Editor’s note: This is the second part of our coverage on what comes after the pandemic. Read Part I here.
The most prominent companies in and out of Silicon Valley are on something of a spree this year. Facebook has spent billions acquiring and investing in new companies, including $400 million to, why not, buy the GIF portal Giphy. Apple has bought four firms so far this year. Google, for its part, just spent $180 million on a Canadian company that makes $1,000 “smart glasses.” Just look at the Nasdaq stock index shrug off the slump of COVID spring toward new heights above 11,000.
Here’s your friendly reminder that the stock market is not the economy: Almost every industry in the Bay Area is in serious trouble, according to a May survey by the Bureau of Labor Statistics. At this time in 2019 the region boasted almost 123,000 manufacturing jobs, for example, but by May 2020 that count was just over 100,000, a 15 percent tumble. Construction shed more than 17,000 jobs year over year to fewer than 110,000, down roughly 14 percent. The combined health and education sectors lost over 37,000 positions (10 percent), while the combined trade, transportation, and utilities sector more than 53,000 (a 14.5 percent drop).
Nobody has taken a greater drubbing than the leisure and hospitality industry, which ditched over half of its paying positions from one year to the next, amounting to 143,000 jobs across five counties, including San Francisco.
Like others during this pandemic, the tech sector has had to make some adjustments. In April, Airbnb laid off nearly 2,000 people, while Yelp slashed 1,000 positions. Uber announced in May that it would eliminate some 3,700 jobs (and continues losing lots of money). Yet these are barely more than hiccups for the major Silicon Valley players with footprints in San Francisco. BLS data show information along with professional and business services shedding nearly 6,000 and 23,000 jobs from last year, respectively, about 5 percent to 6 percent off their regional totals; finance lost just a few thousand staff, not even 2 percent.
The problem then becomes the lack of diversity in the city’s economy, according to Kim-Mai Cutler, a partner at the tech venture investment firm Initialized Capital. “If you think about a forest and forest health, you don’t want just a couple of [big] trees crowding out the sunlight” for everyone else.
At the same time, Cutler says that the success of some smaller companies like Zendesk (a beneficiary of the so-called Twitter tax break) are flying below the radar right now.
One measure of that success — as was obvious to everyone experiencing our increasingly congested streets, among other signs of change — is that tech added more than 100,000 jobs from 2010 to 2018, an increase of around 140 percent. Much hand-wringing ensued about whether San Francisco could be a one-industry town. Ted Egan, SF’s economist, has his doubts; he does not see technology becoming the only game around, despite the growing prominence of the sector.
That doesn’t mean tech can’t change the fundamentals of the city from here on out, he says. “If you hate what the last 10 years have done to the San Francisco economy, you’ll hate this more,” Egan tells The Frisc, with inequality widening and neighborhood mainstays closing.
Wait, so what about our other robust business sectors that don’t get as much attention, like health care and life sciences and education? Right now, Egan says those sectors are hurting, albeit not as much as the mom-and-pop outfits on the streets. At the same time, “it’s difficult to say how much growth potential either sector has.”
Health care, for instance, has expanded over the past decade but “if it’s going to grow, it really needs new development,” he points out, and building hospitals and research labs require significant capital along with an iron constitution to navigate SF’s byzantine permitting process.https://twitter.com/CaseyNewton/status/1290682341128417282
New schools, for their part, are much easier to put up, but education doesn’t have nearly as much momentum behind it.
Wish we knew how to quit you
Community groups, commentators, and even City Hall officials themselves have, from time to time, directed criticism and scrutiny at the tech sector over its real and perceived impacts on the wealth gap in SF. (The latest example is the “Overpaid Executive Tax” targeting C-suite earners, which will appear on the November ballot thanks to the progressive Board of Supervisors.) Setting our always-virtuous politics aside, there’s a solid rationale at work: The overall record of cities and towns with a dominating industry suggests that the less diverse an economy, the less resilient and more fragile it becomes.
Prime movers wield tremendous power because they’re wealthy, and also because if they falter they can take everything else down with them. “The more a city is a one-industry town, the more decisions at a governmental level are made consistent with the desires of that industry,” says John Paul Rollert, a professor of behavioral science at the University of Chicago’s Booth School of Business. “It’s a lot like how, you know, if you owe the bank $1,000 it’s your problem, but if you owe the bank $1 million that’s the bank’s problem.”
The flip side of that is we’re in a horrible time for tech to be a problem for San Francisco, because officials are depending on tech and other companies to shoulder more of the city’s burdens. Come November, voters also will decide whether to raise certain taxes on tech and financial firms starting in 2022 — a crucial decision for Mayor London Breed’s plan to balance the city budget.
