In economic terms, California is the largest state in the U.S. In 2001, it was the first American state to reach a trillion dollar economy and it is now the world's eighth largest economy.
Much of its wealth and dynamism is centered in Silicon Valley which, during the Internet technology boom of the 1990s, spawned more than 29,000 high-tech firms. Silicon Valley weathered the economic downturn between 2000 to 2003 remarkably well.
Although many Internet start-ups closed, others like Yahoo, eBay, Google and Netscape became giants that service hundreds-of-millions of visitors a day. Many experts say Silicon Valley's success is hard to replicate not only in the United States, but also in other advanced areas of the world.
Paul Graham co-developed the idea of electronic or Internet stores in the mid-1990s and is now a partner in Y Combinator, a Silicon Valley firm specializing in funding technology start-up companies. He says a successful high-tech center begins with a top-notch university that attracts smart young people and an open door policy that draws the best and the brightest innovators from around the world.
"It's not enough just to be attractive to smart people, you got to let them come to your country. If you walk around Silicon Valley, there is one thing you notice it is shockingly diverse. Everybody here seems to speak with an accent. Everybody is either a first or second-generation immigrant."
According to a recent study by Duke University in North Carolina, more than half of the companies founded in Silicon Valley during the past decade are led by at least one immigrant. That's double the nation's average for high-tech firms.
The co-founder of Internet giant Yahoo, Jerry Yang, came to America from Taiwan at the age of ten and went on to Stanford University where he and David Filo developed the concept for the world's largest global online network. Srinija Shrinivasan, a top Yahoo executive, has been with the company almost from the start. She says the business Yang and Filo created began in 1994 as a way to bring order to the rapidly expanding Internet.
"It started really as a personal hobby for maintaining their own lists of sites that they wanted to come back to later. Others caught on to this fledgling guide and would start e-mailing them saying, 'Hey, I've got a site can you include this?' And so very quickly they found themselves spending all day, all night, every day building, evolving, maintaining this data base of web sites."
Yahoo services half of Internet users in the world. And with four billion visits a day, it is the most used site in the United States. It operates in more than 20 languages. The company has offices in more than 20 countries, employs 12,000 and people and is worth tens-of-billions of dollars. Yahoo's Srinivasan says traditional bureaucratic structures are not part of Yahoo's or Silicon Valley's management style.
"This is not a top-down culture. That is true of Silicon Valley broadly and it's very much of Yahoo specifically. The culture of Silicon Valley nurtures a grass roots sense where everybody is empowered to bring their best ideas to the fore. And each person is in it to be a part of something bigger than themselves."
Many experts, including Paul Graham, say Silicon Valley's effectiveness stems not just from its free-spirited engineers and managers, but also from its investors.
''One reason that Silicon Valley is still the hub of start-ups in the United States, and therefore probably the world, is that this is where all of the start-ups have been in the past. And the founders of those start-ups are still here and they're rich and they invest in the new start-ups. It's much better as a start-up to have investors who themselves got money from start-ups, rather than people who got money from running a chain of shoe stores, from speculating [in the stock market] or doing something in the media business."
Attorney Curtis Mo of WilmerHale, a global commercial law firm, notes that Silicon Valley financiers are exceptionally bold.
"Silicon Valley is a very unique place. It has the largest assemblage of investment bankers, venture capitalists, lawyers, accountants and other professionals. It has a certain culture and a way of doing business that are very hard to replicate elsewhere. And, I think, it has a risk tolerance that you almost have to kind of live through to really understand how unique it is. Unlike other places where you may be punished for failure by not being bankable again, here it's not necessarily a bad thing."
John Denniston, a senior partner in KPCB, a major Silicon Valley venture capital firm, agrees. Like Mo, he says this part of California will continue to be a leading force for American innovation.
"A company like Google took an enormous risk in coming into the search industry at a time when it wasn't clear that there could be a sustainable search industry. And that was a very speculative, risky investment.
So you can look through the history of the venture capital industry in Silicon Valley and find companies that succeeded against very tall odds. I believe that we'll continue to see companies that create new industries and change the world emerge from Silicon Valley."
As an example, many experts point to the popular web-based video company Youtube that started in a garage in November 2005. Nineteen months later, Google bought it for $1.6 billion.