Silicon Valley Dies Like The Massachusetts Miracle

Big government chokes innovation.

We've now elected a government made up mostly of political liberals.  The left will shortly have control of the White House, the House of Representatives, the Senate, and in due time thanks to the power of appointment, the judiciary as well.

Having been out of power for a long, long time, politicians of liberal persuasion have longstanding, deeply-felt desires to put our nation right by increasing "fairness."  This generally means raising tax rates to pay for new and different "essential government services" which are thought to be essential even though we've gotten along with them since the founding of the Republic.

US Senators and Congresspersons occupy offices which are highly desirable to many people; there's considerable competition for the few seats available.  Those who win office are are in general highly intelligent people as it takes brains to run a winning campaign.

Alas, political intelligence is not the same thing as wisdom at governance; experts in winning elections tend not to be experts in fields relevant to the laws they will pass, most notoriously economics.  However, a smart person can learn at least something about other fields by paying attention.  Liberals can avoid some of the errors of the past if they can use their intelligence to see beyond their ideology.

Death of the Massachusetts Miracle

"Massachusetts Miracle" describes a period of great economic growth in Massachusetts during the 1980's.  The growth was based on a few companies which became rather large, such as Digital Equipment Corporation, Data General, Apollo Computer, and Wang Laboratories, along with hundreds of lesser-known sources of high-tech, high-paying jobs.

So many of these companies settled along Route 128, the Boston Beltway, that "Route 128" became synonymous with economic growth.  "Silicon Valley" took over the title when the Massachusetts Miracle ran out of steam, but for many years, Route 128 was the best-known highway in the world.

Much of this growth was based on ideas conceived, developed, and marketed by engineering students who were trained at the Massachusetts Institute of Technology located in Cambridge just up the road from Boston, just as Silicon Valley originally began with alumni of nearby Stanford University.  On Aug. 25, 1997, Business Week wrote:

A study by MIT and the Bank of Boston released earlier this year -- the first national review of the economic impact of a research university -- found that MIT graduates and faculty had founded 4,000 companies, employing 1.1 million people and generating $232 billion in worldwide sales.  If the companies founded by MIT alumni formed an independent nation, it would be the 24th-largest economy in the world, somewhere between South Africa and Thailand, the study said.  Viewed another way, as of 1994 MIT-related companies employed a total of 733,000 people, or 1 out of every 170 jobs in the U.S.  About 150 new MIT-related companies are founded each year, according to the study.

The Business Week article was written after Silicon Valley had eclipsed Massachusetts.  Massachusetts was not totally lacking in fast-growing companies, the article said, but concluded:

Still, Silicon Valley remains the leader and undisputed champion in nurturing technology startups into big companies whose products and business strategies are shaping the world.  It's a shadow long enough to stretch all the way across the continent -- to Boston.

Business Week noted that MIT graduates had created more jobs in California than in Massachusetts:

Interestingly, Silicon Valley is a leading destination for MIT-bred entrepreneurs.  The five states with the highest numbers of MIT-related jobs are California (162,000), Massachusetts (125,000), Texas (84,000), New Jersey (34,000), and Pennsylvania (21,000).

Even though the Massachusetts Miracle was underway long before Silicon Valley got started, California came from behind and had 162,000 MIT related jobs in 1997 to Massachusetts' 125,000.  MIT people still created jobs, but not in Massachusetts.

What went wrong?  Why did the Massachusetts Miracle die?

The answer was provided in the late 1980's by a Boston Globe editorial.  The Globe staff wondered what had happened to the Massachusetts Miracle and went looking for answers.

The Globe pointed out that every high-tech university graduate who settled in Massachusetts created between five and fifty follow-on jobs depending on how well the company grew.  The writer then bemoaned the fact that fewer and fewer university graduates were settling in Massachusetts after graduation.

Having noted that a great many graduates were moving to other states instead of starting businesses in Massachusetts as their predecessors had, the Globe took a poll.  The results were beyond dispute - MIT graduates left Massachusetts for other states because they thought Massachusetts tax rates were too high. The Globe couldn't bring itself to advocate the proper remedy, however, the editorial ended in an ad hominem slam:

These graduates simply aren't willing to pay enough taxes to provide the services our people need.

Although it may seem odd to think of California as a low tax state, this was written twenty years ago at a time when California taxes were low, relative to Massachusetts.

