Tim Draper on what this election means for Silicon Valley

For someone in the Silicon Valley, the President is 3000 miles away. He and his opponent come out to raise money every four years and neither stays long enough to hear what we have to say, because the Democrat always wins in California and both parties know it, so our votes don’t count out here. For the people of Silicon Valley, this system of neglect worked fine while the laws were relatively benign and the costs were relatively low, and the spending was relatively frugal in Washington. But now, we are not happy, and we don’t see any way out of this mess.

It is not the election that matters, it is structural. We have a serious structural problem in America. We are trapped in process, and regulations are stifling our people as they pursue the American Dream. Yes, America, land of the free and home of the brave–isn’t anymore. And now, even the Silicon Valley is being affected. This is scary. Let me explain how I got to this line of thinking.

At first, I thought it was the politicians, or the elected officials. “Why can’t they fix this?” I would ask myself. It seems so simple. Our government spends more than it makes. We have too many regulations for entrepreneurs and businesses to thrive. So we should cut back the spending and we should make more money, and we should cut the unnecessary regulations.

I met with many politicians and they made it clear to me that they individually were doing the best they could. But it was those guys in the other party that were holding them up. When I crossed to the other party, the answer was the same. So, all the politicians know they have a problem, but they can’t fix it. So, I thought, “maybe it is out of their hands.” I also wonder whether cutting regulations is like cleaning out the garage. You always intend to do it, but it never really gets priority, so it just piles up.

So then, I approached the bureaucrats. “Why are there so many bureaucrats?,” I thought, “and what are they all doing?” But then, as I got to know them, I realized that our bureaucrats are hard-working, intelligent people who are trying to interpret the laws laid down by the politicians. Even if they are pro-business, progress oriented, and economically driven, they have to trip over themselves to make the laws work for the people who want to do anything proactive. Clearly, this is a problem for the Silicon Valley, and for any other region who thrives on proactive efforts of entrepreneurs.

And then, I determined that there are just too many laws and regulations. Every time we get a new one, the bureaucratic workload increases, and the productivity of society decreases. I realized that the regulations have just been added to, none have been taken away. If our country is of the people, by the people and for the people, why have we not dumped our old regulations and improved the systems so that people can follow regulations with less friction? It turns out that there is no incentive for anyone to dump old regulations! There are still regulations on the books about not throwing tea into Boston Harbor and what constitutes a legal buggy whip. In my own experience, as a venture capital investor, the number of forms I have to fill out has gone up about 50 fold in 25 years. And more recently, as a real estate developer, I have found that the construction is the cheapest part of development! Regulations cost me the most in both time and money. I even have a situation in which different regulators have legal conflicts that make no solution possible!

So finally, it dawned on me. I am not a customer of the government anymore. While there is great competition in the Silicon Valley, allowing customers to choose, there is no competition in government for citizens. There is no system to make government more efficient, nothing to give its citizenry more choice. Of course, I can choose a new candidate, and I can move from state to state, or even out of the US, but generally people stick with their political party and don’t want to move their families. So until our government is one with true competition and transcends geographic boundaries, I think we are trapped. In the Silicon Valley, we complain that Google controls too much of search or Apple controls too much of apps, but our government controls our lives!

Without choice and competition, any entity is a monopoly. Our government is a monopoly, and if there is one real enemy of the Silicon Valley, it is monopolies. Monopolies and oligopolies limit choice and competition. There is only one US Government, only one SEC, only one FASB, only one Dept of Energy, only one NEA, only two political parties, only one California. And none of them have to adapt to competitive threats to survive. But in the Silicon Valley, there is competition in every field. In search, there is Google, Bing, Ask, AOL, MyWebSearch, Blekko, Lycos, Dogpile, WebCrawler, Info.com, Infospace, Search.com, and thousands of others. There are more than twice as many search results for “social network” as there are miles from us to the Sun—193,000,000. And while search and social networks continue to delight us, government seems to fall short.

So, for me, I will vote for change agents. I will vote for Proposition 32 to shake up union and corporate monopolies. I will support the new candidate over the incumbent, I will vote to encourage choice for all citizens, so that they can decide which government or union or corporation they want to support.

And if we all pursue choice in government the way we demand choice in the products we consume in the Silicon Valley, we will again be the land of the free, and the home of the brave. Progress will accelerate and elections will again have meaning to us.


