Los Angeles and San Francisco: Reflections on the “New” Economy

Last month, I attended the book launch of Michael Storper’s The Rise and Fall of Urban Economies: Lessons from San Francisco and Los Angeles. Professor Storper presented his extensive research and findings to a small crowd of students, faculty and other urbanist nerds. Paired with an op-ed piece in the Los Angeles Times a few months earlier, Storper unequivocally claims that the Bay Area is the uncontested and shiny winner of the “new economy”, with L.A. falling far behind.

Storper and his team contrast the ten-county Bay Area with a ranking of #1 on the income scale, to the five-county Los Angeles region coming in at a sad 25th. Workers up North make approximately 30% more in per capita income than those in Southern California, and are doing more cognitively complex work. What’s more is that according to Storper’s research, higher incomes in the Bay Area positively correlate with greater public spending in the region. He continues to explain that while the Bay Area spends more money on public transportation, culture, and the arts; Southern California, on the other hand, has been busy spending its public dough on the heavy policing of its citizens.

Evolution of Per Capita Personal Income

Evolution of Per Capita Personal Income

These data points, among others, collected by Storper and his team transformed into a moral critique of Los Angeles, as a region unable to “capitalize on [the biotech] industry” with a “backward” approach to economic growth. “Backward,” defined as L.A.’s attempt to look back in time and support low and medium-wage jobs by reinvigorating its manufacturing history. When it comes to the Bay Area’s growth, Storper argues that “[even] after taking into account [San Francisco’s] higher housing costs, those at the bottom of the ladder are, on average, better off.” According to Storper, it’s “not geography, not inequality, and not housing” that could explain the divergence between the two regions. Ultimately, the Bay Area is “widespread more prosperous” than its Southern Californian counterpart, he says, because of the region’s focus on highly-skilled and extremely high-wage creative and tech jobs, and its’ interconnected nature. Thus, the pinnacle of the “new economy.”

But how do Storper and others actually define this “new economy?” Lacking a broad-based definition, the “new economy” is a dynamic term that explains the resulting transition from old economic patterns to emerging newer ones, i.e.- an industrialized economy to a service-based economy. We also see this being expressed through significant growth in tech and start-up companies, and as more people are working as micro-entrepreneurs and independent contractors as opposed to “traditional” workers. This new economic paradigm, is still gradually growing and shifting and can actualize into the values we, as a society, want to strive for.

Taking these realities into consideration, what we are witnessing is that the Bay Area has become a breeding ground for startups, investors, entrepreneurs, and new ideas. So, is Los Angeles really dragging its heels? Is the Bay Area really a successful and equitable model for economic growth? And where do conversations on gentrification and displacement fall into this analysis?

According to Storper’s perspective, both regions were once a pair of “economic miracles” in California, with the same opportunities to embrace the “new economy.” However, the Bay Area simply adapted better to the influx of highly creative and tech jobs, he says, with Los Angeles tragically missing the opportunity.

Economically speaking, comparing any two disparate regions, like the Bay Area and Los Angeles, can only take you so far. The very fundamental DNA that make up both of these areas are too distinct and too complex to examine with such a narrow lens. As we know, beyond data sets and numbers lie many unquantifiable measures and influential factors that come into play when examining economic viability and opportunity.

What’s important to mention, though, is that we can absolutely agree that both regions have excessive wealthy pockets as well as areas of extreme poverty, and that both L.A. and the Bay Area are doing a fine job of widening the inequality gap in our urban areas. What we can’t agree on, though, is that the burgeoning new economy that is alive and well in the Bay Area is addressing economic inequality, rather it is only exacerbating it.

The “trickle down” theory of clustering of private dollars, young companies, and talented highly-skilled and high-wage workers as the ultimate bearers of economic growth is fundamentally flawed. According to Storper and his colleagues, these clusters allegedly create a higher need for and generate more low-wage and low-skilled jobs. If we tell that to recently evicted residents of the Mission District and other neighborhoods in San Francisco, we might hear a different story. According to a recent study by the Martin Prosperity Institute at the University of Toronto, we learn of a very different reality: this model of “trickle down” economic growth actually creates a “vicious cycle in which the advantaged become more advantaged over time, while the disadvantaged sink further into poverty.” Moreover, The Brookings Institutionrecently found that the income gap between San Francisco's rich and poor is growing faster than in any other city in the nation. This reality becomes clearer when we look closely at the new “gig economy” that the Bay Area is courting, with businesses like Airbnb and Uber. Except that the economic benefits of these multi-billion dollar startups aren’t really being shared at all. The city faces a $100 million deficit, and evictions are at a 12-year high as gentrification continues to send rents soaring.

San Francisco Income Disparity

San Francisco Income Disparity

In theory, “embracing the new economy” sounds nice and easy. But an economy that does not uplift its most vulnerable populations and only benefits a select, majority white, highly-skilled and high-income class is, in my opinion, not a sustainable one. This is fundamentally what we believe at LURN. Around the country, communities are bearing witness to the fact that supporting those at the “fringes” of the economic system can actually uplift communities at a neighborhood scale. What kind of growth and development can we imagine when we inject capital into low-income communities by helping local residents gain ownership of their homes and neighborhoods; and when we support local entrepreneurs, artists, and small business owners? THIS should be the new economy, one that is shared and accessible.

Unfortunately, the Bay Area has transformed itself into an economy that excludes, and Los Angeles should strive to be just the opposite: one that includes. That might mean we take a dip or two or three, and that might mean we primarily support low to medium-wage workers (and the jobs that sustain them) first, with job training, skill building, and support to follow: not in a “backwards” fashion, but innovatively.

And yet, this still isn’t a piece about who did it better or who wins: Los Angeles can learn a great deal from the Bay Area. We need to figure out how to connect and collaborate more efficiently, support homegrown entrepreneurs (legalizing street vending would be a great start!), break down silos and bridge multidisciplinary gaps in leadership, prioritize the training of unskilled workers, and support small business owners who are at the core of our communities--the L.A. way.

Los Angeles has the potential to truly be a world-class city. On her way there, L.A.’s new economy may not be rooted in the biotech field, or lie behind fancy startups that seem to be acting more like corporations than they are innovative solution-oriented hubs. We should shift the conversation away from being the highest income-generating, to instead imagining a Los Angeles that builds a new economy driven by the very needs of its most vulnerable populations: by including them in the work, instead of pushing them out of the equation altogether. After all, isn't that what being the best is all about? Cultivating sustainable communities that benefit everyone and allow all people to live their greatest potential. Whatever this new economy is going to be, let’s build it right and let’s make sure it uplifts, not displaces, the communities we love and care about.

Los Angeles, we got work to do.