Silicon Valley is in a slump. Startups are closing up shop, raising down rounds, or laying off employees. Even the behemoths are pulling back in way that some of them have never done before. But of course, tech is known for its booms and busts. So what happens to the industry in a downturn? How long will it last? And how will tech be transformed. In this episode, we speak with University of Washington historian Margaret O’Mara, author of The Code: Silicon Valley and The Remaking of America, to discuss the cycles of Silicon Valley. This transcript has been lightly edited for clarity.
Key insights from the pod:
What causes tech to go into a bust — 4:42
The history of tech counterculture — 6:41
How companies change in a downturn — 9:34
The time Apple was run by a Pepsi executive — 12:33
How defense spending shaped Silicon Valley — 26:15
How the CHIPS Act and IRA Could change tech again — 31:08
---
Joe Weisenthal (0:00)
Hello and welcome to another episode of the Odd Lots Podcast. I’m Joe Weisenthal.
Tracy Alloway: (00:15)
And I'm Tracy Alloway.
Joe: (00:17)
Tracy, you know, I don't know what's going on right now with the broader...
Tracy: (00:22)
(Laughs)... I'll let you finish.
Joe: (00:24)
Well there's so many different ways that sentence could have gone.
Tracy: (00:27)
So we could start every episode with, I don't know what's going on with...
Joe: (00:30)
Anyway. I don't know what's going on right now with the broader American economy, but I do sense that the tech industry, Silicon Valley, is in a real downturn.
Tracy: (00:40)
It seems so. I shouldn't laugh because obviously for a lot of people this is very, very serious. We've had a number of tech companies coming out and saying that they're going to be firing literally thousands of people in this downturn. And what's kind of remarkable about it is this is something a lot of people were kind of expecting. You know, these are all growth companies. They tend to do very, very well during periods of low interest rates. Once rates start going up, we see the pressures sort of added on, and then we see these cyclical downturns.
Joe: (01:15)
Right. And you know, the story of the 2010s with tech is that it was really the first industry to come sort of roaring out of the gate after the financial crisis. Meanwhile the broader US economy never had a great recovery in that decade. But tech was absolutely booming. And so there is this flip. The other thing is like, when I think of Silicon Valley or tech, you know, I have certain ideas of like what a boom looks like and all these like amazing perks and free dry cleaning and free steak dinners if you stay at the office and free...
Tracy: (01:44)
Free bean bags.
Joe: (01:45)
Yeah. Free bean bags, all of it. I don't have a great intuitive sense about what a downturn looks like at a Silicon Valley.
Tracy: (01:52)
Right. And I think it's never really been promoted as part of Silicon Valley. It's always, you know, come to this place, create a startup out of your garage or whatever, and become a billionaire and enjoy all this money and all these perks. But as we just mentioned, it is a cyclical industry. There are as many downturns as there are upturns. And yet they don't get as much attention.
Joe: (02:17)
Definitely, it's a boom-bust industry. And I've talked about many times, my first memory of markets was during the dotcom bubble, and then there was the bust and we sort of forgot about tech for a while and all these companies, but they kept plugging away. But yeah, I don't know really what happens to this industry in a downturn. And I think it's an interesting question. I don't know when it'll rebound, but right now we are definitely in one.
Tracy: (02:40)
Yeah. So we have really the perfect person to talk to us about previous downturns.
Joe: (02:44)
That's right. So we met this guest recently. We were out at Berkeley Forum on Corporate Governance. And we talked to her there. And we just had to talk to her again for the podcast itself, because it's very interesting, someone who's very informed on this question. We are going be speaking with Margaret O'Mara. She is a professor of American History at the University of Washington, and she is also the author of the book “ The Code: Silicon Valley and The Remaking of America.” So a great person to talk to about the history of the valley, the history of tech, and all the changes it's undergone. So Margaret, thank you so much for coming on the Odd Lots podcast.
Margaret O’Mara: (03:21)
It's great to be here. Thanks for having me.
Joe: (03:23)
Yeah. We had to, after chatting with you recently out in San Francisco, we had to have you on the show. So, you know, we do have this idea of what these firms do in the the boom times. And it sounds pretty great. Sounds pretty fun. Makes everyone want to flock to San Francisco or the Valley and be part of this world. But we don't really talk about the other side as much. Instead, we sort of forget about it. But obviously for every boom, there must be a bust.
