Hazards on High-Tech Highway : Silicon Valley Lesson for S.D.

There has been a lot of bad news around here lately: thousands of workers laid off because of a slump in the semiconductor industry. Toxic chemicals seeping from underground storage tanks into drinking water supplies. Traffic congestion rivaling that of Los Angeles. A housing shortage that has sent prices skyrocketing.

Sounds dreadful. But nobody in Santa Clara and the surrounding cities, known collectively as the Silicon Valley, seems too worried. Why should they be?

Despite its well-publicized problems, Silicon Valley remains the unrivaled champion of the high-tech world. With more than 2,000 electronics companies making up an industry with a value estimated at $265 billion to $350 billion, the 27-mile-long strip of territory along the southwestern shore of San Francisco Bay is still pulsing with life--and not expected to peak any time soon.

It is unlikely that San Diego and other budding high-tech meccas will duplicate the meteoric rise of Silicon Valley, where the so-called Second Industrial Revolution--in electronics--is taking place. But that may work to the newcomers’ advantage.

Leaders in Santa Clara County predict that while San Diego and other members of the nation’s new generation of technological centers may not mature as quickly as Silicon Valley, they can mature more intelligently-- by mirroring the valley’s accomplishments and avoiding its mistakes.

“If San Diego was smart it would round up every one of its planners and send them up here to study the valley for six months--or however long it takes,” said Walter Lowenstern, who launched Rolm Corp., a leading maker of business telecommunications equipment and military computers, with three college chums in a prune shed 16 years ago.

“We’re like a great bubbling, dynamic engine here, and there’s no stopping our success. But we’ve got big problems, too, and San Diego should be figuring out ways not to end up like us.”

In other words, while San Diego’s dogged efforts to shine in the high-tech big leagues are hampered by heavy competition, the city is advantaged by the examples--both good and bad--set by its neighbor to the north. San Diego’s lineup may never equal Silicon Valley’s in size or importance, but if the city plans carefully it can get a healthy share of industry while retaining its enviable quality of life.

“With its great climate and good universities, San Diego is a natural for high tech, and they’re going to get it whether they want it or not,” Lowenstern said. “So instead of panicking about losing an MCC or an SPC or any other silly consortium, the city should be getting ready right now to accommodate the growth that’s bound to come.”

No other region will soar to high-tech prominence with the awesome speed that characterized the ascent of Silicon Valley. It was first--a lone pioneer on a virgin frontier, a skiff without a skipper navigating uncharted waters.

The remarkable entrepreneurial spirit that makes the valley tick was born in 1937, when Frederick Terman, then chairman of Stanford University’s electrical engineering department, encouraged two of his brightest students to set up shop in a Palo Alto garage.

The two young inventors were William Hewlett and David Packard. Their first project was an audio-oscillator, a device that generates signals of varying frequencies. The Hewlett-Packard Co. is now the world’s largest producer of sophisticated electronic measuring devices and equipment, employing 82,000 people around the globe and worth an estimated $6 billion.

A similar series of events occurred in the mid-1950s and pitched the valley into high gear. Nobel Prize-winner William Shockley, co-inventor of the transistor, established a laboratory near Stanford and recruited a dozen promising Ph.D.s to help explore the properties and potential of silicon.

Sensing that they were on to something, several of the whiz kids left the fold and founded Fairchild Semiconductor in 1957. As many as 30 companies have spun off from that parent firm, including two of the valley’s biggest--Intel Corp. of Santa Clara and Sunnyvale’s Advanced Micro Devices.

The rest is history. In a mere 30 years the phenomenal growth has seen the balmy valley’s acres of prune, cherry and apricot trees replaced by low-slung, sleek industrial buildings and verdant research parks. Today, the Silicon Valley is the world’s premier pocket of technical innovation, an environment of high risk and fast fortunes, a place buzzing with brainpower and crawling with venture capitalists eager to exploit it.

True, there have been layoffs--about 15,000 in the semiconductor industry and related fields last year. But Santa Clara County added 60,000 jobs, net, in 1984, and that was a bad year, said Palo Alto economist Richard Carlson.

Two other illustrative statistics: one-quarter of all the venture capital investments in the nation last year--that’s $800 million out of $3.5 billion--were in Santa Clara County. And 25% of the building permits issued in California last year were issued in Santa Clara County, which has 5% of the state’s population.

