San Jose and Silicon Valley

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Policy system Cut

San Jose (Santa Clara County/Silicon Valley): San Jose itself (population of 68,000 in 1940 and 95,000 by 1950) rested within a largely agricultural hinterland/valley, was 98% white and operated under a city manager form of government. During the war years, a local farm-oriented manufacturing plant (owned by Farmers Manufacturing Corporation—now BAE systems) was reconverted to military production and greatly expanded. In 1943, IBM located its western headquarters and in 1953 a research lab (which invented the hard disk drive) in the city. Population growth during the decade was solid and established San Jose as an important and growing community. San Jose’s transition to the postwar was typical of a number of second-tier western cities. San Jose’s traditional businesses had since the 1920’s united behind a business-created and led “machine” which attracted votes from low income residents, took/made payoffs to respective parties during Prohibition, and effectively dominated the city council through the war years.

“Excited by wartime opportunities, a group of younger aggressive merchants, lawyers, and industrialists formed the “Progress Committee” in 1944 to throw the rascals out. Looking forward to the boom that they knew was ahead, the wanted to build a ’new metropolis in the place of sleepy San Jose’”. With the support of the newspapers, they seized control over the city council overcoming opposition from the traditional business machine and labor unions. While the Progress Committee faded out of existence (replaced by of all things an organization called “the Book of the Month Club), the reform business group retained control of the city for the next three decades[1]. The next chapter will discuss the incredible aggressive growth achieved by this business coalition, and its city manager (A. P. Hamann).

[1] Carl Abbott, The Metropolitan Frontier: Cities in the Modern American West, op. cit., p. 39

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policy system cut

[1] Carl Abbott, The Metropolitan Frontier: Cities in the Modern American West, op. cit., p. 39

end of policy system cuts

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Silicon Valley

As late as the 1940’s Silicon Valley was an agricultural region. During WWII military bases, triggered in-migration and provided federal contracts to Santa Clara valley firms. Silicon Valley developed from spin offs generated by Stanford University. But if you had to pick one individual to label the “founder of the Silicon Valley” it was Professor Frederick Terman (1924 MIT electrical engineering). Terman whose father was a Stanford professor returned home after graduating from MIT in 1925. By 1940 Terman was a national leader in electronic/radio engineering (vacuum tubes). An energetic business developer he did whatever was needed to encourage startups—including a small tech firm pioneered by two of his students, a Mr. Hewlett and a Mr. Packard. Terman personally lent H&P their startup financing, secured a bank loan for them, and found them a shop.

Other Terman-inspired spin-offs located around Stanford area, creating a budding cluster of prewar technology firms. One was Litton Engineering Laboratory found in 1932 to produce glass vacuum tubes. By war’s end Litton was the nation’s leading producer of glass-making machinery. Another was Varian Associates (lent $100 by Stanford and given free use of Stanford labs in exchange for 50% interest in any resulting patents). During World War II Terman relocated to Harvard’s Radio Research Laboratory to work on radar-jamming/anti-aircraft defense technologies (Stanford itself did not meaningfully participate in war production research). Returning to Stanford in 1946 he was committed to developing a strong West coast technology industry capable of competing with East. To accomplish this goal Terman recruited top-notch technical scholars, in effect making Stanford the West Coast’s MIT. By 1950 Stanford awarded as many doctorates in electrical engineering as MIT. Terman adopted the “Harvard Model” which organized programs not around “themed teams” commissioned by funders and assigning faculty to them, but instead on attracting researchers interested in tackling problems and projects that interested them. He built Stanford around the prestige of its researchers, rather than the projects it pursued. He selected faculty to recruit preferring those whose interests could attract external funding and media attention (Findlay, 1992, p. 123), Terman used his East Coast contacts and experience to leverage Korean War defense contracts, founding the Stanford Research Institute in 1950 (defense-related research). However aggressively Terman pursued federal contracts, however, he equally pursued developing and attracting private industry and stressed his faculty work together with industry to provide jobs for students and develop new applied research around industry/firm objectives (Findlay, 1992, pp. 124-5). Terman established the Honors Cooperative Program (engineers took graduate courses at their workplace)–by 1961 400 engineers were enrolled (Saxenian, 1996, p. 22).

Becoming Dean of Electrical Engineering School in 1951, Terman true to form developed it into one of the nation’s best Terman’s Stanford Industrial Park (1951)–a short walk from Stanford classrooms—recruited its first tenant, Varian’s R&D unit. A slew of corporations followed. Another classic Terman deal was Lockheed. Terman convinced Lockheed to locate its new missile and space division in nearby Sunnyvale (1957). Stanford agreed to provide faculty members to advise and train employees, while Lockheed in turn was, instrumental in rebuilding Stanford’s aeronautical engineering department (Saxenian, 1996, p. 24).In 1955 the park encompassed 220 acres with 7 firms; in 1961 652 acres (25 companies and 11000 employees) (Saxenian, 1996, p. 22). By the early 1970’s the Park contained 50 firms, employing 17,000 workers and twelve years later in 1986 55 companies employing 26,000 (Findlay, 1992, p. 140).

Stanford Industrial/Research Park

The Park did not start out as a typical mid-century “industrial” park—it was a suburban location, open to non-manufacturing sectors, and adjacent to a research institution to capitalize on opportunities in science and technology. The inspiration, direction, decisions, and control over the park and its development was provided by Stanford’s faculty and professional staff. Its design reflected the campus design, setbacks, park-like, low-rise buildings, offices that created a suburban and campus atmosphere—an atmosphere that fit nicely with the expectations of the firms that moved into it. The goal from the start (it opened in 1951) was to attract industry to the Pacific Coast. It also was intended to leverage revenues—land development in its broadest sense (in 1949 the University also developed a leased shopping center, medical and professional buildings, and residential subdivisions) was intended to diversify its revenue base.

