Is San Francisco becoming the 21st century’s Detroit?

More companies have fled the city so far in 2021 than in all of 2020, itself previously the worst year on record — Flight from Frisco as companies adapt to employee mobility in the tech era — The cloud is replacing office space

Like the Motor City, the City by the Bay became a victim of its own success and excess

In 1960 Detroit was the wealthiest city per capita in the United States, placing it high in the running for wealthiest worldwide. A staggering 93% of all automobiles sold domestically and nearly half sold worldwide were manufactured in the Motor City, which dominated not just the domestic economy but the nation’s psyche for a quarter century after World War II. Automobiles suffused popular culture and affected every aspect of life, from pop music to movies to political movements. No less than the Civil Rights Movement itself would not have been possible, or at least would have taken substantially longer, without automobiles and resultant innovations like the Green Book.

Flash forward to 2008 when the city declared the largest municipal bankruptcy in U.S. history. A combination of international competition, technological innovation, and institutional hubris (on the part of both management and employee unions) doomed the glory days of the domestic car business. Toss in a healthy dose of old fashioned Rust Belt political corruption and spiraling crime rates and today Detroit ranks as one of the poorest, most dangerous, and worst run cities in the country. It’s a place where once-grand homes routinely sell for pennies on the dollar.

Warning signs of excess and decline emerged relatively early in the post-war era. In 1958 a 3.5 million square foot Packard factory shuttered after the company’s ill-fated merger with Studebaker and subsequent bankruptcy. Its demise foreshadowed systemic issues that lurked just under the roiling surface of post-war demand and cash. By the early 1960s, competition from Japanese and European marques that emphasized efficiency, reliability, and modern technology over sheer size and power gnawed away at Detroit’s biggest advantage, its centralized production model. The auto industry had painted itself into a corner: At the very moment this new competition was changing not just customers’ expectations but the way in which cars were manufactured in the first place, the domestic Big Three were locked into supply contracts that sometimes extended over decades and often were exclusive and prohibitively expensive and complex to break. In a head-snappingly short period of time Detroit’s greatest strength became its biggest liability. The oil crises of the 1970s and labor disputes of the 1980s accelerated the decline. By the late 80s “innovation” in Detroit often was reduced to a matter of badge-swapping among brands. GM was by far the worst offender.

The most infamous example, and a perfect symbol of Detroit’s decline, was the flaming pile of Cadillac known as the Cimarron. The luxury marque’s entry offering literally was a Chevy Cavalier economy car with a Cadillac badge and some leather. Suffice it to say, consumers noticed. The Big Three would lose market share consistently until well into the 2000s, when those selfsame companies began cooperating and joint venturing with the Asian and European companies that by then had bested them for the better part of half a century. To paraphrase Morpheus, capitalism, it seems, is not without a sense of irony.

San Francisco’s parallels in the 2020s

Early mover advantage. Near monopolies. Complex supply chains with interlocking dependencies. Rapid national and even global dominance. Immeasurable cultural and social impacts. Ominous examples of overreach and hubris. Detroit at the start of 1970s sounds eerily like San Francisco entering the 2020s.

Entire websites are dedicated to tracking the exodus of companies and people from the City by the Bay. The frightening thing to consider, if you love the City and care about its future, is the sheer variety of reasons those companies and people are leaving. There’s no one issue policymakers can address: The exodus is as broad as it is deep. In this way, the COVID pandemic was not so much a cause as a kill shot. This isn’t Manhattan after 9/11, when everything else remained intact and thriving.

In contrast, there have been a dozen 9/11s in San Francisco. Families are fed up with mortgaging their children’s futures to reside in a city that’s become infamous for a “poop app” that warns where the latest piles of excrement have been discovered. People are fleeing out of control crime, a homeless crisis that qualifies as a humanitarian disaster, crumbling infrastructure, and decaying public spaces. They’re fed up with a city government more concerned with vagrants and homeless people than residents. They’re escaping the tech industry’s incorrigible “bro culture” and the stifling groupthink in which careers can depend on saying the right things and donating to the correct causes. Some are just sick of the lousy summer weather.

