News

Cover story: Innovation at risk

Federal funding that has historically sustained Silicon Valley economic growth is threatened

Stanford University President John Hennessy sounded the alarm in a speech to professors last month: The university faces a "collision point," as federal-government support for higher education shrinks under pressure to fund growing entitlement programs, Hennessy said.

The threat, oft heard but repeated recently with mounting concern, is that the federal largesse that launched and sustained Silicon Valley is ebbing, with potential dire consequences for education, the local economy and, ultimately, U.S. competitiveness across the globe.

"While there remains very strong support (for research), both in the White House and on the Hill, we are coming to a collision point," Hennessy told Stanford's Faculty Senate June 10.

"I think there will be more pressure on higher education than ever, as the amount of discretionary funding in the budget gets shrunk continuously, to protect that piece of it (for research)."

In other words, the massive and ongoing federal support that has created and fueled the Bay Area brain trust -- big engineering and medicine at Stanford and the University of California, the NASA Ames Research Center, Lawrence Berkeley and Lawrence Livermore labs, Fairchild Semiconductor, Lockheed Missiles & Space and all that has flowed from those institutions -- is under siege.

"For years, money just ran downhill from Washington, D.C., to California and nobody had to do anything to get it," said physicist Scott Hubbard, former NASA Ames research director and now a consulting professor of Aeronautics and Astronautics at Stanford.

"Now, the competition is so much more intense."

Hubbard is something of a historian of the so-called "virtuous circle" of government-university and industry partnership. Those linkages were established locally as early as the 1930s when Washington -- worried about a possible invasion of the East Coast -- created the Ames Aeronautical Laboratory as "near-clone" of Virginia's Langley Aeronautics Research Center.

As California's research establishment grew, the government money followed.

But competition for funds has intensified with the explosion of entitlement programs and other political claims on the federal budget, not to mention growth of high-quality research in places like Austin, Texas; Huntsville, Ala.; Research Triangle Park in North Carolina and elsewhere.

Hubbard motioned toward a photo of Bay Area Congressional representatives Anna Eshoo, Zoe Lofgren and Mike Honda that hung on the wall of his Stanford engineering office.

"I've urged our local legislators -- Anna, Zoe and Mike -- to work with the federally funded labs around here to be sure that the money doesn't get siphoned off and go elsewhere."

With the stunning success of some low-cost Internet and software startups, a local mythology has developed around the go-it-alone entrepreneur making it big from his garage.

But that popular narrative ignores the multi-billion-dollar research investments that created historic Valley companies in defense, telecommunications, Internet technology and biotechnology -- not to mention the daunting startup costs of newer ventures in clean technology.

Even Google had its beginnings in a federally backed research project by Stanford doctoral students Larry Page and Sergey Brin, who hypothesized that a search engine analyzing relationships between websites would produce a ranking superior to then-existing techniques.

Supported by grants from the National Science Foundation, Page and Brin developed the search engine "BackRub," so named because it checked the back-links to estimate the importance of a site.

Similar government backing -- from the Department of Defense -- supported the research at Stanford and Berkeley that generated Cisco Systems and Sun Microsystems.

Hennessy, a computer scientist, personifies the local tradition of cross-pollination between local research institutions and local industry. As a 32-year-old Stanford professor of electrical engineering in 1984, he co-founded MIPS Computer Systems, now MIPS Technologies, to commercialize his research in computer architecture.

A quarter century later, government funding continues to play a key role in jump-starting local innovation, which now includes clean-technology ventures.

Tesla Motors of Palo Alto, which marked its initial public offering last week, took a $465 million loan from the U.S. Department of Energy last year.

Photovoltaic systems-maker Solyndra Inc. of Fremont took a $535 million federal loan guarantee last year to augment its venture backing.

"If the federal government were, God forbid, to withdraw critical federal dollars for basic research, Silicon Valley would be grievously wounded," Eshoo said.

"In less than a decade it would not be the place it claims to be today."

In an annual "Silicon Valley Index," Joint Venture Silicon Valley Network for the past 11 years has analyzed a myriad of data to assess the health and wealth of Santa Clara and San Mateo counties.

