From the observation deck at the top of Stanford University's Hoover Tower, you can look over the vast, tree-greened campus of the internationally renowned private research university, with its fountains and elegant Spanish colonial-style buildings. Beyond it, the grey matrix of Silicon Valley spreads out indistinctly in the summer heat against a background of distant brown hills.

Overhead, an airship cruises silently past, offering an expensive new take on tours around San Francisco Bay. Once it would have advertised a tyre company, but today, the floating billboard carries the logo of 23andMe.com, a personal genomics company, as a graphic tens of metres long.

These iconic scenes apart, how are Silicon Valley and the Bay Area surviving the recession? Can the region - home to some of the biggest global brands in both higher education and high technology - continue to be intellectually and commercially successful? How are the public and private, research and educational components reacting, and what impact is the Obama Administration having?

Persis Drell is director of the SLAC National Accelerator Laboratory, based in the low sandstone hills to the west of Palo Alto. SLAC is managed by Stanford for the Department of Energy and has an annual budget of more than $300 million (?185 million).

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But in the current financial climate, will the new US Government go cool on big projects that won't produce results for 20 or 30 years? "My guess is that they will not walk away from major investments in facilities that have the opportunity to make transformational discoveries, particularly in strategic areas," says Drell. Incremental solutions will not solve climate, energy and national security problems, she says. "They require transformational solutions - and that will lead inevitably to big science."

Does she feel that the success of Silicon Valley can be reproduced elsewhere? "Based on other places where I have spent any time, the Bay Area is unique. My prejudice is that this is a bubble - this is not the real world."

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So what special factors have made a difference here? There was, she notes, "an outstanding provost at Stanford in the early 1960s, Frederick Terman, who said 'I'm going to take this university from a kind of not-very-well-known place and build on technology in an entrepreneurial spirit'. People have tried to develop university industrial parks with that same spark around other universities, but they seem to lack critical mass."

Fifty years is a long time, though, especially in California. Is a strong history enough?

In Mountain View on a warm, sunny evening, vacant buildings in the outlying high-tech business parks testify to the downturn's impact, but things seem cheerful and relaxed in the city. A banner strung across the street proclaims "Thursday Night Live". The tree-lined main drag has been closed and a tanned, middle-aged band plays in the middle of the intersection at Castro and Dana, while older couples execute stylish country waltzes. Classic cars are lined up in the street for the admiration of young families out for a stroll.

At the corner table on the pavement outside a pizza restaurant, oblivious to the crowd around them, three excited young software engineers surrounded by crusts huddle around a laptop putting the finishing touches to a presentation. Recession or no recession, people are still enthusiastically pitching their ideas - grabbing perhaps their one shot at becoming, or being bought out by, a global brand.

Pete Worden, director of the Nasa Ames Research Centre, is well placed to judge the business climate. He is based at Moffatt Field, which is next door to Google's corporate headquarters in Mountain View; many of the Nasa Ames research projects cross over with locally inspired emergent technologies.

Asked what makes Silicon Valley effective today, even in a recession, Worden observes: "It is where technologies that are paradigm-changing are being worked. It's expected that you can make the impossible happen. It's like Google: two guys in a garage here really did change the world. And they aren't the only ones; the list goes on and on. It also happens, in my opinion, to be the nicest place to live in the world."

Tim O'Reilly, head of O'Reilly Media and originator of the term "Web 2.0", isn't so sure about the Valley being a special case.

"Yes, there has certainly been a sweet spot with a lot of smart people, venture capital and the like here, but I would just say it is a little bit overstated. I'll believe there is something really special about the region when a completely unrelated revolution in biotech or green energy comes out of this same ecosystem," O'Reilly says.

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Without a totally novel injection of the sort O'Reilly describes, Silicon Valley may become a memory - like the long-gone computer companies that once made Route 128 outside Boston a similarly special place.

On the Caltrain service north to San Francisco, three generations of an Indian family are heading home after a day out. Throughout the 40-minute train journey from Palo Alto, relays of adults coach a round-eyed two-year-old girl with number games, letter recognition and the name shapes of the stations we pass. She looks increasingly boggled but determined and is finally carried off the train, fast asleep, by a proud father. By next year she will probably be coding websites. Will she become a Bay Area student and help define the next generation of Silicon Valley techno-evangelists - or will market forces drive her away to another region?

Robert Birgeneau, chancellor of the University of California, Berkeley, believes that the future for higher education in the Valley must be based on "comprehensive excellence".

"We contribute in an extraordinarily broad way that probably isn't appreciated in pure academic circles. It isn't that the other universities don't care, but the elite private institutions have a different role in society."

He believes that symbiosis with the big, collocated government-funded laboratories is important, not least with regard to the trend towards the generation of multi-purpose facilities. "But it requires really good leadership," he warns. The Department of Energy's Lawrence Berkeley National Laboratory works intimately with UC Berkeley, and Birgeneau singles out Steven Chu, a recent leader of the laboratory, a Nobel prizewinner and now Barack Obama's Secretary of Energy, for particular mention.