“There are pressures building in the valley, but they’ve been there for years and we’re growing stronger than ever nonetheless,” said Peter Giles, president of the Santa Clara County Manufacturing Group, which represents 90 firms employing 90,000 workers. “Most importantly, the technological vitality of this valley has in no sense peaked.”

Two forces sustain and encourage the extraordinary growth, valley sages say. The first is an unusual social ethic that requires long hours, but provides rich rewards.

“In this county, bankruptcy is the red badge of courage, and the only unforgivable sin is to do something boring,” Carlson said; here “you’re shunned for not trying, not for trying and failing,” and if you haven’t started your own company by the time you’re 35, “people wonder what’s wrong.”

There is a second ingredient, one that San Diego and other young high-tech centers lack: a rich network of subcontractors. People start companies in Silicon Valley because everything they need--materials, legal advice and marketing assistance, not to mention trained labor--is right at hand.

“There are companies here that specialize solely in getting your product produced in Singapore,” Carlson said. “You never have to look outside the valley for anything.”

There is a downside to all of this, with elements that often and are lost amid the folk heroes and rags-to-riches legends that abound in the valley:

- Traffic congestion, a result of the breathless pace of growth and planning policy that put industry on one end of the valley and housing on the other, has reached Los Angeles-style proportions.

- In November, county voters approved a half-cent sales tax increase to finance the expansion of three highways, a measure promoted heavily by industry leaders. But because the project is so long overdue, it will at best only begin to help the valley catch up with its traffic problems.

- Meanwhile, some observers worry that a highly touted light rail system, planned to run from south San Jose up into Santa Clara, will flop because its route is inconvenient for many commuters. And another potential solution, the extension of Bay Area Rapid Transit (BART) down the peninsula, may be doomed because of BART’s financial troubles.

- Housing construction has lagged behind industrial growth, producing a shortage of homes and exorbitant price tags for those that are available. Some say the high cost of living is beginning to hurt the valley’s ability to attract and retain talent and firms, dulling its competitive edge in the high-tech market.

At the very least, the cost of doing business in Santa Clara County has become prohibitive for the larger companies, which have moved manufacturing operations outside of the valley. And those who have examined the societal impacts of high tech on the county note that housing prices are so high that blue-collar workers have been forced right out of town.

Myths to the contrary, high-tech is in many cases a very dirty industry. The production of semiconductors, the valley’s forte, involves the use of nasty chemicals--acids, gases, solvents and other toxic solutions that demand careful storage and disposal.

Three years ago, chemicals in a storage tank at a South San Jose plant seeped into the water supply, and the spill is being blamed for a cluster of birth defects in neighborhoods nearby. An ordinance regulating the storage of hazardous chemicals--believed to be the first of its kind--has been adopted by Santa Clara County and nearly every city in the valley. But enforcement is expected to be difficult.

Will such horrors befall San Diego?

“Not if they plan--and plan intelligently,” said Palo Alto economist Carlson. “The valley was completely schizoid in its development. In fact, it was almost displanned , if I can invent a word.”

Silicon Valley’s multiple jurisdictions--one source counts 22--is largely to blame. There have been numerous conflicting political agendas, and no umbrella group looks out for the region as a whole. Also, Silicon Valley is the prototype--there were no models, no tutors, no rules.

Carlson notes another factor. The forecasting that was done was from the wrong perspective.

“The planners counted cars,” Carlson said. “They didn’t plan along the lines of, what will happen when so-and-so invents the integrated circuit.”

San Diego can and will do better, say local leaders, who are hungry for high tech and envious of Silicon Valley’s industrial prowess, but wary of the pitfalls. First, given the mounting competition for the industry, development of a “critical mass” of high tech companies that will spawn spinoffs and trigger growth will come much more slowly to San Diego.

In addition, the city has adopted a growth management plan, and its environmental consciousness and sensitivity to the threat of “Los Angelization” mean any future development will be under scrutiny. Unlike the Gold Rush mentality that fueled the Silicon Valley’s growth, San Diego’s rise to power will doubtless face hurdles posed by skeptics and no-growth advocates.

Finally, those responsible for luring industry to San Diego and nourishing it once it’s here appear to share concerns about the potential costs of high-tech success.

“In my mind, it doesn’t matter where we’re ranked with regard to other high tech cities as long as the quality of life and the jobs are there,” said Dan Pegg, president of the San Diego Economic Development Corporation (EDC).