Peaks and Valleys: The Resilient Nature of Silicon Valley

California dreaming is now looking more like California leaving, as recent data reveals an exodus of Californians is slowing the state’s rate of growth. IRS data revealed that between 2007 and 2016, 1.2 million more residents departed from the state than entered. This problem is particularly accentuated in the Bay Area. A survey taken in March found that 46% of respondents were planning on leaving the Bay Area within the “next few years.” As a result of the success in the area, the cost of living has skyrocketed, making even the seemingly wealthy feel as though they are living from paycheck to paycheck. The median income in Palo Alto has now averaged out to $136,000 per year. When the average single-family home in San Francisco is reported at $1.25 million, and the state average is around $530,000, the American dream of homeownership becomes a stretch. Even engineers in the Bay Area, who work for high-profile companies like Facebook and Google, are having trouble affording rent and keeping up with the standard of living. The high cost of living also impacts the cost of running a business. The salary of an entry-level engineer in Silicon Valley reaches three to four times that of the starting salaries in other cities. As a result, companies see the cost-benefit of leaving the Bay Area as other cities present cheaper alternatives to Silicon Valley.

Industries are creating new hubs and finding success in less competitive arenas outside of California. Even giants like Google and Facebook are expanding offices to Boulder, Colorado and Boston, Massachusetts in order to unearth new pockets of talent and to encourage more startup activity. Industry-based hubs are also starting to develop in other cities. For example, New York has accumulated a lot of media startups, and Phoenix has a growing autonomous vehicle market. States have attempted to replicate the Silicon Valley phenomenon with geographical clustering and public policy, but research suggests that one cannot truly re-engineer Silicon Valley; government can only provide support after the spontaneous development of another ‘Silicon Valley’-like hub. According to Mercury News, families are also relocating to several other, more affordable states, such as Oregon, Nevada, Arizona, and Texas. The Legislative Analyst’s Office reported that of the six million that have left, “families with kids and those with only a high school education predominate among those moving from California.It is also reported that a large percentage of these residents moving away are middle-age and middle-class, further demonstrating the adverse effect of Silicon Valley’s economic success on the larger population.

The California legislature has begun to address the housing affordability crisis, and during the last legislative cycle Governor Jerry Brown signed fifteen housing bills. Included in these bills were measures that would raise $1 billion a year to subsidize new low-income homes and redevelop public housing in San Francisco for low and middle-income families. These initiatives are considered a large step in the right direction but they are not enough to meet current demands. California needs about 180,000 new homes each year to keep up, and these bills facilitate the construction of only 14,000 housing units per year. This year, Proposition 1 is on the ballot and, if passed, could direct funds toward housing development near transit stops and low-income housing programs. Bay Area Council’s CEO and President Jim Wunderman, argues that the housing crisis is a multifaceted issue where both far too few homes are being built and the ones that are available are far too expensive. Legislation that addresses the lack of affordable housing will ideally facilitate the growth of homes in California, as well as control the cost. Unless such measures are taken, and further prove effective, people may continue to be disenchanted with the golden state and move elsewhere.

Cultural discomfort has also been cited as a reason for moving away from Silicon Valley. It is argued that if the money has not driven out California residents already, the atmosphere is starting to get to them. The tech-centered industry is thought to have become hostile toward new companies and the area’s ‘left-wing echo chamber’ and highly politicized culture is purported to have even become a distraction from the innovation that used to characterize the industry. Peter Thiel, a billionaire venture capitalist, is moving down to LA for reasons including, “San Francisco’s progressive culture [being] ‘toxic,’ and [for] a city with more intellectual diversity.” For such a progressive area that prides itself on an innovation-centered atmosphere free of any qualms with personal ideologies, Silicon Valley has found an unexpected struggle with freedom of expression. A survey was taken in early 2018 across several companies in Silicon Valley in the wake of Google firing an employee for his conservative view on gender-equality. The findings demonstrated that respondents who align with more conservative views are “increasingly uncomfortable at work” and “feel less comfortable sharing their ideological views with colleagues”. As the Silicon Valley ideology, whether or not it is intentional, begins to narrow, those with differing viewpoints may search for more fitting ideological environments elsewhere.