This year, Joint Venture, in partnership with the Silicon Valley Community Foundation, found cause for concern on many fronts, including the Valley's standing in the race for federal funds.

Silicon Valley's "economic engine has cooled" by measures such as patents, venture-capital investment and office vacancies, CEO Russell Hancock concluded in the February report.

The region "may be lagging behind other regions in federal investments in R&D and procurement, especially at a time when the federal government has re-emerged as a major force in the economy at a level not seen since World War II."

"If anything, we may have lost ground to other regions since the early 1990s," the Silicon Valley Index report stated.

The average annual growth rate for federal procurement is more than 3.5 percent; regions like Washington, D.C., (7.2 percent) and Huntsville (4.5 percent) have attracted increasing levels of funding, while Silicon Valley's levels have declined.

Eshoo bristles at any implied criticism contained in this year's Silicon Valley Index.

She points to the more than $190 million in economic stimulus funds directed to Stanford, including $90.2 million to the SLAC National Accelerator Laboratory. Another $90 million was divided among Stanford schools of Earth Sciences, Education, Engineering, Humanities and Sciences and Medicine.

The U.S. Department of Energy alone, headed by former Stanford professor and Nobel laureate Steven Chu, has spent $130 million on 400 projects in her district alone, Eshoo said.

"It's not that I'm favored; it's because of what's in the district," she said. "The 14th Congressional District is an exceptional place."

For his part, Hancock insists he intended no criticism of Eshoo or her effectiveness.

"She's fabulous; she's done a great job," he said. "But she's done it without our support. We need to support her and make this a big parade."

Stanford's Hennessy, as well as Hancock, have expressed concern that, with mounting pressure on the federal budget, funding decisions increasingly will be made for reasons other than sheer merit, which could threaten research in new enterprises, such as clean technologies.

"I ... worry that under the increasing pressure, there will be more and more tendency to opt for earmarks (government funds identified for specific projects) as opposed to the traditional method of peer review and meritocracy," Hennessy said in his June 10 remarks to the faculty.

"Should that happen, not only would it damage the research leadership we have had in U.S. universities, but also in the long term it will damage economic growth in this country and put us into a spiral that will be quite unfortunate."

Federal investment was far more strategic during the 1960s and 1970s "when we were in a common race, fighting a Cold War, and needing to come up with solutions quickly as a matter of national urgency," Hancock said.

"What's fascinating about that time is that Silicon Valley wasn't clamoring for those funds -- they just came here on the merits because this is where the best work was happening.

"When you look at the way funding is being disbursed now, it becomes very clear that every state has two senators.

"I'm not a Silicon Valley booster. I'm a booster of the U.S. of A. But right now what we're doing is taking all these monies -- massive amounts -- that were identified for strategic purposes, and instead of injecting them very carefully to move the needle in this important fight (for leadership in clean technologies), we're spreading it thinly over every state.

"It has followed a political dynamic instead of awarding the money based on the merits.

"I say, 'Bring it to Boston, Austin, Research Triangle Park and Silicon Valley.

"It's got to be like assembling a team for the World Cup. We don't say, 'How can we do it in a way that's most fair?' We say, 'Who are the best players and how do we get them on this team?'"

Unlike Internet businesses that can be launched and operated from home, new ventures in clean technologies require massive upfront investment, Hancock noted.

"With the waves of innovation in software, you could put your IP (intellectual property) on a disk, put it in a bright cardboard box, shrink-wrap it and count your money. There are no federal approvals required, and no particular economies of scale you have to mount.

"That's why we have 14-year-old kids with acne starting Internet companies.

But cleantech -- which transforms the way companies provide energy and consumers use it -- operates on a far larger scale.

"They have to be built on massive scale and take place in enormous labs that usually need some kind of federal funding."

Beyond the R&D, such products also will have to run a gauntlet of regulatory hurdles, requiring resources and capital upfront.

"This is going to be much harder, and we can't even begin to contemplate this without the federal government," Hancock said. "They've got to be our partner."

Eshoo needs no reminding about her key role in the mix.

"I hear about it from my constituents all the time -- they understand how critical the federal funding, especially in R&D, is. They don't look for it to supplant what their respective industrial sectors do, but they know the role it's played.

