The Paper Belt

Today is the first time I saw this term and it deserves a mention because it makes novel conceptual connections.

The Paper Belt is an informal analogic term referring to the four metropolitan areas where several important industries and political infrastructures converged during the post-war era: Boston (education), New York (publishing, finance), Los Angeles (media, Hollywood) and Washington DC (politics, law).

Some alternative definitions focus on the northeastern coast of the United States by excluding Los Angeles and including Delaware, where a large number of corporations are legally headquartered due to its more generous tax laws for corporations.

It came into attention after Balaji Srinivasan's 2013 talk titled Silicon Valley’s ultimate exit. In the context of the talk, the term was used as a contrast with the emerging influence-structure of Silicon Valley.

From here. Hat tip to Wired.

The breathless and excited original speech the spawned the term says in some key excerpts:

So what I’m going to talk about today is something I’m calling Silicon Valley’s ultimate exit. So as motivation here, it’s a bit topical: is the USA the Microsoft of nations? We can take this sort of thing and we can expand it: codebase is 230 years old, written in an obfuscated language; system was shut down for two weeks straight; systematic FUD on security issues; fairly ruthless treatment of key suppliers; generally favors its rich enterprise customers but we still have to buy it.

And if we think about Microsoft itself, there’s a great quote from Bill Gates in 1998: what displaced Microsoft, what did he fear, it wasn’t Oracle or anybody like that, what he feared were some guys in a garage, who happened to be ultimately Larry and Sergey back in 1998.

And the thing about what Larry and Sergey did is: there’s no way they could have reformed Microsoft from the inside. At that time, Microsoft already had 26,000 employees; joining its numbers as 26,000 and 26,001 and trying to push for 20% time or free lunches… they probably wouldn’t have gone too far. So what they had to do was start their own company: they had to exit. And with success in that alternative, then Microsoft would imitate them. And this is actually related to a fundamental concept in political science: the concept of voice versus exit. A company or a country is in decline, you can try voice, or you can try exit. Voice is basically changing the system from within, whereas exit is leaving to create a new system, a new startup, or to join a competitor sometimes. Loyalty can modulate this; sometimes that’s patriotism, which is voluntary, and sometimes it’s lock-in, which are involuntary barriers to exit.

And we can think about this in the context of various examples and start to get a feel for this. So voice in the context of open source would be a patch; exit would be a fork. Voice in the context of a customer would be a complaint form, whereas exit would be taking your business elsewhere. Voice in the context of a company, that’s a turnaround plan; exit is leaving to found a startup. And voice in the context of a country is voting, while exit is emigration. So if there are those two images on the left is the Norman Rockwell painting on voice; on the right is actually my dad in the center, and that’s a grass hut on the right-hand side, so he grew up on a dirt floor in India, and left, because India was an economic basket case and there’s no way that he could have voted to change things within his lifetime, so he left.

And it turns out that, while we talk a lot about voice in the context of the US and talk about democracy… that’s very important, but you know, we’re not just a nation of immigrants, we’re a nation of emigrants: we’re shaped by both voice and exit, starting with the Puritans, you know, they fled religious persecution; the American Revolutionaries which left England’s orbit, then we started moving west, leaving the East Coast bureaucracy to go to the Western nations; later, late 1800s, Ellis Island, people leaving pogroms, and in the 20th century fleeing Nazism and Communism. And sometimes people didn’t just come here for a better life; they came here to save their life. That’s, you know, the airlifting at the end of Saigon.

And it’s not just the US that’s shaped by exit; Silicon Valley itself is also shaped by exit. You can date it back to the founding of Fairchild Semiconductor with the Traitorous Eight, the founding of Fairchild… the fact that non-competes are not enforceable in California, and the fact that DC funds disruption, not just turnaround. The concept of forking in open source, if you think about the back button, that is, in some ways, the cheapest way to exit something. And of course the concept of the startup itself. That right there, if you guys haven’t seen, is one of Y Combinator’s first ads. Larry and Sergey won’t respect you in the morning.

So the concept here is that exit is actually an extremely important force in complement to voice, and it’s something that gives voice its strength. In particular, it protects minority rights. In the upper left corner, for example, you imagine two countries, and country 1 is following policy A, and country 2 is following policy B. Some minority is potentially interested in following policy B, but policy A is very stridently promulgated by the majority. However, there’s some other country, maybe a smaller country, maybe another country, that’s actually quite into B, and so that person leaves. And they’re not necessarily super into B, but they think it might be interesting, thus B question mark. And what happens is that all the other guys in A see that people are actually leaving. They really care about this particular policy so much that they actually left. It could be a feature where people are leaving for a competitor; it could be a bug that you haven’t fixed so people fork the project and take it somewhere else—what happens is that exit amplifies voice. So it’s a crucial additional feature for democracy is to reduce the barrier to exit, to make democratic voice more powerful, more successful. And so a voice gains much more attention when people are leaving in droves. And I would bet that exit is a reason why half of this audience is alive. Many of us have our ancestors who came from China, Vietnam, Korea, Iran, places where there’s war or famine, economic basket cases. Exit is something that I believe we need to preserve, and exit is what this talk is about.