Margaret: (03:53)
Yeah. What goes up must come down , which was actually— I was reminded, it was a theme song of one of the many commercials of Pets.com, which was maybe the emblematic bomb story of the last big notable downtown during tech, which was the dotcom boom. And then the dotcom bust. This is a cyclical industry — grows fast, grows hot, and then there's a cooling period.
Tracy: (04:22)
So I mentioned interest rates in the intro, but, you know, I don't think it just boils down to that. Can you maybe talk about what is the common thread in terms of sparking busts in tech? Like what is it that tends to set these things off, sets the industry into contraction?
Margaret: (04:42)
Yeah. Well, there's some things that are very particular to the industry, and then there are macroeconomic conditions that are sparking it too. They're always working in combination. I think a common thread is there's a big market runup, and a lot of froth and excitement about, you know, companies that are legitimately minting money by doing something new and a new class of products.
And also around that, surrounding that some businesses where the fundamentals aren't as strong and they're being buoyed by this general enthusiasm in the market. We saw this in the sixties with what was then called Space Age stocks, all these transistorized electronics that these companies, kind of the first gen of Silicon Valley companies that were very much attached to defense electronics and NASA and the space program.
So you have some froth, and then of course macroeconomic conditions are shaping that too. You have low interest rates that are giving, you know, incentivizing investors to go and play the stock market. And tech seems like a good bet. And there's also, you know, usually a boom is fueled by an entry of a new group of companies, and particularly platforms and products that are high growth, whether it be the Space Age stocks in the sixties, or the personal computers of the early 1980s or the commercial internet of the nineties. And more recently, and for quite some time, this is a very long boom for the big platform companies of big tech.
Joe: (06:16)
You kind of need this confluence of story and macro. You need the investor enthusiasm. Low rates probably help in some way, but there also has to be like a thing that people get excited about for, because low rates itself aren’t enough. We were joking about the bean bags and the perks, but has that always been part of the booms? How long have they been sitting on bean bags out there?
Margaret: (06:41)
They've been sitting on bean bags for a while. I mean, the bean bag goes back to the early seventies. And you know, it's this interesting kind of — maybe not bean bags themselves — but this idea of a different sort of corporate culture more informal corporate culture, non-hierarchical that goes way back.
In the case of the Valley, you know, you can maybe start that with Hewlett and Packard and the famous HP Way — what they called management by walking around. No corner offices, shirt sleeves. They still had ties, but we took off the jacket. And this was in the 1950s. You know, Hewlett Packard was founded in a garage, an iconic garage startup in 1939. By the fifties, it's a publicly traded company. It's extremely successful.
And Hewlett and Packard, are very kind of self-consciously working against the Organization Man paradigm. That was corporate capitalism in the 1950s. So creating a culture where management and the rank and file engineers are all kind of on the same side is taking the culture of the engineering lab and transferring that into a corporation.
And it also was I think philosophically too, this was the high water mark of private sector unionization. People like Dave Packard were very much against unions. Just saw them as a sign that something's wrong with a company if you can't find a way to get along. And that instead that employees of all rank should be rewarded with stock options, they should have a stake in the ownership of the company. So it was a different model. And that kind of percolates through. There are a lot of HP veterans that go on to start venture firms, start other companies, and they bring that laid back California more sort of ostensibly egalitarian corporate culture with them.
Tracy: (08:52)
Can you give us some examples of what companies tend to do during an industry downturn? Like is there a typical playbook that stands out to you with your decades of historic knowledge? Or does it tend to vary by firm and and firm culture? So, for instance, I could see, you know, if your business starts coming under pressure, there's obviously an incentive to cut back on spending, maybe start to trim your workforce and lay people off. But there might also be some companies that are especially aggressive and decide, we're going to try to ride this out as much as we can and just use this as an opportunity to take market share.
Margaret: (09:34)
I think it depends a lot on the financial position you're coming into the downturn with. And particularly if you're an early stage company, I point to Google as, you know, the ultimate example of a company that benefited from a downturn, notably the dotcom bust. Google is founded in 1998, kind of late in the cycle of the hype cycle of all these dotcom startups.