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  • cinti

    Bravo! This is the best commentary on the election. It truely shows the intelligence and wisdom of Draper. Yes, vote for the changing agent of this society and this country..

  • Yes, Governments are often poor inventors. I recall, in the 80’s, of Japan’s MITI placing a bet on Prolog as the language of the future. Somewhat akin to the US loans to Solyandra. Be that as it may, government is not a corporation. Unlike a corporation, a government cannot lay off its citizens.

    Governments do succeed at infrastructure. For example, my step-granddad was the civil engineer who designed the Bronx Parkway; he invented the turnpike. Hitler’s engineers then iterated on that design to create the Autobahn, and Eisenhower iterated on the autobahn to create the Interstate system. Often, infrastructure scales.

    The most immediate drain on US competitiveness is health care, at 17% of GDP. Compare that to what we spend on defense, which is less than 6%. Taiwan’s single payer system is 6%. And yet, Taiwan has universal coverage. One estimate is that health care adds $1500 to the cost of a car built in the US. Want to be competitive? Bring more manufacturing back? Maybe export more goods? Emulate Taiwan. But, that means more government. More infrastructure.

    Recently, I was talking to a young VC who got his degree in Germany. At no cost. College is mostly free, in Germany. Now imagine two entrepreneurs. One has low cost health care and no debt. The other is bogged down with monthly payments. So tell me, which one is more fluid? More equipped on pursuing high-risk-high-reward opportunities? And which one is going to play it safe?

    Yes, the US political system is broken. I voted for change 4 years ago. Change got derailed by obstruction from one side and expediency from the other. This two party system is stuck. Time for a new one. One that believes in science AND business AND personal freedom. When that happens, sign me up! We need that kind of change.

    Meanwhile, I’m voting for the known quantity: the somewhat competent administrator with solid integrity.

    • Phillippe

      And that would be . . . ? At first I thought you meant Obama because of the “known quantity.”

      Then I heard “competent administrator” and it gave me pause. Calling Obama competent at administrating in his role is a stretch. Campaigning? – yes. Brilliant, in fact. But administrating and governing? – no. Simply too many failures driven by his own inadequacies.

      Then I heard “solid integrity” and there is simply no way that you can spin and stretch Obama’s decisions and behavior into either solid or integrity.

      You have to be talking about Mitt. But known quantity? I don’t know. Higher integrity than Obama? Clearly. But “solid?” I don’t know.

      Wow. This is the best we could do?

  • Pohaku Menehune

    This piece would have more credibility if you didn’t have a record of fueling the very system that you now abhor.

    Federal election records shows that you donated tens of thousands of dollars to the Republican Party in the past. You also donated $35,800 to President Obama. You embrace change agents, but you invested in the status quo – from both sides of fence even.

    You use patriotic words, but they ring hollow when one reviews your actions as a political donor.

    • Supporter

      What you don’t understand about the mega wealthy is that they can afford to donate to both sides and they need to.

      When you’re at that level the biggest thing you can do to make sure the world moves towards where you want it is to have connections to the actual politicians … and that means whoever wins.

      Since you can’t control who wins you donate to both sides.

      So his donation record reflects the fact that he wants to have an impact on government and change it for the better regardless of *who* he needs to talk to get it done.

      The problem with government unions is that they *elect* the “CEO” that then pays them (gov’t officicials). This creates a perverse incentive. Standard labor unions do not — a union of steel mill workers can’t vote for the next steel company CEO.

  • J. McLean

    Wow, he’s basically admitting he’s an attention whore. Or he’s just another filthy-rich guy who wants to keep his tax rates low, and comes up with a fairly innocuous-sounding reason to support the GOP.

  • Voting for new politicians leads to more rapid creation of new laws.

    Check out the rapid pace of new laws created after term limits were introduced in California. It’s staggering. And since the new politicians are, well, new at this, the laws tend to be of lower quality.

    I like the overall point of the post. Just want to make sure we’re all on the same page with the prescription.

  • Sonal Abhyanker

    Bing, AOL, ……LOL! These companies deserve the RIP label. Long live Google and the US Government. My vote goes to Obama.

