digital revolution and we’re so excited to talk to her today. Thanks for being here, Margaret.

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

Rob Atkinson: So I know this is going to sound kind of obnoxious, but I’ve read a lot of things about Silicon Valley. I’ve talked a lot of people. I’ve read a lot of books and I have to say Margaret, in reading The Code, I learned a lot. It was a lot of both new information and then new framing, how you put things together. Folks out there, if you haven’t read the book, I really ... even if you think you know all about the Silicon Valley story, I really encourage you to get it and read it.

You know, I always remember testifying one time, maybe 10 years ago on a congressional committee on innovation and the role of government and there was a Silicon Valley venture capitalist there. And after I did my normal thing of talking about why I thought government could play an important role in innovation, he said, “Well, I really don’t think so. If you just look at Silicon Valley, it was all entrepreneurs. Had no role for the government just look at ...” And then he listed three companies, Apple, Intel, and Google. I of course, had to respond that Intel sold 95 or 99% of its chips to the Air Force for many years, until it got off the ground. Google was initially funded by an NSF grant that Sergey Brin was working on, on bibliographic databases. And Apple early on had a kind of SBA assistance or loan or an SBIR grant of some kind.

So again, not to say that government’s the only or even the driving force there, but it clearly had played a role. And that’s part of what you talked about in the book. Can you say a little more about that?

Margaret O’Mara: Yeah. The government played a huge role, but it wasn’t just how it played that role it’s the way that it did and the way it was structured. It was done in a way that built the industry, but did it in a way that made people like the person you were speaking to believe that the industry did it all on its own. And that is actually part of the entrepreneurial magic. It’s very important to understand the dynamics of that relationship. The government influence was not only through defense contracts, being a customer for things like Intel’s microchips, but also creating what I like to think of as this incredible sandbox for innovation. Creating conditions and the raw ingredients. And those raw ingredients, of course included education, higher education. People.

Yes, Apple may have never been a defense contractor per se, but in addition to the things you mentioned, there’s the things that make up the things Apple made. From the Apple I and II, all the way to the iPhone and beyond, those foundational technologies came out of government funded laboratories. The career of people like Steve Jobs and Steve Wozniak was really made possible. The reason that the Jobs and Wozniak families were in the Valley in the first place was because of the defense industry. Woz’s dad was a Lockheed engineer. Lockheed was the biggest employer in Silicon Valley from the mid 1950s all the way through nearly the end of the ‘80s. That’s kind of this big, hidden story of the Valley that’s really important and isn’t fully recognized.

Rob Atkinson: I was at a salon dinner once in Washington with the CEO of a California tech company, not a Silicon Valley one. He was talking about the importance of government playing a role as you just alluded to. There was somebody there who was with a conservative free market think tank, and he said, “Well, all this stuff about government being involved in, I mean, just look at the Internet. That didn’t come about from government.”

Margaret O’Mara: Again, part of that collective amnesia is ... I mean, that’s part of Silicon Valley’s magic, right? They kind of believe that they’re doing it on their own. And this goes into how it was done. There was a lot of ... My shorthand is the federal government shoved a lot of money in science and tech’s direction, and then got out of the way. That’s not to say that obviously being a defense contractor, there are a lot of t’s you have to cross and i’s you have to dot, but more broadly when you think about funding basic research, university based research, when you’re funding researchers with giving them money for blue sky R&D. Everything from the integrated circuits that went into the Apollo rockets, NASA and the space program, which was a very big customer of 1960s, Silicon Valley semiconductor industry, the industry that put the Silicon in Silicon Valley. But the Internet itself is a great example.

Was the internet cooked up in a government lab? No. Was it funded entirely by DARPA, The Defense Department? Yes. Where it actually took place were in academic labs that were funded by DARPA. It was designed by the computer scientists who were using the early Internet. It was for the first 20 years of its existence something that only people who were government contractors or in some way associated with they’re getting money from NSF or from the military or something, they were the only ones who could use it. And gradually in the 1980s, it starts opening up and then in the early ‘90s, you’re allowed to use it for commercial purposes, to buy and sell things. And then off we go.

Jackie Whisman: Can you give some examples of how the federal government played a role in shaping Silicon Valley we know today, or maybe a couple more concrete examples.

Margaret O’Mara: Silicon Valley was originally the Santa Clara Valley. It was just another agricultural Valley in Northern California not that different from a lot of its counterparts. Its main product was fruit. It was known as the nation’s capitol of prune production. That was once its claim to fame a century ago. And the thing that really changed that was World War II and the Cold War and the federal government getting into the business of funding science and technology in a big way.

