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Storm Clouds Over Silicon Valley

As blind faith in the infallibility of high-tech companies falters, the era of unrestrained growth in the Valley may be over.
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The deception began with the absence of smokestacks. There were squat vents on the roofs of high-technology companies instead of the steel mills' black-belching pipes to the sky. There was no smoke. Sure, once in a while the people who lived around the plants would smell something like bleach or ammonia, and occasionally they would see oddly colored steam. But generally, the residents of Santa Clara County didn't worry. After all, it wasn't as if they were living next door to Hooker Chemicals.

Besides, there was this feeling that the low cement-and-glass buildings were sheltering a technological and economic revolution. People kept hearing about talking calculators and companies that were taking on IBM. They saw the Mercedes and the Ferraris and the new houses being built in the hills. Their kids played with little Apple computers at school. Their neighbors went to work dressed like students and worked out at corporate swimming pools and gyms. Even the entrepreneurs rolled up their sleeves, loosened their ties, and expected everyone to call them by their first names. Steven Jobs, just a kid, one of the founders of Apple Computer Inc., made the cover of Time magazine. The whole country was swept up in this high-technology entrepreneurial movement, and the heart of it was right in their own backyard, among the tract houses and the Spanish-style shopping malls in the 1,351.9-square-mile valley located 47 miles south of San Francisco that had become known as Silicon Valley.

The cities in the Valley -- Palo Alto, Sunnyvale, Santa Clara, and San Jose, for instance -- decided that they liked this high technology. They zoned more land for industrial development. They built new sewers and roads. They supplied the power, the water, the direct labor force, and the bright young engineering graduates from Stanford, Berkeley, San Jose State, and the University of Santa Clara.

The entrepreneurs used these resources to build the densest concentration of fast-growing, highly profitable technology companies in the world. They thought of Silicon Valley as not only the geographical but the spiritual center of high technology. It was where Lee De Forest perfected the vacuum tube and William Hewlett and David Packard first set up shop in Packard's garage. William Shockley started Shockley Transistor Corp. in Palo Alto, and Shockley alumni begat Fairchild Semiconductor and at least 40 other companies. The Valley nurtured a $40 billion industry, and it became the home of its stars -- Bob Noyce (Intel), Jimmy Treybig (Tandem Computers), Jerry Sanders (Advanced Micro Devices), Nolan Bushnell (Atari), and Ken Oshman (Rolm).

The newcomers, and there were many, liked the weather, the ocean, the nearness of San Francisco. But above all, they thrived on the faith held by bankers, public relations firms, venture capitalists, suppliers, and even their neighbors, that things happened in Silicon Valley, that this was where people made it. "There's a sense of being pioneers here," says Mark Leslie, president and one of the founders of start-up Synapse Computers Corp. "I view myself as the kind of guy who would have been living in Detroit in 1910. The future depends on high technology, and we are spearcheading it."

It is difficult to say just when the unquestioning optimism and enthusiasm ended, when people began to suspect that the growth had been too fast, that technological wonders and millionaires in shirt-sleeves weren't going to solve the Valley's problems, and, in fact, created some of their own.

While the entrepreneurs focused on growth and squeezing more bits on chips, a dairy became a computer graphics company, an onion field the site of a mainframe manufacturer. Since 1950, 85,000 acres of fruits, nuts, berries, and vegetables have become shopping malls, parking lots, electronics companies, and condominiums. As the freeways filled with cars, the hills grew hazy behind the smog, and the driving time of some six-mile commutes lengthened to 45 minutes. In September 1979 the classified advertising section of the San Jose Mercury News swelled to 93 pages, and not all of the jobs could be filled. Young engineers from Ann Arbor and Madison began turning down job offers in the industry's heartland. Toxic chemicals were found in public drinking water. Employees stole chips and circuit designs and sold them on a high-technology black market. Some of the stolen goods and processes even made their way to the Soviet Union.

There were stories in the local papers about the traffic, the cost of houses, and the theft of chips, but, at first, many were dismissed as the hysterics of the press. The problems just didn't seem that serious. Surely, the entrepreneurs reasoned, a little traffic was a small sacrifice for the jobs, the new improved pacemakers, and the computers that didn't fail. They could solve the problems with car pools and sabbaticals and better chips. But car pools and sabbaticals weren't solutions. They just helped the companies cope. The same characteristics that enabled the entrepreneurs to build companies -- optimism, singlemindedness, a focus on the future, faith in American technology -- kept them from turning their considerable problem-solving skills to what was really happening to the Valley that for many had been so supportive.

