(July 16, 2003, Palo Alto, CA) Silicon Valley has lost nearly 200,000 jobs since late 2000—at 18%, the largest decline in any large area since the Great Depression—larger than the job losses in Detroit, Houston or Los Angeles at their worst. The costs to individuals, families, businesses and communities are all around us.

The questions I hear are what happened?, where did the jobs go?, who’s to blame?, when will the jobs come back? and what can we do?

First, the national economy stinks. We are in the weakest national economic recovery in 30 years. Personally, I assign some blame to the President and Congress for not stimulating the economy sooner and more aggressively and for refusing to assist state and local governments across the country.

Second, regions rise and fall with their key industries. Tech is in a bad slump and we are the most highly concentrated tech region. It was fun on the way up and no fun at all as tech slumps. If it makes anyone feel better, Texas has lost a larger percent of their tech manufacturing jobs than California and Austin has lost a higher share than Silicon Valley. Like Los Angeles and aerospace a decade ago, our fortunes are guided by our tech dependence. No blame here.

Third, really bad luck!! Our trading partners are in a slump at the same time as domestic tech demand crashed. Exports fell by 50% in the Bay Area. No blame here.

Fourth, manufacturing productivity is surging. Companies can produce more with fewer workers. When sales growth slows to single digits, job gains are much tougher. No easy answers here. Productivity raises wages and lowers the costs of tech goods and services and there is neither way nor reason to stop companies from producing more efficiently.

Fifth, tech entrepreneurs collectively got ahead of the market--too many companies chasing the gold ring. People got hired and space was leased but there was no demand for their products. Perhaps there was bad management; probably just exuberance got the best of our judgment.

So, where did the jobs go? Mostly no place!! They just disappeared as in the company went bankrupt or were lost to consolidation as in HP and Compaq. That is why the nation has nearly 3 million fewer manufacturing jobs than three years ago. This is hard for people to accept. They want a villain. Some jobs did move to India and Singapore just as they have for thirty years but Texas lost bushels of manufacturing and tech jobs also.

There is only one entity with the mandate and power to move the national economy forward in times of recession and that is the federal government. Gray Davis did not create the international tech downturn just as Pete Wilson did not create the aerospace slump of a decade ago. And neither could turn the tide. It is a federal responsibility and their efforts have failed so far.

But, what can we do here in California? Lots!! Our job is to make California and Silicon Valley a place where entrepreneurs and talented people want to live and work. We have the ability to make the Valley an inviting place to live and work through policies favoring housing, education, infrastructure and world-class public services. And we need to eliminate any regulatory barriers that have no useful public purpose.

The road back will be long and tough (sustained job growth is at least a year away) but the Valley has strong assets. We retain leadership in venture capital (our share has not dropped) and the largest and most talented tech workforce in the world. But we must have the intention to fight for the next round of tech innovation.

We have gridlock in Sacramento about nearly everything and high emotions in our local communities about growth. California and the Valley are close to giving the world a very dangerous signal—a signal that we would rather point fingers than move ahead. For example, one area where Palo Alto could help is in providing more housing since the lack of housing puts the region at a competitive disadvantage.

I disagree with some of my professional colleagues about the best way to compete. I don’t think we should agree to every business request just as I do not think all environmental group requests have merit. But I do agree that being attractive to the businesses that bring prosperity to the Valley is necessary. We have to want it hard enough to overcome our disagreements and find enough shared interest to move ahead and quickly!!

Stephen Levy is Director of the Center for Continuing Study of the California Economy in Palo Alto.