Silicon Valley's startup culture believes it's changing the world for the better. But in reality its culture is deeply unethical since it institutionalises theft on a global scale.


March 30, 2018

Google, the Silicon Valley company par excellence, proclaimed to “organise the world’s information” and adopted “don’t be evil” as its corporate motto. And what could possibly be wrong with such aspirations? Indeed, most company leaders and high-tech workers, in the Valley, genuinely believe they are “making the world a better place” while also making money.

Silicon Valley is the progressive face of capitalism. We’ve experienced it, intimately. Billions of people, across the globe, enjoy real benefits from searching the world’s information, connecting with people across time and space, and carrying a supercomputers in their pockets. Silicon Valley doesn’t obviously throw workers into factories and mines for endless hours on low pay; such images are hidden, rendered distant by the supply chain . Instead, the Valley, in our imaginations, is populated by knowledge workers, a diverse and smart workforce that designs, solves, and codes in humane office spaces, with above average wages, ping pong, cafeterias, flexible working hours, sleeping cubicles. What’s not to like?

We could consider the Valley’s hidden workers, those who clean, wait tables, wash cars, nanny, deliver packages, tend gardens, fix infrastructure for poverty wages; we could explore the trailer parks down the road from Google HQ, or document the shootings in the streets, the homeless that push shopping trolleys up and down the El Camino, their world a bundle of rags; or the gun shops that sell semi-automatics, the out-of-control, over-staffed police, armed with military-grade cast-me-downs, that regularly gun down the poor; the families crowded into small apartments, the father who spends his days scouring trash bins for recyclable bottles to trade for cash, the human trafficking of women, the prostitution, coerced to serve a predominately male workforce; or the disciplining and harassment of the undocumented, the deportations, the splitting up and destruction of families; or the local charities that collect food for kids, during seasonal holidays, since outside of school time their families cannot provide; or the extraordinarily high incarceration rates that control the surplus labour force, the armed guards on campuses and in schools, office complexes and shop interiors; or the poverty, the child who cannot concentrate in class since their teeth are rotting in their mouth, the extreme and devastating inequalities in wealth and income, the untreated illnesses and injuries, for lack of medical access, the widespread use of antidepressants, the addictions, the dispossessed, the broken dreams and the crying …

Yet these symptoms of a broken and decaying society are studiously ignored, repressed, unmentioned by Silicon Valley’s middle and upper classes. Psychological repression is widespread amongst the highly paid of the Valley. It’s a defence: it’s just too damn painful to contemplate the full horror of social reality. And life can be organised to avoid it, or deny it. So many don’t even notice.

I could mention all the evil business models, where vast computing power and fancy algorithms trawl our digital footprints to track and surveil, to sell and manipulate, to intensify our addictions; and we might reflect on the Valley’s enormous and continuing contributions to building military machines that rain down death and destruction.

Instead, here, in this article, I want to point to the root problem, the ultimate source of evil, and explain why Silicon Valley is hypocrisy on a grand scale. The Valley’s movers and shakers believe they are progressive, that entrepreneurial capitalism is the road to utopia. But it’s not. In fact, the opposite is the case: the Valley is a cause of this horror, of the social ills, and the social breakdown that it must repress: it is both responsible and culpable for creating a dystopia.

I want all the talented, hopeful, optimistic high-tech workers, who genuinely want to make the world a better place, who are about to found a new and exciting startup, to just take a short pause, to stop, look around, think, reflect and reconsider: the kind of firm you incorporate, the institutional rules you adopt, is precisely the choice point between doing evil and doing good.

I will try to explain. My apologies if it takes a little while, since if the following facts were readily understood and generally accepted, then Silicon Valley would already be good, not evil, and I wouldn’t need to explain.

Silicon Valley: midwife of the capitalist firm

The Valley is all about startups. They spring up all the time. New exciting and hopeful adventures. It’s like forming a band, but better.

In huge, mature corporations the social relations of production are obscured by layers of hierarchy and absentee ownership. But in a startup the power relations are direct and visible, and often share an office with you. You can observe the basic unit of production in capitalism—the capitalist firm—as if under a microscope.

Let’s lay out the property relations of a (slightly simplified) typical startup.