People left the Motor City for a similarly wide range of reasons. The twin 1970s oil crises were that city’s twin kill shot, but the economy had been secretly on the decline long before. Additionally, crime was a huge issue, identified as the city’s most pressing in numerous polls. The school system was buckling, and those who could left for that reason alone, one of myriad episodes of white flight in the mid-Twentieth Century. Meanwhile, living costs remained stubbornly high even as good-paying jobs started vanishing. Some people probably were just fed up with the weather.

Complex, overlapping, and shifting economic and societal trends confounded efforts at coherent policy responses. The result over time is a sense of exhaustion, even fatalism. That was the 1970s in Detroit. Mayor London Breed and the San Francisco Board of Supervisors in the 2020s must learn, and avoid a similar fate as they chart a course out of COVID. Last week Tesla became the latest company to announce its relocation, to Austin, Texas. Even more so than Salesforce, Tesla’s departure feels seismic. Tech companies, especially cutting edge marquee brands with a global following, don’t leave San Francisco. Will the carmaker prove to be the canary in the coal mine for San Francisco the way Packard was for Detroit?

The double-edged sword of market dominance

Like empire, the problem with market dominance is that it eventually, inevitably ends. When I lived in San Francisco in the early 2000s, if I’d told someone I was moving from Nob Hill to Fort Worth, Texas half the heads in the room would have exploded and the survivors would have beaten me to death with warm baguettes from La Boulangerie on Polk Street.

Yet over the last five years scores of companies with thousands of employees have done just that. Texas has become one of the top destinations for people and organizations fleeing the Bay Area. The COVID-19 crisis injected steroids into the situation as Americans nationwide migrated out of big cities en masse, many likely permanently. It’s a profound change, and San Francisco is at the epicenter. The shift in many companies to remote, virtual, hybrid, and part-time work norms is nothing short of a revolution. As a direct consequence, today there are some 17 million vacant square feet of office space in the city. That’s almost 700 floors, the equivalent of seven World Trade Centers and good for a 30% vacancy rate in some of the most expensive buildings in the world. That’s a lot of space to fill, even as more people leave all the time.

Detroit learned the hard way that monopolies don’t last forever and usually not even for very long, and that they nearly always sow the seeds of their own demise. An irony of anti-trust law is that the government almost always begins busting trusts after technology and the market have done most of the busting – witness the railroads, the legacy telecommunications companies, airlines, General Electric, Microsoft, etc. A company is only dominant until it isn’t. Cars can be built anywhere there’s room for a factory and a workforce able to run it. San Francisco is learning the hard way that tech companies are even more ephemeral, often needing nothing more than some computers and an internet connection.

One big concern is the departure of anchor tech companies and investors. Palo Alto’s famed Sand Hill Road is no longer the only place startup founders flock, one less reason for companies and entrepreneurs to grow roots in the Bay Area, least of all its most expensive city. Today the world’s biggest tech fund is the Japanese owned, Saudi backed SoftBank Vision Fund. The annual Web Summit in of all places Lisbon, Portugal, is now considered the single most important tech deal-making event. The fragmentation of once cohesive economic clusters is another symptom of economic decline. International competition and eventually globalization eroded Detroit’s traditional dominance over suppliers and parts contractors. Another double dose of capitalistic irony is that those Asian and European competitors were using manufacturing practices they’d learned from the United States, in many cases during World War II, which destroyed those Asian and European competitors’ economies to the point that as they rebuilt their industries along those U.S. lines the resultant products enjoyed insurmountable cost advantages in the U.S. marketplace.

