Author: LianGuaicky McCormick; Source: Not Boring; Translation: Lynn, MarsBit
The reason Silicon Valley is so successful is that it’s fucking far from Washington, D.C.
– Bill Gurley
Last week, Benchmark partner Bill Gurley gave a speech about regulatory capture at the All-In Summit (https://youtu.be/F9cO3-MLHOM).
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Finally, he ended with the phrase, “The reason Silicon Valley is so successful is that it’s fucking far from Washington, D.C.”
This sentence is great, it made the whole audience excited. Regulatory capture is horrible.
I was listening to it while running, and when he said this sentence, I made a very small, inconspicuous fist pump.
But when the endorphins wore off, I realized that it seemed more like the end of a chapter.
The reason Silicon Valley is so successful may be because it is too far away from Washington, D.C. Silicon Valley has always been an underestimated underdog, and when you are an underestimated underdog, you can use this position to achieve unexpected victories.
But when you are the most popular party, when you are expected to perform well, when your opponents design strategies to prevent you from winning, the game rules change. You can no longer just surprise and defeat your opponents from a distance from Washington, D.C. You need to accept the fact that you have become a target and do your best to win through direct competition.
This is Silicon Valley today. Silicon Valley is launching attacks on industries worth trillions of dollars, such as energy, finance, healthcare, defense, telecommunications, education, manufacturing, automotive, and white-collar jobs, and is constantly at odds with shrewd incumbents.
We have the opportunity to live in an era of miracles. Cheap energy. Abundant wisdom. Supersonic transportation. Distributed opportunities. Making billions of people live healthier and longer lives. However, to seize this opportunity, Silicon Valley needs to do a lot of messy and bare-handed work.
If Silicon Valley really wants to make the world a better place, it must realize that it can no longer avoid Washington, D.C. It has a responsibility to fight against regulatory capture on its own turf and win.
This is a difficult transformation. Let me tell you about one of my failures.
Fat Boy Run
For most of junior high school, I was a chubby kid. I say “most” because I occasionally tried to lose weight, like not eating lunch for a week during basketball camp, or training for the cross-country race held by our league every year. In eighth grade, I became thin and fast, and even won the race.
So on the first day of cross-country training camp in my freshman year of high school, when Coach McCauley told the returning players that there was a new kid who might be fast, Patch McCormick, a guy a year ahead of me in junior high, said, “Patch? He’s fat.”
I participated in the training camp while staying in a non-fat state. The first time I ran on the path of Haverford College, I ran with the school team players. I ran on the school team for a whole year and was the only freshman selected. I achieved good results in the second team of the main line. In the following years, I ran faster. In my sophomore year, I entered the first team of the main line and ranked sixth in the league. I defeated junior and senior students. In my junior year, I was often the fastest runner in the team. I ranked third in the Pennsylvania Independent School Championships, and even I was surprised. Then I won the 3200m championship in the spring league. Not bad for a chubby kid!
In my senior year, I became the captain of the team and felt great. I will win everything.
And then… there was no “then” anymore. I distinctly remember kicking the batting cage at Fairmont Park after a particularly disappointing match, where I lost to a younger teammate. I performed well in the state competition, but I didn’t win or get third place. I think I only got seventh place.
This part of the content on the geocities website of a competing school summarizes the situation that year:
Next was the 3200m race, participated by the top four players from the cross-country race. LianGuaicky McCormick from EpiscoLianGuail, the defending champion of Inter-Ac, had never lost to a Malvern player in his high school career. Brian Duffy, the defending champion of the cross-country race and a junior student, easily completed the first 1600m in 4:55, then surpassed LianGuaicky in the 6th lap and won the championship from then on. His 1600m record was 4:53, and he ran a good time of 9:48, only 6 seconds behind the Inter-Ac Championship record of 9:42.
