Easy Chair — From the August 2014 issue

The Octopus and Its Grandchildren

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Stanford (where, I should mention, I had a research fellowship last year) has its own internal critics, from the scholar Richard White, whose scathing history Railroaded won the Los Angeles Times Book Prize, to the communication professor Fred Turner, whose account of the Internet’s genesis is not much sunnier. The university is less dicey in its foundational funding than its Ivy League peers tainted by slavery, but it is also the most formidable institution that the Southern Pacific gave us, and the resemblance between that Victorian octopus and those of our own days, between the old robber barons and our sparkly new billionaires, can be striking.

White writes in Railroaded that he came to Silicon Valley

in the midst of the dot.com boom at a time when very many people were becoming very rich by creating companies, or owning the securities of companies, that lost vast amounts of money. . . . Eventually, I came to think of these new millionaires as descendants of men like Leland Stanford and his Associates. They had garnered large fortunes from heavily indebted corporations in ways that would not bear much looking into.

Part of the point of White’s monumental history is that the old railroad barons grew rich even when they created chaotic, dysfunctional corporations that ill served the public. They didn’t have to benefit us to benefit themselves.

San Francisco–based Twitter went public last year, creating 1,600 employee-millionaires overnight, many of whom sold their stock as soon as they could. Twitter also benefited from a payroll-tax break worth $56 million, which the mayor of San Francisco gave the company under threat that it would decamp if it had to pay what ordinary businesses do. That mayor, Ed Lee, is in thrall to the tech industry and to his principal campaign donor, the billionaire Ron Conway (who was an early investor in Google, Facebook, Twitter, Airbnb, and many more Internet companies).

In the Southern Pacific era, politicians were bought directly, even if taking kickbacks was illegal and considered immoral; now candidates are openly for sale via campaign donations and lobbying. Google spent more money on lobbying the federal government in 2012 than any other corporation except General Electric, and it still has one of the largest lobbies in the country.

Google, Facebook, and Apple use offshore shell games to largely avoid paying taxes, while the billionaire former PayPal CEO Peter Thiel co-founded (with none other than Milton Friedman’s grandson) a nonprofit pursuing the pipe dream of building artificial islands to which individuals and businesses can relocate to be free of regulations and taxes. “If we can solve the engineering challenges of Seasteading,” Patri Friedman explained to n+1, “two-thirds of the Earth’s surface becomes open for these political start-ups.” Another billionaire, the venture capitalist Tim Draper, is funding a ballot initiative to divide California into six states, one of which would comprise the whole Bay Area under the name Silicon Valley. Secession from the United States, rather than retreat to Friedman’s proposed islands, has also been a popular idea. A Stanford lecturer/startup maven named Balaji Srinivasan gave a talk last year entitled “Silicon Valley’s Ultimate Exit,” in which he proposed showing what “a society run by Silicon Valley looks like without affecting anyone who still believes the Paper Belt is actually good.”

“The Paper Belt” is his sneering expression for everything that came before about 1994 and isn’t run by the tech industry. The pervasive fantasy that Silicon Valley doesn’t need the government obscures the role of that government in funding much of the research that built it. The Internet itself, of course, was developed by the Department of Defense, and Silicon Valley is still key to the military and vice versa. The Office of Technology Licensing at Stanford estimates that the U.S. government funds 85 percent of research at the university, though the OTL insists the government is in turn a “significant beneficiary” of this research.

One beneficial invention the OTL recently licensed was “optimization software used in the design of yachts for the America Cup [sic].” That would be the America’s Cup, which Larry Ellison’s crew won in San Francisco Bay last year, overcoming the setback of being caught cheating to defeat the incongruously named Team Emirates New Zealand. Ellison soaked San Francisco with an $11.5 million bill for the spectacle.

Ellison has Leland Stanford’s love of extravagance and Collis P. Huntington’s cunning. Octopus Holdings LP is the official owner of his estate in Woodside, the billionaires’ hamlet a little ways from Stanford University in the heart of Silicon Valley. The home, a sort of theme park modeled after a Japanese imperial residence, was assessed at $166 million in 2005, but Ellison or his Octopus appealed and got a $3 million tax refund on the grounds that the house, built between 1995 and 2004, was obsolete and that its value had dropped $101 million. The refund came straight out of the San Mateo County budget, and half of it would have gone to public schools.

This outcome calls to mind another court ruling on the San Francisco Peninsula, better known because it still shapes our lives. The squabble, which took place in 1886, was between Santa Clara County and the Southern Pacific Railroad. The county (in which most of Silicon Valley is now situated; the rest is in San Mateo) wanted $13,366.53 in taxes on the company’s property. California law allowed individuals but not corporations to deduct their mortgages and debts from their taxable property’s value. But the judge — a friend of the Southern Pacific — found that the “defendant Corporations are persons within the intent of the . . . Fourteenth Amendment.” And so it was that an amendment that had recently given ex-slaves the rights of human beings was said to have given corporations the same rights, which meant the fact that the railroad hadn’t paid back its government loans saved it a bundle on local taxes, and which brings us almost up to the Supreme Court’s 2010 Citizens United decision and other fruit of corporate personhood . . . But let’s stay, as the old railroad metaphor has it, on track.

There are other ways in which the tycoons of the nineteenth century resemble those of the twenty-first. Stanford’s partner Charles Crocker undercut the cost of labor by hiring Chinese immigrants en masse; Facebook CEO Mark Zuckerberg founded FWD.us to push immigration-law changes that would make it easier for Asian engineers to come to the United States. As many observers have noted, the primary attraction of foreign workers is not that they make up for a shortage in high-skill domestic workers — a shortage for which there is no evidence — but that they accept lower wages. When Huntington was grilled about his company’s finances, he said he couldn’t recall, had forgotten, was confused, as did the billionaire venture capitalist (and Sun Microsystems co-founder) Vinod Khosla this spring while being grilled about why he’d shut off all access to a public beach.

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is a contributing editor of Harper’s Magazine. Her Easy Chair essay will appear in every other issue.

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