The land development strategy had started in 1945 (Lewis Mumford was hired to render advice—he stressed “a concentrated urban group in a permanent rural setting”) (Findlay, 1992, p. 125). Its university charter forbade sales of its developments and since its unused lands were taxed “at highest and best use” rates, it had an incentive to develop them to accommodate market demand. Commissioned in 1953 Skidmore, Owings and Merrill (SOM) developed a master plan which saw Palo Alto as a San Francisco suburb from which it would draw its sustenance—relying on the highway/rail between the two cities. SOM’s master plan accordingly saw Stanford’s land development strategy more as a traditional suburb of a major city—i.e. upscale housing subdivisions and campus expansion—not commercial or research parks[i].

The 1954 reaction to SOM’s master plan, led by Terman was very hostile; university lands instead should be used “to make Stanford the great intellectual and research center of the West” as well as to provide “regionwide prosperity” brought about by a “community of technical scholars” drawn from “industries utilizing highly sophisticated technologies together with a strong university … sensitive to the creative activities of the surrounding industry”. Terman was appointed Provost the next year and Stanford never followed the SOM plan. He doubled the Park’s acreage in 1956 and increased it to 600 acres in 1960. The Park’s recruitment program chased firms that would “bring prestige to several areas of development and to the University and enhance Stanford’s academic programs” (Findlay, 1992, pp. 128-9). Accordingly, “the University and industrial park became the intellectual and technological downtown for the sprawling, urbanizing region” and “a prototype for [Santa Clara] land developers and planners” that transformed northern Santa Clara County into what we know today as Silicon Valley (Findlay, 1992, pp. 118-9). Hidden-in-plain-sight is a case study of simultaneous suburbanization and the dynamics of boomburbs—today San Francisco/Oakland is capturing the overflow from Palo Alto. Apparently sprawl is a two-way street.

Labeled an industrial park, Stanford’s was from its start a modern research and technology-focused manufacturing plant. It was driven by the University and its staff—and they drove development and design in the adjacent jurisdictions. From its inception the Silicon Valley[ii] served as a model for other communities to copy. De Gaulle visited it in 1960. Fifty university-related research parks started up during the Sixties and by the early 1980’s the number exceeded eighty (Findlay, 1992, p. 142) (North Carolina’s Research Triangle, M.I.T’s Technology Square and Princeton’s Forrestal Center, for example). In 2016 nearly every jurisdiction in America sought to construct its own microcosm of Silicon Valley. It may be wise, however, to take heed of the John Findlay’s caution that “Imitation is not an easy task. Stanford Industrial Park succeeded not only because of its exemplary design and its devotion to high-tech industry but also because it was in the right place at the right time. The initial growth of the industrial park coincided with heightened expenditures on scientific research and development during the cold war. Equally important, the site was located in a section of the country that {had] already attracted millions of newcomers; in a state that received a substantial share of federal expenditures for defense industries” (Findlay, 1992, p. 118). I would add, it also enjoyed the remarkable serendipity of Terman—an entrepreneurial faculty/Dean who valued private industry and supported Privatist-principles of economic development.

Terman’s role and strategy inspired others. A generation later, in 1976 George Low, a thirty-year NASA veteran who advised JFK that landing a man on the moon was an achievable goal, and who NASA after the horrific 1967 Apollo fire, turned to for reform of its organizational culture that enabled it to fix its space program, assumed the presidency of Rensselaer Polytechnic Institute (RPI). “From the very onset … Low [saw] the potential to develop 1,200 acres of RPI-owned land … into a research park similar to what Stanford contributed toward the emergence of Silicon Valley”. To support his $3 million investment, he launched in 1980, an incubator model that Albany locals claim as the first university-based incubator program[iii]. Moving on, Low convinced the RPI Board to build out the Rensselaer Technology Park (which in 2016 houses fifty plus firms) and a $60 million public-privately financed Center for Industrial Innovation. New York State in turn funded its Center for Advanced Technology—the origins of a long-standing Albany/Capital Region commitment to its “Tech Valley”.

Diverse Sectors

East coast firms, including Raytheon, established branches in the Silicon Valley; so did the forerunner of NASA. Diversity created a critical mass of firms, engineering talent, suppliers, and startups in areas as lasers, microwaves and medical instrumentation. By the late 1960’s, Santa Clara County was recognized as a center of aerospace and electronics activity. In comparison, Route 128 was more specialized. SV attracted several platform technologies, spread across a number of sectors and industries–tied mostly to consumer driven products, never totally dependent on the Defense Department.

Silicon Valley’s most explosive growth was driven by an industry that did not exist until 1951: the semiconductor whose chief element gave the place its name in the early 1970’s. By 1970 semiconductor manufacture was the largest and most dynamic sector of Santa Clara County and the nation’s leading center of semiconductor innovation. The industry started in 1955 in Palo Alto with Shockley Transistor, SV’s equivalent to Ken Olsen. Shockley, a MIT grad, an inventor of the transistor, worked for decades at Bell Labs in NYC and New Jersey. In 1951 he was elected to the National Academy of Sciences. Having failed in a startup transistor firm with Raytheon (1956), he returned to Palo Alto (to care for his ailing mother) and started Shockley Transistor—the first firm to develop a silicon chip.

