The Code: Silicon Valley And The Remaking Of America

>> Niall Ferguson: Hello, my name is Neil Ferguson. I'm the Milbank family senior fellow here at the Hoover Institution, and the chair of the Hoover History Working Group. And today we've heard a terrific presentation by my guest, Margaret O'mara, who is the Scott and Dorothy Bullock professor of American history at the University of Washington and the author of The Code, Silicon Valley and the Remaking of America.

Margaret, welcome to Hoover. You argue in the book that there's a kind of symbiotic relationship between the dynamic private sector that flourishes in California after World War II and the US government over in Washington DC, the other Washington. Talk a bit about that, and why did that symbiotic relationship produce Silicon Valley as opposed to, I don't know, Chicago Valley or some other valley?

>> Margaret O'Mara: ,yeah, yeah, yeah, funnily enough, Dwight Eisenhower never said, I shall build a silicon, a science city in northern California.

>> Niall Ferguson: There was never a plan.

>> Margaret O'Mara: There was never a plan, which of course, is the glorious part of history when it's all just messy and unplanned. But nonetheless, it is this combination of top down spending for geopolitical reasons.

The beginning of the Cold War is a hinge of history for this place, which was mostly agricultural and distinguished by its university, Stanford, in the middle. But it is this flood of spending comes into the military sector and for specifically for electronics and small communication devices. Which happen to be the thing that this region does already have a subspecialty in.

Radio communication, long distance wireless communication, miniature electronics companies like Hewlett Packard, founded right before the war. And so this combination of core competencies, sort of regional conditions here, and then this influx of resources changes it. And so the first 20 years of the valley, it is chiefly almost entirely a defense economy, and then it changes as the Vietnam war drawdown and military spending.

There was a bit of crescendo in the 80's, during the Reagan years and reinvestment in the military. But then this is not just a military story. It's a story of investment in research and in higher education and also in, and in creating conditions for entrepreneurship. So I think that's the other part of it that's very important.

>> Niall Ferguson: Well, I'm glad you said higher education, because we are sitting here at the Hoover institution at the heart of the Stanford campus, and it's pretty hard to imagine Silicon Valley without Stanford. So what's the role that the university plays? MIT was already, in a way, the place that epitomized the link from defense contracts to academia.

And one might have expected it to have dominated in the Cold War, but Stanford comes along. How come, and is it Stanford that just gets lucky or does Stanford have a game plan?

>> Margaret O'Mara: ,yeah, coming out of the second world war, MIT and Harvard were the leading research institutions and the leaders of those institutions were the ones designing post war federal research.

I mean, they were the architects of it. And so Stanford was not a logical player, but it had a very important connection in the person of Fred Terman, who was the dean of Engineering and then provost. Who had trained as a graduate student at MIT under one of those architects, Vannevar Bush, and understood that there was a real change coming.

And he and other leaders of the university, the then president Wallace Sterling, a historian, and others, decided to profoundly reorganize what Stanford did. To build up what Terman famously called steeples of excellence in the Sciences and Engineering to make it more like MIT, quite frankly. It already had a scientific and technological bent from the very beginning, but it really doubled down on it.

And to develop Stanford lands, the nearly 9000 acres that the university received in its founding grant from the Stanford's. That the Stanford said, you may not sell it, you can develop it, but don't sell it, quite the albatross for some decades for them. And then it's developed not only into the faculty housing and the Stanford shopping center, but also the Stanford Research park and a very deliberate economic development strategy directed at electronics industries and high tech industries.

So the university plays this critical role and it's not just, oftentimes we think of universities as invention spins off and then gets commercialized, and that's the contribution. The real thing, and it's very clear in the case of Stanford is people. It's the people in the university and it's the people who are educated here and then go off and start companies.

And the entrepreneurial culture that is fostered here that allows this movement back and forth between industry and the university in a way that horrified many academics. I think our fellow humanists were not happy about it, but it was a strategy that only Stanford as a private university could do and it proved extraordinarily generative.

And also I think this place being what it is, agricultural valley with a few small towns, there isn't a big city, a downtown, a center. Stanford has become the de facto town square. It is the center of the action in a way that's unlike any other university in the United States.

>> Niall Ferguson: Why do you think it's so hard to replicate this? You've given talks about this book all over the world. And I should imagine that pretty much everywhere you go, somebody's got a silicon fen or a silicon glen or silicon piazza. And yet somehow none of these imitations ever quite catch fire.

Why do you think that is?

>> Margaret O'Mara: Yeah, I mean, imitation is the easiest type of economic development, right? You say, they build this, we're gonna build one of those.

>> Niall Ferguson: And sometimes that works.

>> Margaret O'Mara: And sometimes that works. It does not, and it's so historically specific and contingent and the product of not just simply this wave of Cold War spending and the military industrial complex, but also the US space program, which, of course, is part of the Cold War.

Let's be clear that the Americans wanna land on the moon, to get there before the Soviets do. But that spending on small electronics and communication devices, all of the money that puts into the system, the federal money that puts into the system for military uses. I mean, look, war is the one thing that the United States has been willing to spend copiously on.

