President’s corner

Silicon Valley’s Paradox of Success:
A Katrina Effect1

HENRY ETZKOWITZ

 

HENRY ETZKOWITZ
President
Triple Helix Association

Stanford University
Science Technology and Society Program
henry.etzkowitz@triplehelixassociation.org

 

INTRODUCTION

The Stanford Research Park is virtually invisible in Silicon Valley, although it occupies a large tract of land on the east side of the Stanford campus. The physical format of low-lying buildings surrounded by green space became a model for the development of science parks in other locations where it was often presumed that the architectural format, in itself, was the attractor and generator of high tech development. Nevertheless, the Stanford Park is not seen as a significant factor in the development of Silicon Valley even though it served as the model for the contemporary science park. Founded as an industrial park to attract manufacturing firms departing San Francisco and to raise money to support the development of Stanford, its founders soon realized that its potential resided in hosting firms emanating from Stanford that wished to stay close to their source for ease of continuing interaction. Today, the Park hosts the headquarters of the two descendant firms of Hewlett Packard, the Skype subsidiary of Microsoft, various law firms, the StartX accelerator, and other elements of the local innovation ecosystem.
A high tech conurbation with an expansionary dynamic respects no bounds of nature, counter-culture, exurban or urban life. Starting from Santa Clara County on the Peninsula, Silicon Valley is expanding in all directions. Crossing the Santa Cruz Mountains to reach the Pacific coast, it is expanding into the city of San Jose as firms, like Google and Apple, outgrow the willingness of smaller cities such as Mountain View and Cupertino to accommodate their growth. Moving into and above Berkeley, it is spreading across counties formerly considered as part of the Bay Area, itself an expanding geographical classification. Even Oakland’s downtown, where murals hid some empty storefronts, is experiencing signs of gentrification. Moving ever further east and south, Silicon Valley is expected to cross the mountains into the Central Valley where the
University of California, Merced, a new campus, provides an anchor for future high tech agglomeration in an agricultural region, much like the Valley itself sixty years ago. Indeed, San Joaquin County has pro-actively defined itself as “Greater Silicon Valley” as part of a concerted effort to promote the nascent trend.
Success has too often been fleeting, as with Finland’s Nokia or insufficient, to date, in Vancouver. Silicon Valley’s current employment growth is driven both by location of branches of firms from Asian and Europe seeking to tap into the region’s technology as well as expansion of indigenous firms, both iconic and start-ups in long standing and emerging technology fields. Ironically, quality of life is driven down for all but a super-elite as the result of an imbalance that emerges between private and public spheres. The traditional idea of management is to transform bad problems into good problems. ‘Wicked problems’ have been defined as complex issues, the entanglement of multiple causation whose solution creates new innovation potential from the collaborative effort to meet their challenge.2 This essay discusses the sources of Silicon Valley’s success and issues that have arisen due to “too much success.”

SILICON VALLEY’S “SECRET SAUCE”

