Silicon Valley has a regional-network-based industrial system -- that is, it promotes collective learning and flexible adjustment among companies that make specialty products within a broad range of related technologies. The region's dense social networks and open labor market encourage entrepreneurship and experimentation. Companies compete intensely while learning from one another about changing markets and technologies through informal communication and collaboration. In a network-based system, the organizational boundaries within companies are porous, as are the boundaries between companies themselves and between companies and local institutions such as trade associations and universities.

The Route 128 region is dominated by a small number of relatively vertically integrated corporations. Its industrial system is based on independent companies that keep largely to themselves. Secrecy and corporate loyalty govern relations between companies and their customers, suppliers, and competitors, reinforcing a regional culture that encourages stability and self-reliance. Corporate hierarchies ensure that authority remains centralized, and information tends to flow vertically. The boundaries between and within companies, and between companies and local institutions, thus remain distinct in the independent-company-based system.

The performance of Silicon Valley and Route 128 in the past few decades provides insights into regional sources of competitiveness. Far from being isolated from what's outside them, companies are embedded in a social and institutional setting -- an industrial system -- that shapes, and is shaped by, their strategies and structures.

Understanding regional economies as industrial systems rather than as clusters of producers, and thinking of Silicon Valley and Route 128 as examples of the two models of industrial systems -- the regional-network-based system and the independent-company-based system -- illuminate the different fates of the two economies... (read more)

Silicon Valley and Route 128  by Paul Mackun

Job mobility statistics show the extent of success of these networks: the average turnover rate for small-to medium sized firms was 35% and the average job tenure (in the 1980s) was approximately two years (Saxenian 1994). Geography probably played as critical role in this rate as the informal social contacts. The spatial concentration of a large number of technology-based firms enabled people to change employers without altering other aspects of their lives. When a person left one firm in Palo Alto for another, there was no need to move one's residence or take one's kids out of a particular school district to enter a different firm. The attitude of the Valley served as a catalyst for this risk-taking. In many cases, a small coterie of employees in a firm dissatisfied with their current place of employment would gather together after work to tinker around with some of their own ideas. They would then develop a business plan, acquire funds from venture capitalists, and seek advice from local academic sources. If they succeeded they were heroes. If they failed, many employers were located in the same town or in a neighboring community (Saxenian 1994).

As people in the region became occupationally mobile, their roles became interchangeable: employers become employees and co-workers can become competitors. The result is that the engineers developed strong loyalties to technology and their fellow engineers and scientists while possessing far less allegiance to a single firm (Saxenian 1994). Although it may seem paradoxical that such cooperation would occur under such obviously competitive circumstances, Saxenian (1994) notes the motto of the region: ' competition demands continuous innovation, which in turn requires cooperation among firms.' Rapid flows of practical information became the currency of choice. Applied scientific research was constantly reworked to develop market goods. It is not surprising that rapid changes led to industrial diversification and contributed to the flexibility and resilience of the economic region (Saxenian 1994). The lack of rigid hierarchies extended to the firms themselves. The traditional delineations between employers and employees were not so sharp as on the East Coast, and in some cases they disappeared entirely. Beginning with Hewlett and Packard, many of the Silicon Valley companies sought a much more interactive environment between employers and employees. Decentralization of powers followed: major divisions of firms were given a large amount of autonomy (Saxenian 1994).

'In short, Silicon Valley has a regional-based industrial system -- that is, it promotes collective learning and flexible adjustment among companies that make specialty products within a broad range of related technologies. The region's dense social networks and relatively open labor markets encourage entrepreneurship and experimentation' (Saxenian 1994) ... read more

The Birth of Silicon Valley:  by Carolyne Tajina

... to the early 1930's during the Great Depression. Santa Clara County, California, known as the Valley of Heart's Delight, was a tranquil expanse of apricot, plum, and cherry orchards. Professor Frederick Terman of Stanford University's Department of Electrical Engineering enjoyed the tranquillity, but he was concerned with the great lack of opportunities for Stanford Engineering graduates to find jobs in the area. His graduates had to go 3000 miles to the east coast because there were few jobs for them locally. He began to encourage some of his students to start companies near the university... (read more)

How I ended up working for a big corporation by Gregory Gromov

From the Gold Mines of El Dorado to the 'Golden' Startups of Silicon Valley  by Gregory Gromov    

Why was the law that enabled Silicon Valley's successful development passed all the way back in 1872 and only in the state of California?

Main Difference of the Legal Framework of Silicon Valley

Which of the main historical features of Silicon Valley has been instrumental in its development? There have long been discussions on this subject and very different points of view have been expressed. Many believe the main reason is the unique features of Stanford University. Others point out that the Valley is an exceptionally favorable place to live on the Pacific coast and therefore any researcher, engineer or programmer who comes there for some reason is not usually willing to leave.

Finally, those who actually have an interest in seeing that the research park created somewhere with their participation would obtain adequate government funding usually pay attention first and foremost to the fact that the starting period for the formation of Silicon Valley occurred during the period of one of the peaks of the "Cold War," when high-tech enterprises benefited from the "windfall" of defense programs.