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As director of the lab, Birgeneau says, Chu "broke down some of the usual kinds of administrative and institutional barriers that prevent symbiotic partnerships". How do you go about integrating two cultures as diverse as a liberal university and a highly process-driven research institute? It would not be a job for the faint-hearted, but it was probably good training for a future Secretary of Energy.

Has the integration process worked? Birgeneau's answer is an emphatic "yes": "From the academic side, I think it has gone straightforwardly." However, he takes pains to note: "people doing the administration in the trenches of the bureaucracy had to understand that their responsibility was to make the partnership work - despite the different working practices of the two organisations." It sounds like an interesting time for all concerned, including Berkeley's chancellor - who also holds a relatively humble staff scientist position in the Lawrence Berkeley lab. "I think that's quite healthy," he comments.

So how does he see the wider role of Berkeley in the Bay Area community, a region with its fair share of social problems? "Berkeley for me is a paradigm of what a public university can be. Admission is purely merit based - but it's not just grades. We do what is called 'comprehensive admissions'; we look at success in a local context. We end up with a student body of exceptionally talented students from a phenomenal range of backgrounds."

Birgeneau describes these students as "engaged and engaging" and adds that this is probably the aspect of Berkeley he appreciates the most, and "one we have to fight continuously to maintain".

This last comment is reinforced by the fact that he is going straight from this discussion to a meeting of the Board of Regents of the University of California intent on confirming their response to an overall 20 per cent cut in state funding for the UC network of universities for the coming year. On his way off campus, Birgeneau can hardly avoid seeing the polite but forceful demonstration at the main gate by staff and students protesting against the proposal, which is later confirmed, for compulsory unpaid leave for all staff, leading in effect to a pay cut of 4 to 10 per cent.

A short Metro light rail journey from the centre of San Francisco will take you to the main campus of San Francisco State University, part of the California State University network of public universities. Street-light banners proclaim it "The City's Creative Spark"; student-inspired murals cover the Students' Union, artwork lurks in the shrubbery and there is animated discussion in the coffee queue near the Metro stop. Buried in the dank, grey mist of the Pacific coast, the campus feels rather like a UK university.

Robert Corrigan, president of San Francisco State University, is another great fan of the Bay Area. But doesn't he feel overshadowed by players such Stanford and Berkeley? "Our roles are fairly distinct. The chancellor of our system likes to compare the University of California with California State University and say that they are the show horses and we are the workhorses. A few faculty members went crazy when he said it - but he was right."

He waves a hand towards the south. "You have some extraordinary talent that comes out of Stanford, but the Bay Area economy works because of the thousands of graduates that come out of places like San Francisco State."

The downturn in the traditional Silicon Valley industries has led to realignment for Corrigan's institution, as it forges partnerships with media companies to exploit California's other great export industry, film and television. "It's a whole world out there that needs to be supplied with talented individuals," he says. Corrigan points out that 45 per cent of San Franciscans over the age of 25 hold at least a bachelors degree - compared with just 24 per cent nationally.

"This is a knowledge-based economy, and one that depends on the quality of higher education. Why we are working our tails off right now is because we're afraid we are likely to lose that advantage."

Reflecting on the California Master Plan for Higher Education, drafted by the state legislature in 1960, Corrigan observes: "The essence of it was that higher education was a public good; that basically the taxpayers would support high-quality public education that would be low cost to the people who were in classes, because that was vital to the state. Part of the problem we face in California now is a reluctance to maintain that, but instead to push more of the cost of the education on to the student and to drain the resources that made us such distinct institutions."

His account will sound awfully familiar to British academics - but Corrigan says his sector is seeing some positive changes, too.

"There is a lot of talk about diversity everywhere, but what we try to see put into action here is a commitment to social justice and equity in terms of taking populations that have been disadvantaged and undervalued and bring them into an environment where they can get the education, where they can succeed. Obama is a shot in the arm in terms of bringing attention back to the importance of diversity," Corrigan asserts.

"Almost 6,000 of our 30,000 students were born outside the US. It's so exciting to be in this cauldron - and everybody benefits."

Does he have any hints for the British higher education community in dealing with the global recession? "I think the UK has got to be much more creative than we are in getting not only the decision-makers, but also the rank and file of the population, to understand the immediacy of what we do to their lives. I'm thinking of some of the problems of racial polarisation that you are having that we have gone through: that population needs to be educated, because if it is not educated then the economy is not going to work. I don't think we have done a good enough job of that. Don't let people get away with the notion that education is a private good as opposed to a public good."

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The success of Silicon Valley may have been based on the richness of factors that can't be easily replicated elsewhere, but the determination to maintain higher education's position as a significant public good is down to people rather than places. With the recession hitting home in the Bay Area, there appears to be an increasing degree of integration between higher education, government-backed research and high-tech industry in the region, but there is also a deeply felt commitment in the higher education community towards building a holistic social system.