The startup has owner(s), usually “high net worth” individuals, either directly present or indirectly in the form of venture capital firms. Venture capital provides the initial funds for the new venture. The actual founders, the ones with the ideas and talent, but no money, also part own the firm. The divvying up of the initial share issue between founders and early investors is a detail. The founders, armed with a new injection of capital, then recruit workers by convincing them of “the vision”. These are the first employees. And off we go.

The owner(s) of the startup are in complete control, and their decisions are final. Owners can promote, demote, hire and fire anyone, at any time. Owners set wage levels, which are kept secret (and the workers, being earnest and highly disciplined, avoid this subject with each other—that would break a taboo). Startups are definitely not run on democratic lines: workers don’t get to appoint managers, set strategy, or distribute profits. Instead, the startup is a mini dictatorship: sure, there’s plenty of technical debate, and back-and-forth, and head scratching, but ultimately it’s a dictatorship.

The owners pays all input costs—such as office rental, computers, electricity and heating, labour etc. They own all outputs, such as new software or hardware, and any inventions (which, in the Valley, are aggressively patented). The owners are liable for any profits and losses of the company. The startup’s bank accounts are hidden from the workers, and out of their control.

This basic social relation—between profit-taking capitalist owners and wage-earning workers—is constitutive of capitalism. For example, today you can travel to Shropshire, England, and visit Ironbridge village, one of the birthplaces of the industrial revolution and “the silicon valley of the 1800s”. You can tour an early ironworks and see the great furnaces where workers toiled, the tiny administrative office (to dole out wages, and keep accounts), and nearby, on a large hill overlooking the site, the capitalists’ large and imposing mansions.

The form may have changed, but not the content. In this sense, Silicon Valley is deeply conservative. It proclaims to disrupt everything, and make all fresh, new and shiny—except this basic social relationship.

Almost all Silicon Valley workers accept these social relations as entirely natural, acceptable, and pretty much fair and equitable. The owners fund the company. They therefore “own the firm”. The owners risk a lot of capital, and the workers receive a good wage, based on supply and demand in the marketplace, plus some ramp-up time to try and invent new stuff, which is fun. What’s not to like? What’s the problem?

Silicon Valley: it’s theft all the way down

Startups reproduce, in embryo form, the wage system, where the capitalist owner hires-in labour at a pre-agreed rental price. In a capitalist firm, labour is just an another ex ante cost of production. The workers mix their labour with inputs and produce an output for sale. Normally, firms sell at prices that exceed their costs of production, which includes the cost of used-up inputs, rent, interest on capital loans, and wage costs etc. Any residual income then gets distributed as profit to the owner, or owners, of the firm.

Imagine that you and I agree to exchange something in the marketplace, say a second-hand iPhone on Ebay. You get the money, I get an iPhone. You may get a good deal, or I may get a good deal, depending on our “higgling and haggling” in the marketplace. Whether a fair price is struck, or not, there’s an exchange of something for something: some goods for some money. This social transaction satisfies a “principle of exchange”. We’ve swapped stuff, and no-one forced us to.

But let’s say I just took the iPhone from you. And you received no money at all. This violates the principle of exchange. I got something for nothing: some goods, some resources, for free. That’s theft. Obviously so.

All startups in Silicon Valley violate the principle of exchange and institute a system of theft. They are theft-based institutions. If the startup is successful and grows, so does the theft, since theft is baked into the institutional structure of the firm, right from the get go. If the startup goes global, like an Apple, Facebook, or Google, then the cancer spreads and the theft takes place on a global scale.

But the theft is hidden. We need some reflection to really see it.

The workers in a startup are the actual cause of any profits it makes. We can demonstrate this with a simple thought experiment: imagine the workers stopped working. Would the firm have any possibility of making a profit, or if already profitable, continue to make that profit? But we don’t need to imagine. This is called a strike. And owners hate it, since it kills their profit.

So, in any company, including a startup, the workers create the value.

What, then, do the owners contribute or create?

The owners, or venture capitalists, contribute capital. They advance money to fund the startup until it (hopefully) starts making money. And then they expect a return. Since they’ve given something they should definitely get something back, otherwise we violate the principle of exchange. In fact, they should expect repayment of the sums advanced and—let’s be generous here—also a risk premium (since most startups fail without making profit) and, also—in order to be really straight and fair about this—some collateral as security (such as first dibs on any outstanding assets if the venture fails). This seems like a fair exchange.

