Odd Lots - This Is What Happens to Silicon Valley in a Downturn

Episode Date: November 28, 2022

The US economy may not be in a recession, but Silicon Valley, which had a mega-boom throughout the 2010s, is in a downturn. Tech stocks have tanked and almost every day there are new reports about industry layoffs. So what happens next? What happens to its unique corporate culture? What happens to management and employees? On this episode, we speak with Margaret O'Mara, a professor at the University of Washington and the author of the book The Code: Silicon Valley and the Remaking of America. We talk about the history of Silicon Valley's upside-down moments and how the industries that have dominated the region have changed over time, particularly as government money comes in and out of the picture.See omnystudio.com/listener for privacy information.

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Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Alloie. Tracy, you know, I don't know what's going on right now with the broader. Sorry, I'll let you finish. Well, there are so many different ways that sentence could have gone on.

We could start every episode with I don't know what's going on. Anyway, I don't know what's going on right now with the broader American economy. but I do sense that the tech industry, Silicon Valley isn't a real downturn. It seems so. I shouldn't laugh because obviously for a lot of people this is very, very serious. We've had a number of tech companies coming out and saying that they're going to be firing literally thousands of people in this downturn. And what's kind of remarkable about it is this is something a lot of people were kind of expecting.

You know, these are all growth companies. They tend to do very, very. well during periods of low interest rates. Once rates start going up, we see the pressures sort of added on, and then we see these cyclical downturns. Right. And you know, like the story of the 2010s was tech was really the first industry to come sort of roaring out of the gate in that recovery. And the broader U.S. economy never had a great recovery in that decade. But tech was absolutely booming. And so there is this flip. And you know, the other thing is like, when I think of Silicon Valley or tech,

You know, I have certain ideas of like what a boom looks like and all these like amazing perks and free dry cleaning and free steak dinners if you stay at the office and free bean bags. Yeah, free beanbags. All of it. I don't have a great intuitive sense about what a downturn looks like at Silicon Valley. Right. And I think it's never really been promoted as part of Silicon Valley. It's always, you know, come to this place, create a startup out of your garage or whatever and become a billionaire and enjoy all this money and all these. perks. But as we just mentioned, it is a cyclical industry. There are as many downturns as there are upturns at this point. And yet they don't get as much attention. No, there's definitely, it's a boom bust industry. And, you know, I've talked about many times. My first memory of markets was during the dot-com bubble. And then there was the bust and we sort of forgot about tech for a while and all

these companies, but they kept plugging away. But yeah, I don't know really what happens to this industry in a downturn. And I think it's like an interesting question. I don't know when it'll rebound, but right now we are definitely in one. Yeah. So we have really the perfect person to talk to us about previous downturns. That's right. So we met this guest recently. We're out at the Berkeley Forum on corporate governance and we talked to her there and we just had to talk to her again for the podcast itself because it's very interesting, someone who's very informed on this question. We're going to be speaking with Margaret Omera. She is a professor of American history at the University of Washington. And she is also the author of the book, The Code, Silicon Valley and the Remaking of America.

So a great person to talk to about the history of the Valley, the history of tech and all the changes it's undergone. So Margaret, thank you so much for coming on the Odd Lots podcast. It's great to be here. Thanks for having me. Yeah, we had to, after chatting with you recently out in San Francisco, had to have you on the show. So, you know, we do have this idea of like what tech, what tech, what, what, these firms do in the boom times. And it sounds pretty great. So it's pretty fun. Makes everyone

want to flock to San Francisco or, you know, the valley and be part of this world. But we don't really talk about the other side as much. Instead we sort of forget about it. But obviously, for every boom, there must be a bust. Yeah. What Goes Up Must Come Down, which was actually, I was reminded that was a theme song of one of the many commercials of Pets.com, which was maybe the emblematic dot bomb story of the last big notable downtown Dern and Tech, which was the dot com boom and then the dot com bust. Yeah, this is a cyclical industry. Grows fast, grows hot. And then there's a cooling period. So I mentioned interest rates in the intro, but I don't think it just boils down to that. Can you maybe talk about what is the common thread in terms of sparking bus in tech? Like, what is it that

