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 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 Cadillac Cimarron, arguably the nadir of the U.S. auto industry. File photo

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?

With apologies to LBJ, if you’ve lost Elon Musk you’ve lost San Francisco.

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.

In 2018 giant faceless Salesforce.com thought it would be – oh, let’s call it “funny” – to recreate the giant faceless Eye of Sauran atop their skyscraper. Less than three years later they abandoned the building.

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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America’s political class failing in Coronavirus response

In a world of scarce resources they’re turning a short-term public health crisis into a long-term national catastrophe

As the United States enters the second month of a historic government-ordered lockdown a few realities are emerging into relief. The first and most inexorable is the fact that the nation’s political class were utterly unprepared for this – “this” being an entirely foreseeable, indeed inevitable public health crisis. In an era of mass travel and global commerce it is inexcusable for officials and bureaucrats in urban centers like New York City and Los Angeles to have been caught so flat-footed. The consequence is the grim spectacle of politicians making it up as they go along. Americans in every demographic are suffering the consequences of the political class’s maladministration.

Ignore the glowing headlines about what a great job we’re doing here in California. Everyone should be watching the official response the Golden State with a combination of disgust and horror. As reported earlier this month in The All Aspect Report parts of L.A. are verging on anarchy as officials have effectively shut down civil society while simultaneously hamstringing law enforcement (the reality on the streets makes laughable the official claims by LAPD Chief Michael Moore and others that crime is “plummeting” as a result of stay at home orders).

This is a state that closes churches, synagogues, and other places of worship while allowing marijuana shops and liquor stores to remain open for business. A state that closes parks and beaches to families while allowing vagrants and drunks to occupy those very places by the thousand. These are warped priorities.

California, a place where the next major natural disaster is not a question of if but when, doesn’t have sufficient hospital capacity to handle a moderate pandemic. Officials at the state and local level failed to establish substantive plans in place to surge emergency services in a crisis. For example, the official San Francisco earthquake response plan from the California Governor’s Office of Emergency Services contains a single sentence about fire response and overall is impossibly vague. Likewise, the City and County of San Francisco’s official Emergency Response Plan is not a plan but an 89-page compendium of org charts and bureaucrat speak that would be useless in an actual emergency.

The results are obvious in the misallocation of scarce resources and manpower. Two weeks ago a dozen law enforcement officers from three different agencies arrested a man for paddle boarding in Malibu, even as city officials ignore countless crimes committed daily by the city’s homeless population. A man boasted to The All Aspect Report that he’d been pulled over by LAPD last week with an open beer in his cup holder, and was let go without so much as a warning. Meanwhile, Mayor Garcetti urges Angelenos to snitch on each other for violating city orders (he actually said, “snitches get rewards”) while vagrants congregate in close quarters on the steps of City Hall a few feet away from his press conference. So much for California’s “leadership.”

The only place where the official response has been worse is New York City. Like their suntanned counterparts on the Left Coast everyone in the Big Apple ought to be appalled. The leadership of a city that experienced 9/11 and Hurricane Sandy failed to plan for this kind of emergency. Maybe they were too busy building bike lanes. The city so far has the highest number of coronavirus deaths in the country, with more than 11,000 to date. With less than six percent of the nation’s population the state of New York accounts for a third of all coronavirus deaths. It’s gotten so bad that the media and pundit class are rewarding Governor Andrew Cuomo for giving entertaining press conferences with his brother (who staged his own coronavirus quarantine). Not for handling the crisis, but for looking good on TV. Let that sink in.

The official response doesn’t just amount to political malpractice, it’s an existential failure that calls into question fundamental assumptions about the modern neo-liberal state. The relentless expansion of public bureaucracies since the Great Depression was based on a contract between the people and their governments (plural, because the contract is in effect at the local, county, state, and national levels). The people accept the proposition that the complexities of modern political, economic, and social systems demand the commitment of full-time subject matter experts (technocrats) who receive salaries from the taxpayers. In return the people/taxpayers expect those employees to dedicate their careers to sustaining, protecting, and improving those systems. That contract was fraying long before coronavirus as government at every level failed on issues including education, housing, health care, homelessness, infrastructure, and mobility.

