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With rising competition from Bangalore to Beijing, Silicon Valley’s dominance as the world’s innovation hub is “at risk as never before,” a local think tank has concluded.
In an exhaustive study of the region’s economy and health, Joint Venture: Silicon Valley Network said the rise of countries such as China and India, coupled with California’s legislative gridlock, is “draining the lifeblood of funding and foreign talent from Silicon Valley.”
“Silicon Valley’s innovation engine has driven the region’s prosperity for 60 years, but at the moment we’re stalled,” Joint Venture CEO Russell Hancock stated in the group’s 16th annual Index of Silicon Valley.
“What’s hard to say is whether we’re stuck in neutral, which has happened before, or whether it’s time now for a complete overhaul.”
This year’s index is co-sponsored by the Silicon Valley Community Foundation.
The 72-page index analyzes scores of barometers of the region’s health, from the number of global patent collaborations and industry-by-industry venture investment to the English language proficiency of third graders in Santa Clara and San Mateo counties. The report can be found online at JointVenture.com.
Key findings include:
■ Silicon Valley lost 90,000 jobs between 2008 and 2009, leaving 11 percent of the workforce unemployed, about a point above the national unemployment average
■ The number of “green jobs” has increased but still represents a small fraction of the Valley’s overall economy
■ Real per-capita income has fallen locally, though it remains far higher than state or national averages
■ Silicon Valley’s “economic engine has cooled” by many measures such as patents, venture-capital investment and office vacancies
■ Driven by foreign immigration, the Valley’s population continued to grow in 2009 but at a slower pace than before
■ Housing prices are down
■ High school graduation rates are up slightly, but the proportion of graduates meeting entrance requirements for the University of California or the California State University systems has dipped below 50 percent
■ Silicon Valley drivers are driving less and shifting to cleaner-running vehicles
■ Compared to other regions, Valley taxpayers still contribute a disproportionately high share of personal income tax revenue to the state, though the share has fallen
■ Nearly half the residents of Santa Clara and San Mateo counties — 48 percent — do not speak English at home. Of the non-English tongues, Asian or Pacific Islander languages top the list at 43 percent, with Spanish at 39 percent.
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Foreign-born talent, particularly in science and engineering, has been a linchpin of the Valley’s success in past decades, but that dynamic is at risk, Hancock believes.
Fully 60 percent of the Valley’s science and engineering workforce was born outside of the United States, mostly from India, China and Korea, according to the Index.
But “some who have lived and worked here for years are beginning to ‘go home,'” observes Tom Friel, retired board chair of the executive search firm Heidrick & Struggles.
“This is a troubling trend, exacerbated by our dysfunctional national immigration policy agenda, and if not addressed will have significant negative impact on our future as a region.”
In addition, the percentage of foreign-born students earning science and engineering degrees in Silicon Valley has declined since 2003, dropping from 18 percent to 16.6 percent in 2007. The influx was hit first by tightened restrictions under Homeland Security after Sept. 11, Hancock said.
Friel stressed the importance of supporting education and training for the local population, “natural and immigrant alike,” and doing whatever possible to keep the region attractive to talent from around the world.
At the same time, he said, “I don’t think it’s realistic or healthy to continue to rely on such a large inflow of engineering and science talent from abroad, particularly from Asia. This inflow has been the source of much of the Valley’s historic edge in innovation, but conditions for these immigrants, support for their education, financing for their business ideas, have improved in their home countries and declined here.”
Even as attracting and retaining top talent remains important to the region, California’s investment in higher education is declining. While the total number of science and engineering degrees has leveled off, the percentage conferred to foreign students has been sliding in both the state and nation as a whole, the report notes.
“California state policy has become a hindrance to our innovation potential, not only because of our failure to invest but also because our government is not addressing important problems,” Hancock said.
Friel added, “Many in the region, including some in our local and state leadership, somehow have come to believe that we occupy this position of leading economic region by divine right rather than hard work, prudent investment and sound policy.
“Nothing could be more wrong or more dangerous for our future in my view than this sense of entitlement and complacency.
“What we have been able to do historically, other countries and regions can also do and are beginning to show that they can and will.”
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The 90,000 Silicon Valley jobs lost between 2008 and 2009 involve nearly all sectors, from information products and services to life sciences, community infrastructure and manufacturing, according to the Index.
So-called “green” (environmental) business establishments and jobs showed a significant increase but still represent just 14,000 jobs in Santa Clara and San Mateo counties — about the same number as in the medical-device industry.
“Silicon Valley’s economic and innovation engine has cooled off,” the report said, citing dips in patents and venture investment and a spike in office vacancies — the highest since 1998.
“The level of investment continues to decline, and venture capitalists generally have not realized significant returns for the past decade.
“Investment is shifting away from software and semiconductors and into biotechnology, energy, medical devices and media.”
Silicon Valley venture-capital investment in clean technology dropped to $1.2 billion last year after peaking at $1.9 billion in 2008.
The bulk of those were in energy generation (41 percent) and energy efficiency (26 percent).
But patent registrations in green technology in the Valley are growing.
From 2006 to 2008 more than 100 green-tech patents were registered from the region. The Valley accounts for an increasing percentage of green patents nationwide.
And the region “has continued to generate new companies and attract existing companies,” the report said.
Between 2007 and 2008, Silicon Valley had a net gain of some 9,500 businesses of all kinds.
In terms of environmental habits, Valley residents are driving less and shifting to cleaner-running vehicles.
Per-capita fuel consumption has dropped 13 percent since 2000, far greater than the 2 percent statewide decline. Last year, Valley residents consumed 50 gallons of fuel less per person than other Californians.
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When it comes to preparing Silicon Valley’s workforce of the future, the picture is mixed.
The percentage of eighth-graders enrolled in Algebra 2 is slightly higher in Silicon Valley than in the state as a whole and, of those tested, 72 percent scored at the advanced level.
On the other hand, fewer Silicon Valley students are graduating from high school with a college-prep curriculum under their belts.
The region’s dropout rate is only 10 percent — about half the statewide rate — but only 47 percent of high school graduates in 2007-08 met entrance requirements for the University of California or the California State University systems. That’s 5 percent lower than the previous year.
At the same time, state general-fund spending on higher education dropped 17 percent in 2008, and total spending per student dropped 19 percent, the report notes.
“In order for the region to flourish, its companies need to be able to attract top talent to the region,” Hancock said.
“If talent inflows from abroad become less reliable, the region will depend more on the development of domestic talent, which will require the strong commitment of public leaders largely outside the region to invest in education and training.”
Despite the problems, Friel and others said they are optimistic that the historic resilience of the Valley remains strong.
“The challenges we face are significant, but none of them are unsolvable,” Friel said.
“No other region in the world has a better opportunity for success. We have faced big challenges in the past and met them. Our challenge is to do it again.”
Talk about it: What steps do you think must be taken to ensure the Valley’s future prosperity? Share your opinion below on Town Square.
Related stories:
■ Disturbing trends darken Silicon Valley outlook
■ Valley residents hurting, but better off than others
■ EXCLUSIVE: Video of Joint Venture CEO Russell Hancock discussing the “2010 Index” report
IM SO STUNNED!!!! NOT…. THIS COUNTRY HAS LOST ITS ENERGY AND WILL TO LIVE. WE DO NOT CARE ABOUT THE WORLD ANYMORE. MOST IMPORTANTLY, OUR SOCIETY HAS PLACED A HIGHER REGARD FOR MATERIALISTIC THINGS THAT WE HAVE NO NEED TO PURSUE AND COMPETE IN INNOVATION AND REAL PROSPERITY. THE REAL PROBLEM COULD BE ONE OF TWO THINGS. EITHER THIS IS THE SLOW COLLAPSE OF A GREAT NATION OR WE HAVE SLOWLY FORGOTTEN OUR OWN HUMAN NATURE TO SURVIVE.
WE WILL EVENTUALLY START TO HEAR MORE AND MORE ABOUT THE END OF THE WORLD. THIS IS A FACT. BUT AS YOU TAKE A LOOK AT HISTORY AND THE BIBLE, THE END OF THE WORLD IS MERELY A PLACE IN HISTORY WHERE THE DEVIL WILL TAKE OVER. THE DEVIL AKA OUR SELVES WILL THRIVE WITHIN SOCIETY MEANING THERE WILL BE NO DEMOCRACY AND NO PEACE. OUR BARBARIAN SELVES WILL EACH WANT OUR OWN POWER. HENCE SOCIAL ORDER IS MERELY THE ONE WITH THE BIGGEST GUN. BUT AS SOME HOW LEARNED, THIS IS A NATURAL PROCESS OF THE HUMAN MIND. EVENTUALLY IT WILL CYCLE BACK UP AND WE WILL BE ENLIGHTENED ONCE AGAIN. HAVE YOU EVER WONDERED THE CORRELATION OF THE THOUSAND YEAR DARKNESS (FROM THE BIBLE) WITH THE ROUGLY EQUIVILENT 1,000 YEAR DARK AGES???
