Winners and
Losers in the New Urban Economy
Michael Storper et. al. have written an
important book on the impact of the “new economy” on the growth and decline of
major urban centers. It is destined to become a classic in regional economics
and urban planning. The lead author is a professor of urban planning at UCLA.
The authors use the Los Angeles and San Francisco metropolitan areas from 1970
to the present as a contrasting case study of how these two regional economies
adapted to the transition from an industrial economy to an information economy.
To Storper and his coauthors San
Francisco succeeds because it has a far more adaptable and open source business
ecology than the more enclosed corporate world of Los Angeles. Further San
Francisco’s advantage is augmented by a more far seeing and cohesive
business/government community that adopts public policies to enhance the
information economy. To the authors it is these two critical factors more than
the role of immigration and the 1990s collapse of aerospace in Los Angeles that
account for the stunning differences in economic performance.
To be sure these are valid points, but
to my mind the authors over-state their case. Simply put the Los Angeles of
1970 suffered from the “tyranny of an installed base” and lacked the high gross
margin businesses that could withstand the increasing tax and regulatory
pressures coming from local government and the state of California.
Now let’s look at the data. In 1969 the
Los Angeles CMSA had approximately four million workers with 1.1 million of
them engaged in manufacturing. At the same time the San Francisco CMSA had approximately
2.1 million workers with fewer than 400,000 engaged in manufacturing. Los
Angeles was a manufacturing region, in fact the largest in the U.S.. If that is
all you knew and you posited that the revolution in global trade would bring
U.S. manufacturing to its knees in the coming decades, then you would predicted
that San Francisco would easily outperform Los Angeles. By 2013 employment in
Los Angeles increased to 7.6 million, but manufacturing jobs plummeted to
700,000. By contrast San Francisco employment increased to four million jobs
while manufacturing barely declined to 360,000 jobs.
What Los Angeles had was low margined
traditional industrial, aerospace and apparel jobs, while San Francisco had
much higher margined technology and specialized production jobs. To further
prove my point the worst performing Bay area county was the one with the most traditional
manufacturing jobs, Alameda County. Although people talk about the economic juggernaut
of Silicon Valley few talk about the success of Alameda County’s major city,
Oakland. Although it is an exaggeration, economically speaking the Los Angeles
of 1970 looked a lot more like Oakland than San Jose.
One of the advantages Silicon Valley had
was a legacy of the politics of the 1960s. Recall that at that time the primary
buyer of advanced electronics was the Department of Defense and Silicon Valley
vigorously competed with Highway 128 in Boston and Texas for the business. With
the Kennedy-Johnson years defense money flowed to Boston and Texas and not to
Silicon Valley which did not have the near monopoly position that Los Angeles
had in defense oriented production. So what did Silicon Valley producers do to
respond? They went after the commercial market and became far more adaptable than
their competitors. Thus, when the aerospace recession of 1969-76 hit, Silicon
Valley was prepared.
The authors duly note that Los Angeles
was a major technology center in 1970, but most of that technology was based on
aerospace. Unlike northern California where most technology enterprises were
small and entry was easy, the ecology of the aerospace industry is based on
large units with difficult entry. While job mobility in aerospace is high, for
example I spent two years in the aerospace industry and worked at two large
firms, capital mobility is not. You didn’t see venture capital funding
aerospace start-ups.
Another way in which the tyranny of an
installed base affected Los Angeles was the presence of a huge Hispanic population
in the area. This meant that when the manufacturing base collapsed, the
political structure had to respond to the loss of employment opportunities for
that population. The response was to beef up the ports of Los Angeles and Long
Beach which made them the entrepot for the flood of goods coming in from Asia.
To the authors this activity increased middle and lower income employment, but were
nowhere near the high jobs being created in San Francisco. What choice did the political
establishment have?
This review doesn’t do justice to the
very serious economics work that the authors present. I just wanted to point
out to future readers to not completely buy in to the authors’ thesis. Initial
conditions are very important and cannot be discounted. However, the authors
offer much food for thought and demonstrate that public policy in this area is
very difficult to make.
For the full Amazon URL https://www.amazon.com/review/R11ZGKF3SG0FCL/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv
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