Silicon Valley enters 'new phase of uncertainty,' groups warn

By Pete Carey
pcarey@mercurynews.com

Two Silicon Valley groups warned today that decisive action by business, government and education is needed if the region is to retain its standing as the world's innovation epicenter.

The warning is contained in the Silicon Valley Index, a look back at last year's economic carnage prepared by Joint Venture: Silicon Valley Network and Silicon Valley Community Foundation, which issue annual reports on about 40 indicators of economic strength and the health of the community.

The groups said the valley's long road to recovery from the recession is complicated by state budget gridlock, decreased education funding and competition from other regions. There are "clear warning signs" that the valley has entered "a new phase of uncertainty" in which its standing as a tech center is at risk, the report said.

"It could be that Silicon Valley has a different future coming," said Russell Hancock, president and chief executive officer of Joint Venture: Silicon Valley Network. "It's not a given that we will continue to be the epicenter of innovation."

Employment is back to 2005 levels, with 90,000 jobs lost in less than two years; the influx of foreign science and engineering talent has slowed; venture capital funding has declined; and there are fewer middle-income wage earners in a "hollowing out of the middle." Per capita income is down 5 percent from 2007, and the number of people working as contractors rather than full-time employees is rising.

Other regions are expanding their shares of federal spending, while the valley's share of federal procurement dropped from 2 percent in 1993 to 1.3 percent in 2008.

Adding to the valley's problems is a malfunctioning state government that is shortchanging investment in education and infrastructure, the report said.

"Who wants to come here to a state with a $20 billion annual deficit?" said Emmett Carson, chief executive and president of the Silicon Valley Community Foundation.

The two groups noted that there are plenty of candidates to take the valley's place as innovation capital: Austin, Texas, and Huntsville, Ala., are beating the valley in snagging federal funds, the report notes. India or China also could someday wrest the title away from the valley.

"We're sort of sitting on our laurels and singing 'We're Silicon Valley,' " Carson said, while the valley risks falling behind as it emerges from the recession. More here.