Why did Silicon Valley happen where (and when) it did?

Why did Silicon Valley happen where it did?

Early military investments in computing happened in Maryland and Philadelphia. New York and Chicago had financial markets. Early big tech companies and proto-venture capital firms were in Boston. All had major research universities. Why not there?

The difference really was a case of culture. California’s egalitarian hippies influenced their early tinkerers, computer enthusiasts and researchers. Idea-swapping blossomed and became central to the ethos. It was a place of reinvention and future-thinking, far more than those old buttoned-up cities. Enough San Francisco bankers and East Coast money-men got involved to insist the geeks incorporated businesses, argues Sebastian Mallaby in his 2022 book “The Power Law: Venture Capital and the Making of the New Future.”

“The Valley’s distinguishing genius is that the patina of the counterculture combined with a frank lust for riches.” The result is what Mallaby calls “the most durably productive crucible of applied science anywhere, ever.”

The lesson for those trying to build their tech and innovation economies? Don’t attempt a single entry point. The command-and-control sounds better in theory than in practice. Some degree of fractious and multi-part organizing is a feature, not a bug. A 2018 research paper argued that innovation happens best when strong ties develop around “structural holes,” or gaps in institutions. Many overlapping but distinct meetups are effective.

Say what you will about late-stage Silicon Valley; its businesses and culture reshaped the world. Even today, of the 10 biggest private R&D budgets in the world, half are from Silicon Valley, most are tech firms and every single one has an office in Northern California.

Why did Silicon Valley happen when it did? After the Second World War, massive military-subsidized research coincided with decades of growing rich-world consumers and resurging American immigration. New science was created and there were lots of educated people to commercialize it. The American economy grew rich and a flywheel of invention, innovation and wealth creation flew.

Since then, Silicon Valley’s business culture and risk-tolerant investment strategy have been copied around the world. Though still the world’s epicenter of innovation, its share is declining. It is to the Digital Age what Florence was to the Renaissance; a spark, not a closed system.

The “when” of Silicon Valley is near impossible to recreate. But the “where” is something better understood. Now the rest of us decide what we can learn from the past, and what is different for our future.

“In a world of intensifying, geographic economic competition, the countries with the most creative innovation hubs are likely to be the most prosperous and ultimately the most powerful,” Mallaby wrote. “In a world of intensifying income inequality, the countries that can foster greater regional diversity in the locations of those hobbies will be happier and more stable.”