Rafael Rodriguez had always wanted to live in California. As a kid growing up in New York City in the '60s, he had heard about the Beach Boys, surfing, tanned easygoing people, the low crime rate. Soon after completing his studies at Pratt Institute in electrical engineering, he flew out to the West Coast to interview for jobs. In New York City he knew of only three or four companies that were actively seeking young engineers. In California he saw jobs advertised on billboards. After interviewing with corporations up and down the coast, Rodriguez accepted an offer from Watkins-Johnson Co. in San Jose for an engineering position that paid $26,500 a year.

Although Watkins-Johnson had warned its new recruit about the cost of housing in Santa Clara County, Rodriguez wasn't worried. He had picked up a few brochures from real estate agents on his interview trip and seen houses he thought were in his price range. He told his wife he would move out to the West Coast, start working, and find a house as quickly as he could for them and their three kids.

Rodriguez liked California as much as he had dreamed he would. He enjoyed the weather, and he loved his job. But days, and then weeks, slipped by, and he didn't find a house. Apartments comparable to the one he had in New York were renting for more than half his monthly paycheck.

When the 30 days that Watkins-Johnson had agreed to put him up in a hotel ran out, Rodriguez moved in temporarily with a third cousin of his wife. He saw an $80,000 house 30 minutes from his job that he thought would do nicely, but he was turned down for a mortgage because he hadn't been working long enough. He didn't like the "starter houses" the real estate agents showed him. He was making a good salary, and he figured he and his family deserved to live in a nice place.

Finally, after six weeks, his wife had had enough. She told him she thought he ought to come home and find a job in New York. After talking it over, Rodriguez agreed. He broke the news to his new employer the next morning. Watkins-Johnson was "slightly astounded," Rodriguez says, but very understanding. His boss told him to fly home, talk to his wife, and make sure that moving back East was what he really wanted.

Rodriguez waited till he returned to New York City to make his resignation final, but resign he did. Today he is working for Sperry Gyroscope in Great Neck, N.Y.

Rodriguez's return to New York is a recruiter's nightmare. The difficulty of attracting young engineers to Santa Clara County has become one of the most talked about problems in the Valley. In spite of the weather, the ocean, San Francisco, and the Valley's reputation as a hotbed of innovation, bright young engineers are turning down Silicon Valley offers and instead taking jobs in Salem, Oreg.; Phoenix; Colorado Springs; and Durham, N.C.

"Young guys, recent graduates, come out from somewhere like Ann Arbor, spend a day going through the company, say they like what they see, and then go out to look at houses in the area and decide to go back to graduate school," says Charles McEwan, president of Ramtek Corp., a $46 million computer graphics company in Santa Clara, currently adding 75 to 100 employees per year. "We tell the guys with wives and three or four children to stay home, that the price of a four-bedroom house is out of reach."

It really shouldn't have been much of a surprise. The people who had come to work for Fairchild and Intel Corp. had helped double the population of Santa Clara County twice in 30 years, from 290,547 in 1950 to 1,265,200 in 1980. To accommodate Lockheed Missiles & Space, Hewlett-Packard, Memorex, and IBM, more than 40% of the potential housing capacity was earmarked for industrial uses, which meant 417,000 fewer housing units for high-technology employees. In 1980, Santa Clara County had 703,500 jobs but only 471,200 housing units, and the resulting shortage, aggravated by speculation, had nudged the average price of a house to well over $100,000. In 1980, 10,000 jobs went unfilled.

By February 1, 1982, when Rodriguez accepted the position at Watkins-Johnson, the orchards had been bulldozed for industrial parks, roads had been filled beyond their capacity, and downtown Sunnyvale had been razed for a shopping center. The San Jose Municipal Airport had become the ninth businest in the United States. The county had been built up so densely that it had less open space per resident than New York City.

The entrepreneurs found that while they had been inventing calculators that could fit on a watch face, the cost of industrial space had tripled. Says Ralph Ungermann, founder of Zilog Inc., and now Ungermann-Bass Inc.: "Space that leased for 40? a square foot in 1978 [when he left Zilog] was going for 80? a square foot in 1979 and is now up to $1.25." The price of raw land in Santa Clara County, when it can be found, is currently running $8 to $12 a square foot, compared with 20? a square foot in Austin, and 65? in Colorado Springs, according to Klaus Kramer, Rolm Corp.'s director of real estate and facilities planning. Late last year, Rolm couldn't even find the 125 acres it wanted for a new plant in South San Jose.

