Silicon Valley has become Wall Street’s evil twin

Most people think of Wall Street as a self-centered, untrustworthy, but very smart industry that manipulates money and people with no qualms, finding ever exotic and often scammy ways to make money at everyone else’s expense, while pretending to be working for the rest of us.

Most people think of Silicon Valley as a creative, benign, and very smart industry that creates amazing innovations that make our lives, work, and play more fun, productive, and compelling. The folks there may seem a little odd, but they’re the new heroes, with politicians around the world trying to make their own Silicon Valleys and extolling the virtues of reaching kids to code so they can one day join the Valley.

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The truth is that Silicon Valley has become a lot like Wall Street — and not necessarily in a good way. In my 30-plus years covering the technology industry, I’ve observed how Silicon Valley has become more and more like Wall Street, and less and less like the change-the-world, Horatio Alger-style engineers glorified in movies like “Jobs” and TV shows like “Halt and Catch Fire.”

Silicon Valley’s evolution from cool toys to money games In the 1970s, there were two Silicon Valleys: the Route 128 corridor near Boston, made famous in Tracy Kidder’s classic book “The Soul of a New Machine,” and the actual Silicon Valley centered around Santa Clara, Calif. Both had strong engineering and computer science universities nearby to attract young talent and provide the training and connections. Route 128 was more focused on computers and software than Silicon Valley, which favored chips, aerospace/defense, and electronics systems.

Then came the personal computer revolution, invented in Albuquerque by Ed Roberts and Forrest Mims III in the form of the Altair but made real — and human — by Steve Wozniak and Steve Jobs at Apple in Silicon Valley. Route 128 declined, along with the big computer systems it had specialized in, but Silicon Valley grew and grew.

In the late 1970s and early 1980s, events like the West Coast Computer Faire created the “change the world” image we now associate with Silicon Valley: Hippies, professors, geeks, and businessmen mingled at the show while pot smoke wafted overhead, and the passion for democratized computing fueled us all.

Don’t get me wrong: People wanted to make money back then, but the financial ambitions were modest, for both the pioneers of the time at Apple, Dell, and Microsoft, as well as at older companies that “got” it and embraced the new computing, such as Hewlett-Packard and IBM. They desired comfortable, middle-class lives.

In the late 1990s, a new passion emerged: the Web. That too was invented elsewhere, in Switzerland by Tim Berners-Lee (HTML) and in Champaign, Ill., by Marc Andreessen (the Web browser). But Silicon Valley quickly became ground zero for companies trying to exploit the Internet for more than post-nuclear-war communications (its original purpose), such as for e-commerce and publishing.

That marked the beginning of the VC culture in Silicon Valley — and Silicon Valley’s adoption of Wall Street’s selfish mentality.

Some smart venture capitalists truly have a passion for technology innovation. But most VCs aren’t that way. They’re more akin to hedge fund managers, building portfolios they can use to attract other people’s money, then sell off for profit.

To such people, soybeans, mortgage loans, and social networks are all the same: vehicles for investing and trading, not the actual point of the investment. In the old Silicon Valley, the engineers and geeks wanted to create stuff to do great things. The product is what mattered — but not so much in the financial mindset of VCs.

Such a mentality usually leads to excess, as the focus shifts to creating more and more elaborate schemes to get other people’s money. That’s why we get a steady trickle of Ponzi schemes like the Bernie Madoff affair and, worse, a financial meltdown every few decades: the savings and loan crisis in the 1980s, the double whammy of the Enron energy-market manipulations and the dot-com bust of the early 2000s (on top of the severe blow wrought by the 9/11 terrorist attacks), and the financial-derivatives manipulations in the mid-2000s.

Silicon Valley’s pervasive Wall Street ways Today, with the second dot-com boom in full swing, Silicon Valley is squarely in the Wall Street mindset.