And also the immense amount that the U.S. was not just spending on defense, per se, but on defense electronics and small electronics and communications devices. And that was ... and this is I think useful in thinking as other regionss think about what they may become, from the very beginning Silicon Valley’s story was kind of building on core competencies that were there in the beginning. That it had already established a specialty in small electronics and communications devices, radar, microwave. Some of the earliest pre-World War II Silicon Valley startups specialized in those sorts of things. There was a small cluster there. To be frank, there were small clusters of little garage startups all over the country in the first half of the 20th century.

Certainly the Bay Area had a cluster of radio technology related stuff that was very pertinent to what later grew. But Dayton had a lot of those too. So did Cleveland. So did other places that we don’t think of as high tech places necessarily. Now, where the government comes in is during the war and after the war. Money is flooding out from Washington D.C. particularly to the West Coast because of the Pacific Theater of World War II and the military installations that are up and down the West Coast become hubs of cold war activity. And they also flow to universities and to private industries, aerospace industries, electronics firms that can build the things that the Army, that the Pentagon needs.

And so the two big anchors of Silicon Valley and where Silicon Valley gets it start are two places that were transformed and vastly enriched by that wave of money. One is Lockheed, Southern California-based which locates its missiles and space division in Sunnyvale, California in 1954. In part because one of the incentives built into defense contracting was trying to encourage their contractors not to cluster all in one place. So when the proverbial Soviet bomb comes over, it doesn’t obliterate a whole bunch of capacity at once. So they decentralized, dispersed up to Northern California, but there was also a capacity there. But one reason Lockheed came was the presence of the second thing that government funding transformed and that was the builder of Silicon Valley. And that was Stanford University.

Stanford had been there since the late 19th century. It was, don’t tell anyone, it was just kind of okay. And the people who ran Stanford at the time had ambitions for greatness. They knew they were not the Harvard of the West. They would like to become one. A really pivotal figure here is a person named Fred Terman who was an electrical engineer. He was a Palo Alto boy. He was a son of a faculty member. He was a professor, then Dean of Engineering and later Provost. And under Terman’s leadership, Stanford vastly enlarged it’s science and technology capacity. Built up physics. Built up all these disciplines that the military industrial complex needed and became the place if you wanted to become trained in or specialize in small electronics and communications devices and specialize in that kind of engineering.

And so this symbiotic relationship between Lockheed and Stanford, both big, being enriched by all this federal money, begins in the ‘50s. It brings thousands of people to the Valley, engineers. And then other outposts of East Coast-based companies start moving to California, too so they can tap into this workforce that can part of this cluster. So there actually weren’t that many little homegrown startups in the beginning. One of the people I interviewed for the book who had been in the Valley since 1957, he’s like, “You got to understand, in those early years if you were starting your own company, that indicated you were weird and you couldn’t work for anybody. That you weren’t a company man.”

Jackie Whisman: Like when Rob started ITIF.

Margaret O’Mara: There you go. So the culture really changed. It’s hard to imagine. When we think of the Valley we think of startups and freewheeling stuff and ping pong tables. The last thing you think of is a bunch of military brass and suits and crew cuts and company men. But that’s where it all started.

Rob Atkinson: One of the things I think is interesting is ... By the way, one of the men who went there was Shockley. And so Shockley invented the transistor at Bell Labs. He got frustrated because he frankly, wasn’t very easy to get along with. And he went to California because he had a connection there. And then the other point which you make in the book and others have made as well, it wasn’t just that Terman had this vision for a great university. He had a vision for a great university that was more than a university. That it reached out and worked with industry. Really, I think at the time only MIT was doing that and so that was different. It wasn’t like there weren’t great universities, but he was obviously Stanford Research Park was what his vision and others. You see that as also another factor. Just they were willing to do some different kinds of thinking, different kinds of things, institutionally.

Margaret O’Mara: We often think of Silicon Valley and Boston as being competitors, right? It’s the horse race. Who wins? Boston beat Silicon Valley. Who’s ahead, who’s behind. And that Silicon Valley eventually wins out over Boston. And one of the things that when you dig deeper to this history, you see that part of the secret of Silicon Valley, were it’s connections to Boston and the symbiotic relationship the two regionss had. I would say in the later era, and more recently, this has been replaced by a symbiotic ... We see a really similar symbiotic relationship between Seattle where I live, and the Bay Area where you have flows of money and people and ideas. Connections across institutions and companies that make the two regionss go and that certainly was the case in the ‘50s and ‘60s and even into the ‘70s between the Valley and Boston. There was so much more connection than we often recognize.