tends to set these things off, sets the industry into contraction? Yeah. Well, there's some things that are very particular to the industry and then there are macroeconomic conditions that are sparking it too. It's usually, you know, they're always working in combination. I think a common thread is there's a big market run up and a lot of froth and excitement and excitement about, you know, companies that are legitimately, you know, minting money by doing, usually by doing something new and a new class of products. And also around that, surrounding that, some businesses where the, you know, fundamentals aren't as strong and they're being buoyed by this general enthusiasm in the market. We saw this in the 60s with what was then called space age stocks, all these transistorized

electronics that these companies, kind of the first gen of Silicon Valley companies that were very much attached to defense electronics and NASA and the space program, you know, so you have a little, you have some froth. And then, of course, macro economic conditions are shaping that too. You have low interest rates that are giving, you know, incentivizing investors to go and play the stock market and tech seems like a good, a good bet. And there's also, you know, usually a boom is fueled by an entry of a new group of companies and particularly platforms and products that are high growth, whether it be the space age stocks, the 60s, or the personal computers of the early 1980s or the commercial internet of the 90s, or more recently and for quite some time.

This is a very long boom we're coming off of, you know, the big platform companies of, quote unquote, big tech. So you kind of need this sort of like nice confluence of story and macro. Like, you need the investor enthusiasm. Low rates probably help in some way. But there also has to be, like, a thing that people get excited about for because low rates itself. What did, you know, we were talking about like, and kind of joked about like the beanbags and all the perks. Has that always been part of the booms? Like, how long have they been sitting on beanbags out there? They've been sitting on beanbags for a while. I mean, the beanbag goes back to the early 70s.

And, you know, it's this, it's this interesting kind of. But, you know, if you think about maybe not beanbags themselves, but this idea of a different sort of corporate culture, a more informal corporate culture, non-hierarchical, that goes way back. I mean, in the case of the valley, you know, you can maybe start that with Hewlett and Packard and the famous HP way, the what they called management by walking around. No corner offices, shirt sleeves, ties, still had ties, but we took off the jacket. And this was in the 1950s. You know, Hewlett Packard was, you know, founded in a garage, an iconic garage startup in 1939. By the 50s, it's a publicly traded company. It's extremely successful. And Hewlett and Packard are very kind of self-consciously working against

the organization man paradigm that was the, you know, that was corporate capitalism in the 1950s. So that, you know, setting that, creating a culture where management and the rank and file engineers are all kind of on the same side is taking the culture of, the engineering lab and transferring that into a corporation. And it also was, you know, I think philosophically, too, it was, this was the high water mark of private sector unionization. People like Dave Packard were very much against unions. Just saw them as, you know, that's a sign that something's wrong with a company if you can't find a way to get along. And that instead, that employees of all rank should be rewarded with stock options. They should have a stake in the ownership of the company.

So it was a different model. And that kind of percolates through. I mean, HP, there are a lot of HP veterans that go on to start venture firms, start other companies. And they bring that laid-back California more sort of ostensibly egalitarian corporate culture with them. Hello, I'm Michelle Hussein. And for more than 20 years, I was at the BBC. But all the time I was delivering the headlines, I wanted to go further than the news of the BBC. the day to spend more time with the people shaping our world. And that's what I'm doing here

on this podcast, speaking to people from Nigel Farage. This is a love you trying ever so hot. To tech journalist Karaswisher. And the tech industry is running wild. You know, they've gotten what they wanted and they've seen a huge run-up in their stock prices. This will be a place where every weekend you can count on one essential conversation to help make sense. To help make sense, sense of the world. So please join me, listen and subscribe to the Michelle Hussein show from Bloomberg Weekend, wherever you get your podcast. It certainly asks interesting questions. Can you give us some examples of what companies tend to do during an industry downturn? Like, is there a typical playbook that stands out to you with your, you know, decades of historic knowledge? Or, like, does it tend to vary