For a while, many of the entrepreneurs remained convinced that high-technology companies could cope with the problems. Managers responded to traffic problems with flexible work hours and ride-sharing programs. They paid higher rents, telling themselves it still wasn't as expensive as Boston or other East Coast metropolitan areas. They sometimes subsidized housing for key executives. They offered stock option plans and bonuses and sabbaticals to entice their employees to stick around. Durango Systems Inc., a $15 million company in San Jose, announced that it would give employees with four years of service a choice of a six-week paid sabbatical or round trip air fare for two anywhere in the world, plus $500 spending money and two extra weeks of vacation.

High fliers Tandem Computers Inc. and Rolm offered corporate campuses equipped not only with cafeterias and parking lots, but also with swimming pools, par courses, and volleyball courts, and in Rolm's case, a weight room, a gym, a whirlpool bath, racquetball and tennis courts, and aerobics lessons. Silconix Inc. in Santa Clara offered discounted gasoline to employees three days a week at the company self-service station. And in 1980, an assembly worker at Advanced Micro Devices Inc. won $240,000 in a company drawing.

But there were some people who started looking at the bigger picture, and they didn't like what they saw. In a survey by the Center for Policy Studies at the University of Texas at Dallas, corporate executives across the country ranked Silicon Valley behind Dallas, Denver, Atlanta, the Research Triangle in North Carolina, and even Houston as a desirable place to locate a company. Larger companies like Hewlett-Packard and Intel have spun off divisions in second-tier high-technology areas like Austin, Boise, the Research Triangle, and Phoenix for the last three or four years. Rolm purchased land for expansion in Austin and Colorado Springs. John Wensley left the Bay Area to start his company, August Systems Inc., in Salem, Oreg. Ramtek began testing a new twist on manufacturing at a remote location by setting up a unit to make custom systems in Napa, north of San Francisco. And there were entrepreneurs at companies too small to reorganize into divisions who began to wonder what was going on in the Valley but didn't want to move their companies away from the services and suppliers available there.

While the enterpreneurs were once again absorbed in their own aspects of the problems, Santa Clara County residents began to realize that the high-technology superstars were generating jobs and taxes but that the jobs attracted more people, and the taxes not only didn't make the communities rich, but sometimes failed to cover the costs of growth -- the roads, houses, schools, sewer systems, expanded police and fire departments, and public transportation system. Sunnyvale found itself facing a $15 million sewage system expansion and $6 million to $10 million in transportation expenditures. Fire departments had to add special equipment and people to deal with chemical emergencies. Hobbled by Proposition 13's limits on property tax revenues, the cities didn't know where the money would come from.

"I don't see the taxes and the economic growth," says Lorraine Ross, a native of San Jose. "I see the traffic, the congestion, the lack of police, the lack of firemen, the lack of libraries. We're lucky if a policeman makes it to our neighborhood once a week. We have the highest burglary rate in the entire Valley, and we don't live in a ghetto.

"Santa Clara was a delightful place to live," Ross continues. "It has the most temperate climate in the United States. Yet people who live here [and don't work for the high-technology companies] cannot afford to buy a home." The average price of a house in her neighborhood is $115,000 for a "tiny 1,300-square-foot house." Just six years ago Ross and her husband bought their three-bedroom house for $45,000.

Yet it was not the price of a house that caused the waltz between the entrepreneurs and the residents to end. The residents didn't like setting aside 50% or more of their income to buy a place to live, but they might have done it. They didn't enjoy idling in morning traffic, but they might have looked at that as a price of progress. They might have found a way around the lack of public services. But when toxic chemicals were found in public wells, the residents wondered what the hell the cities had done. They began to think that maybe they had been sold down the river. And they began to view their entrepreneurial neighbors with something less than the awe accorded them in the past.

On December 4, 1981, workmen were digging a hole for a new water tank at a South San Jose plant of Fairchild Semiconductor. They noticed rust-colored dirt around a chemical-storage tank that was already there. They dug deeper and found that industrial solvents were seeping through the bottom of the old tank, which had been in use since 1977.