So exit is really a meta-concept: it’s about alternatives. It’s a meta-concept that subsumes competition, forking, founding, and physical emigration. It means giving people tools to reduce influence of bad policies on their lives without getting involved in politics: the tools to peacefully opt out. And if you combine those three things: this concept of the US is the Microsoft of nations, the quote from Gates, and Hirschman’s treatise [ed. Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States] you get this concept of Silicon Valley’s ultimate exit. Basically, I believe that the ability to reduce the importance of decisions made in DC in particular without lobbying or sloganeering is going to be extremely important over the next ten years. And you might ask, “Why? What does this have to do with anything?” So the reason why is that today it’s Silicon Valley versus what I call the Paper Belt. So there’s four cities that used to run the United States in the postwar era: Boston with higher ed; New York City with Madison Avenue, books, Wall Street, and newspapers; Los Angeles with movies, music, Hollywood; and, of course, DC with laws and regulations, formally running it. And so I call them the Paper Belt, after the Rust Belt of yore. And in the last twenty years, a new competitor to the Paper Belt arose out of nowhere: Silicon Valley. And by accident, we’re putting a horse head in all of their beds. We are becoming stronger than all of them combined.

And to get a sense of this: Silicon Valley is reinventing all of the industries in these cities. That X up there is supposed to be a screenplay, the paper of LA, and LA is going to iTunes, BitTorrent, Netflix, Spotify, Youtube… that was really the first on the hit list, starting in ’99 with Napster. New York right alongside: AdWords, Twitter, Blogger, Facebook, Kindle, Aereo. We’re going after newspapers; we’re going after Madison Avenue; we’re going after book publishing; we’re going after television. Aereo figured out how to put a solid-state antenna in a server farm so you don’t have to pay any TV fees for all of their recording. Recently Boston was next in the gunsights: Khan Academy, Coursera, Udacity. And most interestingly, DC, and by DC I’m using it as a metonym for government regulation in general, because it’s not just DC: it includes local and state governments. Uber, Airbnb, Stripe, Square, and the big one, Bitcoin… all things that threaten DC’s power. It is not necessarily clear that the US government can ban something that it wants to ban anymore.

The cause of this is something I call the Paper Jam. The backlash is beginning. More jobs predicted for machines, not people; job automation is a future unemployment crisis looming. Imprisoned by innovation as tech wealth explodes, Silicon Valley, poverty spikes… they are basically going to try to blame the economy on Silicon Valley, and say that it is iPhone and Google that done did it, not the bailouts and the bankruptcies and the bombings, and this is something which we need to identify as false and we need to actively repudiate it. So we must respond via voice: the obvious counterargument is that Valley reduces prices. The top is a little small, but that’s a famous graph: consumption spreads faster today. That shows the absolute exponential rise of technologies over the last century. Anything that is initially just the province of the one percent, whether it be computers or cell phones, quickly becomes the province of the five percent and the ten percent, that ??? that barely works that someone is willing to pay thousands and thousands of dollars for allows you to fix the bugs, to get economies of scale, to bring it to the ten percent and the twenty percent and the fifty percent and the middle class and the 99 percent. That’s how we got cell phones from a toy for Wall Street to something that’s helping the poorest of the poor all over the world. Technology is about reducing prices. The bottom curve there is Moore’s Law. And by contrast, the Paper Belt raises them. There’s the tuition bubble and the mortgage bubble and the medical care bubble and too many bubbles to name. The argument that the Valley is a problem is incoherent, but it’s not going to be sufficient to respond via voice. We can make this argument, but the ultimate counterargument is actually exit. Not necessarily physical exit, but exit in a variety of different forms. What they’re basically saying is: rule by DC means people are going back to work and the emerging meme is that rule by us is rule by Terminators. We’re going to take all the jobs. Whereas we can say, and we can argue, DC’s rule is more like an overrun building in Detroit, and down right there is a Google data center. And so we can go back and forth verbally, but ultimately this is about counterfactuals: they have aircraft carriers; we don’t. We don’t actually want to fight them. It wouldn’t be smart.

So we want to show what a society run by Silicon Valley would look like without actually affecting anyone who still believes the Paper Belt is actually good. That’s where exit comes in. So what do I mean by this? What do I mean by Silicon Valley’s ultimate exit? It basically means: build an opt-in society, ultimately outside the US, run by technology. And this is actually where the Valley is going. This is where we’re going over the next ten years.