Capitalists are desperate to look beyond the impending disintegration of humanity’s ecological niche and the unraveling of already threadbare social programs to imagine something more hopeful (and profitable). For those eager to usher in a better future, the private financing of technological innovation has long been a source of optimism. After all, it created Apple, Google, Facebook, and most of the rest of the American tech companies that have swept the world. But if you inspect it at all, the sheen rubs right off.
In March, I wrote a piece for Slate using the bank run on Silicon Valley Bank (and an online temper tantrum by some venture capitalists) to ask why the future of technological development rested in the hands of an insular network of self-dealing, self-interested libertarians more concerned with monetizing our rot than pursuing socially productive, let alone profitable or properly valued, ventures. Reams of research suggest fundamental flaws in the venture-capital business model, and it is difficult to imagine anything other than an overhaul of the industry being able to consistently innovate technologies with social utility.
Venture capitalists have used a low-interest-rate environment to enrich themselves and their friends. They created tech that supercharged surveillance, immiseration, and dispossession, and along the way, they blew up their own financial ecosystem in a panic. Why should we trust them with so much power over the economy?
Farhad Manjoo responded in a New York Times column, and insisted that venture capital was not only redeemable but necessary. “Ongweso and other Valley critics aren’t off base, but there’s a risk in overvilifying the machinery of Silicon Valley based on its noisiest personages in its most frothy times,” Manjoo writes. “And while there are lots of flaws in the V.C. model, I also wonder if it’s a bit like that quip about democracy attributed to Churchill—maybe Silicon Valley is the worst way to fund inventions except for all the others.”
Critics, he admits, may be right to point out that venture capital turned a decade of free money into hundreds of billions of dollars for only a few people, but this shouldn’t distract us from the fact that it is “among the country’s most valuable economic assets” and key to America’s “global technological supremacy.” (Never mind that a wide swath of that value and technological supremacy is locked up in surveillance monopolies and war armaments.)
On the one hand, Manjoo argues, venture capital may indeed prop up noxious industries like crypto or unworkable ones like app-based labor platforms, but it also created “genuine advances” that “held up much of the economy through the pandemic” by erecting and sustaining a remote-work apparatus.
Plus, he says, the loudest investors on Twitter aren’t the biggest ones. The latter group kept their heads down during the Silicon Valley Bank crisis and convinced regulators to intervene. It’s these big actors that ensure that Silicon Valley “collects expertise and institutional knowledge, learns from failures, and feeds those insights to succeeding generations of companies.”
Academic research suggests this is wrong; it paints a picture of increasingly large funds managed by increasingly oblivious lemmings who chase trends and keep investing in well-connected white men from established firms or universities. Rarely do VC firms sink money into actually important, innovative ideas. In reality, these funds and their operators created their own crisis: Their pursuit of deregulation and embrace of moral hazard fueled a never-ending tech bubble and hastened SVB’s collapse—an analysis affirmed by the radicals at the Federal Reserve.
The problem with Manjoo’s argument isn’t that it’s wrong. It’s that it fails to consider the criticisms aimed at the VC industry itself. Taking Silicon Valley at its word and allowing it to wax poetic about intentions, instead of looking at the carnage left behind by its actions, is an old trap that too many journalists fall into. Tech commentary still often provides cover for venture capitalists who have transmogrified the sector into a parasitic enterprise.
What role do venture capitalists serve? Here’s how the industry would explain it: These financiers take capital (provided by endowments, pensions, foundations, etc.) to enterprises lacking sufficient revenue or credit to get a loan from a bank. In exchange for money, expertise, and access to institutional knowledge or networks, VCs get equity in the start-up. And from those who provide the capital they invest, VCs take an annual fee and a cut of potential returns from the investment. In this telling, VCs are truffle pigs sniffing for value hidden in the dirt—years of experience and hoards of capital have given them a supernatural ability to discern a source of profit from endless mounds of bullshit.
In a low-interest-rate environment, however, when they’re not chasing the herd, VCs are able to make bets with other people’s money and often throw it at exotic science-fiction projects that have little chance of panning out. This raises a reasonable question: How do you profit from an unprofitable enterprise? Charging a fee to manage other people’s money and taking a cut of a return on investment are two we’ve mentioned, but there’s more.
VCs take part in fundraising rounds where investors push money into a pile for equity stakes and calculate a valuation. Put your chips in early enough, and you can buy huge stakes for pennies on the dollar and reap billions after a start-up hits public markets—even if profits never materialize and share prices crater. Start-ups and investors have similar incentives to inflate their value: You can do this by pursuing successive fundraising rounds, launching overwrought marketing strategies, hoodwinking an often incurious tech media, and hoarding data that might contradict counternarratives and then convincing academics to use that data for research that affirms the company’s view.