Shockley hired the best engineering talent, but similar to the Caine Mutiny’s Captain Queeg, Shockley inspired a mutiny and most, the “traitorous eight”, left to form a competing venture, Fairchild Semiconductor. While still in a garage, Fairchild Semiconductor got an order for 100 mesa silicon transistors, followed by Air Force and NASA contracts. By 1963, sales were $130mm. Fairchild spawned ten spin-offs in its first eight years, one of which was Intel Corporation (1961). Thirty-one semiconductor firms started in SV during the 1960’s, the majority traced their lineage to Fairchild. Only five of the forty-five independent semiconductor firms started in the US between 1959 and 1976 were located outside of SV (Saxenian, 1996, pp. 25-7).

From its inception, the Silicon Valley was diversified, financed less by government contracts than venture capital (by 1974 more than 150 venture capitalists operated in the SV), and aggressively competed in consumer-driven markets. By 1975 Silicon Valley surpassed Route 128’s employment. Interestingly, the period in which Route 128 and Silicon Valley “took off” was the Fifties and Sixties—but it is in the Seventies—when both underwent transition—that they finally entered into our ED history.

[i] SOM incorporated Stanford’s plan to allot 55 acres for a shopping center, 66 acres for professional office buildings and 209 acres for light industrial—versus 3500 acres for university expansion and 8,800 acres for residential development. (Findlay, 1992, p. 127)

[ii] The name first published in “Electronic News” in January 11, 1971 by reporter Don Hoefler was suggested by Ralph Vaerst, founder of Ion Equipment Corp. http://www.computerhistory.org/atchm/who-named-silicon-valley/.

[iii] Lester Gerhardt and Michael Wacholder, “RPI’s Low Left Quite a Legacy”, Times Union, October 6, 2016, D2;

https://web.archive.org/web/20100819004446/http://www.rpi.edu/dept/incubator/homepage/about_missin_history.html.

Post Submittal Silicon Valley Update

Silicon Valley

Stanford Industrial/Research Park

Diverse Sectors

Silicon Valley’s Jurisdictions: Palo Alto, Santa Clara

See Findlay—p.143, 141, 130-2

[iii] Lester Gerhardt and Michael Wacholder, “RPI’s Low Left Quite a Legacy”, Times Union, October 6, 2016, D2;

https://web.archive.org/web/20100819004446/http://www.rpi.edu/dept/incubator/homepage/about_mis sin_history.html.

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San Jose: Silicon Valley & ED/CD 9/19/16

The spectacular post-1990 rise of Silicon Valley transformed places like Santa Clara County and its central city, San Jose. That deserves comment. It also raises the question of what role did ED or CD play in the making of into arguably, the world’s most prominent epicenter of sector innovation. Did San Jose and suburbs such as Stanford’s Palo Alto economic development play a meaningful role in growth or sector transformation? Or did local ED efforts focus more on seizing opportunities flowing from, more or less, autonomous growth of the Valley’s private sector innovation?

“Excited by wartime opportunities, a group of younger aggressive merchants, lawyers, and industrialists formed the “Progress Committee” in 1944 to throw the rascals out. Looking forward to the boom that they knew was ahead, the wanted to build a ’new metropolis in the place of sleepy San Jose’”. With the support of the newspapers, they seized control over the city council overcoming opposition from the traditional business machine and labor unions. While the Progress Committee faded out of existence (replaced by of all things an organization called “the Book of the Month Club), the reform business group retained control of the city for the next three decades^[1]. The next chapter will discuss the incredible aggressive growth achieved by this business coalition, and its city manager (A. P. Hamann).

How Postwar Business Reformers Played the Silicon Valley

In an earlier chapter, we tipped our hand as to the answer to the last question. Stanford’s earlier discussed role, through Dean Terman and the Stanford Industrial/Technology/Research Park, largely autonomous from local policy systems and ED/planning initiatives inspired as well as nurtured the Valley’s early rise, the shaping of its diversified resilient economic base, and even its innovative culture. The absolutely critical role of WWII, Cold War, Space Race and federal defense spending, captured by Terman and Stanford, however, seems to be the chief factor in the Valley’s early prominence. So it seems reasonable to assert the local jurisdictions were mostly along for the ride; the chief tasks being to cope with sustained and meaningful growth and to capture opportunities resulting from it. First, the context for local ED strategies: population growth and the historical evolution of San Jose policy systems and ED/CD.

The growth was clearly sustained. In 1970 San Jose was California’s fourth most populous city—behind LA, San Francisco, and San Diego; its population just shy of 460000 was 31^st largest in the nation—as a San Francisco metro suburb that wasn’t bad. In 1990, however, San Jose beat out San Francisco to become the State’s third largest city and 11^th most populous in the nation. By 2010, San Jose was nearly 950000—the nation’s 10^th largest city—and by 2015 estimated to be over a million. Santa Clara County was home to over 1.9 million and San Francisco a city/county was just over 805000. San Francisco was the nation’s 13^th largest city. This is certainly simultaneous suburbanization and boomburb all rolled up into a package. California’s Bay Area and Silicon Valley were, despite heavy state-led regional and transportation planning efforts, was a polycentric urban paradise.

