By Philip Matteini
The Rise of Silicon Valley
In the mid-1950s, the semiconductor industry was run primarily in East Coast cities such as Boston and New York. Seeing an opportunity, a recent Harvard MBA named Arthur Rock convinced former employees of the failed Shockley Semiconductor Laboratory to form their own company in Palo Alto. With the financial backing of New York entrepreneur Sherman Fairchild, the group formed Fairchild Semiconductor in October of 1957.
Thanks to Rock’s fundraising and Sherman Fairchild’s connections in the electronics industry, the group quickly attained lucrative contracts in the public and private sectors. By the mid-1960s, the group generated more than $90 million in sales annually and became the second-largest company in the computer chip industry. When the company was eventually bought out, four of its original employees provided Rock with funding to launch Silicon Valley’s first venture capital firm, Davis & Rock. Another four provided the financing that helped a former Fairchild Semiconductor employee launch Advanced Micro Devices (AMD), a multinational semiconductor company with a current market cap of nearly $100 billion.
The commitment of Fairchild Semiconductor’s original eight employees to reinvest both their knowledge and capital transformed the local community. In less than two decades, an industry based almost entirely on the East Coast had relocated nearly 3,000 miles across the country to a farming community in Northern California. The efforts, financial and otherwise, of Arthur Rock and Sherman Fairchild to Kleiner’s California team represented a break from conventional, industry-wide attachment to the northeast. As the United States enters an era defined by heightened political division and emerging disruptive technologies, innovators find themselves at a new crossroads.
“How can I help?”
In December 2020, Founders Fund principal Delian Asparouhov suggested that “we move Silicon Valley to Miami”. Miami Mayor Francis Suarez promptly responded: “How can I help?”. Suarez’s response and its ensuing virality provided a sudden sense of legitimacy to a movement years in the making.
Miami’s population has grown by nearly 20% in the last decade. Many of these newcomers arrive from cities such as San Francisco and New York, where rising living costs are driving residents out. In the Bay Area, residential rents are down roughly 20% in the past year. moveBuddha, a booking platform for moving companies, revealed that 90% of its San Francisco-related searches were for people moving out. While heightened office vacancy rates in the area are understandable given the COVID-19 pandemic, the disparity in residential real estate prices between Miami and the Bay remains astounding: $45.45 per square foot in Miami compared to $64.12 in San Francisco.
States experiencing an increased outflow of tech workers also have higher taxes and stricter regulations on businesses. For instance, California’s landmark 2018 law requires companies with principal executive offices located in the state to have one female director on their board of directors. According to the law, by the end of 2021, companies with six or more directors must have at least three female directors. Industry watchers also point toward the efforts of legislators to impose a wealth tax for high-net-worth individuals. Florida, on the contrary, has both a low corporate income tax rate and no personal income tax.
Miami’s friendlier business environment has made it a viable alternative to more expensive, traditional industry settings. This is reflected in the growing volume of tech professionals among the many newcomers. Despite the ongoing pandemic, Miami gained 3% more tech workers in 2020 than it did the previous year. In San Francisco and New York, the inflow/outflow ratio of tech workers declined by 20% and 35% respectively for the same year. Additionally, Mayor Suarez’s pro-tech advocacy has prompted some of the world’s most successful businessmen, including Elon Musk and Peter Thiel, to seek meetings with him. A recent announcement from the Mayor’s office noted the plans of seventeen large financial and technology companies—including Spotify, Goldman Sachs, and Blackstone—to either move their headquarters to or open permanent offices in the city.
Miami’s Structural Challenges
Though Miami’s tech scene has been on the rise for several years, it still lacks some of the fundamental traits of a tech capital. Fast growing tech ecosystems tend to have a few things in common: strong economies with business-friendly regulations, top-tier universities that produce talented engineers, and locally headquartered tech companies. Despite demonstrating tremendous growth in the last decade, Miami still falls short in the areas of education and local business. Bill Gurley, general partner at Silicon Valley-based venture capital firm Benchmark, recently suggested that prominent tech ecosystems require at least “three independent public companies north of a $10 billion market cap founded in the region.” South Florida has only one: Chewy.com, a pet food delivery company acquired by PetSmart for $3.35 billion in 2017.