Venture capitalists don’t just “deform” capitalism, as The New Yorker’s Charles Duhigg put it, and they’re not simply libertarian “central planners” as New York magazine’s Eric Levitz argues. Manjoo is correct when he argues that they, and Silicon Valley more generally, play a key role in America’s global technological supremacy—just not in the way that he meant. The geopolitical dimensions of policy discussions surrounding semiconductor and telecommunications supply chains, for example, all spring out of the Cold War and America’s never-ending quest for global military dominance.
In 1948, George Kennan—the Cold War hawk responsible for creating the strategy of “containment”—headed the State Department’s Policy Planning Staff, where he wrote a memorandum sketching the objectives, contours, and problems facing American foreign policy. Like most of the planning documents crafted during Kennan’s tenure, it’s remarkably lucid and perceptive when it comes to understanding American power and its limits.
Consider the following passage from a section on “The Far East”:
We have about 50% of the world’s wealth but only 6.3% of its population. This disparity is particularly great as between ourselves and the peoples of Asia. In this situation, we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will permit us to maintain this position of disparity without positive detriment to our national security. To do so, we will have to dispense with all sentimentality and day-dreaming; and our attention will have to be concentrated everywhere on our immediate national objectives. We need not deceive ourselves that we can afford today the luxury of altruism and world-benefaction.
The United States has long pursued an array of strategies to maintain that “position of disparity” while bolstering national security. It has engaged in trade wars, assassinations, military coups, and proxy wars. But one of the more enduring strategies has been to create an apparatus that links key parts of the economy to state policy as part of a bid to preserve postwar economic growth and direct its development.
Back in 2014, Monthly Review analyzed this strategy through the lens of “surveillance capitalism.” State and industry planners were worried that postwar economic growth would prove destabilizing to American society and wanted to channel productive surplus into new markets and enterprises. Planners ushered in a marketing revolution to supercharge consumption, bolstered the military-industrial complex, and engaged in financialization—all three propped the development of computational and digital technologies designed with surveillance and control in mind. Over the years, our tech financiers and founders have happily obliged.
Silicon Valley develops and provides military weapons, digital surveillance systems, and border technologies. At the same time, those systems are deployed at home to manage and maintain internal disparity in the hands of police departments, welfare agencies, employers, and increasingly paranoid suburban residents, city governments, and landlords.
Pharmaceutical monopolies, “artificial intelligence” and algorithmic systems, app-based labor platforms, and crypto-asset infrastructure saturate the homeland, but in the Global South they offer Silicon Valley blood and treasure in the form of labor to extract and unregulated markets to experiment on.
And, of course, dictators and client states can dip their hands in the pie by commingling their finances (or those of their state) into funds enriching themselves through surveillance, extraction, dispossession, or exploitation presented as innovation. The flashiest example lies in Saudi Arabia and its $600 billion sovereign wealth fund.
The crown jewels of Silicon Valley and its financiers are technologies deployed for surveillance and social control, as well as public sectors that reorient themselves toward this task. For the state, venture capital is necessary for American global technological supremacy. Silicon Valley has remained all too eager to make money in China, even as industry insiders like former Google chief executive Eric Schmidt or Palantir cofounder and chief executive Alex Karp scream for a geopolitical strategy that embraces venture capital and a new cold war for a strange sort of techno-nationalism.
We live in an anemic period of capitalism in which excessive returns are hard to come by unless you engage in exploitative labor practices, self-dealing among friends, frenzied lobbying aimed at shredding regulations, political projects aiming to privatize what’s left of the commons, or geopolitical strategies that aim to protect a dying empire’s dominance from ascendant powers.
Whatever benefits venture capitalism may provide are ancillary to the proliferation of socially odious technology deployed to extract, surveil, and exploit. But this model of financing isn’t an iron law of history. It comes to us from a long series of weird personalities, lobbying, legal reforms, political projects, compromises, geopolitics, self-dealing and self-interest, discrimination, a good bit of corruption, various ideological movements, and much more.
Undermining and abolishing venture capital is necessary to stop technology from being developed and deployed for surveillance and social control and to sabotage the machine that undergirds how our society and world operate. Venture capital is a particularly vulnerable point in that system. In the public imagination, it’s increasingly connected to spectacular failures of banks, unprofitable enterprises, multibillion-dollar scams, authoritarian governments, and mewling libertarians who pine for a reactionary world where basic liberties are rolled back once and for all. Even among industry insiders, there are calls for reforms that would go a long way toward reining in investors and founders. But that’s not enough. On this and other fronts, if there’s going to be any hope of building a better world, we must vie for power over the entire system of technological development.