  • Lily

    This is either some really simplistic thinking or an attempt at covering up the writer’s actual position because he fears it would be unpopular. Proposition 32? It limits the voices of groups who are regularly not listened to (something you alluded to), but lets really large companies continue to maintain their huge political spending as usual. That’s a silencing, not a shake-up. More power to the top, less to the bottom. Voting for change agents would, I think, also include voting for things like Prop 34 (I am sure you are not voting for it), B1 if you were in Alameda county (again, I doubt you really want change — I am sure you are against this kind of progress), or the 18-year-old running for mayor of my city (change for change’s sake is silly, and I’m not voting for him, either).

    Why don’t you say what you mean?

  • Stu

    Wow, this all sounds so reasonable, but comes to a very unreasonable conclusion. And it’s not offered in any kind of good faith; the person who pointed out Draper’s donation records has indicated this well.

    New is better, ipso facto? That’s the logic of an adolescent — or of a middle-aged or older wandering-eyed husband around younger women.

    Proposition 32 is a change agent indeed — in favor of wealthy and corporate interests and against common folks who are struggling. It shields corporations from the so-called reforms it inflicts on unions.

    I don’t believe a word Draper says, ultimately.

  • This opinion piece appears rather confused in my reading of it..

    The logic appears to be:

    1. Politicians can’t do anything.
    2. Bureaucrats are fine people.
    3. New politicians pass laws, which is a bad thing.
    4. Government is a monopoly.
    5. Government departments and regulators have a monopoly so we as consumers/voters have no choice.
    6. The author will vote for change, i.e. new politicians.
    7. The author’s experience is that regulation prevents him from developing real estate cheaply therefore all regulation is bad.

    I think it is fair to say that the governance model in the United States is in need of overhaul. I personally think that a parliamentary system where the leader of the government has budgetary control is a more effective approach than the separation that occurs in the United States.And as Lawrence Lessig has convincingly argued, the major problem with lobbying in the United States is that the process of large businesses funding political campaigns directly through contributions and indirectly through third party activities is that established businesses have a strong “political voice” that can drown out new and innovative businesses.

    While regulation may have costs and may well need to be pruned from time to time, there are also less visible costs to the absence of regulation. Obvious examples include externalities that in effect represent subsidies to businesses or individvuals, e.g. polluting the environment, permitting construction in flood zones, inefficient real estate development that leads to high cost infrastructure (roads, sewers, water, insufficient density for efficient public transit). I think one can certainly argue that poor regulation of the financial services sector leading to the financial collapse of 2008 is not an argument for less regulation. It is rather a justification for more effective regulation.

    The analysis of governmental competition appears weak. In financial services, the US has had multiple financial services regulators and the ability to shop regulators certainly did not prevent mortgage abuse. The existence of lighter regulation, particularly at the State level prevented tight regulation of mortgage approvals. The contrast would be Canada where banks did not get into trouble and were tightly regulated.

    In healthcare, all the data suggests that government funding of healthcare has a lower administrative burden than competitive private insurance companies. While there is a strong argument for competitive delivery of healthcare, there is little economic justification for having a system where insurers compete to only insure the healthy pushing the unhealthy out of the system. Simplicity of healthcare regulation is clearly desirable, but the American system is best characterized as being the most expensive in the world (16-18% of GDP) in comparison to other countries that run at 6-12%. The high level of expenditures represents a tax on the US economy and produces less than stellar outcomes on average.

    Apart from the obvious inconsistency of voting for change, which by the logic of the article would generate more regulations, it seems absurd to argue that returning to the unregulated environment of Enron, or the financial collapse due to housing would be beneficial. Given that banking is part of the plumbing in the economy, the extreme libertarian view that banks should be unregulated and allowed to fail would return us to the cyclical ups and downs of the 19th century. That would be inefficient. As Keynes wrote, when an economy operates at less than capacity, there are real costs and consequences, including lower tax collections and higher deficits over the business cycle.

    The world is a more complex place today. The United States is no longer expanding into a frontier. Trade-offs exist. Unfettered real estate development would have ruined the California coast line rather than preserving it. The absence of a tradition of good urban planning in the US has produced cities with massive sprawl and a high cost transportation infrastructure. Good government creates better cities. Much of the problem in the Bay Area is due to NIMBY (not in my back yard), and the absence of regional urban planning.

  • Phillippe

    Good piece Draper. I enjoyed the chronology and evolution of your perspective. I think you hit the nail on the head with inefficient and ineffective multilevel regulations. However, when the qualification for earning your vote is simply being new, it reflects a weakness that also pervades our Silicon Valley culture. Rather, I believe getting more change agents with private sector efficiency principles into positions of power in government will do more good. For example, imagine what kind of bureaucracy busting Meg Whitman could have started for California if elected.

