CityReads│How San Francisco Beat L.A. ?
How San Francisco Beat L.A.?
Los Angeles and San Francisco began in 1970 as comparably rich major metropolitan areas, but today they stand rather far apart. Why is that? This book comes to the provocative and persuasive conclusion that the answer is the “zeitgeist,” cultures of business, policy and governance that differ significantly between the two regions.
Michael Storper, Thomas Kemeny, Naji P. Makarem and Taner Osman,2015. The Rise and Fall of Urban Economies: Lessons From San Francisco and Los Angeles, Stanford University Press.
Sources:
http://www.sup.org/books/title/?id=22080&local_ref=new
http://www.sfgate.com/books/article/The-Rise-and-Fall-of-Urban-Economies-6511749.php
Cities are wealth creators. Just 23 mega city-regions (with ten million people or more) produce about a quarter of world economic output. Fully 90 percent of U.S. economic growth since 1978 has come from 254 large cities and 50 percent from the 30 largest metropolitan regions. About half of the employment in the U.S. economy is located on 1.5 percent of its land area.
Levels of economic development among cities remain stubbornly uneven. At a world scale, residents of larger cities earn incomes that are about four times the global average. Within the United States, large metropolitan regions with more than one million people have average per capita incomes that are 40 percent higher than the rest of the country.
There remain significant differences in income levels among metropolitan regions within single countries; in the U.S., they range from about $23,000 per year in Brownsville, Texas to about $75,000 in the San Francisco Bay Area – or about a one to three ratio.
Such inter-regional differences in income levels are accompanied by differences in most of the other indicators of human and social development, in education, health,and life prospects.
This urban century will see a growing role for cities and their wealth, but it is also likely to be marked by ongoing significant divergence of incomes among city-regions. China was by far the richest nation in the world in 1492, and still had a higher per capita income than Spain or Britain in 1750, but spent the next three centuries falling behind, before beginning its climb back up the income ladder in recent years. In the United States, Detroit was the sixth richest metropolitan region in the U.S. in 1970; it is now 52nd on the list.
The new book, The Rise and Fall of Urban Economies: Lessons From San Francisco and Los Angeles, is a detailed examination of two California metropolitan regions who, from similar starting points, followed very difference economic trajectories. San Francisco has remained at the top of the income hierarchy, while Los Angeles, its southern neighbor, has been falling down the rankings. These two important California metropolitan areas have diverged sharply in the way their economies have responded to the forces of globalization and technological change.
This book challenges many of the conventional notions about economic development and sheds new light on its workings. The authors argue that it is essential to understand the interactions of three major components—economic specialization, human capital formation, and institutional factors—to determine how well a regional economy will cope with new opportunities and challenges. Drawing on economics, sociology, political science, and geography, they argue that the economic development of metropolitan regions hinges on previously underexplored capacities for organizational change in firms, networks of people, and networks of leaders. By studying San Francisco and Los Angeles in unprecedented levels of depth, this book extracts lessons for the field of economic development studies and urban regions around the world.
A Tale of Two Cities: Los Angeles and San Francisco Since 1970
Los Angeles is one of the largest economies in the world. In 2009 its nominal gross metropolitan product was $876 billion, which would make it the world's 14th largest economy, ahead of Mexico and behind Australia. Los Angeles had 17.6 million residents in 2009, making it the second most populous metropolitan area in the United States. Meanwhile, the San Francisco Bay Area generated a gross metropolitan income of $576 million, with a population of 7.4 million people. Based on that income, it would rank 18th among national economies, just behind Turkey and ahead of Indonesia.
Depending on the overall size of the economy – its regional gross output – of the greater Los Angeles metropolitan region, by which we mean the adjacent counties of Los Angeles, Orange, Riverside, San Bernardino and Ventura, is third or fourth among metropolitan regions in the world, while that of the San Francisco Bay Area is about 20th in the world. In terms of per capita income, inversely, San Francisco is consistently the richest metro area with more than 5 million people in the world, while Los Angeles ranks about 20th in that group of cities.
Los Angeles is frequently characterized as a vast suburban sprawl, but this is something of an optical illusion. As a whole, the Los Angeles metropolitan region has higher average population density than the New York metropolitan area, and considerably higher than that of the San Francisco Bay Area.
5 county Los Angeles metro region
Los Angeles at dawn
Downtown Los Angeles
The San Francisco metropolitan area comprises ten varied counties. Outside of the city of San Francisco, the Bay Area has densely urbanized areas in the East Bay (Oakland) and an emerging urban core in Silicon Valley.
