Apr 252016

A conversation with Michael Storper, the author of a new book on why San Francisco has outperformed L.A. in recent decades.

Image Justin Dennis and holbox / Shutterstock.comJustin Dennis and holbox / Shutterstock.com

L.A. and San Francisco are two of America’s leading urban economies. The Bay Area is the world’s leading center for startups and new technologies, and the home of companies like Intel, Apple, Genentech, Google, Twitter, and Uber, while L.A. is the center of film, entertainment, and pop culture. But when it comes to income, wages, and other key metrics for economic development, San Francisco has done far better than L.A. over the past several decades.

In a recent book, The Rise and Fall of Urban Economies, the economic geographer Michael Storper—along with his colleagues Thomas Kemeny, Naji P. Makarem, and Taner Osman—explores why and how San Francisco has performed so much better than L.A. Storper is one of the world’s leading urbanists, and has conducted definitive research on both regions in addition to authoring some of the most important books and articles on urban development of the past few decades.

In their book, Storper and his colleagues examine several key factors that shaped the different growth trajectories of these two cities and metro areas and what that means for their ongoing development. I spoke with Storper to find out more about this, and what other lessons we can take away from the diverging pathways of San Francisco and L.A.

In 1970, L.A. and San Francisco were virtually similar in terms of their incomes, wages, productivity, and living standards. Yet, by 2010, there was nearly a one-third difference in their income levels. Your book unfolds like a detective story that seeks to explain why San Francisco became so much more prosperous than L.A. One obvious difference is their industry structures. To what degree to these industry differences matter, and what other factors come into play?

Industry differences are essential. The Bay Area captured key New Economy industries such as information technology and biotechnology, and greater L.A. did not. But this is where the mystery starts, because if we were to look forward to the New Economy in 1970 or even 1980, L.A. had stronger endowments of new economy skills than the Bay Area did. It had the biggest pool of PhD engineers—including electrical engineering and computing and communications—in the U.S., and a higher proportion of STEM (science, technology, engineering, and math) workers than the Bay Area. Why was one region able to take its endowments and transform them into New Economy ecosystems and the other region much less able to do so?

San Francisco housing. (Morenovel/Shutterstock.com)

We hear so much about the high cost of housing in San Francisco, but L.A. is also a very expensive place to live and becoming more so every day. You find that, even when housing costs are taken into account, people still tend to make out better economically in San Francisco than in L.A. But do you also think that high housing prices will affect the economic growth of either city going forward?

The Bay Area’s high housing costs are largely a sign of its success in the sense that they are generated by demand on the part of a high-income labor force that must live in the Bay Area to do its work. But most Bay Area workers have more income after comparing housing costs than people in greater L.A. Going forward, both L.A. and San Francisco are facing high housing demand and a new geography of housing demand. In both areas, people now want to live in key centers. Because many have irregular working hours, there is high traffic congestion and people want to live closer to work. As a result, both regions need to expand housing supply, and they need to do so with more density. To do this, they need to tie the region’s centers together with much better public transit.

L.A. is in the midst of the country’s most ambitious urban rail expansion. Hopefully this will allow the city to make its employment centers denser, which facilitates the kind of interaction that New Economy industries require. But transit and dense housing alone do not generate high-wage, high-skill economic development. It is vital to remember this, because urban planners often fall into the belief that if you change the physical environment, it will automatically change the economic environment. This is a trap both regions must avoid, all while making necessary planning and infrastructure changes.

Your book devotes a whole chapter to leadership structures. To what degree have differences in their growth coalitions, leadership networks, and strategies played a role in the different growth trajectories of the two regions?

This is where the physical planning leaves off and the human infrastructure of the region becomes critical. What L.A. lacked as the New Economy came into being was the interconnections between different groups that would have allowed it to transform its pre-existing skills and organizations into New Economy industries. Even though L.A. had amazing technology endowments going into the New Economy, the existing firms were not pushed to do technology differently. They stayed with their old client, the Defense Department, and with making elaborate big technology systems (some of the best in the world).

(Storper et al.)

In the Bay Area, different technology communities came together and transformed the pre-existing communications industry (also Pentagon-oriented) into the user-friendly IT industry of tomorrow. This had to do with the Bay Area’s networks of technologists, dreamers, and also a crisscrossing leadership structure that was brought together through the region’s key organization, the Bay Area Council. The council didn’t “plan” the future, but they facilitated a conversation about how the Bay Area had to become a skill- and technology-based economy. Meanwhile in L.A., the key regional leadership organizations were fragmented and backward-looking. They kept thinking that they could get land and labor costs down and go back to the “good old days” of the Old Economy. So they had the wrong conversation.

