Growing the Next Silicon Valley or uh “innovation and high tech as easy panaceas for growth”

It being election season it’s a common vague claim by candidates that they will or want to or think it’d be just swell to create a copy of Silicon Valley amidst their voters’ cow pastures, vacant shopping malls, shuttered factories, 60 year old suburbs, mediocre schools and campuses, and mostly broke government.

It’s a fairy tale and when you press these pseudo-visionaries (same folks who talked about adding value to local crops, getting the railroad or interstate highway to come through town, landing a military base or war factory, or drawing the county seat of government to town…if you substitute the words “win a big lottery” or “inherit millions from an unknown relative” you have the same plan and extremely shallow thinking behind it. Far more daydream and delusion than divine inspiration and always presented as though this is the first candidate/politician to ever notice how nice that might be for the folks hereabouts.

I’ve been reading Silicon Valley history and talking with veterans for over 25 years now and like an onion, there’s all kinds of layers below the surface. A lot of key building blocks happened there, sometimes linked, often relatively independent. It’s a series of technology clusters rather than one with the importance of electrical engineering/electronics design and gradually software creation and systems thinking and capital formation that take it ever further through one tech bubble after another. Calling the wreckage of failed companies, short-lived careers, billions invested and lost, suppliers struggling or failing after their accounts receivable became substantially uncollectable, unused costly capacity, talent squandered or burned out or betrayed, luck mistaken for genius or skill and universal business lessons drawn from that confusion, diversion of investment capital from more productive uses…it’s a lot more than the vague cost of Schumpeter’s “Creative Destruction” of an entrepreneurial economy (much like using Darwinism to justify slavery and conquering other “races” as it was in the 19th century.)

Silicon Valley probably starts in Stanford University’s electrical engineering dept. back in the 1920’s, a very new field originally focused on figuring out how to distribute power over communities and states from central electrical generating stations, transmission studies. A young engineering professor laid up for months in a hospital bed studied radio, the hot new technology, and was so disappointed with the quality of “how-to-do-radio” books, he wrote his own version (he’d write many more electronics textbooks as a gifted explainer). It became the best-selling book on radio worldwide in short order, selling more than half a million copies (a professor who sells more than 1,500-3,000 books is considered a publishing superstar even today so this is more like the English Professor writing the equivalent of the Harry Potter series of books.) This made Stanford look like a center of radio engineering research and it was doing some work for local radio mfrs and broadcasters as well as Federal Telegraph a telephone component company there locally. That drew research contracts from industry which funded more than the handful of hard-scrabble students and patched together little lab the professor, Fred Terman, had put together in just a corner of the electrical engineering lab (actual university support and investment always comes in far, far later than how the universities tell their story of hotbeds of innovation…skeptical, oblivious cheapskates seems more the judgement of history over and over.  The biography by an electrical engineer , “Fred Terman at Stanford” is a deep (and the only book version) of Terman’s  impacts as the father of Silicon Valley, quite illuminating and never read by folks grandly talking about creating a new Silicon Valley (they’ve typically never heard of Fred or any ot the key players there and assume it’s just a matter of luring some venture capital funds to open up branch offices in their town next to the local campus.)

Much of the electronics research and development of components, controls, manufacturing methods, and key theoretical breakthroughs was actually happening in suburban New Jersey at the American Telephone & Telegraph monopoly’s vast research and development lab, Bell Labs, and it’s integrated manufacturing operation, Western Electric, and it’s actual use throughout AT&T’s system (so design, fabricaton, and customer all as one company with tremendous reasons to share what they learned and come up with lasting solutions that made sense from the customer perspective.) See Jon Gertner’s new book on Bell Labs, “The Idea Factory.”

People fleeing New Jersey’s Bell Labs, generally an ideal technology incubator and the most successful at it the world has seen since the Library of Alexandria or London’s Royal Society of Science, moved to their alma mater, Stanford, and it’s orange groves, cheap land, and booming towns (oil refining, wine making during the Prohibition, fruit and vegetable farming, fish canning, Asian trade, moviemaking, etc.).

Terman drew two of his students into business, William Hewlett and David Packard, and their collegial management style would set the very effective tone for Silicon Valley management in an era when modeling management after the rigid systems of the military or family farm improvisations were standard.

Terman helped steer contracts, investors, talented engineers, suppliers, etc. to this and other ventures that became the defense electronics industry throughout much of California (employing 50,000 people even 50 years later through Terman’s work on World War II & Cold War R&D and new technollgies that also drew the Jet Propulsion Lab and Lawrence Livermore Lab to the Silicon Valley Region (CalTech) and put U Cal/Berkeley in charge of running and considerably staffing, i.e. Robert Oppenheimer, the Los Alamos, NM lab of another 30-50,000 people (see “Manhattan Project”, atomic bomb development.)

This cluster of federal labs and defense work is where the functional Internet is born (conceptualized in the 1940’s by computer pioneer/Raytheon cofounder/Fred Terman’s graduate advisor at MIT Dr. Vannevar Bush) in 1962-1963 connecting 3 California campus labs during the Kennedy Adminstration while Al Gore was in grade school.  Having the Internet based there and evolving in it’s engineering schools, labs, etc. 30 years before most of the world knew it existed is a head start in a market that’s generally ignored in the tales of Silicon Valley and the DotCom boom.

