California’s economy is diverse, but its greatest asset is technology, with much of the world viewing the state — and the Bay Area in particular — as the global center of innovation. However, there are growing concerns with a range of issues that could erode California’s technology leadership.
Tech accounts for nearly one-fifth of the economic value produced in the state. The $520 billion that it contributes represents more than a quarter of all U.S. tech output — more than the next four states combined. California leads the nation in tech businesses and dominates the IPO pipeline with 56% of the nation’s private companies valued at more than $1 billion.
Silicon Valley ranks as the world’s No. 1 startup ecosystem, followed by Los Angeles at No. 6 and San Diego at No. 21.
This remarkable level of activity is built on a foundation of talent, scientific research, investment and a business culture that reaches high, embraces risk and encourages collaboration. Universities play a key role. The University of California is the top research institution in the world for U.S. patent generation.
The state attracts nearly $3 of every $10 in federal research investment nationwide. Nearly half of all venture capital in the United States is invested in California, and more than a third in the Bay Area.
As it emerges from the pandemic, California’s strength in science and technology is undiminished. That’s good news, but it’s not the whole story. Science and technology leaders are raising several issues that over time could pose problems for California’s technology leadership and the jobs, tax and other benefits it delivers. Most stem from quality-of-life concerns that those who live here, and talented people who want to come here, increasingly face.
In one of a series of studies commissioned by the California 100 Initiative, the “Future of Advanced Technology and Basic Research” outlines competing scenarios for the state’s technology future and offers policy prescriptions for how California can address key issues.
Business concerns include taxes and regulations that increase costs and make it hard to grow companies in-state. The biggest worry, though, is talent. Its talented workforce is California’s greatest asset in the global competition for technology leadership and is at the heart of its ability to innovate.
As long as California can attract and retain that talent its leadership will continue. But can it?
There are issues at several levels. California draws deeply on its universities for talent, but since 2000 public investment in the University of California has fallen by nearly half. California’s other main source of technology talent, immigration, is also vulnerable.
High-skilled immigrants face systemic visa and green card barriers, limiting access to the world’s most creative minds. This matters because nearly half of tech companies in Silicon Valley are founded by immigrants. Companies such as Google, Tesla, Stripe and Uber, all with immigrant entrepreneur founders, support tens of thousands of jobs.
Housing is the biggest challenge. The median sales price of a single-family home in California tops $800,000. In the Bay Area it’s $1.4 million. For decades cities have failed to allow housing to be built, creating a deficit that has worsened as the technology economy has grown.
Rental rates in San Francisco, San Jose and Oakland are among the highest in the country. The issue is this: with remote work, more technology workers have a choice of where to live and many are choosing states such as Texas, Colorado, Arizona or Idaho, where paychecks go farther and families can afford homes.
Housing costs also impact young scientists as they’re choosing where to start their careers. Add in the bad air from endemic wildfires and California’s vaunted quality of life, long an asset, becomes a negative.
Or at least it might if we do nothing. California needs to address its business climate issues, support its public universities, include more women and minorities in its innovation economy, keep the door open to global talent, address climate change and its impacts, and ensure that affordable housing is available for current and future Californians.
California’s science and technology assets are unique, but it would be a mistake to take today’s technology-based prosperity for granted.
Sean Randolph is senior director at the Bay Area Council Economic Institute and co-author of the California 100 Initiative’s report on the “Future of Advanced Technology and Basic Research” in California. He wrote this for CalMatters, a public interest journalism venture committed to explaining how California’s Capitol works and why it matters.