10 County San Francisco Bay Area map
Silicon Valley
Downtown San Francisco
Since 1970, Los Angeles and San Francisco present a stark contrast in economic development. Los Angeles' income level began to fall behind that of its northern neighbor, and the income gap has grown sharply. In 1970, per capita personal income levels in Los Angeles were 92 percent of those found in San Francisco, while in 2008 they amounted to only 70 percent.
San Francisco-Los Angeles Metropolitan Per Capita Personal Income, 1970-2008
We present real median household income levels for selected Los Angeles and San Francisco, where real means incomes net of annual housing expenditures. Comparison of the real incomes earned in San Francisco and Los Angeles confirms the general picture produced using nominal figures. The real income premium in San Francisco is actually larger than the difference between nominal wages.
Metropolitan Real Median Household Wage and Salary Income, 1980-2010
Los Angeles has not only failed to keep pace with the Bay Area economic marvel, but it has also been unable to match the performance of most major American metropolises.
Table U.S. Combined Statistical Areas with 1970 Population Above Two Million, Ranked According to Per Capita Personal Income Levels
Both multiplied their populations many times over in the last century, through domestic and foreign in-migration. Each also played host to unusually large Hispanic populations. Both boasted highly educated residents. In 1970, 13 percent of Angelenos and nearly 17 percent of Bay Area residents over the age of 25 had earned at least a Bachelor's degree, as compared with a U.S. average of 11 percent. Both regions were developing rapidly in resource-rich California, benefiting from business and financial links to the state's hinterlands. Both attracted massive federal expenditures after World War II to their growing defense-related high technology industries. Both produce many iconic goods that serve global markets, notably airplanes, semiconductors, software and filmed entertainment. Both host major scientific research communities. Both have long enjoyed strong residential sectors, attracting wealthy in-migrants to their natural beauty, climate and quality of life, thus sustaining high real estate prices and a vigorous home market for non-tradable goods and services. Both share California's governmental structure, institutions, and fiscal policies.
Thus we arrive at the question that is at the center of this book: given a similar income and wage structure in 1970, and all of these common developmental characteristics, why did San Francisco surge forward and Los Angeles fall so far behind?
The Bay Area has continued to rise in the top ranks of metropolitan areas and now enjoys real average household incomes (minus housing costs) 50 percent higher than Los Angeles, along with higher educational attainment and more creative jobs, patents and venture capital investment. Los Angeles has fallen badly behind in all of the same measures and is now at risk of dropping into the rank of middling urban regions.
Although L.A. is now trying to play catch-up with a “Silicon Beach” cluster of tech and media businesses around Venice and Santa Monica, the Bay Area definitely won the “new economy.” And L.A. lost it.
How San Francisco Beat L.A. ?
The analysis begins by analyzing in greater detail the basic components of divergence. In chapter 2, we consider the evolution of the industrial composition of the two economies – specialization. In chapter 3, we do the same for the workforce, its skills and the kinds of jobs carried out and their wages. In these two critical chapters, we show that much of the similarity among economies that is argued to exist in the literature, dissolves away when we disaggregate capital (industries and firms) and labor (skills, tasks, individuals). Economies are more heterogeneous than they often appear to be. In chapter 4, we then bring in detailed cases of industries and how they were transformed, and how they responded to challenges and opportunities over the study period. We show that the two regions had significant differences in the structural evolution of their economies, workforce and wage structure from 1970 onward. This leads us to argue that the two regions have developed very different basic organizational ecologies in the period under examination.
In the next part of the book, we look inside the regions, at the institutional frameworks that structure their economies. As noted, all the major theories of economic development hold that there is an interaction between external forces – technology, trade, factor costs – and the internal conditions of organizing capital, labor, information, entrepreneurial networks, infrastructure, and policies. In chapter 5, we consider the most obvious dimension of this, economic development policies, and the role of the structure of governments and jurisdictions in possibly affecting the ability to carry out policy. In chapter 6, we turn to how the major organized actors in the two regions perceived their problems and opportunities and hence how they defined their policy agendas in this period of transition. In chapter 7, we compare the structures of business and civic networks, or what we call the “relational infrastructure” of the two regions.
The final section of the book is devoted to connecting the causes that are identified in previous chapters. In chapter 8, we argue that the overall regional contexts – the deep regional collective spirits or zeitgeists, are actually quite different. We consider this an important insight, because it suggests that regions (or countries) that appear structurally quite similar might, upon closer analysis, be more different than is often realized. In chapter 9, on the basis of our case study, we reflect on the academic field of economic development analysis. In addition to what we learn about substantive causes of divergence, there are many lessons about methodology and data that emerge from a detailed comparison such as ours.
Storper and his co-authors systematically examine the usual suspects — the decline of the aerospace industry in L.A., the rise of Silicon Valley, different immigration patterns, changing educational attainment, economic development policies, amenities and more — and carefully dismiss them as causes one by one.
