Home' Trinidad and Tobago Guardian : July 30th 2015 Contents BG22 THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt JULY 30 • 2015
The English have Silicon Fen
and Silicon Roundabout, the
Scots have Silicon Glen.
Berlin boasts Silicon Allee,
New York Silicon Alley. But
the brain of the tech world
is the ecosystem in and around San Fran-
cisco. Silicon Valley s entrepreneurs and
innovators, technologists and moneymen
are busy revolutionising nearly every aspect
of the global economy.
A place named for its skill in making sil-
icon-packed semiconductors is transforming
how firms make decisions, people make
friends and protesters make a fuss. Startups
touch more people, more quickly than ever
Airbnb, a seven-year-old firm that helps
people turn their homes into hotels, operates
in 34,000 towns and cities around the world.
"On-demand" firms like Uber are changing
what it means to be an employee. Just as
the big platforms like Google, Facebook and
Apple benefit from "network effects,"
because each new user makes the service
more valuable for all the others, so the Val-
ley s success as a venue to launch, fund,
staff and sell a technology firm is feeding
As a result, US capitalism has a new hub
in the west. Wall Street used to be the place
to seek fortunes and make deals; now it is
increasingly the Valley. The area s tech com-
panies are worth more than US$3 trillion.
Last year 1 in 5 American business-school
graduates piled into tech. Jamie Dimon, the
boss of JPMorgan Chase, has warned of
mounting competition for Wall Street. Gold-
man Sachs recently held its annual share-
holder meeting in San Francisco.
The enormous, disruptive creativity of
Silicon Valley is unlike anything since the
genius of the great 19th-century inventors.
Its triumph is to be celebrated. But the accu-
mulation of so much wealth so fast comes
The 1990s saw a financial bubble that
ended in a spectacular bust. This time the
danger is insularity. The geeks live in a
bubble that seals off their empire from the
world they are doing so much to change.
The US economy would be hit hard by
a repeat of the financial shock that followed
the dot-com crash in 2000. With the NAS-
DAQ index near its record high, this is a
common fear. Fortunately, although money
and talent are pouring into the Valley, there
is not yet much danger of a disastrous bust.
That is because tech companies today not
only have more robust business models than
their dot-com predecessors did (ie, many
actually make money), but they also rely on
a smaller group of financial backers.
Today s firms are staying private for longer.
Tech firms that went public in 2014 were
on average 11 years old; back in 1999 they
waited only four years before listing their
shares. Tapping wealthy investors means
risk is borne by people who can afford to
take losses. It is easy to lament the decline
of the publicly listed company (though even
when founders do list they keep a tight rein),
but if tech firms fall short of their promises,
ordinary investors are less likely to see their
Staying private allows entrepreneurs to
avoid the headaches that come from being
quoted: the nuisance of activist investors,
the drudgery of compliance, the vision-
crushing ritual of quarterly reporting. In
theory, a coterie of investors is better than
an anonymous multitude of shareholders
at making sure managers act in the interests
of all a firm s owners.
But staying private has risks, too. One is
that firms under no obligation to make
public a full set of audited accounts will
remain veiled from the scrutiny of analysts
and short-sellers and so act irresponsibly.
America s tech "unicorns"---firms that have
reached a valuation of more than US$1 bil-
lion---are worth around US$300 billion
between them. The danger that some of
this capital is being misallocated is high.
The other risk is that a charmed circle
with great wealth becomes cut off from
everyone else. For a group rewriting the
rules for industry after industry, that is a
The empire of the geeks draws its strength
from a culture of techno-evangelism that
enables entrepreneurs to rethink old systems
and embrace new ones. Many denizens of
the Valley believe tech is the solution to all
ills and that government is just an annoyance
that still lacks an algorithm.
So far the public s relationship with the
tech titans has been mostly harmonious.
Consumers enjoy their taxi-hailing apps,
music streaming and voice-recognition soft-
Yet cracking open established industries
inevitably results in conflict. Uber is the
firm most embroiled in controversy, whether
facing licensed taxi-drivers on the streets
or demands from its own drivers in the
courts. European regulators are also scru-
tinising firms like Facebook and Google for
everything from antitrust concerns to data
protection. And US regulators are reportedly
looking at whether Apple has abused its
clout in the music business.