There's a lot of, it kind of, with a geopolitical justification, kind of gave this urgency and gave a lot of political leeway to spend a lot of money on things that didn't have an immediate application. That was incredibly useful, not only in terms of being a customer to small startups in the silicon chip business in the 1960s, but also in fostering basic research in science education in universities and research institutes.

>> Niall Ferguson: Give the example of a child semiconductor. 1957, it's founded the year of Sputnik, where the challenge from the Soviet Union seems a mortal threat to the United States. The Soviets had the science, they certainly had the scientists. They had universities, they had defense spending, but there's a complete failure to replicate the semiconductor industry.

And that means that the Soviets lose the computer race. They've been able to compete on atomic weapons in space, but they can't compete when it comes to silicon, and that's a remarkable thing in itself. I've been thinking a lot about this, because it seems to be at the heart of another very interesting book on a similar topic, Chris Miller's chip war.

And part of the story there is this obvious just can't do this. There's nothing they can do, they know they can't do it. They can steal the chips, but they can't replicate them. And yet something seems to kinda go wrong in the story, namely that outsourcing offshoring happens.

And without anybody quite noticing in Washington DC, a really significant part of the semiconductor industry ends up outside the United States and indeed ends up in the strategically rather vulnerable location of Taiwan. Was this a case of nobody quite paying attention? Or are there other reasons why Silicon Valley does get replicated, in a way, in TSMC's fabs in Taiwan?

>> Margaret O'Mara: Yeah, well, the offshoring of semiconductor manufacturing, like offshoring of other goods, is both a push and a pull, right? So the chipmakers here are some of the very earliest to outsource. In 1963, Fairchild National are going to East Asia just incredibly early. They are looking for lower cost labor, they are looking for to maximize efficiency and speed, to be able to produce things as quickly.

And they're also going up against this dual threat of their other competitors and just being able to get a minimum viable product that can have a commercial market, not just a defense one. And also the growth of these East Asian economies that are doing capitalist develop mentalism very aggressively starting in the 60's, and 70's, and 80's, right?

So you have Singapore and Japan who are kind of creating the conditions to encourage American firms to come over. And the eye is not on, the focus is on the Soviets as a competitor and a threat. Certainly in the 1960s into the 1970s, and by the 80's, it's all about Japan.

And so anything that is going to increase the competitive advantage of Americana firms in the global marketplace, even if that means the building, this has to become an outsourced and offshore industry. There was just no, yeah, I think no one was really paying attention. And there also, I think the other thing that's a factor here is you're coming into the 1970s at the moment that the chip makers are kind of really becoming enterprise, the commodity chip business is happening.

This Richard Nixon and his, in the Nixon White House are saying, how can we get, we have all of our technological world is so dominated by defense, and we need to get the private. We need to privatize it some more, we need to find commercial applications. We need to encourage the private sector to really be central to this, not have it all ruled by the government.

And so that too is really going to prevent the Nixon administration, or successive administrations, for that matter, to kinda come in and tell chip makers what to do. Particularly when they're getting more and more challenged by much more agile competitors overseas.

>> Niall Ferguson: Fast forward to 2022 and we have the Chips and Science act, which feels a little bit like your story coming full circle once again.

And the federal government is going to bring out its checkbook and try to reignite the hardware side of the US economy. Can it work, or is this an attempt to resuscitate a patient that's already DOA, dead on arrival?

>> Margaret O'Mara: I'm impressed by the amount of money. It's gonna do something.

It's a lot of money, and it's money that is being structured in a way that is designed to geographically deconcentrate the industry and bring it to bring high tech manufacturing into new places, into economically depressed places. That doesn't necessarily mean those places are going to be revived, but it is going to have an interesting way, working with the existing growth of tech clusters in other parts of the country that are small but growing.

Look, every company is a technology enabled company. Everyone needs really good software engineers, on staff. So tech has become kind of a much larger field, and it's also structured as a public private partnership. So it's going to kind of, it's incentivizing private markets and private companies, private capital to behave in certain ways and also making big bets a little more feasible.

And the way that the Apollo program made the integrated circuit a more feasible bet because you had someone who's going to buy the things, and you had kind of, you weren't just blue skying it with no way to apply it. The same goes with these, when you have money kind of subsidizing something, that is going to allow you as a company to invest in R and D at a greater scale, green energy, for example.

And quite honestly, I think because it is framed rightly as a geopolitical, addressing a geopolitical problem as a threat to national security, it gives it political support on a broader scale than if it were simply framed as a domestic economic program.

>> Niall Ferguson: So almost as if the US needs a Cold War to get this kind of symbiosis, between government and private sector to work.

Well, one of the consequences of Stanford's involvement in all of this has been, I suppose, for history to recede as a force on this campus. But you are reminding all those people in engineering and computer science that, yes, they too have a history. The book, once again, is The Code Silicon Valley and The Remaking of America.

We've been enormously lucky to have Margaret O'mara here with us to tell the story. Thank you so much for listening. And Margaret, thank you very much for joining us.

>> Margaret O'Mara: Thank you for having me, it's a pleasure.