Silicon Valley Bank and the sordid history of 'Palo Alto'
BRITTANY LUSE, HOST:
Hey there. You're listening to IT'S BEEN A MINUTE from NPR. I'm Brittany Luse. Last Friday, Silicon Valley Bank collapsed. It was the bank for much of the tech industry, and for a few days it seemed like its dissolution could create a domino effect across U.S. banks. But one week later, the dust has settled. The government has taken over SVB, and it looks like the venture capitalists are going to get their money back.
MALCOLM HARRIS: How do you preserve your place in an unequal economy? Well, one way is you cock a gun, and you put it to everyone's head, and you say, if anything happens to me, this whole ship goes down.
LUSE: That's Malcolm Harris. He's the author of a new book titled "Palo Alto: A History Of California, Capitalism, And The World."
HARRIS: They said, if I don't get 100% of my uninsured money back, if you don't guarantee it on Monday, this whole system is going to fall because I'm so important that I will drag it down. And it worked.
LUSE: Online, I've seen a lot of people look at this quasi-bailout and wonder if they'll ever see a bailout for the average American. More than a few people have pointed at their little pile of student loan debt. Essentially, it doesn't feel fair. And, well, Harris says this is par for the course with Silicon Valley. According to him, it wheels and deals in inequity.
HARRIS: When I saw the news and saw this collapse and real classic bank run, it reminded me of this - these patterns of association and betrayal between Silicon Valley capitalists that go back to the 19th century.
LUSE: His book traces the history of tech through its mecca city, Palo Alto, and its glittering Stanford campus, a campus that has educated and influenced tech science, who Harris feels continue to tip the scales in their favor at the cost of those around them.
HARRIS: These capitalists are always facing, on one hand, incentives to get together, to, like, oligopolize (ph), to associate, to form cartels for their common interest. But then at the same time, individually, they face these incentives where if you're the first one to stab everyone else in the back, you can win.
LUSE: Today, Malcolm and I are looking at the history of Palo Alto, which in his mind has a stark resemblance to the fictional town of Sunnydale from "Buffy The Vampire Slayer."
HARRIS: It's really sunny, and everyone's healthy and wealthy and going places, and there's a portal to hell under the high school that is concealed by the really nice weather all the time.
LUSE: We're diving into Harris's so-called portal to hell, and it all starts with a murder. Stick around.
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LUSE: Malcolm Harris, welcome to IT'S BEEN A MINUTE.
HARRIS: Thank you so much for having me, Brittany.
LUSE: OK, I want to start in the early 1900s during this period in time where Stanford - and by extension Palo Alto and Silicon Valley - was at this crossroads. A fight was brewing over whether it would be a science university or a liberal arts haven. And the school was, like, briefly on track to becoming the liberal arts haven of the West under Jane Stanford, and she was the co-founder of Stanford University with her husband, the former California governor and railroad tycoon Leland Stanford. After Leland died, Jane was the main funder of the university. She wanted to create a liberal arts palace with brilliant philosophy teachers and one of the biggest private museums on the West Coast, but she did not get her wish. Can you tell us what happened to her?
HARRIS: Yeah. She was poisoned to death, and for a long time, the story has been that she sort of died of being a crazy old lady. And this is, like - this is the story sort of I grew up hearing as a resident of Palo Alto, that, like...
LUSE: Oh, wow.
HARRIS: ...Jane Stanford died. And, like, some people say that she was poisoned, but she probably died from, like, believing in ghosts and, like, being a woman (laughter). And more recently, people have poked and prodded a little bit at that story. And it falls apart very quickly 'cause she was poisoned not once, but twice - first in California. And then, as she flees her poisoning to Hawaii, where she is poisoned again to death, she calls out, help, I'm being poisoned to death, you know, as she dies in agony.
But the guy who really controlled the narrative of that story was a guy named David Starr Jordan, who was the first president of the university, who'd been chosen by the Stanfords to run the school. And at the time of Jane Stanford's poisoning, the two of them, Jane Stanford and David Starr Jordan, had come to a real point of conflict, where she was about to fire him. And he was, you know, waiting, maybe not waiting, so long for her to die. And he changes this university from a liberal arts school, a philosophy- and spiritualism-directed institution, to a scientific institution. And scientific for him at that time means first and foremost mining engineering, but also eugenics.
LUSE: So, like, for him to be really into eugenics, really into, like, ethnic purity, racist pseudoscience, mining engineering, he's a certain type of guy. His presidency at the university can also be seen as laying the groundwork for a lot of the intelligence testing used and developed at Stanford. What were some of the impacts of the intelligence tests developed at Stanford?
