VC-istan 4: Silicon Valley’s Tea Party

The SATs might have left people sour on analogies, but here’s one to memorize: VC-funded technology is to Corporate America as the Tea Party is to the Republican Party. I cannot think of a more perfect analogy for the relationship between this Sand Hill-funded startup bubble and the “good ol’ boy” corporate network it falsely claims to be displacing. It is, like the Tea Party, a more virulent resurgence of what it claims to be a reaction against.

What was the Tea Party?

Before analyzing VC-istan, let’s talk about the Tea Party. The contemporary American right wing has an intrinsic problem. First of all, it’s embarrassed by its internal contradictions, insofar as it fails to implement its claimed fiscal conservatism, instead getting us more indebted through wars fought to serve corporate interests. More to the point, it’s trying to get people to vote for things that are economically harmful to them– and it’s surprisingly good at that, but that requires keeping people misled about what they are actually supporting, which in turn mandates constant self-reinvention. For this reason, the Republican Party has a well-established pattern of generating a “revolution” every decade and a half or so.

First, there was the “Reagan Revolution” of 1980. Then there was the “join the fight” midterm election of 1994– the Republican landslide that brought us our first severe government shutdown. Around 2009, the modern Tea Party was born– and that brought us a second severe government shutdown. At first, this Tea Party appeared to be deeply libertarian, presented as a populist tax revolt without the overt corporate or religious affiliations of the Republican Party. It seems ridiculous in retrospect, but there were left-wing Tea Partiers at the beginning of the movement (there aren’t anymore). In time, the Tea Party was steered directly into the Republican tent, fueling the party’s electoral success in 2010. That’s miraculous for them, when one considers the gigantic image problem that the Bush Era created for that party. In 2008, some commentators believed the Republicans were finished for good, about to go the way of the Whigs; two years later, it had been reinvigorated by a populist movement that, at its inception, seemed radically different from the fiscally irresponsible GOP.

By promising a reduction in taxes and social complexity, the Tea Party managed to remove Bush and Cheney– old-style authoritarian stooges, big-government war hawks, and objective failures even before the end of their term– from the conversation in record time. Of course, time proved the Tea Partiers to be “useful idiots” for a more typical Republican resurgence– a reinvention of image, not of substance– and the most astute observers were not surprised. When the reputations of established players become sufficiently negative, reinvention (and “disruption”) becomes the marketers’ project of the hour.

Venture capital

Corporate America, too, has a severe image problem. The most talented people don’t want to work in stereotypical corporate environments. They want to be in academia, hedge funds, R&D labs, and cutting-edge startups– not dealing with the stingy pay, political intrigue, slow advancement, low autonomy, and archaic permissions systems associated that are stereotypical for large institutions. Of course, companies that need top talent can get it, but they must either (a) pay extremely well, (b) offer levels of autonomy that can complicate internal politics, or (c) market themselves extremely well.

Wall Street can simply buy its way out of the corporate image problem. However, this typically means that employee pay will go up by 20 to 30 percent per year, in order to keep abreast of the rapid hedonic adaptation that money exhibits. Few companies can afford to compensate that generously, especially putting that exponential growth in the context of a 20- to 40-year career. Venture capital’s ecosystem is an alternative solution to that image problem; a corporate system that appears to be maverick, anti-authoritarian and “disruptive”, when what it actually is is dishonest and muddled. The people would have been middling project managers in the old system are given the title of CEO/”founder” in one of VC-istan’s disposable companies. Instead of a team getting cut (and its staff reassigned) as would occur in a larger corporate machine, the supposedly independent company (of course, it is not truly independent, in the context of the feudal reputation economy that the VCs have created) is killed and everyone gets fired. This might seem like a worse and more dishonest corporate system, but it gives the impression of providing more individual prominence to highly talented (if somewhat clueless) people.

Not much of substance has improved in the transition from the older corporate system to the VC-funded world, but I think some things have actually been lost, particularly in reference to fairness. Bureaucracies can be dismal and ineffective, but those that work well are efficient and, most importantly, fair. In fact, attempts to achieve fairness (the definition of which seems, inexorably, to accrue complexity) seem to be a driving force behind bureaucratic increase. Obviously, bureaucracy is sometimes used toward unfair ends, or even designed maliciously (for example, over-restrictive policies are often built with the intentional purpose of making those with the power to grant exceptions powerful) but I would say, in general, that those negatives are not supposed to emerge from bureaucracy, and probably not characteristic of it in general. Bureaucracy is mostly boring, mostly effective, and only maligned because it’s infuriating when it fails (which is, often, the only time when most people notice it; bureaucracy that works goes unnamed). Without bureaucracy at all, however, social processes often devolve into a state where favor trading, influence peddling, and social connections– with those accrued early on (such as in school) and therefore most tied to socioeconomic status rather than merit, being most powerful– dominate.