Silicon Valley’s extraordinary success came as a result of following the classic US “Endless Frontier” innovation model of concentrating resources and “picking winners” behind a laissez-faire façade. The original source of the Valley is a university with porous boundaries. The founding leadership, including Stanford University’s President, David Starr Jordan, encouraged graduates to form technology firms in the late nineteenth century to electrify the region, utilizing existing technology. The next generation of Stanford faculty members, exemplified by Frederick Terman, together with their students, interacted closely with a next generation of firms, pursuing incremental innovation. In this era, the firms were often more technologically advanced than the university and aided its development.
The dynamic was set in motion, drawing technological demand into the university and sending research results out through cooperative relations with firms. Faculty were allowed and encouraged to have serious dual roles in firms. Technical industry existed in symbiosis with the university, indicated by a significant percentage of faculty recruited for impact and encouraged to continue extra-academic pursuits, to this date. A similar university-industry interaction dynamic occurred at MIT even earlier. This interactive dynamic is the source of new high tech conurbations and can be found in contemporary Pittsburgh in Carnegie Mellon University’s attracting significant federal R&D funds, serving as the progenitor of that city’s emerging robotics and AI industries.
The key intervening factor Triple Helix development in Silicon Valley was large scale government funding of academic research, allowing a small-scale nascent process, exemplified by the founding of Hewlett Packard from a Stanford research project that had produced an innovative technology just prior to the World War II, to become an efficient breeder of start-ups in the post-war. Stanford drew government more tightly into its orbit during the early post-war by establishing Stanford Research Institute (SRI) dedicated to attracting funds, including projects beyond the interest and capacity of individual professors. Spun off from the university in the wake of the anti-Vietnam War protests, the Institute played a key role in transforming Stanford into a federally funded research university. Silicon Valley’s growth dynamic, based upon silicon chips, was set in motion by government transistor procurement policy. Seeking to miniaturize battlefield communications equipment, the US Army drove a learning curve in transistor development that led to the development of the integrated circuit.
The chain-link innovation model, linking demand-side firm innovation to supply side academic invention, captured only part of this dynamic. The cluster of firms that emanated from this Triple Helix interaction acquired the label of Silicon Valley in 1971. In succeeding decades, the dynamic was replicated in other technology domains, supported by an increasingly complex set of supporting actors, including venture capital firms, technology transfer offices, and other boundary spanners. However, the most fundamental dynamic in the Valley emanated from the interaction between university and industry, among firms and between government and these more visible actors. Behind the two PhD students who met at Stanford’s computer science department and became Google’s founders was a Defense Advanced Research Project (DARPA) program that funded the research group that they were a part and posed the search problem that they solved.
It is a classic fallacy of “misplaced concreteness” that a Science Park with a set of buildings or a formal enclosed institutional format such as a Technopole can substitute for such an interactive dynamic. Unfortunately, this is the message that is most often taken away
from Silicon Valley by visitors looking for a “quick fix” to achieve a knowledge-based conurbation without serious institutional restructuring, new institution formation, as well as long-term perspective and commitment. Such efforts are often slowed by an innovation system approach that views organizations as having specialized functions, necessitating boundary spanning organizations or intermediaries to navigate between the institutional spheres, with special purpose logics.
A Triple Helix with integrative boundary spaces3 and institutional spheres that “take the role of the other” models a spiraling innovation process in which gaps may be filled by substitution of one actor by another. It is this latter capability that makes the Triple Helix especially relevant to developing and declining industrial regions, alike. Indeed, the two prototypical US Triple Helix regions ‘Silicon Valley’ and Boston, in their early twentieth century conditions, arose from collaboration and policy support.
Innovation-impeding boundaries are counterproductive to innovation as is overreliance on an accelerator model, exemplified by Silicon Valley’s Y-Combinator and Start-X that is more relevant for start-up growth once a Triple Helix dynamic is in place as its substrate. The key element of such accelerators is a training process through selection, insertion into a network of fellow start-ups, mentoring by experienced entrepreneurs, and access to seed investment opportunities. The accelerator format rests upon an already developed high tech environment replete with a deep bench of angel investors, venture capital firms, potential start-up collaborators that makes it possible for the accelerator supported firms to takeoff and flourish. That innovation ecosystem is itself is a second order phenomenon, resting on a first order dynamic of Triple Helix interactions among institutions with porous boundaries.
When the ‘cart is placed before the horse’, as when the Brazilian military regime constructed science parks in isolated suburban regions during the 1960’s, little innovation activity occurred until a smaller scale model of incubators and entrepreneurial education within universities was adopted. At best, branches of existing firms and government laboratories may be attracted to a stand-alone Science Park. Some decades later when they close or downsize, their former employees who wish to stay in the area, may generate a start-up dynamic as in Sophia Antipolis and Research Triangle. A more direct route is focus on facilitating university-industry interactions, especially creating an academic environment that recognizes it as a valued activity. The entrepreneurial university, holding a commitment to its region’s development, with a significant number of faculty members who encourage their graduates to spin-off technology from their well-funded labs, and may hold dual roles in high tech firms themselves, are the core of a triple helix dynamic.

“TOO MUCH SUCCESS”

