Bad News in Silicon Valley Index

Last Friday a thousand notables from high tech companies, public utilities, hospitals, local governments and NGO’s filled 96 tables at the McEnery Convention Center to hear about the State of the Valley according to the 2010 Silicon Valley Index released by Joint Venture: Silicon Valley Network and the Silicon Valley Community Foundation.  “The Index has a lot of bad news this year,” said Russell Hancock, Joint Venture’s president.

The latest figures still show record job losses over the past year. And, Hancock said, employers aren’t hiring. Instead, they’re retaining contractors, consultants and temporary workers. Meanwhile, he reported, the 33 percent increase in commercial vacancy rates is like having fifteen empty Empire State Buildings here.

Historically, Silicon Valley’s response to economic downturns has been to find and ride the next wave of innovation. But with the number of new local patents continuing to decline, some of the best and brightest college grads returning to their home countries and excellence in public education tanking, innovation may be as hard to find as a software engineering job.

The Index shows venture capital didn’t come to the rescue and isn’t likely to in the near future. It reports a 35.2 percent drop over the last year in Silicon Valley VC funding, which was the lowest level in ten years. Hancock cited a Kauffman Foundation report suggesting venture capitalists could have made more money over the last ten years if they had invested in the S&P 500 instead of Silicon Valley companies.

With venture capital decreasing, is federal government procurement spending the new venture capital?  If it is, said Community Foundation president Emmett Carson, Silicon Valley needs to do a better job of attracting it.  In 2008 the valley received $6.7 billion of the from the federal government, which was 1.3 percent of the total dollars dispersed. Doug Henton of Collaborative Economics, the outfit that number crunched the Index, said Silicon Valley is losing its share of federal procurement spending while Huntsville, Alabama is gaining on us. “Huntsville has the second largest research park in the U.S., a world class university, NASA and they’ve worked hard at going after federal funds.”

In the sonorous measured cadence of a Baptist minister preaching to the choir, Carson said we’re a region at risk. “We’re the Colts,” he said. “We’re not the New Orleans Saints in this game.”

He warned that the Index shows danger signs that should be taken seriously. “Our complacency could be life threatening. Our mythology is that we became Silicon Valley because people had garages here where they weren’t storing stuff.”

Carson said massive government spending here in the 1950’s and 1960’s made Silicon Valley the center of innovation. “Federal investment is why all of those smart people came here. They came here because the government was funding aerospace and defense R&D, the semiconductor industry and the ARPANET. Once they were here working at places like Fairchild Semiconductor and SRI they started meeting and talking to each other and doing other stuff. That’s where the innovation came from. We forget the front part and just remember the garages.”

Carson cited Index factoids that show state general funding on higher education dropped 17 percent in 2008 and total spending per student decreased by 19 percent. He then warnedz: “We’re disinvesting in the higher education that made us attractive and able to innovate.”

He went on to say that there’s a connection between investing in education and marketable prosperity-bringing innovation.  Only 0.3 percent of sixteen billion dollars of the federal funds earmarked for energy efficiency and renewable energy projects have been granted to Silicon Valley companies. Five billion has been earmarked for smart grid and two billion for battery improvements of which zero will be granted to SV companies.  “We’re neck and neck with Huntsville, Alabama,” Carson said. “Colts versus Saints.” 

14 Comments

  1. > He went on to say that there’s a connection between investing in education and marketable prosperity-bringing innovation.  Only 0.3 percent of sixteen billion dollars of the federal funds earmarked for energy efficiency and renewable energy projects have been granted to Silicon Valley companies. Five billion has been earmarked for smart grid and two billion for battery improvements of which zero will be granted to SV companies.

    I’m really underwhelmed by this analysis.

    The connection between “investing in education” and “marketable prosperity-bringing innovation” sounds like a crass, self-serving commercial for the teachers union.  No amount of money invested badly in bad education, bad schools, bad administrators, bad teachers and grasping unions is going to result in “prosperity-bringing innovation”.

    And the billions of federal funds earmarked for poll-tested categories like energy efficiency, renewable energy, smart grids, and battery improvements has only minimal prospect of producing significant “prosperity-bringing innovation”.

    Give enough billions to blind squirrels, and there is a prospect that one of them might find an acorn.

    But scientific and technological innovations are not beholden to budgets or schedules.  If some as yet undiscovered law of science imposes a barrier on the creation of an improved battery, then no amount of federal dollars will achieve an improved battery.

    Seeking a “fair share” of federal funds for feeding local technology companies is not the same as fostering innovation.

    Innovation as it has occurred in Silicon Valley’s past, was a serendipitous counfluence of insight, technology, flexibility, informality, freedom from regulations, and willingness to accept high risks and work long hours in the pursuit of high rewards. 

