Is Silicon Valley merely “reinventing the wheel”?

“It’s lightning, Nikola. You’ve invented lightning.” — Mike Bird

In the Guardian, Amelia Tait asks “Why do we keep praising Silicon Valley for reinventing the wheel?” This was sparked by a recent New York Times profile on Lambda School, a coding school that doesn’t charge tuition fees upfront and instead charges graduates proportionally based on their salary. Tait’s objection can be summarised as: “That’s the English tuition fee system. You’ve invented the English tuition fee system.” She’s not the only one to make this observation.

Lambda School isn’t her only example. She also objects to Lyft Shuttle: “For a small fee, passengers share a single car that follows a predesignated route — instead of being picked up and dropped off at their chosen location, they must walk to or from one of the determined stops. It’s convenient! It’s affordable! It’s a bus.”

Her objection to Lyft is stronger. It’s not just unoriginal, it’s also classist (“online, people have praised Lyft Shuttle for allowing them to get around without sitting next to common riff-raff”), and it hurts poorer people by undermining investment in public transport.

Somewhat ironically, Tait’s article about how Silicon Valley is reheating old ideas is itself not particularly original. It’s a common complaint on Twitter.

Back in 2017, Gizmodo posted a list of “Silicon Valley’s Dumbest ‘Inventions”. Lyft’s ‘bus’ featured, as did bizarrely Uber Elevate (which was dismissed as just helicopters).

So is Silicon Valley just reinventing the wheel? I don’t think so.

I think the ‘That’s X. You’ve invented X’ crowd make two big mistakes.

First, taking ideas that work relatively well but have some shortcomings and using technology, or even better incentive structures, to correct those shortcomings is a fundamentally good thing. Uber is a good example. It’s very easy to dismiss the idea as “Taxis. You’ve invented taxis”. But, Uber uses technology to solve a number of problems with the existing minicab and taxi markets. Take surge pricing, it solves a problem known by economists as ‘the Wild Goose Chase’. When demand spikes, it means there aren’t enough idle drivers and cars must be sent on trips to pick up distant customers. The longer drivers have to spend picking up customers, the less they earn. As a result some drivers choose to stay at home making the problem even worse. Surge pricing solves that problem by bringing more drivers online at periods of high demand.

Lyft Shuttle is innovative for similar reasons. Buses in San Francisco are overcrowded on commuter routes at peak time but it’d be expensive to buy new buses and hire new drivers just to meet demand at peak times. Lyft Shuttle doesn’t require drivers to purchase new vehicles. As a result they can meet demand at peak times without purchasing assets that would sit idle 95% of the time. And as Byrne Hobart points out in an article that touches on similar themes Lyft Shuttle is almost certainly safer than riding the bus in San Francisco.

Second, they ignore the importance of funding. Public services, while in many cases necessary, face a number of unique problems. Their funding is set through a political process. As a result, they lack the same pressure to find savings and efficiencies than businesses. Arguably, a bigger problem is that they’re constrained from taking risks. In the private sector, firms who find new markets or launch radically different services are rewarded with profits for their entrepreneurial initiative. There’s no corresponding reward for innovation and risk-taking in the public sector.

Lambda School is a good example. The comparison between Lambda’s income share agreements and the UK’s system of contingent student loans isn’t far-fetched. They’re based on relatively similar principles — the idea that human capital investments should be funded through equity not debt because the investment is risky and lenders can’t claw back the investment if a student defaults on their loan.

But there are big differences too. The UK’s universities get paid the same whether or not the student gets a good job at the end. Well-run universities who produce highly employable graduates effectively subsidise underperforming universities who produce graduates incapable of paying back their loans. But even with this cross-subsidy, the system still requires significant taxpayer subsidy with 83% of graduates forecast to have some debt written off. Worse still, universities in the UK are incentivised to expand courses that don’t cost much to run, even if they don’t expect the loan to be repaid.

Lambda School is different. If Lambda School graduates don’t get well-paying jobs then Lambda School doesn’t get paid. There’s no cross-subsidy between institutions or government guarantee to rely on. As a result Lambda School’s incentives are closely aligned with its students. They are forced to only offer courses that promise a real return on investment for students.

Why then do journalists frequently attack the efforts and inventions of entrepreneurs as unoriginal? It might simply be the case they fail to see why an idea is innovative and useful. Possibly, but I think there’s something else at play. There’s been a shift in cultural power from the media and politics to business and tech. If Silicon Valley isn’t actually as innovative as they claim to be, then pointing this out is a way of reclaiming some of that lost status.

I suspect this is the real motivation when people jump to criticise Silicon Valley’s ‘inventions’.