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The Care and Feeding of a Tech Boom
Farhad Manjoo | Photo: Brittany McLaren | September 27, 2013
This time the tech explosion doesn't have to end in tears. How one industry's growth can benefit us all.*
Of course, even the most bullish of venture capitalists don’t assert that these trends will overturn the business cycle. We’ll still undoubtedly see economic peaks and troughs, and the tech sector is certain to remain just as volatile as it has always been. You’d be a fool to bet on any single company, any single technology, any single CEO. Apple, Google, Facebook, eBay, Oracle, and other local tech giants could all die tomorrow—and some of them well might.
But to the extent that we can predict anything, it’s this: Networks matter. Ecosystems matter. The Bay Area has created a perfect hothouse for innovation, and if you’re going to bet on anything, bet on the hothouse: No other region is better positioned to take advantage of the new tech forces shaping the world. Nowhere else has anything close to the density of funders, product managers, engineers, journalists, strategists, and data miners that you fi nd here—or our cultural interest in creating world-changing hardware and software.
So, sure, many of today’s hottest tech companies will fail. But when they do, the cause of their demise—and the manufacturer of their replacement—will almost certainly be found here. Note how Zynga, the largest recent Bay Area tech flameout, has been hobbled by the ascent of mobile devices—that is, by the rise of Apple- and Google-powered phones and by changes that Facebook made to its platform. While Zynga’s games business looks to be endangered, these local giants are still enjoying the fruits of the mobile gaming revolution—and in the process, they’ve managed to kill off competitors from afar, including beleaguered Nintendo.
There’s only one thing standing in the way of the Bay Area becoming a permanent capital of the next global economy: us. If we see ourselves as caught in just another boom—a boom whose bust is on the way—we have a ready excuse to ignore long-term planning. Compared to the ambitions of the tech émigrés filling San Francisco’s streets and jamming its limited housing, much of the city’s response to the industry’s recent expansion has been hopelessly small-minded, myopic, and reflexively antagonistic.
Yes, the burgeoning tech sector will alter the Bay Area. It will draw a stream of new people—some of them sleeping in their cars—and in a decade or two, the place won’t look or feel like it does now. But why should we assume that it will be worse instead of better, that we’ll lose the arts, the cultural diversity, the tolerance, the neighborhoods, and everything else that we love about living here? If that parade of horribles does come to pass, it will only be because we let it happen—because instead of coming up with ways to integrate the demands and possibilities of the tech economy into the Bay Area’s way of life, we chose to kvetch, agonize, and wish away our good fortune.
If you want to understand the depth and complexity of the latest tech revival, no economic stat tells the story better than the rising paychecks of workers in San Mateo County. At the end of 2011, according to the Bureau of Labor Statistics, people in the county just south of San Francisco earned about $81,000 a year on average. That’s a respectable fi gure—despite being a small, mainly suburban area, San Mateo had workers who were among the best paid in the nation. Then something extraordinary happened: Over the course of a single year, the county’s average pay shot up 107 percent. In the last quarter of 2012, San Mateo wage earners averaged about $168,480 a year. That made San Mateo by far the top-earning county in the nation, with paychecks more than 50 percent greater than those of the second county on the list—New York County, also known as Manhattan.
How did San Mateo workers get so rich so quickly? A little digging reveals that their rising fortunes were almost entirely attributable to a single event—Facebook’s IPO. In the spring of 2012, Mark Zuckerberg’s billion-user social network fl oated its stock on the NASDAQ. The IPO didn’t go well for retail investors—the share price languished in negative territory until August of this year—but the fi rm’s founders, investors, and employees cleaned up. Because the government’s calculation of average wages includes income from bonuses and stock compensation, the IPO windfall enjoyed by a few thousand workers at Facebook’s Menlo Park headquarters showed up in national statistics as a blessing bestowed upon the entire population of San Mateo.
