Silicon Insider: Reagan

June 10, 2004 -- It's been said this week that Ronald Reagan, as president of the United States, can be credited with liberating more people than any human being in history.

Less noted was that the Ronald Reagan National Liberation Movement (although he would have hated that phrase) began not in the jungles of Central America, or in the cities of Eastern Europe, but in the laboratories and offices of Silicon Valley.

It was governor, then as president, that Reagan made the crucial moves that created the environment for the entrepreneurial revolution in high tech. And that, in turn, sparked in this country the greatest economic boom in world history.

Freedom takes many forms — including physical liberation, private ownership, and, not least, the unshackling of the human imagination. Reagan always exhibited, as both his early writings and later speeches show, a deep and enduring trust in the ability of individual citizens to make the right decisions for their own lives, what he called, in his second inaugural address as governor in 1971, the "collective genius of the people."

That trust puts enormous demands on a leader, because it requires him or her to not only know when to do something, but also when to leave well enough alone. You need only read the newspaper each day to see how rare that second trait is among any generation of business, military and political leaders. The natural tendency of people in power is to accumulate more of that power, to wield it in grand gestures and plans, and to withhold it from the average people, who, after all, can't be trusted to use it wisely even in their own interests.

The genius of Ronald Reagan — and I use that term carefully — was that he knew when to apply power and when not to. Whether or not you agreed with his policies, there is no arguing that this is a man who knew when to act, and when to trust others to act instead. It was this singular combination, I think, that made him so effective in both domestic and foreign policy — using exactly the opposite strategies in each.

Giving Power Away

In foreign policy, Reagan was an activist, ignoring the accepted view of both the State Department and the intelligentsia that the Soviet Union could not be defeated, but only accommodated and contained. With the exception of the famous speeches, like the one before the Berlin Wall, Reagan's actions against the Soviets were autocratic, secretive and personal, ultimately converging on the pivot point of the meeting with Gorbachev in Reykjavik.

It worked. And probably faster than even Reagan himself imagined. Just two years after he left office, it was over. The most murderous tyranny ever known had surrendered without a shot.

But, as we now know, that was only half of Ronald Reagan's achievement. It is that second half that intrigues me, because, ultimately, it may be the most important, as incredible as that sounds.

Equally incredible is that the technique Reagan used — indeed, one could even describe it is a fundamentally different philosophy of leadership — was to work in the open, on a vast canvas, using every tool from legislation to the mass media; and most of all, to surrender the prerogatives of power to the general public.

In domestic politics, at least, Reagan gained power by giving it away.

The most celebrated example of this was the "Morning in America" campaign, in which Reagan, the old New Deal Democrat, took his cue from FDR's first campaign and drew Americans out of their malaise with a vision of sunny optimism.

But that was just a gloss on a far deeper revolution that Reagan had planned as far back as his days in California: a re-empowerment of individual citizens by restoring their personal capital, removing the obstacles to their natural entrepreneurship, and calling upon them to take charge of their own lives.

It was a stunning break not only from liberal Democratic politics, but from conservative Republicanism as well. Reagan not only set out to return power to the people, but he also trusted them to use that power wisely once they got it.

If electoral votes are any indication, this new policy made Ronald Reagan the most popular president of modern times. It also drove crazy the statists, the intelligentsia and the various arbiters of power and information — precisely because it circumvented them and thus rendered them largely obsolete.

Making Silicon Valley Possible

How did Reagan do this? By slashing taxes and regulations, by retarding if not paralyzing the legislative process, by cutting its purse strings (or raising the deficit), and by calling on the public to revolt against the status quo.

We saw this technique first here in California during Reagan's two terms as governor. A true revolutionary, he was often called a "fascist" or a "Nazi" by the ersatz revolutionaries that filled the state's universities (and often its streets) during those years.

Yet, having lived here during those years, I don't find it all surprising that the first great flowering of the tech revolution, and the birth of the modern Silicon Valley, coincided exactly with Reagan's tenure: 1967-1975. Those years took us from the explosion of Fairchild and the birth of the semiconductor industry through the invention of the microprocessor to the rise of the personal computer.

Governor Reagan probably never understood any of those technologies, but he created an economic environment and a cultural attitude that made them possible.

But that was only the beginning. President Reagan took what Gov. Reagan had done and spread it across the country. Once again it is no coincidence that the years of his presidency saw the rise of the other great technology enclaves around America. Once again, Reagan used the same tools — tax cuts, reduced regulations, calls to arms — but now he could add one more: capital gains

The Capital Gains Equation

I remember once working on an op-ed for the Wall Street Journal arguing for maintaining the capital gains tax differential. In doing so I made a chart, comparing the capital gains tax rate in a given year, versus the creation of new technology companies. My jaw dropped when I saw both curves jump in opposite directions in 1981. That was the year President Reagan won his fight to cut capital gains from 28 percent to 20 percent.

My chart showed that it had set off one of the greatest bursts of new company creation ever known. Thousands of new companies were formed in the years that followed, millions of new jobs were created, and ultimately, trillions of new dollars were added to the nation's wealth.

High tech became America's largest manufacturing employer; thanks to a new generation of inventions productivity began to climb; and the United States fought off Japan and other international business competitors and started climbing heights of prosperity never before known.

This economic robustness had a nice secondary effect in Reagan's other crusade by breaking the back of the Soviet war machine.

Ronald Reagan trusted Americans to do the right thing: to work hard, to invest wisely, and to make the most of our innate gifts. We paid him back by doing just that, and building for ourselves, as much as any great nation has done, his "shining city on the hill."

Would that our leaders today had that same kind of courage. Those thousands of mourners filing past Ronald Reagan's coffin in California and Washington, D.C., are thanking him for many things, but ultimately they are all about one big thing:

Thank you, Mr. President, for having faith in us.

Michael S. Malone, once called “the Boswell of Silicon Valley,” most recently was editor-at-large of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised.