Silicon Valley Flunks 6 'Killer App' Tests

MARCH 14, 2011

BY WAYNE LUSVARDI

Last month with Silicon Valley elites, President Obama raised a glass of wine to toast the area’s success. He was repairing his self-damaged image with big business.

But a symbolic Sword of Damocles hovered over the meeting.

Apple Computer employs 30,000 workers, but the subcontractors that assemble its computer products employ more than a million workers in China, or about the same size as the entire population of the City of San Jose.

Less conspicuous than the Obama meeting with Silicon Valley high tech elites was the concurrent release of the 2011 Index of Silicon Valley published by the Joint Venture Silicon Valley Network.

Silicon Valley measures itself by a set of metrics that are a blend of the typical Chamber of Commerce rah-rah promotion, Progressive political correctness and collectivistic values:

* Public school average test scores
* Patenting and attraction of venture capital
* Number of people who have health insurance
* Number of obese people
* Number of miles driven per resident (fewer being better)
* Number of carpools
* Percent of students testing proficient in algebra.
* Number of foreign students attracted to nearby university.
* The amount of solar capacity added last year.
* Less waste disposal due to recycling or presumed less consumption.
* More high-density housing proximate to public transit centers

Some of the data from the Index:

* High unemployment (10 percent) is the “new normal” in Silicon Valley.

* Population is declining as high-tech labor and illegal immigrants flee, legal economic migrants looking for entrepreneurial opportunities have dropped 40 percent, Caltrain’s commuter train between San Francisco and Silicon Valley plans to close 16 stations to plug a budget deficit as California continues its plans for a bullet train, and cities are suffering from budget shortfalls, most notably San Jose, which has run 10-years of deficits for a $110 million debt. The County of San Mateo has $2.5 billion in unfunded pension liabilities, reflecting a tax burden of about $30,128 per household.

Solyndra, a San Jose-based solar panel manufacturer that received a $535 million Federal loan from the Obama Administration and $1 billion in private venture capital, switched plans and will be outsourcing manufacturing to China, where there are a reported 100 companies producing solar panels.

If Silicon Valley had shifted to a fleet of natural gas fueled cars and power plants instead of solar energy they could have been poised to take advantage of the emerging cheap energy produced from new “fracking” technologies and kept the jobs at home.

Severin Borenstein of the U.C. Energy Institute found that, even if solar power tries to compete only in the niche market of high-priced peak power, it won’t lower transmission line costs and it will be economically infeasible even after factoring in the reduction in greenhouse gases. It’s as if Silicon Valley is measuring itself on the wrong set of values.

In his new book “Civilization: The West and the Rest,” economic historian Niall Ferguson argues that Western civilization rose to global power on “six identifiable novel complexes of institutions and associated ideas and behaviors: 1) Competition, 2) Science, 3) property rights, 4) medicine, 5) the consumer society, and 6) the work ethic.”

Ferguson calls the above the “six killer apps,” high tech language for cultural applications. Using Ferguson’s six “killer apps” we can understand why Silicon Valley and California has been in a decade of decline that was masked first by the Dot.com bubble then the Housing Bubble that burst in 2008.

Competition

Silicon Valley CEO’s would rather send green tech manufacturing jobs to China than expand mildly polluting conventional natural gas power plants or cars powered with nat-gas that are several times cheaper than solar power. It’s not only that Silicon Valley energy policy is merely uncompetitive. Wind and solar farms don’t even reduce air pollution in urban smog basins along California’s coastline, such as San Jose.

Let’s take another competitive measure of concern to Silicon Valley: medical care. A recent study found that Northern California hospitals charge 56 percent more because they have fewer hospitals than in Southern California. Fewer hospitals means less competition and higher prices.

Even though Obamacare would stifle innovation in medical technology, Silicon Valley political contributions overwhelmingly went to Barack Obama in 2008, especially from Google, Cisco Systems, Hewlett Packard, Oracle and Yahoo corporations.

Such counterproductive energy, environmental, and health care policies in Silicon Valley are irrational in a social culture that ironically prides itself on being a cognitive elite produced by the best universities in the world. While Silicon Valley out-competes the world in the computer industry, it also seems to have an anti-competitive social culture when it comes to government, public schools, health care and bio-medical research.