"And once you invest in it, it really needs to be sustained," she said.

"This is really all about the money."

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Federal boost to local firms

Comments

Like this comment
Posted by resident
a resident of Charleston Meadows
on Jul 9, 2010 at 4:04 pm

We need a new ladership.


Like this comment
Posted by resident
a resident of Charleston Meadows
on Jul 9, 2010 at 4:20 pm

We need to pull the plug on high speed rail project and use that money on higher education and innovations .Other countries are going ahead in high speed rail but with that they are going ahead in innovations also and country like u.s. now staying behind because our president does not understand the importance of higher education and innovations ?


Like this comment
Posted by Walter_E_Wallis
a resident of Midtown
on Jul 9, 2010 at 5:00 pm

Walter_E_Wallis is a registered user.

A damn shame that such a promising facility is threatened by the loss of iconic Hangar One, victim of environmental grandstanding and wandering decimal points.


Like this comment
Posted by Great one, Walter
a resident of Leland Manor/Garland Drive
on Jul 10, 2010 at 4:53 pm

"Wandering decimal points"...!!! Love it, Walter! Pithy, as usual.

"I used to be disgusted; now I try to be amused."
Elvis Costello

This is my new attempt to mitigate my constant anger at the destruction of our society and all I believe in and my family fought for, literally. Remembering older, wiser folks who had to live through worse and how they survived helps a lot.


Like this comment
Posted by andreas
a resident of Ventura
on Jul 10, 2010 at 7:34 pm

Ironic, no? So many VCs in SV are libertarians. They want government to go away. Yet federal government funding is what created and sustained SV for so long.

The Reagan anti-government sentiment is responsible for the decline in innovation and competitiveness.


Like this comment
Posted by Walter_E_Wallis
a resident of Midtown
on Jul 11, 2010 at 6:45 am

Walter_E_Wallis is a registered user.

It is not anti government to oppose the expansion of government into areas for which it is ill equipped. While Letters of Marque and Reprisal have possibilities, national defense seems an appropriate government function, banning plastic bags less so.


Like this comment
Posted by Chris
a resident of Embarcadero Oaks/Leland
on Jul 11, 2010 at 2:52 pm

It seems that our present government, having received enormous support from Silicon Valley during the last election, now feels it can ignore our needs. Without government funding, we will indeed become just another ho-hum scientific research community.

Not am I encouraged by the responses I get from our local political representatives.

It's fight to the death; one we must win for the sake of progress.


Like this comment
Posted by Rene
a resident of Barron Park
on Jul 11, 2010 at 10:53 pm

Stop shipping technology and jobs to China. Stop the influx of Chinese grad students into the US to rob us blind.


Like this comment
Posted by Get it right
a resident of Meadow Park
on Jul 12, 2010 at 6:52 am

Andreas: As usual, the broad sweep of words misses a critical point.

Just like we have to always remind folks that we are anti ILLEGAL immigratioon, not anti-immigration, and anti EMBRYONIC stem cell use, not anti-stem cell, I must now remind you we are anti-UNCONSTITUTIONAL government, not anti-government.

Anti-government is ANARCHY.

I am against government picking winners and losers ( like it just did in Tesla... a pure political payback with our tax money to private investors) with OPM ( other people's money), instead of letting millions of us decide with our pocketbooks whose company is best to invest in.

I would like to know how on earth you can possibly believe that the tech development in the 80s in Silicon Valley had much, if anything, to do with tax transfers from taxpayers to a private company?

Medical research, yes, a lot of it has been govt ( and a lot of it completely wasted, too..but much good). But Silicon Valley? C'mon...


Like this comment
Posted by Get it right
a resident of Meadow Park
on Jul 12, 2010 at 6:54 am

BTW, andreas, try to separate out research done in the name of improving our defensive security, ie military, which is a legitimate function of govt, and in the name of some political goal unrelated to any legitimate function of government.


Like this comment
Posted by Albert B. Franklin
a resident of another community
on Jul 12, 2010 at 8:51 am

While an international banker's scam has not only affected the most wisened Stanford, and its internationally known Silicon Alley they seem to be taking the federali mandated cutbacks as though it were something out of Dorothy Gale's infamoust past, I am a bit in shock and awe!

