Top Silicon Valley Investor: Industries with Unions Are Ripe for Disruption

REUTERS/Lucy Nicholson
REUTERS/Lucy Nicholson

(Ferenstein Wire)—Silicon Valley is coming after unionized industries. A top investor in the Valley, Paul Graham, lit up Twitter, saying, “Any industry that still has unions has potential energy that could be released by startups… (I don’t mean in simply paying people less, but rather that industries afflicted by unions are sclerotic so have left lots undone.)”

Graham, who co-founded the influential startup seed investment and training program for budding tech stars, Y-Combinator, has seen how labor unions create economic inefficiencies and leave them vulnerable to disruption. Perhaps the greatest example of this is Uber, which exploited voluntary caps put on taxis to flood streets with their own cars, unearthing an entire market of users who would rather carpool around town than drive their own cars.

To this day, Uber is hard to compete with, thanks to the taxi “medallion” system of artificially limiting the number of drivers on the road.

Research has often confirmed that unions have a deleterious effect on innovation. “Passing a union election leads to an 8.7% (12.5%) decline in patent quantity (quality) three years after the election,” wrote a team of researchers in an upcoming issue of Management Science.

The lack of innovation leaves unionized industries susceptible to startups, which are increasingly moving into new forms of labor, from driving and delivery to education. Google recently announced a new partnership for creating cheap, online business school courses. Generally speaking, these types of online courses don’t need the permission of universities or teacher unions to set salaries, allowing tech companies to provide very low-cost education.

Interestingly enough, Graham’s comments illustrate how Silicon Valley represents a new pro-capitalism, anti-union political category. Employees from Graham’s investment company, Y-Combinator, give exclusively to Democrats, according to OpenSecrets. Many of these Silicon Valley stars prefer Democrats because they see a role for the federal government as an investor in education and scientific research, but not as a regulator from capitalism.

Many of Graham’s colleagues in Silicon Valley want the government to be a force for economic disruption. This makes them more likely to support Democrats rather than labor unions.

Silicon Valley, both politically and economically, is ushering the decline of labor unions, which have yet to figure out how to adapt to the 21st century.

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