Book Review: "The Rise and Fall of Urban Economies: Lessons from San Francisco and Los Angeles." Michael Storper, Thomas Kemeny, Naji P. Makarem and Taner Osman; Stanford University Press, 2015.
How and why do places differ in their pace of economic development? Why do some flourish while others lag? These are among the most profound questions in economics and related fields. Are explanations found in geography, culture, institutions, or fortune?
In "The Rise and Fall of Urban Economies: Lessons from San Francisco and Los Angeles," Michael Storper, Thomas Kemeny, Naji P. Makarem and Taner Osman consider these questions for two great cities. Storper, Kemeny, Makarem and Osman (hereafter SKMO) direct their attention to the Los Angeles and San Francisco “extended metropolitan regions” — the Census Bureau’s Consolidated Statistical Areas (CSAs) — in the post-1970 years. SKMO claim to have a plausible story about LA/SF divergence, which they do a fine job of presenting in this clearly written and well documented volume.
Both areas were established centers in high-amenity coastal California settings with similar levels of economic success in base-year 1970. But their fortunes have diverged ever since, with San Francisco taking a significant lead.
What happened?
Much of SKMO’s story springs from employment trends summarized in their table, below, which shows jobs data by major sector for their beginning and ending years for each region. Looking at employment shares, both areas had a similarly sized IT sector in 1970, but the Bay Area’s grew spectacularly while LA’s stayed about where it was. LA was specialized in aerospace and defense but, as is well known, that sector declined as the Cold War ended. Both geographic areas started almost equally in share of logistics jobs, but SF’s specialization in that sector subsided, while LA’s grew. LA’s lead in entertainment grew. Both areas lost jobs in apparel, but this hit LA harder, as the region had been more specialized in that sector.
The LA area was long recognized for its leadership in the entertainment industry, just as the San Francisco area was for its leadership in tech. Yet “Hollywood” has been emulated in many places, including India, South Korea, China, and several European countries, while Silicon Valley’s would-be emulators, though numerous, have been far less auspicious.
The post-1970s success of the SF region owes much to Silicon Valley, and SKMO note that, on average, SF’s tech sector salaries were higher than those in LA’s entertainment sector. Lots has been written about the unique culture of innovation and entrepreneurialism found in The Valley. There are real and aspiring ‘techno-hubs” practically all over the world. But the Holy Grail — to identify and bottle some kind of formula to spawn another Silicon culture — has not been discovered.
SKMO note various Silicon Valley pre-1970s events: how the electronics industry had its roots in radio hobbyists, and the 1960s convergence of hippies and techies. The authors identify eleven historical “critical turning points.” Some are private business choices (“Hollywood’s creation of a new project-based organizational structure in the 1950s and 1960s”); some are more in the realm of public policy (“Los Angeles’ Alameda Corridor Project in the 1980s and 1990s”). Others (Steve Jobs liked The Whole Earth Catalog) also make the list, but without any clear direction for today's planners.
The authors devote a chapter to what local governments in each of the two regions spent and prioritized. Bay Area government spending was greater in the 1990s, as well as in the first decade of the 2000s. While Bay Area public transit spending was much greater, SKMO admit that both areas suffer bad traffic congestion, and back away from concluding the extra Bay Area public spending had payoffs. They end up concluding that we simply do not know enough about the programs that were funded to make strong statements about how spending might have (or should have) been re-allocated among programs.
The key chapter of the book addresses what the authors call 'Beliefs and Worldviews in Economic Development': “We will see … how the Los Angeles Economic Roundtable and Chamber of Commerce generated very different narratives from those of the Bay Area Council and Joint Venture Silicon Valley... Bay Area leadership has had a more focused and time-consistent perception of its regional economy as a new knowledge economy. Greater Los Angeles leadership beliefs and worldviews have been inconsistent over time, with fleeting conceptions of the New Economy subsequently crowded out by the perception of Greater Los Angeles mainly as a gateway to international trade and logistics and specialized manufacturing.”
We have to be careful here. The sequence of events is significant: Did important policy choices pre-date the good (SF) or the bad (LA) events the authors document? The unique entrepreneurial and innovative culture bred in Silicon Valley has no discernible starting date. Did the view of Bay Area elites of a new knowledge economy lead the way, or simply acknowledge facts on the ground?
In their study of LA and SF, SKMO say little about how both areas have failed to reign in housing costs. By failing to contain the rising costs of most households’ single largest expenditure, both regions have failed. Labor markets cannot do their job when many people’s location choices are restricted. In all of their talk of the best regional development strategy, this essential one is not touched on in the study.
But, caveats aside, "The Rise and Fall of Urban Economies" is data-rich, wide-ranging and provocative. Anyone interested in the American West’s two premier cities should read this important book.
Peter Gordon is an Emeritus Professor, Price School of Public Policy at the University of Southern California. He now teaches each summer at Zhejian University in Hangzhou, China, and is currently at work on a book that explores how modern cities contribute to economic growth. He blogs at petergordonsblog.com.
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