by firm and firm culture. So for instance, I could see, you know, if your business starts coming under pressure, there's obviously an incentive to cut back on spending, maybe start to trim your workforce and lay people off. But there might also be some companies that are especially aggressive and decide we're going to try to ride this out as much as we can and just use this as an opportunity to take market share. Yeah. And I think it depends a lot on the financial position you're coming into the downturn with, and particularly if you're an early stage company. I point to Google as the, you know, the ultimate example of a company that benefited from a downturn, notably the dot-com bust. Google's founded in 1998, kind of late on the cycle of the hype cycle of all these dot-com

startups, and they secure this unbelievable seed round of $25 million, split 50-50 between Kleiner and Sequoia, which, you know, these big firms don't do deals together, but everyone wanted an end. And so they had, you know, they kind of had this foundational capital. And then all of these other companies go out of business. And two things that you need back then in 2001 or so is you need people, you always need people. And so Google was able to acquire engineers for less than they would have had to pay otherwise. And also just, you know, talent was now available. There was more oxygen in the labor market. And they also needed computing power. This is before cloud computing, right? When you had to go buy a piece of hardware and server blades and high-powered CPUs to

power your search engine. And so they were able to do that as well. They were sort of their capital expenditures. Ultimately, it gave them a lot more runway and a lot more time to not have to turn a profit. That was, you know, they were really advantaged by that. And, you know, I think thinking about kind of company behavior in a downturn. You know, we see, when we talk about Silicon Valley, oftentimes we're thinking about the very big consumer-facing platforms, right? The ones that ordinary people that were interacting with every day. And there are many different Silicon Valley. There many different parts of the whole industry. If you look at the dot-com bust, for example, there were companies, you know, semiconductor companies that were still hiring people. There were

other, you know, hardware, kind of the people who were doing the fundamentals were still, There was that the transition to commercial internet was still very much underway. There was a lot of real, there were so many, you know, important use cases that have been proven in the early days of the commercial internet that there was still a lot to be done and a lot of business to be had. It was just these very giant, you know, splashy consumer facing websites and platforms that went out of business that were the ones that got a lot of the attention. What about, you know, just in terms of, so layoffs and other restructuring, do the beanbags go away? Do the ties come on? Like, is there a sort of, I don't know, re-uniberalization of culture in a downturn? It's like, okay, we have to get serious here. Yeah. I, you know, I think that the, I wouldn't say the ties come back on. There have been times when the ties come back on. You know, I think the most, the standout example is Apple, if you go back to the 80s, the mid-80s. The mid-80s. Apple when it's growing fast. John Scully is brought in from Pepsi as this literally the guy in the suit. Right. So that's a great example because we have like, right, because we all have this

perception of Steve Jobs and then they bring in a Pepsi executive to run out. Yeah, the guy who sold Sugarwater. Yeah, there was lots of, lots of grumbling about that. And then of course, it's kind of spectacularly and famously, infamously, he and the board fire Steve Jobs shortly thereafter. Because Mac sales, the Macintosh comes out in 1984 with a splash. We all remember that Super Bowl. ad, the iconic Super Bowl ad and the Mac being this game changer. But what's forgotten in that story is that it had a big splash, but actually did not, it kind of flatlined a bit. It wasn't another Apple 2, which was the first giant hit that Apple had. And Apple was getting, IBM had gotten into the personal computer business, remember, with those Charlie Chaplin ads that were everywhere.

