The Past, Present And Future Of Silicon Valley

The Past, Present And Future Of Silicon Valley:

There are many commentators who argue that there is a bubble in Silicon Valley today. They may or may not be right, but there is certainly a bubble in places named after the preeminent global tech ecosystem.

Silicon Border. Silicon Hills. Silicon Steppe. Silicon Prairie. Silicon Roundabout. Silicon Gulf.Silicon Avenue. Silicon Canal. Silicon Alley. Silicon Beach. Silicon Forest. Philadelphia has a groaner of a region with Philicon Valley (whoever invented this should be banished from marketing for five years or forced to market Path). That leaves Korea as one of the only places in the world to emphasize geography over metals with its Honghap Valley district.

Silicon may be one of the most abundant materials on the earth, but the absolute obsession with naming any tech office park after Silicon Valley is a trend that needs to stop.

Innovation ecosystems don’t just pop out of the ground once a sign blasting “SILICON!” is staked. Instead, they are inculcated over many years through effective government policy around education and business regulation, plus are usually offshoots from other globally-competitive industries. It is no surprise that some of the most successful new high-tech regions of the past decade are in Los Angeles, New York, and London.

Pursuing disruptive technology companies as a policy is deeply distracting, and governments will find that their time and money would be better spent investing in the quality of life of their residents.

The Silicon Mirage

Every government in the industrialized world is talking about high-tech growth. It’s understandable. High-tech jobs tend to pay well in many parts of the world, and the jobs are “clean” relative to other areas of the economy like manufacturing. Rapidly growing companies make for a great economic revitalization story, and the creation of millionaires can get voters to ignore more fundamental issues with an economy.

Plus, it’s just pure fun. It’s rare in policy where science fiction and reality get to meet, and one of those is innovation ecosystem development. Witness all the politicians who have stopped by Facebook, Google, or Twitter over the past few years. There is a sexy quality to these companies that politicians want to be near.

Of course, never mentioned during those photo ops is the dark underbelly of Silicon Valley.Inequality is growing rapidly in the region, driven by the hollowing out of the middle class. Also growing are the rents, which have surged in all the high-tech areas due to increasing demand from high-income earners and limited housing construction. In addition, politicians seem willfully blind to the millions of jobs displaced by computer automation over the last few decades.

High-tech can have incredible economic performance, but it is not an inclusive industry like manufacturing, where highly-paid executives, designers, and product managers can work alongside middle-income factory workers. It really is an all-or-nothing industry: either you can perform at a peak level and net the full SV compensation package, or you are mostly irrelevant. The bus drivers of tech’s private shuttles and the security guards at Google would probably know a thing or two about that.

It’s certainly not unusual for politicians to pursue these sorts of elite jobs out of status and glamour. Many state governments in the United States offer film tax credits to production companies to shoot movies within their states, a system of corporate welfare that is now starting to be repealed since it doesn’t work.

Unfortunately, tech is a harder beast to analyze, which is why it continues to flourish in policymaking circles. There is all of this supposed “magic” that happens when we add the high-tech powder into the urban economy soup. Industries become more competitive, quality of life should improve, and the city becomes more attractive to potential workers. Like magic!

The reality is harder to discern, but we are probably spending too much. Technology is indeed a “good” industry that adds value to an economy (as do many other industries, of course). The challenge is matching the value created with the policy incentives and programs that suck up government revenues. In many places throughout the world, spending remains grossly unbalanced.

The Silicon Valley Playbook

One of the incredible parts of attending government policymaking conferences on innovation ecosystems (and you thought C-SPAN was boring!) is that few politicians and their policy managers even know what Silicon Valley is, or more specifically, what makes it tick.

The region has many “key” qualities, but two are far more important than the others. The first is risk-seeking behavior, which should be self-evident every time you hear about another crazy entrepreneur with a crazy idea, and especially when you hear about the venture capitalist willing to throw millions behind him or her. Everyone in this industry understands risk, albeit with different tolerances, and is willing to play the game to make huge returns.

The other characteristic is that the region is entirely centered on extremely fast growth. Engineers inexorably move to faster growing companies so talent is concentrated in the most likely future success stories. Lawyers and accountants are willing to push the law around taxes and valuations in ways that firms in other regions are simply not willing to do.

Here is the thing: Silicon Valley is not unique in the United States as a dynamic innovation ecosystem. Both New York in finance and Los Angeles in media are examples of regions that have many of the same qualities of San Francisco. Producers in Hollywood are just as calculating about creativity and returns as their venture capital brethren. That’s why Silicon Beach and Silicon Alley have had disproportionately faster growth than other newer tech regions in the world.

The good news is that most nations already have some sort of industry that fits this pattern. Rather than trying to reinvent the wheel by importing tech companies, governments would do better to invest their time into increasing the competitiveness of these already-existing industries. In other words, accentuate the strengths.

Balancing Silicon And Reality

The tech industry is held in high status by many throughout the world, so it is little surprise that politicians would try to attract this industry to their home districts. Unfortunately, that spending is often wasted on useless initiatives designed to build a startup ecosystem at the expense of the actual strengths of the local economy.

Instead of spending, try listening. Maybe the regulations around venture capital need to be reworked. Maybe hiring and firing for startups is prohibitively expensive. Maybe broadband networks need to be modernized. Every region and city in the world has something it is doing well that could be potentially world-changing. That will always be your best ticket to the high-growth lottery.

Along this line, realize that the most impactful change is going to come from bottoms-up ecosystem development. There is incredible money to be made in innovation ecosystems, and so there is rarely an incentive problem when it comes to the numbers. Often a change in culture is the first step to building these regions, and that will only come when the people decide it themselves.

Finally, and most practically, spend the time you would have spent on startups on the fundamentals of your region instead. Well-diversified economies with great public amenities are always going to be desired by the kinds of workers these types of industries attract. Random startup incentives are almost certainly less useful than, say, a great transportation system.



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