It is one thing for bankers and money lenders to have made the latest
investment vehicle, Hedged-Monte Carlo, without first producing a solitary red cent, yet and while more and more of their duty paying customers woke up to the ruse, up popped Bernard Madoff in order to staunch the proverbial banker's out of control litigation busting payments on the national taxpayer's multi-trillion dollar dime.

While in the financial circles often read book by Carmen Reinhart and Kenneth Rogoff who both made this easy to understand over hundreds of centuries, are we therefore today monetarily stuck on stupid?

Though a bank industry insider splashed his newly neglected national monetary policy book by William Isaac, Stanford still cries about more federali cutbacks for Silicon Alley?

Tack on the most important national financial scam busting book written by a female this time, Nicole Gelinas, where the intimely collapse of America as we know it comes to the fore.

However, we are able to tie all of the good commerce deeds of the great nation with the book as written by Jay W. Richards, yet not a single word of it seems to have reached those learned halls of Stanford University? Maybe if Stanford's president Hennessey bought some books to to once again fill Ugli, then all of their students just might feel the same sting all of America today does!


Like this comment
Posted by Paul
a resident of Downtown North
on Jul 12, 2010 at 9:41 am

"It is not anti government to oppose the expansion of government into areas for which it is ill equipped... national defense seems an appropriate government function, banning plastic bags less so."

If you think we should keep a firewall between national defense and civilian, it follows you would have prevented Boeing from leveraging its experience designing the B47 into building its direct derivative, the 707, and left the jetliner market to the Brits.

Banning plastic bags? Government bans lots of fun and profitable civilian stuff, like "copper greening" - adding copper sulfate to canned peas to make them look fresher. I take it you would ban that ban.


Like this comment
Posted by You Gotta Love Walt!
a resident of Midtown
on Jul 12, 2010 at 6:10 pm

Paul:

Good old Walt harkens back to the '50s - not the 1950s, mind you, but the 1850s!


Like this comment
Posted by maguro_01
a resident of Mountain View
on Jul 12, 2010 at 6:51 pm

"Posted by Get it right,
... and anti EMBRYONIC stem cell use, not anti-stem cell, I must now remind you we are anti-UNCONSTITUTIONAL government, not anti-government."

It is strange how inconsistent Libertarians are in demanding agenda-based government controls in areas of research and personal conduct. Economic Libertarians who advocate a consistent hands-off policy in the social arena are denounced as Liberals, no less. Perhaps our Libertarians are more interest based and less ideological than they claim to be. Today they effectively advocate large corporations buying the US government and turning us into a Banana Republic which would fail like all the others before it. Oil, financial institutions, insurance companies, media companies, agribusiness corporations, all buy huge benefits and subsidies in Washington and Sacramento, all at the expense of Main Street and the real entrepreneurial economy. Add the trade deficits to the hemorrhage and it all must be around 1/3 US GDP and growing - a possibly insurmountable barrier to US recovery. Yet all we hear about from the right in general is complaining about unemployment benefits buying unemployment and the like.

"I am against government picking winners and losers ...... instead of letting millions of us decide with our pocketbooks whose company is best to invest in."

We know there's a lot to this, after all most VC companies die off too. The right seldom complains about what it could constructively complain about. Some Keynesian-like behavior is inevitable with a prudently run, solvent government. But a thorough going policy has the problem of market timing which no one does well. Also as has been pointed out the more public backing and insurance big financial institutions get, the more risks they take and the wilder the economic swings become. The managements incentives are all wrong. Perhaps our Libertarians are more interest based and less ideological than they claim to be.

By the way, who really owns public companies? Half the NY Exchange volume is fast computer trading, dumping shares in seconds or hours. Hedge Funds? Why would they interest themselves in company management when they profit from volatility either way? Ditto "investment banks". Inflation? How much money is there really? With the exponentially growing derivatives cloud overhead no one really knows. Perhaps our Libertarians are more interest based and less ideological than they claim to be considering who they carry water for.

"I would like to know how on earth you can possibly believe that the tech development in the 80s in Silicon Valley had much, if anything, to do with tax transfers from taxpayers to a private company?"

