Silicon slump - Recovering from the dot-com bust

SAN JOSE, Calif. -- Social worker Luisa Chavarin thought she had left unemployment and crime behind when she emigrated from Guadalajara, Mexico, to Silicon Valley, the epicenter of the global technology industry.

But a four-year economic slump, combined with draconian reductions in state and federal funding, shuttered her 13-year-old son's after-school program. Because of budget cuts, trash piles up at her local park, and graffiti doesn't get painted over.

Everywhere around her are signs that her neighborhood is regressing, from abandoned cars to sidewalks blocked by rusty grocery carts.

"Nobody in our community is feeling optimistic," said Chavarin, 38, who coordinates youth programs at a San Jose community center. "Cars are in the streets, abandoned. Crime is up. If you call the nonemergency police number, it takes forever. I'm very worried about the future."

Silicon Valley's optimistic entrepreneurs and venture capitalists insist a rebound is around the corner, despite all the shuttered office parks and business plans that anticipate hiring more employees in India, Russia or China than in California.

They point to nebulous indicators: Traffic jams are returning. Office vacancy rates have stabilized at about 17 percent. The moneyed crowd has to wait for seats again at posh Palo Alto restaurants.

But others are skeptical. Workers in the Bay Area are the most pessimistic in the nation, with 27 percent worried about losing their job, according to a July survey by staffing firm Hudson Highland Group. Only 18 percent of workers nationwide share that fear.

Santa Clara County -- which has San Jose and the corporate hubs of Cupertino and Palo Alto -- has lost 231,000 jobs since the peak of the dot-com bubble in December 2000, according to a recent report from San Jose Mayor Ron Gonzales.

By contrast, the entire state of Ohio has lost about 200,000 jobs in the same period.

Some say that unlike Midwestern manufacturing jobs, Silicon Valley's lost positions were little more than "bubble jobs" -- superfluous titles given to caffeinated college grads and programmers during the dot-com boom. But restaurants and retailers still miss the ripple effect of those high-tech paychecks.

Seattle, Boston, Denver and Austin, Texas -- all of which attracted technology companies during the boom -- also are facing longer and sharper busts than cities with more diversified economies, said Creighton University professor Ernie Goss.

"Cutting-edge tech hubs have to reinvent themselves every cycle," said Goss, a scholar-in-residence at the Congressional Budget Office studying the economic impact of technology. "That reinvention and dynamism give them life -- and death. This is a natural cycle that can be ... brutally painful to workers and residents."

San Jose's unemployment rate in June dropped to 6.2 percent from a peak of 9.1 last year, but that may reflect job seekers leaving the area or giving up, since the number of jobs in the county hasn't grown since 2000. The national unemployment rate in June was 5.6 percent.

Partly because of tax cuts and the Iraq war, San Jose's city manager forecasts that annual revenue from the federal government will plunge 80.6 percent, to $1 million. Gov. Arnold Schwarzenegger's new budget, which removes $1.3 billion from local governments, wipes out $11 million more from San Jose's $725 million general fund.

The cuts are forcing the nation's 11th-largest city to charge an emergency response fee of $1.75 per phone line per month to support 911 dispatchers. San Jose's new budget eliminates about 50 jobs, reduces graffiti abatement and park maintenance, and closes eight community centers.

San Jose had planned to close its Olinder Neighborhood Center, which houses the nonprofit Northside Theater Company, until protests and $100,000 in independent funding saved it, according to Meredith King, 31, who helps run the theater.

"This being Silicon Valley, people think even social programs need to show a profit or be self-sufficient to exist," said King. "Having well-rounded, cultured kids, or making sure elderly people have bread to eat -- where's the immediate monetary benefit of that?"

Tens of thousands of high-paying engineering jobs have emigrated to lower-cost countries, and economists say they won't return. Cynthia Kroll, senior regional economist at the University of California, Berkeley, said one in six jobs in Silicon Valley -- one in nine nationwide -- could be vulnerable to offshoring.

That means residents can't rely on bellwethers -- Hewlett-Packard Co., Intel Corp., Cisco Systems Inc. and Adobe Systems Inc. -- for job creation.

"We hope we're seeing at least a bottoming out," said David Vossbrink, Gonzales' spokesman, who noted that the county has lost only 13,500 jobs in the past year. "These days, that counts as optimism."

What state and city officials should do is lower the cost of living, bolster the University of California and community college systems, and otherwise welcome entrepreneurs and small businesses, said Sean Randolph, president and chief executive of the Bay Area Economic Forum. But California's latest budget only narrowly avoided steep cuts to higher education.

"In the next rebound, the jobs won't be created here in the same proportion as the tech industry as a whole," Randolph said. "We need to get our act together. There's no room for complacency."

Diane Greene, president of Palo Alto-based software company VMware Inc., acknowledged that consolidation in her industry has shrunk the job market. But like other executives, she points to the expected initial public stock offering of Mountain View, Calif.-based Google -- which will likely make hundreds of employees millionaires -- as an example of the valley's irrepressible resilience.

"I know I exist in a fairly sheltered high-tech world, but to me all the signs are optimistic," said Greene, whose company was acquired by Hopkinton, Mass.-based EMC Corp. "Certainly in the tech community people have good reason to believe that, even if the economy is still a bit difficult, people executing valuable new technology will not hit any roadblocks."