New bank charters actually were running pretty high up until 2008, and then they dropped to zero. Whatever happened in banking reform and regulation, and all these bills and everything, these thousand page bills that pass — it’s not clear if anybody ever reads them — somehow the result of all that has been these too big to fail banks are much larger. They’ve gotten intertwined with the Treasury Department in this very interesting way.
Part of it is so-called regulatory capture, which is when you have these monopolies and oligopolies, they attach themselves to their regulators. You have this revolving door where people know they have jobs in the future.
But there’s another side to it which is if you talk to those bank CEOs, which I do, they’ll tell you that the Treasury Department now runs the banks. They just give them orders on how to operate as if they’re units of the federal government, and they just tell them what they can and can’t do.
That was Marc Andreessen at Nexus 22. Certainly all the regulatory regimes rhyme in this very way. In the defense industry, there are thousand-page NDAAs and thousands of pages of budget material that are in effect industrial policy (weapons program choices imply certain capital investments and supply chains).
Regulations affect all aspects of contractor operations, causing their internal structures to mimic the unique requirements of government. The need to make decisions on behalf of the contractor necessitates reporting mechanisms which then entrench the incumbents and old technologies. The regulators like what they understand, and competitors with new business models are hard to understand.
In some respects, the United States defense system is state run, as industry consultant David Soergel testified in 1971:
The seeds of formal nationalization are there, centralized technical decision-making, and for many programs, centralized control of both private and public resources. In my opinion and in the opinion of several others, we have been in a situation of “state-planned technology” for over a decade. The obvious outcome of this is “state-planned products and services.” If this situation continues, the private technologist, scientist, and engineer will lose their freedom to conceive of new products and he responsible for their outcome.
I think the real problem with the entrenchment is that last sentence — the loss of freedom of people in the system to contribute new ideas and be responsible for their success. It often stems from honest disbelief by the incumbents that a product or business model can work. Yet the permissioned nature of innovation in a regulated environment means disagreements are unlikely to be settled through empirical evidence.
OK, back to Marc Andreessen. He touches on the divide between Silicon Valley and DoD.
A lot of the origins of the Valley are in work with the military. The classic example is Oracle. The company Oracle is named after the CIA project codename oracle in the 1970s that Larry Ellison worked on as a consultant and then turned it ultimately into into a product and a company. So the deep origins of Silicon Valley have a lot to do with military and intelligence work, actually going back to like the 1920s. There’s a lot of tradition.
I’m now old enough where I’ve seen multiple eras and actually in the 90s that spirit was actually still somewhat alive. In fact, my company Netscape in the 90s had a lot of actual work with the federal government and with defense and intelligence agencies. We did among other things we did the first public key encryption infrastructure for DoD in the 90s. We were pretty tight.
Starting about 20 years ago, there was like a culture — it’s kind of post-.com crash — there was this culture shift that developed there were more and more people and companies and founders and investors who basically said, ‘we don’t want our companies involved in anything even remotely close to defense or intelligence.’ It was it was this weird thing which is it was sort of like a cultural social almost like — I don’t know a Vietnam War hangover maybe but then also when the Iraq War didn’t go well and there weren’t WMD. I think that also made it easier to kind of say, ‘the military’s a bad idea.’ And then the Snowden stuff made it worse again.
… The way technology used to flow actually was it started in the government, particularly in defense and intelligence, and then it worked its way into companies after that and then after that it went to consumers. Then, right about 20-25 years ago, that flipped. New technology started to hit consumers first, then companies, and then government — which is a big problem out here [i.e., Washington DC]. Then of course another weird thing happened, which has been well covered but which is important, which was a lot of the same companies who didn’t want to work with the US government ended up working with the Chinese government.
And here’s a couple final quick quotes:
In Congress with oversight, who could argue with oversight? Well oversight is a wonderful process for for preventing things from happening, from new programs getting funded or new approaches being taken. We’ve decided culturally societally that we just basically don’t don’t want the kind of forward motion we used to have.
… I think also there’s like a systems design aspect to it. Basically we we decided societally and culturally that we were going to implement what some people refer to as a vetocracy, which is basically a system in which a lot of people get a veto right.
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