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 recognize 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 overseas 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. Many believe that the Civil Rights Movement 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 (both on the part of 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 surface of the flood of post-war productivity 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 customers’ expectations the domestic Big Three were locked into supply contracts that sometimes extended over a decade or more. In a head-snappingly short period of time Detroit’s biggest strength became one of its biggest liabilities. 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.
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.
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. Early signs 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. The frightening thing to consider, at least if you love the City by the Bay and care about its future, is the sheer variety of reasons people are leaving. There’s no one issue policymakers can address: The exodus is as broad as it is deep. 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 people 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 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 fed up with the lousy weather.
That’s another similarity with Detroit in the 1970s and 80s. People left the Motor City for a similarly wide range of reasons. Crime was a huge issue, identified as the city’s most pressing in numerous polls. The school system was buckling. Living costs remained stubbornly high even as good-paying jobs started vanishing.
Some people were just fed up with the lousy weather.
The double-edged sword of market dominance
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 fresh warm baguettes. 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 permanently. It’s a profound change. 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 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 tend to sow the seeds of their own demise (an irony of anti-trust law is that the government almost always begins busting trusts well after technology and the market have done most of the busting – witness the railroads, the legacy telecommunications companies, airlines, Microsoft, etc.). 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 far 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 establish 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, Portugal, is now considered the single most important tech deal-making event.
Last week Tesla became the latest company to announce its relocation, to Austin, Texas. Will the carmaker prove to be the canary in the coal mine for San Francisco the way Packard was for Detroit?
During the early 2000s dot-com boom there was an obsession with “first-mover advantage.” At the very beginning it meant literally that: The first company to start a website that sold books, the first to offer online banking services, the first online music platform. It didn’t take long for it to become apparent that being first was not so much an advantage as a near guarantee of failure. The streets of Silicon Valley are lined with the corpses of first movers, from pets.com to MySpace to the Microsoft Zune. It turns out that the first mover also makes all of the original mistakes. Competitors from around the country and around the world watched the first dot-com boom, and learned.
Empty citadels of capitalism
Here’s a funny joke: Become the biggest employer in a city. Build the biggest, most obtrusive, and 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. 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.
The canary just hooked its beak up to a 5,000w amp.
A toxic brew of income inequality, political corruption, economic stasis, and crime ultimately destroyed Detroit, and they’re destroying 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. 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. The Motor City was hollowed out in significant part by residents fleeing the twin scourges of political corruption and urban crime. 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.” 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 prosecute 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 Detroitian 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.
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