    It was a unique, fragile culture, which is not likely to be recreated merely by mouthing the technocratic catch-phrases of the day and stuffing the pockets of professional grant-seekers with federal dollars.

  2. Second Harvest CEO – $185,000

    A better question is: How much do CEO of City of San Jose Tax Subsidized – local Non Profits make?

    Downtown Association $165,000
    Chamber of Commerce – $266,000
    Tech Museum – $348,000
    San Jose Museum Art – $255,000
    Amer Musical Theater – $203,000
    Childrens Discovery Museum – $208,000

    • I’m guessing you don’t make this much.  Perhaps if you spent less time writing about other’s salaries, yours might actually improve!

    • Is it just me or do these salaries really, really seem inflated? 348,000 to run museum?! Really?! I am in the wrong line of work!

    • > Tech Museum – $348,000

      It’s often the case that salaries are related to how disagreeable a job is, how much it requires a person to surrender their ethical or intellectual principles, or the degree to which holds a person up to public ridicule or condemnation.

      Undoubtedly, the Tech Museum CEO had to be paid $140,000 more than the Children’s Discover Museum CEO as an inducement to suck up to the criminal fraud Al Gore and present him with a “Humanitarian Award”.

      After such a mortifying and humilating public display, any normal person would feel cheap and dirty.

      But, an extra $140K of cash in his jeans just might be enough of a salve to make a CEO put up with an evening of personal degradation.

      Think about it.  Close your eyes, hold your nose, and bend over.  And visualize a nice shiny red Ferrari.

  3. CEO Salaries – So you, family members or friends must work for non profits that get city taxes and bailouts or city government

    You don’t get it – Most local businesses believe that San Jose property, sales and city business taxes going to pay high CEO salaries in mismanaged non profits that required millions in tax bailouts when our taxes should have paid for basic city services is wrong

    Giving millions in city taxes to non profits during budget crisis while city raises our business fees and taxes again without taxpayers vote is also wrong  

    San Jose is most difficult city to do business,  has high taxes and poor services which is why 100’s businesses have and more will move out of San Jose to lower cost or better services business friendly cities like Milpitas, Campbell, Santa Clara or Palo Alto

    As soon as my lease is up, we are moving

  4. Nobody in their right mind would vote for yet another sales tax increase.  For one thing, it’s so damn easy to shop or dine in Santa Clara or Campbell or Fremont. 

    Given the opportunity to screw the greedy City of San Jose out of higher taxes and fees, I’ll go for it 100% of the time.

  5. Just heard on KLIV that Council is putting 1/4% Sales Tax increase to Nov 2010 vote and just sat down with tax accountant to review last year expenses

    If tax increase passes San Jose will have highest at 9 1/2% Sales Tax, along with highest business license fees, highest business improvement district fees, and highest city fees, hotel and utility taxes

    City government in billion dollar City Hall, with gold standard benefits and pension plans is out of touch and does not get it – having highest business taxes and worst business conditions results in less businesses, jobs and business tax volume and after city wasting million in city taxes – San Jose gets budget deficits in good and bad economic years

    • > If tax increase passes San Jose will have highest at 9 1/2% Sales Tax, along with highest business license fees, highest business improvement district fees, and highest city fees, hotel and utility taxes

      Let’s see.  If I buy a widget for $75, and sell it on eBay for $100 from my home in San Jose, I pay $9.50 in sales tax. 

      After I pay $10 in eBay fees, and $3 dollars in PayPal fees, and $2.50 for a shipping box, my total profit is . . . ZERO.

      If I move to a place with no sales tax, my profit is TEN DOLLARS.

      If I run my eBay business from San Jose, I make ZERO profit, invest zero time, sell zero items, create zero jobs, and pay ZERO sales tax to San Jose.

      If I run my business from No-Taxia, I sell 5,000 items, make $50,000 dollars profit, create one job, and pay ZERO sales tax to San Jose.

      Raising sales taxes in San Jose is a LOSE-LOSE proposition.  It’s such a stupid idea, that I suspect that it was probably dreamed up by the California Legislature.

      • Your example is just silly.  It seems like you tried so hard, too.

        Businesses pass sales tax on to the consumer.  That’s why it shows up on receipts.  You’d simply charge $110 each if you wanted a $10 profit per widget.

        And No-Taxia exists.  It’s called Oregon.  Their lack of sales tax has worked so well, they’re as broke as we are and had to raise their income taxes instead.  Is that better?

  6. doofinator

    “But scientific and technological innovations are not beholden to budgets or schedules.”

    Without resources, science and technology, like public schools, can achieve nothing.

    Sorry, you are just wrong.

    • Yeah, you’re right downtownster. Thomas Edison never would have achieved a darned thing were it not for all that government stimulus money he took.