Making kings out of startup founders

January 27, 2019 (1738 words) :: The legitimating myth of Silicon Valley suggests that successful entrepreneurs deserve their untold wealth because they created value for which they should be rewarded.
Tags: startups, ideology, big-tech, gig-economy, inequality

This post is day 27 of a personal challenge to write every day in 2019. See the other fragments, or sign up for my weekly newsletter.

One prominent theme that’s emerged through these blog posts is that of ideology, and its role in legitimating uneven systems. The biggest ‘aha’ moments I’ve had with Marxist critiques have not been about the raw mechanics of how capitalism works - a lot of that is deliberately pretty intuitive - but in the way the forces and relations of production give rise to complex institutions and customs that affect the way people think. Base and superstructure, in other words. The systems you live under also shape your ability to understand those same systems, and that understanding in turn affects how you act under those systems: whether you accept them because you’re satisfied with your own position in them, or attempt to destroy them.

The stories we tell are important, in other words. With the right story, you can justify anything, no matter how unjust - at least, for a while.

I recently read Winners Take All by Anand Giridharadas, which seeks to understand the legitimating myth at play amongst the Davos set (philanthrocapitalists, politicians, “thought leaders” who really think they are making the world a better place). It’s a really terrific book - approachable and riveting - which I’d recommended to anyone who’s become disillusioned by the white-collar American Dream, where the path to serenity is said to lie in making a ton of money as a consultant/banker/engineer/entrepreneur and occasionally donating to/volunteering for a good causes. If that vision sounds suspect to you, you’ll find your suspicions confirmed in the book - its main thrust is to point out the fundamental flaws in the story these people tell themselves.

I want to take the same sort of approach in this post, but I want to zoom in on the tech industry and the legitimating myths at play there. Why tech? Well, partly because this is the industry I know best, sure. But I’m also increasingly convinced that the tech sector has become a crucial locus for capitalism as a whole, and if we can understand what’s happening in this microcosm, it could shed some light on the larger system.

From a sociological point of view, tech’s vaunted status today can be attributed to an interplay of two main factors: structure, and agency. The structure is the historically contingent stuff, the background context of what’s been going on elsewhere in the economy: post-2008, the finance sector has lost some of its lustre, and so we’ve seen more and more money (and people) pouring into tech. But the money that’s going into tech now is partly deserved, in the sense that the whole point of technological innovation under capitalism is to increase returns to capital - of course people would invest in tech; it’s the logical thing to do.

What do I mean by increase returns to capital? I mean it makes rich people richer. This isn’t even a critical analysis, it’s just literally what happens - the default assumption for tech investment is to produce ROI, eventually. The investors will be richer, and the founders and maybe some early employees will enter the ranks of the newly rich.

This phenomenon is commonly thought of as natural, and even good: it’s okay for these people to become obscenely wealthy because they are also creating wealth. Paul Graham, valiant defender of the status quo, has a fairly infamous essay alleging just that. That implies there is something special about these particular people which entitles them to their massive material rewards, because they created value that wouldn’t have been created otherwise.

But are these people really that special? Are they just quasi-divine, irreplaceable geniuses? Was Jeff Bezos the only person who could have invented a global logistics system for getting commodities to customers?

I don’t think so. I think if you zoom out, you realise that what’s special is not the individuals, but “technology” as a whole. The individuals may have worked hard, but they worked “hard” in the same way as goldminers who happened to strike gold. The gold was already there, and someone else would have found it eventually.

Technology doesn’t really “create” value as much as it captures value. That’s what it’s really good at, and that’s why the tech sector is so lucrative. With the right technology under your control, you can assume a commanding position at the top of a lucrative value chain, enabling you to capture the lion’s share of the profits. Investors realise this, and that’s why they’re so willing to invest tons of money in tech, even in startups that aren’t yet profitable. The central promise of technology is its ability to rearrange existing economic relations, and even occasionally create new ones, in such a way as to benefit the owners.

