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Political risk stalks booming Silicon Valley

For the past two decades Alex Karp, chief executive of Palantir, the data analytics “unicorn” start-up, has seen Silicon Valley bask in a seemingly unstoppable boom. These days, however, he feels uneasy.

That is not because of the issue which alarms some investors: that technology valuations are so elevated they will eventually crash. Instead, Mr Karp frets about politics. “The Valley is marching off a political cliff,” he told me this week. “The [tech companies] have all these monopolies and economic capital, and assume that it translates into political capital — but that isn’t true.”

Is he correct? Not if you listen to the public statements of other tech titans. The story Silicon Valley likes to tell is that it is a bastion of the American dream, producing innovative products that improve consumers’ lives. This should create plenty of political support, or so the argument goes. After all, surveys suggest that public trust in technology is sky high.

I suspect, though, that Mr Karp is quite right and deserves great credit for speaking out. After all, a mere decade ago, Wall Street titans were also brimming with hubris and wealth, convinced that innovation was improving the world. However, the banking crisis then triggered a fierce political backlash against finance.

There is nothing like the 2008 crisis looming for tech right now. On the contrary, the present White House seems to favour deregulation, not a regulatory clampdown. But what savvy observers like Mr Karp can see are a host of slow-burn issues, on both sides of the Atlantic, that could, at best, spark recrimination and at worst a policy shock.

What issues make tech vulnerable? One is parochial: the Valley was (mostly) on the wrong side of the US election last year. Its Democratic bias ought not to matter, as Donald Trump’s team claims to be inclusive. But it is noteworthy that Silicon Valley was the first business sector to openly challenge the White House on immigration. It is also striking how few tech CEOs there are on the president’s business advisory council. (Although Travis Kalanick of Uber initially joined, he quickly resigned, leaving just Elon Musk, founder of Tesla and SpaceX and Ginni Rometty of IBM.)

A second, longer-term, problem is job losses. Until now Mr Trump has blamed trade for American workers’ woes. However, another big culprit is the type of digitisation being unleashed by Silicon Valley. Tech businesses could become convenient scapegoats, particularly since companies such as Amazon, Apple, Google and Facebook have enjoyed fat profits and near-monopoly power in certain sectors.

A third, related, issue is tax. As profits have boomed, tech groups have amassed $867bn in offshore cash piles, partly to avoid paying high US taxes. This irritates American politicians. However, European officials accuse tech companies of avoiding taxes. Silicon Valley companies retort (correctly) that they are only responding to laws. But that does not lessen the potential outrage. Nor does philanthropy help in Europe: unlike in America, conspicuous charity is viewed with suspicion in places such as Germany or Scandinavia.

Then there are the tangled issues of security and privacy. In Europe, there is criticism of social media companies for being slow to curb the spread of fake news, and to guard consumer privacy. American and British intelligence services are even more angry that extremist Islamist propaganda has spread on social media, along with sensitive intelligence leaks, and that tech companies have sometimes refused to hand over data on terrorism. This further reduces tech companies’ political support.

Some tech executives can see this and are fighting back. Apple, Google, Facebook and Amazon have vast lobbying operations in Washington and Brussels. Facebook and Twitter are developing tools to combat fake news, and Google and Apple say they want to help American workers train — or retrain — for a digitised future. Meanwhile, some tech executives are trying to work with Mr Trump’s White House. “We don’t want to be isolated,” says one.

But this can only mitigate the risk, not remove it, in a world where nobody has a solution for displaced workers and where monopolies are unlikely to vanish unless we all start using entirely new tech platforms. Indeed, the only truly effective measure that Silicon Valley could probably take to reduce political risk would be to visibly pay more tax. But don’t bet on that happening soon. Or not unless Mr Trump produces a (near miraculous) innovation of his own — a tax reform deal to repatriate those vast overseas cash piles.


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