It wasn’t always so, however. In very many ways, San Jose followed the more or less typical path of post-Depression western cities. In 1940, San Jose was less than 70000, and Santa Clara County was filled with proverbial orchards, truck farms, and canneries. One company (the Food Machine and Chemical Corporation, FMC) dominated its economy and played a big role in its politics. The Chamber played its version of Fortress California strategy during the early WWII years, and got freeways, an airport, a naval air base, and IBM’s first West Coast branch plant in 1943. But San Jose’s old and tired policy system was less a machine than a commercial business/city manager led, often corrupt courthouse gang dominated by a beer distributor/ambulance operator (now there’s a synergistic business), Charlie Bigley, and its long-standing city manager, Clarence Goodwin. Using police and fire as their base, they dominated a sufficiently loyal city council (Trounstine and Christensen 85-7).

In 1944, however, this tired policy system was challenged by new residents and businesses, and at war’s end by veterans returning home. San Jose was following the typical western path led by Abbott’s Neo-Liberals. In one significant way, however, San Jose business elites differed. They included a younger electronics/technology elite whose business model started the cutting-edge business culture that would characterize and distinguish the Silicon Valley from its competitors. That and the natural Progressive tendencies of northern California settlement and state government pointed the region’s business community toward a more moderate Privatist and less doctrinaire perspective more open to the pluralist policy systems that would eventually develop after the late Sixties. The business community in San Jose/Santa Clara could not be easily compared to business cultures in Phoenix for example.

In typical fashion the young reformers formed “the Progress Committee”, supported by the chamber membership, adopted a growth agenda “to build … a new metropolis, in place of the sleepy San Jose”. With the newspaper actively involved, they took over the city council in the 1944 election, fired Goodwin, and purged city hall department heads and ended nepotism. The Progress Committee reformers held power, with ebbs and flows, for the next thirty years. It was during their watch that Stanford and Terman did their “thing”. In that year, the chamber commenced a major attraction effort designed to bring firms into San Jose. IBM made its branch its Pacific Coast HQ, and in the late war/postwar GE, Pittsburgh Steel, Owns-Corning and Kaiser all built plants in San Jose. FMC grabbed onto additional water rights, vital to its food processing, and cemented its position.

The Progress Committee pressed for an infrastructure-heavy ED agenda, but initially they were unable to convince voters to approve bonds, except for an airport expansion and city hall—built outside the CBD. The new city manager was noted for his political skills and was “the best salesman we ever had” (Trounstine and Christensen 87-9). His was the oft-repeated quote: “They say San Jose is going to become another Los Angeles. Believe me, I’m going to do everything in my power to make that come true” (Trounstine and Christensen 91). The newspaper became a key and formal member of the reformer coalition. In 1950, the city’s population was 95000/17 sq. miles, and by 1970 it was more than 445000—in 1980 more than 625000 in 149 sq. miles. Three major freeways were built. Obviously, the reformers had embraced an aggressive and sustained annexation program (461 separate annexations between 1950 and 1960 and a total of over 900) (Trounstine and Christensen 92). The consequences and decisions that followed from that annexation strategy haunt San Jose today.

Between 1950 and 1965, the chamber spent in excess of $1 million in advertising campaigns to attract firms. The firms came and they found a “very” cooperative municipal government that annexed land, provided infrastructure, approved supportive zoning, and provided incentives as needed. As aggressive was the business attraction program, the city’s chief priority was to attract or capture subdivisions through annexation. Working with subdivision developers, making strategic and “shoe-string” annexation, leap-frogging over (and isolating) resistant areas, blocking expansion of adjacent cities, San Jose chased its suburban population and annexed them into the city.

If you wanted to grow and be able to pay the bill, you had to annex … [if you didn’t] you would become like Bakersfield and St. Louis, an enclave circled by small incorporated cities … If you got bottled up, your tax rate would put you out of the running for new industries[i].

There was no plan, San Jose’s first land use plan was in 1960 and throughout the sixties the plans were rudimentary and “flexible” to accommodate developer projects. Using its sewer monopoly San Jose convinced many suburbanites by offering subsidized rates. San Jose consciously made itself into the “bedroom” community of the Silicon Valley. They sought the rich property taxes associated with Silicon Valley entrepreneur and worker housing.

By 1979 two hundred thousand residents of the county were directly or indirectly employed in the electronics industry; twenty of the largest manufacturing firms in the county were either defense-aerospace-, or electronics-related, only five were not. And Santa Clara County was a recipient of $2 billion annually in federal defense contracts, 3 percent of the national total. (Trounstine and Christensen 90)

In 2015 San Jose housed 53% of Santa Clara County residents.

The effect of this intensive annexation-housing-focused strategy had profound effects on San Jose’s CBD, its retail capacity, as well as its access to the Silicon Valley. Initially, the CBD in the immediate postwar was under pressure from periphery expansion and simultaneous suburbanization. But it was not without some support. IBM located its 3,000-worker war production facility within the downtown area—and expanded it after the war. Other new tech firms also were housed within its boundaries. But the Progress Committee and City Manager Dutch Hamman were following the Las Angeles model of city-building—a model which did not require a downtown base.

Commercial and industrial buildings were limited to four floors (flight path to airport) and zoning restrictions discouraged commercial support functions from locating in the CBD. Accordingly, when the San Jose RDA was established in 1956, its efforts did not center on the CBD, but financing and developing expansive industrial parks in the City’s periphery (North San Jose and Edenville). Packard located a $17 million/100-acre plant in North San Jose employing 630 workers.