Look at how Apple, the world’s richest corporation, has perched itself atop a complex global value chain of iPhone production. Apple owns the important technology, as well as the (perhaps more important) branding associated with it, so it doesn’t have to bother with any of the low-margin parts of the business. Mining the minerals, assembling the phones - that’s left to people in Africa or Asia, working for abysmal wages on behalf of intermediary corporations whose (much thinner) profit margins are continually being squeezed by Apple. The main “technology” that Apple has is its ability to maintain its position on top of the value chain, sucking up a disproportionate amount of the value created lower down in the chain and governing everyone involved through a mixture of coercion and consent.

Apple is an extreme example. Gig economy apps follow this pattern, too; they manage to attract billion-dollar valuations despite massive losses in the short run because the technology is seen as a way of essentially minting money in the long run. The really valuable tech startups - the ones that can actually generate massive revenues - are good at capturing tons of value, by exerting excess power over everyone else in the ecosystem.

Some would say this value capturing is “good”, because it also creates (some) value, so it’s a win-win. I contend that it is bad, because it is an abuse of power, and the supposed justification only goes so far. Either way, I don’t think it’s contentious to say that it’s a pretty defining feature of a successful technology startup.

Returning to the topic of legitimating myths. Consider that venture capitalists and other people who invest in startups are supposed to be good at picking winners. That’s why they make so much money, and have so much power. They can supposedly suss out those who can actually create value from those who are merely pretenders. The famous venture capitalist John Doerr is said to be able to tell if you’re going to be successful or not simply by looking in your eyes. Y Combinator is considered the most prestigious startup accelerator because they’ve found some now highly valuable companies.

But isn’t this all kind of self-fulfilling? If you are a well-connected venture capitalist with a ton of money to throw at enterprising young founders, surely you could deem nearly anyone likely to be successful and have that be true just because you deemed it. It’s well-known that VCs are prone to pattern-matching and other biases that result in most of their money going to founders who look like younger versions of themselves, anyway; their picks are clearly very subjective. They could pick someone nearly at random, give them tons of money and advice and support to help them thrive, and will probably see that person succeed - either by failing upward (coasting on the conferred approval) or pivoting/adapting until they find a role that works.

They’re making kings, in other words. And they’re doing it in a highly idiotic way, by selecting for people who are either fueled by avarice, or clueless/privileged enough to think that they are genuinely making the world a better place. The people who either don’t know, or don’t care, that you cannot make some people extremely rich without also creating the conditions for them to start to limit the freedom of others - that wealth is, ultimately, a token of power over other people, and there is no win-win when it comes it power.

So the kingmakers are not as brilliant as they’d like us to think, and neither are their chosen monarchs. Kings and kingmakers alike are constrained to a fairly narrow window of possible actions, merely due to what is structurally incentivised in the system at large. But their claim to outsize positions of power, and the attendant claim to wealth, rests on the belief that they are the best and brightest people for the job of co-creating the future. That without them, we would have a much more paltry future to look forward to.

I submit that this is a self-serving myth meant to conceal that the future being created is one of many possibilities, and right now, it’s among the worst of all possibilities. The future they are trying to create is one in which their class gets to rule eternally, and everyboy else has to constantly “upskill” and work 5 jobs to pay off their rent/debt/Netflix subscription. They are investing in the future that is best for them, and there is a widening chasm between what is best for them and what is the best for everybody else.

It doesn’t have to be this way. The development of technology - which is really a way of deciding the future - does not have to be in the hands of a few self-righteous individuals whose primary goal is to extracting more and more surplus value from the people who can’t be entrusted to decide their own futures, much less that of society. Another world really is possible: one where the future is decidedly more democratically, according to more universal priorities.

Investing in startups has the effect of making kings out of the founders. By which I mean: arbitarily granting wealth and status to individuals who don’t really deserve it any more than anyone else would, under the auspices of a legitimation system with no rational external justification. And we all know where that can lead.

The (boy) kings of Silicon Valley exhort us to work harder so we can make them richer. They need us in order to produce the value they’ve become so adept at capturing. But we don’t need kings, and we don’t need kingmakers.

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