It is. So far so good.

But if early investors merely did this—that is, simply advance some loan capital—they would not become the owners of the firm. Once the startup made money, the loan would be repaid (by the firm), and the early investors would have no further claims on the fruits of others’ labour (that is the value created by the workers).

The important point is this: loan capital does not violate the principle of exchange.

But Silicon Valley startups are not funded by loan capital. Venture capitalists want, and get, much more than this. They advance capital to a firm, but in addition to being repaid, they demand ownership of the firm, i.e. equity capital, and receive stock (shares in the firm). And so they “own the firm”. In consequence, once their initial loan and risk premium is repaid, they get even more: they retain a claim on the firm’s future income, that is the fruits of others’ labour in perpetuity (or until the firm dissolves, or they sell their shares etc.)

And the mere legal ownership of a firm is sufficient to lay claim on its profit. And, right here, is precisely the moment when the principle of exchange is violated. Once the firm repays its debt then the early investors are now made whole. Beyond this point, we have workers creating profits, and owners appropriating that profit without needing to contribute an hour of their time, or a dime from their pockets. The owners are getting something for nothing. The owners can, as John Stuart Mill put it: “grow richer, as it were in their sleep”. There’s no exchange. Just appropriation. And that is what’s commonly, and accurately, called economic exploitation.

The important point is this: equity capital violates the principle of exchange.

Sometimes the meaning of a social situation can suddenly flip. You notice something new, like an object in the wrong place, or a small inconsistency that points to a secret, or a lie. This is one of those occasions. There’s an enormous difference between advancing capital to a firm, and owning a firm. This vital distinction is conspicuously absent from all the upbeat, world-changing, and progressive chit-chat in the coffee shops, restaurants, offices and homes of Silicon Valley. So let’s pretend they might be listening, that all their chatter stops, just for a moment, and we whisper into each and every individual ear: equity capital is theft.

When you take profits, but contribute nothing to the output of a firm, other than holding a paper claim, you are stealing.

Yet this is how startups in Silicon Valley are organised. Cohort after cohort of “smart” groups of highly educated workers are quite happy to sign up to their own exploitation, and cede control over how they organise their working day, and what they produce. The most effective prison is the one you don’t realise you’re in.

But hold on. Look, we’ve woken the libertarian consciousness of Silicon Valley, and its rationality is strong and terrible: those that were whispered to have been stirred, and they reply, in unison: No-one forces workers to accept these terms, and the wage contract is voluntary, and therefore perfectly OK! Go away, annoying socialist, and stop spoiling our fun!

Silicon Valley: forcing people to sell their labour

Do workers freely enter into the wage contract? Do founders, with great ideas, have the freedom to start new commercial ventures that aren’t based on theft? To answer, let’s first define non-exploitative social relations of production.

In principle, Silicon Valley startups could be incorporated as profit-sharing worker cooperatives. In this type of institution, all working members share the profit, which is democratically distributed. So if you join the co-op, you get a say, and you get profit shares. If you leave, you don’t anymore. The firm is collectively owned by its current working members.

Worker co-ops don’t hire in labour at a pre-agreed rental price. They do the opposite. They hire-in capital at a pre-agreed rental price (i.e., raise loan capital not equity capital). So capital, not labour, is merely another ex ante cost of production with no claim on the residual income of the firm.1

In a democratic worker co-op, the principle of exchange is not violated, and no-one systematically exploits others and steals the value they (jointly) created. Clearly, this is a more lucrative deal for workers: profit-sharing is better than a wage. So why doesn’t this happen in the Valley? Why don’t lots of workers incorporate worker co-ops?

There are some carrots and a stick.

The carrot: join us, join us!

High-tech workers, especially those with in-demand skills, get more than wages, they get stock options.

A stock option bestows the right to purchase company shares at a (very low) predefined price. You have to work, normally for many years, before you can exercise that right. The aim is worker retention, and align incentives so workers are motivated to create profits “for the company”. Stock options, in a sense, automatically bestow the material benefits of trade unionism without the need to organise. Any worker is, of course, glad of this potential source of additional income.