HARRIS: Yeah, absolutely. So David Starr Jordan comes from Indiana University. The Stanfords couldn't get any of the Ivy League presidents that they wanted to come run their new school. And he goes back to Indiana University and pulls a bunch of people with him to this new school. And so one of the people he pulls from Indiana to Stanford is this guy, Lewis Terman. And Lewis Terman is a famous psychologist, comes to lead the American Psychological Association - is president - and also a very prominent eugenicist and the real pioneer, I think is a good word, of intelligence testing in the United States.
LUSE: Right. Terman creates his own intelligence test based off this French exam made to catch kids falling behind in school. And, you know - and the author of the French exam explicitly warned against using that as an IQ test.
HARRIS: But the real first use of mass IQ tests on groups of people comes in the First World War, where Terman and other psychologists apply these tests to inductees, to soldiers who are headed to the front lines. And this is a solution to a real problem for the eugenicists, which was, how do you fight a war in the 20th century, in the age of gunpowder, without losing your best genes? And this was a huge concern for David Starr Jordan. He has this great quote about - you know, in the age of gunpowder, the clown can shoot down the hero. It's no longer an advantage to be brave in war, right? War is going to hurt your gene pool. And so David Starr Jordan becomes a real peace activist, which, again, is kind of funny - so racist that he's a...
HARRIS: ...Peace-loving anti-imperialist. Got to protect the race.
LUSE: Mmm (laughter), OK. So how does this test work?
HARRIS: If you score an A - right? - if you're at the highest level of intelligence, they're going to try and pull you back from the front. The people who are going to fight on the front lines are the C students. And the F students, maybe they shouldn't get a gun in the front lines. Like, maybe that's not the best way to fight wars. And it didn't really click for me till I did the math and understood that one of the geniuses that Terman had tested was his son Frederick Terman.
HARRIS: And Frederick Terman turns 18 at exactly the same time as the draft age gets lowered for World War I to 18. And so for Lewis Terman, this was a personal problem for him, right?
HARRIS: These were his own genes. He was going to watch his genius son get killed in the war. And that was not just a problem for him; it was also a problem for America because they needed those geniuses to be able to fight the wars of the future.
LUSE: That's the line of thinking. Right.
HARRIS: This becomes a major solution for the United States for how to deal with the 20th century.
LUSE: Something about the way this genius testing worked feels very connected to some of, like, the high-pressure educational environments that you reference later in the book, that young people in Palo Alto deal with, like, going to public high school.
HARRIS: Yeah, absolutely. And we, as a world, are still dealing with the same problem, which is the inequalities of a hundred years ago, of 200 years ago, and the question of, how could those inequalities be justified and maintained in a unified world? How are you going to maintain these group inequalities into the future? And Palo Alto's answer is that these inequalities are natural, that they are not going away, that there is a natural hierarchy among people.
LUSE: You make the argument in your book that Palo Alto is a microcosm of all of America. And you spend a good deal of time in your book outlining the history of redlining in Palo Alto. And, you know, this city is portrayed as a futuristic tech hub, but that perception of Palo Alto can't exist without the creation of East Palo Alto, as you argue it. Can you lay out East Palo Alto's creation and how that reflects the creation of ghettoized areas around the United States?
LUSE: Palo Alto is a perfect example of this history. And you see it with the creation of the 101 highway, which currently splits Palo Alto and East Palo Alto. The local NAACP called it the Concrete Curtain, referring to the Iron Curtain of the Soviet Union.
LUSE: Right. Right.
HARRIS: And the result of that was that East Palo Alto gets choked off from the resources that Palo Alto brings to itself in the final quarter of the 20th century, and that the East Palo Alto School District withers and it eventually collapses, and that you have no high school in East Palo Alto and students from East Palo Alto getting shipped - you know, bused - forcibly bused - not just across town to Palo Alto but spread throughout the peninsula. These kids of East Palo Alto become symbols for the whole nation of bad kids. In the movie "Dangerous Minds," which people might have seen - very popular...
LUSE: Michelle Pfeiffer famously sitting backward on a chair. Yeah, that was the time.
HARRIS: It's based on a real book. The title of the book is, unfortunately, "My Posse Don't Do Homework."
HARRIS: Written by...
LUSE: That one hurt my eyes to read.
HARRIS: Yeah, written by a white lady teacher whose - I believe it was Belmont, which is up the peninsula. But her class, her students were from East Palo Alto. They were bused to Belmont every morning 'cause they didn't have a high school 'cause they shut down their high school, eventually bulldozed it and built a shopping mall, which is now Ravenswood Shopping Center in East Palo Alto. It's where the IKEA is. And that's what East Palo Alto was turned into. And to do that, you got to ship the kids off. And this was very destabilizing to a generation of children, intentionally so.
LUSE: Coming up - a child genius grows up and enters the war room.