Anyone who was, you know, around in the 1980s might remember those. And so they were eating Apple's lunch. And so Scully, you know, the suits are brought in. Jobs is fired. And then Apple has a pretty dismal decade after that. And Jobs comes back and is brought back in 1997, a CEO. And then after that, it's up and to the right. And that arc, actually, I think, has squashed the suits, so as speak, that the answer. But I think to your question, there is a real, you know, more conservatism in terms of spending and due diligence. I think, you know, the tail that always wags, the Valley Dog, is venture capital, right? What are the VCs doing? What are they hunting? How much, you know, what are they spending on how much do they have to spend? And they are really kind of driving what,

you know, first they're picking the winners or the potential winners. And they're also, you know, what they're demanding of founders and their portfolio companies will change in a downturn. and there'll be a lot less tolerance for the splashy parties with ice sculptures, for sure. This was something that Jason Calicanus brought up on our podcast, which was, you know, it's easy to criticize a lot of tech companies for expanding too much during the boom. But his point was this is what investors, i.e. venture capital, was asking of them. It was all about growing market share. And it's not until, you know, things start to pull back that there's really that. pressure on companies to maybe either start spending money or actually produce a profit. Yeah, that's exactly right. The venture capital world is, you know, a lot of these VCs were

once operators too, right? So, you know, where do VCs come from? And some of them are, have backgrounds of banking, but some of them were founders themselves or people who were, you know, part of the core teams of companies that were very successful. And they turned that into the, you know, the high tech venture capital model, the Silicon Valley style of venture capital. model that starts in the 60s is one that is not just money, it's expertise. And it's importing a very particular type of culture and cultural values that is very growth focused. Moving fast and break things, breaking things has been a Silicon Valley mantra since the early years of the semiconductor industry, because by necessity, you had to move really fast and be incredibly

agile and lean and ready to pivot at any moment and moving really aggressively to get a chunk of the market. And so that sensibility has driven the, you know, the hyper focus on growth. I think that's that that's the origins of that. And that, you know, it's, and of course, that was an utterly different business than, then the, what, the, the dominant business of Silicon Valley, which, you know, software dominant rather than hardware dominant. But nonetheless, I think founders get a lot of heat for excess but someone gave them the money to do it. So I think it was like the day we met in San Francisco several weeks ago or maybe the day after it was just like the complete implosion of FTX.

And the reason I ask is, you know, one of the other things that's sort of like crumbling here. And again, I don't know if it, how cyclical it is, but, you know, I associate Silicon Valley with this like the cult of the individual, the individual founder particularly. So the SBF cult, obviously the Steve Jobs called, maybe the Mark Zuckerberg cult at some point, the Elon Musk cult. Who started that? Where did that come from? Yeah, where did that come from? Well, that has really deep roots. I mean, I think this is, you know, this goes, extends beyond and before the valley itself. And kind of American culture, American political culture, a nation born of revolution. And that is always, lifted up and mythologized the, you know, the so-called self-made man, you know, since the 19th century.

I mean, this has been these, you know, the heroes have been these, you know, individual geniuses, whether it be Thomas Edison or, you know, going forward. And of course, the, you know, the real story is, whether it's John Wayne style cowboy or the great inventor Edison. Yes, you have an iconic, charismatic, extraordinary individual, but also you have an individual who's got good timing, has connections, has a whole team behind them that is part of an ecosystem. And the secret of Silicon Valley is the fact that it's this extraordinary ecosystem and networks of people. Again, we think about these founders, whether it be jobs or Musk or, you know, on and on and on, they're all people who, you know, of standout talent that also were lucky and had had some help and have a team and I think jobs and

Apple are a really great example. When we go back to the beginning of Apple, it found, you know, founded in a garage like many a computer startup at that moment. And Jobs and Woz were like, you know, there were a lot of guys doing what they were doing. Some of them were, in fact, building technically better machines. But what none of those other ones had was Steve Jobs, not Steve Jobs, his own capacity to do all this himself, but the fact that he recognized in his, you know, while he's still walking around barefoot with his beard, that he needed to hire the very best marketing person in the Valley. He needed to get the very best venture capitalist. He needed to get a really good operator with experience. He could take them from a garage and turn them into a real company.