As far as education, Miami lacks the presence of elite universities seen in other cities such as Austin and Boston. The University of Miami (UM), widely regarded as the region’s most prestigious academic institution, cannot compete with the country’s best universities. To its credit, UM has mostly distanced itself from its party school reputation of the 1980s and ‘90s, made possible by the leadership of renowned educators Edward T. Foote II and Donna Shalala. Still, the school’s undergraduate program sits on the periphery of US News’ list of the top fifty universities nationwide; its graduate programs in business and engineering are ranked #60 and #118 respectively. Notably, just over two-thirds of full-time MBA graduates are employed following completion of the program. In comparison, the country’s top programs (the University of Chicago’s Booth School of Business and Northwestern’s Kellogg School of Management) tend to produce employment rates higher than 80%.
These shortcomings are complicated by Miami’s outsized exposure to environmental concerns gripping the nation. Experts predict that sea levels in the city could rise by three to six feet in the next fifty years, making Miami one of the most environmentally vulnerable metropolitan areas in the country. The city’s poorest residents are those most susceptible to climate-induced displacement. A study conducted by the American Society of Civil Engineers revealed that racial minorities face higher exposure to the effects of climate change. This is particularly true in the case of Hispanic and non-Hispanic Black Miamiains who are significantly overrepresented in inland flood zones.
Climate change threatens to expose Miami’s most significant burden to success: inequality. According to Census data from the 2019 American Community Survey, Miami is the city with the third-largest income inequality gap in the United States with a population of more than 300,000. Liberty City and Little Haiti, two of Miami’s poorest districts, are comfortably situated at fifteen feet above sea level. This makes them a prime target for gentrification, with the goal of providing an alternative to high-income, coastal flood zones more susceptible to rising sea levels. Recent efforts in this direction have resulted in rising costs of living for low-income residents and pose threats of increased poverty and strains on city resources.
Policy approaches to mitigating these concerns will require more than a few tweets from Mayor Suarez. The bottom line is that despite possessing many pull factors for tech professionals, Miami must also address its substantial structural baggage. When William Shockley first formed his lab, he experienced difficulty convincing semiconductor engineers to come work in a region without long-distance telephone service. Miami’s public officials face an even greater challenge convincing tech workers to put down their roots in a city without a cohesive vision to address its broad-ranging systemic concerns.
Looking ahead
The birth of Silicon Valley through the Fairchild team’s reinvestments was no accident. It occurred due to a combination of the employees’ expertise and a geographical gap of industry between the two coasts. A relative absence of tech companies outside of the northeast made Northern California an attractive alternative ripe for growth. A common misconception is that the first semiconductor companies were started in Stanford University’s Tech Park. The reality is that there is no meaningful connection between Stanford and the growth of Silicon Valley.
Yet, Stanford’s reputation as a consistent supplier of tech leaders and workers did aid in Silicon Valley’s rise. Research by Stanford’s Engineering department led to the creation of one of the first university semiconductor labs in the world. Despite not producing any early advances in the field, it provided key training to students, greatly improving the local supply of engineering talent.
Similarly, the growth of Miami’s tech sector is contingent upon the collaboration of all its institutional forces toward a common goal of greater regional wellbeing. Its current reputation is one of being a “lesser-evil” compared to expensive, anti-business alternatives. The city instead must focus on improving its own merits. Its business leaders must continue to innovate, but with an eye toward how their products impact the local economy. Its public officials must incentivize and work together with private entities offering solutions to environmental and infrastructural challenges. Its universities must seek avenues of integration with a vast and rapidly expanding network of tech businesses and startups. Silicon Valley’s success story is attributable to comprehensive growth in the region, impacting areas not only confined to the tech industry. Miami’s reputation will be determined by its ability to organize and execute a unique strategy that combines economic growth with equitable societal improvement.