San Francisco, a traditional financial, manufacturing, and port city, as well as tourist destination, cultural and counter-cultural mecca is being swallowed by Silicon Valley. Historically a working class city with small upper class, San Francisco is being transformed into an upper-middle class city. It’s working and middle classes are increasingly squeezed out due to escalating housing costs that are an unintended but entirely foreseeable consequence of rapid employment growth in high tech industries during the past decade.
In 2011, firms like Twitter following the usual business tactic of threatening to leave the city, or not locate projected facilities, if their demands were not met, obtained tax breaks for a number of years. These were granted by the city administration on the condition that they locate their offices in a downscale area, the “Tenderloin,” which the city wished to upgrade.
The influx is generated not only by firms locating in the city but also by employees of high tech firms on the suburban peninsula who prefer an urban life style. Their employers, utilizing luxury bus coaches, to take them to and from work, have put on an ad-hoc inter-urban transportation system. Its highly visible presence, in contrast to the relative privacy in which residential succession takes place, has provided a focal point for anti-gentrification protests at the municipal bus stops that the private transportation system uses as its own. The busses are the most visible component of the “total institution” that these firms attempt to create in their office compounds, offering munificent snacks; gourmet free lunches and perks such as dry cleaning services to ease the burdens of everyday life, encouraging employees to focus on their work.
In just five years, Twitter and its peers attracted large numbers of employees who wanted to live in San Francisco. Rents have escalated as San Francisco has become unaffordable to many of its previous inhabitants who are constrained to move out. Even with rent controls in place, landlords may evict existing tenants and upgrade their premises to attract new tenants at double and triple rents. Provisions to have new upscale developments include a modicum of affordable units in exchange for increased density provides only a token solution. Older residents who can afford to remain oppose new high-rise structures, with and without affordable housing elements, further exacerbating the housing crisis.
Rents have recently dipped slightly, providing a breathing space to consider how to address the longer-term trend.