My memory is not very good, but that match is still fresh in my mind. It was a hot day in May. I ran a time of 9 minutes and 42 seconds at the beginning of the season – that was in an invitational match against faster kids. I didn’t expect to win, so the pressure wasn’t that great. If I ran it again, I could have set a league record. However, when the starting gun went off, I knew today wouldn’t be a record-breaking day. I had to give it my all to win again.
Malvern knew that my strength was endurance – I could take an early lead and maintain it. But my weakness was top speed – I didn’t have a kick. So they devised a strategy to defeat me. They had three strong players. Two of them would surround me, bump into me, and slow me down so that the third person could kick me in the last 800 meters. If I tried to break away, one of the two would sprint ahead of me and then slow down, disrupting my rhythm. This trick worked. Senior student Duffy won the championship, and I got second place in the last match of my high school career. It was devastating.
I learned a painful lesson that season: it’s much easier to be a latecomer than a frontrunner who becomes a target of criticism.
Fortunately, the stakes weren’t high. I ran two miles faster than another kid, and it didn’t matter to the world. The stakes are higher in Silicon Valley. It needs to win.
Firstly, it needs to know who its opponents are. I agree with Gurley: it’s a captive of regulation.
Captive of Regulation
Back to Gurley’s speech and the captive of regulation.
The captive of regulation refers to regulatory agencies established for the public interest, but serving the interests of incumbents. Gurley gave some vivid examples, such as COVID testing.
Germany approved 96 different rapid antigen test suppliers, while in the United States, the Food and Drug Administration (FDA) only approved three. In Germany, the cost of testing is less than $1, while in the United States, it requires $12. Not surprisingly, Timothy Stenzel, responsible for approving antigen test suppliers at the FDA, had previously worked for two of the approved companies out of the three.
Does it frustrate you? Yes!
Does it make you angry? Of course!
Will it make you angry enough to call your representative, change your vote, protest in Washington, or organize a lobbying group that donates millions of dollars in campaign contributions year after year to ensure this never happens again? Uh… uh… no.
That’s the challenge of being a captive of regulation.
In his speech, Gurley cited the research of George Stigler, an economist from the University of Chicago, who coined the term “captive of regulation” in his 1971 book “The Theory of Economic Regulation”. Stigler’s collaborator, Sam Peltzman, wrote in a follow-up article in 1989, that the main conclusion of “The Theory of Economic Regulation” is:
In any political struggle between groups of vastly different scale, tightly organized interest groups usually win at the expense of the dispersed group.
Gurley asked the audience to repeat after him, “Regulation is the friend of those in power.” Please repeat this sentence with me. If you’re at your desk, you can say it quietly, write it down, or tweet it. Okay, I’ll count to three – one, two, three.
“Tightly organized interest groups usually win at the expense of the dispersed group.”
This sentence explains the bottleneck of progress in the United States better than any other sentence. It means that a small number of loud, angry, and well-organized people may make things worse for others. We only care a little about many things, which gives those who only care about one thing an advantage.
This issue has been troubling me for a long time. I wrote about this issue in the book “How to Fix a Country in 12 Days”. After Illinois announced the continued suspension of new nuclear power plants in August, I also mentioned this on Twitter:
When you are at a disadvantage, you can avoid the occupied areas or attribute the failure to the crackdown by regulatory agencies. You can stay away from Washington, D.C.
But sometimes, you need to fight for victory.
Pushing the Struggle to Washington, D.C.
Silicon Valley is gradually realizing that we are at this turning point, although they don’t say it directly. Just last week, in addition to Gurley’s speech, the four most discussed topics in my community were:
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Eric Vos’s “No Permission”
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EU’s reduction of extinction risk caused by artificial intelligence
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Baraghi’s “Tech Tribe” Part 1 and Part 2 on “Zen Moment”
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Walter Isaacson’s “Elon Musk”
A speech about completely avoiding regulatory agencies, a story about how dangerous it is for Europeans to regulate artificial intelligence, a podcast about how the tech tribe can reclaim the city (in two parts), and a book about how one person breaks through the shackles of multiple industries.
