Many Americans regard Silicon Valley and Route 128 as symbols of America's economic and technological success; they are held out as models for the rest of the American economy. But their success is misleading. In fact, the U.S. microelectronics industry is too fragmented; very few start-ups ever become large enough to compete effectively in global markets. More importantly, because these firms have not been able to develop close working relationships with their customers, who are primarily traditional manufacturing companies, the latter continue to slip further behind. The innovations of America's high-tech firms are not being diffused throughout the rest of the American economy.