Weekly Report – September 21, 2015

Jon Christensen, an adjunct assistant professor and journalist in residence at UCLA’s Institute of the Environment and Sustainability and a partner in Stamen Design in San Francisco wrote a review of the recently released book entitled “The Rise and Fall of Urban Economies: Lessons From San Francisco and Los Angeles.”  This book was written by a team of academics under the leadership of Michael Storper, a professor of urban planning, economic geography and economic sociology with joint appointments at UCLA, the London School of Economics and Political Science, and Sciences Po in Paris.

It is recommended reading for anyone who is concerned about the future of California and cities more broadly.

The Bay Area versus Greater Los Angeles​​ – A Tale of Two Economies​

Why has the Bay Area and Greater Los Angeles metropolitan regions, which were essentially similar by many important measures in 1970 — especially real household incomes, but also innovation, investment, education and creative jobs — diverged so dramatically in the years since. 

The Bay Area has continued to rise in the top ranks of metropolitan areas and now enjoys real average household incomes (minus housing costs) 50 percent higher than Los Angeles, along with higher educational attainment and more creative jobs, patents and venture capital investment. Los Angeles has fallen badly behind in all of the same measures and is now at risk of dropping into the rank of middling urban regions.

Although L.A. is now trying to play catch-up with a “Silicon Beach” cluster of tech and media businesses around Venice and Santa Monica, the Bay Area definitely won the “new economy.” And L.A. lost it.

The question is: Why? And how? Or to continue the detective metaphor: Whodunit?

Like forensic detectives, Storper and his co-authors systematically examine the usual suspects — the decline of the aerospace industry in L.A., the rise of Silicon Valley, different immigration patterns, changing educational attainment, economic development policies, amenities and more — and carefully dismiss them as causes one by one. They come to the provocative and persuasive conclusion that the answer is the “zeitgeist,” cultures of business, policy and governance that differ significantly between the two regions.

An “open source culture” in the Bay Area enabled more open paths of movement and trade of people, ideas and capital between firms, as well as between business and academia. By contrast, in Los Angeles, a top-down, “big dog” culture prevailed in business and government, along with the self-contained firms and management systems that historically characterized big Hollywood studios, big aerospace and big pharma. “Invisible colleges” — vibrant relational networks of investors, entrepreneurs and scientists — thrived in the Bay Area, but not in L.A.

The Bay Area also has a deeper, more self-conscious history of regional thinking. The bay itself is an obstacle that fractious cities and counties had to collaborate to bridge, literally and metaphorically. The movement to save the bay helped to create a regional identity, too. And as the new economy developed, business and civic leaders such as the Bay Area Council relentlessly beat the drum for the region’s “interconnected innovation system,” the importance of human capital as well as venture capital, and the shared vision of creating a high-wage, high-skill economy.

Meanwhile, L.A. vacillated. To be fair, L.A. was hit harder by the nationwide recession of the early 1990s, suffered a more severe, longer decline in real estate values, and then confronted the devastating Rodney King riots in 1992. Although L.A.’s leaders occasionally talked about the “new economy,” they actually focused much more on trying to keep light manufacturing in the city, reduce business and development costs, and improve the vast logistics and transportation system around the ports in San Pedro and Long Beach, together the largest container port in the country.

While the Bay Area took the “high road” of the “new knowledge economy, stressing technology, innovation and skills,” Storper and colleagues write, Los Angeles took the “low road” and has paid the price.

“Los Angeles leadership persisted in believing they could turn back the clock and become cheaper, and by traveling this low road they could hence compete with Texas, Alabama, and Mexico,” the authors write. “They did some of this in the name of social justice, calling for jobs for low-skill workers. But these noble intentions emerged from belief structures about economic development that were antiquated and inappropriate to the high-cost club of regions to which Greater Los Angeles belongs by virtue of its size and density and the irreversibly high land, labor, and consumer prices that this status brings with it.”
And that has made all the difference in the world, for now, anyway. San Francisco and Los Angeles are still in the same league, but L.A. is on the bubble. While the Bay Area has “outperformed most metropolitan areas” in the United States, the authors write, “Los Angeles has foundered.” Among all of the major metropolitan areas in the country, they add, Los Angeles now “most closely resembles Detroit.”

But when everyone in the Bay Area is done gloating, there is a cautionary note. Storper and colleagues write that the “one-horse town” quality of Silicon Valley may prove a potential weakness for the region in the future. Many of the region’s notorious disrupters are becoming corporate giants and starting to act like it.

Where Do We Go from Here?

My research suggests the L.A. Coalition focus/continue to focus on the following initiatives.

As innovation and entrepreneurship continues to play an increasingly vital role in the economic fortunes of cities, L.A.’s business and civic communities need to work closely with policymakers to develop and shape policies that foster L.A.’s growing start-up ecosystem. The focus should be on entrepreneurs and small and medium size high-growth businesses that want to invest, expand and hire in the region. Second we should focus on the new breed of companies that are reshaping the way people interact with the city around them and companies that can help city government strengthen its ability to solve local problems.

Policy idea: Support City Hall’s development of more pro-active regulations that embrace new digital business models with regard to the ride-sharing and short-term based economies.

Workforce: Develop more innovative partnerships between the private sector, workforce development boards and government, to bolster initiatives that help develop technology and coding skills amongst L.A.’s youth and workforce. This should include expanding coding lessons to all schools and develop technology apprenticeship schemes. This should also include the creation of more platforms that ensure start-ups are matched to talent and investors.