What’s rather worse is that tech now has the ability to short San Francisco in pursuit of further success. Local companies may decide, for starters, that they no longer want or need to pay for employees here. “People can work from anywhere if they have a good internet connection, so what does that mean for employers who have office space?” asks Julie Clowes, regional director of the Small Business Administration.
The simplest answer: Companies get rid of it.
Real-estate services firm CBRE reported in July that office leasing activity in the US fell 44 percent year over year in the second quarter, and the vacancy rate vaulted 70 percent as startups and white-collar jobs make themselves at home with the idea of working remotely.
A spokesperson for SF-based Kruze Consulting, which does accounting and taxes for startups, tells The Frisc that half of its 250 startup clients have walked away from their offices. (Kruze counts itself among them.) Also in July, Google dashed hopes of a prompt return to normalcy by saying it will keep employees working from home until mid-2021, since other employers are likely to follow its lead. Facebook has followed suit.
“If you live in SF and you don’t have to come into the office, do you move to Portland? Do you move to Tucson?” wonders Rollert. The grass is certainly greener in some of those cities, in that home prices and rents aren’t quite as high.
Egan anticipates that companies might start to encourage such moves: “They may say ‘If you move away from the Bay Area we’ll dock your salary,’ but not enough that it’s still not cheaper to live somewhere else. You won’t be paying [thousands] every month anymore [for housing], and your boss is happy, because who doesn’t want to pay their employees less?”
An exodus could relieve pressure on residential and commercial prices, which have shown a striking ascent over the decade. “If you had a real reset and businesses didn’t come back, a lot of people will leave, and rents will have to adjust at some point, says UC Berkeley economist Sylvia Allegretto. “There’s going to be a lot of vacancies.”
At the same time, the money those workers have to spend leaves with them. Who would be left to patronize the local businesses that manage to tough it out?
Keeping the home fires burning
Consider the fate of Specialty’s and its famous cookies, the Bay Area company gone forever after 33 years in business. OK, so a city where you can’t find a decent cookie is not the biggest tragedy we’re dealing with right now, but it’s a grim bellwether for commuter businesses in a post-commute world. (That’s particularly true vis-à-vis San Francisco’s ultimate commuter service, BART, which has spent months shouting from the rooftops about its 90 percent declines in ridership.)
There is, however, a post-COVID scenario that makes San Francisco neighborhoods stronger. “If people spend time in neighborhood corridors more, they become more deeply invested,” points out Jay Cheng from the SF Chamber of Commerce. “For some merchants, that will strengthen their position. The pandemic can make people realize how critical those corridors are.”
Money that the remote-work crowd spends on transit, on work-focused amenities like business lunches, coffees and drinks, or office-adjacent gym memberships could instead go to support local merchants. People could refashion a life that is somehow more isolated and yet also more connected to community — a day-to-day routine with no commuting and ergo no commute expenses, in which businesses and firms within half a mile serve the bulk of their wants and needs. “Those neighborhoods are full of families,” says YaVette Holts, founder of the Bay Area Organization of Black-Owned Businesses. “And these businesses are a way for people to get to know their community.”
If there are gaps in access to goods because of permanent commercial vacancies, then life gets trickier. “Folks in those communities relying on those services are going to end up having to pool their resources as a neighborhood to buy in bulk and administer new co-ops,” suggests Holts. While some groups may form to fill in the blanks that way, others will find maintaining these ad hoc networks to be costly and laborious, at which point she guesses people will be going beyond their own communities.
Everyone who has been sheltering in place since March can attest that trying to make a living while staying home leads to stir craziness right quick, so there’s a lot of pent-up demand to visit nearby businesses. That could be the saving grace for many neighborhood entrepreneurs.
For that to happen, Silicon Valley must retain its workforce in SF and local employers must endure the epidemic, and it’s not even close to clear that that’s going to occur. If small businesses overall are supported by the city and the government, “there will be ways for people to continue working” at those businesses and for neighborhoods to hold out, the Tenderloin Neighborhood Development Corporation’s Lorenzo Listana says.
That’s one big if. “We don’t have enough money to fight a pandemic and make everybody whole at the same time,” Allegretto warns. Forced to choose, saving lives will have to come first, while big parts of the neighborhoods people call home slip away.
Silicon Valley observer Margaret O’Mara has a last word for future market watchers: The tech industry may be thriving, with growth up and to the right, but that won’t be so forever. “Every company becomes a dinosaur one day,” she says. “Presuming that these companies are going to just grow and suck out all the oxygen until nothing is left, well, there is a cyclical nature to growth.”
The problem is that, like with the novel coronavirus crisis itself, there’s no telling when we’re going to see the flattening of the curve.
Adam Brinklow has lived in and written about San Francisco for 13 years, covering local communities for outlets like Curbed SF, SFGate, San Francisco magazine, SF Weekly, and EDGE SF.