My “Spider-Man” sense is itching. This topic is everywhere on the Internet.
In these discussions, the government itself is often portrayed as an enemy, but I think this is a misplaced and futile struggle. Washington, D.C. is an algorithm with rules to follow, albeit sometimes opaque. If Silicon Valley wants to create an era of miracles, it must learn these rules and win the game on the field.
I don’t delude myself into knowing how Silicon Valley can defeat the incumbents in their own game. I am already out of touch here. But I do know that a few things are important regardless of the specific circumstances.
Having ample resources and strong organization is important.
Trae Stephens and Markie Wagner wrote in my favorite article “Choose Good Quests” that it is the moral responsibility of founders who have created relatively easy companies in their early careers and have accumulated rich experience, resources, and networks to use their experience, resources, and networks in their second-step work to solve truly difficult problems that are of great significance to civilization. They call it “good quests”.
There are plenty of good quests in the world that require heroes of high caliber to complete: semiconductor manufacturing, complex industrial automation, natural resource discovery, next-generation energy production, low-cost and low-labor construction, new transportation methods, general artificial intelligence, mapping and connecting the brain, extending human lifespan. These problems that will determine the future are difficult to recruit talent for, difficult to raise funds for, and almost impossible to establish companies in the short term, which is why we need companies with the most abundant resources to solve these problems.
Silicon Valley has also experienced the same curve at the meta-level and has accumulated experience, resources, and connections over the past half-century, which must now be invested in “good tasks”.
This has already started at the company level – I can say that multiple companies are addressing each of the challenges listed in the citation – but in order to maximize their chances of success and impact, Silicon Valley must provide them with regulatory cover.
Silicon Valley is resource-rich but needs better organization. Currently, Silicon Valley faces the challenge of supporting decentralization as Stigler wrote about in 1971. “Technology” is a loose collection, composed of people and companies using technology to improve certain things. They take different approaches and attack different industries.
Although the tech industry refers to companies like Apple, Amazon, Google, Meta, Nvidia, and others as their own, each company may face existing companies with more abundant resources and better organization when it comes to a mature industry.
Cryptocurrency startups face regulatory agencies controlled by the financial services industry, and Elizabeth Warren’s anti-crypto army is evidence of this. Nuclear fusion startups face regulatory agencies controlled by oil and gas companies and their environmentalist supporters, and nuclear fusion may face similar issues. After the speech, when the All-In host asked him about nuclear fusion, Gully did not seem optimistic.
Silicon Valley now has resources, and it needs to establish its own regulatory agency, first clarifying its stance and rallying people around its mission. For entrepreneurs, this is a good direction to explore, just like any technological innovation.
I think the direction of the electronic accounting movement is correct. Although I am an optimist, I also realize the need to draw lines, and the concepts of “acceleration” and “deceleration” or “growth” and “regression” are clear concepts. This is the most powerful Schelling point I have seen in the technology field.
However, it is also too esoteric to become mainstream. Thermodynamics, AGI, and the Kardashev scale can unite internal groups, but to gain necessary public support, information must become mainstream.
Enthusiastic public support is important.
Silicon Valley needs to share its optimistic vision of the world it can create with people (which Silicon Valley does a decent job of, but not outstanding), and also make people aware of the interests they face when incumbents obstruct progress for their own benefit.
Hope and anger.
In terms of anger, people need to clearly recognize that regulatory capture is anti-consumer by definition. Once this happens, a small group of people will gain at the expense of sacrificing the interests of more people.
The stories shared by Guli demonstrate this point about regulation capture.
More expensive COVID tests mean that three companies benefit at the cost of billions of people paying more. Comcast’s city-wide WiFi lockdown means that Comcast benefits at the expense of 1.5 million people in Philadelphia. Epic makes healthcare providers use worse software, which means that Epic benefits at the expense of millions of people struggling with an already complex healthcare system. All three of these examples stand in stark contrast to the competition that helps America become great.
These stories should make people angry, and they aren’t even the worst.