WOW,…shhh. I can’t hear you when you yell and all upper case typing is too hard to bother to try to read anyway. That doesn’t mean I agree or disagree, it means your message it not getting through as well as you had hoped. Strike one.
As smart as the preparers of these reports surely are, they seem to consistently miss some of the basic implacations of their theories. Any expectation that drawing the brightest engineers from around the globe here was a sustainable way of doing business must have been blinded by self interest. Has anyone considered the notion that draining away the best talent from foreign countries would inevitably erode their own national progress? Could this possibly create problems, even wars? Calling our national immigration policy dysfunctional because it does not fit the agenda of a very narrow corporate interest, albeit one that heavily affects SV, is small minded, and at worst, dishonest. It seems that mass use of state and local taxes to educate immigrants that, by definition, are behind their American peers in the educational process would reinforce the deterioration of the local school systems. As hard as it may be to imagine, resources are finite, and what you use on one project become unavailable for use on another. In other words, spending resources to get the sixty percent of my kids’ classmates that don’t speak English as a first language up to par, means less resources dedicated to educating the students who don’t require massive remedial instruction. At some point, parents, immigrants or not, have to take responsibility for their children, and speaking the language of the country you live in seems to fall squarely in these parameters. Would I be considered a good parent if I sent my kid to his first day of kindergarten unable to speak English? Every level of our government, from city to state to federal, are drowning in debt because we try to be all things to all people. Predictably, this path has lead us to a place where no one is happy. What we are starting to learn, and will continue to over the coming decades, is that the generation before us was, is, and will continue to be patently incapable of making hard decisions. If we mimic the outrageous behavior of the baby boomers in our decision making process, the consequences to our children will be grave.
I am a Silicon Valley headhunter and after more than 20 years of technology recruiting for opportunities here I’ve recently shifted my business to support the reverse brain drain to India.
My specialty is recruiting senior Indian technology talent In Silicon Valley for opportunities back home in India.
India technology career opportunities are excellent compared to here, and the candidates miss their families.
This is a recent change and rapidly building steam.
Jack Perkins
Oryx Search
jack@oryxes.com
why dont we have the educational opportunities they have in india, china and korea – we need to provide lots of science and engineering educational opportunities to our youth and retraining adults. This would make the difference between a decline or resurgence of growth. Why is it there are 3, billion dollar technology companies located in MV yet its still hard to get a technical education – this could mean our downfall –
If you don’t consider this country your home, you should go home while you still can.
tech worker: We _do_ have the education opportunities they have in east and south Asia. The reason native-born Americans aren’t going into tech anymore is because it’s become very hard to do software or hardware development as a career. Most tech companies are happy to have fresh-out-of-college engineers of whatever national origin, but don’t have much use for those engineers once they get get past 35-40 or so.
All the educational opportunities in the world aren’t going to get an 18 year-old to major in electrical engineering if his father was unemployed for two years after being laid off from an engineering job at HP. Instead he’ll opt for something with better pay and more job security, like finance or business.
The good news in the JVSV report is that they’re starting to understand that we can’t just focus on attracting foreign talent. This report expresses a much healthier attitude than the “with offshoring, we’ll never have to hire another American engineer again!” attitude that was being expressed by VCs and CEOs 6-8 years ago.
The bad news is that I don’t think Silicon Valley leaders realize yet that they need to _work_ to make engineering attractive to native-born Americans, as well as immigrants. That that’s going to involve doing some things (paying more, training, retraining, fighting agism) that most S.V. executives traditionally have been loathe to do.
Rex Manor: We used to have all the educational opps you speak of. *Locals* flowed through the system, were hired and flourished here.
Problem is, the puppet masters decided that locals were too expensive to hire. Too expensive, you see, because locals generally did not live ten piled high in rabbit hutches or cardboard boxes and did not deficate in the street or wherever they stood at a given moment.
Locals were, hence, deemed lazy and greedy. Some were, as would naturally occur as the result of a dot.com boom or any other type of upward spike. Just as naturally, market corrections would bring that untainted workforce back to reasonable lifestyles and spending habits.
The spin was already underway though, and the opportunity to throw them all out with the bathwater was not missed. Moreover, it was brilliantly crafted. And whitecollar SV stood by and watched as the purge carried on all around us, at the tech campus across the way and in the adjacent cubicle.
We chose to believe that these people somehow, abruptly, became “lazy” and, in the wave of a wand, undesireable hires. Right.