But stock options, when exercised, are equity capital and confer (part) ownership of the firm: and, as we’ve seen, that fundamentally means participating in theft. Stock options, therefore, invite a section of the working class to join the elevated ranks of the capitalist class, and start exploiting others’ labour. (In practice, most stock options turn out worthless, since most new ventures fail. But it’s the hope that motivates).

In a small startup, as is common in Silicon Valley, it’s especially clear that the workers create all the added value. But the owner(s) appropriate it. So even the best educated minds start to notice. And this doesn’t seem entirely fair. So stock options function to muddy the waters, and paper over the inconvenient truth of exploitation.

So that’s one carrot, which pushes high-tech workers to sign-up to a capitalist firm. But there are more. If a group of workers decide to incorporate a new venture then, unless they are highly politically conscious and especially moral creatures, they will incorporate a capitalist firm, not a worker co-op. Why? Because you’ll definitely make more money by owning a firm, paying others wages, and keeping the profit to yourself.

Many startup founders in Silicon Valley know they’re ripping off the workers they employ. They might soothe their guilt by pointing out they offer stock options, or throw themselves into libertarianism, which conveniently coincides with their material interests. But it’s a fact that stock is normally heavily concentrated amongst a few early founders and venture capitalists. As time goes on, the founders contributions are eclipsed by the hired workers, and then it’s just exploitation all down the line. The company is bought-out, the founders get their initial advances and more, and therefore cash in, and make their millions. But, in almost all cases, they did not contribute to the creation of that value—they stole it from the workers they hired.

So the wage contract is sweetened by stock options. That works. But the contract is only voluntary if the workers have other options, if they have a choice. Do they?

The stick: reproduce capitalism or wither and die

But there are sticks too, which remove all choice, and prevent founders from incorporating worker co-operatives, even if they were sufficiently politically conscious to want to.

Silicon Valley is famous for its vibrant and extensive venture capital community. Plenty of capital swills around, continually searching, like Sauron’s great eye, for the latest hit company to fund, and therefore own and exploit the efforts and creativity of hundreds and thousands of workers.

Any venture capitalist, quite naturally, wants to maximise their returns. So, if faced with a choice between funding two companies, A and B, where A is a capitalist firm, and therefore offers equity in return for capital, whereas B is a worker co-op, and only offers interest repayments in return for capital, then the venture capitalist will always opt to fund A. No contest. Equity capital is strictly a better deal than loan capital. (And it’s not just more money, but also top-down dictatorial control of the company’s direction, and the working conditions and wage levels of employees. And being powerful is much more fun than being powerless. It’s great for the ego.)

Hence worker co-ops don’t get funded in Silicon Valley, and never will. So all those talented and creative workers, with good ideas for making things that people want, have no choice but to incorporate a capitalist firm, and begin sorting people into a class of owners, and a class of workers.

I witnessed an especially ugly example at an Silicon Valley business conference. An “Angel Investor” (someone who provides early seed capital) presented a talk about the criteria they apply when deciding which new ventures to invest in, and therefore what aspiring founders should do in order to maximise their chances of raising capital. A big factor, for the Angel, was that founders also raise money from friends and family, since “the desire to not disappoint loved ones is a great stimulant to hard work”. The Angel gave examples of “great stories” about teams they’d funded and the great returns made “by everybody”. At the close the Angel invited any founders in the audience to come and pitch their ideas to him—right there and then.

A line of about twenty or so young people formed in front of the Angel, desperate to get funding for their cherished ideas. And there it was, like a frozen scene from a perverted nativity: an anointed minority of one, with the monopoly on capital, and an unwashed majority, full of aspirations and creativity, lining up, cap-in-hand, to proffer the sacrifice of equity in their newborn, and surrender themselves to exploitation.

There was no choice, there is no choice: either submit to capital or watch your ideas wither and die. There are no other practical ways to raise significant capital. Real Angels don’t exist: those that ask only for their loan to be repaid, and not ownership of the firm; who reject the social relationship of equity capital, and therefore only invest in new ventures that incorporate as democratic worker-owned co-ops, so that all profit is shared, according to actual merit and contribution. If such fabled beings were present, the line before them would have been much, much longer.

