Towards the end of 2020, large American technology companies such as HP, Oracle, and Tesla successively decided to move some of their businesses and employees out of Silicon Valley, which once again raised questions about whether the “Silicon Valley Aura” is on the wane.
After long-term development, Silicon Valley has indeed encountered many problems, otherwise there would not be a phenomenon of many famous companies “fleeing” one after another. Specifically, the current challenges facing Silicon Valley are as follows.
One is the higher tax cost. California, where Silicon Valley is located, has the highest personal income tax and capital gains tax rates in the United States. For high-income people in Silicon Valley, such a high tax rate is obviously a deduction factor.
The second is higher housing prices. Silicon Valley is famous for its high housing prices. In the United States, the median house price in Silicon Valley is close to five times the national average. The pressure of high housing prices has forced some Silicon Valley employees to leave and go to cities that have similar job opportunities and relatively low housing prices.
The third is strong regulatory constraints. California governments at all levels have introduced a variety of regulatory policies, from car exhaust emissions to gender equality, from consumer protection to epidemic prevention and control, all have formulated detailed and strict policies. This has led to a backlash amongst some entrepreneurs.
The fourth is the influence of political orientation. Most companies that went out of Silicon Valley chose Texas. From the political pedigree, California is a typical Democratic state, while Texas is a Republican state. Going out of the “Silicon Valley” in San Francisco, California to the “Silicon Mountain” in Austin, Texas, the political factor behind it cannot be ignored.
Of course, the sudden outbreak of the new corona pneumonia this year has also had a serious negative impact on Silicon Valley. The reason why Silicon Valley is special is largely due to its powerful talent and information congregating effect. People with talent and creativity gather in local cafes and meeting rooms. However, the epidemic objectively requires isolation and restriction of crowd gathering, which interferes with or even interrupts this tradition possessed by Silicon Valley. At the beginning of the epidemic, some large high-tech companies were forced to abandon their offices and choose to work from home. However, over time, many companies have found that home-based distributed offices scattered across the United States have not really affected work, but have increased work flexibility and efficiency. It is reported that some high-tech companies have even taken the initiative to consider the possibility of implementing long-term home office work in some positions in the post-epidemic era. This poses a huge challenge to Silicon Valley’s original aggregation advantages.
The above-mentioned challenges are mainly external challenges. For the development of Silicon Valley, the internal problems it faces may be more fundamental. The success of Silicon Valley has benefited from the “double innovation”. One is entrepreneurship and the other is innovation. However, in recent years, the performance of Silicon Valley’s “double innovation” has been weakened. In terms of entrepreneurship, Silicon Valley’s recent entrepreneurial success cases have decreased. Regardless of the start-up story or the start-up company, it does not look so exciting. The iconic successful people seem to be the old faces. In other cities and even other countries in the United States, there are relatively more success stories that have emerged. To a certain extent, this will make Silicon Valley less attractive to all kinds of talents.
In terms of innovation, over-capitalization of Silicon Valley has created an extraordinary distortion of science and technology innovation. The transformation of STI results does need capital to help, and capital also adds value in discovering and helping the commercial transformation process of STI. In this sense, science and technology innovation and capital intervention can achieve a win-win situation. But for Silicon Valley, this model of win-win and balance is being broken. Too much capital is chasing technology innovation, desperately hoping to “make money” through it. This has seriously interfered with the normal path of technological innovation and led to the spread of impetuous sentiment in Silicon Valley.
Despite a series of problems, Silicon Valley is still the best model for the development of global high-tech companies, and it cannot be considered that Silicon Valley has deteriorated. Among various indicators, two indicators being close to 40% are the most convincing. First, the number of unicorn companies in Silicon Valley accounts for about 40% of the number of unicorn companies in the United States. Not only that, almost all the top unicorn companies were born in Silicon Valley. Second, the amount of venture capital attracted by Silicon Valley accounts for about 40% of the United States. This shows that venture capital continues to maintain optimistic expectations from Silicon Valley and believes that the best return on venture capital can be achieved in Silicon Valley.
The California government and the San Francisco local government may have realized the various problems currently facing Silicon Valley and will take appropriate measures. In any case, Silicon Valley is still a banner of global science and technology innovation. Its past successful experience, current development difficulties, and possible future policy adjustments and market adaptations are worthy of reference for other countries and cities that are interested in building a center for science and technology innovation.
(The author is the deputy director and professor of the American Studies Center of Fudan University)