California tax rates caught up, of course, and high-tech people are now leaving California for other states.

A Dying Miracle

The Boston Globe reported twenty years ago that high taxes killed the Massachusetts Miracle; we're now seeing high taxes killing the Silicon Valley miracle.

We've heard a great deal of talk about increasing federal taxes.  The theory seems to be that the government needs money to take care of all the people who've been hurt by government-decreed misallocation of mortgage money.

Logical as this may seem, we've seen not one, but two economic miracles done to death by excessive taxation.

When Massachusetts killed off its miracle, the entrepreneurs moved to California and to other states so the growth occurred in the United States, but that won't happen this time, federal taxes apply in every state.  We're now in a global economy, like it or not.  We've shown how our universities are moving offshore, and we've written of a cancer cure and a treatment for heart disease which are being tested elsewhere along with the space elevator.

There've been many articles like the Times' "It's No Time to Forget About Innovation" which remind us of the necessity of encouraging innovation, but that brings us to the liberal dilemma - entrepreneurs are not willing to fund the programs liberals want.  When taxes are too high, the rewards are simply not worth the work required to create new jobs.  The Globe put it well:

These graduates simply aren't willing to pay enough taxes to provide the services our people need.

What happened to Route 128, home of the Massachusetts Miracle?  You won't find it on modern maps - the Massachusetts Highway Department renamed it.  It's now I-95.  That once-famous name is now as dead as the miracle.

Must We Tax Innovation to Death?

Our politicians are smart enough to see that taxation killed the Massachusetts Miracle, particularly now that they can see Silicon Valley dying before their very eyes.  Even in Massachusetts, there are some who understand the problem: a ballot initiative to completely eliminate the state income tax has narrowly failed twice in a row now, despite being outspent 10 to 1 by big-government supporters who pay for misleading ads.

The question is, are our reigning liberals smart enough to let their intelligence override their ideology of misplaced fairness?  Do people really need all the new services liberals desire to provide?  It would be better to let economic growth increase government revenue in the natural course of things, but it appears that liberals are so jealous of entrepreneurs that they simply aren't willing to let the economy grow enough to pay for all the services they think their people need.

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Economics.
Reader Comments
Liberals have a profound distrust of business in general, as it can do the one thing government can't do, ever - create (and take away) jobs. Big-government liberals have always been envious of that fundamental market power, and have tried for decades to "work around" businesses' fundamental ability to employ Americans via crippling over-regulation and taxation. Politicians always want to take credit for "creating jobs" for their constituencies, despite the fact that it is actually the local corporations that are doing that.

Liberals cynically never believed in the maxim "a rising tide floats all boats", and they feel that they must intervene in the natural economy for fear that someone, somewhere, will be left out.
November 19, 2008 10:36 AM
Having interacted with a number of state senators and representatives, I think that Mr. Olson's statement "for fear that someone, somewhere, will be left out" is overly generous. These guys want to get re-elected.

The only way they can get re-elected, they think, is to shower material benefits on their constituents as Boss Tweed gave away turkeys at Christmas and Senator "Bridge to Nowhere" stole our money via earmarks in return for campaign contributions.

I believe that politicians meddle in the economy so that they can make a plausible claim to have benefited their constituents by providing jobs.

That is sometimes true. The WSJ had a recent article pointing out that New York City nearly doubled the number of government jobs between 2007 and 2008. For whom will these people vote?
November 19, 2008 11:05 AM
I agree completely with the content of this article, but isn't "liberals are so jealous of entrepreneurs that they simply aren't willing to let the economy grow enough to pay for all the services they think their people need" just as much of an "ad hominem slam" as "These graduates simply aren't willing to pay enough taxes to provide the services our people need"?

I'm just sayin'.
November 19, 2008 9:11 PM
Well, if liberal policies and over-taxation kills the innovation in Silicon Valley, it's no more than the Valley deserves. For whatever reason, those tech entrepreneurs whose fate you're bemoaning seem to be overwhelmingly liberal.

Now it's time for them to live with the consequences of their choices.
November 25, 2008 12:28 PM
"Now it's time for them to live with the consequences of their choices"


WHY can the American society not allow this to happen? Banks, auto makers, subprime mortgage holders- LET THEM FAIL FOR GOD'S SAKE so that they can lick their wounds, learn from their mistakes and rebuild.
November 25, 2008 12:36 PM
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