And they secure this unbelievable seed round of 25 million, split 50/50 between Kleiner and Sequoia, which these big firms don't do deals together, but everyone wanted an in. And so they had this foundational capital and then all of these other companies go out of business. And two things that you need back then in 2001 or so is you need people, you always need people. And so Google was able to acquire engineers for less than they would've had to pay otherwise.
And also the talent was now available. There was more oxygen in the labor market, and they also needed computing power. This is before cloud computing, right? When you had to go buy a piece of hardware and server blades and high powered CPUs to power your search engine. And so they were able to do that as well. They were the sort of their capital expenditures ultimately gave them a lot more runway and a lot more time to not have to turn a profit that was, you know, they were really advantaged by that.
And you know, thinking about kind of company behavior in a downturn, when we talk about Silicon Valley, oftentimes we're thinking about the very big consumer facing platforms, right? The ones that ordinary people are interacting with every day. And there are many different Silicon Valleys. There are many different parts of the whole industry. If you look at the dotcom bust, for example, there were semiconductor companies that were still hiring people. The people who were doing the fundamentals were still there. The commercial internet was still very much underway. There was a lot of real, important use cases that had been proven in the early days of the commercial internet that there was still a lot to be done and a lot of business to be had. It was just these very giant, you know, splashy consumer facing websites and, and platforms that went out of business that were the ones that got a lot of the attention.
Joe: (12:01)
What about just in terms of, so layoffs and other restructuring, do the bean bags go away? Do the ties come on? Like is there a sort of, I don't know, un-liberalization of culture in a downturn where it's like, okay, we we have to get serious here?
Margaret: (12:18)
I wouldn't say the ties come back on. There have been times when the ties come back on, you know, I think the most standout example is Apple. If you go back to the eighties, the mid-80s Apple, when it's growing fast, John Scully is brought in from Pepsi as the guy in the suit.
Joe: (12:36)
So that's a great example. Because we all have this perception of Steve Jobs and then they bring in a Pepsi executive to run it.
Margaret: (12:42)
Yeah. The guy who sold sugar water. There was lots of grumbling about that. And then of course, kind of spectacularly and famously/infamously, he and the board fire Steve Jobs shortly thereafter, because Mac sales, the Macintosh comes out in 1984 with a splash. We all remember that Super Bowl ad, the iconic Super Bowl ad, and the Mac being this game changer. But what's forgotten in that story is that it had a big splash, but actually kind of flatlined a bit.
It wasn't another Apple II, which was the first giant hit that Apple had. IBM had gotten into the personal computer business. Remember with those Charlie Chaplin ads that were everywhere, anyone who was, you know, around in the 1980s might remember those. And so they were eating Apple's lunch. And so the suits are brought in, Jobs is fired, and then Apple has a pretty dismal decade after that.
And Jobs comes back and is brought back in 1997 as CEO. And then after that it's up and to the right. And that arc actually, I think has squashed the suits so to speak. But I think to your question, more conservatism in terms of spending and due diligence. I think, you know, the tail that always wags this Valley dog is venture capital, right? What are the VCs doing? What are they hunting? What are they spending on? How much do they have to spend? And they are really kind of driving what, you know, first they're picking the winners or the potential winners. And also what they're demanding of founders and their portfolio companies will change in a downturn and there’ll be a lot less tolerance for the splashy parties with ice sculptures for sure.
Tracy: (14:30)
This was something that J ason Calacanis brought up on our podcast, which was, you know, it's easy to criticize a lot of tech companies for expanding too much during the boom, but his point was this is what investors, ie. venture capital was asking of them. It was all about growing market share. And it's not until things start to pull back that there's really that pressure on companies to maybe either start spending money or actually produce a profit.
Margaret: (15:01)
Yeah, that's exactly right. A lot of these VCs were once operators too, right? So, you know, where do VCs come from? And some of them have backgrounds in banking, but some of them were founders themselves, or people who were part of the core teams of companies that were very successful.
And they turn that into the, you know, the high tech venture capital model, the Silicon Valley style venture capital model that starts in the sixties is one that is not just money, it's expertise. And it's importing a very particular type of culture and cultural values that is very growth focused. Moving fast and break things, breaking things has been a Silicon Valley mantra since the early years of the semiconductor industry.