Apparently, the aboveground gauge that was supposed to measure the volume of the liquid in the tank had failed. The system that monitored the balance of the chemicals as they came into the plant hadn't been checked. But the stain was extensive enough that Fairchild told Great Oaks Water Co., which had wells in the area, that there might be a problem.

Sure enough, there was. The well nearest the Fairchild plant was contaminated with one of the solvents that had been stored in the tank. A solvent containing 13,900 gallons of 1,1,1 trichloroethane (TCA) had leaked out, and concentrations of it in the well were nearly 20 times higher than what is considered acceptable by the Environmental Protection Agency. Great Oaks Water closed the well the next day.But then, on the advice of the state health department, neither Fairchild nor Great Oaks Water disclosed anything to the public about the accident for 50 days, although such an announcement was legally required within 39 days.

When Lorraine Ross opened the San Jose Mercury on January 20 and saw the story about the leak, she was at home with her three small children. She could see the Fairchild plant, which was about a quarter of a mile from her house. Her family got its water from Great Oaks Water.

She remembered the neighbors who had complained that the water tasted funny but who thought it might be the pipes. She recalled the times she smelled chlorine or ammonia in the air. But mostly she wondered about the four children with birth defects, the two miscarriages, and the one stillbirth on her block within the past three years and the multiple congenital heart defects of her youngest child, then nine months old. She wrote to the president of the water company and asked for an investigation.

Ross had grown up in San Jose, but she had never had much to do with the electronics industry. The technological revolution that was taking place in the low-lying buildings that had sprouted around the Valley like toadstools after a spring rain just didn't have much of an impact on her life.She missed the orchards she used to walk through as a kid, and didn't particularly care for the congestion, but she never thought of herself as being anti-industry, or even antigrowth. The birth defects in her neighborhood had made her nervous, but she hadn't known enough about the chemicals used to make semiconductors to attach her fears to anything concrete.

By the end of January, Lorraine Ross had a lot of questions. Her daughter had nearly died and still needed open-heart surgery. Maybe the chemicals in the water had caused the problem. Who, she wanted to know, let Fairchild build a semiconductor plant 2,000 feet from a public well? Who decided the storage tank was safe for industrial solvents? When trace amounts of other chemicals were found in other public wells, who decided it was all right for people to drink the water? Why had 50 days passed before the public was informed about the TCA in the well her family's water came from? Why was it that the Food and Drug Administration spent years researching drugs, but industrial chemicals were virtually unregulated? And why was it that people like herself, untutored in chemicals and completely outside the industry, had to complain before investigations were made?

Ross's questions attracted a lot of public attention. The San Jose Mercury News wrote a story about her. She got phone calls from the Associated Press and even the National Enquirer. People in her neighborhood called. They had problems too. Thirty-one birth disorders were reported to the Great Oaks Water district within days.

The residents discovered in a hurry that not only did the industry not regulate itself, but nobody else did either. Drinking water had been contaminated for months, maybe years, before the problem was discovered, and then only because workers were putting in a new tank nearby. Fairchild was not legally required to check its tanks, and, in fact, only after the spill was it obligated to reveal to a public agency the types and amounts of toxic chemicals being used.

There is a feeling of betrayal among the residents. They had trusted Fairchild, but the company had been so wrapped up in making faster and less costly chips that maybe it hadn't taken the safety of their neighborhood seriously enough. The residents were understandably even less enthusiastic about their corporate neighbors when they found that there were at least 36 other leaks of hazardous chemicals stored or dumped in the Bay Area. The seven that were found in Santa Clara County were solvents used in making semiconductors. In one case, a tetrachloroethylene (TCE) leak from a tank used by Intel was recently discovered, even though the company had stopped using the chemical in that location in 1977.

The implications of the findings were frightening. Although most of the leaks did not contaminate water supplies, the chemicals were being used by high-technology companies all over the Bay Area and across the country.Scores of new chemicals were being developed and marketed every year. People began to think harder about some of the other "isolated incidents": The fire at Lockheed in Palo Alto that had required evacuation of 400 people in a residential area because of the possibility of a chemical explosion. The 24-year-old woman who had begun to lose her hair after working with a chemical called antimony trioxide at Advanced Micro Devices.

The Santa Clara Center for Occupational Safety and Health gets 30 to 40 calls a week from workers who think they have problems somehow related to the chemicals they work with, and 60% of those callers are employed by the electronics industry. Amanda Hawes, a San Jose attorney who has specialized in chemical-related health problems since 1979, says she has been involved in about 100 such cases, and only recently have they been taken seriously. Initially such complaints were treated as "female hysteria," she says, or, in the case of men," a bad attitude."