There is no choice. Founders must incorporate capitalist firms, and must rent-in labour. And workers, who need income, don’t have the option to join a worker co-op. They must sign the wage contract. This isn’t voluntary, it’s coerced—by those with the monopoly on capital.

Silicon Valley culture celebrates venture capital, the Schumpeterian heroic entrepreneur, the dynamism of capitalism, and the gee-whiz technical and creative ideas of startup founders. But Silicon Valley repeatedly and continually reproduces exploitation, where some members of the firm own it, and others simply rent their labour to it. There’s zero innovation or disruption in this sphere. The Valley is a great engine, churning out new companies, day after day, which reproduce the division between an economic class that wins, and an economic class that loses.

Silicon Valley: arch promoter of extreme economic inequality

Economic inequality has always been around. But notably, in the last 30 years or so, economic inequality, in the rich countries, has significantly increased. So we find people at the bottom struggling for food and shelter, while those at the top earn many years worth of the average salary while they sleep. The majority in the middle work hard yet lack savings, living their entire lives a few paychecks from destitution.

Things have got so bad that even mainstream discourse has shifted to reflect the new reality. We’re routinely told that millennials face low wages, poor quality jobs, high debt, and worse economic outcomes compared to their parents. People now accept that the political system is rigged by a rich elite who’ve captured the institutions of the nation state. And even the arch conservative world of academic economics talks about inequality. And that simply didn’t happen as recently as ten years ago.

Bourgeois thinkers struggle to explain the major cause of economic inequality, because to do requires thinking deeply about property relations and the issue of systematic exploitation. Instead, they prefer to think about unequal human capital endowments, taxation policies, interest and growth rates, the saving habits of workers, rising costs in child and health care, or the impact of automation. They’ll think about anything and everything except the actual reason for inequality.

Capitalist firms, in an important sense, are social machines, institutions that operate within the context of a market economy to “sort” individuals into different classes by means of the wage system. This sorting produces a very specific income and wealth distribution, which is peculiar to capitalism. Empirically, capitalist societies exhibit two distinct regimes: a lognormal distribution of wage income, and a Pareto distribution of profit income.2

In any dynamic society, with a continual reallocation of the division of labour as new skills are demanded and other skills are automated or changed, we should expect some level of wage inequality due to mismatches between supply and demand in the labour market. Also, some jobs are terrible and dangerous, and people should get more for risking more. And some people really do contribute more within the workplace, and its OK if they get additional awards from their peers, if only to make sure they stick around. And some people actually need more, perhaps due to illness or disabilities or additional domestic responsibilities. All this is fine.

But, empirically, we see more than wage inequality. We see two distinct regimes. We see a majority earning wages, at the bottom of the scale, and a minority taking profits, at the top of the scale. Capitalist societies produce extreme inequalities where the top 10% or so take a big and disproportionate slice of the social pie.

And the reason is obvious, for those willing to look: the major cause of economic inequality is the wage system itself. The more workers a capitalist exploits the more profit they make. The more profit they make the more workers they can exploit. And capitalists in the super-rich bracket enjoy positive feedback effects. They can hardly lose. The economic game is entirely rigged in their favour. And, in this elevated state, they fall asleep, wake up the next morning, having earned more than workers do in their entire lifetimes.

In fact, the inequality between capitalists far exceeds the inequality between workers. The super-rich become astronomically rich as we bounce along the power-law tail of the Pareto distribution. The astronomically rich capture ostensibly democratic institutions, a phenomenon that is particularly clear in the USA, so that even mild social reforms are off the table. We’ve seen a collection of post-war policies, that once mitigated economic inequality, ditched in the last thirty years or so. This is why things have got even worse. Economic exploitation has increased.

Extreme economic inequality causes untold misery. At the top we see excessive and wasteful hyper-consumption. At the bottom, countless everyday struggles to live a dignified life. All the social ills of Silicon Valley, many of which are hidden in plain sight, are suffered mostly by the poorly paid, those with the least money. But inequality affects everyone. Societies with high Gini coefficients do worse on almost all measures of social well-being.