Because by necessity, you had to move really fast and be incredibly agile and lean and ready to pivot at any moment and moving really aggressively to get a chunk of the market. And so that sensibility has driven the hyper focus on growth.
I think that's the origins of that and that of course that was an utterly different business than the dominant business of Silicon Valley, which, you know, software dominant rather than hardware dominant. But nonetheless, I think founders get a lot of heat for excess, but someone gave them the money to do it.
Joe: (16:21)
So I think it was like the day we met in San Francisco several weeks ago, or maybe the day after, it was just like the complete implosion of FTX. And the reason I ask is, you know, one of the other things that's sort of like crumbling here, and again, I don't know how cyclical it is, but you know, I associate Silicon Valley with this cult of the individual, the individual founder in particular. So the SBF cult, obviously the Steve Jobs cult, maybe the Mark Zuckerberg cult at some point, the Elon Musk cult. Who started that? Where did that come from?
Margaret: (16:59)
Well, that has really deep roots. I think this extends beyond and before the valley itself and a kind of American culture, American political culture, as a nation born of revolution. That is always lifted up and mythologized the the so-called self-made man. Since the 19th century, I mean, the heroes have been these individual geniuses, whether it be Thomas Edison or, you know, going forward. And of course the real story is whether it's a John Wayne-style cowboy or the great inventor Edison, you have an iconic, charismatic, extraordinary individual, but also you have an individual who's got good timing, has connections, has a whole team behind them that is part of an ecosystem.
And the secret of Silicon Valley is the fact that it's this extraordinary ecosystem and networks of people — again you know, we think about these founders, whether it be Jobs or Musk or on and on. They're all people who you know of, standout talent that also were lucky and had some help and have a team.
And I think Jobs and Apple are really great example. When we go back to the beginning of Apple you know, founded in a garage like many a computer startup at that moment. There were a lot of guys doing what they were doing. Some of them were in fact building technically better machines. But what none of those other ones had was Steve Jobs. Not Steve Jobs, in his own capacity to do all this himself, but the fact that he recognized while he's still walking around barefoot with his beard, that he needed to hire the very best marketing person in the valley. He needed to get the very best venture capitalist. He needed to get a really good operator with experience who could take them from a garage and turn them into a real company. And that is what he did. And all those people made Apple into what Apple was and allowed jobs to sort of be the storyteller in chief and be the ultimately the transformative figure he became.
Tracy: (19:24)
So I have a slightly different crypto-related question, but since you brought up personal computing, and this is something that stands out in your book, this idea that Silicon Valley time and time again kind of frames these new technologies as some sort of revolution. So the personal computer was going to revolutionize our work lives. The dotcom boom was going to revolutionize access to information. Crypto was going to be this big new financial system. And yet with every boom, as we've been discussing, there does tend to be a bust and a lot of disappointment. Can the tech sector, can Silicon Valley maintain this ‘revolutionary’ narrative or this ‘revolutionary’ idea if people are sort of becoming more experienced with booms and bust? Or maybe it's just me getting older, but it feels like we've gone through a number of these disappointments at this time.
Margaret: (20:25)
Yeah, we have. But, you know, the revolutionary declarations are always somewhat overblown, but also, think about all the devices we're using even to conduct this conversation. It is extraordinary the rate of technological growth and development of computer hardware and software in a very short amount of time.
And so some of the storytelling and the hype and the amount of capital that's been infused to make that come to be has, you know, the latest generation of revolutionaries is in a way, they're, they're answering a problem. They're fixing the errors of a past generation, whether it be, Steve Jobs or Bill Gates, as these new style CEOs rising up like Phoenix's out of the ashes of stagflation in the seventies when big business and c-suites of all kinds were pretty unpopular.
And here's something very, very different kind of promising to change the world and empower you. These are new types of business enterprise that are so alluring and in many different ways to politicians and to media and to ordinary users and to a kind of baby boomers who are kind of looking for self-actualization in the things they buy and now have the income to buy it.
And if you fast forward even just looking, you know, reflecting on FTX and Sam Bankman-Freed and his very, very rapid downfall, you know, part of his rapid ascent was, you know, Bankman-Freed was not only, you know, he's rising at a time when the last generation of Wonder boys are starting to get more tarnished, right.