Critics are often from industries wanting
to protect their privileges; the geeks aggres-
sive behavior is sometimes part of the cre-
ative destruction that leads to progress. But
that is not the only source of anger. Silicon
Valley also dominates markets, sucks out
the value contained in personal data, and
erects business models that make money
partly by avoiding taxes.
There is a risk that global consumers will
feel exploited and that the effects of a shrink-
ing tax base will infuriate voters. If the per-
ception takes root that enormous profits
from exploiting data and avoiding taxes are
crystallised in the fortunes of a few people
living on a patch of ground near San Fran-
cisco, then there will be a backlash.
The Valley s firms are hardly the only
ones to push against taxes and regulation.
They are free to operate as they like within
the law. But they risk becoming targets
because they are so global. They should
remember that the law can change. If they
want a seat at the table when it does, they
need to be part of the markets they sell in,
not isolated from them. Even private firms
run by geniuses need a license from society
At its best, Silicon Valley is an expression
of iconoclastic freedom and creativity. It
would be a terrible shame if it became an
unpopular and remote manifestation of elit-
@2015 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Five years of trade negotiations, 29 chapters of dense
rules and hundreds of tariff lines culminate, in one
corner of Asia, in whirring spools of white fabric.
Negotiators are still wrangling over the text that aims
to establish a new Pacific trade zone, tying together
12 countries from the United States to Vietnam.
Penfabric, a textile company in Penang, in north-
western Malaysia, is not waiting around. In one of its
mills, bright yellow flags distinguish rolls of high-end
fabric from cheaper cloth. Lately, these flags have
started to multiply.
"We need to be in tune with what America wants,"
said HS Teh, Penfabric s managing director.
The zone, dubbed the Trans-Pacific Partnership
(TPP), is the most important free-trade agreement in
years. If completed, it will be the largest regional trade
deal ever, with its members accounting for nearly 40
per cent of the world economy.
The countries leading the negotiations want to set
a new standard for what trade agreements cover. They
are taking on the morass of regulations, such as local-
content rules determining how much of a product
must be made from local inputs, that have replaced
tariffs as the main obstacle to the free flow of goods
After repeated failures to seal big global deals---the
World Trade Organisation (WTO) has turned its focus
to specific industries rather than comprehensive agree-
ments---the TPP actually has a good chance at success.
A meeting of trade ministers in Maui from July 28-
31 is expected to put the final touches on the deal.
Gauging the exact benefits of the TPP is tricky, not
least because the trade talks are still confidential.
Critics have bemoaned the lack of disclosure, but con-
ducting negotiations in the open could have undermined
them. Governments will have several months to review
the final deal before deciding whether to give their
Even when the details are known, it will still be
hard to assess the impact. The most authoritative
study, published by the Peterson Institute for Inter-
national Economics, estimates the TPP will enlarge
the economies of the 12 member states by $285 billion
But, as with any economic model, reality is more
complex. Benefits could be smaller if exemptions on
tariffs blunt its impact---Japan, for one, is still trying
to protect its "sacred" food, such as rice, wheat and
beef, from imports. But through incidental effects -
if, say, Vietnamese industry becomes more efficient---
the gains could also be larger.
Trying to pin down the exact value of the deal misses
the point, though. First, the TPP is not at its final
destination. It is supposed to expand, drawing in more
countries. The Philippines, South Korea, Taiwan and
Thailand have expressed interest in joining. The hope
is that it will eventually also attract China.
If the initial 12-country zone is expanded to 17, the
benefits could be much bigger.
Second, TPP is not mainly about cutting tariffs
(these are already low after years of trade liberalisation)
but rather about setting new rules for global com-
By leaving China out, the United States has, to a
certain extent, rigged the talks in its favor. Much as
state-owned companies in Malaysia or Vietnam want
to defend their fiefdoms, they do not have the clout
to push back as strongly as their peers in China might
have done. But if the TPP gets underway and proves
successful, China may yet be compelled to join, or at
least to agree to pacts with similar standards.
"If China doesn t promote its own ideas for trade,
it will be influenced by those of others," said Zhou
Mi, a researcher in a think-tank under China s com-
The TPP talks have dragged on since 2010 and there
could be drama yet in the final weeks.
@2015 The Economist Newspaper Ltd. Distrib-
uted by the New York Times Syndicate
Empire of the geeks
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