It’s inauguration day. Never mind how many of his policies I will disagree with, I still think that it is incredible that the US has gone in 40 years from having segregated water fountains and buses to having a black president. I find it hard to imagine an Indian prime minister of Britain any time soon, even without the segregation and legacy of slavery (at least in Britain; the British had plenty of slaves in the Caribbean sugar plantations).
So what does it mean for hi-tech, EDA, semiconductor and our ecosystem generally. I think that the dangers are two-fold: the market being superseded by picking of winners and losers in Washington, and entrepreneurial activity being killed off by laws written in Washington by people who have no experience of running a business at all, let alone a startup or tech business.
So the first risk is that success will be decided in Washington through lobbying and rent-seeking rather than in the marketplace. This is already evident today in the “green” industries which are largely subsidy seeking since most of the technologies are nowhere close to economical on their own yet. Did you know that in Texas that some wind farms actually pay the utilities to take electricity since they lose the subsidy if the electricity is not used? The reality is that the value of the electricity doesn’t just fail to cover the costs of the wind-farm, it is completely worthless at the time and place is is generated.
It is five years old now but I think that everyone should read TJ Rogers’s piece on “Why Silicon Valley should not normalize relations with Washington D.C.” We may, as smart guys, learn to lobby and do well in an environment like that, but it will not be good for the US overall nor for mankind in general if our entrepreneurial talents are used like the CEO of ADM to persuade the government to pass stupid policies like ethanol distillation that are personally enriching us at the expense of everyone else. They also slow down needed changes since old established companies (like General Motors) that are inefficient can delay necessary transformation by lobbying and penalize the companies that should be taking their place. Never mind new sunrise industries, but even Toyota or BMW suffer. For example GMAC recently were told that they could get bailout money if they raised $30B. They came nowhere close so, guess what, they got the bailout money anyway. And immediately they did they launched 0% interest financing and lower qualification standards.Without the cushion of federal money they would not be able to socialize their losses and keep their gains..
If successful companies are chosen in Washington rather than the market then the American success story will gradually grind to a halt. I will be just as effective as it was in Russia during communism or in many African countries today.
The second problem is that the democrats have been talking a lot of anti-free-trade rhetoric and increased regulation rhetoric. Sarbanes-Oxley seems to have largely killed off the IPO market by making the size at which it is possible to go public too large. And our regulation and planning processes are already uncompetitive. A friend of mine was on the board of Logitech. They built a new factory in China in, I think, 18 months from deciding to do it to mice and keyboards coming off the line. Never mind labor costs, which in semiconductor are small due to automation, it just takes too long to get things done. The US is not the worst. Logitech have been trying for 3 years to build a new office building near their headquarters in Lausanne and apparently were seriously considering moving the headquarters out of Switzerland since it was too hard to get anything done.
On the free-trade side the reality is that almost all semiconductors are made overseas, largely in Taiwan. With a fab costing $6B and up that is not something that is going to change just because tariffs change; things will just cost more and so sell less. I love the way Apple products say “Designed in California, manufactured in China.” Which of us gets the better deal? Would Apple be stronger if it had to build iPhones in Cupertino?
Silicon Valley does best when the discipline of the marketplace picks the winners and losers. I saw Vinod Khosla talk about green investment a few months ago. He berated Californians for their feel-good environmentalism: driving Priuses, putting solar panels on the roof of the Moscone Center in a notoriously foggy city, banning plastic bags which are more environmentally friendly than paper anyway. He pointed out that the only important technologies are ones that are economically compelling enough to be adopted in China and India. Everything else is window dressing and subsidy farming. China and India, with 2.5 billion people, are the market.
Today is the start of a new era. Let’s hope that for Silicon Valley it is the start of a new beginning and not the beginning of its sunset.