Sunday, September 9, 2007

What Is Silicon Valley? Comparisons with NYC

New York City is commonly rated below Silicon Valley and Boston as a tech center, based on the higher density of their high-tech firms relative to other jobs or to the population. A new study by the New York-based group ITAC (full report downloadable from their web site) claims this is unfair and stresses that NYC has more high-tech workers than its major tech competitors. As a resident, fan and former employee of the City of New York, I would like to believe it, but the study appears to overstate NYC's case. These friendly comments are not meant to detract from the importance of the topic or the usefulness of the study.

Silicon Valley Includes San Francisco. The NY Times today (p. 41) reports the study as saying that the NY Metropolitan Statistical Area has "nearly 620,000 technology workers, two and a half times as many as Silicon Valley and nearly twice as many as Boston." The numbers appear in Exhibit 10 on p. 11 of the ITAC report, showing all "employment in technology":

1. New York MSA 619,881
2. Los Angeles MSA 483,706
3. Washington, DC MSA 377,144
4. Chicago MSA 356,351
5. Boston MSA 317,684
6. San Jose MSA 251,050
7. Seattle MSA 208,565
8. Atlanta MSA 188,294
9. Minneapolis-St. Paul MSA 169,449
10. New York City 169,303

ITAC uses as its definition of Silicon Valley the San Jose MSA, which excludes San Francisco. NYC was compared with Silicon Valley in the 120-page April 1999 report by the New York City Comptroller's Office (when the City Comptroller was Alan Hevesi and I was the Chief Economist), The NYC Software/IT Industry. The Comptroller's study looked only at the computer-services jobs (software) in 1997 and ranked the NYC 10-county area third using SIC-code data (based on classification of the business of employers) and NYC alone as sixth:

1. Silicon Valley 86,129
2. Boston and Route 128 55,956
3. New York City and Five Suburban Counties within NY State 46,606
4. Los Angeles 32,294
5. Dallas 31,892
6. Seattle 28,955
7. New York City 25,716

Why include San Francisco in the definition of "Silicon Valley"?
  • The Comptroller's study followed the work of AnnaLee Saxenian, who included Alameda, San Francisco, San Mateo, Santa Clara and Santa Cruz counties. (Boston was defined as Essex, Middlesex, Norfolk and Suffolk counties. Los Angeles was defined as LA County, Seattle as King County, New York City as the five boroughs, and the NYC suburbs were the five nearby New York State counties, Nassau, Suffolk, Westchester, Putnam and Rockland.)
  • PC Magazine defines Silicon Valley as: "An area south of San Francisco, California that is noted for its huge number of computer companies. Initially, Silicon Valley was confined to the Santa Clara valley and started north of Palo Alto stretching 25 miles south to San Jose. With expansion into neighboring towns, the entire San Franciso Bay area can be considered Silicon Valley." That includes San Francisco county.

Density Matters. More fundamentally, it does make a difference how specialized an area is. The ratio of computer-services jobs to all private-sector jobs in 1997 in NYC was 9 per thousand, the fourth-lowest of 15 cities, way behind Silicon Valley (40 per thousand), Boston (34 per thousand), and Seattle (33 per thousand). The argument for paying the higher cost of a higher-density city is that the opportunities for networking, selling and innovating are higher where density is higher. Density contributes to destiny.

Within New York City, of course, there are focal points for tech innovation. But the degree of cooperation among Berkeley, Stanford, local community colleges and private entrepreneurs - and the equivalent cooperation between Harvard and MIT - is still not matched in NYC, although great progress has been made over the past decade.

The nine pages of conclusions and recommendations in the Comptroller's report includes a strong recommendation (pp. 83-84) that: "A small Citywide office should be created to work on building these relationships [between educational institutions and entrepreneurs that is true in the Boston and San Francisco areas], possibly with an initial sunset life of five years or so. ... It should work with the [New York] software industry [association] (NYSIA) or the federally supported Industrial Technology Assistance Corporation [ITAC], or both."

Nine months after the Comptroller's report, ITAC published a report with recommendations for the tech industry in New York City. Before the recommendations were able to get traction, the tech sector began a long slide in the stock market and then in jobs. This is a good opportunity for New York State and New York City to look at recommendations for strengthening the tech sector and the comments here are offered in the spirit of identifying NYC's weaknesses as well as its strengths.