THE KATRINA EFFECT

The dislocation of people in New Orleans caused by the Katrina hurricane is happening in San Francisco from the influx of firms like LinkedIn and Twitter. The unintended consequences of success is damaging the urban social fabric and causing attendant personal distress. What is happening in San Francisco as a persisting chronic condition is similar to what happened in a discrete acute way in New Orleans as a result of a natural disaster. People had to leave suddenly and move elsewhere. In succeeding years, some have moved back. Not surprisingly, people with greater resources have been more able to return to their native city. However, many with fewest resources who could ill afford to return have not come back. Also, not surprisingly, economic divides largely coincide with racial differences. In a sample of “ … largely female African American poor people …,” some leavers improved their housing and employment condition in the relocation process that was set in motion by the disaster but at the cost of loss of their connection to the culture of New Orleans.4 As a result, the city of New Orleans moved up a bit on the gentrification scale as its population shrank selectively.
The persisting negative consequence of social change, even if positive in some respects, is “the Katrina Effect.” Thus, impoverished former residents of New Orleans, forced out by Katrina, improved their employment prospects and housing conditions. However, they suffered weakening or loss of social ties to family and friends by the physical distance imposed by relocation.
Moreover, removal from the ambiance of their former familiar surroundings and even the loss of access to familiar food items within their cultural context caused further deprivation. The
experience of material and psychic resources moving in opposite directions may also have a disconcerting, disorienting effect on those who experience it.
Whereas relative deprivation is the surplus of disesteem generated by comparison to peers who are otherwise equal;5 absolute deprivation arises from comparison with those who clearly advantaged on multiple dimensions. Absolute deprivation also generates its own surplus of psychological disesteem. However, the social distance between the lower and higher realms may induce identification with the higher distant object as a substitute for attainment, or if social distance is so reduced as to allow contact, a breaking off of the relationship may ensue for fear of being dragged down, “a Rosalind effect,” after the female character in F Scott Fitzgerald’s This Side of Paradise, who breaks off her relationship with well born, but increasingly  impecunious, Amory Blaine.
An ever-present threat to the poor, eviction confronts middle class San Franciscans with a new reality of downward mobility and exile. Exclusion is also experienced in its weaker form as lack of access to preferred housing location and type. A member of Palo Alto’s Housing Commission, who recently resigned, illustrates the phenomenon. Both she and her husband, a software engineer, were relatively high paid but, nevertheless, could not afford to buy a house in Palo Alto. She announced in an interview that they were moving to Santa Cruz where they could find a house within their means. Ironically, the succession dynamic is replicated in Santa Cruz where it is reported that residents are moving out as housing costs grow beyond their means. The paradox of success creates a dynamic in which quality of life goes down except for the most highly successful who then drive up housing costs as they choose to live near where they work.
A social ecological succession may be identified, similar to the natural one in which grasslands turnover into woods and back to grasslands again over a half-century or so. Artists,  bohemians, and counter cultural denizens in general, priced out of San Francisco by rising rents have been reported to be moving from San Francisco, reappearing in East Los Angeles, where they are seeding minority and working class neighborhoods with a hip sensibility and attendant coffeehouse and restaurant businesses. It may be expected that more conventional young professionals will follow, attracted by the accouterments of a diverse urban neighborhood. Perhaps ironically, these were the very characteristics of the San Francisco scene that these artists had left, exemplifying another paradox of success. There are inadequate means in place to deal with these issues.
Joint Venture Silicon Valley (JVSV), is a public-private partnership that tracks trends on behalf of local governments and sponsors regular conferences to discuss issues. Business led, it has
convening but not governing power. There is no regional government in this region, with the exception of special purpose districts to deal with discreet phenomenon such as repairing the
ecology of the San Francisco Bay, or to provide community colleges through the Foothills District. Silicon Valley is a term popularized by a journalist in 1971, originally denoting the unique
technological industry of the era, the micro-chip array of transistors, on which a succession of devices and industries have been built. The Silicon Valley label attracted international currency and took on a broader meaning representing the succession and intersection of technologies, the agglomeration of high tech, venture capital, universities, innovation and  entrepreneurial resources.
Silicon Valley’s quintessential characteristic has been the informal technical community of crisscrossing firms, whose members exchanged information in local bars, after working hours in contrast to Boston’s isolated large firms.6 Some Silicon Valley firms have recently set strict rules against discussing technical information with outsiders, compartmentalizing employees within the firm. Apple uses color coded badges to maintain separation while Google has recently been faulted for falling behind in a key emerging technology, despite having greater expertise than its competitors. This expertise however, was bottled up in discrete groups, working on separate smaller projects and products, rather than being brought together to achieve a larger goal an artificial intelligent personal assistant.7 Nevertheless, communication within Google, even across national boundaries is extensive.8 The balance between secrecy and openness even in an era of ‘open innovation’ is still fraught.
The firm formation and growth engine that creates huge economic resources has attracted an influx of people globally, much as the gold rush of 1849, but the latter migration with its attendant industry of immigration lawyers is a longer-term phenomenon that shows no signs of abating. Whether keeping or discarding previous citizenship, they identify themselves as  part of Silicon Valley. The migration includes firms as well as individuals and has generated a support structure to ease the entry and transition process. Many countries find it  advantageous to establish “organizational beachheads”, either their own incubators or space in existing facilities, to bring their start-ups to learn the methodology of hightech growth.
In the opposite direction, leading Silicon Valley firms and universities search the world for talent and are usually successful in attracting it. A Stanford professor recently recounted how despite his position at a leading New York university (and an apartment in Greenwich Village) he accepted an offer to relocate. Silicon Valley is also a leading destination for successful start-ups from elsewhere in the world. Thus, “Not surprisingly the top fifteen acquirers in the transatlantic ranking are all US companies. Even less surprisingly, eleven out of the top fifteen are from the Silicon Valley.”9 Open Austria, a three person Shop, sponsored by the Foreign Ministry and the Chamber of Commerce has opened an office in Galvanize, a private incubator in downtown San Francisco. Its mission is to assist start-ups from Austria visiting the Valley, seeking partners and resources and to keep on eye trends in the start-up and Silicon Valley technology and venture capital scenes. The Austrian Foreign Minister spoke at the opening breakfast event, attended by hundreds of Austria expatriates and friends, some of whom hold
high positions in Google and other firms.

WHAT IS TO BE DONE?

Too much success is a broader phenomenon than Silicon Valley, with artistic impetuses as well, for example, in New York’s Soho. The arrival of artists in a deindustrializing district,  transforming factory buildings into lofts, followed by bars, galleries, restaurants; then attracts lawyers, stockbrokers and other professionals who appreciate the bohemian ambiance generated. Loft prices are driven up and the artistic community gradually departs as ever more upscale living places and businesses take root. The human ecological succession process has been made into a regional renewal tool: inviting artists to locate in order to jump-start the urban transition process. However, the transformative power of
technology is arguably stronger than the artistic dynamic. Although, Walter Benjamin noted that art in the age of mechanical reproduction is duplicable; the hard copy distribution of Life
Magazine images is modest in comparison to that of the Internet. Silicon Valley is a global icon, a solution to the wicked problem of deindustrialization and underdevelopment, as well as a highly desired ‘good problem’! Nevertheless, a ‘corporate induced disaster’10 is in the making if we consider the unwilling displacement of people as a deleterious consequence of  innovation success. In Cambridge’s Silicon Fen, green belt restrictions have pushed back against expansionist pressures, encouraging firms to relocate from the university town, on the one  hand, while new high rise office blocks adjacent to the railway station provide some room for local growth. However, if office blocks are not complemented with housing, Cambridge will experience the same phenomenon as San Francisco, if it is not already.

