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Silicon Valley and Finland 59informational economy, the symbolic level of products has become more andmore important. In fact, increasingly, people buy the symbolic experiencerelated to a product. Silicon Valley marketing companies, such as theMcKenna Group, realized this before others and understood how to makebrands of such complicated products as high-tech information technology. TheMcKenna Group was the company that made Intel and Apple into globalbrands.Silicon Valley is also based on its social fabric. Once the milieu was constituted,in the 1960s, the role of social networks of engineers and entrepreneurswas essential in consolidating it and in assuring its internal mobility and thecross-fertilization of innovation, as research by Anna Lee Saxenian (1994) hasshown. A triple supporting structure for new entrepreneurs – high-tech partnercompanies, an inheritance of the experience of successful entrepreneurs, andthe actual services for turning ideas into businesses – makes Silicon Valley anefficient machine. The result is a very fast transformation from an idea to abusiness with venture capital, legal and marketing capabilities, ready to link tothe global financial markets through an initial public offering.As Richard Gordon (1984) has analyzed in his pioneer research on SiliconValley, around this territorially concentrated milieu, global networks of innovationlinked up with Silicon Valley, making it a node in a global system ofinnovation. The ability of Silicon Valley companies to tap into the vast technologicaland labor resources of the entire planet came from their capacity touse networking and networking technologies earlier than any other firms, forthe simple reason that they were inventing and producing these technologies.The production of network technologies favored the networking of the productionprocess around the world. Once synergy was assured, the process keptfeeding itself, as greater speed of innovation led to increased capital, labor, andknowledge embodied in talent attracted to Silicon Valley.A final important element must be added to explain why Silicon Valley isso powerful, and that is its ability to be open to ideas from around the world.None of the “Fairchild Eight” was from California. Of the Eight, Jean Hoerniwho made the breakthrough innovation of the planar process – the cornerstoneof modern semiconductors manufacturing – was from Switzerland, andEugene Kleiner, one of the key people in establishing the Valley venture capitalmarket, was Austrian. Andy Grove, one of the founders of Intel, was fromHungary. Of the inventors of the microprocessor, Ted Hoff was born on theEast Coast and Federico Faggin was Italian. The four founders of SunMicrosystems were from Germany (Andreas Bechtolsheim), India (VinodKhosla), and elsewhere in the US (Bill Joy and Scott McNealy). Jerry Yang,the co-founder of Yahoo!, is Taiwanese. Solectron’s two key people were RoyKusumoto and Winston Chen, the former of Japanese heritage and the latterfrom Taiwan.

60 Pekka Himanen and Manuel CastellsPeople from around the world have come to Silicon Valley because it issuch an open environment within which ideas can flourish. This should notbe understood to mean that Silicon Valley just turns the ideas of others intobusiness. This would be quite untrue. Much of the innovation still takes placeamong the “locals.” Nor is it the case that immigrant innovators had theirideas in place before they came to Silicon Valley and came here just to realizethem. That is not the situation either. It is Silicon Valley’s open culture ofinnovation that nurtures people’s ideas. Often, they have also gone throughthe innovation-encouraging education of universities such as Stanford orBerkeley. But the role of immigrants is clearly increasing. In the 1990s, theUnited States granted, on average, 215,000 H1 special visas to highly qualifiedprofessionals every year. Anna Lee Saxenian has shown that almost athird of Silicon Valley engineers are immigrants and a quarter of Valleycompanies are run by Indian or Chinese chief executives alone (Saxenian,1999, 2002). Nowadays it is still said that the success of Silicon Valley isbased on ICs: not integrated circuits but Indians and Chinese. If we focus onnew companies that have been created recently, and include other immigrants,we probably come to a figure close to 40 percent of companies inSilicon Valley run by immigrants.Let us try now to analyze the process from the point of view of the firm, thekey unit in the Silicon Valley model of innovation.The Process of Innovation and the New Economy in Silicon ValleyWhat came to be labeled the “new economy,” first in Silicon Valley, and thenin the world, was not the dot-com business. This new economy, as all neweconomies in history, is characterized by a new process of production thatunderlies a substantial and sustained increase in the rate of productivitygrowth. This has clearly been the case in Silicon Valley and in the UnitedStates since the mid-1990s. From 1996 to 2002, labor productivity in the USgrew at an annual average of 2.8 percent, doubling the performance of1985–1995. Furthermore, productivity growth continued in 2001–2003 duringthe downturn of the cycle, and increased at a whopping 6.8 percent annual ratein the second quarter of 2003.Productivity measured by output per man hour grew by 4.1 percent frommid-2002 to mid-2003. Productivity growth was much higher in the informationtechnology industries. A number of studies, including those of the FederalReserve Board, have pinpointed the critical role played by investment in informationand communication technologies in the surge of productivity (Sichel,1997; Jorgenson and Stiroh, 2000; Jorgenson and Yip, 2000). However, someof these studies also show that it is only under the conditions of organizationalchange (networking) and the development of human resources (talented labor)

Silicon Valley and Finland 59informational economy, the symbolic level of products has become more andmore important. In fact, increasingly, people buy the symbolic experiencerelated to a product. Silicon Valley marketing companies, such as theMcKenna Group, realized this before others and understood how to makebrands of such complicated products as high-tech information technology. TheMcKenna Group was the company that made Intel and Apple into globalbrands.Silicon Valley is also based on its social fabric. Once the milieu was constituted,in the 1960s, the role of social networks of engineers and entrepreneurswas essential in consolidating it and in assuring its internal mobility and thecross-fertilization of innovation, as research by Anna Lee Saxenian (1994) hasshown. A triple supporting structure for new entrepreneurs – high-tech partnercompanies, an inheritance of the experience of successful entrepreneurs, andthe actual services for turning ideas into businesses – makes Silicon Valley anefficient machine. The result is a very fast transformation from an idea to abusiness with venture capital, legal and marketing capabilities, ready to link tothe global financial markets through an initial public offering.As Richard Gordon (1984) has analyzed in his pioneer research on SiliconValley, around this territorially concentrated milieu, global networks of innovationlinked up with Silicon Valley, making it a node in a global system ofinnovation. The ability of Silicon Valley companies to tap into the vast technologicaland labor resources of the entire planet came from their capacity touse networking and networking technologies earlier than any other firms, forthe simple reason that they were inventing and producing these technologies.The production of network technologies favored the networking of the productionprocess around the world. Once synergy was assured, the process keptfeeding itself, as greater speed of innovation led to increased capital, labor, andknowled<strong>ge</strong> embodied in talent attracted to Silicon Valley.A final important element must be added to explain why Silicon Valley isso powerful, and that is its ability to be open to ideas from around the world.None of the “Fairchild Eight” was from California. Of the Eight, Jean Hoerniwho made the breakthrough innovation of the planar process – the cornerstoneof modern semiconductors manufacturing – was from Switzerland, andEu<strong>ge</strong>ne Kleiner, one of the key people in establishing the Valley venture capitalmarket, was Austrian. Andy Grove, one of the founders of Intel, was fromHungary. Of the inventors of the microprocessor, Ted Hoff was born on theEast Coast and Federico Faggin was Italian. The four founders of SunMicrosystems were from Germany (Andreas Bechtolsheim), India (VinodKhosla), and elsewhere in the US (Bill Joy and Scott McNealy). Jerry Yang,the co-founder of Yahoo!, is Taiwanese. Solectron’s two key people were RoyKusumoto and Winston Chen, the former of Japanese herita<strong>ge</strong> and the latterfrom Taiwan.

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