Now, as official responses to the pandemic prove more chaotic and perhaps more destructive than the disease, Americans’ remaining faith in the political class is being shaken to its core. Tens of millions have lost work and income, their futures cast into doubt. All because of bungled responses to a public health crisis that every mayor, governor, legislator, and bureaucrat should have seen coming. In an era when the next terror attack, natural disaster, or public health crisis was a matter of time the political class was bickering about pronouns.

If government were like any other industry it would already be in receivership, its executives terminated, its rank and file radically reshuffled, its budgets slashed. Yet in the perverse logic of the public sector many officials see their coronavirus failures as opportunity. As Mr. Newsom said two weeks ago, it’s a chance for “re-imagining a more progressive future.”

Only in the realm of public policy does failure respawn stronger. Only in politics does one fail upward so spectacularly.

A second realization is emerging in the form of a question, albeit a clichéd one: When does the official cure become worse than the disease? The same political class who bungled the nation’s response to a crisis they should have seen coming is in the process of cratering the U.S. and global economies. As a direct result of their actions millions of Americans have lost their jobs in a matter of days while millions more have seen their incomes plummet or disappear. The stock market has erased more than $5 trillion in gains from the last four years. The unemployment rate is making the Great Depression look like the Roaring 80s, and it’s just getting started. Former Fed Chair Janet Yellen has estimated that unemployment rate reached 13% by early April, and some observers suggest that it could exceed 30% before the crisis is over. Countless thousands of small businesses have been shuttered, many never to reopen. Lives are being shattered, livelihoods destroyed, college and retirement savings gutted.

As they continue to collect their own six figure, taxpayer funded salaries the political class that failed so thoroughly is warning everyone else that the worst is yet to come.

In a sense we are in another “9/11 moment” in which reality is obscured by the fog of the crisis (of course, many people have argued that the political class should have seen 9/11 coming as well). In response to the attacks the political class hurled the country into the catastrophic Iraq War. An attack that cost 2,996 lives triggered a response that killed as many as 600,000. In economic terms the hijackers spent roughly $500,000 to carry out their acts of cowardice. The total U.S. military response cost some $6 trillion.

In the fog the political class also convinced Americans that national security necessitated unprecedented governmental invasions of privacy – an “emergency measure,” of course. Nearly two decades later every email Americans send remains subject to scrutiny, every credit card transaction, stock purchase, telephone call, and doctor visit. County and local governments introduced mass surveillance of their populations in the form of cameras and drones, while even suburban police departments obtained military-grade equipment. All of this, said the political class, was necessary to protect us, just like the current national shutdown. The political class was profoundly, dangerously, fatally wrong then. Why should Americans trust them now?

A pandemic by its nature arrives, spreads, peaks, and declines. In contrast, the effects of mass unemployment grind on a populace for years or decades. Make no mistake: Unemployment and poverty are deadly. How many Americans already are sinking into depression, substance abuse, and lethargy because of lost hours, social distancing, and lockdown orders? New York governor Andrew Cuomo was dismissive this week of domestic violence, but how many are being victimized? How many addicts, no longer able to attend in-person meetings, are relapsing? How many people will resort to alcohol or drugs for the first time? How many will contemplate suicide? These are not rhetorical questions: Calls to suicide hotlines around the country are up substantially. A line covering North Dakota and northwestern Minnesota has seen calls spike by 300%.

Suffice it to say, if the political class’s panicked responses to the coronavirus pandemic triggers a long-term recession or even a depression, it will kill many more people than the disease itself. It will invariably result in higher crime rates, more domestic violence, more suicides.

In a world of uncertain choices and imperfect information, America’s political class so far has taken the most imperfect route imaginable.

*Yes, that sentence is an example of the old adage that there are lies, damned lies, and statistics. Comparing a viral pandemic to chronic conditions linked to genetics and behavior is apples and oranges. However, the metric officials are using to justify the massive response is the number of deaths. The current worst case scenario for coronavirus is around 200,000 deaths. Annually, nearly 700,000 Americans die of heart disease.