As early as 1963 only 9% of the county’s retail sales were in the entirety of San Jose. By 1970 every department store had closed or moved elsewhere. (Trounstine and Christensen 98), The most telling and incredible action was the closing, and subsequent demolition of the historically significant city hall (1958) and its relocation to the city periphery (the unrequited hope was to merge with the county). County and other governmental functions followed. While redevelopment agencies, for varying reasons, were preserving and rebuilding the CBD, San Jose was using urban renewal to develop its periphery and bulldoze its downtown. The RDA cleared blighted CBD land but did not develop it subsequently. The highways that were built from the 1956 Interstate Act not only demolished hundreds of CBD buildings in their path through and around the CBD, but they left in its wake a CBD that was harder to access from the North—a significant burden given that commercial development was in the North.

Cohort Change: How Growth became Urban Development

The first serious challenge to Progress Committee reformers came in 1962. It came in the form of a successful “protest” candidates, supported by a host of neighborhood homeowner associations, elected three members to the city council. The annexation program had necessarily created a goodly number of “neighborhoods”. While many neighborhoods housed low-income and Hispanic residents (in 1970 about 4% of San Jose was African-American), a fair number were home to relatively affluent Silicon Valley management and workers. They urban services and infrastructure that the city could not easily provide, given voter reluctance to approve bond financing. The sewage plant could not expand rapidly enough to treat sewage and water quality declined; police, fire, school construction, parks and streets could not satisfy demands and open space was rare. Annexation may have been an excellent strategy to chase people but the Progress Committee was going broke trying to provide them the level of services and infrastructure the new residents demanded.

The 1962 city council launched a recall of the city manager (which would fail), and they were able to block a significant “new town” (for 100,000 residents) that Progress Committee was trying to create on newly annexed vacant land. The protesters called for replacing at large elections with district (failed as well) but they did succeed in changing the charter to allow for direct election of mayor. In 1967 the War on Poverty/Great Society hit San Jose; the community action agency formed, HUD funds were acquired to finance the annexation of a Hispanic barrio. Model Cities’ monies (1969) were targeted to low income neighborhoods. In that year, future Congressman and Secretary of Transportation (GW Bush) Norman Mineta, representing the 22 percent of the electorate that was Asian, was appointed to the city council–breaking through the effects of at large elections.

In the 1969 council election, three more homeowner candidates were elected plus a first-ever avowed “environmentalist”. With sufficient strength, the council secured the resignation of the city manager, dramatically scaled back the annexation campaigns, and refocused the city ED policy on “urban development” that centered on services to neighborhoods and provision of necessary infrastructure. A concern with “growth” and its effects prompted more intensive review of initiatives—but were unable to stop further growth and new projects. School zoning initiatives (which limited construction) were bitterly fought, but protesters narrowly won. Abbott and Janet Flamming suggests that the entry of women in greater numbers into politics was responsible: “women and their organizations such as the League of Women Voters, the National Women’s Political Caucus, the National Organization for Women, and the Chicana Alliances, filled a vacuum in the nonpartisan arenas of Sacramento and Santa Clara County. … In affluent Silicon Valley, the lead in the 1970’s came from slow-growth environmentalists and neighborhood activists whose husbands had secure professional careers” (Abbott, How Cities Won the West 211).

After years of sparing against the Progress Committee it all came to a climax in the 1974 election. Mineta ran for Congress and a coalition of homeowner associations, environmentalists, and elements reminiscent of San Francisco’s identity coalitions ran candidates that secured control over the council for the first time. They were aided by the rescheduling of local elections to be held along with the national election. Turnout leaped from 16% to over 60%. While the struggle with the postwar Progress Committee continued through 1978, the Progress Committee had lost control over San Jose politics and its policy system broke apart. The main protagonist that toppled the thirty plus year Progress Committee hegemony were the 118 neighborhood associations that existed in 1978 San Jose (Trounstine and Christensen 102-6). That and the change in San Jose demographics wrought by two decades of annexation and population growth. The subsequent approval of district elections cemented the new policy system.

With outright victory and a new policy system based on grassroots and neighborhoods, not business and chamber priorities, recast the city’s economic development priorities and fleshed out its “urban development” strategy. Growth around schools was restricted; growth restrictions were made in areas of flooding, hillsides, and traffic congestion. A special tax was place on new construction to temper the cost of infrastructure (“pay as you grow”). An urban growth boundary was set in 1978. Neighborhood concerns became priorities in planning and public works. The 100,000 resident New Town was deferred a decade. Urban development, as a strategy, wasted little time in incorporating a decidedly “managed” or even “slow” growth dimension into its ED/CD initiatives.

A key dynamic of the grassroots-based policy system was its reliance on economic development through planning. Economic development did not lose its identity, but its goals and strategies were often expressed within plans, planning process, and planning visions—and often relied upon traditional planning tools such as zoning and codes and injected density as a major criteria/value. Formal economic development initiatives over the next decades were often expressed in formal plans. Despite this “managed” or “controlled” growth, San Jose could not curtail its actual growth—the 1980 census revealed it was the fastest growing city in the nation. Developers may have lost their privileged positon with the previous policy system, but they continued to build housing in San Jose –the demand and need for housing was so great. From the 1970’s on, the lack of affordable housing, indeed housing in general proved to be San Jose’s—and the Silicon Valley’s—most pressing ED need.