There's the, techlash, there's the critiques of Zuckerberg and Bezos and these other people who once were at one time viewed more generally uncritically. And I think SBF was a standout in the crypto world where there were a lot of people that seemed like hustlers, you know, to the outside observer. And here was someone who seemed more… you know, he was philanthropic, altruistic, and a lot of blue chip investors and leading VCs bought into in a very, very big way.
Joe: (22:48)
So Tracy asked like, “Well okay you see these booms and busts over the time, and there's the tech lash and everything. And then it's like you know the revolutions kind of fail. You grow cynical over time.” But I take it another theme of Silicon Valley is every downturn people think, “Oh, this time it's over, that was the last boom.”
Margaret: (23:13)
If I had a dollar for every premature obituary that's been written over the years… At the end of the 1960s, the stock market cooling, the defense spending that once was driving almost the entirety of the economy of the Valley is contracting. And Vietnam is deeply unpopular.
And so Lockheed (now Lockheed Martin) was by the way, the biggest employer in the valley from the mid 50s through the end of the Cold War, its space and missiles division that was down in Sunnyvale, they laid off thousands of workers. And the local press was like, ‘Well, that's it. That was fun. All right, guess we're moving on.’
In the seventies when VCs could just not get, not raise funds at all, there was just no money, they were resorting to desperate measures like licensing their technology to Japanese companies, which 10 years later they really regretted. But in the late eighties, the end of the Cold War, you know, defense spending contracts dramatically, that was when California's thrown into a mini recession in the early nineties because of that and also the PC market was so hot, had kind of plateaued, and there was no next thing that was clearly there.
And then a few years later, you have the commercial internet. So, you know, out of the ashes come something new, but it's very easy to declare it's all over. And now what's really interesting, I think it is important while we make these historical comparisons to show some contrast between then and now, I mean now we have, the scale is much bigger. The impact is much more significant. You know, the scale of everything, whether it be hiring or layoffs, is much bigger. And the way in which these companies are affecting kind of every dimension of our lives and the global economy is at a scale that wasn't even present in the dotcom bust.
Tracy: (25:38)
Another thing that's happening now, and you know, we've obviously been focused on the retrenchment of venture capital and private investment, but one thing that's happening now is you have a lot of government investment coming on stream, and you have things like the CHIPS Act, which basically aims billions if not trillions of dollars at ramping up US chipmaking capacity and other vital technology capacity and things like that. How much does that help? Can the government money basically come in and fill the hole left by retrenching venture capital?
Margaret: (26:15)
It can. Just generally, independent of the commercial boom and bust cycle, government money is absolutely, it's always been a critical thread, a critical part of the Silicon Valley story, a critical part of the history of American technology and technological development.
Silicon Valley, it is what it is because of military spending. Which is sometimes a weird idea to get your head around. When you think of the Valley, you think of kind of free market capitalism at its finest. But actually it has its origins in this defense spending, which created a critical mass of small electronics R&D in the Valley. And it also took Stanford from being kind of a reasonably good mid-level research university into the powerhouse it became. I mean, the people on the ground, including Stanford administrators, were helping make that happen, taking advantage of these new streams of money.
But what government does, and we see this, let me pull the space program as a great example. We always talk about how we need another moonshot. Well, let's talk about the real moonshot and see how that worked in the Valley political economy, because I think sometimes it's easy to sort of say, ‘Oh, it's all free market,’ or when the government comes in, it's you know, totally different type of political economy.
And in the case of the Valley, and actually more broadly American economic history, generally, it's kind of a blend of public and private that's very distinctive and very American. So in the sixties, you already have a lot of electronic spending in the valley. Then Sputnik rockets into orbit in the fall of 1957.
The Soviets get the first satellite into space, they beat the US and everybody's hair is on fire. It is a huge black eye for the Eisenhower administration. It is bad. There's also a great anxiety about reports that the Soviets are outpacing the US and producing missiles, the so-called missile gap that gets Washington in a panic. So the money starts flowing. There is lots and lots of money coming out, and then Kennedy comes into office and says, ‘We are going to reach the moon by the end of the 1960s.’ And then all of a sudden there's this intense demand for very small, light, fast electronics, which are exactly what the Valley is specializing in. And so this is really the beginning of the semiconductor industry, the true first clusters of startups. They’re building integrated circuits. They're selling to NASA.
