Silicon Valley’s story starts with Stanford University. It was founded in 1891 with the aim of being “affordable” and to “teach both traditional liberal arts and the technology and engineering that were already changing America.” (Stanford, 2021) but the school really became what it is now after the Second World War (Computer History Museum, 2008). This is because of a decision during the War by the United States Federal Government to create a program of funding universities to do military research. This research was typically in radio and electrical engineering. After the War, Stanford pushed its technology fields to be eligible for these government defense programs. This led to a high involvement with the Cold War and an exceptional quality of education from both the government funding and the schools particular focus on technology. This quality in the technology and engineering departments attracted extremely talented students from even beyond California (Stanford, 2004). In fact, these students were so talented that Stanford is now consistently one of the top ranking universities in the world and is the school of 84 Nobel Laureates since 1901. Another significant element of the school’s success is its culture of encouraging students to create companies (Computer History Museum, 2008) which can be seen through Stanford being the school of 74 billionaires as of 2017 (Wealth-X, 2018). The high amount of talented technology students and the encouragement to start businesses spawned numerous technology companies around the University’s position in northern California. Today the collection of cities in this area is called Silicon Valley.
The density of new and successful businesses attracted venture capital investors. For several decades Silicon Valley has been a perfect ecosystem for tech startups with its large pool of investors, countless technology companies, and talented tech students and education. One can think of it as Hollywood but for nerdy programmers, engineers, and technology companies instead of handsome actors, directors, writers, and mass media and entertainment conglomerates. Silicon Valley is so influential in the tech industry that it is actually a bit frightening. It is home to the likes of Google (which controls the search results of 92.6% of internet users (Oberlo, 2021) ), Apple (which controls the smart phones of 1.65 billion people (The Verge, 2021) ), Intel (which has a 79.3% market share in CPU production (CRN, 2021) ), and the Unicode Consortium (which decides what languages and most importantly what emojis the world’s keyboards are allowed to use!). However, this article isn’t about the uncomfortable power of transnational technology corporations or non governmental computer protocol organizations, so let’s dive into what exactly is changing in Silicon Valley.
So what is changing in Silicon Valley?
To put it simply, it is no longer as advantageous for personalities in the tech industry to be in the same space. Previously, one could only work at a company if they lived within commutable distance of its offices. Similarly, investors could only attend board meetings if they could travel to the room where it was taking place. Strangely, this is no longer the case. In fact, the last year and a half (2020 and 2021) have brutishly proven to us how unnecessary even leaving one's house to do these things is! Restrictions created for the COVID-19 pandemic forced businesspeople, workers, and investors to work remotely and connect digitally. Working from home has turned out surprisingly well. 83% of US employers and 71% of employees believe remote work has been a success (PwC, 2021) and 52% of workers now wish for a “hybrid” work model which gives them a choice to work from home (McKinsey & Company, 2021) (which is a significant change in culture as before the pandemic this was only 30% of workers). This culture change is so significant that a staggering ~30% of workers reported being “likely to switch jobs if work returns to fully on-site” (McKinsey & Company, 2021). Remote working has proven itself as a respectable alternative leading several companies, including Twitter, Facebook, and Google, to announce that employees will have the option of permanently working from home following the pandemic.
So people can work from home, what does that have to do with tech companies leaving Silicon Valley?
Silicon Valley has been held together by the advantage of keeping important players in the industry in the same space. Now that that space can be digital, those players can judge their own physical locations using present day factors and not be anchored to each other in a location that was determined sixty years ago by the success of some old university. Remote working is the Liquid Surface Safe Adhesive Remover to the popsicle stick house that is Silicon Valley: it loosens each component and leaves the entire structure vulnerable to collapse. What ends up delivering the destructive blow to this now vulnerable Silicon Valley is the cost of living and doing business there. A study by Mattermark reports that the average house price in Silicon Valley rose by around $675 thousand over only the eleven years between 2005 and 2016. Joint Venture’s 2021 Silicon Valley Index cites the median sale price of a Silicon Valley home as $1.2 million, making Silicon Valley one of the most expensive places in the world to own property. The Index explains that these skyrocketing house prices are due to the attractiveness of working there and Mattermark’s study backs this up through finding that investment in Silicon Valley is highly correlated with house prices. Despite the average income in Silicon Valley doubling the national average, 32% of homeowners in Silicon Valley in 2019 spent more than 30% of their gross income on housing, 5% higher than the national average (Joint Venture, 2021). Additionally the United States Bureau of Economic Analysis reports that “all items”, including goods and services, are 16.4% more expensive in the state of California than the national average. All these factors lead to the cost of living in Silicon Valley being extremely high. Even in just California 43% of voters “feel they can’t afford” to live there (Quinnipiac University, 2019) and a survey by the networking app Blind, claims 66% of “working professionals” in the Bay Area (the region which holds Silicon Valley) “would consider relocating if given the opportunity to WFH [work from home] as much as they like.” It isn’t just employees that have reason to relocate. For Silicon Valley businesses, this high cost of living means they must pay their workers higher wages than they would in other regions or states. On top of that, the state government also places constraints on businesses. California has some of the highest taxes on corporations in the United States. CNBC’s ranking on “Cost of Doing Business” places California as the fourth worst state because of these taxes. Silicon Valley’s cost of living and business taxes have previously been overshadowed by the advantage of its productive ecosystem but remote working has untangled its entities, leaving those negatives to drive them away.
Many companies and key personalities have moved away from Silicon Valley recently, but the tech industry there is still alive and strong. Google, Apple, Facebook, and many other tech giants remain in the area, but for how long? The future of Silicon Valley is uncertain. There is a lot of weight on the reaction to the exodus by the governments involved. Will the housing crisis be addressed and tax plans adjusted? Is that enough to halt the exodus? It is all to be determined.
References
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