A bet on Silicon Valley was a bet on the future, and the future after the solution of the ’70s meant driving down labor costs. The number of union members as a percentage of American employed workers began falling dramatically in the early 1970s, and Palo Alto was leading the trend. While big industrial cities battled legacy unions, this labor-hostile suburb kept its production wages low by locking organized labor out of its factories. For reasons that recall the agricultural struggles of the 1930s, large unions were not particularly aggressive about organizing the chip industry’s low-wage, polyglot workforce of immigrant women, while professional employees were mostly too well rewarded and pretentious about their work to be interested.9 What organizing there was had to come from the rank and file—it wasn’t worth anyone else’s time. Or, rather, almost anyone else’s. Stanford graduate Amy Newell came by her labor politics honestly, as they say, meaning she inherited them. In the 1940s, her father, Charles Newell, was the business manager for the United Electrical Workers (UE) at the Pittsburgh Westinghouse plant, where he helped lead the left wing of the left-wing union, and her mother, Ruth, organized for the UE at a Sylvania plant.10 After, in 1953, Charles was named as a member of the Communist Party by notorious FBI spy Matthew Cvetic at the Senate Judiciary Committee hearings into “subversive influence” in the UE, the family moved to Watsonville, California.11 Amy graduated from Stanford in 1969, having witnessed the militant turn in the campus antiwar movement, after which she enrolled in a doctoral program at SUNY Buffalo. On a visit to her parents in 1972, she saw the semiconductor workforce shaping up and thought she could help them organize. Newell persuaded her boyfriend to drop out of graduate school with her, and the two of them moved to the South Bay to start as “salts”—workers who get jobs with the ulterior motive of unionizing their coworkers. A couple of decades after the UE got run out of Sunnyvale, after Taft-Hartley purged avowed communists from the official labor movement, the Reds were back. Newell agitated from the line at her job with Siliconix, and with other rank-and-file semiconductor workers, she started organizing at the shop level at firms such as National Semiconductor, Siltec, Fairchild, and Semi-Metals.iv

Perhaps the greatest challenge was well-organized employers, who shared information about union efforts among themselves and, under the auspices of the Packard-founded American Electronics Association (AeA, or the Western Electronic Manufacturers Association, before 1977), split the costs of anti-union campaigns, just as the Associated Farmers before them did. The competitors were able to come together after getting spooked by a 1968 strike of 5,000 Bay Area electronics workers across three firms (including Ampex), which lasted a week—the kind of interruption the fast-moving semiconductor industry couldn’t afford.14 Offshoring and the threat of unemployment was a good issue to rally workers around, but it was also the boss’s trump card. It’s a card the video-game manufacturer Atari played in 1983 after the Glaziers’ union neared its goal of an election involving several shops. Rather than face its workers across a collective bargaining table, the company laid off 1,700 people and closed two of its three Silicon Valley factories, moving production to Hong Kong and Taiwan.15 Unsurprisingly, the Glaziers found it too difficult to organize Atari workers at the remaining domestic line. Despite the efforts of Newell and other rank-and-file workers, the UE’s organizing attempts failed repeatedly, as did limited campaigns by other national unions—notably, the Teamsters at Intel. In 1994, scholar AnnaLee Saxenian described the results of the previous couple of decades in her comparative study of Silicon Valley and the Massachusetts tech industry: “There are approximately 200,000 union members in the four-county [Bay Area] region, but virtually none work in high technology industries. No high technology firm has been organized by a labor union in Silicon Valley during the past twenty years, and there have been fewer than a dozen serious attempts.”16 It was a brutal period for workers and a correspondingly excellent one for the men who employed them.

The solution of the ’70s wouldn’t have been possible in California without a few carrots in the pile of sticks, at least for white settlers. Asset ownership in the form of appreciating houses and stocks was an alternative path to wealth, and coming to own land is what settlers are good at. White working-class homeowners began to identify as white and homeowners more than as members of the working class, and not without reason. If their human capital was depreciating rapidly, their home values jumped. In Santa Clara County, the house price index doubled two and a half times between 1975 and 1990.33 With home ownership also came guaranteed places in the California public school system, where the professional workers of the future (with their in-the-car wages) were trained. America’s society kept bifurcating, and without a powerful labor movement to push back, people were left trying to navigate their own families to the correct side. In that environment, the continued assimilation of migrant groups presented a pressing threat to white homeowners. They feared that nonwhites would undermine home values by moving nearby and that their children would take advantage of public programs funded by white tax dollars and end up competing with white children for future advantages. Equalizing opportunity sounds nice in theory, but in practice the attack on wages meant there was less of them to go around. For white settlers, equality was a step down.

