State of the Valley | Roger Royse

State of the Valley | Roger Royse

Transcript:

Welcome to American Dreams keys to success with your host, Alan Olsen.

Alan 0:05
Welcome back. I’m here today speaking with Russell Hancock. He’s the president and CEO of joint ventures, Silicon Valley. Welcome to today’s show. Thank you. Delighted to be Russell, give me some background on how you worked your way into the CEO of joint venture in Silicon Valley. No, I’ve been doing this for about eight years. I was previous to that at Stanford University, where I continued to teach and the Public Policy Program. Previous to that I was vice president of the Bay Area Council, a business sponsored organization working on regional policy issues. That’s my background. So you well familiar with this whole political, I guess, in the Bay Area, the Bay Area politics and also the business communities. And I think I know my way around the Bay Area, who’s totally powerful organizations Bay Area Council and joint venture Silicon Valley now, a PhD from Stanford, yes. Wow.

Russell 0:58
Stanford is a great place. It’s an institution that is firing on all of its cylinders, as well funded. Some of the smartest people on the planet are there it’s a, it’s a privilege to be associated with it. I especially enjoy teaching students, the undergraduates. Brilliant.

Alan 1:13
You know, I, I’ve had the experience, I go to Stanford on monthly basis as part of one of their organizations there. And we meet with a lot of these leaders that you’re you’re referring to. And, you know, it’s interesting how between Stanford and Harvard, which they have a close working relationship,

Russell 1:29
it’s true.

Alan 1:30
You know, a lot of the leadership of the world is coming from the schools there.

Russell 1:34
Yep. Yeah,

Alan 1:35
Let’s move over to joint venture Silicon Valley. So you’re probably best known you’re there’s a lot of things you do. But every year you do a very large conference, at dam at the McHenry conference center.

Russell 1:48
Yeah, it’s called the state of the Valley Conference. Great. It’s a great gathering. We love this about joint venture, the whole idea is to treat it like an old fashioned town hall meeting, very much in the spirit of when our country was founded, people would gather on the village green, and they would talk about the problems or the opportunities that we’re facing them. That’s what the state of the valley conferences, we had 1500 people there last year. These are people coming from all walks of life. These are political types, certainly business types, venture capitalist entrepreneurs, journalists, concerned citizens, they all gather at the convention center. And we spend the day talking about what’s happening in Silicon Valley. In fact, we release a report in conjunction with the conference, the report is called the index of Silicon Valley, you can download it at our website, joint venture.org, the index lays out this whole workup of indicators that tell us how the valley is doing 60 different indicators that we measure from year to year. So we put all the indicators out in front of everybody, we brief the audience on what those indicators are showing. And then we spend the rest of the day talking about it. It’s dialogue. It’s discussion, there’s panelists, there are luminary speakers who will come in and talk about our trends and challenges. And we try to figure out where we go from here as a region.

Alan 3:08
Now, that makes the question, what is the current state of the valley?

Russell 3:13
Well, it’s a complicated question, but I’ll give you the simple answer, which is the valley is roaring back. And it’s really quite remarkable. Silicon Valley, you could say was the last to succumb to the recession that overtook our country, we were still creating jobs going into 2009. But it finally overtook us. And yet now here, we are, clearly the first to emerge from the recession. And we really are leading the state back. And I would say the nation back to a full and robust recovery. It’s it’s being fueled by certain key sectors, cloud computing, mobile devices, software, especially the software that support mobile devices. So the whole applications industry, also Internet companies, internet based companies, social media, that’s what’s driving this phenomenon. 42,000 new jobs in Silicon Valley in 2011. And 2012, I will venture to say it’ll be double that.

Alan 4:10
Wow. And these are new jobs,

Russell 4:12
new jobs,

Alan 4:12
that that’s amazing. You know, I heard a statistic recently that 50% of the venture money in this country, or in the world and runs right here through Silicon Valley.