Of course, each in its own way is correct, as well as all of them together. The valley provides an exceptionally comfortable place to live, the climate is wonderful and the university is remarkable in all respects. Hardly anyone would dare to deny the well-known fact of the growth in military spending during the "Cold War" period. However, it is most likely that none of the aforementioned facts, as well as any combination of them, are and ever have been so very unique to just one state in America to explain why just one California research park in the entire country would eventually become Silicon Valley

Let's then formulate the question more specifically for the present day - which of the differences of Silicon Valley is currently the most obvious? The answer to this question of course is known to everyone - the characteristic difference of Silicon Valley is that here you have world's fastest paced unstoppable introduction of scientific and technological innovations.

Hence, it raises the following question: What was California's totally unique characteristic "component" of the local socio-economic climate, which became the "catalyst" for the process of development of technical ideas that arose here (or were imported here) at the first attempts at their formulation by inventors to market the product?

With this catalyst of scientific and technological process acting locally in just one American state, a very special law was enacted in California in 1872...  (read more)

Upon Silicon Valley’s rise, this 1872 law ended nearly a century of obsolescence to acquire crucial significance in California, although in a significantly different context than that in which it had originally been written. It quickly turned out to be the most effective catalyst for the research technology rush that steadily, year by year, turned Stanford’s technology park into such a unique hotspot for high technology development in the United States

Shockley touches off the chain reaction leading to Silicon Valley’s formation

In the early 1950s, the industrial park on land adjacent to Stanford University in California was one of many such parks in the country and was far from being the most notable.

The spark that set off the explosive boom of “Silicon startups” in Stanford Industrial Park was a personal dispute in 1957 between employees of Shockley Semiconductor and the company’s namesake and founder, Nobel laureate and co-inventor of the transistor William Shockley.

As is likely true for the majority of outstanding scientists, Shockley was not known for his easygoing nature. As a result of this ordinary “production disagreement”, eight of his leading employees decided to quit to form their own firm, in direct competition with Shockley.

Shockley had only just formed his company “from scratch” a year earlier by hiring top performers from various universities, and this mutinous group of his former “students” formed Fairchild Semiconductor immediately following their departure, having received a USD 1.5 million investment from the New York company Fairchild Camera and Instrument.

After several years, Fairchild gained its footing, becoming a formidable presence in this sector. Its founders began to leave to start companies based on their own, latest ideas and were followed on this path by their own former leading employees. Thus, these generations of Silicon Valley’s latter-day pioneers are called “Fairchildren”.

Then began a sort of “nuclear fission” in personnel, where another crop of companies formed around the Fairchildren, and those leaving invited their coworkers along, who then went on to do the same...
The process gained momentum and what had once began in a Stanford’s research park became a veritable startup avalanche...

One of the most well-known of startups appeared in the earliest stages of this chain reaction. Gordon Moore and Robert Noyce, two of Shockley’s “Traitorous Eight”, left Fairchild Semiconductor to form Intel.

Thus, over the course of just 20 years, a mere eight of Shockley’s former employees gave forth 65 new enterprises, which then went on to do the same. The process is still going:

The 92 public companies that can be traced back to Fairchild are now worth about $2.1 trillion, which is more than the annual GDP of Canada, India, or Spain.

The First Trillion-Dollar Startup By Rhett Morris

UThe aforementioned “personal conflict” at Shockley Semiconductor can be found at the center of practically any study of the history of Silicon Valley. It is surprising that these histories fail to note that it was only in California that this conflict—a perfectly ordinary disagreement, easily found in any industrial park all across America—inspired this unique chain reaction and gave rise to the next generation of startups, who then went on to divide and reproduce, and so on in this sort of nuclear fission.

We again take up this question, critically important as it is in understanding the reasons that only California’s Silicon Valley hosted such a boom. Can it be that there had never been a personal flare-up of this kind, or even on a much greater scale, in all the other high tech companies, long-established in various industrial parks around the country?

Why was Stanford’s Research Park only host to Silicon Valley’s growth and development?

Conflicts between creative teams and their veteran leadership were of course common in all American industrial parks, both before and after the aforementioned disagreement at Shockley. However, the crux of the matter is that, with the exception of California, all across America there are many different agreements signed between business owners and their employees that restrict the employee’s right to quit and join competing firms or, even worse, go on to create his or her own company in direct competition with their former employer.

These non-compete agreements, which new recruits are required to sign (generally in the form of NCAs or NCA & NDAs) play the role of graphite rods in a nuclear reactor, slowing the chain reaction of creation of new startups all over America.

Thus it was that these decelerators in the process of creating companies to compete with the industry’s established figures were legally withdrawn from the nuclear reactor of innovations in what would many years later become Stanford Research Park.

As was noted earlier, it was in California (and only in California) that a particular law emerged in 1872 that defended the employee’s freedom of movement, the right to leave his or her employer at any moment, even to immediately go to work in direct competition with their former employer or to create a competing firm on their own.