Some people would say that San Franciscans have perhaps a more cerebral, lower-key lifestyle, while L.A. tends more toward celebrity culture and materialism. Even the perception of this might turn off some firms or talent. Do such cultural differences factor into their different development trajectories?

Of course L.A. has celebrity culture, but that is one of its strengths. The entertainment industry was a New Economy ecosystem way back in the 1960s, and it has met every challenge of technology and markets brilliantly since then. L.A. has a bigger share of the nation’s entertainment industry than ever before. The problem is that there were no networks for Hollywood to “speak” to the technology communities and other communities of Southern California.

L.A. has had some hard economic times, but there is no doubt that it is an increasingly worldly city with an effervescent artistic and intellectual culture. What L.A. needs is to harness these advantages to better fundamentals: better and denser leadership structures, more connectedness among economic communities, more employment density, better basic education, and a focus on skills.

The Bay Area has a history of bohemianism and sophistication that is now melding with a technology-driven culture. One hopes that the Bay Area will not become a one-horse town, but will retain the mix of culture, criticism, eccentricity, and hard-driving entrepreneurship that has made it so dynamic for so long.

Much of the growth of both regions, especially in the ‘70s, ‘80s and ‘90s, has been seen as a product of the suburbs. High technology, according to many, was an outgrowth of the Silicon Valley’s sprawling corporate campuses and “nerdistans.” But L.A.’s downtown has been attracting artists and creatives, and more venture capital and high-tech startups are being generated in downtown San Francisco than in the Silicon Valley. What might this back-to-the-city shift portend for these two regions?

In San Francisco, the new wave of IT development is urban, and spilling over to downtown Oakland. In L.A., there are stirrings of a tech belt known as Silicon Beach, centered on Santa Monica and Venice, which is more urban and separate from the sprawling tech areas of the defense industry along the ocean south of LAX airport and Orange County. L.A.’s downtown is emerging as a core of the L.A. arts and culture renaissance, but also as a center of L.A.’s corporate renaissance. If things continue at this pace, L.A. will have one of America’s biggest urban centers in the near future. I think this parallels what is happening in the world’s big cities in general, where the kinds of sectors that generate high wages and urban population growth require density. And that’s where both San Francisco and L.A. are on parallel tracks.

Downtown L.A. (Andrew Zarivny/Shutterstock.com)

Way back when, the geographer Jean Gottmann theorized that our regional future would be “mega-regions” like the broad Boston-New York-Washington Corridor. Right now, greater San Francisco and greater L.A. form two separate mega-regions. Is it possible they might ever grow together like the Bos-Wash Corridor? Will high-speed rail help make that happen?

I think that’s a long way off, because the population densities are not there. But high-speed rail would have, at its core, a two-hour ride between Silicon Valley and the movie studios (San Jose to Burbank). This would effectively increase interaction between two essential 21st century industries. The greater interactivity would make the two even more dynamic by reducing travel times and increasing the frequency of exchange.

What are the biggest challenges that these two cities face moving forward? How might L.A. go about boosting its wages and overall economy, and how can San Francisco deal with housing affordability and ensure long-term prosperity?

There is a warning for the Bay Area: In the past, just when regions were on top of their major industries is often when those industries start to decline or to move away. Up to now, the Bay Area has avoided this fate by pioneering wave after wave of innovation within the IT sector, and now moving into biotechnology. It’s important that the Bay Area continue to do this, because it will face an ongoing loss of its more routine and cost-sensitive functions, no matter what it does to ease the cost of housing.

L.A. has different challenges. In L.A., the key is to make it function like a more integrated and inter-connected region. This is not just about transportation. It is even more so about the human networks of the region. The business and political leadership of Orange County, L.A. County, and the City of L.A. do not talk much to one another—they are rivals. There are historical reasons for this, but L.A. needs both the informal and formal networks that would allow it to combine its extraordinary resources to capture new markets. All of the organizations in greater L.A. need to understand that there is no turning back the clock. There are no policies that can make L.A. cheap again, and able to compete with Phoenix, Mexico, or China for cost-sensitive production. So L.A.’s future is as a skilled, high-wage region.

Original article.

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