As early as June of this year, I did a quick and dirty analysis of deaths caused by using more dangerous forms of energy instead of nuclear power, and the death toll over the past 30 years is estimated to be around 59 million.
This should make people angry, but the story doesn’t resonate like the images of Chernobyl or Fukushima, which have much lower death tolls.
Every year, tens of thousands of Americans with depression commit suicide, and we’ve known for decades that psychedelic drugs combined with talk therapy are beneficial in treating depression, yet we classify them as Schedule I drugs. This should make people angry.
Just last night, Ron made a similar point about self-driving cars:
This chart compares the prices of commodities in heavily regulated and lightly regulated industries, and it should make people angry. It should be posted in towns across the country, and despite being frequently shared online, it should be shared by more people.
One of the challenges Silicon Valley faces is the difficulty of understanding counterfactuals. It’s hard for us to understand what would happen if things were different: how many lives would be saved if we used more nuclear power instead of coal; how many people would still be alive if research into psychedelic drugs continued; how much cheaper healthcare and education would be if these industries weren’t being eaten away.
Silicon Valley needs to find a way to spread these messages.
And then there’s hope.
At the same time, Silicon Valley needs to better describe the possibilities of the future to show the true impact on people’s lives today.
Of course, this starts with building technology that clearly improves people’s lives. Safer self-driving cars, cheaper energy, affordable housing, better medicine. Cheaper and better across the board. In the lagging stages, social media and SaaS are valuable stepping stones, but in the leading stages, Silicon Valley needs to have a more evident positive impact on everyday life.
Of course, there is a chicken and egg problem here. Regulatory constraints make it difficult for Silicon Valley to truly do what it wants to do, so whenever it encounters obstacles, Silicon Valley needs to speak out loudly. Gully pointed out that transparency and communication need to be increased in regulatory capture issues, which is good.
Information must be clear: if you let us cook and cook with us, we will make everything cheaper and improve the living standards of all of us. In a recent podcast, someone made the point that billionaires and ordinary people use the same iPhone and connect to the same internet. This can be said for almost everything except land.
People need enough motivation to call their representatives, change their votes, protest in Washington, or organize lobbying groups, and year after year, donate millions of dollars to campaigns to prevent this from happening again.
Similarly, I don’t know what to do, but Silicon Valley needs the support of the people.
The good news is that although scams and explosive events make headlines, I sincerely believe that Silicon Valley is on the side of truth. The incentives of Silicon Valley are more consistent with those of ordinary people than with those in power. When technology companies can provide better and cheaper things for more people, they win.
Playing the long game is important.
Silicon Valley celebrities like Jeff Bezos talk about the importance of playing the long game. In this war, this is more important than any one company.
This war will certainly not be won overnight. It requires years of strategic organization, clear communication, and most importantly, fulfilling promises. When Silicon Valley successfully defeats regulatory captives in an industry, it needs to prove that it has indeed achieved results. Every time it does so, it gains support for the next, even more difficult battle.
Techno-capitalism and America, at their best, complement each other. Silicon Valley’s responsibility is not to overthrow the system, but to improve it, to elect candidates who support growth, to work with regulatory agencies, to help them fulfill their duties, to protect the interests of the American people, and to demonstrate that government and business can work together for the benefit of all.
If it successfully captures Washington, it will need to do the most unimaginable thing: use this capture for innovation and the welfare of the people. It needs to open source regulation to some extent and open the door to the next up-and-coming star.
In fact, leading technology companies are already trying to use regulatory capture for their own benefit, which shows how difficult but crucial this challenge will be.
If Silicon Valley’s mission is truly to make the world a better place, then it must recognize its leadership responsibility, fight against those in power on behalf of the people, and win at all costs. Only in this way can it win the right to showcase what is possible.
This is the game on the arena: to reclaim Washington and make it better.
In the coming decades, Silicon Valley must get so close to Washington, D.C. that it can improve it from within in order to succeed.
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