Is Silicon Valley doomed?
February 14, 2010
Joint Venture: Silicon Valley Network and the Silicon Valley Community Foundation has just released their 2010 Index of Silicon Valley and the results are not so rosy. In fact, the report concluded that Silicon Valley faces a steep climb out of the current economic downturn and this contradicts the perception that the Valley is a place that can continually reinvent itself.
Just how serious is the rut that Silicon Valley is in? The Wall Street Journal quoted Emmett Carson, the CEO of the Silicon Valley Community Foundation, as saying that Silicon Valley has become complacent, placing its economic engine at risk; while Russell Hancock, the chief executive of Joint Venture, was quoted as saying that the Valley is still not back on its feet yet and he isn’t so sure it will be able to get back up this time around.
So why is Silicon Valley in so much trouble? Some of the following highlights from the study’s findings are illuminating:
- Foreign Talent – Silicon Valley is increasingly dependent on foreign talent, especially for filling scientific and engineering positions. However, the policies implemented after 9/11 and during the current economic downturn along with the rise of other countries such as India and China along will slow the flow of talent to the Valley.
- Investment Capital and Venture Capital – The funding community is facing major structural changes and the federal government has increasingly become a major investor in both innovation and research. However, Silicon Valley is not attracting significant amounts of federal funding while venture capitalists have not been realizing significant returns for the past decade.
- California’s Inept Government – The continued political dysfunction and budget crisis in Sacramento directly impacts Silicon Valley’s ability to keep pace with other regions of the world while education spending by both the state and federal government is declining.
- Shrinking Job Market – From November 2008 to November 2009, employment in Santa Clara and San Mateo Counties dropped by 6.1% while nationally, it dropped by only 3.8%. Moreover, the unemployment rate in Silicon Valley is more than 11% compared with about 10% nationally. In fact, the lost of some 90,000 jobs has brought employment back to 2005 levels while the so-called “green” economy accounted for only 12,000 jobs in the region.
- Real Estate Market – Once a major headache for residents and new transplants alike, housing affordability for first-time homebuyers is actually improving now while average rents have declined by 6% from 2008 – the first drop since 2005. Meanwhile, office vacancy rates have reached their highest level since 1998 and are up 33% in 2009 over 2008.
Many of the above problems that beset Silicon Valley are not unique to just one region of the country. In fact, these are some of the same problems that the USA faces as a whole. In other words, as Silicon Valley competes with (and potentially looses out to) Bangalore and Dalian for talent, investment and jobs, the USA competes with India and China for talent, investment and jobs.
As the study noted, now is no time for complacency and while Silicon Valley has enjoyed many advantages and successes in the past, success in the future is not guaranteed unless its residents continue to think beyond the box, reorganize themselves and forge new collaborations in order to continue competing globally – important lessons for all.