Timeline of events in the 100 years leading to Silicon Valley’s creation

1848—The first year of the Gold Rush. All over the world spread rumors of fabulous gold reserves discovered on the west coast of North America. Gold was discovered in El Dorado County, not far from Sacramento, the current state capital of California, and “El Dorado” entered the vocabulary of treasure-seekers around the world.

1849—The first tens of thousands of the more adventurous of gold-seekers from all over America arrive in California, in what was at that time still a territory of Mexico. Not counting the Native Americans, only about 2000 Americans lived there at the time... Thus, the first tens of thousands of California gold seekers went down in history as the “Forty-niners”.

1850—California gains statehood, becomes known as "The Golden State” ( California is also known variously as The Land of Milk and Honey, The El Dorado State, and The Grape State).

1853—The number of new arrivals to California exceeds 300 thousand people...

1872—As a result of the state’s experience during the regulation of the more violent of business disagreements during the first two decades of the state’s existence (as noted earlier, this experience was accrued particularly quickly in the first days of the Gold Rush, when the groundwork was laid for California’s government) the California Civil Code was adopted, in which the state’s lawmakers included a special provision guaranteeing the freedom of employees in the state of California to choose their own place of work.

1891—Stanford University is founded by former governor of California Leland Stanford.

1910 — Lee de Forest arrives in San Francisco Bay Area. He was by then already well-known as the inventor of the triode (US Patent 879532, February 1908). Of all the influential inventions in the development of electronics and radio technology in the first half of the 20th century, the triode turned out to be the most critical component in the development of transcontinental telephone communications, radio, television, radar and early digital electronics.

Lee de Forest’s arrival in what would later become Silicon Valley began the process of transformation that turned this area into one of the world’s central confluences of talent and professional knowledge in electronics. A couple of years later Silicon Valley’s development got its first big boost from a series of important defense contracts related to World War I, reaching critical mass 40 years later, in the first decade following World War II.

1951—Stanford Industrial Park is established as a high tech center by businesses working in close partnership with the university. Among the first companies to rent space in the Park were Varian Associates, General Electric, and Eastman Kodak.

1956—William Shockley, co-inventor of the semiconductor triode arrived in San Francisco Bay Area and founds Shockley Semiconductor as a division of Beckman Instruments in Mountain View. On the road to Silicon Valley’s development, the baton was thus passed from Lee de Forest, inventor of the vacuum tube triode, to Shockley, inventor of the solid-state triode - transistor.

The Nobel Prize in Physics 1956 was awarded jointly to William Bradford Shockley, John Bardeen and Walter Houser Brattain "for their researches on semiconductors and their discovery of the transistor effect".

1957—The “Traitorous Eight” leave Shockley Semiconductor to found Fairchild Semiconductor.

Fairchild Semiconductor's founders, clockwise from far left: Jean Hoerni, Julius Blank, Victor Grinich, Eugene Kleiner, Gordon Moore, Sheldon Roberts, Jay Last, Robert Noyce.

1968—Gordon Moore and Robert Noyce leave Fairchild Semiconductor to found Intel.

1971 - Intel created the world's first microprocessor: the Intel  4004,  term 'Silicon Valley' by the press.

1872 Law’s Weight in Gold

The amount of gold extracted per year during the Gold Rush amounted to 80 million of that period’s dollars, worth about $2 billion in today’s money.

It might be possible to compare this figure with the “gold mines” discovered by the companies operating in Silicon Valley, which were able to expand on the first generation of startups only by provision of this 1872 law.

For example, the New York Times described gold-rushing pioneer Apple Computer’s financial impact as “the iPhone Gold Rush”. Apple's sales in 2010 were valued at around 60 billion USD.

One might also take into account the “gold” extracted by Intel, which—like many other Silicon Valley startups—would not have got its start had not the 19th century California Gold Rush given rise to the aforementioned 1872 law. Intel’s patented “silicon gold mine” produced about 40 billion dollars of sales this year.

This modern-day gold extraction, legally speaking a direct result of a law dating back to the California Gold Rush 100 years previous, has brought financial gain on the order of hundreds of billions of dollars, earned by tens of thousands of high tech companies in Silicon Valley, all mining the seemingly bottomless gold reserves of information technology.

NDA Experiment Set up by Mark Hurd by  Gregory Gromov

... even in those rare cases when the company employee signs an NDA [non-disclosure agreement] in exchange for a persuasive large monetary reward - even in this case - an employer cannot, under the conditions of the state of California, create legal barriers to an employee leaving to work for his employer's competition... (read more)

"Ten Commandments" for Start up Founders

The Secret History of Silicon Valley by Steven Blank

They said it:

The future cannot be predicted, but futures can be invented   by Dennis Gabor, Pelican Books, 1964, p. 161

The best way to predict the future is to invent it  ~ Alan Kay (Xerox PARC).   InfoWorld, 1982 April 26, Volume 4, Number 16, p.6