Rob Atkinson: You know, one thing again, people forget about it, you pointed out in your book, but in the 1960s, when Silicon Valley was really coming into its own, the U.S. federal government spent more on R&D every year than the rest of the world combined, business and government. So take every corporation, every government outside the U.S., the feds were putting in more money for R&D. A lot of that went to Silicon Valley. As late as 1992, Santa Clara County was getting more prime contract awards from the Defense Department than on a per capita basis, than any county in the world. And yet that’s all gone now.

Jackie Whisman: So why do you think that ethos of so many in the Valley is that the government’s role is de minimis when it clearly wasn’t?

Margaret O’Mara: Well, I think history explains it. That’s why this is so useful. It’s not just the submerged way in which a lot of the spending happened, where you had companies that were simultaneously doing some defense business, but also doing commercial business. Students who were going to university and not realizing the computer labs where they were getting introduced to computers and learning computer languages were funded by the Defense Department. And I think it has a lot to do with the history of the late ‘60s and early ‘70s, the broader political history of America at that time. The people, mostly men who build the consumer businesses in Silicon Valley, the ones that make Silicon Valley into a household word starting in the ‘80s, and I’m talking video games and desktop computing, they’re all of the Baby Boom / Vietnam generation. They come of age, many of them in California, in the late ‘60s and early ‘70s.

They are choosing to go and tinker in garages and build their own motherboards as a conscious political act. Turning away from, turning down jobs in defense contracting. Turning away from the military-industrial complex. They see part of their work on what was then called micro computing that produced the first desktop computers like the Apple II and others, as something that was taking computers, these amazing machines, that they saw as being in control of big government and big business and big universities and the establishment. Instead miniaturize them, put them on people’s desktops and let people communicate and create with those computers. And then all that’s wrong with the world will be fixed.

It sounds very idealistic, but Mark Zuckerberg, again and again, says, Facebook’s about connecting the world and connection. This free flow of information is something that they’re all about. He didn’t come up with that idea on his own. This is something that really goes, runs deep, and it’s very closely connected to the very complicated way that Silicon Valley understands its own history and understands its relationship with government. Where it’s so deeply rooted that throughout the whole time I’ve been a historian of this subject, which has now been since the dot-com era pretty much, I’ve had so many people in the industry push back when I say, “You know, there was a political history here. There’s a backstory here.” There’s so much ... that’s why I get so much pushback because this history is really not known.

And partially one of the reasons that Silicon Valley was so successful, this is again, history. What else is happening in the late ‘70s and early ‘80s in American business, as you know, people like Steve Jobs and Bill Gates are getting their first Time magazine covers? It’s all bad news, right? The Detroit automakers are going to Congress to ask to be bailed out. They’re all of these ominous reporting on Japan doing everything better. In Japan nearly ate the Silicon Valley semiconductor industry’s lunch. They came very close to taking over the chip making side of the business.

So the message that Silicon Valley was presenting, “We’re in a new kind of capitalism. We’re going to make lots of money. We’re not going to pollute. We’re going to have a new kind of way of arranging the office. Our CEO’s, aren’t going to wear three piece suits. They’re going to have long hair. And they’re going to pose barefoot on sitting cross legged on their living room floor for magazine photographers.” It’s a different kind of business. That was really appealing to a younger generation of Americans who were so disillusioned by what their leaders had been doing.

Rob Atkinson: So there’s that great iconic Superbowl ad from 1984 by Ridley Scott, which if folks haven’t seen it, go on YouTube and find it. This sort of totalitarian image of a guy up there droning on. And it’s basically the Apple, I guess it was the Mac when it came out, it was going to destroy big IBM and the East Coast values and all. So it really goes to what you’re saying.

Yeah. I mean, there’s really a kind of this libertarianism in one way, that’s kind of baked in there. One of the problems I see with that, and again, to be clear, this is not to say that somehow government played the dominant role or that without incredible entrepreneurs and innovators and engineers and software folks, this wouldn’t have happened but to have only one side of it. I guess what troubles me is that it leads to a policy debate that under values where government can play an important role. Do you agree with that? How do you see that playing out if you do?