An interesting question is whether the change in policy systems switched San Jose from a classic mainstream economic development approach over to a city-wide community development approach. The pivot to neighborhoods, away from the CBD, business attraction, and chamber-style ED to more people-sensitive, neighborhoods, services in a city whose population was nearly fifty percent minority (Asian and Hispanic, Black) all bespeak a city-wide community development. That the business policy system had stressed housing (but also embraced a privately funded attraction/incentive recruitment), which the new policy system doubled down on, and the refocus of ED through planning also strengthen the case for city-wide community development—certain through 2007. An interesting distinguishing dynamic of the policy system that emerged in its demographic composition. Far more affluent on average than the typical western policy system, African-Americans were relatively few (less than 3%), but Asians became the second ranking racial group—that continued growing well into the 21^st Century. “San Jose and the surrounding Silicon Valley communities [increasingly “drew workers from a global labor pool. In 1970 almost all high-tech workers in the Silicon Valley were U.S. born. Thirty years later 42% were foreign-born, including 36% of Ph.D. scientists and engineers. AnnaLee Saxenian has calculated that Chinese and Indians ran 30 percent of Silicon Valley tech companies in the early twenty-first century” (Abbott, How Cities Won the West 247-8). Hispanics, another bloc that increased continuously during this period, constituted a vital element in the area’s neighborhood-level community development approach—often providing a policy thrust dissimilar to African-American neighborhood community development prevalent in the north eastern and Great Lakes Midwest. The relative affluence of the region also shaped the strategies and perspective of its neighborhood EDOs/CDOs.

If government and its EDOs pursued a more CD-oriented approach, what happened to more Privatist classic economic development? The burden of continuing a more Privatist approach in such a policy system would seemingly fall on the chamber. Initially, the postwar business reform community consisted returning veteran entrepreneurs, often attracted to CED’s approach, and absentee branch defense/aerospace sector leadership whose local involvement and perceived commitment was problematical and intermittent. That would change, of course, as the Silicon Valley “took off” over the following decades. It does appear that by 2016 the chamber had developed a “Regional Economic Development Initiative” (REDI) funded by the leading businesses which stressed attraction and workforce—as well as policy advocacy and research, business retention, and startup assistance. They were very much sensitive to the area’s business climate—in particular its ability to provide housing aa appropriate to management and workers.

One of the chief reasons that prompted REDI is the chamber-assertion that budgetary constraints reduced ED funding by local jurisdictions[ii]. Back in the late 1970’s, however, the issue of “transient corporate leadership” associated with branch plants and corporate leadership. The chamber also focused on CBD deterioration, forming in 1978 the Metropolitan Associates Trust Fund ($.1.5m) to trigger downtown improvement. David Packard (of Hewlett and Packard fame) also founded the Santa Clara County Manufacturers Group in 1978—composed of bank and manufacturing CEOs, many of which overlapped into the electronics and defense sectors—it was the region’s closest equivalent to its one percenters (today the group is known as the Silicon Valley Leadership Group). The goal as described by Packard was to tackle the Silicon Valley’s “one overriding problem-how to manage growth … to provide an attractive environment for people to live in and an attractive environment for business and industry.” (Trounstine and Christensen 119). The crisis that triggered its formation was the “jobs-housing imbalance” propelled by the unrelenting expansion of Silicon Valley’s tech, electronics, software/hardware, defense and manufacturing firms.

Downtown Revitalization: a Mixed Bag

The post-1978 period was a turning point in San Jose ED/CD. The Silicon Valley tech elite, housed in their Santa Clara Manufacturing Group with its region-wide and specific tech industry perspective, “diluted the remaining interest of downtown, which was no longer a major concern for corporations that built low-rise offices and factories in nearby cities like Mountain View, Sunnyvale, Santa Clara and Palo Alto. However, a new generation of city leaders (including Tom McEnery and Susan Hammer) pushed a downtown revival, with new hotels, office buildings, a park, a convention center, tow museums, a light rail line municipal buildings and a public library {Plaza de Cesar Chavez], bordered with a science museum (Abbott, How Cities Won the West 226). Whatever the preferred tendencies of its policy system (toward neighborhood CD/managed growth), the City’s political and economic leadership recognized in particular that downtown deterioration, and consequent decline of business and sales tax revenues, meant the city would not be able to pay its bills and fund priority programs. Consequently, the new mayor, and others that followed, joined with the chamber and refocused the RDA on downtown revitalization—reinvestment strategy. With State-empowering legislation, the RDA consolidated its fiscal capacity and over the next decade invested nearly $2 billion in a series of commercial and redevelopment projects/ initiatives—including bring the city hall back downtown (2005). Downtown revitalization, however, was not easy. The three-decade hinterland expansion and annexation strategy had created and sustained a real estate sector that was resistant to change. For example, a (1979) proposal for an airport 500 room hotel and office complex was opposed by then neighborhood-focused city council—but supported by the chamber reluctant to concede city hall the power to determine the location of private development.

In an early downtown venture, the RDA nearly captured Apple’s HQ, but thought Apple’s demand that RDA finance/build/and lease the facility too extreme. Apple of course moved on. New office buildings and several million sq. feet of Class A office space were constructed—admittedly a drop-in-the bucket in the hundreds of millions of sq. feet available elsewhere in the Silicon Valley. A San Jose Arena, a massive convention center, an upscale hotel, a transit mall (1988) were built. Parking persisted in being a problem, however. More typically, those firms that settled in San Jose located in the North San Jose industrial park (Cisco, Brocade and eBay). Adobe (1996) was the downtown’s largest successful attraction—requiring over $35 million in RDA subsidies which was hotly condemned by many.

