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During EMERGE conference Gideon Lichfield, editor-in-chief of MIT Technology Review from Boston was talking about the future of Silicon Valley. Is it dying? Can we find the same ecosystem outside of the Valley or even outside of the USA? In today’s article we will discuss these and other questions.
We talk to startups and investors, you get the value.
Let’s start with the stats. KPMG survey for several years has been asking 800+ global tech executives whether they agree or not with one simple statement: ‘The technology innovation center of the world will move from Silicon Valley in the next four years’. The dynamics are frustrating for those who believe that the Valley is and will always be the center of innovations in the world. In 2015 48% of executives agreed with this statement. But in 2020 there are only 37% who still believe that in four years Silicon Valley will still be the center of innovations (and venture capital because it is where innovations are). The main reason for the decline in 2020 is protectionism against China limiting technology transfer. But the main take-out from this survey for Gideon is that you shouldn’t believe in any surveys.
Let’s talk about the history of Silicon Valley to understand how it becomes what it is now. In the beginning of the 20th century it was the chemical era. 1970–80s were a medical era with the focus on biotech. And the second half of the 20th century was the computer and electronic era with huge development of software. This is why Silicon Valley is known today.
Software now dominates and it’s the core of American innovations system. But it used to be different. We need to keep in mind “the productivity paradox”. Despite the growth of software development over the past 50 years, the productivity has not been growing as fast as in previous decades. It’s a bit of the mystery for economists.
If we look at startup job creation, it is falling during the second half of the 20th century. The time new businesses start hiring is also growing. In other words businesses are starting but they’re not generating jobs as quickly. Another tendency is that entrepreneurs become older. And millennials don’t start as many companies as zoomers or boomers. The reason might be in the economic crisis of 2009 when they were students. Now they can’t borrow money to start a new business.
There is another impact factor for small business. VCs call it “kill zone” — when big companies and corporations buy smaller companies to decrease competition. The number of acquisitions and the sums are going up. Tech giants spend billions of dollars to eliminate competitors from the market. You could think about LinkedIn as a bright example of this factor. Or even more bright recent examples. Google acquired North… and closed it with smart glasses they’ve produced. Moreover it’s getting harder for people to get funding for their ideas. Investors don’t see the potential to grow into a multibillion or multi million company. Today Silicon Valley is much less dynamic and disruptive as it used to be a couple of decades ago. Big companies just repeat business models and spend money to buy competitors who could disrupt the market.
Silicon Valley becomes the center of toxic culture instead of liberal utopia it used to be. There were several examples of misinformation, sexism and racism, growing living costs and labor rights problems. So it’s becoming a less and less appealing place to work. If we look at female founders numbers in the EU and Silicon Valley we could see that there are less than 10% of women in the US who founded their startups. In contrast, there are almost 15% of women startup founders in the EU.
If you look at race stats they are frustrating too. Only 1% of startup founders are black. And only 2% are latinos. These proportions are much smaller than the US population in general. So Silicon Valley is exclusional and discriminative if you are not white male who has gone to certain universities.
Misinformation, especially in social media, arose during the last presidential elections in the US. But even more visible it became during COVID-19 pandemic. The falsehood circulating in Facebook about vaccines, drugs and all of the conspiracy theories was greatly amplified. And the Silicon Valley platforms are struggling. They’re trying to adapt their policies but once again we are seeing the damage that all of this can cause.
Now let’s talk about what Silicon Valley is failing to do. Marc Andreessen who’s perhaps the most famous venture capitalist in the Valley wrote ten years ago that software is eating the world. He was describing how Silicon Valley software companies were taking over everything. Recently he wrote another piece called “It’s time to build”. And this time he accused the American tech industry of failing to build the things that the country and the world needs right now in the midst of a pandemic. All those physical things, not the software things, that a country needs to deal with the crisis. The US tech industry doesn’t build those things. It’s all about software now.
We can disagree with Andreessen of why the US wasn’t able to cope with the crisis. But it’s just a choice not to build those things. We haven’t wanted to build these things. Other people like Elza Klein write that it’s really much more about structural problems. The US has developed a kind of sclerotic system which vetoes new buildings and vetoes big projects. And those vetoes can come both from private and public sectors. But anyone who visits the US from outside sees it — the old airports, the potholed roads, the crumbling infrastructure, the terrible trains etc. All the ways in which this is just not a modern country. In other words, the tech industry made some people very rich and has provided platforms that make life very convenient for lots of people. Those platforms have been built on a market of convenience but we have not seen the industry that addresses the needs (the needs to deal with pandemic, the needs to deal with climate change, the crumbling infrastructure). Those are the needs every country in the world is facing now.
Why is this happening this way? One of the main reasons is that the US doesn’t invest in the same way in basic research and development as it used to. But R&D was developing very fast during the last 20 years in South Korea, in India and especially in China. The real growth is happening in Asia.
The government in the US allowed Silicon Valley to determine the directions of the investments. The private sector was investing into platforms built to be convenient for middle-class people but not the things again that a country needs to deal with the serious long-term issues.
One more point of view. The US shows a slight decline in science and engineering articles in all fields during 1996–2018. So is Europe. But if we look at the rest of the world and particularly at China, there is a growing curve in the number of scientific and engineering researches.
So we can see that Silicon Valley isn’t providing the things that America and the world need to deal with crises and long-term issues. It’s not providing wider prosperity and new jobs that the US economy needs in order to recover and grow. And it is an extremely toxic culture where people really don’t want to work.
The last point is visa restriction under President Trump. And now because of the COVID pandemic it’s shut them down even more. The tech industry and Silicon Valley relies heavily on these h-1b visas for highly skilled workers. These people are losing their jobs and they have only 60 days to find a new one or they lose their visas. So on top of everything the US tech industry is now facing a starvation of talent.
We can take a look on the rest of the world to see where these people could go. This is very incomplete list:
Toronto — AI;
Tel Aviv — cyber, agtech;
London — fintech;
Scandinavia — cleantech;
Singapore — smart cities, fintech, blockchain;
Beijing — AI;
Shenzhen — manufacturing;
Taiwan — semiconductors.
There are many many opportunities all over the world. These countries are much more welcoming to other people! So Silicon Valley ex-workers could go whenever they would like to. And this opens bright opportunities for new regions to start their own entrepreneurial journey. Just don’t try to copy Silicon Valley!