Margaret O’Mara: I do agree with that. I do agree with that. And I also strongly agree with recognizing and appreciating how the U.S. government did it. Whether it was by design or happy accident, but we can look, compare and contrast other places. There are plenty of governments around the world that invested heavily in computing. That invested heavily in R&D, but it was more top-down. Was more command and control. The government role was more visible. And while they had considerable technological accomplishment, or putting computer terminals in people’s homes in France far earlier than in other parts of the world for example, it wasn’t an environment that created this homegrown startup culture that only the United States did. And I think there are a number of ways that we need to appreciate the government role. We need to appreciate the government role in funding basic research and education. And the American higher education system, public and private, is a big part of this story.

Particularly public universities that were this amazing escalator of upward mobility for a whole generation of ... The people that I profile in the book, the first generation of Valley guys, yes, they were privileged by their gender and their race in 1950s America. They were able to do the things that others were unable to do. But most of them were people like Bob Noyce, Gordon Moore, you name your icon. They came from middle class families in the middle part of the country with little money or family connections. And that’s one reason they ended up in California. If you went to an Ivy League school or a prep school, and you had a daddy in banking, you were going to stay and work in your dad’s bank. You weren’t going to come out to Palo Alto, California in the late ‘50s, where there were a bunch of prune trees and who knows what?

So that, and the other piece of what the government did and what makes the U.S. distinctive is immigration. Immigration is a huge, huge, huge part of the Valley story. Disproportionate number of Valley founders, of entrepreneurs, not to mention the engineering backbone of these companies, past and present is made up of people who were not born in the United States or they’re children of immigrants and refugees. And they weren’t all coming in with their computer science degrees in hand.

There are so many stories of children of immigrants who come here with nothing who then go on to become people like Jerry Yang, who founds Yahoo. Or refugees who come here with nothing like Andy Grove, who’s a teenage refugee from Hungary in the late ‘50s and he goes on to Intel and become Andy Grove, like one of the legendary business leaders of Silicon Valley.

Rob Atkinson: Like Steve Jobs.

Margaret O’Mara: And Steve Jobs, who was the child of ... who’s his biological father was an immigrant. Yeah. You have to not recognize ... And this is all policy and politics and government, right? It isn’t just, “Oh yeah, we should enlarge the R&D budget.” That’s one piece of it. It’s this bigger investment in human capital and the free movement of people and capital, which sometimes is it’s construed as you need to take the taxes off and the regulations off and all those things and let people free to be you and me. You need to create again, this sandbox, that is a good container for people to come in and play around with the sand. You need to provide the box and the sand, and then you let people go in and play around with sand, throw it at each other, build sandcastles. That’s the American Story.

Jackie Whisman: And what are the lessons that you think other regionss can learn from your book? I mean, how can they implement a similar ecosystem?

Margaret O’Mara: Well, I think that there are kind of three basic ingredients to any innovative place throughout human history and Silicon Valley exhibits them. One is having resources. Either it’s in the form of capital, in the case of Silicon Valley, it was Cold War spending that kind of jolted, washed all this money over the Valley. And then generations of exits of successful companies continue to build that wealth, that got reinvested. So resources is one.

The second is institutions. Whether it be universities or research institutes, or places that are bringing people together and giving them an opportunity to play around with ideas without immediate market pressure to deliver something.

And then the third is place, and that’s a little more squishy. It has to be things that draw people to a regions and keep them there. That can be the kind of ephemeral quality of life like here in Seattle. We’re like, “Well, you know, you can go hike on the...” Which is great. Like that’s awesome quality. I can wake up in the morning and I see mountains every day. That’s great. You go to Palo Alto and it’s sunny. It’s really nice weather. That’s not nothing. But you don’t have to have sunny weather or mountains to have that quality of life. It’s things that make a place livable and attractive for people to be there and want to stay there. Regardless of the job that brings them there, they have a reason to be there.

We can trace those three things at work and everywhere from ancient Athens to Elizabethan England to Renaissance Florence, to 19th century Manchester, to 20th century, Silicon Valley. They take different forms and different shapes, but they have a same patterning. And when you have lots of people coming together from all over and clustering together, that’s where new ideas come from.

So other regionss need to recognize you don’t need to be just like Silicon Valley. First of all, calling yourself Silicon something is I can tell you, it doesn’t have a really great track record. Imitation may be flattery, but it actually is not effective in terms of economic development. Silicon Valley’s secret was having those basic factors and part of that was just dumb luck, Cold War, and nice weather. No one could manufacture that. But also having people and institutions on the ground that took advantage of those opportunities at the time. Also building on its core competencies. So that’s the other thing. There’ve been plenty of other places that try to get an edge, start Silicon semiconductor manufacturing to be like Silicon Valley in the early years. They couldn’t, because there’s only so many places that can be a capital of something.