With its high profits and bifurcated labor force, California modeled capitalist discipline for the nation. Investment capital fled west, rewarding the state’s owners. Between 1979 and 1986, total manufacturing as a share of gross national product stayed nearly flat, but the sector’s composition changed a lot.1 Computers and machinery, electronic and electric equipment, instruments, and aircraft increased their percentage share by double digits, while all other manufacturing categories declined. Primary industries such as metal, oil, coal, and lumber took the biggest hit, along with the offshored cars and textiles.2 This wasn’t deindustrialization; it was Californication.

They could not do it alone, however. How would they sell individualism to the unemployed? Promising to whip inflation helped, but elements of the working class had to be persuaded to accept a cure that, for them, was probably worse than the disease. California, where liberals experienced serious setbacks as wealth flowed into the state, suggested a plan. By reducing the size of the social surplus available to the working class and poor, they could deepen fissures within the broad category of wage earners. Cutting taxes, especially for the rich, thinned the budgetary air for everyone else. Spending lots of money on defense, particularly the Silicon Valley high-tech kind, redirected tax revenue back into ownership pockets and expanded its non-union bifurcated labor forces. Whereas Nixon cut defense in order to provide social services, Reagan increased defense spending to justify a cut in social services. Like conservatives in California, the Reagan administration expected a significant portion of white people to abandon the liberal consensus in favor of a new vibrant conservative individualism.

Individualism, privacy, property, competition: This conceptual constellation gave the political right a way to talk to people beyond the material appeal of their policies. Rather than the government providing a basis for individuality by spreading the costs of independence and creating a fair field of play, the Reaganites promised to simply get the state out of the way. But the irony of Hooverian governance is that it requires a fleet of government bureaucrats in order to oppose government bureaucracy. As the Hoover Institution entered the White House, Anderson and company became strange technocrats, tweaking the rules in little ways that they predicted would make big differences—the definition of efficiency, after all. Their main tools were deregulation, privatization, and tax cuts, which all reinforced one another. They continued work already begun by congressional Republicans, who cut the capital gains tax back down to Jazz Age levels and sliced the top marginal rate so hard that they redefined the levy from something political and more or less confiscatory to just another tax. Deregulation made new gains easier to invest, and stocks reversed their 1960s and ’70s slide and even longer period of relative indifference. The rusty gears of financial capitalism creaked and turned once more, beginning two decades of explosive American stock growth. Organized labor was able to soften the blow of industry deregulation to some degree by pushing workers’ pension assets into the booming equities market. Here was an alternative road to socialism: Workers could buy the companies, just like anyone else. But the unions didn’t generally manage their voting shares—that job went to the banks they hired, and the banks voted with management when it came to undermining workers. Instead of purchasing the means of production, they ended up loaning their retirement accounts back to their bosses. Labor bifurcation drove stock and home prices higher as the economic surplus flowed to upper-income Americans, who were more likely to buy houses and stocks. The Bay Area led the trend; median home prices nearly tripled in San Francisco and Santa Clara Counties during the 1980s.16 Consumer credit expanded via loans, home equity lines, and credit cards. Existing owners benefited, even if they were also on the wrong end of bifurcation as workers. This was the new ideological admixture made flesh.

It was hard to believe that California could continue its postwar hot streak, especially after the end of the space race and the defeat in Vietnam. The resulting wave of layoffs confirmed the widespread suspicion that it all couldn’t last. In the next chapter I’ll cover the personal computer industry, which started the accumulation cycle over again, but the Mac and PC weren’t the only things Palo Alto had to offer. Finance capital always did like the suburbs. Novelty is high-growth, and Palo Alto built an incubator for new technologies. The huge capital-gains tax cut—more than 50 percent—and pension-investment deregulation helped turn venture capital from something small groups of well-connected buddies did in Cambridge, Massachusetts, and the Bay Area into a national growth strategy. Money raced from all over the world to Palo Alto’s Sand Hill Road, capital’s new capital, and into the hundreds of venture funds springing up like apricot trees. Capital in the funds quadrupled in the early 1980s, from $1 billion at the close of the 1970s to $4 billion in 1983.17