Silicon Valley has been assumed to be at the end of its time before. In 2001, right after the dotcom bubble burst, Joint Venture Silicon Valley group published a paper on the revival of Silicon Valley. These business leaders and academics not only described several ‘busts’ during the 70s, 80s, and early 90s, but also explained that each bust was preceded by a ‘boom.’ In 2014, The Guardian was streaming out the “collapse” of the Silicon Valley due its apparent lack of infrastructure. Critics argued that London and New York were better, as they held an enticing environment and diversity that the Silicon Valley was missing. But the region went on thriving and the next “time for the Silicon Valley to fall” was in 2016 as startups were seen to be struggling more than ever. Signs of the fall were apparent, with high rates of investors backing out, and a spike in homeowners flipping houses. Billionaires were devolving into millionaires, and the Silicon Valley had supposedly reached its end. Now, in 2018, the valley is at a crossroads once again. Californians are leaving, companies are leaving, and other cities are picking up the slack where they can. Clearly, the data do not lie, but the question remains what exactly they predict and how they should be interpreted.

Perhaps the next decade will push out another slew of articles claiming that Silicon Valley is reaching its end once again. Until then, there is hope that it may bounce back. As previously mentioned, Silicon Valley has undergone several downturns in its history, and with each of these downturns came economic strife. The phenomenon of Silicon Valley may be seen as the response to these periods of economic adversity, as innovation is stimulated and eventually creates the next wave. Silicon Valley first originated as a hub of defense-related technology in the 1950s and 60s. However, once defense spending was cut back as wars declined, the region had to redirect its production toward commercial applications. This pattern has repeated itself several times in history and is now characteristic of it, as through each boom and subsequent redirection increased long-term development. The most important features that allow Silicon Valley to survive the ebb and flow of an entrepreneurial world are its dense habitat of technology firms and human and capital assets. Without having endured several peaks and crashes, these resources would not have accumulated. These assets have created the availability of high levels of productivity in the wake of each new ‘boom.’ Social infrastructure is another support beam in its ability to be so flexible. For example, failure is highly accepted within the community, and even lauded as a necessary cost of learning and improving. It is precisely this ability to fail forward that is considered to be a factor that increases probability of future success. This is a stark contrast to other industry cultures, where failure is considered a humiliating sign that the end is near. As a result of the “fail to succeed” attitude that encompasses the Valley, starting becomes even easier and cheaper because of investors and funding sites catered to getting new companies launched. With both technical and societal support, Silicon Valley is a fertile platform for the up-and-coming and is capable of enduring its cyclical ups and downs.  

For all the speculation that Silicon Valley is approaching another bust, there are also many new opportunities arising. Job growth is not slowing in the region as major companies like Google and Facebook are developing new sites. Google has a two-phase development planned in San Jose that will accommodate 15,000 to 20,000 employees, creating a “transit village” of offices, homes, open spaces, and more. Facebook will also be bringing in 6,000 new employees to its facility being developed in East Palo Alto. According to the US Bureau of Labor Statistics, the San Jose area was ranked 7th in job growth in the last year. In addition, Silicon Valley still accounted for 40.6 percent of venture capital investment in the United States in 2017. However, the rise is two-fold as many residents fear gentrification will take over areas like East Palo Alto and continue to push its residents out. Commuting has skyrocketed as residents are moving outwards towards more affordable housing. In response, housing protections that will keep residents safe from being outpriced from their homes will be necessary. In addition, if California truly wishes to reach is ecological aspirations, transportation options need to be improved.

Despite indications that there is hope in Silicon Valley’s future, the principal issue will likely remain the area’s capacity to build solid infrastructure that can sustain the quality of life for its workforce. The Joint Venture of Silicon Valley called for investment in infrastructure in 2001 so that the Valley could be ready for future innovation. Since then, the Valley has proven its resilience through multiple innovation waves, such as the biotech and social media industries, while infrastructure has remained unaddressed. Instead of falling down the same path that has caused Silicon Valley residents to leave, the California legislature needs to do more by addressing infrastructure issues, such as housing and transportation, with comprehensive and integrated solutions. It may never be possible to truly predict the next wave in Silicon Valley. However, in order to truly be able to ride the peak, California needs to further develop its foundation to not only promote the innovation that comes out of it, but also care for the needs of the citizens that remain within.

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