L.A. Coalition’s Support of the Mayor’s Operations Innovation Team (Team Bio’s Attached to email): The city has done well to date in collecting its data and making it open and available to entrepreneurs, and it must better use that data to optimise its own operations. The Team is making progress on the following three items:

  • Procurement and Contracting.  Accenture’s Citie Report ranks Los Angeles’ procurement practices as a “Tier 2” – in innovation and accessibility to small businesses. Early analysis finds the City’s contracting process ranges from 291 to 554 days. This lack of analysis (even with open data) and lack of coordination have created great opportunities for improvement. The Team has setup a partnership with SmartProcure to analyze the City’s spending patterns (overspending, local vs. non, supplier diversity) and looking into opening up procurement mechanisms to make them accessible to younger, smaller businesses allows cities to access a wider range of new ideas and technology than traditional market procurement has allowed for. It also will focus on opening up commercial opportunities for local entrepreneurs and provides them with a living urban lab in which to test and validate their products and services. (Data point – anywhere between 10-15 percent of City’s $7 billion in annual purchases across City departments and proprietaries is secured by City-based businesses, more than half of the total went to firms outside the region, and some of it left the state entirely.)
  • City-Owned Real Estate. Opportunity Space (http://bit.ly/1gwlj8i) is a startup working with major cities to map, promote, and support vacant, underutilized assets.The Team is​ ​exploring a solution like this to display​ ​the City’s​ ​properties, while cleaning and validating existing data sets​ ​they have acquired. They​ ​have the listing of the tax assessor’s listing of the 7,600+ land parcels owned by city entities​ ​and the ultimate goal is​ ​to​ ​develop​ ​a​ ​management plan for the City’s asset and land portfolio for economic development—a core fundamental for the City’s job and economic growth strategy, advocate and help secure support for anchoring of the City’s asset portfolio for​ ​a new​ ​economic development nonprofit entity​ ​and​ ​quantify assets to support Olympics, homelessness, affordable housing, and revenue expansion through economic impact.
  • Workers Compensation. The Team’s goal is a reduction in workers compensation expenditures by the City. The L.A. civilian rate is 11 percent when the average California rate is 4 percent. Reform will require the City to launch a new safe workforce initiative, quantify and lead cross-departmental reform of the City’s injury prevention and response efforts, set transformative yet achievable goals for cost savings and injury reduction. The immediate and long-term plan is to bring the civilian and sworn-officer safety record into comparable claims standards. And the Team will propose infrastructure for ongoing accountability, tracking, analysis, and robust safety training and responsiveness. (Data point – on any given day, 2,700 sworn-officers are either on restricted work duty or out on medical leave due to injury or illness, which is why the City needs to implement a more effective wellness and safety program.)

Global Best Practices ​- ​L.A. ​has Plenty of Opportunities to Learn from Others ​

New York. A report issued by the nonprofit Design Trust for Public Space and the New York City Department of Transportation proposes managing the City’s underused space more effectively. The “Under the Elevated” report notes that New York’s elevated infrastructure covers a wide variety of existing spaces under a wide range of jurisdictions. The report’s researchers created two “pop up” parks—one in the Bronx and one under the Manhattan Bridge in Chinatown. Like the High Line, “Under the Elevated” has the potential to influence how the world views underused urban spaces.

Sao Paulo. When tendering for public sector contracts, companies in São Paulo only need to display their tax compliance at the time of bidding to pre-qualify for the contract. Furthermore, SMEs are given preferential treatment as long as their bid price no more than 10% higher than non-SME bidders.

Amsterdam. From February 2015, Airbnb will work with Amsterdam to collect tourist taxes from their hosts and pay this direct to the city. This world-first Airbnb-friendly law will see the two parties work together, with Airbnb ensuring that hosts are aware of their legal responsibilities.

New York City is a leading example of how strategic branding can accelerate entrepreneurial development. Digital.NYC – a partnership between the Mayor’s Office, the New York City Economic Development Corporation and private organizations – promotes the City’s start-up ecosystem by convening information on events, blogs, jobs, investors, classes and companies all in one place.

Barcelona has successfully redefined the way the city council conducts procurement through the BCN Open Challenge which sought out innovative solutions, supported winning companies and validated projects to become scalable. The Barcelona Urban Lab has also turned the city into an urban laboratory where public spaces are used as testing grounds for new products and services.

Boston’s Innovation District is a leading example of how a city can catalyse new business growth by creating the environment needed for young companies. The 1000 acre site provides entrepreneurs with flexible co-working spaces, digital connectivity and event spaces. The District has created over 5000 news jobs in over 200 new companies between 2010 and 2013.

Vancouver’s new Entrepreneur Fund raises private investment to support emerging start-ups, giving the city’s tech sector a boost as it competes for talent and investment. The Vancouver Foundation also funds the Greenest City Fund with $2 million to support ideas generated by the community.

Tallinn has been offering free public Wi-Fi to its visitors and citizens since 2005, not as a goal in itself but because it is seen as a tool that directly benefits the city. Estonia was one of the first countries to establish access to the internet as a human right. It has also been offering free public transport since 2013, the first capital in Europe to do so.

Seoul, Via the Seoul Innovation Bureau, is promoting a Sharing City where citizens can use social media and an online platform to engage with the development of their public services. With a chief information officer in place since 1999, Seoul has taken the lead in establishing a sophisticated e- governance information system infrastructure.

Tel Aviv‘s DigiTel – a personalized communications network – launched in 2013 and is open to all residents aged 13 and over. DigiTel provides a single digital citizen interface with the city, and enables the city to tailor offers to residents based on their interests, day-to-day activities and transport preferences, ensuring the city can develop smarter solutions and experiences.

London has launched the second version of its pioneering London Datastore. It now contains 850 data sets with open APIs covering 16 themes from employment and skills, to transparency and health, offering entrepreneurs the opportunity to use the data to create new businesses and solve city problems.