When the residents started asking questions, they found that the handling and disposal of toxic chemicals is supposed to be regulated by the state's Department of Health Services. Although industry and government experts have questioned the wisdom of regulating nationally used chemicals by 50 different legislatures, most federal laws and regulations are aimed at controlling "pollution," not at the handling or storage of potentially hazardous substances. And cutbacks in federal spending and President Reagan's policy of reducing federal involvement in what he considers areas of state and local responsibility have limited the enforcement of the federal restrictions that exist.

In California, state efforts at control have been hampered by a lack of both money and knowledge. Although the California legislature ordered the Department of Health Services to develop a hazardous-waste management program more than two years ago, little progress has been made. Until TCA was found in public drinking water, regulating hazardous chemicals just wasn't a priority.

So the residents and the local governments are taking matters into their own hands. Ross and 15 of her neighbors have sued Fairchild, Great Oaks Water, and pertinent public entities, charging negligence.Lawyers for the residents expect as many as 100 more people to file suits. State and county officials are investigating the incidence of birth defects. San Jose has been trying to develop a model ordinance on handling and storage of toxic materials. The Palo Alto City Council is considering an ordinance that would require local companies to disclose the types and amounts of chemicals they use and store at their plants.

For companies, the solutions are going to be expensive. The Fairchild tank that leaked has been removed, and Fairchild is spending millions of dollars to dig up all its other underground tanks and place them in cement storage vaults that presumably would contain leaks if they occurred. But for the people like Ross it is a little late. And the residents will never look at the high-technology companies in quite the same way.

"I'm not anti-semiconductor industry," says Lorraine Ross. "But I don't want my health adversely affected by their profit-making. Companies should be willing to invest a portion of their profit to ensure they aren't damaging the environment." Curiously, lack of regulation made the industry more vulnerable. Public glorification of the industry made the fall harder, the residents more bitter.People expected more from this new industry. Many in Santa Clara County seemed to think it could do no wrong.

There are growing suspicions across the country that maybe this adoration has not been healthy, that maybe high technology does not have all the answers, that, in fact, it creates problems of its own. Toxic wastes brought this possibility to the attention of the residents of Santa Clara County. But there are other problems attracting national interest, problems like the transfer of high-technology secrets and products to the Soviets and to other powers not friendly to the United States.

Six years ago David Henry Roberts was the kind of guy the electronics industry likes to hold up as proof that in Silicon Valley opportunity exists for everyone. He was a local boy, born and brought up in Watsonville, a small dusty town about 40 miles from Mountain View, where he got his first job. He had started out in the warehouse at Elmar Electronics shortly after graduating from high school in 1970. He worked his way up to become a sales rep, earning more than $20,000 a year.

Roberts worked at Elmar for five years before he started job-hopping among components distributors. He moved to Hamilton Avnet Electronics, another distributor, back to Elmar, to Hamilton Avnet again, and then to Western Microtechnology Inc. He worked at Clear-Com Intercom Systems Inc., a San Francisco electronics manufacturer. In some fields the job changes might have been a sign of trouble, but in the electronics industry mobility is thought to demonstrate initiative. Besides, Roberts was a producer. He became known as a guy who could get components faster and cheaper than anyone else.

In 1978, Roberts supplied $100,000 worth of integrated circuits to Larry Lowery, president of a series of small electronics companies, called, in chronological order, L&M Electronics, Brut Electronics, and O.C.S. It was a quick deal -- Roberts had set up the sale before he obtained the parts. But there was one problem: The circuits had been stolen from Elmar Electronics. And the police knew. In fact they had set up the employee who stole the chips and brought them to David Roberts. They found out that Roberts had received only $612 for the goods, a fraction of what he would have gotten for legitimately procured parts, and they arrested him. As it turned out, that time Roberts was lucky. The case against him was dismissed on a technicality.

The arrest was a setback, but it didn't keep Roberts from continuing to work in electronics. Although the industry grapevine is generally considered effective, Hamilton Avnet didn't know Roberts had been arrested. He had a job there when he was arrested a year later for another theft, this time from Hamilton Avnet. He had forged invoices written on his employer's account. Again Lowery was the man behind him, but the police didn't have enough evidence to prosecute. However, Roberts's luck had run out. He was sentenced to 10 months at a work-furlough program at Elmwood Rehabilitation Center. And he found himself blackballed by the industry.He couldn't get a job in the distribution business. He started calling himself Hank Roberts and got a job with an industry headhunter. He even told his employer he had been involved in a court case. The headhunter was giving him a second chance. Roberts was bringing in $20,000 a month.

