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Silicon Valley Wants to Stay On the Road to Prosperity

By Daniel Lyons
Tuesday, January 27, 2009

Could Silicon Valley become another Detroit?

It's hard to imagine as you crawl along the traffic-choked lanes of Routes 101 and 280 between San Francisco and San Jose, past office parks and gleaming campuses still buzzing with energy despite the recent recession-related layoffs and cutbacks.

Yet some who work here see trouble on the horizon. These include top executives at Hewlett-Packard, who are ringing an alarm bell about what they see as a looming disaster, not just for HP, but for the entire U.S. tech industry. They say that unless we boost government spending on science, technology, engineering and math -- STEM, in industry jargon -- we will be unable to keep up with countries such as China and India.

At some point, companies such as Apple, Cisco, HP, IBM, Microsoft and Oracle could be eclipsed by foreign rivals, just as Ford, General Motors and Chrysler have been.

This may sound farfetched or hysterical. But HP isn't a place given to hysteria. This is the world's largest tech company, an outfit that did $118 billion in sales last year and earned a net profit of more than $8 billion, one that employs 321,000 people worldwide, about 100,000 of them in the United States.

HP also operates one of the world's leading industrial research labs, with 600 scientists working under the direction of Prith Banerjee, an Indian-born computer scientist with a background in academia and start-ups. Banerjee says the rest of the world has been rapidly boosting spending on science and technology, while the United States has been, in effect, scaling back. "There is a perfect storm headed toward our tech industry," he says.

At HP, the concern reaches the very highest levels of the company.

Shane Robison, HP's chief strategy and technology officer, says he'd like to see the following: a permanent research-and-development tax credit, which would encourage tech companies to do more basic science research, which in turn would benefit everyone, not just the company that conducts the research; more government funding for basic science research; more spending on education; and changes in immigration laws to help foreign-born students who study in the United States to stay in the country afterward.

"The technology industry is one of the crown jewels of our country," Robison says. "It's the one industry where we stand head and shoulders above the rest of the world. We need to protect that."

Congress has more pressing concerns, in the form of failing banks and automakers. But maybe we should just let the automakers die and pump money into technology instead.

Detroit failed because it ignored or dismissed the threat from foreign rivals and kept making the wrong kind of cars. In contrast, companies in the ever-paranoid Valley are fully aware of the danger they face. They're not pleading with the government for a handout; they're pleading for more investment in education. They're not making excuses for inferior products or asking for protection from competition through limits on imports; they're making the best products in the world and are happy to compete, but need more brainpower to stay ahead.

Nobody at HP wants to come out and say we should let automakers die. But it must gall them to see bright, aspiring scientists starved of funding while Detroit gets rewarded for its stupidity. Stan Williams, a senior fellow at HP Labs and an expert in nanotechnology research, expresses the notion politely when he says, "I think we should strengthen the strong."

Williams, a Ph.D. chemist, has spent the past decade pleading with Congress to devote more funding to research and education in the sciences. So far it hasn't happened.

Last year, on a trip to India, he kept running into Indian scientists who earned Ph.D.s in the United States and worked here, but had recently returned to India -- not for sentimental reasons, but because they wanted their kids to grow up in a place with the best opportunities, and, shockingly enough, in their minds the United States was no longer that place.

Soon after, Williams traveled to China, where the government is creating the world's largest nanotechnology research facility and dishing out grants of as much as $100 million to veteran scientists. One woman he met, a 28-year-old fresh out of graduate school, had been given $5 million to pursue nanotech research. "In the United States," he says, "a young assistant professor would struggle to raise $50,000, let alone $5 million."

In Williams's lab at HP, only 18 of the 75 scientists were born in the United States, and 10 of those American-born researchers are over 50 years old; only six are under the age of 35. For now, HP can rely on foreign-born scientists, but "what happens when those people stop wanting to come here?" Williams asks. "That's the scary part."

Williams got through college and grad school in the 1970s thanks to government grants. He reckons he was a good investment. Through taxes, he's paid back the government many times over.

"Technology has been paying the bills in this country," he says. "It's delivering all of the innovation and the profits in the United States. The IT industry has created the wealth that we're enjoying now. But because the industry is doing well, it gets neglected. We're killing the goose that lays the golden eggs."

That's something to think about the next time you're stuck in that traffic on Route 101.

Daniel Lyons is a technology columnist for Newsweek.

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