And that is what he did. And all those people made Apple into what Apple was and allowed jobs to sort of be the storyteller in chief and be that ultimately the transformative figure he became. So I have a slightly different crypto related question. But since you brought up personal computing, and this is something that stands out in your book, this idea that Silicon Valley time and time again kind of frames these new technologies. as some sort of revolution. So the personal computer was going to revolutionize our work lives. The dot-com boom was going to revolutionize access to information. Crypto was going to be this big new financial system. And yet with every boom, as we've been discussing, there does tend to be a bust and a lot of disappointment. Can the tech sector, can Silicon Valley like, maintain this revolutionary narrative or this revolutionary idea if people are sort of becoming more experienced with booms and busts or maybe it's just me getting older, but it feels like we've

gone through a number of these disappointments at this time. Yeah, we have, but yet we key up again. You know, the revolutionary declarations are always somewhat overblown, but also, you know, think about all the devices we're using, even to conduct this conversation. And it is extraordinary, the rate of technological growth and development of computer hardware and software in a very short amount of time. And so some of the storytelling and the hype and the amount of capital that's been infused to make that come to be has, you know, there's a there's a there. You know, it's interesting. And one of the hallmarks of these, you know, the latest generation of revolutionaries is in a way they're answering a problem. They're fixing

the errors of a past generation, whether it be Steve Jobs or Bill Gates as these new style CEOs rising up like phoenixes out of the ashes of stagflation in the 70s when big business and sea suites of all kinds were pretty unpopular. And here's something very, very different, kind of promising to change the world and empower you. These are new types of business enterprise that are so alluring in many different ways to politicians and to media and to ordinary users and to a kind of baby boomers who are kind of looking for self-actualization in their, the things they buy and now have the income to buy it. And if you fast forward, even just looking, you know, reflecting on FTCS and Sam Bankman-Fried and his very, very rapid downfall, you know,

part of his rapid assent was, you know, Bankman-Freed was not only, you know, he's rising at a time when the last generation of Wonderboys are starting to get more tarnished, right? There's the tacklash. There's critique of Zuckerberg and Bezos and these other people who once were at one time viewed more generally uncritically. And also, you know, I think SBF was a standout in the crypto world where there were a lot of people that seemed like hustlers, you know, to the outside observer. And here was someone who seemed more, you know, was proclaiming, you know, he was philanthropic, altruistic, and a lot of blue chip investors and leading VCs bought into that very, very big way. So, you know, it sounds like another, you know, Tracy asked like, well, okay, you see these

booms and busts over the time and there's the tech clash and everything. And then it's like, okay, you know, this sort of like seems to failed crypto revolution. You grow cynical over time. But I take it another theme of Silicon Valley is every downturn people think, oh, this time it's over. Like that was the last boom and this is the final post. Yeah. If I had a dollar for every premature obituary that's been written. I mean, for over the years, at the end of the 1960s, the stock market's cooling, the defense spending that once was driving so much of the really almost the entirety of the economy of the. the valley is contracting and Vietnam is Vietnam and deeply unpopular. And so Lockheed, which was the, you know, Lockheed, now Lockheed Martin, then just Lockheed, which was, by the way,

the biggest employer in the Valley from the mid-50s through the end of the Cold War, the Space and Missiles Division that was down in Sunnyvale. They laid off thousands of workers and there were, you know, local press was like, well, that's it. That was fun. All right. Guess we're guests were moving on. And the same in the 70s when VCs could just not get, not raise funds at all. There was just no money. They were resorting to desperate measures like licensing their technology to Japanese companies, which 10 years later, they really regretted. But even in the late 80s, the end of the Cold War, you know, defense, again, defense spending contracts dramatically. That was California's thrown into a mini recession in the early 90s because of that. You know, and also, the PC market, which was so hot, had kind of plateaued, and there was no next thing that was

clearly there. And then a few years later, you have the commercial internet. So, you know, the out of the ashes come something new. But it's very easy to declare it's all over. And I, and now what's really interesting, I think what's, I think it is important while we make these historical comparisons to, to show some contrast between then and now. I mean, now we have the scale is much bigger. The impact is much more significant, you know, the scale of everything, whether it be hiring or layoffs, is much bigger. And the way in which these companies are affecting kind of every dimension of our lives and the global economy is at a scale that wasn't even present in the dot-com boom or bust.

