The Rise, Decline and Renewal of Silicon Valley's High Technology Industry

Dan Khanna

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351135887
• Edition: 1
• Topic: Volkswirtschaftslehre
• Subtopic: Wirtschaftstheorie

Originally published in 1997 this book examines the unique nature and characteristics of Silicon Valley and looks at the factors that led to the economic and competitiveness problems of the 1980s. The research concluded that the information revolution caused a complex set of events that had global ramifications. Silicon Valley was no longer operating as a driver of this revolution, but it was facing the onslaught of the global competitiveness it had unleashed.

Chapter 1

The Silicon Valley Revolution

America is a land of wonders, in which everything is in constant motion and every change seems an improvement. … no natural boundary seems to be set to the efforts of man; and in his eyes, what is not yet done is only what he has not yet attempted to do.

Alexis de Tocqueville
Democracy in America

THE ADVENT OF THE INFORMATION AGE

Silicon Valley is the birthplace of the microelectronics technology revolution that created semiconductors, microprocessors, and personal computers. These discoveries ushered in a new era of information processing and communications systems that altered the world’s economic, business, and industrial structures and gave rise to interdependent global markets. In its relatively short history of thirty years, Silicon Valley transported our society from the industrial age to the information age.¹ Unprecedented technology, especially the application of microprocessors and the confluence of computers and communications, made this change possible. The impact of this technology transgresses existing boundaries of businesses and industries refashioning them into political and economic structures. Harlan Cleveland, an eminent political scientist, commented:

The information revolution has stormed the ramparts of the nation-state, and most of our favorite economic theories, capitalist as well as Marxist, have been trampled in the rush.²

The emergence of global interdependent economies is also attributed to this technology revolution, according to Harlan Cleveland.

What made world business an increasingly single market was not primarily trade, aid, or alliances … what happened was that with the help offast computers and reliable telecommunications, capital (because it is a form of information) could flow so much faster and more freely than things.³

The impact of microelectronics impinges upon nearly every industry and human endeavor. In his book, The New Alchemists, Dirk Hanson describes some typical scenarios:

Microelectronics has become an indispensable part of the practice of modern science… . in complex diagnostic and critical care equipment. Communications systems for the speechless and seeing-eye microcomputer systems for the blind… In the burgeoning field of telecommunications, the microchips forging a link between the telephone, the computer and the television.

The arts are not immune: electronic music and composition are commonplace, while visual artists explore, and sometimes fret over, computer-generated graphics and electronic three-dimensional sketch pads.

Nor is education: microcomputers are common classroom teaching tools. Scholars pouring over ancient manuscripts routinely make use of computer systems for deciphering.⁴

This microcomputer revolution is fundamentally different from other technological revolutions. “It promises tochange not only the way we live, but ultimately the way we think,”⁵ according to Joseph Deken, author of The Electronic Cottage.

The way businesses are conducted and managed has been permanently modified. As Derek Leebaert stated in Technology 2001 “Information technologies are now the strategic core of business.”⁶ According to Don Tapscott and Art Caston, authors of Paradigm Shift: The New Promise of Information Technology:

We are entering a second era of information technology in which the business applications of computers, the nature of the technology itself, and the leadership for use of technology are all going through profound change.⁷

The impact of the information technology paradigm shift on businesses is explained by Tapscott and Caston:

Businesses face a paradox. They have unprecedented opportunities to tap new markets. Meanwhile, traditional markets are changing dramatically, shrinking or becoming intensely competitive. Additionally, reduced profit margins along with rising customer demands for quality products and services are placing unrelenting pressures on many enterprises.⁸

The endowment of Silicon Valley to this paradigm shift is expounded by Hanson:

As the nerve center of the microelectronics revolution for the past twenty-five years, Silicon Valley has gained a well-deserved reputation as the Florence of the information age. It houses perhaps the densest concentration of high-technology brain power in the world; a heady mix of digital circuit and computer manufacturers, Nobel Prize winners, maverick scientists, university researchers, electronic warfare specialists and high-octane investors.⁹

As society continues to assimilate information technologies, the future contribution of Silicon Valley is still undetermined. Its role in the twenty-first century will be determined by its ability to learn from its successes and failures of the past thirty years.

THE PREMISE OF THE BOOK

The growth of Silicon Valley during the 1970s was characterized by its technological innovation, availability of capital, entrepreneurial spirit, and highly skilled work force. The same characteristics existed during the 1980s decline years, which leads to the conclusion that there were other external factors in the world economy that may have played a dominant part in the decline of Silicon Valley. Eventually, management is held responsible for the success and failure of the business enterprise. As the global economic competitiveness changed, Silicon Valley’s management failed to respond to those changes. Furthermore, it lost competitiveness to regions in the world that had minimal economic infrastructures, limited knowledge of high-technology, and untrained work forces.

The decline is attributed to the shift in market and economic forces around the globe caused by the microelectronic revolution and the creation of comparativeadvantages by other regions and firms in other parts of the world, especially, Asia Pacific region.

The resurgence of Silicon Valley during the mid-1990s was the result of lessons learnt from some of its failures, the shift in the high-technology industry from hardware to software domination, and the creating of new industries and applications, such as multimedia, networking, and communications.

Is this resurgence a temporary aberration that could shift again to different regions as these new industries mature?

The objective of this study is:

•To analyze the reasons that caused the emergence of Silicon Valley,

•Examine the market, economic, and competitive forces that made possible Silicon Valley’s growth,

•Determine the reasons for its declining competitiveness during the 1980s,

•Analyze its resurgence and renewal during the 1990s, and

•Recommend specific courses of action by which Silicon Valley firms can prevent and maintain their world leadership position.

The Argument

The theory of comparative advantage attempts to explain the international success in industries in the form of international trade according to Michael Porter.¹⁰ Adam Smith is credited with the notion of absolute advantage, while David Ricardo refined this notion to that of comparative advantage, “recognizing that market forces will allocate a nation’s resources to those industries where it is relatively more productive.”¹¹

However, contemporary scholars argue that globalization and technological changes may only provide “fleeting advantages” to an industry and the comparative advantage factors may rapidly change. The industry that is unable to respond to these changes will no longer remain competitive in the global economy.¹²

The major issues that the ...