International competition, while not insignificant, isn’t San Francisco’s biggest concern. It’s other American cities. The City’s leaders have been confronted, virtually overnight, with a situation in which competition for residents is hitting quite literally from all sides. People are leaving for everywhere: For more affordable climes in the Bay Area like Vallejo and Santa Rosa, for places farther north like Sacramento and Redding and south to San Diego. Outside California the top destinations include Austin, San Antonio, Las Vegas, Miami, Salt Lake City. Places like Boise and Lincoln are increasingly popular for San Francisco (and Bay Area) transplants. Like Detroit in 1973, San Francisco was caught utterly, not to mention understandably, flat-footed by COVID.

Empty citadels of capitalism

Here’s a funny joke: Become the biggest employer in a city. Build the biggest, most visible, most obtrusive, most expensive building that city has ever seen. Then, less than three years later announce you’re leaving and that none of your workforce will ever work in that building or that city ever again.

Depending on who you ask Saleseforce Tower is the tallest building west of the Mississippi, and also one of the most despised. It’s also the canary in the economic coal mine. San Francisco’s biggest building is a giant, empty phallus disembodied demonic eye skyscraper named after a company that no longer has its headquarters in the city, or even many employees.

The canary just hooked its beak up to a 5,000 watt amp like Marty McFly at the beginning of Back to the Future.

A toxic brew of income inequality, political corruption, economic stasis, and crime ultimately destroyed Detroit, and they’re threatening San Francisco

Detroit might have survived the decline of the auto industry. Factories can be repurposed, workforces retrained. For half a century the city had some of the best-trained, best-paid, and most productive workers and managers on the face of the earth, led by a generation of men and women who’d prevailed over a depression and a world war (or two). In the 1980s that workforce was eager to return to the glory days, or at least something better than what they saw and experienced starting in the 1970s.

Instead, Detroit became a case study in how mismanagement can destroy a city. If the oil crisis was the death blow, decay came in the twin scourges of political corruption and urban crime that hollowed out the city from within, and the decay had begun in the previous decade. Thomas Sowell has said that the summer of 1967 in particular, when riots left 43 dead and some 1,200 injured and damaged more than 2,000 buildings, “marked the beginning of the decline of Detroit to its current state of despair.” City leadership all but abandoned In 2016 San Francisco achieved the dubious distinction of the highest per capita property crime rate among the country’s 50 largest metro areas, a trend that continues to this day. In the summer of 2020 the city endured waves of violence and rioting unseen since the bad old days of the 1960s and 70s.

Meanwhile, a person called Chesa Boudin was elected San Francisco district attorney in 2019 on an anti-incarceration, anti-prosecution, and anti-police platform. In particular he promised to eliminate enhancements – increased prison time for hate crimes, gang-related crimes, sex crimes, and cases of multiple recidivism – and the use of cash bail to ensure that defendants appear in court. From the beginning, Boudin – a prosecutor who has never prosecuted a case or gone to trial – announced that his office would not pursue quality-of-life crimes such as disturbing the peace, offering or soliciting sex, public defecation/urination/intoxication, or public camping. The results have been predictably Detroit-like. Through August of this year, homicides were up 23% over 2019, burglary increased 43%, and car theft went up 34%. By December, home and commercial burglaries had soared by about 46%.

The final Detroit-ian touch is San Francisco’s rate of poverty and income inequality. The city by the bay is the second most unequal city in the country. Only Atlanta — hardly a bastion of progressive politics — is more unequal. The results are visible everywhere in the city, from the grand palaces of Pacific Heights to the squalor of the Tenderloin less than half a mile away. Bedizened billionaires picking their way past prostrate bodies en route to opening night at the Opera House.

There are a lot of smart people in San Francisco, and a lot of money. It’s entirely possible, maybe even likely, that this pre-obituary will prove premature. But there are a lot of reasons to worry about the City by the Bay. Detroit was sufficiently integral to the U.S. economy that its decline helped precipitate three decades of economic struggle and working class wage stagnation. A declining San Francisco would do the same to the modern tech economy, to the detriment of the nation.