The government - eg DARPA - has put its thumb on the scale when it has some strategic goal in mind. That goal might be military. Energy research - more the R part of R&D - now can be seen to rectify the huge distortions in our economy caused by the oil and other industries buying Washington's playing empire for decades in the Middle East after the Cold War. We mainline oil. Our lives and cities are now built around it.

Also people forget that in the last administrations US trade deficits ran well over $2 billion per DAY for years on end. This administration's stimulus package is only about a year's worth of those deficits.


Like this comment
Posted by Paul
a resident of Downtown North
on Jul 12, 2010 at 10:18 pm

"try to separate out research done in the name of improving our defensive security, ie military, which is a legitimate function of govt, and in the name of some political goal unrelated to any legitimate function of government."

Easy. The Apollo Program moon landing was pure politics - it had nothing to do with improving our defensive security and very little to do with science. On the other side of the coin, Bush 43's ban on embryonic stem cell research funding was totally political, to appease a narrow antiscience base.


Like this comment
Posted by Get it Right
a resident of Meadow Park
on Jul 13, 2010 at 7:51 pm

Paul, if you believe that the moon landing was pure politics and not military, then I can understand how you believe the rest of what you say.

BTW, Bush 43 did not ban embryonic stem cell research..look it up. In fact, he was the first to ALLOW the use of federal embryonic stem cells in research. In fact, this act was my first big "uh oh..this guy is NOT conservative at all, since conservatives would never allow any research on any humans without their consent". Sure enough, as time went on, he proved to be a Progressive, otherwise known as a RINO .

Last, no matter which way you cut it, embryonic stem cell "research" is not a national defense issue, nor a legitimate function of our Constitutional government in any way, shape or form, so on those grounds alone should not be funded by any tax dollars at all.

Volunteer dollars and time is a different story, and a different debate.


Like this comment
Posted by Get it Right
a resident of Meadow Park
on Jul 13, 2010 at 7:53 pm

Paul, I assume if I want to do scientific research on you, esp research which ends up killing you, without your consent, and you object, you would call yourself "anti-science"?


Like this comment
Posted by Paul
a resident of Downtown North
on Jul 14, 2010 at 10:07 am

"BTW, Bush 43 did not ban embryonic stem cell research"

Ain't it just amazing what a little time and a lot of spin does for a story. Bush's ban was a great opportunity for foreign scientists, whose governments happily decided to exploit Bush's superstitions to establish their own pre-eminence in this potentially pivotal area, and also for California, whose citizens voted to spend hundreds of millions on stem cell research and kept many Amreican scientists in America as a result.

BTW, what was the military side of the moon landings? The Saturn V rocket designed and built specifically for them was vast overkill as an ICBM and never contemplated for such, the Apollo capsules were not usable as bombers, and Armstrong et al. didn't carry any weapons, not even a Second Amendment Iver Johnson.


Like this comment
Posted by Paul
a resident of Downtown North
on Jul 14, 2010 at 10:08 am

"Paul, I assume if I want to do scientific research on you, esp research which ends up killing you, without your consent, and you object, you would call yourself "anti-science"?"

That's nothing but "assumes," "ifs," and "woulds," Dr Mengele. Make a definite offer.


Like this comment
Posted by Get it right
a resident of Greenmeadow
on Jul 17, 2010 at 11:17 am

Paul, the entire point is not that I can "make you an offer" that you are free to turn down or not, it is that you have no choice..I have decided I need to do research on you that will kill you, but may possibly help millions of people with Parkinson's or Spinal Cord Injuries live better live. Worth it to you?

Paul, please find something to show that Bush "banned" embryonic stem cell research. He didn't. In fact, he was the first POTUS to even allow any Federal support of the use of embryos in research. Made me ill.

Please show some links showing all the benefits gained from embryonic stem cell destruction in the name of "research" versus the non-embryonic stem cell research which has verifiable results.

Here are two informative links

First, "Do No Harm" ethical non-embryonic research which as had more results than any embryonic research

Web Link

Second, a generally informative FAQ on this By the Center for Ethical Bioresearch.

Web Link


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