The economy in Silicon Valley — and especially in the Palo Alto area — is sizzling hot, according to speakers at a Tuesday media briefing for a Feb. 7 "State of the Valley" conference in Santa Clara.
But many area residents are being left behind, out in the cold economically in low-paying jobs in an increasingly expensive place to live. This creates a serious "quality of life" dilemma that could threaten the region's long-term economic health, conference speakers warned.
The current economy is astounding, said Russ Hancock, president and CEO of Joint Venture Silicon Valley, which co-sponsors the annual symposium.
It is "sizzling — it's just a very hot economy and about to get hotter," he said at the media briefing Tuesday. His assessment is echoed in a companion "Silicon Valley Index," replete with facts, charts and details that go beyond the past year's economic performance and delve into the demographic and socioeconomic picture.
The full 72-page Index is available on the websites of the co-sponsors, Joint Venture Silicon Valley (www.jointventure.org/) and Silicon Valley Community Foundation (www.siliconvalleycf.org/).
But the plethora of hot statistics is offset by a growing gap between the well-to-do (and the VERY well-to-do) and a huge population that is struggling financially — and sometimes slipping out of the "middle class" into borderline (or worse) poverty. The rich are getting richer; the non-rich (beset by housing and other cost increases) are getting poorer, in other words.
For the third year in a row, key speakers warned of long-term economic risks of failing to address core issues relating to the well-being of the broader population.
This year, they called for a stronger region-wide effort to address the concerns, most of which have been evident for years. Concerns include performance of schools and community colleges in terms of preparing young persons for real-world jobs, and retraining programs in a rapidly changing high-tech job market.
How hot is it? Very. There were 46,665 new jobs in 2013 in "Silicon Valley," historically defined as parts of four counties and encompassing 40 cities. Adding San Francisco — increasingly considered part of Silicon Valley — brings in 22,000 new jobs, and Alameda County brings the total to 88,000 new jobs. The entire nine-county Bay Area added 104,000 new jobs, compared to 92,000 the year before — when "people were popping the corks" over the number.
"That's in dot.com territory," Hancock said. Yet the dot.com boom was a "spike" that "was completely overheated" and lasted just a year or 18 months. In contrast, the current numbers represent "steady, incremental growth" that leads people to believe it will continue, he said.
The region overall experienced 3.4 percent growth, compared to the national 2 percent, he noted. Most comes from technology-related areas, including social media. Biomedicine also is growing, along with support services in applications, software, accounting, legal, infrastructure and construction.
Innovation, a foundation of the area's economy, is strong: There were 15,057 new patents registered in 2012 (the most recent year available), the highest ever.
This year Joint Venture in paying homage to innovation by awarding its highest honor, the David Packard Award for Civic Entrepreneurship, to Salman Kahn, who is "transforming the face of education," having produced 4,300 free videos that reach 1.5 million people worldwide.
"Venture capital continues to be our secret sauce," Hancock said, citing $12.1 billion generated in the region, up from $11.2 billion the year before. That's 77 percent of all venture capital generated in California, he noted.
But other areas are shrinking, including the "clean tech" pie that includes solar energy; straight manufacturing (down 16 percent); even repair on high-tech devices is dropping due to an increasing trend toward disposability.
Home prices are way up, and there is "the greatest amount of commercial growth since 2002."
Yet there are dark clouds relating to the income gap and the influx of more people than there is available housing. There were 33,000 new arrivals in Silicon Valley in 2013 but only 7,400 new housing units. Loss of manufacturing and construction jobs, and employment based on skills that need to be taught exacerbate the problem — made worse by inefficient transportation. And those problems need to be addressed head-on at risk of long-term erosion of the economy, speakers warned.
Emmett Carson, CEO and president of the Silicon Valley Community Foundation, and Palo Altan Stephen Levy of the Center for the Continuing Study of the California Economy tackled the dark side of the non-affluent.
"If you look at the median price of housing, if you look at the increase in rents, it's taking a larger and larger share of their small wages," resulting in a lower quality of life, Carson said. The mismatch between housing and demand is "not sustainable as a community. It's a fundamental challenge that we've got to be intentional about."
Math tells the story: "We went from building 200,000 homes to 40,000. We lost 600,000 construction and construction-related jobs," Levy said. "So construction revival is the largest possible source of new middle-range jobs."
But there are major barriers, they noted.
"And that talks about the two bottlenecks Emmett and I talked about: housing and density, and funding and transportation," Levy said.
Which brings it home to Palo Alto and other cities that resist adding housing.
"That (imbalance) won't change unless your readers and my folks in Palo Alto see that allowing more housing to be built is in their interest and its importance to the economy. Right now they just see it as more people and more crowding and more traffic."
Yet eventually the housing cost "knocks out the plumbers and the nurses and the firefighters and the policemen. But without those Apple and Microsoft and Facebook say, 'Well, you know, it may be time to put that expansion someplace else.'
If people don't see that connection, believing 'It's someone else's problem, not their problem,' the problem and threat will remain.
"And people are going to have to allow and facilitate that housing to be built. It can't be forced on them," Levy said.
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