Then Lowery showed up again. Police linked him to the fencing of 11,000 Synertek Inc. memory circuits valued at $100,000 to $150,000. And when the Santa Clara County Sheriff's Office got search warrants and seized Lowery's business records, handwriting experts determined that all records pertaining to the stolen Synertek parts had been written by David Roberts.

This time even Lowery was arrested, but the night before the preliminary hearings, a witness for the prosecution was beaten so badly he was unable to testify. And then, just before Lowery's trial was to begin, Roberts, who had been subpoenaed by the prosecution, was discovered near Skyline Boulevard in nearby San Mateo County with a fractured skull and seven stab wounds in his back.

Except for the murder of Roberts, it might have been just another story of a young man trying to go too far, too fast. It certainly wasn't the industry's fault that a quarter of a million dollars' worth of chips can be carried out of a stockroom in a briefcase or that circuit designs that cost $500,000 to develop can be slipped into a coat pocket. But for a long time, law enforcement people say, the industry didn't seem to take the problem seriously. More than $20 million a year in electronics technology and products were being stolen in Santa Clara County alone, estimates Douglas Southard, the county's deputy district attorney, and companies were leaving components in storerooms with locks less sophisticated than what they had on bathroom doors.

Companies didn't report thefts, sometimes out of concern about security implications to customers and sometimes because they didn't even know the thefts had happened. Inventory control at some companies was casual, says Southard -- stolen chips have been recovered and confessions extracted from thieves in cases where the company couldn't prove anything was missing. One large manufacturer, warned that a theft was planned for a specific date in the near future, prevented the theft but didn't fire the potential thief, who reportedly still works at the company and carries on a cocaine business.

There was, Southard and other observers say, an almost arrogant faith that a company's technological capabilities could overcome any other problems, that prosecuting thieves and tightening up security took time and resources away from the primary efforts -- coming up with newer and better products and making money. This attitude, says Southard, made stealing a lot easier. Employees -- technicians, inventory clerks, draftsmen, and engineers -- walked out with circuit designs, process information, precious metals, and market-ready chips. They stole chips that failed quality-control tests, mislabeled them top quality, and sold them in the legitimate marketplace. They even stole such finished goods, he says, as disk drives and personal computers.

Most thieves wouldn't get far without what has come to be called the "gray market," a system of distributors and middlemen, both legal and illegal, that picks up the slack between semiconductor manufacturers like National Semiconductor, Fairchild, and Signetics Corp., and the electronics equipment manufacturers that build the chips into their products. Large computer manufacturers usually deal directly with the semiconductor plants, but distributors sell to smaller customers, find markets for surpluses, and sometimes stock parts against shortages. Many of these distributors are reputable, but here, in the middle market, changing demand and the intense competition for parts, prices, and quick delivery support the companies and the people that are not. David Roberts couldn't have sold the stolen parts he obtained without this market.

The parts are hard to track, points out Southard.There is a lot of money to be made, or lost. If a manufacturer needs parts in a hurry, he doesn't ask the supplier where they came from. Industry executives tend to call this "business," but Southard has another word for it -- greed. "I was raised in southern California," he says, "with what I'll call Middle Western values. People were expected to better themselves gradually. Here, people have made so much money so fast. There's a kind of tension in the air. Everyone wants to become an overnight millionaire."

But it isn't the corporate victims of the thieves that concern the U.S. Senate and federal prosecutors. Some of the stolen components and technology have made their way to the Soviets, in violation of federal export regulations that restrict high-technology exports. They are worried that the stuff will show up not in toasters or microwave ovens, but in sophisticated "smart" bombs.

How much American technology is making its way illegally to other countries is difficult to estimate, but investigators seem to agree that seizures of illegal shipments and convictions for export violations obtained so far just scratch the surface. Last fall, the U.S. Customs Service formed special teams of customs agents, inspectors, patrol officers, and accountants to crack down on illegal exports of high technology.

