Is Silicon Valley Successful Despite Its Public Infrastructure?

Stefan Dyckerhoff, a partner I respect at SHV, recently said “Silicon Valley is successful despite its public infrastructure.”. (he’s also an immigrant, by the way)  One has to wonder though, how much of a positive impact the public infrastructure can really have on a hi-tech company?

Yesterday I was riding the Caltrain home from the office, when all of a sudden the train stopped. Apparently, a vehicle got hit in Menlo Park and all trains have stopped for a couple of hours as a result (naturally, I jumped on a surge-priced Uber as a result at 2.1x).

I’m originally from Israel. A few years ago, after a series of similar incidents, the department of transportation decided that all risky rail crossings must be separated (so the road must go below or above, and not cross, the tracks). That is clearly a public infrastructure investment decision geared at saving lives. Some, though, argued it also helped the economy.

But, has it really helped the economy? How do we know?

There is generally a wide agreement that investment in public infrastructure improves the economy.  Examples include research conducted on the Mexican and Chilean economies and generally correlation is found. Causation though, is debatable.

The debate gets even more heated when one looks at the hi-tech industry. Is that industry affected at all by the investment in public infrastructure? If you look at California’s five-year public infrastructure investment plan for 2014-2019, you’ll see the main focus is around:

  • Judicial Branch – except for the odd lawsuit, I’m not sure this has a positive impact on the hi-tech industry.
  • Transportation – I spend quite a bit of time and money on the road/tracks. Better public and private transportation would result in less money wasted. I don’t see this necessarily impacting time, though, as usually I’m not driving and am doing something else on the way (phone calls, emails, etc.) anyway.
  • Natural Resources – I love parks, I take my kids to them often, I respond very positively to the color green and the smell of freshly cut grass. However, I don’t see this helping the hi-tech industry much.
  • Education – well, this definitely has a long-term impact on the success of the hi-tech industry. There are some really good K-12 schools here and of course some top colleges and universities. These are fueling the growth and success of startups and we don’t need to collect a lot of data to prove this has a positive impact on Silicon Valley’s hi-tech industry.
  • General Government – frankly, non of the sub-items there I could say has a positive impact on my ability to work or build a company.

When one measures the impact of investment on the economy, the decreases in production costs and increase in productivity are the metrics tracked. If we look at a recent analysis by Tomasz Tunguz on the “production costs” of a startup, we see the increase is dramatic and is fueled primarily by wages. Are wages increasing due to the high costs of living in CA, or due to high demand for talent and the positive impact of such talent?

One can also look at this as a whole – hi-tech relies on talent, and if talent can’t move here (due to high costs, lack of real estate, etc.) then startups will experience talent starvation, will pay more for the same talent and will be less successful. There clearly is a talent shortage in Silicon Valley right now, but I’m thinking it’s caused by an explosion in startups rather than an inability to get people to live here. So investment in public infrastructure would do little to reduce the wages.

To summarize, is it possible that other than education, an improved public infrastructure really wouldn’t do much to help Silicon Valley grow? And if so, what do we even care about the public infrastructure except for the mild frustration of being stuck on a train?

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