In the first boom, Silicon Valley folks talked about enriching everyone, not just themselves, both with their technology and their soaring stocks that even Joe Sixpack and Henrietta Housewife invested in. But the Wall Street-based financiers who swooped in were all about strip-and-flip IPOs, using techies’ naivete to cynically create a feel-good image that bamboozled investors. A lot of it was a sham. But it created a corrosive, greedy culture that persists to this day.

The second dot-com boom is worse, with little pretense by the financiers about their venality. Now it’s all about the smartest guys in the room getting paid big bucks, chasing startup dreams that will make them as rich as the VCs they flatter and lobby. It’s much less often about creating great products. Instead, it’s comparable to flipping houses: Build something that will look shiny long enough to sell to someone else, and don’t worry about creating anything for the long term. Worse, don’t worry about being cruel or destructive — that’s just disruption in action.

That transformation is also evident in how Silicon Valley’s moneymen are talking about economics and trying to influence public opinion.

It’s been clear for decades that income inequality has been rising in the United States, to levels not seen for a century. The great middle-class economy that once stood as an example of American exceptionalism and inclusiveness is now falling apart, with well-paying jobs scarcer and scarcer. Most new jobs are in relatively low-paying, low-to-no-benefits service professions, from bank clerks to teachers.

When a French economist named Thomas Piketty came out with a model for income equality earlier this year, the moneymen freaked out. If there’s a model for income equality, there’s also a way to measure whether policy tools are changing the what is being modeled. Moneymen know this — they build financial models precisely so they know what levers to pull to get what they want. Piketty’s work — which has legitimate criticisms, of course — gives citizens and governments ways to model, measure, and perhaps change the economics that favor the moneymen.

It’s no surprise then that Silicon Valley VCs have mounted a major PR campaign to smear Piketty and assure us that income equality is not in fact happening. They use a lot of one-sided, selective facts to make their case; I’ve been debating Andreessen, now a VC, on Twitter about his selective arguments for weeks now, for example. He’s by no means alone. Ironically, one argument is that global income equality is falling — but only because wages in developed countries are declining, closing the gap in an undesirable direction with Third World economies.

Except for the clothes they wear, it’s harder and harder to tell apart the Wall Street denizens from the Silicon Valley ones.

You don’t have to be evil to do evil Although the moneymen we see in movies like “Wall Street” and “The Wolf of Wall Street” come across as James Bond-style villains intent on evil, the truth is that financiers — including Silicon Valley’s VC wing — aren’t villains. However, they live in their own world, where they’ve been able to hide from the effects of their work and reinforce each other’s filtered views of the world.

That insularity and disconnection from the real world explains why someone like Andreessen keeps arguing that robots replacing our workforce is a good thing, freeing us for intellectual pursuits that would usher in a golden age for humanity. It explains why Yahoo CEO Marissa Mayer can believe Yahoo is a meritocracy while hiring mainly graduates from the elite universities — and she’s hardly alone in that classist prejudice. It explains why Silicon Valley extols the value of education but does little to help it. It explains why Silicon Valley wants to import ever more lower-wage employees from other countries while decrying the lack of qualified local talent.

That shift in the Silicon Valley mindset is scary, especially given the “change the world” reputation that Silicon Valley still enjoys and exploits to fool citizens and governments alike about its motives. Doesn’t that sound like Wall Street? That disconnect is what let financiers sell mortgages to people who couldn’t afford them, all but assuring they’d eventually lose their homes — then selling those bad loans to pension plans, all but assuring we’d all be poorer in retirement. That disconnect is what lets bankers sell us on how they safeguard our money for the future while siphoning it off with hidden fees.

You don’t have to be intentionally evil to do bad things, but you have to be disconnected from the world around you and your effects on it — precisely what much of Silicon Valley has done in its transition to Wall Street West.

This article, “Silicon Valley has become Wall Street’s evil twin,” was originally published at InfoWorld.com. Read more of Galen Gruman’s Smart User blog. For the latest business technology news, follow InfoWorld.com on Twitter.