Though it contrasted with accepted scientific practice, “[t]he focus on intellectual property was thus developed as a prominent business strategy for securing the infusion of venture capital at early stages of research and development,” writes Doogab Yi in his book The Recombinant University: Genetic Engineering and the Emergence of Stanford Biotechnology.20 Stanford pulled in over a quarter of a billion dollars in commercial royalties from the OTL’s share of the recombinant patent.21 Critics said the patent obviously led to underutilization, locking out small start-ups that didn’t receive the grace of VCs. But in terms of dispersing the tech, it’s hard to look askance at the licensing fees and Genentech’s success. At the end of the 1980s, after making many people in Palo Alto very rich, the company was majority-acquired by the Swiss multinational pharmaceuticals conglomerate Roche. By getting the government out of the way, the Bay Area’s capitalists and scientists turned a legally dubious piece of paper into a real company that made drugs that people used. It was their payout for rescuing recombinant DNA from the tragedy of the commons. Boosted by the OTL’s DNA IP, Stanford quickly became the top university in the country in terms of patent income.22 What the public gained or lost in the process is hard to calculate.

Instead of treating human capital as a national resource the way David Starr Jordan and company first planned it, America’s new leaders applied Garrett Hardin’s tragic-commons logic: If they were giving it away, people would go to school and, say, invent radical new theatrical art practices instead of building bombs like they were supposed to. With education enclosed, on the other hand, the market could properly value it and ensure its best use. Students began to think of themselves in the same terms, as a walking, talking set of investments; in a bifurcated world, they couldn’t afford not to. Silicon Valley employers, meanwhile, used their two-track labor force to keep unions out of the regional industry. For the highly waged, firms introduced all sorts of fun perks, from team getaways to gourmet meals and free beer. National Semiconductor invested millions of dollars in a 14-acre “Employee Recreation Park.”31 Referral bonuses encouraged workers to talk up their firms to their friends. Bosses eschewed formal hierarchy and opened up the floor plan. Fighting alienation at work by making the workplace more fun, more personal, was a flexible way to attract workers and keep labor organizers at bay—these freebies were easier to withdraw in lean times, such as the early ’80s downturn, which briefly reached the Valley in ’82, than wages and promised benefits. “The Pentagon is an active collaborator in union-busting,” wrote scholars Ann Markusen and Joel Yudken at the time, and the state encouraged investment in non-union areas.32 Three of the top four counties for prime DOD contracts at the end of Reagan’s first term were in California, including Santa Clara at number 3.33 The county nabbed 3 percent of all DOD contracts in 1980, five times its fair share by population.34 Silicon Valley became a labor-relations model, and the CEOs became national figures. “Organization in a high growth company is people oriented,” the ASK Computer Systems founder and CEO, Sandra Kurtzig, explained to a joint congressional committee in 1984. “The company functions as a family. It takes care of employees who perform, but nonperformers are unwelcome and unwanted. And we’re fortunate that we don’t have labor unions in Silicon Valley because of the orientation toward people.”35 What a strange family.

With Reagan in office, the hard-core ideological capitalists running the White House used American might to leverage a global policy revolution along Hooverite lines. By shifting the balance of class power everywhere toward local elites, they triggered a virtuous cycle of financial growth, analogous to the one that drove domestic asset prices up. Overseas capitalists had to invest their profits, and since they were subject to the same global-historical pressures as American capitalists, their money tended toward the same financial sinks, a disproportionate number of which were headquartered in the United States. Instead of supporting allies with Marshall Plan funds and secret war-gold stashes, the United States and U.S.-led institutions offered these countries large loans, which could be paid by privatizing public assets and even forgiven in exchange for Hooverite reforms. Undemocratic leaders had plenty to gain from the loans (which supported extravagant lifestyles and loyalist coteries), the privatization (which offered opportunities for bribes and self-dealing), and the reforms themselves (which shifted the economic surplus in their favor). They could also afford plenty of American weapons, which helped make it possible for the regimes to protect themselves by attacking their own working classes. As capital concentrated in fewer hands, it grew easier to get everyone on this same page, a page later named the Washington Consensus.