San Francisco, You’ll Miss Your Tech Bros If They Flee

(Bloomberg Opinion) -- San Francisco recently banned plastic straws. The move won’t make a dent in oceanic plastic pollution, but will certainly inconvenience some disabled people, and will make it harder for certain kinds of ethnic-food businesses — in particular, Taiwanese boba tea cafes — to remain in operation.

In another restrictive move, San Francisco temporarily prohibited electric scooters. For a while, this cheap, convenient, low-energy form of transportation seemed as if it had practically taken over the city; now scooter operators must go through a laborious permitting process. Though stereotyped as a plaything of wealthy tech bros, the scooters are in fact most useful for middle-class Americans.

Now, San Francisco may forbid companies from serving food in private corporate cafeterias. The idea is to generate more business for local restaurants and cafes, though it would do a lot to inconvenience busy tech workers, not all of whom are highly paid. Last year, the city outlawed most delivery robots from operating on the streets.

What is the purpose of all of these bans? Part of it may be a desire to preserve the traditional culture of Northern California — easygoing, uncrowded and quiet, with neighborhoods filled with longtime residents. Some of the motivation, especially where straws are concerned, has to do with appearing virtuous and globally minded on environmental issues, even if such gestures are more symbolic than substantial. And part of it may simply be politicians’ urge to do something rather than nothing — as long as substantive, useful policies like building more housing are stymied by local politics, you might as well ban straws and robots.

But part of the motivation may lie in antipathy toward the technology industry, which has changed the character of San Francisco and nearby cities in recent years. As big tech companies like Alphabet Inc. (Google) and Facebook Inc. have moved offices into San Francisco and other downtown areas, high-earning technology workers have followed, pushing rents up, displacing many long-time residents, and changing the feel of the city. A number of the bans — scooters, robots and cafeterias — are aimed squarely at those companies.

With some tech workers and companies already contemplating leaving the Bay Area because of high rents, the authoritarian stance of local government may well accelerate the exodus. But before cheering their victory over the tech invasion, Bay Area leaders should think about what happens if they really do manage to drive the industry to greener pastures.

Industrial clustering effects are incredibly powerful. The Bay Area has the country’s biggest concentration of venture-capital firms, meaning that startups have an incentive to locate in the area in order to maximize their chances of getting funded. Big companies want to be close to where they can acquire technologies and personnel from startups, as well as buying the startups themselves. Engineers want to live in a place where they can maximize their chances of finding good jobs, and companies both big and small want to be near to a big pool of engineers.

This is why, despite sky-high rents, lack of housing, harassment by local governments and San Francisco’s ever-festering homelessness problem, the Bay Area remains the U.S.’s — and the world’s — premier technology cluster. The cluster got an enormous head start from its freewheeling culture of idea exchange, from the presence of Stanford University, from proximity to Asia, and from the legacy of the World War II defense industry. Those advantages snowballed, making the Bay Area the juggernaut it is today.

But that doesn’t mean the Bay Area’s industrial dominance is invincible. It may be the nation’s top tech cluster, but it’s not the only one. Austin, Texas, and Seattle are also centers of venture capital and engineering talent, and if Silicon Valley stumbles, these cities — or even New York — are ready to steal the crown. Although Austin also temporarily banned scooters, and Seattle has also banned straws and plastic utensils, it’s possible that these cities will end up being more permissive and tech-friendly than San Francisco and Silicon Valley. Seattle has been much better than San Francisco about building housing to accommodate new workers, while Austin has allowed delivery robots. Austin also has the advantage of being in the relatively libertarian state of Texas.

At what point would regulation and rent get so onerous that the technology industry vacates the Bay Area en masse and heads somewhere else? That’s hard to say. Each cluster has a tipping point, where costs rise so much or it loses its competitive edge, leading to abrupt decline. The cautionary tales of Midwestern manufacturing cities like Akron, Ohio, shows how rapidly and irrevocably a cluster can vanish once deterioration sets in. If the Bay Area ever does lose its tech industry, the collapse will probably come quickly and catastrophically rather than slowly and gently, and few will see it coming. The likely result would be greatly diminished tax revenues, higher poverty and urban decay — just like in the Midwest. Nor would the carnage be confined to the Bay Area — deprived of its customer base, wine country would suffer, as would nearby cities like Sacramento.

This doesn’t mean that the Bay Area is close to the tipping point, or that local governments should roll over and do whatever tech companies want. And inflated rent is still a much bigger threat than regulation. But given the fact that no one really knows where the tipping point is, it’s probably good to err on the side of caution. If regulations like scooter bans aren’t doing the city much good anyway, they should be avoided.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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