Soft Spots: Five Places Where Silicon Valley’s Bubble Could Pop

Soft Spots: Five Places Where Silicon Valley’s Bubble Could Pop

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“cultural mismatch.” What they’re really saying is that having a few grownups around might dampen the frat-house, brogrammer atmosphere they’ve brought with them from college.

Perhaps there’s an infinite supply of young rock-star engineers finishing their CS degrees at Stanford—or perhaps the big tech firms are shooting themselves in the foot by devaluing a huge group of valuable middle-aged workers. For a culture that claims to prize “pattern recognition” skills, it’s an odd omission. If you’ve been in the business for more than 10 or 15 years, you’ve probably seen everything before, and you know what to do about it—which will be an especially useful skill when the shiitake hits the fan.

I could go on and talk about the other poisonous forms of exclusion in Silicon Valley, namely racism and sexism. But you get my point. The putative hero in today’s Valley is the “full stack engineer”: someone familiar with server, data, networking, logic, UI, and UX tools. Whether someone has mastered those tools has absolutely nothing to do with their age, gender, or ethnic background. To keep innovating and growing, the technology industry will need to tap the full range of talent available to it.

4. 1757 Mountain Blvd., Oakland: Montclair Elementary School

This public school in Oakland, dating from 1925, has the distinction of sitting directly on the most dangerous seismic feature in the San Francisco Bay Area, the Hayward Fault. (The fault actually runs beneath the school’s baseball field, not the school building itself.) In 1868, the western side of this fault jumped six feet to the north, unleashing a magnitude-7 earthquake that, if it were repeated today, would leave 100,000 people homeless and cause $1 trillion in property damage, according to the U.S. Geological Survey. And such a quake is actually overdue: major temblors on the Hayward Fault occur every 140 years or so.

It’s been so long since the 1989 Loma Prieta quake hit the region that few people working in the tech industry today remember how deadly and disruptive an earthquake can be, and that one was just a 6.9. The fact is that if a major natural disaster were to strike, the boom times in Silicon Valley could come to a quick end. It could be an earthquake, but the Bay Area is also prone to drought, fires, storms, flooding, and tsunamis.

The Hayward Fault slices through Oakland and several other densely populated East Bay cities. Source: U.S. Geological Survey.

The Hayward Fault slices through Oakland and several other densely populated East Bay cities. Source: U.S. Geological Survey.

Then there’s the more gradual, but also more predictable, disaster of sea level rise due to global warming, which will likely inundate the land now occupied by several of Silicon Valley’s largest tech companies, including Facebook. This is a particularly insidious threat, because few people are yet willing to talk about it or deal with it.

Because so much commerce and communication now takes place in “the cloud” and on social networks, it’s easy to forget that the big institutions in Silicon Valley—not to mention their data centers—are rooted in the physical world. One good shake could provide a reminder.

5. 7th Street and Market Street, San Francisco: United Nations Plaza

The pedestrian mall and fountain at UN Plaza have been labeled “San Francisco’s most public theater of squalor, misery, and sickness” by one documentarian. Designed by famed architect Lawrence Halprin in 1975, the plaza was supposed to function as a grand formal entrance to Civic Center Plaza and City Hall, and it was originally hoped that its construction would lead to the rejuvenation of a down-at-the-heels section of Market Street. But that never happened, and by the late 1970s the plaza had become the seedy front porch to the Tenderloin, a six-block-by-10-block area that’s been preserved by the city as a haven of low-cost, SRO hotels and rooming houses for the city’s poorest residents.

Salon.com co-founder Gary Kamiya, pulling no punches, calls the Tenderloin San Francisco’s “last human wilderness,” a “radioactive core of junkies, drunks, transvestites, dealers, thugs, madmen, hustlers, derelicts, prostitutes, and lowlifes.” And while UN Plaza has been beautified in recent years—the fence that kept children from going too close to the needle- and feces-ridden fountain has been removed—it’s still a thoroughfare and gathering place for San Francisco’s poor and homeless population. That creates a striking contrast, now that the long stretch of Market Street passing the plaza, known as Mid-Market, is finally being gentrified. In June 2012, Twitter moved into a building two blocks away from the Plaza. Just over a year later, it went public, raising $1.8 billion and minting an estimated 1,600 new millionaires. Some of San Francisco’s richest citizens now work in close proximity to its poorest.

The Lawrence Halprin-designed fountain at UN Plaza. Source: Loren Javier/Flicrk.

The Lawrence Halprin-designed fountain at UN Plaza. Source: Loren Javier/Flicrk.

And that’s by design. The city’s hope is that the generous payroll tax breaks it gave Twitter and other companies as an inducement to settle in Mid-Market will pay off in the form of increased traffic to other local businesses, volunteerism by company employees, and other community benefits, all of which is starting to happen. But the number of San Franciscans living on the street or in emergency shelters hasn’t budged in years, and the gulf of wealth and opportunity that separates neighborhoods like the Tenderloin from the rest of San Francisco is, if anything, growing wider. The question posed by places like UN Plaza is whether technology-driven economic growth can continue indefinitely when such a large portion of the citizenry is being left behind.

Obviously, inequality is the issue of the day. Economist Thomas Piketty’s finding that capitalism, in the absence of progressive taxation, tends toward oligarchy, is now cocktail-party conversation around the world. That’s a good thing—it’s far more useful than debating whether the big banks deserved to be bailed out in 2008-2009. What I’m saying is that technology isn’t necessarily a leveling force, as many of its successful purveyors would like us to believe; in fact, it probably contributes to inequality by undermining wage growth for less-skilled workers.

Without major social programs to provide lower-income, less-educated workers with skills and resources they need to participate in the workforce and act as consumers, our technology-driven economic boom probably isn’t sustainable. And in any case, it isn’t leading us somewhere we want to go. Sharply unequal societies end up either moribund, or riven by revolution and chaos.

*  *  *

The five soft spots visited here aren’t the only ones where circumstances could turn against Silicon Valley’s current success. When the bubble pops, it might be due to some other cause, or several at once. But if we know where the innovation system is weakest, we can work to make it stronger. And we can think ahead about how to handle the next downturn—a message we’ve been hearing lately from no less than California Governor Jerry Brown, who’s proposing a constitutional amendment that would create a rainy-day fund for the state.

“While there are few signs of immediate contraction, we know from history that another recession is inevitable,” Brown’s proposal sensibly observes. So let’s be grownups about it.

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The Author

Wade Roush is a contributing editor at Xconomy.

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  • patrickrafter

    Wade: Thanks for this fascinating and thought-provoking article. As a native of San Francisco who’s lived in Boston for the last 20+ years, very interesting to see the state and cost of living in my hometown. I liked your editorial approach of using physical locations as harbingers of likely bubble trouble to come.

    • http://www.xconomy.com/san-francisco Wade Roush

      Thank you, Patrick. Boston has its own set of challenges. But the contrasts here are so stark…I’ve been gathering thread for this piece for a while, and could have added another five locations to the list. But people don’t have all day to read blog posts, and I had to stop somewhere.

  • Sridhar Vembu

    Great post, Wade. You have highlighted the collateral damage caused by the bubble well.

    The role of the Federal Reserve in blowing these repeated bubbles is also worth highlighting. As an institution, the Fed has failed us.

  • natalia

    Оченъ красивые фотографии) wade

    • http://www.xconomy.com/san-francisco Wade Roush

      Thanks Natalia, they’re all Creative Commons images from various Flickr users.

  • Frank Hofmeister

    Wade – Your thoughts and visions are very well timed and placed. Let’s hope some of the ‘grown-ups’ are paying attention? Thanks