These aren't big lumbering defense contractors. They're startups, and they're competing for this business. And so there's this incredibly competitive industry that is essentially, you now have an incentive to develop and produce a new product that doesn't yet have a commercial market. The government has put a thumb on the scale as a customer and funder of research. And it just drives all of this activity up and down the chain from basic research in companies large and small.
And then, you know, the net-net of all that space spending for the semiconductor industry is they went from building these bespoke $2,000 and upward integrated circuits that nobody could afford — no enterprise could afford or really thought they needed — and they scale a production, they drive down costs, they're able to turn it into a commodity product. And that's, you know, that's what I think the potential for government spending is. So Silicon Valley's entering a different age, and you have this new, these new flows, not just for semiconductor research and development, but also green energy too.
Joe: (30:14)
You anticipated my next question. And Tracy, mentioned the CHIPS Act, and then there's the Inflation Reduction Act, which is going to channel a lot of money to green tech. But the common thread of both of those, is part of the reason we seem to be doing Green Tech is obviously concerns over climate, but there's also a national security impulse even embedded in the Inflation Reduction Act, moving the battery supply chain away from China, moving it to the US — this idea that there's some sort of like global competition about energy tech and energy security for obvious reasons. And the thing I'm curious about is how does it work in Silicon Valley when you have this sort of hardnosed geopolitical security, Defense investment driving the show? How does that interact with sort of like hippie California capitalism
Margaret: (31:08)
Yeah, you wouldn't think these two things coexist, but they do. You know, this is both smart politics and it is real geopolitics, right? That there is a national security dimension to high tech spending and to high tech competition, particularly now with China, which is sort of this interesting mash up of the competition that the US had with the Soviet Union in the fifties and sixties, and the competition it had with Japan in the eighties right?
It's kind of both. And look, the only part of the discretionary budget that the US that has kind of been safe from austerity and shrinkage particularly in the last 40 years, has been the defense budget. There's a reason that DARPA has this outsized role in fueling innovation in the Valley, because it's been the kind of the one blue sky research funder that doesn’t have its budget questioned every, every cycle.
So it makes sense there. Calling this a defense move does make it in a way politically insulated in a way and kind of creates this allowance for the great deal of spending that does need to happen to move the needle. But the hippie culture and the defense culture it's always had that weird juxtaposition, quite honestly. And I think, you know, part of why it's able to do that is because of essentially the indirect nature of so much of the spending.
And this is again, going back to this kind of quintessentially American habit of not liking big government, not wanting to appear to have big government. And so instead spending for economic development in particular, through indirect means, whether it be in the early 19th century awarding private entities, the contracts to, you know, build canals and infrastructure and turnpikes or, or the transcontinental railroads, right?
In the 1860s and seventies, which was a kind of a boondoggle, but it got those railroads built or fast forward to the defense economy, you know, the Cold War military industrial complex — Eisenhower called it military industrial complex for a reason. The money was flowing from the government through industry and universities and these other private and educational institutions so that the guys in the bean bag or the kids in the computer lab at Berkeley or Stanford, weren't necessarily immediately aware of the fact that everything they was doing was being enabled by defense spending. Which, you know, in the late 1960s, a lot of those kids at Berkeley and Stanford suddenly realized that was what was making it all go. And that was part of why they were protesting and marching against the war. They saw, among other things, that the military had essentially taken control of technology and was using it for ends of which they did not approve.
Tracy: (34:11)
So just on this theme, the intermingling of free market entrepreneurship and government spending, which is definitely a theme that that stands out in your book, and you emphasize this point a lot, but in a downturn where venture capital is potentially retrenching and the government is ramping up its spending, is there a possibility that more traditional businesses become bigger or more powerful compared to, you know, the traditional Silicon Valley tech startup because they have access to maybe deeper pockets or because maybe they have closer relationships with the US government? Is that a possibility that we start to see a sort of shift in power, I guess?
Margaret: (34:59)
Hmm.
Tracy: (35:00)
I mean, like Tesla versus a traditional car maker would be the obvious example of this, right?