The 1989 Palladium shopping/entertainment center (RDA investing $10 of the $30 million) created a high-end shopping center—but it proved unsuccessful and closed. In the late 1990’s it became a server farm that yielded much needed revenues to city hall—but no downtown shoppers. A $1 billion four site complex (office, retail, and housing) fell through in 2002. In these years, however, cheap downtown space attracted startups so that by 2005 almost 80 startups were located downtown[iii]. Also to the plus, the investment that occurred did spark increased tourism and convention trade, to the benefit of downtown’s museum and cultural destinations. These venues were developed using considerable RDA and tax incentives—in addition the City provided grants from its hotel tax to the culturals[iv].

A significant part of the downtown redevelopment problem between 1980 and 2005 was that the city persisted in following its long-standing pro-neighborhood commercial-housing strategy—to the point of rezoning commercially zoned areas for housing development; and simultaneously pitching and building huge neighborhood housing/shopping/entertainment centers such as 2002’s $450 million 42 acre Santana Row “a village within the city”. Downtown did not enjoy adjacent high-density residential neighborhoods. Indeed, city-wide only 10% of 1957 city housing was multi-family—and highway construction and urban renewal during the Fifties and Sixties destroyed hundreds of the few housing units the downtown offered. Despite a decade of redevelopment, the CBD in 1990 still possessed little housing and accessible consumer spending. Further attempts at downtown commercial revitalization started after 2000 were brought to an abrupt end by the Great Recession[v].

San Jose residents are divided about the RDA’s legacy. The agency is criticized for pushing out existing businesses in order to deliver a blank slate to new investors … also criticized for oversubsidizing private [but not nonprofit] development [that] drove up land prices to the point that development was not financially viable without RDA subsidies …[and] pursued the same stale ideas of convention center plus international brand hotel, downtown shopping, sports arena, and movie theatre complex that are popular in other cities—and was not creative or inventive enough in imagining a unique role for San Jose’s downtown[vi].

Housing as Economic Development

The Silicon Valley’s present day success is attributed to the sequential rise of several succeeding rising sectors. The often-unappreciated reality of Silicon Valley growth, however, is that it periodically exhausted a rising sector’s expansion phase before another rising sector took off. The result was a period of consolidation, even decline. This happened in the late 1970’s—as it did in Massachusetts. In the midst of a downturn, a major unplanned fly in the ointment occurred. California’s 1978 property tax revolt, Prop 13, capped annual property tax increases, the only major source of municipal revenue other than sales tax. San Jose was in trouble. Having chased housing and residences rather than firms and sales tax, San Jose was deeply dependent on property tax. Almost immediately, San Jose suffered from fiscal weakness and budgetary cutbacks. San Jose, one of the most affluent cities in America, was unable to pay for services and infrastructure to accommodate unstoppable growth. Among other consequences fiscal distress meant the city’s “urban development” strategy would be consistently underfunded relative to both demands and objective need.

The inability to create a strong downtown sales and property tax base left the burden of relieving fiscal stress to neighborhood-based commercial and residential development—which traditionally is costly in terms of services. When the dot-com bust occurred in 2002, the City and RDA launched a “Strong Neighborhoods Initiative” which deprioritized the CBD. His vision for downtown was to make “significant bets on the viability of downtown as a residential neighborhood” with high-rise, up-scale residents. The strategy relies on the principle that housing availability is critical to attracting and retaining jobs and firms—that housing is a key factor in locational decisions. San Jose’s RDA at that time asserted that “a retail strategy is primarily a housing strategy … show me the rooftops…Retail development needs residential development to draw from”[vii].

After four years of deliberation and planning, San Jose in 2011 adopted its comprehensive “Envision San Jose 2040 General Plan. The plan included five key priorities: promoting economic development, ensuring fiscal sustainability, providing environmental leadership, building in targeted areas called “urban villages’, and promoting transit use. Other key elements were: community-based planning, prioritizing downtown a destination, maintaining the urban growth boundary, and designing for a healthy community[viii]. Urban village are targeted areas for new housing and job growth that include walkable, bicycle-friendly, transit-oriented, mixed-use districts. Located along transit lines, the city identified seventy such villages eligible for potential empowerment. They are intended to break away from the “car-centric, sprawling bedroom community” of earlier versions of San Jose housing development. Over the next five years, continuing to the present, urban villages have been announced and for others the planning process has begun. An incredibly innovative new concept for community-development, urban villages combine economic development, land use planning, transit-oriented development and environmental sustainability—and the hope the growth generated will pay the City’s bills.

When Mayor Sam Liccardo assumed office in 2015, he reaffirmed San Jose’s long-standing commitment to housing and people: “The path to revitalization of urban cores is not with public dollars [subsidies and incentives] and its’s not with big buildings [CBD commercial revitalization]. It is with people. You have to have a critical mass of people”[ix]. The issue is further compounded because new housing and infrastructure were TIF-financed, meaning annual proceeds retired bond issuances and did not flow to the city budget. That strategy, however, produced consequences, not all of them so good. The property tax resulting from housing has meant that “of the 20 biggest cities in the country … San Jose is the only one that actually sees its population shrink during the day as hordes of residents leave to go to work elsewhere … it does not have enough shops and businesses to support its sprawling population [and leaves] … San Jose with a flat budget during a tech boom. … It is hard for many people to believe the biggest city in a place where new millionaires are minted every day could struggle to pay its bills”[x]. Only 18% of San Jose is zoned for business, compared to Santa Clara County cities ranging from 25 to 30%. Despite its being California’s third largest city, smaller cities enjoyed stronger downtown job bases—San Francisco, nearly one-third smaller, had in excess of 300,000 CBD jobs, Oakland 80,000—to San Jose’s 36,000[xi].

