Silicon Insider: How the Election Plays in the Valley

Nov. 12, 2002 -- Let's just say it wasn't the best week in high tech, or in Silicon Valley.

For one thing, the Gartner Group released a report predicting that a flattening in corporate IT spending would soon lead to a massive consolidation in the PC industry. In particular, the second-tier PC companies — Acer, Fujitsu, even Apple — may soon face oblivion.

If that wasn't bad enough, in Silicon Valley, both Advanced Micro Devices and Applied Materials announced massive layoffs. As these two companies, giants in chips and chip equipment manufacturing, are bellwethers of the health of high tech, this news was particularly worrisome.

Still, you could rationalize both announcements: the Gartner report as just the latest in a long line of inaccurate predictions by industry watchers made just before a market turnaround, and the layoffs as a classic cost-reduction move to free capital for a ramp-up.

But the one piece of bad news that could not be explained away was the results of last Tuesday's election. Everyone else is talking about the Republican sweep, but here in Silicon Valley, the shrewdest folks aren't looking at Washington, but Sacramento.

Another Four Years of Davis

The Valley is a Democrat stronghold, mostly for cultural reasons. But if we have a liberal heart, like true entrepreneurs we have a conservative wallet. Economically, this Valley is pure GOP.

So, for all the pursed lips and shaking heads about the election, the general assumption is that a Republican White House, Senate and House will be good for high tech. Republicans like corporations, they love entrepreneurs, and they actually understand stock options.

So, everything suggests good times ahead … and God knows we need it, because the other big news item around here last week was that local unemployment is now at the worst level in a decade. And the 'Pubs know America needs a strong tech industry for its economic growth, its world leadership and its defense.

But there's one little problem — and that was the biggest news item around here last week: Gray Davis, the Democrat even Democrats love to hate, was re-elected Governor of California. When we woke up Wednesday and read the tally, we knew we were doomed.

Bush Leaves Left Coast Out

Not that anybody wanted the GOP candidate, the hapless Bill Simon, to become governor either. He ran a campaign so benighted and incompetent that it actually made the venal and coldly ambitious Davis look positively inspirational. You know you've blown it when people decide to vote for your opponent knowing full well they'll hate themselves for it in the morning.

Simon's most appealing virtue was that he was actually a former business executive. Davis, by comparison, had apparently never had a real job in his life — which made it all the easier for him to denounce corporate corruption while taking envelopes full of cash from various groups seeking favors.

So reptilian and despised is Governor Davis that Simon, despite facing an incumbent governor in a Democrat state, and after being pounded by months of attack ads calling him a white collar criminal, STILL almost pulled up to a tie in the last days before the election.

In fact, Simon might have won… if only President Bush had come to California and boosted Simon the way he did every other major GOP candidate for governor or senator in the final weeks. Bush is being rightly lauded for showing some guts and risking political capital by making the election a plebiscite on his administration. He took the risk and he won big.

But not in California. By skipping the Left Coast, Bush showed exactly how he felt about us.

Back to the Political Darkness

That's what is scary. In the last couple months before the election, Gray Davis, to buy off his fragile base on the left, rammed through every entitlement, giveaway and piece of social(ist) engineering he could get his hands on. As appealing as these might be in isolation, to pile them on a state that is already more than $10 billion in debt is an astonishing act of political cynicism.

The hidden truth of this last gubernatorial election was that whoever won would have to tax the crap out of us to keep the state out of bankruptcy. By adding more debts to the pile, Gov. Davis only brought that nightmare closer — and he knew it.

But that's not the worst of it. The worst of it is that, as the only state to go against the GOP tide sweeping the U.S., California has effectively removed itself from the next two — maybe four, even six — years of political decision-making. We have cast ourselves to the political outer darkness, and it's going to be a long walk back.

And who is to lead us out of this darkness? Our beloved governor — who, during the energy crisis California suffered last year (the one likely caused, and certainly exacerbated, by his rotten management) blamed Washington and Texas energy companies for.

Astute choices, given that we have a Texas oilman as president. Knowing Davis, he will soon be blaming California's debt on the Bush administration too.

Don’t Forget About Silicon Valley

In other words, we're screwed. Even with Nancy Pelosi as House Minority Leader, the chances of us getting even a new basketball court in Bakersfield out of this administration is exactly zero. We'll be lucky not to get sold back to Mexico.

OK, you say, so what? Those stupid Californians deserve everything they get. And if, out of 40 million citizens the only two candidates they could come up with were Huntz Hall and Beelzebub, then it's their own damn fault.

You're right. Except for one little problem: Like it or not, California, and especially Silicon Valley, is the heart of the world's high-tech industry. There are more computer companies here than anywhere, more chip companies, more software companies, more venture capitalists, more high-tech CEOs, even more biotech firms than anyplace else on the planet. If the Valley goes down, so does most of America's economic competitiveness for much of the 21st century.

That's something that George W. Bush and his administration mustn't forget, even as they are high-fiving around over the election and discussing whether to take out Beverly Hills before or after Iraq. Like it or not, he needs us.

Does eBay Know the Way to San Jose?

That brings us to one final news item from last week. Ebay, one of Silicon Valley's crown jewels, and one of the few local firms to grow during the current recession, is finding itself in need of a new home.

The company began in a small rented office in a non-descript little industrial park in San Jose. In the years since, it has slowly consumed the entire complex. Now, out of room, eBay needs a new headquarters. The City of San Jose, desperate not to lose this tax and employment juggernaut, is scrambling around trying to find the company a new home.

But put yourself in the shoes of Meg Whitman, eBay's CEO. Here you are, in a community undergoing a protracted recession, where the unemployment is matched only by an inexplicably still high cost of real estate.

You also know that your state government, already mired in massive debt, has just larded the budget with even more entitlements — which means a walloping new tax bill is waiting in the wings. And you understand all too well that the federal government not only won't help, but privately prays the whole damn state would just go to hell.

Sure, this is your home. This is where your employees' children go to school. This is where your company was founded. And no place else on earth has this critical mass of technical talent and infrastructure. Most of all, you know that no company has ever left Silicon Valley and done better elsewhere.

Still, relocating to Georgia or Minnesota must sound awfully good to Meg Whitman these days …

Michael S. Malone, once called “the Boswell of Silicon Valley,” most recently was editor-at-large of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com.