Selling shovels

February 4, 2019 (1945 words) :: On Silicon Valley and the new California Gold Rush.
Tags: startups, class-struggle, personal, advertising

This post is day 35 of a personal challenge to write every day in 2019. See the other fragments, or sign up for my weekly newsletter.

It’s become trite to compare today’s tech boom to the California Gold Rush in the 1850’s. It’s not even a remotely critical comparison to make - various proselytisers of the tech industry have accepted it, and have come up with riffs on that theme. The most common one I’ve heard is: if there’s a gold rush going on, don’t be one of the suckers who dig for gold. Instead, take advantage of the newfound market for shovels. You can make a lot of money selling shovels during a gold rush.

On a microscopic level, there is definitely a nugget of entrepreneurial wisdom in this advice. “The big money isn’t in the business, it is in the tools”, suggests one Medium post hosted by Startup Grind. Identify a miniature Gold Rush and position yourself as a shovel-seller whose wares are must-haves for any entreprising miner. Time it right, and you can walk away with a ton of money, without having to take on any of the risks. It’s a profitable business, and also one that feels ethically clean - you are providing a useful service to the miners, after all.

One of capitalism’s greatest selling points has always been its purported efficiency: it is simply the best system for allocating resources (including labour-power) in a socially optimal way. So the shovel-sellers, following the vagaries of the profit motive, are doing the most optimal thing they could be doing with their time, as long as they’re making money. Similarly, as long as the miners, as a group, are coming out ahead, then it’s fine if most individual miners come out with nothing - those who strike gold achieved it through harnessing their entrepreneurial spirit, and overall success be lauded. The winners make up for all the failures. So it was with the actual gold rush; so it is now, with the current inflow of venture capital into tech startups. And as long as a few miners would occasionally stop by the local bank with heavy sacks and massive grins, the fervor would continue, and the shovels would keep flying off the shelves.

I’ll admit it now: “selling shovels” was how my co-founders and I once thought of our startup.

The digital marketing industry was on the rise, and something about it made us think of the gold rush of yore. We weren’t entirely sure where we fit into the space, and we didn’t even know that much about it (or care), but we figured we could learn enough to sell some decent shovels. We hadn’t yet realised that our subsector of the industry had peaked, with the time for exploration and genuine entrepreneurship being mostly over; from then on, it was all about consolidation, with larger companies acquiring smaller ones for their customer list or perceived “secret sauce”.

We didn’t know any of that when we started, and once we realised, we figured we still had a shot at being acquired by the equivalent of a tool distributor, or a full-service mining business, or something. One co-founder, who shall remain nameless, even used the shovel-selling analogy in an extremely cocky email to Paul Graham, former president of startup accelerator Y Combinator after we got rejected post-interview. “You guys messed up!” exclaims the subject line of the email. “Right now we’re in a gold rush and our startup is selling the best shovels in town!” states the body.

Why on earth did we think it was a good use of our time? Why did we drop out of college or turn down full-time job offers to sell what we thought were irresistible shovels?

It wasn’t because we really cared about the “miners” - in this case, brands and political campaigns trying to create better-targeted advertisements. That was never the motivation. You don’t sell shovels because you deeply, truly believe in gold-mining as a spiritual pursuit; you sell shovels because you think you can profit from it. You don’t have to give a shit about the miners themselves, and in fact, it’s probably easier if you don’t. After all, most of them are going to come up with nothing, but they’ll still be out the cost of a shovel. But that’s not your problem, because you’ve already made your money. (The market is a really great mechanism for causing people to look towards their fellow human beings with nothing but greed, with perhaps an aftertaste of indifference.)

I guess it was one of those things where it seemed so established that it had to be legitimate. The industry was already so massive, and there was so much infrastructure, and so many people devoting their lives to it, and sooo much money sloshing around. There was no need to question its fundamental precepts when we could just focus on trying to get a piece of the pie.

It was probably the same during the original gold rush, too. You had this whole industry - this whole miniature economy - set up for the express purpose of getting some minerals out of the ground. Hell, an entire banking system bloomed as a result (Wells Fargo got its start trading and assaying gold during the California Gold Rush). There was an air of legitimacy to it. Why would you question it, when you could get in on it simply by grabbing a shovel (or, better yet, selling them).

But there must have been people at the time who did question it. There must have been people who thought the whole industry was a scam, who looked at the toxic environmental consequences and concluded that it wasn’t worth it. There must have been people who bemoaned the inanity of all these people giving up their days and even their lives to dig up some Au, most of which would just end up in a vault somewhere. Some of the gold might have gone on to be useful for actual innovative purposes, but its primary value was exchange-value, not use-value: currency, not machines.