Bush’s creation, the Dept. of Defense’s Defense Advanced Research Projects Agency funded the Internet research for decades from inception to now along with the development of much of the electronics technologies people now assume were magically funded by a combination of venture capitalists, local banks, and early sales to businesses and consumers.   Without decades of DoD purchases of the manufactured components (and pushing for durability and reliability needed for space, the oceans, deserts, polar temperatures, etc. making the designs steadily far more robust than civilian consumers would have expected) , both the research and production capacity probably wouldn’t have gone nearly as advanced as we now take for granted and teach the rest of the world through outsourcing since the Japanese recognized consumer applications for the transistor and video recording back in the 1950’s when we did not.

Part of the Bell Labs/Stanford alumni pull brought Nobel Winner/wunderkind/highly disagreeable Robert Shockley to locate his spinoff lab/company developing the transistor to the Silicon Valley in the late 1940’s. From that along with further Bell Labs research came the integrated circuit, solid state electronics, and semiconductors with Silicon Valley benefitting from the engineers quitting the smaller, weirder start up manufacturers to form their own firms (Fairchild Semiconductor, National Semiconductor, Intel, AMD, etc.) .

This combination drew aerospace engineering to Santa Clara, San Jose, Sunnydale, etc. in the 1950’s-1970’s (Lockheed, Douglas, Consolidated, North American Aviation, Hughes Missiles, General Atomics, etc.) and those engineers’ sons became the first visible wave of Silicon Valley computer talent in the 1970s-1990’s.

That Terman got Stanford to start using a portion of it’s endowment and pension funds for venture capital financing of Silicon Valley ventures made a huge difference. While the VC’s there originally were usually engineers who’d built a successful manufacturing business purchased by a larger one who then took their buyout and now free time and invested in niche technology companies for markets they knew exceptionally well and could add a lot of expert value into building, see Vinod Khosla’s interviews with them in the book “Done Deals.” Very quickly they found the source of additional money to invest in came from pension funds, like the California state pension funds, university endowments, etc. although few admit this and make it sound like it’s all doughty individual investors fueling this rather than institutional investors seeking outsized returns on investment to balance other portfolio losses. Now VC funds are generally steered and deals assessed by people with some finance training, like an MBA, but often little or no operating experience in the kinds of companies they’re trying to assess and invest in…so the success rate declines considerably and the search for high return/low risk businesses in the hottest industries (hot air, overblown market valuations) of information technology, life sciences (the two hoard 70-80% of all venture capital investments of the past 20 years) and more recently alternative energy.

While the networking aspects of the University of California/Berkeley’s informal gatherings of home beer brewers that played a significant role in the 1970’s personal computer revolution with many key players including the Apple guys among it’s members, the Xerox Palo Alto Research Center is mostly overlooked.   Established by Xerox as an R&D facility employing a third of the world’s best computer scientists (hired on a talent hunt so from many backgrounds and mindsets) and run by a former NASA Administrator (from the days when NASA was hypercompetent in the Apollo Program days) in 1970 or so, XEROX’s PARC center invented the laser printer (1972), useful computer mouse from the 1969 invention, local area networking-Ethernet, the graphic user interface that would be stolen first by Apple’s MacIntosh team (most of whom were hired away from PARC) and then by Microsoft’s Windows development team, spreadsheets, desktop publishing, GUI word processing, some computer drawing and had it all tested by hundreds of other Xerox employees by the late 1970’s (so roughly 1985-6 computer system ready in 1979 two years before IBM entered the personal computer market.)   The book “Fumbling the Future” is a fascinating recap of PARC and how it went awry at the point of glory.   People who left PARC after that (it’s still around) founded Adobe, other computer graphics and desktop publishing companies, and became key members of big firms in the PC revolution of the 1980’s-1990’s.

Another Northern California guy Gary Kildahl invented a very functional operatng system for the early personal computers know as CP/M and briefly it dominated the PC market before Microsoft licensed a programmer’s “mostly borrowed” CP/M tweaked and renamed  Microsoft Disk Operating System in a few weeks to meet IBM’s deadline for an operating system.   Harold Evans has the best account of this in “They Made America” and while Microsoft protested the account, they never refuted it.  Kildahl died in a plane accident about that time so the issue wasn’t pressed like it would have been.   But CP/M in Silicon Valley several years before it became the core of the dominant  large scale PC system is quite an advantage in learning how to write software for it and build hardware for it, another substantial advantage for Silicon Valley, just the like the Bell Labs’s UNIX operating system developed in the early 1960’s gave a real advantage to nearby firms in Armonk, NY (IBM) and in Greater Boston (Digital Equipment Corporation, DataGeneral, Wang, etc.)

 

Like any boomtown, the series of tech booms and greatly heralded successes like a gold miner finding the mother lode have drawn so many desperate, ambitious, smart people there (turning Santa Clara from a bucolic suburb/small city into a surprisingly large city in just a generation’s time, often with the highest home prices in America). That kind of talent breeds innovation and entrepreneurship while working horrendous hours either for far less than they’re worth or far more, the same sort of crazy talent pool that has sustained New York City, San Francisco, Seattle, Chicago, London, Paris, Vienna, Moscow, Hong Kong, Taipei, Singapore, etc. far more than their formal policies or strategies.

As you can see, it’s a weird mix and many waves that built Silicon Valley and to a greater extent than other technology clusters like Boston’s Route 128, Pittsburgh’s, etc., more like New York’s Broadway or Los Angele’s film and porn industries, but hardly an easily replicable model that a politician can build in even a generation’s time, much less an election cycle.

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