1. 1 The Innovation Region Doug Henton President Collaborative Economics 1

2. 2 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 19902003 SV Share of CA PopulationSV Share of CA GDP Silicon Valley’s Growing Contribution to California’s Economy

3. 3 Silicon Valley’s Long Term Advantage: Highest Productivity per Employee

4. 4 Evolution of Silicon Valley 1950 - 2000 Value Added Time 19501960197019801990 2000 Defense Integrated Circuit Personal Computer Internet

5. 5 The Valley is Driven by Waves of Innovation New technologies drive dynamic waves of innovationNew technologies drive dynamic waves of innovation Entrepreneurs take advantage of new opportunitiesEntrepreneurs take advantage of new opportunities Swarm of new firms cluster around new technologies creating short term bubblesSwarm of new firms cluster around new technologies creating short term bubbles New products eventually become commodities and investment leads to breaking of bubbles.New products eventually become commodities and investment leads to breaking of bubbles. New technologies emerge from the convergence of old technologies and the process of “creative destruction” begins againNew technologies emerge from the convergence of old technologies and the process of “creative destruction” begins again Next wave of innovation builds on prior waves of innovationNext wave of innovation builds on prior waves of innovation

6. 6 Recent Short-Term Bubble

7. 7 Silicon Valley Employment Waves: A Boom, Bust, Build Pattern First Wave: Defense Second Wave: Integrated Circuit Third Wave: Personal Computer End of Vietnam War Commercialization of the Integrated Circuit Semiconductor competition intensifies Cold War: defense cuts Internet Commercialization Fourth Wave: Internet 400 500 600 700 800 900 1000 300 7071727374757677787980818283848586878889909192939495969798990001 Thousands

8. 8 Silicon Valley Jobs Return to Pre-Bubble Employment Levels

9. 9 Current Silicon Valley Industry Portfolio: Led by Biomedical, Five Silicon Valley Industry Clusters Grow in Employment Concentration Relative to the Nation

10. 10 …VC Shifts Toward Medical Devices and Biotechnology

11. 11 Innovation is the Key to Valley Success Innovation is the key to success in today’s global economy across all industries Continuous reinvention is required to keep pace with the rapid pace of change. The basis of increasing productivity is innovation not competing on cost Productivity is the basis for prosperity.

12. 12 Competing on Innovation Prosperity (rising real income per capita) Productivity (increased output per worker) Innovation  increasingly higher-value products and services  produced more efficiently

13. 13 Regional Leadership Makes the Difference in Innovative Regions Build fundamental intellectual assets. Connect entrepreneurs to these assets. Promote a habitat for innovation and entrepreneurship. Make quality of life an innovation asset. Invest in the future

14. 14 Silicon Valley Has Higher Proportion of High Skilled, High Pay Occupations Compared With the Nation

15. 15 Talent is the Most Critical Innovation Asset in the Valley Talent is Based on Skills and Training Technology Is Created by Talent Quality of Life Attracts and Retains Talent Housing Transportation Environment Creative People Want to Live in Creative Places

16. 16 Risks to the Innovation Region Valley risks losing talent because of Declining Educational Quality Housing Costs Declining Quality of Life Transportation Congestion Requires investing in future as well as addressing cost issues K-12, community colleges and universities Affordable housing Transportation initiatives

17. 17 A Balanced Approach to Innovation: Add the “Positives” and Remove the “Negatives” Add Productivity Enhancing Factors K-12 Education College and Universities Community Quality of Life Mitigate Cost Factors Housing Costs Health Care Costs Regulatory Costs Create a High Value, Innovative Region

18. 18 Next Wave May be a Convergence 1990s ConvergenceNext Convergence Internet Revolution HARDWARE SOFTWARE MEDIA NANO BIO INFO ? Revolution

19. 19 Examples of Convergence

20. 20 Preparing for the Next Waves: State and Regional Responses Do leaders understand the opportunity? What must we do to ensure it happens here? What are the requirements? How can local people and communities benefit? Can we avoid some of the pitfalls of past waves?

21. 21 Key Points The recent bubble has broken, so let's learn and move on. Goal: sustain habitat advantages in productivity and innovation. We can anticipate a next wave: a new convergence building on prior waves Silicon Valley is well-positioned, but there is no permanent franchise. Must work together to ensure that next wave happens here, works for us.