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Redefining Silicon Valley

February 21, 2003

No region of the world encapsulates the aspirations of many metro and regional technology-based economic development programs as Silicon Valley, particularly to the benefits of having a cluster of technology companies feeding off of each other to the mutual benefit of all. The Valley was the global tech leader during the heyday of the IT boom, but is undergoing a tremendous structural shift since the dot-com bubble burst.

Area leaders point out the technology shift is just the latest chapter in the economic history of Silicon Valley — the move from defense business to integrated circuits in the 1970s, to personal computers in the 1980s, and to the Internet in the 1990s. As a result of the changes, Silicon Valley may become a model for other regions in how to prepare and negate the negative side of being cluster-dependent.

The continuing but evolving work of Joint Venture: Silicon Valley provides an example. The group recently published the 2003 Index of Silicon Valley, the eighth annual report on 37 indicators or measures of the region's health. The indices have been helping the group monitor progress toward achieving the goals outlined in its first strategic plan, Silicon Valley 2010.

According to the new Index, fundamental shifts in Silicon Valley's economic structure and population profile create new job opportunities but underscore the need for a new, regional economic strategy. As Silicon Valley businesses struggle to recover from the latest boom-and-bust cycle, software has become the driving economic source of jobs in the region, the prominence of employment in the computer and related hardware sector has declined, and the biomedical industry has emerged as a growth opportunity, the Index reports.

The Index suggests that the Valley's economic recovery depends on finding "new means of wealth generation through innovation and entrepreneurship" and strengthening the region's global competitive advantage through greater productivity to offset the high costs of doing business in the region.

Accompanying the economic transition, the Valley's population has become more diverse, more international and more educated, the Index shows. The Index finds that the region is the third most diverse metropolitan area in the country. In addition, more than 34 percent of the Valley's population in 2000 was born outside of the U.S., compared to 23 percent in 1990. Fifty-seven percent of the 2000 population were born in an Asian country and 28 percent were born in a Latin American country.

Migration patterns have helped to raise the region's educational level. Since 1990, the number of residents with a bachelor's degree or higher jumped sharply from 423,000 to 609,000, 32 percent to 41 percent. San Jose is the country's third most-educated area as measured by share of college graduates.

In addition to reporting Silicon Valley's dramatic shifts in its economic structure and population profile, the Index examines 37 indicators of economic vitality and quality of life in the area. Among the developments during 2002, the Index finds a continued increase in productivity, extending a 10-year upward trend, but total jobs, average pay and venture capital investment have returned to near 1998 levels.

The Index suggests that the region's business, labor, educational and community leadership should address the policy issues raised by the economic and population transitions, including:

  • identifying job opportunities associated with software, biomedical and business services;
  • establishing education and training systems to prepare the workforce for new opportunities;
  • determining which manufacturing activities can remain competitive in the Valley;
  • examining local governments' reliance on sales taxes for their revenues;
  • welcoming newcomers and building commitment to the region;
  • aligning the changing population and shifting economic structure; and
  • leveraging residents' international perspectives and networks.

In addition, Joint Venture: Silicon Valley points out the region needs to continue to work collaboratively to achieve the livability, educational and social goals, which were envisioned in Silicon Valley 2010. Silicon Valley's new, regional economic strategy must include removing barriers to innovation from regulatory and tax burdens and add incentives for the workforce and technology, the group asserts.

The 2003 Index of Silicon Valley is available at: http://www.jointventure.org/resources/pubs.html