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Catching Up Is Hard To Do

books and culture

Catching Up Is Hard To Do

Los Angeles has fallen far behind the Bay Area—perhaps permanently. June 10, 2016
Economy, finance, and budgets

The Rise and Fall of Urban Economies: Lessons from San Francisco and Los Angeles, by Michael Storper, Thomas Kemeny, Naji P. Makarem, and Taner Osman (Stanford Business Books, 328 pp., $60)

Looking at Los Angeles and San Francisco, two successful California cities in 1970 whose fortunes have since diverged radically, The Rise and Fall of Urban Economies tries to answer an old question: Why do some cities thrive while others stagnate? The authors chose their subjects wisely. Had they paired up any other American cities—say, Chicago and Dallas—too many disparate factors would have come into play. Cities in the same state, however, share a universe of government policies, whether concerning income-tax rates or right-to-work rules, grounding the comparison and lending credence to the conclusions.

Los Angeles and San Francisco have much in common: top-notch climates, natural amenities like oceans and mountains, thriving arts and culture communities, and major international airports. In 1970, both cities boasted powerful industry clusters, similar concentrations of manufacturing firms, and highly educated and technically oriented workforces employed by innovative companies (Amgen in L.A., Genentech in the Bay Area). Prior to the 1990s, Los Angeles actually produced more patents than the Bay Area.

Over the last 45 years, however, while the Bay Area’s economy has soared, with per capita incomes raising rapidly, incomes in L.A. have trailed those in America’s other big cities—in fact, they were on par with those of metro Detroit. The authors dismiss many popular explanations for the trend, from housing costs to immigration to government spending levels. One after another, these theories are investigated and rejected as effects rather than causes. What, then, accounts for the difference?

The authors draw conclusions broadly similar to those made by U.C. Berkley’s AnnaLee Saxenian in her 1996 book, Regional Advantage: Culture and Competition in Silicon Valley and Route 128. The influence of San Francisco’s counterculture, they say, inspired the Bay Area’s tech sector to develop a new approach to management oriented around collaboration, distributed development, labor mobility, and open networks. In Los Angeles, by contrast, the entertainment industry emulated Silicon Valley’s networked organizational structure, but remained disconnected from—and in many ways indifferent to—the larger Southern California economy. As indicated by measures like interlocking board memberships, Los Angeles’s corporate community is less interconnected than San Francisco’s.

The authors offer another reason why Los Angeles failed to keep up with its neighbor to the north. Unlike the Bay Area, which pursued a “high wage specialization strategy,” Los Angeles, in the interest of social justice, deliberately focused on lower- and middle-tier economic sectors. “Los Angeles’s leaders generated a low-road narrative for themselves, while Bay Area leadership coalesced around a high-road vision for their region,” they write. Such decisions have consequences, many of which are demographic. Had Los Angeles followed the same path as San Francisco, Southern California would have attracted far fewer working-class Latinos. The authors don’t directly state this, but it’s a clear implication of their findings. It’s logical to conclude that any region looking to replicate San Francisco’s success should take an exclusively high-end focus—social justice be damned.

Though academic in style, this is a fascinating book, especially for leaders thinking through development challenges in their own regions. It is narrow in focus, however. The authors leave job creation out of their definition of economic development. Instead, they focus on per capita incomes. That’s fine, but many readers will equate development with employment.

The Rise and Fall of Urban Economies paints a picture of a tough economic future for any region with a high-cost environment but a low- to medium-skilled labor force. “Los Angeles can never belong to the club of regions that can attract manufacturing back from cheaper regions of the United States or abroad,” the authors note. Though true, this will be painful for L.A.’s boosters to swallow. Retooling such a gigantic economy won’t be easy.

Photo by Sean Pavone/iStock

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