On April 4, 23, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Another thing that's happening now, and we've obviously been focused on the retrenchment of venture capital and private investment, but one thing that's happening now is you have a lot of government investment.

coming on stream. And you have things like the Chips Act, which basically aims billions, if not trillions of dollars at ramping up U.S. chipmaking capacity and other vital technology capacity and things like that. How much does that like help in a downturn? Can the government money basically come in and fill the whole left by retrenching venture capital? It can. Well, just generally, you know, independent. of the commercial boom and bus cycle, government money is absolutely, it's always been a critical thread, a critical part of the Silicon Valley story, a critical part of the history of American technology and technological development. It has, you know, Silicon Valley is Silicon Valley.

It is what it is because of military spending, which is sometimes a weird idea to get your head around. When you think of the Valley, you think of kind of free market capitalism at its finest, but actually it has its origins in this defense spending, which created a critical mass of sort of small electronics R&D in the Valley and also took Stanford from being kind of a reasonably good mid-level research university into the powerhouse it became. I mean, the people on the ground, including Stanford administrators, were helping make that happen, taking advantage of these new streams of money. But what government does, and we see this, let me pull out the space program is a great example. We always talk about, you know, we need another moonshot. Well, let's talk

about the real moonshot and see how that worked in the Valley political economy. Because I think sometimes it's easy to sort of say, oh, it's all free market or when the government comes in, it's, you know, totally different type of political economy. And in the case of the Valley, and actually more broadly American, American economic history generally, it's a kind of a blend of public and private that's very distinctive and very American. So, you know, the 60s, you already have a lot of electronic spending in the valley. Then Sputnik rockets into orbit in the fall of 1957. The Soviets get the first satellite into space. They beat the U.S. and everybody's hair is on fire. It is a huge black eye for the Eisenhower administration. It is bad. There's also a great anxiety about reports that the Soviets are outpacing the U.S. and producing missiles, the so-called missile gap that gets Washington and to panic. So the money starts afloan. There is lots and lots of money coming out. And then Kennedy comes into office and says, we are going to reach the moon by the end of the 1960s. And then all of a

sudden there's this intense demand for very small, light, fast electronics, which are exactly what the Valley is specializing in. And so this is really the beginning of the semiconductor industry, the true first clusters of startups are, they're building integrated circuits. They're selling to NASA. But they're doing it. These aren't big lumbering defense contractors. They're startups. And there are a lot of them. And they're competing for this business.

And so there's this incredibly competitive industry that is, essentially, you now have an incentive to develop and produce a new product that doesn't yet have a commercial market. And the government has put a thumb on the scale as a customer and as a, as a, as a, as a, as a, funder of research. And it just drives all of this activity up and down the chain from basic research to apply to universities in companies large and small. And then, you know, the net net of all that space spending for the semiconductor industry is they went from building these bespoke $2,000 and upward integrated circuits that nobody had a could afford on the, you know, no enterprise could afford or really thought they needed.

And they scale a production, they drive down costs, they're able to kind of turn it into a commodity product. And that's, you know, that's what I think the potential for government spending has. So now is these, we're kind of, Silicon Valley is entering a different age. And you have this new, these new flows, not just for semiconductor research and development, but also green energy, too. That has a lot of potential. You anticipated my next question, you know, and Tracy mentioned the Chips Act, and then there's the Inflation Reduction Act, which is going to channel a lot of money to Green Tech. But the common threat of both of those, it's like, okay, part of the reason we seem to be doing green tech is obviously

concerns over climate. But there's also a national security impulse, even embedded in the Inflation Reduction Act, moving the battery supply chain away from China, moving it to the U.S., this idea that there's some sort of like global competition about energy tech and energy security for obvious reasons. And the thing I'm curious about is, how does it work in Silicon Valley when you have this sort of hard-nosed geopolitical security state defense department investment driving the show? How does that interact with sort of like hippie California capitalism? It's, yeah, you wouldn't think these two things coexist, but they do. You know, this is both smart politics and it is real geopolitics, right?