    The answer is voting in principles with capability, not freshness.

  • Tim Draper

    Pokahu: I will continue to work for freedom. But you are right, maybe it is better to cut off all funding to politicians, and focus on structural issues only.
    Ben: Interesting. Maybe my conclusion to turn them over is worse than keeping them there.
    Alastair. Very thoughtful comments. But I believe in the free market over government control. Time and time again the Bolsheviks have been proven wrong.
    J. Read Pokahu’s comment. Clearly I am not partisan.

    Stu and Lily, clearly Prop 32 flagged the need for mouthpieces for the Teacher’s Union to fight it. No last names. What are you hiding?

    • Stu Todd

      Mr. Draper:

      You’re suggesting I’m a shill for the Teacher’s Union? How about you are shill for large corporate interests who are acting in bad faith then?

      Suddenly, in the heat of political battle you get insulting and go ad hominem. Nice. Tell the Mercury to email me (they have my email address) and I’ll give you all my personal details and swear an affidavit on the truth — which is that I am a private citizen who forms his own opinions and has never been on the payroll of any union or political advocacy group that has worked for unions and is not now. Your suggestion to the contrary is frankly making me wonder what you’re hiding….

      And I think this goes to what Proposition 32 is hiding.

      I’ll tell you: it says that unions and corporations would be limited in their ability to compel employees to contribute to campaigns. But since corporations don’t fund campaigns in the same way unions do, this is really asking unions to give up their political strength and for workers (and the middle class) to give up their voice. And the bald-faced lie of Proposition 32 is that there is no substantial limitation on corporate influence. The fact that you are suggesting there is unravels all your pretensions of being fair or productive around campaign finance. You are indeed, in this concrete sense, then, a corporate shill.

      Nice move, Mr. Draper. Use your extensive wealth to press on the little guy — and when someone on their side speaks up, imply that that someone is paid to say what they say. I am not. I speak from my conscience.

      You appear to speak from the comfort of your 1% enclave.

      No on 32.

      Oh, and I can’t vouch for Lily — but one thing should be clear: many fair-minded independent citizens have well-developed rationales for seeing the sham that is proposition 32.

  • Phillippe

    The Silicon Valley VC’s and business leadership should form a Political Leadership Committee from which members of its own committee will agree to go on rotating sabbaticals during which they will run for office and govern for single terms. Call it the “Meg Whitman Pool.” This way we can transfer the unique knowledge gained in corporate governance of the silicon valley to our broken government infrastructure. Big, meaningful, impactful, roles like what Meg tried to do. NOT just the local government council spots of our past.

    Not only would our Silicon Valley businesses benefit, but the entire country wins as the model built for changing government evolves. The Silicon Valley’s survival as the innovation and value creation center of the globe depends on something like this to stem the destructive tide in government. This kind of pro-active innovative leadership is what is needed to get us to the next level. Whom better than the Silicon Valley to undertake such a critical move?

    Let’s get things done!

  • Sanjay

    I don’t support 32. I like the idea… but this prop makes it an unfair playing field… I would vote for a prop that removes all campaign financing including unions, businesses and individuals. In this age of internet why do we need so much money to communicate important but competing ideas when communication itself has become so cheap… or is it the failing of the technology, industry or even the investment model itself that has yet to establish tech as a serious alternative to the traditional forms of communication?

  • 140seconds

    You’re not supposed to be a “customer” of the government. The whole point of government is to protect us from feudal lords like you. The private sector if essentially made up of monopolies now and there is limited competition. Comcast, for example, has no competition in many parts of the bay area. The private sector has run amok, your wealth is physical proof of that. The government is the only protection the people have left from being owned by the financial elite. I hope you continue to run into as much bureaucracy as we can legislate.

  • 140seconds

    You’re not supposed to be a “customer” of the government. The whole point of government is to protect us from feudal lords like you. The private sector if essentially made up of monopolies now and there is limited competition. Comcast, for example, has no competition in many parts of the bay area. The private sector has run amok, your wealth is physical proof of that. The government is the only protection the people have left from being owned by the financial elite. I hope you continue to run into as much bureaucracy as we can legislate.