Growing pains

Publication Date: Wednesday Oct 25, 2000

Growing pains

Report warns that booming Valley may lose edge in Internet economy

by Jennifer Deitz Berry

Even as the new economy spreads across the globe, from "Telecom Valley" in France to "Silicon Beach" in Miami, few would dispute that Silicon Valley remains at the heart of all things Internet. As the leading region of the technology revolution, Silicon Valley was the first to strike gold--as well as the first to see the repercussions of a shifting economy that has blessed some and damned others.

A report released this month by Joint Venture: Silicon Valley Network warns, however, that many challenges face the region and threaten its leadership.

Skyrocketing prices for rents and real estate plus the crawling commutes are making tech-workers think twice about coming to the valley, for example, particularly when Internet jobs are increasingly available in cities like Dallas and Atlanta, which offer much more affordable living.

"Bringing people to this area from the outside has never been as difficult as it is today," said Daniel Eilers, general partner of Vanguard Venture Partners and an 18-year technology and venture-capital veteran.

Eilers was among eight panelists brought together Oct. 11 to reflect on the findings outlined in the second-annual report, "Internet Cluster Analysis 2000," from San Jose-based Joint Venture, a nonprofit organization geared toward improving the environmental, economic and social conditions in the region.

Joint Venture hired the management consulting group A.T. Kearney to survey or interview more than 100 Internet executives and industry experts from across the U.S and overseas to find out what corporate leaders will be looking for as they make decisions about where to start or relocate their e-businesses.

The results showed that most are looking for areas that already have some infrastructure, like pools of qualified workers in management and engineering. They also look for an existing network of business partners and potential investors, including venture and "angel" financiers. A new concern that emerged in this year's report is that the local government be supportive of an Internet company's interests.

For Silicon Valley executives, it's no wonder this is a concern. As Eilers pointed out, the valley's success was built on fresh thinking and ideas, but if a prohibitively high cost of living stops outsiders from coming here, diversity--and the wider range of ideas that tend to come with it--will be severely compromised.

Perhaps even more troubling is the fact that people in fields like firefighting, medicine and law enforcement no longer feel they can make a living here. As those who do live here are able to pack up and move, it's getting harder and harder to find replacements, panelists said.

"It's going to affect our day-to-day living if we can't get our cars worked on, we can't get our children taught--and we can't get physicians at the Palo Alto Medical Clinic," said Eilers.

Eilers suggested that one of the simplest ways to make this area more inviting is for local governments to ease the housing crunch by speeding up the process for getting building permits or by offering subsidies to make housing more affordable.

Rosemary Stasek, mayor of Mountain View, took a different view. For her, the housing crunch is more than an inconvenience--it's a crisis she grapples with first-hand on a daily basis.

"No one has called you at nine o'clock at night to tell you that they slept in their car last night because they've lost their housing," she said. "Until you see it at this level, you don't realize how desperate the situation is."

Stasek said local governments are doing all they can to help citizens like this one, but they are strapped for resources themselves, in large part because of the rise in the dot-com industry's power and influence.

"We're seeing sales tax shrink in part because of your lobbying efforts," she told the executives on the panel. "Give us the resources and we will absolutely solve your problems."

Stasek explained that simple decisions companies make--such as which city to construct a new office in--can mean the difference in a half-million dollars in city tax revenue.

Similarly, she argued that local businesses have taken advantage of the vagaries of e-commerce by lobbying to avoid charging sales tax on some items, like software that can be transferred from computer to computer online. Where once cities could count on revenue from the sale of software packages that were shipped out from local warehouses, it's now less clear where the software technically originates from, a loophole companies have used to avoid charging any tax at all.

But perhaps John Ciacchella, vice president at A.T. Kearney, best summed up the dilemma facing residents, government officials and corporate leaders as they attempt to strike an accord in the valley that will serve the interests of everyone.

"At the risk of being a little bit controversial, there's been a lot of finger-pointing today," he said. "What we need is a little more vision to tie the individual perspectives together."

Ciacchella argued that what will save the valley--if anything can--is fostering a stronger dialogue between the different groups that are being impacted by the dot-com boom. Stronger efforts need to be made to see that future growth is planned and controlled and is inclusive of more of the area's population, he said.

Panelists warned of the Los Angeles-like sprawl that could easily turn the Valley's rolling green hills into waves of concrete and steel, and they looked to cities like Portland, Oregon, that have thus far been successful in enforcing aggressive plans to restrict growth.

Insisting that developers build up rather than out, Portland has fostered a condensed downtown and an efficient mass transit that allows people to live and work comfortably within city limits. The city has also allowed for the preservation of the surrounding forests and open-spaces, which give the area its unique beauty.

While the challenges facing the Valley, in their totality, can appear so vast as to be insurmountable, solutions are most likely to be reached one step at a time, panelists noted. The local leaders suggested even the small step of voting to extend BART to San Jose could make an enormous difference in the traffic crunch.

Meanwhile, Debra Dunn, vice president of strategy and corporate operations for Hewlett-Packard Company, suggested that taking a more long-range perspective to economic sustainability may help bridge corporate and civic concerns.

"It's kind of a no-brainer that we need to look at the communities close to us," she said.

Dunn urged local companies to focus on the incredibly diverse and untapped population of workers here in the Valley--from East Menlo Park to Redwood City to East Palo Alto--many of whom would happily join the technology sector if only they had the qualifications and training they need to be viable applicants.

As an example of corporate efforts to bridge the gap, Dunn said that HP has been working with local agencies to set up local technology training programs for adults. And while the training doesn't guarantee that workers will find themselves an HP job at the end of the road, it at least offers a step in the right direction.

HP is also teaming up with poorer school districts like Ravenswood in East Palo Alto to provide resources and training that will help students gain hands-on math, science and technology skills that will prepare them for jobs in the high-tech sector. Promising high school graduates in underserved communities are also eligible for college scholarships and internships at HP--support the company hopes will help students "cross the digital divide" and bring a fresh perspective to the industry.

"This is a happy case where companies can address self-interest and do something good at the same time," said Dunn.

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