Russell 4:23
That’s, that’s pretty close to correct. Right here in Silicon Valley, we will generate more than one out of every $3 in venture financing. And then most of that will be spent right here in the in the region. Yeah, there’s there’s no place in the world that’s quite like this. It said, well, then then I guess we’re we have a bullish indicator on the future of since, you know, as we look out into the future with technology, cloud computing, it looks good here. Sure. If we’ve been doing this for 70 years, I want to point out we’ve been moving into new industries, we revolutionize them. We create the companies that become world beaters, household names they car about that advantage in those areas. And then what also happens is that those industries will mature. They will even go defunct. And then we’ll move into new promising areas. And here it is happening again in social media also in clean technology. So it’s good. I think, I think the valley is mostly doing the right things.

Alan 5:18
I’m here today visiting with Russell Hancock. He’s a CEO and President of joint ventures Silicon Valley, we’ve been talking about the state of the valley where we currently rest. And I’m going to be talking with Russell shortly on the issues that California citizens need to be aware of, that they’re not currently giving attention to. It’s a hot area as we develop the technology sector in this area of the world. And we’ll be right back after these messages with Russell Hancock,

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Alan 6:23
Welcome back and visiting here today with Russell Hancock. He’s the president and CEO of joint ventures Silicon Valley. And before the break, we were talking about what was going well, in Silicon Valley, but rich, I wanted to toss this wrestle. Excuse me, I want to toss this back to you. What’s not going well, in the valley today?

Russell 6:42
Important question, I’m glad to have it. There’s a couple things that are of genuine concern. One is that even though we’re this prodigious economy, churning out tech jobs, we’re not actually creating jobs across the full spectrum. And this is a new development for Silicon Valley, it used to be that a boom in the tech sector was a was a tide that would lift all the boats. And we would create all kinds of ancillary positions that would go along with it support positions, administrative positions, and so on, so forth. What’s happening today in Silicon Valley is we’re not doing that. We’re experiencing a genuine hollowing out of our economy. The jobs we are generating are terrific jobs, but they’re high skilled jobs, you have to be highly trained, you have to have specialized tools. In many cases, you have to have advanced graduate degrees. These are people that are doing science, technology, coding, sophisticated finance, those are the jobs that we’re generating. So the good news is, if you’re qualified for that, this is the place where you can pursue your future. The bad news is we’re not generating the jobs that support those kinds of positions. And so in Silicon Valley, we’re not seeing a whole class of people that we used to routinely develop here in Silicon Valley administrators, Phylis filers, archivists, coders, even basic kinds of research, not happening in this valley anymore. And so what we’ve become is a classic hourglass economy. This is an issue, it has lots of community implications. And they’re things that we have to talk about as a region, if we’re in fact, only to become this hourglass economy with this big divide between the haves and the have nots,

Alan 8:20
you know, recently I had an individual come into our office, we get a lot of new startup companies and their as they find success are obviously looking for proper structure and scaling companies. But when the guy came in, he had four employees. And in nine months, he had scaled a $10 million company with poor people. And so I said, Well, what does it take to get to the next 20 million revenues? How many more employees because I don’t need any more employees?