VC-istan has reduced corporate bureaucracy (because companies are killed or sold before they can accrue that kind of complexity) but done away with the concern for fairness. It claims to be a meritocracy, and only accepts those who refuse to see (much less speak of( the machinations of power. Those who complain too loudly about VC collusion are ostracized. For just one petty example of the VC-funded world’s cavalier attitude toward injustice, people who voice the “wrong” opinions on Hacker News are silenced, “slowbanned” or even “hellbanned”. Injustice, accepted for the sake of efficiency, is tolerated as accidental noise that’s expected to converge over time, as the error from independent coin flips would smooth out as more occurred. The problem with social processes is that the errors (injustices that one hopes will be transient) don’t cancel each other out; they have a long-term autocorrelation.

In truth, what does self-assertion of meritocracy mean? It means that one is not even going to try to strive for additional fairness, under a belief that balance between fairness and other constraints has already been achieved. Of course, anyone who’s paying attention knows that not to be true.

Am I proposing that more bureaucracy is the solution to VC-istan’s moral failings? No. I’m only arguing that VC-istan’s selling point of “leanness” often comes at a cost, which is a sloppier and more unfair ecosystem. The old corporate ladder, with less of the ageism and emphasis on native social class and educational “pedigree”, was actually a much fairer one than VC-istan’s sloppily-built, poorly-thought-out one.

More virulent

The Tea Party turned out to be a more brazen and generally worse Republican Party than the one it supplanted. I’m not a fan of Bushite corporate stooges, but they would not have seriously considered the threat of fucking national default to be a valid negotiation tactic.  

Likewise, the VC-funded ecosystem is generally worse than the older and more stable corporate system that it is attempting to replace. To list some of the reasons why it is worse:

  • less intra-corporate mobility, since most VC-funded startups are built around a single project. As VC-funded companies become large enough that internal mobility would be viable, many develop mean-spirited stack-ranking cultures that keep internal mobility low or nonexistent.
  • the old corporate world’s large, announced layoffs, often with severance, have been replaced by dishonest “performance”-based firings designed to protect the company’s reputation (it may claim it is still hiring, and thus prosperous) at the expense of the departing employee’s.
  • increased social distance– investors vs. founders vs. employees is a much larger (and more permanent) social gulf than executives vs. managers vs. reports, the latter having more to do with seniority while the former is largely an artifact of native social class.
  • extreme ageism, classism, and sexism.
  • low rates of internal promotion, due to the company’s increasing need to validate its status with flashier hires (who get leadership roles as opportunities emerge). External promotion is the way to go in VC-istan, but that creates a “job hopping” impression that makes it hard to move back into the mainstream corporate world.
  • in general, meager benefits in meaningful dimensions (health coverage, 401k matching) matched with cosmetic or meaningless perks.
  • defined (if spartan) vacation allowances replaced by undefined (“unlimited”) vacation policies where social policing keeps everyone under two weeks per year.
  • on average, substantially longer work hours.
  • less working autonomy, on average, due to the tight deadlines faced by startups whose investors demand excessive risk-taking and rapid growth.
  • significantly more economic inequality, when the distribution of equity is considered. A hired (non-founder) executive might only earn 20% more, in salary, than an engineer, but typically receives 20-100 times as much equity in the company.

The future

What has actually emerged out of Silicon Valley is a failed social experiment that has generated much noise, little progress, and immense distraction. The good news is that it lacks comprehension of how to conduct itself outside of its own sandbox. For one small example, economics textbooks might argue that Uber’s “surge pricing” is supremely efficient and therefore right, even though the subjective experience for all who encounter it is extremely negative. I don’t intend to opine on whether Uber’s pricing model is morally right (it’s a useless discussion). I do find the observation valuable: the new economic elite of the Valley is shockingly gauche when it comes to self-presentation. It thinks it’s the height of science and culture, and everyone else finds it to be the worst case of uncultured new-money syndrome in over a century. It won’t last. If the gauche overlords of Silicon Valley– no longer engineers or technologists, but lifelong executives (with all the pejoratives appropriate to that word) who came up via private equity and good-ol’-boy networks– make a serious play for cultural prominence, they will be shoved back into their spider holes with overwhelming force.

The old corporate regime was deeply flawed, and that’s not going to come back either, but there was a certain humanity required of it if such organizations were to survive for the long term. The problem with VC-istan is that these companies don’t care about persistence; they’ll either be gigantic and invincible (and able to pay off old sins via meager settlements) or dead in five years. If VC-istan’s pretenses of building the future are taken at face value, then the future’s literally being built by people who give not a damn about it.

Uber can charge what it wants– that’s a private matter– but I’m disgusted when I see Valley darlings trying to shove their mindless, childish arrogance into politics. That’s actually scary. The price of housing and long commutes for which Silicon Valley is known are solid, incontrovertible proof that their little society is an utter failure.  Whatever they say about themselves is mitigated entirely by the messes– of their own making– in their own backyards. If they can’t even make San Francisco affordable, how are they equipped to handle the problems of the world? They aren’t. Just as the Tea Party proved itself incapable when it came down to the actual inherent complexity of politics in a nation of 315 million, the Valley darlings aren’t fit to rule more than a postage stamp.