Valley's tech bust more severe than other regions' falls
By David A. Sylvester / San Jose Mercury News / June 21, 2003
If this recession feels a whole lot more painful than past busts in Silicon Valley, it should.
Santa Clara County has lost one of every six jobs, the worst job loss for a region of its size in the past 40 years -- even surpassing the infamous decline of the auto industry in Detroit or the near bankruptcy and eight-year slump in New York City.
And based on the experiences of other major regional downturns, Silicon Valley can't expect to return to its previous peak of employment for the rest of this decade.
In other metropolitan centers with significant downturns, it has taken years to return to the peak level of employment.
This truly dismal projection comes, appropriately enough, from regional forecaster Economy.com, the firm that operates the The Dismal Scientist Web site for economic analysis. (Economics is nicknamed the dismal science for its dour predictions about the future.)
Steve Cochrane, director of regional economics at Economy.com, called the Santa Clara County recession the ``deepest and fastest'' of all the regions he has studied since the mid-1960s.
``You climbed so high and fell so far down that it's in a deep hole,'' he said. ``The key to it all is whether San Jose can maintain its edge in innovation. If it can maintain that edge, it will come back.''
Local reaction to Economy.com's figures ranged from agreement with the depth of the decline to questions over whether it takes into account the unusual boom during the 1990s. Silicon Valley currently has about the same number of jobs it had in 1996.
Growth waves
Innovation has produced four waves of growth in Silicon Valley, according to Doug Henton, president of Collaborative Economics in Mountain View. A new wave of innovation in combining computers and biotech will help the valley grow faster in the future than the current figures would show, he says.
Here are the Economy.com figures: Santa Clara County has lost 190,800 jobs, or 18 percent of its peak total of 1.06 million jobs reached in December 2000. That's more severe than the 16.5 percent decline in Detroit from the peak in 1978 through the lowest level of employment in 1982. It's also worse than the 14.9 percent drop in jobs in New York City from 1969 to 1977.
Because Detroit and New York City are much larger areas, they both lost more jobs. Detroit lost 305,200 jobs and New York City lost 623,300.
Detroit's problems arose after Japanese companies made inroads in the United States with fuel-efficient cars just after the OPEC oil shocks in the 1970s.
Overall employment in Detroit peaked in 1978 and then went into a sharp four-year contraction during the 1981-82 recession. It took Detroit four years to recover to its 1978 peak of employment.
However, Detroit has gone into a second slump since the late 1990s. Its employment is now slightly lower than it was in 1996.
The major difference remains that Detroit produced a commodity, automobiles, that have been mass-produced in other countries, whereas Silicon Valley has ridden a wave of new technologies replacing previous ones.
In Cochrane's view, the valley's bust is actually more similar to what happened to aerospace and defense jobs in Los Angeles from 1990 to 1993. Then, Los Angeles County lost 416,300 jobs, or 10 percent of its total of 4.18 million jobs.
Permanent loss
Los Angeles has never returned to its 1990s. In April, it had 166,000 fewer jobs than at its 1990 record.
Some economists have argued that Los Angeles suffered a permanent loss of demand for its defense products during the downsizing of the defense industry in the 1990s. This is different than the temporary drop in demand for tech products from Silicon Valley, since technology is vital to economic health.
But Cochrane thinks that too many companies over-invested in tech during the Y2K bubble and demand won't return as quickly as many expect.
For 2003, Economy.com expects a 2 percent contraction in employment in the valley, followed by a 2 percent increase next year. In 10 years, Santa Clara county is expected to have only 1.01 million jobs -- 50,000 fewer than at the peak of the Internet boom.
What makes this forecast uncertain is that technology has a history of big surprises, such as the Internet. ``You can't forecast technological breakthroughs,'' says Cochrane. |