Russell 8:44
Exactly. That’s the point. We’ve created a new economy, we’re living in a strange new world where you don’t need people. So we’re laying this economy this that used to generate bazillions of jobs. Now we generate a few jobs, but we still have bazillions of people. So I don’t know, I don’t know how that’s going to shake out. And it’s a huge question mark, looming over our region. But can I tell you one other Yeah, let’s go the next. There’s one other thing that I think is a dark cloud over Silicon Valley, and that would be the public sector. There’s an irony at play here, which is we have the world’s most dynamic economy, it’s prodigious. It’s firing on all of its cylinders. And yet in the same place, we have a public sector that’s dysfunctional, and completely broke. And there many reasons for that we could talk about it. But one clear reason is that we don’t have a tax system in our state that tracks with this 21st century economy. We have a tax system that was pegged to a 19th century economy. So there’s a complete mismatch here. And so you have the public sector, doing dysfunctional things, and also not generating the kind of infrastructure and revenue and other kinds of support systems that you really need to have in place where We have a world class economy. We have a world class companies, but you cannot say that we have a world class infrastructure in place to support those companies. And so there’s some real question if we can keep doing this wrestle the the the Christian Science Monitor recently wrote up an article that California Governor Jerry Brown announced that tax questions were coming in below projections. This means that California will face a 4 billion deficit at the end of the current year, if lawmakers failed to take corrective action by the end of next fiscal year, the deficit would go to 16 billion all happening all true. In fact, it may be even worse, because those projections were planning on a Facebook valuation of $35 a share, which apparently is not going to happen. So it could be even worse than that, we have a problem, we have a fundamental problem in California, which is we’re running chronic deficits, we haven’t found a way to close the gap. And so we faced some really difficult choices. One is a massive amount of tax increases, more than anybody would ever stand for. The alternative is to figure out another way, which is massive cutbacks, or new entrepreneurial ways of delivering government services, we have to figure this out. But I’ll tell you one other thing that we have to figure out is a better way of collecting taxes in the first place. We have a system that’s based on property taxes, and, and retail sales taxes, also pegged to things that are wildly fluctuating like capital gains, and stock options. And so you just have this crazy, these crazy, sinuous, you know, sinusoidal curves going on in our government spending and our government revenues. But they’re not pegged to reality, what we need to do is capture the service economy, deal with Internet transactions, and take a fundamental look at prop prop 13, and property taxes which are no longer performing.

Alan 11:53
Russell, we need to take a quick break here. But I’d like to get back on the next segment heavy stay over. And let’s talk more about the California’s economic woes today and the things that we should be focusing on for the future. Look forward to it. We’ll be right back after these messages.

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Alan 12:42
Welcome back. I’m visiting here today with Russell Hancock. He’s the CEO and President of joint ventures Silicon Valley. And before the break, we’re talking about California’s problems and the things that the we need to now be focusing in on. And I’d like to pick up the discussion from at this point of moving forward. How does California address its problems, both private and public sectors?

Russell 13:06
Hard problems. I give our governor love credit. He’s doing the hard things. He’s asking hard questions. He’s he’s willing to make himself unpopular. But we have basically two kinds of problems that we have to solve. One are our political problems. The other are our economic problems, or I’ll call them the way we do tax and budgeting in our state, the political stuff, we’re making some progress. The problem is that we have a legislature that is stalemated. And a lot of people say why why is that? Why can’t these people get along? What California’s need to understand is that we did this, we did this to the legislature, because we created a system that makes it structurally impossible for these people to bridge the divide. We have a primary system that he likes the extremes from both parties. General Elections are meaningless in very safe legislative districts. And so what you have are people that have come from the extreme sides of both parties, they have no incentive to get to get together, they only have incentives to block and obstruct. And of course, politics can’t proceed in that fashion. Politics is all about meeting in the middle, making compromises, finding a way to move forward. So we have to address the root causes the structural issues that are causing this divide. You do that through the open primary system through redrawing your districts. Fortunately, we’ve done that it’s going to take some years to see the effects come in. But we need to continue making progress on the political front in those ways. On the other side, we’ve really got to look at the way we do tax and budgeting in this state. You know, huge ideological questions abound about how much taxes we should generate. And I don’t even want to talk about that. Those are important questions. That’s what we have elections for. But the real issue here is that the way that we collect those taxes or whatever level they’re just doesn’t work for us anymore. The instruments that we’ve chosen to collect those taxes are antiquated. We’re using the retail set retail tax, retail sales tax as Our principle device, we’re using stock options and capital gains as a wildly fluctuating. And then of course, prop 13. And the way that we collect property taxes, most people don’t understand that there’s been a significant turnover in the housing stock. Most people bought their houses at the peak, those houses are now undervalued, many, even underwater. So when they’re changing hands, or when the new valuations come in, they’re assessed at lower value, that means less revenue for the state. So our revenue picture is actually bleak. If we’re not going to see revenue growing in the state of California, we’re going to see revenue shrinking this at a time when our population is growing, our infrastructure is creaking our education system woefully underfunded. So these are horrendous problems. They need real leadership, people willing to ask hard questions, and also to live with some hard answers.