There is a national security dimension to high-tech spending and to high-tech competition, particularly now with China, which is sort of this interesting mashup of the competition that the U.S. had with the Soviet Union in the 50s and 60s and the competition it had with Japan in the 80s, right? It's kind of this both-hand. And look, the only part of the discretionary budget that the U.S. that has kind of been safe from austerity and shrinkage, particularly in the last 40 years, has been the defense budget. There's a reason that DARPA has this outsized role in fueling innovation in the Valley because it's been kind of the one blue sky research funder that hasn't been kind of had its budget, you know, questioned every cycle. So, you know, it makes sense. There's, you know, calling this a defense move does make it in a way politically insulated in a way and kind of creates this allowance for the great deal of spending that does need to happen to move the needle. But the hippie culture and the defense culture, yeah, that's, it's a, it's always had that weird juxtaposition, quite honestly. And I think, you know, part of why it's able to do that is because of the, essentially the indirect nature of so much of the.

spending. And this is, again, going back to this kind of quintessentially American habit of not liking big government, not wanting to appear to have big government. And so instead, spending for economic development in particular through indirect means, whether it be in the early 19th century awarding, you know, private entities, the contracts to, you know, build canals and infrastructure and turnpikes, or the transcontinental railroads, right, in the 1860s and 70s, which was kind of a boondoggle, but it got those railroads built. Or fast forward to the defense economy, you know, the Cold War military industrial complex. Eisenhower called it military industrial for a reason. The money was flowing from the government through industry and universities and these

other private and educational institutions so that the guys in the beanbags or the kids in the computer lab at Berkeley or Stanford weren't necessarily immediately aware of the fact that everything they was doing was being enabled by defense spending, which, you know, in the late 1960s, a lot of those kids at Berkeley and Stanford suddenly realized that was what was making it all go and that was part of why they were protesting and marching against. the war. They saw the among other things that the military had essentially taken control of technology and was using it for ends of which they did not approve. So just on this theme, the intermingling of free market entrepreneurship and government spending,

which is definitely a theme that that stands out in your book and you emphasize this point a lot. But in a downturn where venture capital is potentially retrenching and the government is ramping up its spending, is there a possibility that more traditional businesses become bigger or more powerful compared to, you know, the traditional Silicon Valley tech startup because they have access to maybe deeper pockets or because maybe they have closer relationships with the U.S. government, is that a possible? that we start to see a sort of shift in power, I guess? I mean, Tesla, like Tesla versus a traditional car maker would be the obvious example of this, right? Yeah, yeah. Possibly.

But there are a couple of things that work against that. One is if the purpose of government spending is to incentivize and grow new markets and new technologies and to kind of bring new technologies on. online that are now just good ideas or really expensive and impractical ideas. Oftentimes, it's new firms and new entrants that are needed to do that. Again, this is why, you know, companies like Fairchild Semiconductor or National Semiconductor get the edge on, you know, get the Apollo program business because the big incumbents couldn't do it. I think the other thing that's in play, and we saw this a bit in the space program too, which is that that spending's

ramping up at the same time that this one, Robert McNamara was Secretary of Defense. For Kennedy and the Johnson administration's McNamara later becomes kind of the face of the Vietnam War in not a good way. But in the beginning, he comes in, he comes in from Ford. He was the president of Ford, and he was part of a group known as the Wiz Kids at Ford that were these number crunching efficiency experts. And he came in, he's like, we've got to make this whole contracting more efficient. And he actually wanted to kind of get away from single source contracting and kind of bring more occupying. into the system and get more people, more firms competing for the business so that it would drive down costs. And that's part of actually created this opportunity for these small companies. What's happening right now, I think, in a kind of analogous way is one of the things that both the Chips Act and the Inflation Reduction Act are trying to solve for is the intense geographic

