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Tech sector sees growth, but panel warns communities face social and economic threats

By Kathleen Chaykowski | 10 Feb 2012

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(Image courtesy of the Joint Venture Silicon Valley)

SAN JOSE – Feb. 10. Constraints on new and small businesses are threatening Silicon Valley’s innovation and global competitiveness, said a panel of experts at today’s 2012 State of the Valley Conference.

Innovation is happening in Silicon Valley. IPOs, the number of patents filed, and amount of venture capital raised, are all up. Small business funding is more than four times greater here than other top regions such as San Diego, Research Triangle and the Greater Washington, D.C. area.

But innovation is happening elsewhere, too. Meanwhile, between 1995 and 2010, the number of businesses leaving the region has exceeded the number moving in. Since a 2007 peak, small business loan activity in the region has dropped by 52 percent.

The attractiveness and future economic growth of the Valley are inextricably linked to the health of the public sector, said Stephen Levy, director and senior  economist at the Center for the Continuing Study of the California Economy.

“If we don’t have world class infrastructure, education and public services, then we have a competitiveness problem,” Levy added.

According to Russell Hancock, president and chief executive officer of Joint Venture Silicon Valley, public institutions are locked in a fiscal crisis. “We can’t see any way out of it. Our public revenues are completely squeezed,” he said this morning.

Joint Venture Silicon Valley sponsored the conference along with the Silicon Valley Community Foundation.

“Silicon Valley was the last to succumb to the national recession and the first to emerge out of it. But we don’t think it’s time to start popping any corks,” Hancock pointed out in a conference call on Tuesday before the release the annual Joint Venture Silicon Valley Index, a report that measures the region’s social and economic health.

On the bright side, unemployment rates decreased 1.4 percent in the region over the past year, bringing the Valley’s rate down to 8.3 percent, on par with the current national level. The region is also rebounding from the recession faster than the rest of the nation and California, where the unemployment rate is 10.3 percent.

But taking a closer look, the Valley’s job growth and positive economic trends are enjoyed by a select few, especially those in the technology, science and engineering sectors, which represent 17 percent of all occupations in the region. Manufacturing didn’t see any growth at all.

What’s more, although the number of people making more than $100,000 now accounts for 43 percent of households, the middle class has shrunk by 4 percent to 37 percent of households. Median income dropped 3 percent between 2009 and 2010, exceeding the national decline of 2 percent.

“Some people may want to interpret this data to mean that Silicon Valley is the place to come to pursue your dreams and become a millionaire… but there’s no evidence that there’s a ladder in place and that people are climbing up that ladder,” Hancock said on Tuesday’s call.

One example: The percentage of students receiving free meals rose to 31 percent in the region from 30 percent last year, a steady increase from 2003. In order to qualify for the program, the income of a family of four must be below $40,000. High schools in the region are seeing a 13 percent drop out rate.

In his remarks this morning, Hancock pointed out that money in Silicon Valley isn’t trickling down.

“It’s the classic Bill Gates problem,” Hancock said. “You know the joke, when Bill Gates walks into the bar, and on average, everyone becomes a millionaire.”

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