Pioneering spirit turns into greed

The Silicon Valley Edge
May 4, 2001

From orchards to semiconductor boutiques, the story of Silicon Valley is the story of the modern technical economy. William Miller and colleagues have produced a lengthy volume that describes the development of this phenomenon. Over 20 chapters, we learn of the post-Shockley era under Fairchild, the emergence of Intel, the PC revolution and the radical impact of the internet. As such, the book is a useful introduction to the people, firms and sagas of the valley for anyone making business contact. It will appeal equally to policy-makers who wish to understand the new economy and how the US government's attitude to entrepreneurship is being shaped.

Readers will, however, need to exercise some patience and forbearance. There is a great deal of repetition. The lack of stringent editing may also incline one to be suspicious of the motivation behind the book, which is published by Stanford University, written for the most part by Stanford alumni and supporters, and which so lauds the university's contribution to the Silicon Valley story that it would make many a Stanford graduate blush, including myself. More charitably, perhaps the wish to contrast the views of the practitioners, professionals and the academics, along with the plurality of authors, naturally leads to some agreeable, mantra-like overlap. Unfortunately, it also leads to considerable unevenness of style and depth, mixing passages that might happily belong in an airline magazine, with more measured, analytically driven chapters.

One or two particularly interesting themes do emerge, which even those familiar with Highway 101 may consider informative and relevant to debates in British education relating to the interrelationship between universities and the business community. James Gibbons, a former dean of Stanford, gives a good account of the emergence of research centres, which critically allowed a compromise to be struck between the practicalities of research funding and previously defined academic standards and integrity. Much here is relevant to the discussion surrounding tutorial teaching and research funding in the sciences under way at Oxford University. As a number of my board colleagues of a university spinoff have asserted, there is scope for much improvement in the nature and management of research contracts funded by start-ups, yet it must be recognised that speculative research needs to be maintained: perhaps new forms of research centre offer a path.

Threaded into the narrative is the heavy and continuing dependence of Silicon Valley on engineers. Engineering capability emerges as a priority. It makes one ask to what extent we can genuinely emulate the valley phenomenon without active measures to create large numbers of new software, device and communications engineers. In the valley, they have resorted to importing increasing numbers of Chinese and Indian graduates. Is there a lesson for us here?

Surprisingly, there are a number of items and issues that merit comment that are noticeably absent. The book is unremittingly concerned with the successes of Silicon Valley. Given that it is common knowledge that these are far fewer in number than failures or moderate outcomes, why do we not hear anything about the latter?

Similarly, little is said about the impoverished communities that sit beside the valley in East Palo Alto and Oakland in particular; the very poor quality of life of many temporary workers and Latino families is glossed over. There are no dissenters among the contributors, in spite of the high levels of stress and workaholic behaviour hinted at. A franker, more balanced account of the social costs and benefits would be welcome. No information about the returns to investors or to individuals is provided. One telling comment, however, is that the level of charitable giving in the valley is lower than the national average.

Informed by a copious set of facts, what insight do the authors provide into the workings of the valley, its sustainability and its future? Unfortunately, not much - a four-page afterword covers much ground but with thin reasoning. For the book to carry conviction, a number of deeper issues need to be settled.

The authors fail to provide what many observers seek: a rigorous, systematic analysis that the Silicon Valley model improves social welfare on a generally acceptable basis. Outside the success of individuals, particular firms and institutions, we are presented with only snippets of information about the social difficulties that exist in the valley. We are encouraged to adopt the belief that "technopreneurship" is to be preferred to other policy initiatives, but the case for what may otherwise be caricatured as a Darwinian winner-takes-all regime is not adequately presented. This is an opportunity forgone, for the case for entrepreneurship is well worth making.

Similarly, in thinking about the future of Silicon Valley as a particular case of entrepreneurial endeavour, the question of whether greed has corrupted the recipe for success and undermined the future is not addressed. The wealth preoccupation of a number of the professional contributors represents a sad divergence from the humility of pioneers such as Frederick Terman, David Packard and others: the current emphasis smacks more of making money from people as opposed to making useful products for them. Indeed, the large sums recently invested and lost in the dotcom bubble will lead sceptics to feel that the valley has succumbed to bad forms of gaming behaviour: first, the game of last-man-out, and now the game of last-man-in. Such views are reinforced by the indiscriminate retrenchment in second-round funding: good companies as well as bad are going to the wall. The assumption that if you performed ahead of plan you would survive is being challenged as venture capitalists try to draw a clear line under poor judgements in the hope that their investors will not withdraw their commitments. Is this honed professional judgement in the interest of the community or the consequence of individual bonuses and carried-interest concerns?

Before we emulate Silicon Valley more emphatically in Britain, we need to be careful that we do not copy a model that will lose its edge. A European reading the book would think they inhabited a part of the world undiscovered by Californians. Such inwardness is dangerous and limiting. There are significant technologies emerging elsewhere in the world, about which the valley tends to be complacent: wireless, genomics, fuel cells, new materials to name a few. A number of promising wireless and broadband start-ups in Silicon Valley may suffer from valley-centric views that reject the availability of funding in Europe.

More generally, it is important to understand the degree to which Silicon Valley is a phenomenon arising from the coincidence of factors uniting policy and industrial structure that favoured its development, or from the systematic application of business processes, networks and behaviour. The book does not settle this issue. If contingency had the upper hand, or if the systemic approach has been distorted by the narrow self-interest of a small number of powerful individuals, the timing of the release of this book, shortly after the Nasdaq market peak, may turn out to be ironic.

Peter Johnson is tutorial fellow in management and finance, Exeter College, Oxford, and founder of Venturefest, an international technology fair in Oxford.

The Silicon Valley Edge: A Habitat for Innovation and Entrepreneurship

Author - William F. Miller and Chong-Moon Lee, Marguerite Gong Hancock and Henry S. Rowen
ISBN - 0 8047 4062 3 and 4063 1
Publisher - Stanford University Press
Price - £35.00 and £12.95
Pages - 424

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