Maybe I’m being too harsh here. In the Wild West of 1850’s California, the one-man-one-shovel system that shaped so many business models and patterns of work might have been the best they could do. They didn’t have the technologies or modes of societal coordination that we have now, after all. Selling shovels to atomised miners, who compete with each other in the hunt for increasingly scarce deposits of gold, might have made sense at the time.

But that doesn’t mean we have to continue that system today. We don’t need to be guided by the same market principles that underpinned something that happened over a hundred years ago. We can, and should, envision something better - something based on notions of collective and global optimiality, not the individualistic and local maxima of an individual miner searching for gold.

Today’s tech companies run the gamut from completely socially useless and/or fraudulent (think Juicero, Theranos, etc) to potentially useful if they weren’t trapped in the capital accumulation process (Amazon, Google, etc). And a whole ecosystem has grown up around supporting the growth of future trillion-dollar tech startups, including various types of shovel-sellers - completely reshaping the geography and social fabric of the Bay Area and beyond.

At what point do we ask whether the latest tech bubble is every bit as misguided and wasteful as the original gold rush? When do we concede that the system has no innate justification, and is just aimlessly spinning its wheels in the mud? That the people digging up dirt, and those selling the tools to help them dig, and the people selling insurance and maintenance and storage for those tools, are all building sandcastles in the air, disconnected from any actual societal need? That a system that purports to rationally and efficiently allocate resources could only ever work under particular constraints, and in any case, comes with fundamental structural flaws that we should not be willing to accept?

Tech does not offer an outside to capitalism - it is the worst of capitalism. It won’t save us from the spiralling inequality that we’ve become so used to in our late capitalist era: billionaires popping champagne on their Picasso-lined yachts while everybody else struggles to stay float in an ocean of depression brought on by economic precarity. The tech industry’s truly insane amounts of wealth are symptomatic of a system that has gone off the rails, with no feedback mechanisms to stop it.

Well, that’s not entirely true. There are some feedback mechanisms. Even during the original gold rush, there were miners who realised that they didn’t have to always compete, as they could collectively wield more power together than apart. As Fred Glass writes in an introduction to his book, From Mission to Microchip: A History of the California Labor Movement:

From practically the beginning of the Gold Rush, collective actions by workers contradicted the common image that popularly represents mid-nineteenth century California: the lone miner, pan in hand, wresting a fortune in precious metal from the land through the sweat of his brow. He existed, briefly, but was never typical, and soon gone.

Now, despite all the parallels I’ve been drawing in this post, there isn’t a perfect one-to-one mapping between the historical gold rush and whatever’s happening in Silicon Valley today. It isn’t entirely clear who the modern-day equivalent of the miners would be, for instance. Are they the startup founders? The venture capitalists? The early employees at these startups - who sometimes walk away with millions, but more often walk away with nothing but wasted years and some lessons learned - or the later employees, who acknowledge the increasingly diminishing chances of them striking it rich in the industry, but who often don’t have better job prospects outside the industry anyway? And what would it mean for any of these people to band together as a class?

History rarely does us the favour of offering perfect analogies, and you can’t rely entirely on bygone events to frame how you see the world. Still, just because there isn’t a exact comparison doesn’t mean it can’t be useful as a source of inspiration.

Silicon Valley is only able to dominate the way it does through the sustained belief, or at least effective belief, of millions of people who contribute to maintaining this new gold rush. Some of these people participate because they have no better options, because they have bills to pay and mouths to feed. Some of these people take pride in participating despite having many better options, because they really do believe that selling shovels during a gold rush is an entirely justifiable thing to do. Most, though, are somewhere in between those two poles.

Imagine if some miners decided they could share a small number of shovels between all of them, and committed to splitting the proceeds among them if any of them struck gold. Imagine if shovels were provided free of charge as a local, municipal-level public service. Even better, imagine if they all collectively decided that they had better things to do than waste their lives in the foolish pursuit of gold.

You can’t stop a gold rush by yourself. But together, you can ensure that the gold is left in the ground where it belongs.

I really thought I’d start today’s blog post earlier, but I didn’t quite manage it - this one’s the latest blog post so far (it was meant to be really short, but it kind of got away from me.) I have hope for tomorrow, though.

Thanks to Robert Ovetz and Gifford Hartman for inspiring this blog post.

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