A combination of public and private remedies may be suggested. On the one hand, revision of Proposition 13, the 1978 ballot initiative that reduced property taxes on individual houses and business property, is called for. Over time government lost more revenue and businesses gained much more than individual homeowners as business properties turn over much more slowly than houses and are thus less often subject to revaluation and potential rate rises. Companies should take responsibility for housing provision in conjunction with employment growth. Firms above a certain size might be required to provide a housing unit for each job created. In future development plans; corporate campuses with housing as well as offices would be the mode. For example, Stockholm Kista Science Park, where housing has been constructed could be the model for Stanford’s science park. .
Silicon Valley is the outcome of a nested “egg within an egg” model of porous university boundaries that encouraged a start-up and spin-off dynamic and munificent government research funding that became the basis for “ecosystem” of intellectual property law firms, angel investors, venture capital firms; accelerators, incubators etc. A relatively few decades ago, fruit orchards and a university were the highlights of the area that later became known as Silicon Valley. This quintessential high-tech conurbation, its label originating with Silicon chips, extends across an array of physical, software, and biologically based technologies, intersecting and hybridizing to create new industries and transform existing ones.
In Triple Helix and innovation studies, we usually inquire how to create a science and knowledge based conurbation and focus our analysis on how to reach that objective. A variety of
methodologies from Porter’s diamond, cluster policy, science parks, and the European Union’s smart specialization strategy have been invented to assist localities, regions, and nations in their quest to duplicate this success. The impetuses of declining industries and movement of high-paid jobs to low waged areas have lent urgency to this task. How can other regions replicate Silicon Valley is a continuing challenge; how can Silicon Valley restructure itself to respond to the Katrina effect is a new challenge.
The broader implications of the Katrina effect are exemplified by the Brexit vote in the UK and the Trump victory in the US: populations excluded from economic success in democratic countries will make themselves felt at the ballot box, even if the specific vote is not directly aligned with their dissatisfaction. An economy focused on an elite, whether financial services or a high tech conurbation based upon the design but not the manufacture of devices is too narrow to provide sufficient economic opportunities for the majority of the population. An imbalance between public and private, with a preponderance of economic benefits flowing to a small elite rather than being spent on public goods, like infrastructure, education, R&D and health care, creating a broad range of economic opportunities and jobs, must be redressed. The sources of Triple Helix innovation and entrepreneurship reside in both the public and private spheres. To over-emphasize the private at the expense of the public may produce a temporary advantage for a few but it will be at the expense of long-term sustainability.

 

1 Presented at the session on “Science Scapes”, Triple Helix Conference, Heidelberg, Germany, 2016.
2 Oksanen, K and Hautamäki, A. (2015) Sustainable Innovation: a Competitive Advantage for Innovation Ecosystems.
Technology Innovation Management Review, 5 (10), 24-30.
3 See Etzkowitz, H and Champenois, C. 2017 From boundary line to boundary space: the creation of hybrid organizations as a Triple Helix micro-foundation. Technovation, forthcoming
4 Waters, M. 2015 Disaster and Recovery: a Longitudinal Study of Hurricane Katrina Survivors. Stanford Sociology Colloquium, 19 February.
www.sociology.stanford.edu/events/sociology-department-colloquium-mary-c-waters, last accessed 5 October 2016.
5 Merton, R K. Social Theory and Social Structure. New York: Free Press, 1968
6 Saxenian, A. Regional Advantage: Culture and Competition in Silicon Valley and Route 128. Cambridge: Harvard University Press, 1994
7 O’Brien, C. Welcome to the new and expanded Silicon Valley. Mercury News, August 13, 2016.
8 Comment, Sverker Allange
9 Orizio, S. 2016. Three out of four startups are acquired by US companies. September 12, Mindthebridge.com. Accessed 4 October 2016
10 Etzkowitz, H. Corporate Induced Disaster: Three Mile Island and the Delegitimization of Nuclear Power. Humanity and Society, 8.3, 1, Aug 1 1984. http://
search.proquest.com/openview/bbac9ee33ebb092490f17f05f015d19e/1?pq-origsite=gscholar