Alan 15:55
You think, with respect to the state of California, we also have a spending problem.

Russell 16:01
I don’t I don’t dispute that. The problem with government programs is they come to be seen as a right or as an entitlement. And the government programs are instituted when revenues are at a certain height. But when revenues then fluctuate downward, we never adjust the program. We’ve never had that kind of discipline to do that. So we have that problem for sure. In California, we need to think about the appropriate level of government services. We also need to think about more entrepreneurial ways of delivering government services. And there’s a lot of room for that.

Alan 16:32
Yeah. How do you incentivize going back to the private sector? How do you incentivize the private sector to want to be here in California? I mean, you know, they got a multitude of choices, they go across the board in Nevada, no income tax at all.

Russell 16:47
It’s all true. There’s a lot of myths about this. The fact is, I don’t think you have to do much incentivising in California, the state sells itself. It’s unbelievable. Mediterranean climate, world class amenities, incredible assets, a talent base that is better than any other region, bar none. These amazing research institutions, national labs, their federal their federally funded it great universities and graduate institutions, the venture capital industry, it’s all here, you don’t have to sell this state, I think the the role of the government is, number one, get out of the way, don’t be an impediment to private investment to research and development and to entrepreneurial activity. So that’s one thing. And the second thing is to be a facilitator to be a partner and to be functioning. And I really want to stress that we need a functioning state government, not a dysfunctional one, but a functioning one so that it can play its appointed role, providing the infrastructure that we need, making those key investments in research, development and higher education. With all that said, though, the past 20 years or so, we’ve seen a migration and manufacturing jobs moved from this state to other countries. It’s true. There’s something that we really need to understand California, especially Silicon Valley, the Silicon Valley economy was not built by Californians. It was actually built by immigrants, people coming from other places. Even today, two thirds of our scientists, engineers, and entrepreneurs are Indian, or Chinese two thirds. So that’s been our secret sauce. The secret sauce is that people have come from all over the world, they’ve come here, they’ve flooded our state, they’ve done amazing things. They’ve been entrepreneurial. They’ve been creative. If we want to continue in this in this way, we have to continue to follow that path. Because when you ask if the rising generation is qualified to step into those jobs, those rarefied jobs that we create, it’s actually an open question. The evidence is not good. The indicators show that we’re not performing well, in science and and in math and technology, we’re not performing well, there. The test scores are low, there’s huge disparities by race. So if if we don’t have a pipeline of people coming in here, California really is in trouble. He has all real good thoughts.

Alan 19:07
I’m visiting here today with Russell Hancock, he’s a CEO and President of joint venture Silicon Valley. Russel also holds a PhD from Stanford University in political science. And so he’s he’s well in tune to the the issues of Silicon Valley today. And, and also his role is to help be a liaison between the the private and the public sector getting involved. So Russell, if people want to get in contact with your organization, learn more, how did they do that?

Russell 19:35
Very simply, you go to our website, joint venture.org.You can sign up to be a member of our mailing lists, be invited to all of our joint venture events. It’s all free. And we would love to have people and you meeting on a monthly basis. Joint Venture meets all the time. We have all kinds of working groups, subcommittees, task forces, we’re generating all kinds of project activity. And then we have large events such as our annual State of the Valley Conference. So if you sign up at joint venture.org you can be notified of all of it

Alan 20:04
join venture.org and get involved with Silicon Valley joint ventures a great organization and doing doing much for our community here. Thank you. Thank you for being on today’s show. We’ll be right back after these messages. You’re listening to American Dreams with Alan Olsen on AM 12 20k d o w

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About Roger Royse

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries, including technology, entertainment and new media, sports, real estate and agri-business. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms as well as Milbank, Tweed, Hadley and McCloy in New York City.