The Innovation Region

Doug Henton
President
Collaborative Economics

Silicon Valleys Growing Contribution to Californias

Economy
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1990

2003

SV Share of CA Population

SV Share of CA GDP

Silicon Valleys Long Term Advantage: Highest

Productivity per Employee
200
180

GDP per Employee (Thousands)

160
140
120
100
80
60
40
20
0
1990

1991

1992

1993

1994

United States

1995

1996

1997

California

1998

1999

2000

Silicon Valley

2001

2002

2003

Evolution of Silicon Valley 1950 - 2000

Internet

Value
Added
Personal Computer

Integrated Circuit

Defense

Time
1950
4

1960

1970

1980

1990

2000

The Valley is Driven by Waves of Innovation

New technologies drive dynamic waves of innovation
Entrepreneurs take advantage of new opportunities
Swarm of new firms cluster around new technologies creating short term
bubbles
New products eventually become commodities and investment leads to
breaking of bubbles.
New technologies emerge from the convergence of old technologies and
the process of creative destruction begins again
Next wave of innovation builds on prior waves of innovation

Recent Short-Term Bubble

Silicon Valley Employment Waves:

A Boom, Bust, Build Pattern
1000

Internet
Commercialization

900

Semiconductor
competition
intensifies

Thousands

800

700

Cold War:
defense cuts

Commercialization of
the Integrated Circuit

Third Wave:
Personal Computer

600

End of
Vietnam War

Fourth Wave:
Internet

Second Wave:
Integrated Circuit

500

400

First Wave: Defense

300
70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01

Silicon Valley Jobs Return to Pre-Bubble

Employment Levels

Current Silicon Valley Industry Portfolio: Led by Biomedical,

Five Silicon Valley Industry Clusters Grow in Employment
Concentration Relative to the Nation

VC Shifts Toward Medical Devices and Biotechnology

10

Innovation is the Key to Valley Success

Innovation

is the key to success in todays global economy

across all industries

Continuous

reinvention is required to keep pace with the

rapid pace of change.

The

basis of increasing productivity is innovation not

competing on cost

Productivity

11

is the basis for prosperity.

Competing on Innovation
Prosperity
(rising real income per capita)

Productivity
(increased output per worker)

Innovation

12

increasingly higher-value
products and services

produced more efficiently

Regional Leadership Makes the Difference in

Innovative Regions

13

Build fundamental intellectual assets.

Connect entrepreneurs to these assets.

Promote a habitat for innovation and entrepreneurship.

Make quality of life an innovation asset.

Invest in the future

Silicon Valley Has Higher Proportion of High Skilled,

High Pay Occupations Compared With the Nation

14

Talent is the Most Critical Innovation Asset in the Valley

Talent is Based on Skills and Training

Technology Is Created by Talent

Quality of Life Attracts and Retains Talent

15

Housing
Transportation
Environment

Creative People Want to Live in Creative Places

Risks to the Innovation Region

Valley risks losing talent because of

Requires investing in future as well as addressing cost

issues

16

Declining Educational Quality

Housing Costs
Declining Quality of Life
Transportation Congestion

K-12, community colleges and universities

Affordable housing
Transportation initiatives

A Balanced Approach to Innovation: Add the Positives

and Remove the Negatives

Add Productivity Enhancing Factors

Mitigate Cost Factors

17

K-12 Education
College and Universities
Community Quality of Life

Housing Costs
Health Care Costs
Regulatory Costs

Create a High Value, Innovative Region

Next Wave May be a Convergence

1990s Convergence

Next Convergence
INFO

HARDWARE

?
Revolution

Internet
Revolution
SOFTWARE
BIO
MEDIA
NANO
18

Examples of Convergence

19

Preparing for the Next Waves: State and Regional

Responses

20

Do leaders understand the opportunity?

What must we do to ensure it happens here?

What are the requirements?

How can local people and communities benefit?

Can we avoid some of the pitfalls of past waves?

Key Points

21

The recent bubble has broken, so let's learn and move on.

Goal: sustain habitat advantages in productivity and

innovation.

We can anticipate a next wave: a new convergence building

on prior waves

Silicon Valley is well-positioned, but there is no permanent

franchise.

Must work together to ensure that next wave happens here,

works for us.