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LUSE: Before I get back into it with Malcolm, I've got some history for you. As you may know, Stanford has a lot of powerful alumni. But one of its first alumni from the very first class at Stanford was the man who would become president - Herbert Hoover. He helped set up powerful connections between the campus and the federal government. And after World War II, that kid we talked about earlier, Fred Terman, the one whose dad saved him from the draft - well, he revived and capitalized on those Hoover connections. He sets up the university to be at the forefront of aerospace, communications and electronics, and his research departments became a magnet for federal research funds. And by 1948, military contracts paid for more of the Stanford physics department's bills than the university did. And according to Harris, that laid the foundation for Silicon Valley. So that sentiment that all of your technology was first developed for the military, it's not completely unfounded.
In talking about this relationship between, like, the federal government - specifically, even, the Department of Defense and Silicon Valley or even - maybe even Stanford specifically, I wonder, like, what is the biggest, most impactful product that has come out of the relationship between the government and Stanford?
HARRIS: Well, for me, when I really looked at this history, it was clear that the nuclear missile is the product of Palo Alto, that we think of the nuclear missile as, like, you know, a rocket - big metal rocket that was made in Southern California.
HARRIS: But if you think of its composition by value, the things that really enabled it to exist besides the nuclear weapons technology were the transistors - the first generation of silicon transistors all go into Minuteman I nuclear missiles, period - and - as well as the testing instruments that are needed to create that tech in the first place and make sure it all works, which is coming out of Hewlett-Packard, coming out of all these testing instrument companies.
HARRIS: And so the composition by value of these missiles, which, again, really dominated the world geopolitically, not just, like, the American economy, which we know it was the basis for missile Keynesianism and the whole postwar American economy, but also set the stage for American domination in the Cold War period.
LUSE: To continue our march toward the present, I'm going to start talking about the internet. A good portion of early internet culture in the 1990s revolved around this idea that the internet was this resource that could expand our worlds and also bring us together. And there was, like, a point where it could seem like that's where we were headed, especially, like, with, like, people who were, like, internet hobbyists and, like, trying to find cool ways to connect with each other or build websites or, you know, a lot of DIY things. But instead, we have ended up with some of the most sophisticated and beefy surveillance tools on the planet (laughter). Based on all that you shared about the relationship between Palo Alto and the U.S. government, was it always inevitable that this is what the internet would always be used for?
HARRIS: So the conventional history, even of the internet, always starts with the federal government and with military funding. Even the hippies-invented-the-computer story has to admit that, like, ARPANET existed and that the foundation for the internet itself, the literal networks that become the internet, were government projects and military projects about, you know, if we get bombed by nuclear weapons, how are we going to communicate between our military installations? And that becomes the internet. And the hippie line is that, like, yeah, the military paid for it, but it wasn't really a military tool. The military sort of got scammed. And I think that's a self-serving, kind of goofy narrative.
But the history, I think, that gets overlooked a little bit and really where I see the current internet emerging is in the early 2000s under the George W. Bush administration because I really think it's John Ashcroft, who - people may or may not remember, but he was a real right-wing senator, right-wing state attorney general in Missouri who becomes George W. Bush's attorney general - famous for the Patriot Act and for leading the new era of surveillance within the United States. But what we forget about him is that he was a real pro-tech guy and that the tech industry loved John Ashcroft. And that seems incongruous now because we think of the tech industry as, like, liberal California, whatever.
HARRIS: But he was pro-corporate. And so the first thing he did when he gets into the attorney general's office is he drops the antitrust suit against Microsoft. And this was a real threat to Microsoft. And he signals to all these firms that he's not going to enforce antitrust rules on tech firms. He's not interested in that. He understands that this new technologies lend themselves towards high levels of market concentration. He doesn't want to stop that.
Instead, what he wants to build and what he does build is a back door to all these systems for the federal government so that they can access all kinds of information that they wouldn't be able to access otherwise directly. And so the government, if it's buying information from internet companies, can get a hold of all sorts of useful surveillance information that they couldn't legally harvest directly from American citizens. And that's the internet that we still have. That's the internet that Edward Snowden revealed then. That's the internet that - it exists. And it's one where these companies can do whatever they want to do as long as you hit the accept button.
LUSE: Right, on the fine print that many people don't read...
LUSE: ...Because it's inconvenient.
HARRIS: But that's not how, like, most of the things work in our society, right? Like, that's a particular - so if you go to the - you know, the deli counter at the grocery store, you don't just, like, hit accept and then get whatever meat they give to you. It's inspected by the USDA, right? You can't, like, get around that with some agreement between us and the thing we're buying stuff for. You can't go buy an unsafe car just because you click a little accept button. There are regulations that control these systems, and we could have had a different one. But we got this one very specifically because it helped the federal government evade restrictions on the kind of information it could collect. And so we have an internet that is a giant spy apparatus because it was designed that way.
