Over the last 20 years, the technology industry has become the most powerful industry in the world, boasting seven of the 20 most profitable companies. Last year, Apple literally doubled the profits ($53.4 billion) of the second-most profitable company, J.P. Morgan Chase ($24.4 billion). And when it comes to market value, tech companies sweep the top five: Apple, Google, Microsoft, Amazon, and Facebook. These companies are not only huge and profitable; they’re also growing.
By most measures, though not all, this power is concentrated in one specific region, the Pacific Coast, and even more tightly centralized in the San Francisco Bay Area. Incredibly, three of those five most valuable companies are located in three adjacent little towns in Silicon Valley. The total distance from Facebook in Menlo Park to Alphabet (née Google) in Mountain View to Apple in Cupertino is just 15 miles.
These companies—with apologies to Intel, Oracle, and Cisco—have become the Big Three of Silicon Valley.
Detroit had a Big Three for decades: General Motors, Ford, and Chrysler. They were also amazingly profitable, industry-leading, and birthed a global industry. In the late 1950s, these three companies had over 90 percent market share in the U.S. car market, which was also the world’s largest.
Now, companies from a similarly small region occupy a similarly dominant role in the economy, which has powered economic growth over the last several decades. But a comparison between Detroit’s Big Three and Silicon Valley’s shows how much the economy around any individual company or place has changed.
Investors now value tech as they once valued automotive (and oil) companies.
It was the IPO of the decade. Thousands of people flocked to brokers hoping to get their hands on some of the paper from one of the century’s most innovative and respected companies. Finally, finally, the common person could share in the wealth generated by the genius of … Ford.
The year was 1956, and Ford, privately held since its inception by the Ford family and (later) the Ford Foundation, was accessing the public markets. More than 10 million shares went on the market and were immediately snatched up by hundreds of thousands of investors at an opening price of $64.50. The Ford Foundation made $642.6 million in the sale.
It was the biggest IPO ever, as befit the automotive industry, which was the biggest in everything around the mid-century. Likewise, at the time Ford went public, the true behemoth of the American economy, General Motors, was the nation’s most valuable stock, running $263.27. And for good reason.
These companies make a ton of money.
In the second (1956) edition of the Fortune 500, Ford held the third slot in revenue and profit. That year, the company made $437 million dollars. General Motors took the top spot by becoming the first company to break $1 billion in profit that year ($1.19 to be exact). Only 16 companies even made $100 million in 1956. Chrysler was the least profitable of those companies, eking into the echelon with $100.1 million in profits.
The only rival the car industry had was the oil industry, which had the number-two company on Fortune’s list, Exxon Mobil, as well as seven others in the top 20 most profitable companies.
All this to say: making cars and fueling them dominated the American profit-making enterprise. Hell, even the two big tire manufacturers were among the top 35 profit-makers of 1956.
Cars were national. Tech is global.
But there are crucial differences between Detroit’s Big Three and Silicon Valley’s. One is that Silicon Valley’s companies are fully global enterprises.
Since 2015, the majority of Facebook’s ad revenue comes from overseas. Apple crossed that threshold in the first quarter of 2010, and now roughly two-thirds of the company’s revenue comes from abroad. Google, too, has long made a majority of its money outside the U.S., though its home country represents nearly half its revenue.
In fact, all the money that these companies are making overseas is one reason why they are valued so highly, Harvard Business School’s Shane Greenstein told me. “Since the election, the markets have factored in a presumed ‘tax holiday’ that allows firms to repatriate their foreign earnings without U.S. taxes,” Greenstein said. “That especially shapes the values of Apple and Google.”
Since the election, Facebook is up 11 percent, Google is up 21 percent, and Apple is up a gobsmacking 34 percent. Perhaps this is even more remarkable, given that tech company employees gave Hillary Clinton 60 times the money they gave to Donald Trump ($3 million to $50,000).
The tech labor force is a tiny fraction of the automotive industry’s.
The other crucial difference is that tech’s leading companies employee far fewer people than Detroit’s Big Three did. This point can be made in the single chart above, but it’s worth unpacking in three ways.
One, even though the big industrial giants did employ a lot of people, by the 1950s they were already automating away some of the jobs that they’d just created by building huge factories. “Between 1948 and 1967—when the auto industry was at its economic peak—Detroit lost more than 130,000 manufacturing jobs,” the historian Thomas J. Sugrue has written. To me, that’s startling. This was the absolute golden age of manufacturing, yet in the seat of the most important industry, companies were shedding jobs.
Two, the car companies’ employees were far more concentrated in Detroit and the surrounding cities than the tech companies’. Apple only has 25,000 employees in the “Santa Clara Valley.” Google likely has around 20,000 at its home. And let’s call it at around 6,000 Facebook folks in Menlo Park.
Three, the tech companies have many, many, many subcontractors, from content moderators in the Philippines to manufacturing people at Foxconn in China to custodians on their own campuses to bus drivers dragging people up and down from San Francisco. The way modern companies work, they try to keep employees off their own balance sheets unless absolutely necessary, especially lower-wage workers.
The original Big Three were the motive power for a whole region’s economy. By employing so many people at decent wages, they created broad-based prosperity. In Silicon Valley, the wealth that the Big Three create goes to a much smaller slice of the population, building wealth for thousands instead of hundreds of thousands of workers. In 2016, Facebook generated $600,000 of net income per employee.
That is to say, the tech world, for all its disruptions, is a supercharged example of how the American economy as a whole works right now: The skilled and the already rich make huge amounts of money, and everyone else gets the leftovers.