Two tribes go to war: Silicon Valley fight over inequality

At an awards ceremony in Silicon Valley this week, one of San Francisco’s best-known angel investors took to the stage to laud the technology industry’s contribution to the area’s economy.

Ron Conway, founder of SV Angel, told an audience of start-up entrepreneurs and industry bigwigs, including Yahoo’s Marissa Mayer and Dick Costolo of Twitter, that he wanted everyone in the region to be part of the success. “We in this room cut unemployment [in Silicon Valley] from 10 per cent to 5 per cent,” he said to cheers. “We cut it in half.”

But outside the Davies Symphony Hall, demonstrators handed out their own awards for achievements such as “tax evader of the year”. Distributing toilet plungers instead of gongs and holding placards with Ms Mayer’s face and Twitter’s bird logo, they called on tech companies and workers to open their eyes to how the local community was being “dismantled”.

Mr Conway’s appeal at the annual TechCrunch Awards was part of a fightback by the industry against accusations that the spoils of the thriving tech sector, which drives the economies of San Francisco and the wider Silicon Valley, are not being shared equally.

But efforts to stress the positive side of hosting “big tech” companies such as Google and Facebook, and the booming start-up scene that surrounds them, have been overshadowed by mounting fears about rising housing costs and widening inequality.

In his address Mr Conway - who founded a non-profit organisation that helps tech companies contribute to the local community - recognised that the protesters have a point. “We may not agree with everything the protesters outside have to say, but they do represent anxiety over a widening income gap,” he said.

He called on Silicon Valley businesses to do more, including participating in a programme to “adopt” a city school and giving 1 per cent of their equity to philanthropic causes. “My message tonight is that we - that means all of us - must be leaders in tackling the challenges of housing, transportation and education,” he added.

A dispute is already rumbling in San Francisco about the hundreds of commuter shuttles that transport tech workers from the city down to Silicon Valley - and how little they pay to park. However, the protesters’ main issue was over the cost and availability of housing.

Young technology workers usually prefer to live in San Francisco rather than the suburban sprawl of Silicon Valley.

Average rents in San Francisco rose more than 12 per cent last year to $3,550 for a two-bedroom apartment - a point where only 14 per cent of units are affordable to someone on the city’s median income, according to data from Trulia, a real estate website. House prices gained 22 per cent last year to almost $1m for the average two-bedroom property.

Gabriel Metcalf, executive director of Spur, a San Francisco-based urban policy think-tank, also highlighted the problem of the city’s restrictive planning system.

Because San Francisco is perched on a peninsula it cannot be built outwards - and, unlike Manhattan, it has not been built upwards.

“A combination of increased demand from job growth with a very dysfunctional regulatory system makes it extremely difficult to add to housing supply,” Mr Metcalf said.

To underline the scale of the problem, evictions in San Francisco are up almost 40 per cent since 2010.

Russell Hancock, president of Joint Venture Silicon Valley, a regional think-tank, noted that while 33,000 people moved to the area last year, only 7,500 new housing units were built. “The housing problems are just horrendous,” he said. “This is not a hospitable place for lower earners, middle earners and even some higher earners.”

Emmett Carson, president of the Silicon Valley Community Foundation, even went as far as to compare the widening gap between rich and poor in Silicon Valley with disasters such as Hurricanes Sandy and Katrina.

“Rising tides do not lift all boats. We can see that clearly after a tremendous four years of job growth and growth in the highest incomes - yet inequality continues to exist here,” he said.

San Francisco and neighbouring counties Santa Clara and San Mateo have been in the top 10 fastest-growing large counties in the US since 2010 in terms of employment growth, according to the US Bureau of Labor Statistics.

Yet the Silicon Valley Index, an indicator released this week by Joint Venture Silicon Valley and the Silicon Valley Community Foundation, showed a tale of two valleys, where middle-class earners are being pushed out and the lowest earning ethnic group earns 70 per cent less than the highest.

However, Ted Egan, chief economist for the City and County of San Francisco, pointed out that virtually all the employment growth in the city since the end of the recession in 2010 has been due to the technology industry - whether or not it is in the industry itself.

Copyright The Financial Times Limited 2014