Is it because of the immigration? Los Angeles has been somewhat more ‘welcoming’ in quantitative terms than the Bay Area, but the difference is not dramatic – more noteworthy is the fact that both regions hover around the national average.
If Los Angeles took in a higher percentage of newcomers, does this imply that it is a better “opportunity machine?” One of the most common claims about the divergent performance of these two economies hinges on the disproportionate impact of low-skill immigration on Los Angeles. The authors show in Chapter 3 that the quality of opportunities has been weaker in Los Angeles than in San Francisco, both overall, and for each and every ethnic, age, educational group and category of immigrants.
Population and Per Capita Income Compound Annual Growth Rates 1970-2009
Second, interregional differences in median and (especially) average wage levels could be partly a function of different income distributions. We estimate the Gini coefficient, using the wage and salary income of Census respondents in each region.
San Francisco and Los Angeles have broadly similar income distributions, with levels of inequality that also closely correspond to the entire state of California. Southern California is somewhat more unequal, chiefly in 1980 and 1990, though the gap narrows and is nearly eliminated by 2007.
Wage and Salary Income Gini Coefficients
They come to the provocative and persuasive conclusion that the answer is the “zeitgeist,” cultures of business, policy and governance that differ significantly between the two regions.
An “open source culture” in the Bay Area enabled more open paths of movement and trade of people, ideas and capital between firms, as well as between business and academia. By contrast, in Los Angeles, a top-down, “big dog” culture prevailed in business and government, along with the self-contained firms and management systems that historically characterized big Hollywood studios, big aerospace and big pharma. “Invisible colleges” — vibrant relational networks of investors, entrepreneurs and scientists — thrived in the Bay Area, but not in L.A.
The Bay Area also has a deeper, more self-conscious history of regional thinking. The bay itself is an obstacle that fractious cities and counties had to collaborate to bridge, literally and metaphorically. The movement to save the bay helped to create a regional identity, too. And as the new economy developed, business and civic leaders such as the Bay Area Council relentlessly beat the drum for the region’s “interconnected innovation system,” the importance of human capital as well as venture capital, and the shared vision of creating a high-wage, high-skill economy.
The Bay Area has positioned itself much more strongly with respect to the organizational and relational resources that are key to the new economy than has Southern California; this is in part a collective problem, not merely one of individual entrepreneurial talent or imagination
Meanwhile, L.A. vacillated. To be fair, L.A. was hit harder by the nationwide recession of the early 1990s, suffered a more severe, longer decline in real estate values, and then confronted the devastating Rodney King riots in 1992. Although L.A.’s leaders occasionally talked about the “new economy,” they actually focused much more on trying to keep light manufacturing in the city, reduce business and development costs, and improve the vast logistics and transportation system around the ports in San Pedro and Long Beach, together the largest container port in the country.
While the Bay Area took the “high road” of the “new knowledge economy, stressing technology, innovation and skills,” Storper and colleagues write, Los Angeles took the “low road” and has paid the price.
“Los Angeles leadership persisted in believing they could turn back the clock and become cheaper, and by traveling this low road they could hence compete with Texas, Alabama, and Mexico,” the authors write. “They did some of this in the name of social justice, calling for jobs for low-skill workers. But these noble intentions emerged from belief structures about economic development that were antiquated and inappropriate to the high-cost club of regions to which Greater Los Angeles belongs by virtue of its size and density and the irreversibly high land, labor, and consumer prices that this status brings with it.”
What Can We Learn From Just Two Regions?
This tale of two cities is thus meant to shed light well beyond California, addressing a wide range of theories and debates in the analysis of contemporary economic development that are relevant to the field of development studies as a whole.
The Regional Scale in Economic Development
Interestingly, a strong national effect shows up in international comparisons of cities.
For example, if we list incomes of the fifty largest metropolitan regions around the world, about forty are in the United States, reflecting the imprint of national productivity differences on metropolitan regions.
At the other extreme, inter-neighborhood differences within metropolitan areas are very large, in every country and every important metropolitan area. Within Los Angeles or San Francisco metropolitan areas, there are very poor neighborhoods with average incomes below $20,000, and very rich areas with incomes ten times that. This is the “neighborhood effect.”
In between these two extremes are the income gaps among metropolitan regions within countries. These“regional effects” are important, but variable; regional per capita incomes in turn overlay and hence mask neighborhood income differences, on one hand, and on the other they reflect national effects on all the regions of a given country.
The book assesses the contributions of development studies, regional science and urban economics, the new economic geography, and the institutional approaches found in economics, sociology, and political science to the analysis of urban economic development.