As Assistant U.S. attorney, Theodore Wai Wu prosecuted three of the leading cases tried under the Export Administration Act and Arms Export Control Act in the last four years. The latest case involved a U.S.-West German-Soviet Union network that smuggled at least $1.5 million worth of high-technology hardware, including computers and electronic surveillance systems, from the United States to the Soviet bloc. Anatoli Maluta, the Soviet-born U.S. connection in the ring, was convicted of conspiracy and 14 other felony counts last October, sentenced to five years in prison, and fined $60,000. However, the alleged West German leader of the scheme, Werner Bruchhausen, is overseas somewhere and may never be brought to trial.

There is an attitude among some of these high-technology companies that this thievery is the government's problem, that trade restrictions are not in the best interests of the growth and development of the industry. One entrepreneur, convicted in December 1980 of illegally selling to the Soviet Union laser mirrors that could be used to develop laster weapons, went so far as to say during his trial that he thinks the government's regulations are wrong.

Federal officials didn't need a 10-year investigation to tell them the effects of selling high technology to the Soviets. They put together a special customs investigation team to crack down on illegal exports across the country. They sent in the FBI. And they warned the entrepreneurs that ignorance was no longer a good enough excuse. Their companies and their management would be held responsible for the final destination of their products.

A year ago Ken Boyd thought Scotts Valley, a small town in the redwoods of the Santa Cruz Mountains, seemed like a pleasant place to build his second company. He, his family, and two cows he kept as lawnmowers already lived there, for one thing. His partners were eager to move to Scotts Valley, for another. Although his Silicon Valley bank and his vendors would be a 30-minute drive away, the sky was blue, there wasn't any traffic, and employees might be less inclined to shop for new jobs on their lunch hours since there were fewer local employers to choose from. Santa Cruz and the Pacific were just 15 minutes west. Besides, he figured, he would be in good company. Alan F. Shugart had started his second venture, Seagate Technology, in Scotts Valley in 1979, and for the last half of 1981 sales were $14 million. Watkins-Johnson had a plant there, too.

So although Silicon Valley had been a great place to start his first company, an engineering consulting group, Ken Boyd decided last fall to set up his second venture, Stresstel, in Scotts Valley.

Twelve months later Boyd talks wistfully about returning "home," to Silicon Valley. Scotts Valley is a great place to live, he says, but he isn't sure what he thinks about doing business there. "It's kind of like gambling in Elko," he explains. "The game hasn't changed, but it just doesn't feel the same."

Boyd can't shake this feeling that entrepreneurs aren't appreciated in Scotts Valley. People have said they don't want their small mountain town becoming another Silicon Valley. Boyd says he would rather be somewhere he is really wanted.

Besides, he says, "I don't find what has happened to the Santa Clara Valley repulsive." He thinks the development could have been planned and executed better, but "it's still the best place to live in the U.S." The entrepreneurs will learn to cope with the problems technically, he feels. Of course being the president of a start-up, Boyd is a busy man. He doubts that he will have the time, at least in the near future, to work on the problems.

But there are people like Lorraine Ross who will. People who have learned that entrepreneurs are first and foremost entrepreneurs. People who won't wait for the high-technology companies to come up with technical solutions. People who, instead of cheering or buying stock when they hear about the watches that glow in the dark, will wonder whether what makes them glow is toxic and where the plant is located. People who will push regulations through their local fire departments, their city councils, their state legislatures. People who will support special industry taxes for the power, the water, and the transportation. People who will pass referenda limiting growth.

The solutions these people come up with may not be the best for the high-technology companies. They may not even be the best for the communities. Lorraine Ross's knowledge of the chemicals used in the manufacture of semiconductors is still unsophisticated, and the answers she comes up with may not be the most efficient or effective. They may even be reactions against finding TCA in her well or against having assumed for years that Fairchild and the other high-tech companies had everyone's best interests at heart. But they certainly will hold the companies accountable not only for their bottom lines, but for their impact on the people and the environment around them.

Even in Silicon Valley things have changed. The years of uncritical support are probably over. This may be a time for national skepticism, a time when good intentions are not enough, when companies are expected to imitate the efforts of Hewlett-Packard and donate executive time to work on civic problems, when residents follow the lead of Lorraine Ross and find the babysitters or the time from jobs to enable them to learn what is really going on in their neighborhoods and what they can do about it. This may be a decade when the high-technology companies and the residents come of age in the old sense of the phrase, into responsibility as well as privilege.

Last updated: Sep 1, 1982




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