Silicon Valley: Not Enough Of A Good Thing

The United States of America is a gigantic country in a way that I think sometimes confuses people. To me, that’s what’s going on when Thomas Friedman suggests that the low level of employment at a handful of high-tech firms is important to understanding macro-scale trends in the American economy:

Look at the news these days from the most dynamic sector of the U.S. economy — Silicon Valley. Facebook is now valued near $100 billion, Twitter at $8 billion, Groupon at $30 billion, Zynga at $20 billion and LinkedIn at $8 billion. These are the fastest-growing Internet/social networking companies in the world, and here’s what’s scary: You could easily fit all their employees together into the 20,000 seats in Madison Square Garden, and still have room for grandma. They just don’t employ a lot of people, relative to their valuations, and while they’re all hiring today, they are largely looking for talented engineers.

This is definitely true. But it’s a little misleading to think that it explains poor conditions nationwide. Courtesy of the Brookings Metropolitan Project’s handy data map, we can see that the San Jose-Sunnyvale MSA has a median household income of $85,000. That’s number two in the country. And the San Francisco-Oakland MSA comes in at number four with a median household income of $74,000. The national figure was $55,000. And those are median figures, not means. It’s not just that Mark Zuckerberg is really rich. Even though the main high tech firms have relatively few employees, they still serve as the tentpoles for what is, overall, a region that’s much more prosperous than the rest of the United States. If the Bay Area were a country, it would have about the population of Austria or Sweden and we’d be hearing constantly about its miraculous prosperity.

It’s also not just that the median resident of the Bay Area is a computer programmer. The presence of successful high-tech firms in the area creates spillover economic for everyone from accountants to chefs to bus drivers, construction workers, nurses, journalists and all the other varied stripes in the rainbow of a modern service economy.

The right questions to be asking aren’t “why does Silicon Valley create so few jobs;” it’s “why doesn’t everyone move to the Bay Area” (the rent is too damn high) or “how come there’s only one high-tech cluster.” After all, if industrial age capitalism had just created the prosperity of the Detroit area in its heyday, we’d look on it as a huge bust. But we had lots of industrial production clusters, of which the Detroit automobile industry was just the most famous.