Science

The image of Silicon Valley is that it’s the world leader in high tech electronics and computer technologies, referring to the high number of silicon chip manufacturers. “Silicon Valley” is a metonym for the high-tech sector of the economy, accounting for one third of the venture capital in the entire United States.   Silicon Valley has the highest concentration of high-tech workers of any metropolitan area in the U.S., at its peak nearly 300 out of every 1,000 private-sector workers.

Despite the above, how does one explain Silicon Valley’s anachronistic embrace of Medieval energy technologies such as solar and wind power? Put a patina of science on anything in Silicon Valley and they will fall for it. Most of the venture capital funding for renewable energy industries has come from wealthy Silicon Valley computer chip magnates that believe their success could be transferred to green energy.

Or take the hysterical concern about minuscule levels of perchlorate, a natural salt in local drinking water supplies from an old Aerojet Manufacturing Plant in San Jose. High concentrations of perchlorate have been found in local groundwater but pose no threat to drinking water supplies.

The potential risk of infinitesimal levels of perchlorate in drinking water that is hypothesized to cause educational deficits in children was once simply remedied by putting iodine in table salt (iodized salt). Now we spend mega-billions of dollars on high-tech treatment plants that will take more than 100 years to remove underground plumes of perchlorate-laced water that is of no measurable health benefit.

With local and state governments broke, can we continue mega-funding of high-tech groundwater cleanups that result in no measureable benefit to health that low-tech measures could do just as well (e.g., iodized salt, fish diet, lower alcohol consumption, health education)? How long can the U.S. remain competitive if it continues to fund environmental health programs based on junk science that are slick covers for corporate welfare for engineering firms and jobs programs for environmentalists?

New information technologies have produced a new economy in Silicon Valley. But they also have resulted in a lot of get-rich-quick-schemes more reminiscent of the speculative schemes of the California Gold Rush. Some of these schemes appear to be legitimate due to the backing of government regulations and subsidies for the well-connected.

Property Rights

The 2011 Silicon Valley Index is concerned about property rights for its cognitive elites (e.g., patents), but not for small business owners that create most of the new jobs in most communities.

“Property rights” in Silicon Valley are defined as they are in the rest of California: a right for elites to exclude others from building under a de facto policy that has been dubbed by the acronym “b.a.n.a.n.a.”: “build absolutely nothing anywhere near anything.” Silicon Valley is one of the most unaffordable areas for housing in the U.S. due to its many layers of land use controls. In the 2011 Silicon Valley Index, policy makers in the valley prefer “high-density rental housing for thee and low density homeownership for me”; and with plenty of open space and green belts funded by statewide water bonds and government-funded non-profit “open space conservancies.”

In the City of San Jose, 25 percent of the salary and fringe benefits of the mayor and city council and 40 city council staff is funded by redevelopment monies. It is no wonder that elites in Silicon Valley and everywhere else in California are strongly resistant to reforming eminent domain laws or eliminating redevelopment to fund public schools, as proposed by Gov. Jerry Brown.

In Silicon Valley, an overpaid government job with lucrative pension benefits is a property right that can’t be taken away or modified, even if it breaks the state budget and cripples the economy. The only Republican City Councilman in San Jose has been sued by public employee unions for attempting to replace a $70,000-a-year telephone receptionist with modern answering services.  The San Jose City Council is apparently bought and paid for by redevelopment interests and unions.

Silicon Valley property rights are strongly stratified. If you’re an elite, you can use eminent domain, downzoning, and environmental lawsuits to take or block anything you oppose. If you are a small family-owned business or homeowner, your property can be taken with “just compensation” typically based on a low-ball appraisal that keeps a small industry of eminent domain lawyers and appraisers in business. Under California case law, public agencies don’t have the obligation to appraise your property for a legally permissable higher and better use over its existing use.

Medicine

While the 2011 Silicon Valley Index is concerned with such politically correct health issues as obesity and how many of its residents have health insurance, it is seemingly unconcerned about how its backing of Proposition 71 for stem cell research funding in 2004 has ended up crowding out funding for California’s Worker’s Compensation and Medi-Cal funds, both of which are broke.

Silicon Valley resident Robert N. Klein is the “godfather” of Prop. 71 for $3 billion in public funding for stem cell research over a 10-year period, paid for with $6 billion in bonds the taxpayers must pay back. Klein is a Northern California low-income housing developer and is head of the California Stem Cell Institute (Center for Regenerative Medicine). Before birthing the Stem Cell Institute, in 1973 Klein had previously persuaded the state legislature to create the California Housing Finance Agency for financing low income housing with tax-exempt bonds..