But it doesn’t have to be this way. Let’s imagine an impossible event, just for the sake of illustrating a point. Imagine that all the people we whispered to—in the cafes, the offices and homes of Silicon Valley—actually listened, and decided, right there and then, to abolish exploitation, and resolved, with great determination, to only ever incorporate worker co-ops, and only lend capital, and never demand equity, then—with one decisive and unlikely step—Silicon Valley would actually begin to do good. Because it’s at this precise pivotal moment—the birth of a new productive unit—that a society’s social relations of production either get reproduced, or changed. For once you start to abolish the wage contract, and the renting of human beings, you start to abolish economic classes and extreme income inequality. Wealth would then start to be shared more equitably, and fairly, upon the principle of exchange, according to actual contributions to production, and not specious paper claims. The Pareto upper-regime would lose its material basis, would totter and fall, and therewith all the power that goes with it, the ability to capture and corrupt democracies and run them for the benefit of a privileged and undeserving few. The majority of the population would have more, enjoy more, and live better.

You know, perhaps some really gifted entrepreneurs could figure out a way to export this culture, and good social outcomes, to the rest of the world.

Silicon Valley: bullshit progressivism

But sadly, as of today, that is a dream. And it’s not even a dream that’s widely shared. Silicon Valley does not see the connection between the kinds of firms it funds and creates, and the kinds of social ills that surround it.

But why single out Silicon Valley? What I’ve just described applies to capitalism in general.
Silicon Valley deserves especial opprobrium because the contradiction between its self-image and its reality is particularly stark. Silicon Valley desperately, desperately wants to view itself, and be seen as, socially progressive, enlightened, cutting-edge and, yes, utopian.

But despite the explosion of ideas and firms, and the progressive rhetoric, the core propositions of capitalism are completely untouched, inviolate. The coupling of radical technical experimentation, with extreme conservation of capitalist property relations, has been a very successful recipe for the Valley’s elite.

But the very startups that want to “change the world for the better” immediately reproduce economic exploitation: they separate human beings into a class that must rent their labour, and a class that appropriates the fruits of that labour; a class that is disciplined and must do as they are told in the workplace, and a class that disciplines and commands without democratic control. Every time an optimistic and earnest group of workers, with some great ideas, incorporate a startup and issue equity, any progressive content of those ideas are irreparably harmed.

Yet this is the specific evil that Silicon Valley does: it funnels the progressive content of technical utopianism (the increase in the forces of production) into institutions that exploit workers on a global scale, and contribute to extreme economic inequality (the existing social relations of production). Silicon Valley helps produce the dystopia we live in. It doesn’t change the world for the better. It makes it worse, every single day.

The narcissistic self-image of Valley culture contributes to its political backwardness. Some workers celebrate a victory when corporate HR departments commit to diversity in the workplace, or promise to address the gender pay gap. But these are easy concessions for capitalism, softballs, and the owners of your firm will happily accommodate you. Just don’t ask for bottom-up democracy in the workplace, or profit-sharing. Try it. You’ll get a very different response.

But that’s what I do wish for. And I’m talking to you now, fellow workers of the Valley! If you really want to do no evil, to be good, disrupt the status quo and make the world a better place, then don’t create a capitalist firm: it’s a top-down dictatorship, where the dictators steal the money. There’s nothing progressive about this kind of social institution. Founding such a startup is deeply unethical, represents institutionalised theft, and is a prime cause of diverse social ills.

Instead, use your talents to create democratic worker-owned cooperatives, based on equality among its working members; or help think of creative ways to solve the political problem of capitalists’ monopoly on capital.3 Abolishing economic exploitation genuinely makes the world a better place. Reproducing it in your startup does not.


  1. For more on the important distinction between property rights in capitalist firms versus worker co-ops, see: http://www.ellerman.org/the-democratic-worker-owned-firm/ 

  2. For more on how exploitation is the root cause of economic inequality, see: https://ianwrightsite.wordpress.com/2017/11/16/the-social-architecture-of-capitalism/ and https://ianwrightsite.files.wordpress.com/2017/10/wright-social-architecture-capitalism.pdf 

  3. For ideas in this space, see Dmytri Kleiner’s “Venture Communism”: http://media.telekommunisten.net/manifesto.pdf and https://ianwrightsite.wordpress.com/2016/12/14/blog-post-title/


author

Ian Wright

Ian Wright worked for various startups in Silicon Valley for fifteen years. He writes an occasional blog at https://ianwrightsite.wordpress.com