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.”