The Secret to Building the Next Silicon Valley

Political leaders have been trying to replicate Silicon Valley’s high-tech magic since the invention of the microchip. A tech-curious Charles de Gaulle, then president of France, toured Palo Alto in his convertible limousine in 1960. Russian Federation President Dmitri Medvedev dressed business casual to meet and tweet with Valley social media tycoons in 2010. Hundreds of eager delegations, foreign and domestic, visited in between. “Silicon Valley,” inventor and entrepreneur Robert Metcalfe once remarked, “is the only place on earth not trying to figure out how to become Silicon Valley.”

In the US, too, leaders have long tried to engineer another Silicon Valley. Yet billions of dollars of tax breaks and “Silicon Something” marketing campaigns later, no place has matched the original’s track record for firm creation and venture capital investment—and these efforts often ended up benefiting multinational corporations far more than the regions themselves. Wisconsin promised more than $4 billion in tax breaks and subsidies to Taiwanese electronics manufacturer Foxconn in 2017, only to see plans for a $10 billion factory and 13,000 jobs evaporate after hundreds of millions of taxpayer dollars had already been spent to prepare for Foxconn’s arrival. Amazon’s 2017 search for a second headquarters had 238 American cities falling over each other to woo one of the world’s richest corporations with tax-and-subsidy packages, only to see HQ2 go to two places Amazon likely would have chosen anyway because of their preexisting tech talent. One of the winners, Northern Virginia, promised Amazon up to $773 million in state and local tax subsidies—a public price tag for gleaming high-tech towers that seems especially steep as Amazon joins other tech giants in indefinitely pushing back post-pandemic plans to return to the office.

While the American tech industry is vastly larger than it used to be, the list of top tech clusters—the Bay Area, Seattle, Boston, Austin—has remained largely unchanged since the days of 64K desktop computers and floppy disks. Even the disruptions of the Covid-19 pandemic have done little to alter this remarkably static and highly imbalanced tech geography.

Still, politicians are trying again. Bills working their way through Congress include the US Innovation and Competition Act (USICA), which contains big boosts to research spending, $10 billion in new grants and subsidies to develop “regional innovation hubs, and $52 billion to expand domestic semiconductor production.” The Build Back Better Act now battling its way through the Senate includes more than $43 billion for tech-inflected programs to boost local economies. These measures emphasize investment over tax breaks, and in sum invest far more in place-based economic strategies than the US has in decades. They are promising. But they are only a start.

You don’t have to travel far in Silicon Valley to find a techno-libertarian proclaiming that the sector’s success is purely the result of entrepreneurial hustle and that the best thing government can do is get out of the way. But that conclusion ignores history. In reality, public spending played an enormous role in growing high-tech economies in Silicon Valley, Seattle, Boston, and Austin. Understanding how this happened is essential to imagining where tech might grow next.

During World War II, the US government’s unprecedented mobilization of people and resources remade America’s economic map. Depression-ravaged Midwestern assembly lines jolted back to life at the government’s command, churning out Jeeps and tanks instead of passenger cars. Scientists and technologists set aside usual research pursuits to join the wartime “army of brains.” Many were involved in the top-secret push to develop an atomic bomb, living in entirely new communities constructed by the military in places so remote that they could remain unnoticed: the New Mexico desert, the arid plains of Eastern Washington, the hollows of rural Tennessee.

World War II was the test case for using government investment to spur scientific progress and remake regional economies. The Cold War took it to scale. Military spending that had shrunk at war’s end surged back by the early 1950s amid a new atomic arms race with the Soviet Union and war in Korea. Take a stroll around an American university campus today, note the number of science buildings erected in the 1950s and 1960s, and you can see the poured-concrete results.

Initially, the regions at the top of the high-tech heap were on the East Coast; Boston was the nation’s largest tech economy well into the 1980s. The region that eventually dislodged Boston from its high-tech throne was, before the war, best known as the nation’s capital of prune production. The one thing setting the future Silicon Valley apart from its agricultural counterparts was Stanford University, which had some pretty good engineering programs and a few alumni tinkering in garage startups nearby.