Margaret: (35:07)
Yeah, yeah, possibly. But there are a couple things that work against that. One is, if the government purpose of government spending is to incentivize and grow new markets and new technologies and to kind of bring, bring new technologies online that are now just good ideas or really expensive and impractical ideas, oftentimes it's new firms and new entrants that are needed to do that.
Again this is why companies like Fairchild Semiconductor or National Semiconductor get the edge on Apollo program business cuz the big incumbents couldn't do it. I think the other thing that's in play, and we saw this a bit in the space program too, which is that that spending's ramping up at the same time that when Robert McNamara was Secretary of Defense for Kennedy and the Johnson administration's McNamara later becomes the face of the Vietnam War in not a good way. But in the beginning he comes in, he comes in from Ford, he was the president of Ford and he was part of a group known as the Wiz kids at Ford that were these number crunching efficiency experts.
And he came in and he was like we’ve got to make this whole contracting more efficient. And he actually wanted to kind of get away from single source contracting and kind of bring more oxygen into the system and get more people, more more firms competing for the business so that it would drive down costs. And that's part of actually created this opportunity for these small companies. What's happening right now, I think in a kind of analogous way is one of the things that both the Chips Act and the Inflation Reduction Act are trying to solve for is the intense geographic concentration of tech on the two coasts, right? So within that, you know, we have this new spending that's kind of regionally focused to build tech focused economies in places that don't have them. And also, you know, putting chip plants in Ohio, right?
Like there's this sort of very deliberate economic development strategy going on. We saw some of this in quite a bit of this in the early Cold War too. The southern states and Sunbelt states that also happen to have some pretty powerful senators, hello Richard Russell of Georgia, that got these defense facilities that were transformative for the economy, right?
So there's sort of this geographic strategy that the Biden administration is trying kind of push out. And there's a lot of, obviously, a lot of local leadership and regions that have been left behind in many ways, particularly formally industrial regions in the Midwest and elsewhere that are, really trying to build out their infrastructure. So I'm looking to see kind of what that does too and whether it disrupts this geographic pattern that's so intensely concentrated.
Joe: (37:49)
Margaret O'Mara, thank you so much for coming on Odd Lots. So glad we got to have this conversation.
Margaret: (37:55)
It was really fun. Thanks for having me, really enjoying.
Tracy: (37:59)
Thanks Margaret. Yeah, that was great.
Joe: (38:14)
Tracy. I really like talking to Margaret. You know, one thing that is very useful with the historical perspective is this time it's different or this time it's really over. That's like a pervasive view that it's not just now, it's not just post dotcom, that from the very beginning people always think, ‘oh, that was it, that was the last boom bust.’ But one day, there will be another boom.
Tracy: (38:35)
Well, I agree with that. I do wonder whether or not, like people's experiences tend to be tempered by the disappointments of the last downturn, but maybe not, because I mean, here we are in 2022 and all of crypto is falling apart. People have been comparing that to the dotcom boom for ages. So clearly memories of the dotcom era eventually fade.
Joe: (38:56)
That was like 20 years ago.
Tracy: (39:00)
It feels like only yesterday. But also her example of whether or not it starts to affect culture with the the Pepsi CEO that was brought in.
Joe: (39:12)
I forgot all about that.
Tracy: (39:13)
That was pretty funny.
Joe: (39:16)
Yeah. And just, you know, again, like what the saving, I don't know if it's the saving grace or you know, where would you be bullish right now? You'd probably be bullish on the areas that could sell something to the US government, something that might have like a defense capacity, something that might have an energy capacity, something that might have a semiconductor capacity, etc. So there will be new markets, but maybe the exciting things are not going to be as consumer oriented as we got from the boom in the 2010s.
Tracy: (39:46)
Right. It kind of reminds me of that markets mantra, ‘Don't fight the Fed.’ Don't fight the US government when it's pouring trillions of dollars of money into particular industries...
Joe: (40:00)
Don't fight the Pentagon. Don't fight the DOE loan office. Don’t fight Jigar Shah.
Tracy: (40:03)
There we go. Yeah. Don't fight the military industrial complex. That is good life advice. Shall we leave it there?
Joe: (40:09)
Let's leave it there.
You can follow Margaret O’Mara on Twitter at @margaretomara.