Klein’s public funding of formerly private-sector ventures signals a shift from democratic capitalism to state capitalism, where government, not markets, picks winners based on political patronage. State capitalism derives from a Leftist “prizes for all” mentality and an egalitarian worldview.

Prop. 71 might be called the “Silicon Valley bio-medical industry full- employment act.” As I have written previously:

California’s proportionately small $300 million per year in state funding for stem cell research under Prop 71 is duplicative of both private venture capital funding and N.I.H. grants and is not crucial for finding near-term treatments or cures for cancer, heart disease or paralysis.

While $300 million per year is only one third of one percent (0.35 percent) of the State’s $86 billion General Fund budget, it is nonetheless a misplaced commitment when State Medi-Cal and Workmen’s Compensation funds are being drastically cut.

For example, the State Legislative Analyst has recommended that funding for visits to physicians and treatment centers could save $196.5 million per year by limiting visits to 10 per year.

Likewise, imposing a $100 per day co-pay on needy patients per hospital in-patient day would generate a $151.2 million saving to the state budget. But do needy patients or their families have $100 per day? This is a fictional budget saving.

We can no longer afford luxury jobs programs for biomedical professionals for hypothetical research which is already amply funded by both the private sector and the National Institutes of Health, while medically needy people require resources for care in California.

The Consumer Society

Consumerism in Silicon Valley does not mean the touting of the consumer society as Niall Ferguson defines it. Rather it means a conservation ethic of not consuming water or energy and not generating more waste or pollution.

One of those online canned college essays entitled “Silicon Valley – Paradise or Plague” perhaps captures the anti-consumerism found in many of Silicon Valley’s academic and government institutions. Almost literally parroting Karl Marx, the online college essay says that everything bad in Silicon Valley has come from the consumer society and calls for shifting to “tribal businesses organized in non-hierarchical, non-wage fashion”

California newspaper columnist Dan Walters calls this form of non-valued added consumerism “voodoo economics.”

Perhaps Silicon Valley is finally reaping what it has sowed with its anti-consumer ethic, as sales taxes generated by consumers have declined sharply, as have revenues for local governments, public schools, and the unemployed and medically needy.

The Work Ethic

It would probably seem odd to most “techies” in Silicon Valley that Niall Ferguson’s book associates the current economic success of the City of Wenzou in China with its 1,400 churches. While it could be said that Saudi Arabia also has thousands of mosques but no capitalist economic success or work ethic, they aren’t voluntary institutions that are unfunded or uncontrolled by government.

California has gravitated to be more like Italy, where the non-profit sector doesn’t play a role in the public sphere. As sociologist Ted Perlmutter writes in his article, “Italy: Why No Voluntary Sector?”:

In Italy, political parties have a firm purchase on all aspects of public life. Parties usurp space that in other advanced industrialized countries is held by bureaucracies and grass roots organizations.

California unions and government money have co-opted most non-profit organizations and voluntary associations. A classic example is The Utility Reform Network (T.U.R.N.), a so-called consumer organization for electricity ratepayers that is wholly funded by the California Public Utilities Commission and is stacked with union and labor activists.

A work ethic cannot grow or be maintained in the union-dominated government and legal culture of California. A work ethic needs a strong, independent “third sector” for it to thrive, as well as support by law and institutions. A desire to work for its own sake is as much religious as economic. However, this would be totally foreign to most secular elites in Silicon Valley.

There is a “third sector” in Silicon Valley, but it is entirely off the radar screen of community elites who mistake government-funded non-profits and union-controlled consumer organizations as voluntary associations. The true voluntary sector can’t be measured, so it must not exist: that seems to be the thinking in Silicon Valley.

Recap

Silicon Valley pretty much flunks Niall Ferguson’s “Six Killer Apps” that have made Western civilization an economic powerhouse. Unlike the Silicon Valley Index, Ferguson’s book has the courage to tell us that California has lost its monopoly on these six cultural forces. If Ferguson is right, California and Silicon Valley are living through the end of their economic ascendency and not just suffering a long recession to be endured until there is some sort of magical recovery.

Such a hoped for magical recovery won’t be brought about by a wine glass toasting at an exclusive dinner party for elites with a so-called charismatic U.S. President who has done everything he can to undo competition, true science, property rights, medicine, the consumer choice society and the American work ethic.