Once, Silicon Valley -- the center of American technology -- leaned Republican. In recent years, the industry and the region as a whole has moved left. The Reagan tax cuts removed government as an obstacle to progress, helping make possible the era of Apple, Microsoft, Google, and Facebook. And Bill Clinton was wise enough not to tinker -- by and large -- with the Reagan consensus on free enterprise and capital formation.
With the threat of government intervention removed in the economic arena, the Valley has been free to indulge its libertarian instincts on social issues. This has been a boon, electorally and financially, to Democrats. Larry Lessig's "free culture" has replaced free markets as the dominant ethos in the Valley. The irony here is that many of the entreprenuers who succeeded in the most unregulated environment possible -- the Internet -- are at once hyper-capitalist and socially-liberal Obama voters. (Good luck creating Twitter or Facebook in any industry as tightly regulated as the auto or banking sectors in the Age of Obama.)
The inherent contradiction of America's most capitalist region supporting America's most socialist politicians may be coming to an end. Especially if this Administration really is dumb enough to treat venture capital like hedge funds. Government would no longer be invisible when it came to raising capital for your startup. Government as the Problem, not the solution to our problems, would return to the economy and to Silicon Valley with a vengeance. And Silicon Valley entrepreneurs -- and the highly educated managers and developers whose interests are aligned with the entrepreneurs -- would be free to vote their pocketbooks once again.
Via TechCrunch comes this piece from James Freeman in the Wall Street Journal. In Tim Geithner's zeal to regulate every financial instrument known to man, it now seems that venture capital -- which had nothing to do with the housing bubble and credit-default swaps -- has been caught in the dragnet.
The Obama administration wants to regulate venture capital firms to prevent systemic risks. Silicon Valley residents are scratching their heads and asking: What risks? The rest of us should ask why Washington is targeting a jewel of the American economy that had nothing to do with the housing bubble.
The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."
Virtually every successful technology startup in the last 20 years has been funded through VCs, creating tens if not hundreds of thousands of jobs, and fueling the engine of technology innovation in a way that's probably created millions more indirectly.
Bill Clinton was wise enough not to muck with this, and Al Gore actually works for Kleiner Perkins. Though tech companies are the most visible success stories, the next wave of big VC success stories will likely be in green energy and biotech, industries which have been hailed as the future by left and right alike.
If Obama's Geithner comes down on the side of more regulation, the right has a renewed opportunity to start capturing hearts and minds in Silicon Valley. And as a result, cast ourselves as the most forward looking and the enlightened party economically -- as the party of technology and free market solutions to the environment. Not only is there a constituency to be won, and new high-tech support to be had, but the macro issue frame helps us with the electorate at large.
Ironically, private equity and venture capital boomed in the Bush years precisely because of tighter government regulations on the public markets in the form of Sarbanes-Oxley. Sarbox dried up the IPO market on Wall Street and moved billions in financial services to London. In the midst of the housing crisis and in the wake of the dotcom bust, private capital was something of a safe haven. No more. And when capital is given fewer and fewer productive outlets, expect a backlash that will move votes as well as money.
