As we live in an increasingly interconnected, global economy, numerous factors directly affect a state’s global competitiveness. In the case of California, these factors are abundant: the ability to spur groundbreaking research and to transfer resulting technologies into the private sector, and the willingness to take significant risks on new technologies.
The release of the 2015 Best Performing Cities Index in December showed that these factors bring rewards in the form of economic strength, with San Jose finishing first in the U.S. among the 200 largest metros—and an astonishing six metros out of the top 25 coming from California. The Index demonstrates that metros that maintain a clear edge not only in innovation but also in tech-related employment consistently perform better over the long term than ones that do not. Partly because of this, countries around the world are aiming to replicate the California model. This means the state’s success cannot be assured if it simply rests on its laurels. With a reputation for burdensome regulation, high costs and a slow and unpredictable permitting process, California is already finding itself at a competitive disadvantage in a number of sectors. It is essential that California focuses on the areas that have made it great.
First, California must ensure that it continues to invest in its research universities—not only for their technological output, but also for the skilled workers and entrepreneurs they produce. According to the 2015 Shanghai Academic Ranking of World Universities, California is home to an astonishing six of the top research universities, ranging from Stanford University at number 2, to the University of California, San Francisco at number 18. Three of the top seven are in the San Francisco area, two are near Los Angeles, and one is in San Diego. Of the top 100 research universities, 11 are in California. But significant rises in costs for students, combined with concerns about the institutions’ capacity, raise the specter of the most talented young scientists and engineers leaving the state, before or after they earn degrees.
Second, California must continue its willingness not only to embrace change but also risk; both are pathways to success. Perhaps one of the most important strengths of California is the ability of its entrepreneurs to fail and try again. By some accounts, two-thirds of Silicon Valley startups do not last five years, failing to make it to an initial public offering (IPO) stage. But those risks should not simply be confined to traditional sectors of high technology, but also to emerging fields in green technology and even agribusiness.
Third, access to capital and a healthy business environment are essential for entrepreneurs to be willing to take risks in the state, not only in the leading centers, but also for those who cannot afford to locate around Silicon Valley and San Francisco or the emerging Silicon Beach in Los Angeles. By some accounts, up to 50 percent of all venture capital activity in the world flows through California. The presence of significant investors willing to participate at different stages of a startup’s life cycle plays a big part in California’s success in seeding tech innovation. But the availability not only of this venture capital but also of effective small business lending fades the further one gets from VC centers of activity such as Sand Hill Road. Too often, funders are more willing to travel across the Pacific to China or India than to explore emerging successes in places such as Sacramento, Fresno or Riverside. Even if firms in these locations do not fit conventional models for venture funding, their need for capital—and their potential for success—remains. It’s essential that local leaders create a more responsive permitting process to lure and keep both entrepreneurs and investors.
The world continues to look to California as the leading center of innovation, design and entrepreneurship. But if the state is to continue to lead, it must ensure that businesses are not only able to find their needed technology in-state, but also talent and funding. If California is willing to adapt and grow, its opportunity to be a world leader will continue.