In this single stat, then, lies the question at the heart of the Bay Area’s increasingly uneasy relationship with the tech industry: When workers at companies like Facebook and Google get rich, how widely are those gains shared across the local economy? In San Mateo, at least, the answer is clear. In part due to successes like Facebook, the county’s unemployment rate has hovered around 5 percent for much of the summer, and the size of the civilian labor force is close to a peak not seen since the late ’90s. The county’s coffers are flush—its new budget allocates hundreds of millions of dollars for improvements, including a new fire station, a new jail, new housing shelters, an overhaul of the county’s information technology systems, and a paydown of its pension liabilities.
Critics of the industry’s hold on the region argue that such civic gains aren’t enough. Even if techies may help the economy, the cliché holds that they live apart from—and, really, above—us peons who populate the rest of the Bay Area. Evidence of their loftiness abounds: all-cash home buyers crowding every open house; $10 million weddings in every redwood grove; $100,000 Teslas in every driveway. It’s not just that the techies flaunt their wealth—there’s also the suspicion that they don’t deserve it, that their riches are built upon companies whose innovations are superficial or superfluous. Citing the short-term apartment-rental site Airbnb and the digital taxi service Uber, George Packer wrote recently in the New Yorker, “The hottest tech startups are solving all the problems of being 20 years old with cash on hand, because that’s who thinks them up.”
The critics aren’t completely wrong: It’s inarguable that the youngsters who populate the tech business enjoy levels of pampering that would make Kate Middleton blush. Packer’s jibe, though, is way off. Airbnb isn’t just for flush twenty-somethings—it’s a friend to price conscious vacationers across the globe. While Uber’s town car service is certainly a high-class way to get around, those who use its less upscale offerings benefit from the same app-enabled, taxi-destroying convenience. To the extent that Uber is allowing people to forgo owning cars, it could be a clear win for every value that San Francisco holds dear—it makes the city more livable, cheaper, and greener.
And then there’s the world-changing proposition: Google recently invested nearly $260 million in Uber, and while the search company hasn’t explained its rationale, several observers argue that it wants to use the taxi company as a test bed for its self-driving cars. Yes, robot taxis sound like sci-fi, but consider for a minute how consequential they could be. As Matt Yglesias argues in Slate, ubiquitous, self-driving taxis would make getting a ride so cheap that car ownership could become virtually obsolete. In a place like San Francisco, where public transportation is subpar and car ownership is an expensive hassle, cheap taxis could reshape people’s relationship with the city—making more parts of it livable, freeing streets of parking spaces, and lowering the city’s carbon footprint to boot. Will all this happen? Nobody knows. But it’s both possible and plausible—and it would only occur because wealthy techies took a gamble on an app best known for helping rich youngsters get a ride to the club.
But you don’t need to consult sci-fi to see how tech might improve the Bay Area. In 2012, angel investor (and constant target for tech agonists) Ron Conway founded sf.citi, a group best known for lobbying for tech-friendly initiatives, including a controversial proposal to overhaul the city’s payroll tax. But sf.citi also connects city agencies with experts at dozens of local tech companies in order to improve city infrastructure. Last year it provided $100,000 to Smartmuni, a group of engineers who came up (during a hackathon) with an iPad app for tracking Muni’s fleet. The sf.citi funds allowed the group to conduct a pilot test during which a number of Muni managers ran their lines with software instead of walkie-talkies and clipboards. The trial worked so efficiently that the city is looking for ways to implement the app throughout Muni. To provide San Francisco’sparks with Wi-Fi Internet access, Google donated $600,000 (having already provided a similar system to Mountain View, as well as superfast gigabit Internet lines to some of Stanford’s residential buildings). Many of San Francisco’s other recent tech advances—electronic parking meters, for instance—were funded in part by the industry.
There’s even more direct proof that tech gains are being felt across the Bay Area. Since 2010, the unemployment rate in San Francisco has slipped from 10 percent to just under 6 percent. That’s as close to an economist’s definition of full employment as you’re likely to find anywhere in the country, and, while the resurgence has been led by the tech sector, it hasn’t been limited to it. Every other local economic indicator—including per-capita income and employment in sectors outside the tech industry, as well as the aforementioned rental and real estate prices—is at or approaching an all-time high.