Reinventing Silicon Valley- Bolstering Public Finances is Key Priority

To revive its economy, Silicon Valley must focus on four key areas, according to a report by a group of local experts: expanding its global presence, getting its public finances in order, becoming more livable and merging biotechnology, nanotechnology and information technology into a new industry.

By Steve Johnson
Mercury News

“We cannot assume that our region will just rebound naturally, or that what worked in the past will work in the future,” warns the report by the San Jose-based Joint Venture: Silicon Valley Network, titled “Building the Next Silicon Valley: Strategy and Actions.”

“If Silicon Valley resists change, it could slip into the sort of prolonged economic decline that other regions, such as Detroit (automobiles) and Pittsburgh (steel), have experienced,” the report says.

One controversial topic that Joint Venture members plan to tackle is bolstering public finances for local transportation, education, environmental, health and safety needs. As part of that effort, the group intends to create a statewide coalition to reform the state’s tax structure. The idea is to ensure that more of the taxes raised by particular communities are spent in those communities.

Financing government services is of keen interest to local businesses. In a separate report issued Wednesday, officials with the Silicon Valley Manufacturing Group said new sales and parcel taxes may be needed for such things as retraining teachers and improving the area’s transportation system.

Those involved with the Joint Venture report said they weren’t sure whether their initiatives would require higher taxes. But their report recommended broadening the state’s tax base to make it less dependent on volatile sources of income, and making it easier to pass tax and bond measures.

“Most businesses aren’t going to blithely advocate higher taxes, but they understand you have to spend money to make money,” T. Michael Nevens, a former director based in Silicon Valley for McKinsey, an international management consulting firm, told a group of Mercury News reporters and editors. He helped formulate the report, which was the result of a yearlong study by 60 local corporate executives, educators, political leaders and others.

Such changes could take five years, Nevens said. But he said the time and effort would be worth it if it shifted decision-making about how taxes are spent away from Sacramento.

“It’s a crazy system,” Nevens said. “You wouldn’t run a business like that.”

Another key way to maintain the area’s vitality is to forge more extensive ties with other countries, according to the report, which noted that other nations are fast developing their own geographic concentrations of technology.

“Silicon Valley really is no longer the center of the world,” said Russell Hancock, Joint Venture’s president and chief executive officer. “To survive globally, our firms are going to have to collaborate globally.”

To accomplish that, the report said, businesses here may need to place their headquarters, research, production, sales and distribution divisions in different places. However, it added, that doesn’t mean Silicon Valley will become only the administrative home for top corporate executives.

“It basically boils down to re-centering the valley on what it always does best: to innovate and connect those innovations to markets,” said Eric Benhamou, chairman of 3Com, Palm and PalmSource and a member of Joint Venture. “We make things and figure out this is the way it will be deployed and how it will be used and how it will be sold.”

Merging some of the area’s technologies also will be crucial.

Despite its reputation as a center of biotechnology and information technology, the report said, Silicon Valley “is only beginning to benefit from the potentially powerful combination of these two technologies and the emerging applications of nanotechnology.”

The report added that the group hopes to help launch 15 new companies that exemplify the potential of these combinations in the next year.

Trying to guess which technology will succeed is risky, said Steven Cochrane, a senior economist at Economy.com, who grew up in the Bay Area and closely tracks its economy. But based on his talks with experts, he said he believes the Joint Venture group may be right about the growing importance of biotechnology, nanotechnology and information technology.

“These three that they mention are always the ones that come up in conversation,” Cochrane said.

Yet another area that needs attention, the report said, is making technology more accessible to the average person here.

A decade ago, Joint Venture was credited for helping improve the local economy through its so-called Smart Valley initiative, which promoted everything from better Internet connections in schools to telecommuting. In this report, the group said its Smart Valley II initiative would focus on using technology to help educate students, streamline government and improve hospital care.

One example cited by members of the group would be to connect local college campuses with wireless Internet technology. Another would be to speed up patient check-ins at local hospitals, Benhamou said.

While it often takes 30 minutes for patients to fill out waivers and other forms in the various hospital departments that see them, Benhamou said, “It doesn’t have to be that way. It should be less than five minutes.”

Silicon Valley has gone through major shifts in business priorities in the past. It went from a defense-focused economy to making integrated circuits in the 1960s, to producing microprocessors and personal computers in the 1970s and 1980s, to developing Internet-related products in the 1990s. Now, it’s time for another major adjustment, according to the report.

“Once again,” it concluded, “the valley must reinvent itself.”

http://www.bayarea.com/mld/mercurynews/6769287.htm