So, I think other regionss need to look at, “Okay, what do we do? What are we really good at? And what’s the digital analog of that? What’s the 21st century analog of that?” I think regionss should challenge themselves of “How can we be better than Silicon Valley?” Because quite frankly, there are a lot of things about the Valley that don’t work very well for the people who live there. The housing’s blisteringly expensive for one. People are commuting two and a half hours from Salinas to go work in Tesla factories. I mean, the working class has been boxed out almost entirely of the Bay Area. There are a lot of things that are really damaging and that aren’t sustainable over time.

Other regionss need to look at, “Okay, what do we do? What are we really good at? And what’s the digital analog of that?” … I think regionss should challenge themselves: “How can we be better than Silicon Valley?” Because, quite frankly, there are a lot of things about the Valley that don’t work very well for the people who live there.

So, I think that other regionss need to recognize, “What is it about us that we do well that we need to nurture? How can we build human capital? How can we invest?” And the other thing, and this is super, super hard for people in tech or business generally or politics to internalize, Silicon Valley’s secret is time. It’s been doing this since the ‘50s. Why is there so much money there? Why is there so much venture capital there? Because people have been getting rich there since 1957. It’s just been reinvested. And it’s not just money, it’s generations of expertise and being operators and understanding this is how you do it. That can lead to blind spots that can lead you to not realize, “Oh, maybe we should do it differently now. We’re not building microchips now. We’re building social media platforms. Maybe the metrics need to be different.” But those things all need to be kept in mind as these other places, and they truly can, but they really need to look inside and see what they have there as a starting point.

Jackie Whisman: Well, we could talk to you for ever, but I do have one final question. If you were a presidential advisor on tech policy, what would be your top priority?

Margaret O’Mara: Investment in people. And by that I mean, investment in education, higher education. Creating opportunities for people who might not otherwise have them to be part of the innovation economy, broadly defined. Creating economic opportunity through education and also immigration. Recognizing that America’s technological edge is not because Americans are better at technology than the rest of the world. It’s because for decades, particularly since the mid 1960s, U.S. immigration policy has made it a possibility for people from all over the world to study and work here. To build companies here and to build lives here. And to make Silicon Valley what it is today and make other tech regionss, make the American economy what it is today. I think starting from people first. Realize great technology comes from people. It doesn’t come just from a lab.

Rob Atkinson: So, Margaret, we wrote a report at ITIF four or five years ago that Smith Richardson Foundation asked us to do on. It was a survey of over a thousand of the most important innovators in America measured by filers of triadic patents and winners of the R&D 100 Awards. We were able to get a thousand of these folks to respond. We asked them questions like, “What’s your gender? What’s your age? Where were you born? Where were your parents born?” Over 43 or 44% of them were first or second generation Americans, way higher than that proportion in the population. So to your point, that’s a really, really important component of it.

Another interesting part of that was that women were not as highly represented. Only I think around 11%, but women were actually more represented in the life sciences, as you would expect, perhaps. That’s one area where in the STEM fields, women have done certainly better than they have in some of the more harder sciences. Not hard, like in hard to do. Hard as in engineering or physics. And so that’s another challenge just to make sure that all Americans domestically have an opportunity, as well as the right immigration policies.

Margaret O’Mara: That’s right. And again, that’s where new ideas and the next generation of ideas come from. It’s bringing more people into the room where it happens to have a say in what the product is, who it’s marketed to, what needs it’s meeting. Tech has gotten a lot of criticism, some deservedly so, for creating tools that are for a small stratum of the world’s population. That are created by upper-middle-class Californians with people like them in mind. And there is incredible capacity right now, as we’ve talking in the late spring of 2020, incredible need for bigger thinking. Thinking about how all of that energy and all of that incredible talent that the tech industry has concentrated, how it can be deployed to solve some really big and urgent problems.

Jackie Whisman: Well, thanks so much for being here, Margaret. Can you tell our listeners where they can find you and follow your work?

Margaret O’Mara: Yes. You can find me on my personal website, margaretomara.com. You can also find me on Twitter, @margaretomara.

Jackie Whisman: Thanks again and that is it for this episode. If you liked it, please be sure to rate us. Feel free to email ideas or questions to [email protected]. You can find the show notes and sign up for our weekly email newsletter on itif.org and follow us on Twitter, Facebook and LinkedIn @ITIFdc.

Rob Atkinson: That’s it for now, but we have more episodes coming up with great guests lined up to talk about issues like 5G, big data and health innovation, and other topics.

Jackie Whisman: Can’t wait, come back.