concentration of tech on the two coasts, right? So within that, you know, we have this new spending that's kind of regionally focused to build tech-focused economies in. in places that don't have them. And also, you know, putting chip plants in Ohio, right? Like, there's a sort of very deliberate economic development strategy going on. We saw some of this quite a bit of this in the early Cold War, too. I mean, the southern states and Sunbelt states that also happen to have some pretty powerful senators, hello Richard Russell of Georgia, that, you know, that got these defense facilities that were transformative for the economy, right? So there's sort of this geographic strategy that the Biden administration and those that sort of are trying to kind of push out.

And there's a lot of, obviously, a lot of local leadership and regions that have been left behind in many ways, particularly formerly industrial regions in the Midwest and elsewhere that are really trying to build out their infrastructure. So I'm looking to see kind of what that does, too, kind of disrupts this geographic. pattern that's so intensely concentrated. Margaret Omera, thank you so much for coming on Adlaught. So glad we got to have this conversation. It was really fun. Thanks for having me. Really enjoyed talking. Thanks, Margaret. Yeah, that was great. Tracy, I really like talking to Margaret. You know, one thing that is very useful with the historical perspective is this time it's different or this time it's really over, that that's like a pervasive view. That it's not just now. It's not just post.com. that from the very beginning, people always think, oh, that was it.

That was the last boom bust. One day, there will be another boom. Well, I agree with that. I do wonder whether or not people's experiences tend to be tempered by the disappointments of the last downturn. But maybe not, because, I mean, here we are in 2022 and all of crypto is falling apart. People have been comparing that to the dot-com boom for ages. So clearly, memories of dot-com era frauds. They eventually fade, right?

That was like 20 years ago. It feels like only yesterday. Okay. But also like her example of whether or not it starts to affect culture with the Pepsi CEO that was brought in for Apple. That was pretty funny. Yeah. And just, you know, again, like what the saving, I don't know if it's the saving grace or, you know, where would you be bullish right now? you'll probably be bullish on the areas that can sell something to the U.S. government,

something that might have like a defense capacity, something that might have an energy capacity, something that might have a semiconductor capacity, et cetera. So there will be new markets, but maybe the exciting things are not going to be as consumer-oriented as we got from the boom in the 2010s. Right. It kind of reminds me of that market's mantra, don't fight the Fed, right? Don't fight the U.S. government when it's pouring trillions of dollars of money into particular technologies. Don't fight the Pentagon.

There we go. Don't fight the DOE loan. Don't fight the DECR shot at the DOE loan program. Don't fight the military industrial complex. That is good life advice. Shall we leave it there? Let's leave it there. Okay.

This has been another episode of the Athotthot's podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthal. You can follow me on Twitter at the stalwart. Follow our guest, Margaret Omerra. She's at Margaret Omera. Follow our producer, Carmen Rodriguez, at Carmen Armin.

And check out all of our podcasts at Bloomberg under the handle at podcasts. And if you want more Oddlots content, go to Bloomberg.com slash oddlots or Tracy and I post the transcripts. We blog and we even write a weekly newsletter. Go there, subscribe, and read it. And I wanted to let you know about a special event that we're holding four listeners, my co-host Tracy Alloway and I will be speaking with past guests Josh Younger as well as Columbia Law Professor Lev Menand in a special live episode of the Odd Lots podcast on November 29th. We're going to be holding it at Bloomberg HQ and you're welcome to come mingle, join.

We're going to have cocktails, canopas, and other stuff on that day along with the live recording. So if you're interested in attending a live episode of the Odd Lots podcast, as well as meeting me and Tracy, as well as meeting our guest, and as well as meeting other Odd Lots listeners, go find the RSVP, both Tracy and I have tweeted about it. It's also on Bloomberg.com slash oddlots. Sign up and join us in New York City at Bloomberg HQ on November 29th. Thanks for listening. June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators, and the legal moves driving the markets.

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