In 2016, while attempting to deal with a pension crisis, San Jose is paying the price for its earlier housing-priority. The city pulls in less money through sales tax than its surrounding neighbors, and indeed, is probably one of the lowest in per capita sales tax receipts in California. San Francisco, now one-third smaller than San Jose garners 29% more sales tax: “the average San Jose resident produces $142 in sales tax [annually] … the lowest of any city in the county outside of a few small mansion-line towns that have virtually no business. Palo Alto, Cupertino and Santa Clara … get more than double the tax revenue per capita than San Jose”[xii]. The balance between housing and business is out of whack—with serious consequences on budgets and funds available for services and ED/CD strategies. Santa Clara’s ration of jobs to housing units (2016) was 3 to 1; San Jose’s ratio was .87 to 1[xiii].

Predictably, San Jose complained that its suburban neighbors were not doing their part—gathering the lion’s share of the region’s job growth, but constructing only a fraction of new housing required to house these new workers. Its economic development CEO observed that San Jose “cannot single-handedly solve the housing problem”—a thought echoed by AnnaLee Saxenian who observed “The whole Bay Area really is having a very hard time creating sufficient housing”. The California Employment Development Department cited statistics that San Mateo and Santa Clara counties between 2010 and 2015 had created over 385,800 jobs, but housing permits sufficient to house only 150,000 new residents had been issued in that period[xiv].

Amazingly, despites its obvious limitations, housing as economic development strategy spread to, of all places, Public and service sector workers can no longer afford to either own or rent. Palo Alto. Elected to Mayor in 2016, Patrick Burt announced “We’re looking to increase the rate of housing growth, but decrease the rate of job growth. Big tech companies are choking off the downtown”. In 2016 San Jose and East Palo Alto were feuding publicly with neighboring cities—Palo Alto advocating significantly slower growth for office construction and more housing. By the November 2016 election five cities (Mountain View, Burlingame, San Mateo, Alameda, and Richmond) in the extended Bay Area had various rent control referenda on their ballots. Tenant groups and community organizers versus landlords, REITS, national associations and real estate agents contested these votes[xv]. Palo Alto has capped annual growth of office space, and approvals for new construction, even of hospitals, take years. The city, home to Facebook, enjoys 3.8% unemployment, and in such an environment residentially-driven “slow-growth” came into power. Transit-oriented development areas [principally CBD] have been tweaked to put restrictions on research and development due to it storage and use of hazardous materials. In theory, this strategy is intended to counter the exploding cost of housing and rents. Absent, however, any affordable housing initiative, it strikes one as more anti-growth than pro-affordable housing[xvi].

[1] Carl Abbott, The Metropolitan Frontier: Cities in the Modern American West, op. cit., p. 39

[i] George Starbird, the New Metropolis (San Jose, Rosecrucian Press, 1972) quoted in Trounstine & Christensen, Movers and Shakers, p.93t

[ii] http://www.svedc.com/ceo-message/about-redi/regional-economic-development-initiative/#toggle-id-4

[iii] Egon Terplan, “Shaping Downtown San Jose”, SPUR: the Urbanist, April, 2013, Issue 522

[iv] Egon Terplan, “Shaping Downtown San Jose”, SPUR: the Urbanist, April, 2013, Issue 522

[v] Egon Terplan, “Shaping Downtown San Jose”, SPUR: the Urbanist, April, 2013, Issue 522

[vi] Egon Terplan, “Shaping Downtown San Jose”, SPUR: the Urbanist, April, 2013, Issue 522

[vii] John Shirey, “Show Me the Rooftops: Housing and Economic Development with a Redevelopment Perspective”, Western City, May 2006, p. 1

[viii] Leah Toeniskoetter, “New Blueprint of a City: San Jose’s 2040 General Plan”, SPUR, November 18, 2011, p.1

[ix] Bruce Newman, “After languishing for decades, downtown San Jose may finally be ready for its closeup”, the Mercury News, February 14, 2015, updated August 12, 2016.

[x] Mike Rosenberg, “At the Center of Silicon Valley Boom 2.0, San Jose Remains Broke”, Mercury News, August 12, 2016.

[xi] Bruce Newman, “After languishing for decades, downtown San Jose may finally be ready for its closeup”, the Mercury News, February 14, 2015, updated August 12, 2016.

[xii] Mike Rosenberg, “At the Center of Silicon Valley Boom 2.0, San Jose Remains Broke”, Mercury News, August 12, 2016.

[xiii] Eliot Brown, “Silicon Valley Cities Clash”, Wall Street Journal, June 8, 2016, A3.

[xiv] Eliot Brown, “Silicon Valley Cities Clash”, Wall Street Journal, June 8, 2016, A3.

[xv] Eliot Brown, Silicon Valley’s Apartment War”, WSJ, October 20, 2016; Mike McPhate, California Today: the Silicon Valley Rent War, New York Times October 14, 2016; Janet Allon, Not a Techie in Silicon Valley?, Salon, Sept 22, 2016

[xvi] Andy Kessler, “In the Heart of the Silicon Valley, they don’t want new jobs”, Wall Street Journal, September 17, 2016.

Silicon Valley and San Jose

San Jose and Silicon Valley

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San Jose and Silicon Valley

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