It’s 2.30 am. I cannot sleep. My body thinks it is approaching lunch-time. My head has no clue what is happening and my brain is struggling to process even basic information (no change there I hear you all say). I should be dreaming. Instead I am thinking about a dream. The American dream. The notion of the American dream runs through the centre of social, economic or political debate here. It was at the very forefront of the Presidential Election. It was utilised by commentators trying (somehow) to come to terms with the tragic events at Sandy Hook prior to Christmas. It was central to much of the copy that I read on my flight across the Atlantic.
For those of us who grew-up outside of the USA, the notion of the American dream was brought to life culturally through the films, literature and music of the twentieth century –the American century. It has developed into a set of ideals that you can recognise but might struggle to adequately define. It is about freedom. The opportunity to carve out personal prosperity and success through hard work. It is about a meritocracy that promotes an upwards social mobility that is not constrained by class or the circumstances of birth. James Truslow Adams attempted a definition in his 1931 work Epic of America namely: “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement”. Looking around the affluent Nob Hill area of San Francisco on arrival yesterday there was plentiful evidence that the dream is alive and working well for many. Three blocks closer to Market Street however and the dream appears to wane as desperate poverty and panhandling become rife.
This is interesting because there is arguably no place more representative of the American dream than California – a place where dreams are realised and fortunes are made. And this is by no means a new phenomenon. When gold was first discovered in the state in 1849, hundreds of thousands were drawn in seeking an overnight fortune. Some succeeded bringing into being an alternative California Dream of instant success and riches, something that historians suggested spread across the entire landmass of the USA in the years after the gold rush. This was fundamentally different to the puritan dream advocated by Benjamin Franklin of building modest fortunes year by year. The California dream was instead about instant realisation and accumulation often via sheer audacity and good fortune.
Of course the tech sector is the modern equivalent of that gold rush. And what a rush it has been. Since the 1950s, Silicon Valley has been at the forefront of national and global technological innovation. It has brought significant wealth. In a 2011 survey, CapGemini found that San Francisco had close to 150,000 millionaires (4% of its population). Further down the valley, the self-proclaimed City Centre of Silicon Valley, San Jose, is home to a further 90,000 millionaires (6% of its population).
By any measure the wealth creation is impressive. It has led the Silicon Valley to be feted as a model for economic development across the world over. The companies that first established and then made it big in the Valley – the household names of the tech sector such as Apple, Google, LinkedIn, Facebook, Twitter and so on – are the new powerhouses in a global economy shorn of high finance. Locations across EMEA and beyond are trying to tap into the elixir of success that drives the Valley and use it to fulfil their own dreams.
But two things strike me. First, and most obviously, one has to question the extent to which a 50 year plus operating environment can be recreated. Furthermore, having worked in inward investment for a few years, I am yet to be convinced that the large majority of companies established in the Valley are themselves transferable at a significant scale. Sure many have made a foray into the EMEA marketplace, particularly in London and Dublin, and some such as Google are creating enormous facilities, but these appear to be the exception rather than the rule. As such there is probably not enough to go around.
Secondly, and perhaps more problematically, some commentators here in the US are beginning to suggest that the Valley and Bay Area is beginning to lose some of its sparkle. There is even mention of a bubble. This should be a warning to those in Europe seeking to create tech clusters in the mirror image of the Valley. All may not be what it appears from the other side of the pond. Two recent articles point to the recent waning of the tech sector dream.
First, writing in the United Airlines in-flight magazine, Mark McClusky, a special projects editor for Wired magazine, pointed to an acute shortage of the epic ambition characteristic of both the California dream and the Valley areas most famous son , Steve Jobs. McCluksy argues, compellingly, that innovation in the area has become incremental and focused on accessorising rather than breaking new ground. This McCluskey argues cannot be sustainable as it leads to more solutions to small problems than there are small problems. It is shifting the nature of innovation from the world-changing and defining visions of Jobs or Page, towards those focused on getting rich quick – technological prospecting if you will.
This point is built upon by Peter Delevett writing on SiliconValley.com who highlights an emerging shortfall in the economic model underpinning innovation in the Valley. He notes that more start-ups have emerged in this part of California than at any time since the dot-com era due to the reducing costs of building an internet based company and an explosion of ‘angel’ investors. He also points however to an on-going consolidation in the venture capital (VC) sector which is generating a smaller source of large cash infusions for these start-up firms. Those that secured initial seed funding (up to $1.5 million), estimated at some 4,000 over the last three years, far outnumbers those that have gone on to obtain further, what is known as Series A, funding ($3-5 million). This has led CB Insights to suggest that 1,000 start-up firms will be orphaned over the next 18 months, many of them in California. VC investors will be cutting more start-ups adrift as a new funding crunch plays out in the Valley. Furthermore the investors will likely retrench from their current position of spreading their initial investments widely across the market in order to hit on the next big thing. A new model may be emerging.
So there may be trouble ahead. The innovative capability that has characterised this area for more than half a century could be under-threat, ironically from a huge influx of capital that sought to buy-in early to the next big thing but is now unable to back the next step. Those who still firmly believe in the power of the American dream will point to an inherent ability to escape out of this hole. Those seeking the transfer of the tech sector to Europe and the steady flow of big new things from the west coast might want however to start thinking about a plan b.
Of course, I am as ever an optimist (it’s the Charlton Athletic supporter in me). Dreams do often come true. I say this as America prepares itself for a public holiday next Monday in deference to perhaps its greatest dreamer, Martin Luther King. Oh, and it just so happens to be the day when the first black President of the United States gets inaugurated for a second term in office.