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.

Talking about how the American labor market channeled various groups of post-1965 immigrants risks repeating tired ethnic stereotypes that still plague the country’s psyche. But not talking about it risks naturalizing the same patterns, reinforcing false ideas about ethnic suitability for certain jobs and the role of Asian immigrants in general in America. Only by putting this sequence in its global economic-historical context can we understand, for example, the relationship between Korean immigrants and urban corner stores. A disproportionate number of post-1965 Asian immigrants gravitated toward small-business ownership for a whole slew of reasons: If they bought one, immigration rules permitted individuals to enter the country regardless of their point-system scores; small businesses allowed families to informally employ their own members at low wages, lending the enterprises a competitive advantage; as their own bosses, immigrants didn’t exaggerate the necessity of English language skills, as an anglophone employer might; members of a generation of white ethnic small-business owners were nearing the ends of their lives after having successfully assimilated their children into professional jobs and felt compelled to sell their shops; educated professionals who couldn’t traverse the American credentials system had access to modest loans and pooled capital from their community networks; suburban expansion in the South and West created demand for small concerns to fill out the new strip malls. Low-capital, labor-intensive businesses such as restaurants, doughnut bakeries, small groceries, auto-repair garages, newsstands, motels, nail salons, liquor shops, and convenience stores were viable enough, but small profit margins meant that self- and family exploitation was the only way to make any money. Ronald Takaki calls it an “opportune moment” to become a shopkeeper, and yet he also notes that a “study of Korean business owners showed that more than 90 percent of them worked harder and lived more frugally here than they had in Korea.”39 It’s this decline in living standards that Reagan admired when he hailed Asians and Pacific Islanders as model minorities: All workers should work so hard and live so frugally! The president sounded a lot like his forerunner in Sacramento, Leland Stanford, at least when the robber baron was feeling charitable toward his laborers.

For cronies attached to America-supported regimes, California was irresistible. A cornucopia of start-up and suburban development and shopping-center and office-tower projects promised high returns on big investments under safe conditions, even if things went badly at home. “They come over here with shopping bags full of money—real money,” one Palo Alto real estate agent told the San Jose Mercury News in 1985, regarding Filipino investors.50 The article was part of an investigative series by the Merc into capital flight from the islands to the Bay Area, which revealed a network of elites affiliated with President Ferdinand Marcos siphoning billions of dollars out of the country’s coffers into their own accounts and portfolios—billions the regime had borrowed from international lenders on their people’s credit line. Corrupt authoritarians had to invest, too, and among the best ways to do it was to dump a pile of cash on a California lawyer’s desk.

In one case, a government fund directed by the infamous embezzler (and first lady) Imelda Marcos invested millions to acquire three Silicon Valley tech firms through a holding company.51 Prominent among the elite Filipino investors in California was Enrique Zóbel, whose namesake, recall, was the Falangist father-in-law of Ampex co-owner Joe McMicking. Now that the family fortune was restored, Zóbel’s Ayala International controlled two hotel projects in San Francisco and Los Angeles worth a combined $73 million.52 “They have money in Switzerland and money all over,” one Silicon Valley electronics executive told the Mercury about the Filipino investors he worked with, “but the really wealthy put their money over here, always with the expectation something could go wrong. One man told me: ‘As long as I can get out of the Philippines and get to a telephone, I’m in no trouble.’”53 Investing in California meant, whether a communist revolution or democratic regime change, the country’s rich could stay rich. The Mercury’s “Hidden Billions: The Draining of the Philippines” series created a stir on the islands. Local papers repeated the articles in excerpt and in full. At a time of financial hardship, this “dollar salting” took food out of hungry mouths, retarded economic development, and ran up a $28 billion tab.54 The ensuing scandal helped pressure President Marcos to concede to the early elections that removed him from power.