We can see which flavor of Kool Aid Mr. Friel has been drinking when he notes, “exacerbated by our dysfunctional national immigration policy agenda”. Read that: Increase the quotas. We can’t get enough people over here to complete the mission of dismantling the American work force…that bunch of lazy bastards.
Increase the quotas and if you don’t, you’re a flaming racist. That’s what the gaggle of special interest advocates were parroting from their perches below the puppet masters.
So tell me, where is the “entitlement” arrow actually pointing here? Is it toward the lazy, greedy, local work force, and who really is playing the “birthright” card?
Socialism, Marxism, and braindead “Liberalism” always has, and always will, collapse upon itself. Refuse to hire talented, educated, native born Americans, instead allowing, actually encouraging and promoting mass illegal (criminal) trespass across our Nations’s borders by tratorous elected officials, in the blatant attempt to lower both the IQ and the tradtional values held dear by natural born US citizens, there-by building a massive workforce of ignorant, uneducated, but obediant serf-masses to further the rape of our Country’s resources by the foreign held Corporate Banks and their prostitutes on Wall Street. We are now reaping what the treasonous tyrants of sown for our Nation.
What steps do you think must be taken to ensure the Valley’s future prosperity?
(1) Lower taxes across the board
(2) Give tax breaks to companies that hire native born.
(3) Increase incentive to green SV commercial property.
(4) Allow companies to import as many H1B visa’s as they want but force them to pay higher taxes on them > chanell that money to “science first” programs K-12.
(5) force H1B visa’s to mandatory community service teaching science classes to eighth graders as a condition of working here in this country.
(6) Mandatory standard rate + 10% payroll deduction to all H1-B visa’s to balance california’s budget.
(7) term limits for all state representatives, senators
(8) Fine companies hiring illegal immigrants; or tax them @ much higher rates.
(9) No free health care for illegal immigrants – force them to take loans from wall street in order to finance there childs routine checkups.
(10) Award citizens who play by the rules with tax breaks for “playing fair”.
We are giving it all away. My employer has sent jobs to India, China, and other low-cost countries. It’s just a matter of time before those well-trained, capable folks start their own companies in their own countries, leaving us with just a bunch of talentless, overpaid executives, who actually have the arrogance to believe that they are worth something. Their day will come. But in the meantime, they continue the offshoring push with nothing but next quarter’s financial results and their bonuses on their minds. It’s shameful, and it will be our downfall.
It’ll be interesting to see what SV is like 20 years down the road. My bet is that it’ll be a giant retirement community for foreigners who got fat off the cash from outsourced jobs to their countries. Santa Cruz, retirement community for the last crop of SV moneymakers, is the perfect current example of what will happen.
Next “hot” SV careers…bedpan and denture manufacturing.
We sent most of our manufacturing jobs overseas. Jobs that could not be sent overseas were filled with workers with H1-B and L1 visas. If you speak English and were born here, your only job would be a real estate agent or an insurance sales rep. The real estate bubble burst and now real estate agents are unemployed. With national healthcare, the federal government will mandate it’s own healthcare plan and many insurance agents will be unemployed. 1,500 California teachers are L1 visa foreigners. The only jobs left will be politicians. Let’s cut our state budget by outsourcing all our state (and federal) government to India. Our governor is an immigrant and he replaced a natural born citizen (Gray Davis, who could not keep our electrical system going because, apparently, all his cronies owned Enron stock). Outsourcing our politicians will save us a lot of money. There is talk of outsourcing our prison system to Mexico, but if we send our prisoners to India instead, we will save even more money and I bet our crime rate would go way, way down. You can believe that a worker on a temporary visa would not have as much loyalty to his employer as a worker who grew up here and had the impression that he would be valued as an asset to his company.
It does not help that California students rank 48th nationally, down from 47th place last year. California students, on average, are less educated than students in many third world countries.
To be fair, I also know that some of California’s best students, such as some of those in our own community, are as good as any first rate students anywhere. The problem is, when they graduate, with a college degree (with honors) where will they get a job? Will our best graduate students in physics, math and computer science have to emigrate to New Delhi to find employment?
An interesting discussion. We’ve definitely sold our community and country down the drain. Most of my neighbors are foreigners, and I don’t mean the ones from Mexico, and you can tell they have no loyalties to this community and country, let alone the time or interest to develop community ties.
“We”? “We” didn’t do this. Larry Ellison did this. Bill Gates did this. Henry Paulson did this. The list goes on, but it doesn’t include “us.”
It’s like pollution: I don’t OWN this planet, I’m nobody’s maid, and corporate America has a lot of gall suggesting that my grocery bags somehow equal what Union Carbide did in Bhopal.