LUSE: There was a promise that Silicon Valley and the products that it put out was going to improve our lives. And that hasn't really borne out. And many of the business people, investors, who participated in, you know, the founding and operations of these companies still got absurdly rich.
LUSE: And now the tech sector seems to be kind of melting from crypto's collapse to all the layoffs in the industry, like, you know, the announcement that Facebook's going to lay off 10,000 more employees, to this Silicon Valley Bank failure. I don't know. And it - the vibe that I'm getting is that the public seems to enjoy watching tech companies and execs fail. Is this, like, the bad guys getting what's due? Is that what's happening here that's got people so fascinated with all of this?
HARRIS: Looking at it historically, there are these cycles. If you look back to the '60s and how people treated tech executives then, they chased David Packard around the bay. Student radicals issued a press release saying David Packard can't come to the town he owns. And they used to chant Packard before Calley, as in comparing him to the worst war criminal of the Vietnam era. So it's not like this is the first time that people have gotten mad at tech leaders. In fact, the period that we've had of, like, worship for them is, I think, almost unusual for how big it is and how it isn't really related to their actual skill set. Like, if you compare, like, you know, Elon Musk or Sam Altman or some of these guys to the guys who were leading tech companies in the '60s who were, like...
HARRIS: ...World-class scientists, like, these guys...
LUSE: They had, like - they had chops.
LUSE: They had Nobel prizes, things like that.
HARRIS: Yeah, and these guys don't. And really, what these guys are good at is gambling, right? They have the nerves to go gamble billions of dollars of other people's money and then come back and do it again. Like, I don't think I could do that. I don't have the - you know, I'm not going to take $10 billion from Saudi Arabia and then throw it on the craps table. Like, no way. But someone like Elon Musk will, you know? And that's what their value to the world economy is, is that they're willing to make these potentially big plays. So I don't think we've turned against these people nearly enough.
LUSE: You've traced the history of Palo Alto from, you know, its beginning, from its inception, and you're from this city. You've watched so many technological advances come from this place. And, I mean, you were even - you were young, but you were around - you know, in Palo Alto at the time of the - of even, like, the dot-com boom and bust of, you know, the late '90s, early 2000s. I wonder, are we seeing the end of this project? Are we seeing the end of Palo Alto? Like, is Palo Alto over?
HARRIS: No way. Palo Alto is America. Some people say California is America's America. And I say, if California is America's America, then Palo Alto is America's America's America.
LUSE: America's America's America. Yeah.
HARRIS: You know, and people have this twisted. That's why I wanted to write this book and really put it at - Palo Alto at the core of modern American history, at the core of the American 20th century, not as just some peripheral, like, accident bubble, because it's not a bubble. There's a bubble machine, right? There's something that keeps creating these cycles, and we need to understand that mechanism if we're going to understand the role that Palo Alto plays in the world and the world itself. And so, no, you know, the death of Palo Alto has been proclaimed over and over and over. If you go back to the '80s, they were saying Palo Alto is over. If you go back to the '90s, they're saying it's over; the 2000s, it's over; 2010, it was - you know, they say it's over constantly. And at the same time, its position in the world and the world economy is growing hugely. Even since I wrote this book, you know, since I sold it in early 2020, Silicon Valley's grown...
LUSE: Right. I mean, part of the reason why Silicon Valley Bank had all the money to buy...
HARRIS: Oh, yeah.
LUSE: ...All of those bonds is because the industry had grown so much after the beginning of the COVID-19 pandemic.
HARRIS: This is why I think it's important to ground the history in, like, you know, 150 years or whatever, because the present stuff is just changing so fast. And if you keep your eye on the present, you're going to find yourself wiggling all sorts of places. And if you go back and look at past histories of Silicon Valley, they really are just really wiggly in this way of just being fixed to the present. And so I tried to, like, really anchor it in that long-term global history.
LUSE: Well, Malcolm, thank you so much for coming on the show and talking with us about Palo Alto. It was a ride. It was a ride. It was definitely a ride.
HARRIS: Right? A long one, too (laughter).
LUSE: I didn't want to be the one to say it (laughter).
HARRIS: I still can't believe they let me publish the whole thing.
LUSE: Yes, 628 pages. I felt them. But thank you so much for coming on the show and talking with us about it today.
HARRIS: Thank you so much for having me and for reading all those pages.
LUSE: That was Malcolm Harris. His new book is called "Palo Alto: A History Of California, Capitalism, And The World." This episode of IT'S BEEN A MINUTE was produced by...
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LUSE: All right. That's our show for today. I'm Brittany Luse. See you next week for another episode of IT'S BEEN A MINUTE from NPR.
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