If you’re a member of the burgeoning American upper middle class or have relationships with any such yuppies, you have probably heard about “tech-xodus.” The term refers to the rapidly rising rate of techies leaving San Francisco.
Opinions surrounding this issue run the gamut. For instance, google “San Francisco is dying” and you will find that most articles fall under the theme of “San Francisco isn’t dying, despite tech departures.”In a banal sense this is completely true. Big cities are remarkably durable, buoyed by a robust interaction of myriad social forces that produce constant innovation, rejuvenation, energy, and change.
But change is not always positive. Enduring advantages will ensure San Francisco remains a major city, but it is on an inexorable path—driven largely by the local government’s astounding own goals and policy failures—to giving up its unique position, and the benefits it reaps, as the United States’ principle tech fiefdom. Cities don’t die, but they do languish.
Ironically, San Francisco’s self-imposed decay could be a very good thing for America.
American inequality in wealth and income distributions are well known. Lesser discussed, though perhaps even more significant, is geographic inequality. Over the last several decades superstar metropolises have drawn in educated young people like moths to light. Centralization of innovative industries around major metropolitan areas has up-ended what was previously a more distributed hub and spoke regional economic model. This process has led to a brain drain from the heartland, exacerbated regional fissures and ultimately redounding to political divides.
A recent report from the Brookings Institution and theInformation Technology & Innovation Foundation (ITIF) makes the case that the “growing gap between the nation’s dynamic “superstar” metropolitan areas and most everywhere else” is not only fostering political polarization, but—contrary to long-standing neo-classical ideology—is actively harming our country’s productivity and growth potential. To rectify this, the authors argue that we need
“a massive federal effort to transform a short list of ‘heartland’ metro areas with compelling strengths into self-sustaining ‘growth centers’ that will benefit entire regions.”
In short, we should pursue a more decentralized geographic model, centered around regional economic ‘growth centers.’ Coincidentally, San Francisco’s active implosion may be helping to seed this development.
San Francisco has not exactly lived up to its image as a shining city on a hill the last few years. Indeed, the cities policy failures have contributed to an environment for residents that is increasingly unattractive and untenable for future growth.
The city’s crime is going unchecked. Car jackings and petty crime have risen by dizzying rates, with insane videos such as this offering a mere glimpse. The city’s District Attorney, the son of two convicted murderers in the Weather Underground movement, has helped this along by bringing a radically soft stance on crime that is clearly not working.
The city council and school board have similarly fomented resident dissatisfaction. The school board is so unpopular that a recent recall of three school board members saw a traffic jam of hundreds of cars to sign their recall papers. Despite San Francisco’s decent handling of the pandemic, it is one of the last school districts to re-open, with the School Board notoriously bogging itself down in a debate over renaming schools while ignoring the more consequential issue of re-opening. And, most egregiously, the city has decided to do away with meritocratic admission standards at Powell high school, a majority minority school (85% students of color, 35% from poverty) famous for developing talent.
The biggest issue is, of course, housing. The city and local interest groups have consistently put and kept road blocks in the way of expanding the housing supply, luxuriating in a NIMBY mentality that has sent rent and house prices soaring. Rather than looking to revamp zoning laws, some place the blame on tech employers and even UCSF for expanding and attracting workers to the city. Meanwhile the city is experiencing rising homelessness, overdose deaths, and increasingly dense traffic that sees over 30% of commuters spend an hour or more commuting each way.
All of these problems are created or made worse by governance failure in San Francisco. The results are unnecessary dangers, exorbitant costs, and a tech-xodus.
Regional hubs such as Raleigh, North Carolina, Austin,Texas, Denver, Colorado, and Miami, Florida have already begun to see some benefits from SF’s tech-xodus. Cities like Denver have become fertile ground for startups and new innovative ventures such as Boom Supersonic, funded by notable Californian Lauren Powell Jobs’ Emerson Collective. Now it will likely become one of the larger beneficiaries of the tech Calexit with Palantir announcing its move to Denver last year. Other larger names that have announced big moves out of Silicon Valley include Oracle and Tesla both opting to move their headquarters to Texas within the past 6 months. Tesla has spurred a Mafia of its own with its alumni opting to start companies, new companies that likely won’t be in California. Peter Theil is likely relocating to Miami with a recent home purchase, along with Keith Rabois, Sherman Pishevor, David Blumberg, and many other prominent venture capitalists.
While some companies and venture capitalists are making complete exits, others are making slower more gradual ones. Facebook has quietly been inching back to its Northeastern birthplace with ambitions of a massive campus in New York. Google and Apple have also added large operations in Texas as well as a recent announcement by Apple for a new campus in North Carolina.
Local governments in these smaller regional hubs—personified most famously by Miami’s Mayor Saurez—are taking advantage of San Franciscan dysfunction to hype their own offerings. Saurez and other local governments are now receiving investment inflows that, had San Francisco leaned into its advantages, likely would have gone toward further buoying the SF metropole’s agglomeration.
San Francisco’s implosion may be coming at just the right time. The United States Congress is considering a massive infrastructure bill that, in large part, hopes to revitalize the American heartland while moving America toward a greener, high-tech future. The plan explicitly calls on Congress to “invest $20 billion in…[a]t least ten regional innovation hubs [that] will leverage private investment to fuel technology development, link urban and rural economies, and create new businesses in regions beyond the current handful of high-growth centers.
Such a Federal endeavor could picky-back on both the negative inducements pushing companies away from SF as well as the positive inducements some local governments are already offering. Federal funds would synergize with the San Franciscan tech-xodus, paving the way for an ‘intelligent decentralization’ and rejuvenation of the American hub and spoke geographic economic model.
While higher profile hubs like Austin, Denver and Miami have already benefitted from the tech-xodus, many viable regional hubs have not. Congress should follow through on Biden’s regional investment plan and direct funds toward promising regional hubs that boast numerous advanced degree holders and relatively high STEM R&D thanks to the presence of strong local universities. Top candidates include such cities as Madison, WI, Minneapolis, MN, Albany, NY, Lexington, KY, and Provo, UT. Such a concerted Federal effort—to the tune of $700 million per year per city—will intersect both local developmental efforts and the tech-xodus to help heartland cities develop and keep native talent as well as draw in investors and entrepreneurs who might otherwise have located and invested in a metropole.
The largely self-imposed demise of San Francisco as America’s singularly powerful tech fiefdom may not be so bad after all. The failings of America’s tech fiefdom may synergize with federal efforts to rejuvenate a hub and spoke regional economic model that sees innovative industries increasingly dispersed across the continental United States. San Francisco’s mistakes may aid and abet the revitalization of the American heartland.