Silicon Valley's innovation engine at risk, report says

A new report warns that Silicon Valley's status as a center of economic growth and innovation is in danger. Silicon Valley has lost 90,000 jobs since 2008, and venture capital funding has plunged.

By , Staff writer

Silicon Valley has long been one California’s great economic engines. It produced Intel, Apple, and Google. And many are pinning the state’s economic recovery on the valley’s innovators.

But a new report from two Silicon Valley nonprofit groups – Joint Venture: Silicon Valley Network and Silicon Valley Community Foundation – casts doubt on its future prosperity, saying that the economic downturn, changes in the global marketplace, and California’s perennial budget gridlock have caused much of the region’s economic mojo to vanish.

“Silicon Valley’s innovation engine has driven the region’s prosperity for 60 years, but at the moment we’re stalled,” said Russell Hancock, CEO of Joint Venture, in a statement. “What’s hard to say is whether we’re stuck in neutral, which has happened before, or whether it’s time now for a complete overhaul.”

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Like the rest of California, the region has taken a serious hit during the recession. According to the “2010 Silicon Valley Index,” Silicon Valley lost more than 90,000 jobs since 2008, commercial vacancy rates jumped 33 percent, and more than 14,000 homes were foreclosed on.

Moreover, the region’s companies aren’t able to attract the same numbers of talented foreign workers, which it called Silicon Valley’s “lifeblood,” according to the report. And the number of foreign students receiving degrees stateside in science and engineering has been steadily declining since 2003.

Some say the report is a call to action for a greater emphasis on science and math education. Increasingly, engineers from China and India are taking jobs in their own counties instead of working in the states. Also, tougher immigration restrictions make it harder for companies to recruit and retain foreign workers.

“We have a much tighter link between economic development and education,” Kim Walesh, of the San Jose, Calif., Office of Economic Development, told the San Jose Mercury News.

Silicon Valley’s prosperity is also measured by the number of patents registered in region. Patent registration dipped by almost 1 percent in 2008. Venture capital funding also took a hit. Overall venture funding was down in 2009, dropping by about 3 billion from 2008.

But it’s not all bad news. Jobs within the green technology sector grew 8 percent between 2007 and 2008. That sector also saw a 7 percent growth in the number of patent registrations between 2006 and 2008.

Silicon Valley has also become more affordable, with average rents in the towns south of San Francisco dropping for the first time since 2005.

And while Silicon Valley has been bruised by the recession and challenged by rising economies in China and India, its high-tech economy has helped deflect the recessionary woes that have had a bigger toll in California's agricultural communities.

The region, however, does appear to be a crossroads, as the report points out. But many expect it will recover along with the overall economy.

Silicon Valley has “a set of industries that is the future – green technology, medical records technology, innovations to make buildings and homes more efficient,” said Stephen Levy, of the Center for the Continuing Study of the California Economy, in an Associated Press report.

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