1. San Francisco’s Economy of Boom and Bust
San Franciscans stand at the most significant crossroads in their civic history since its rebuilding after the 1906 Great Earthquake and Fire: except this time the disaster is all manmade. For the second time in the 21st century, San Francisco’s private sector economy has collapsed in a bust after a boom. The collapse of the speculative market-rate housing bubble in 2008 followed the collapse after the dot-com boom in 2001. The dot-com boom/bust in turn followed the bust of the speculative high rise office boom of the late 1980’s. Three things should be clear from these cycles of private sector boom/bust in San Francisco.
First, the cycles of boom/bust are shortening. It was about 10 years between the bust of the high-rise office bubble in the late 1980’s and the rise of the new, dot-com bubble in the late 1990’s. It was only some six years between the bust of dot-com in 2001/02 and the bust of the housing bubble in 2007/08.
Second, San Francisco’s unemployment rate is rising after each boom/bust cycle. According to the states Employment Development Department, at the height of the high rise office bust in San Francisco (1990), unemployment reached 3.8%. After the dot-com bust it was 5.1% (2001). After the housing bubble, it was 10.2% (August 2009). Indeed, each boom seems to produce fewer jobs in San Francisco than the last. The height of the housing bubble (August, 2008) saw 429,000 jobs in San Francisco, down 35,000 from the height of the dot-com boom of 426,000 jobs in the City. Currently (December 2009), there are 400,000 jobs in San Francisco, according to EDD.
Lastly, each succeeding boom/bust produces deeper budget deficits for the City. Deficits in the post high-rise office boom averaged about $150 million. Today, in the post housing bubble period they are averaging more than $500 million. The collapse of the private sector economy is now threatening the public sector of the City. Critical services – health, public transit, education – services without which no urban population can survive – are now being slashed, not because they are too expensive but because the private sector will no longer pay its fair and necessary share of the costs for these necessities.
At a national level, the current situation is now being framed by mainstream media as a “Jobless” Recovery – ie, stocks may be rebounding, but without an increase in employment, and therefore consumer spending. Despite claims that the recession is over official unemployment at the national level is the highest rate in over 25 years. National figures estimate 10% of US workers are out of work, while comparable data for California estimates official unemployment at 12.5%. If we include those presently too discouraged to look for work and those working in involuntary part-time status the official rate would put the percentage of US workers suffering from involuntary un- or underemployment closer to 17-20%. The mainstream media are framing the housing market as having “bottomed out,” citing a return of home sales, though in fact home sales are being fueled by investors paying cash and buying quantities of foreclosed homes, and there are still a huge amount of adjustable rate mortgages that are yet to come due.
Equally troubling at the state and local levels are the gapping fiscal deficits at the state level that have emerged in the wake of the subprime crisis. The Center for Budget and Policy Priorities currently estimates that 48 states will find themselves saddled with budget deficits in FY2010-2011. California is projecting a deficit of over $19 billion for the coming fiscal year on top of major funding shortfall over the last two FYs that have already necessitated major spending cuts to education and a host of vital social services. The fallout from the housing boom/bust is having equally devastating consequences at the local level where a combination of state shortfalls and reliance on volatile local funding sources has already led to the need to impose across the board reductions in departmental budgets, layoffs and/or wage freezes, and suspension of COLA adjustments in local contracts. Projections for the next fiscal year are even worse, as seen in recent announcements regarding cuts to local education budgets, teacher furloughs and layoffs, and significant reductions in MUNI services.
There is no consensus on how to “fix” the crisis, and the economy is in fact not likely to recover soon: the neoliberal model (based on private consumer debt) of the last 35 years seems to have reached its end, and there is neither political will or external bond financing to return to a Keynesian model (of the 35 years before that) at the scale needed to increase aggregate demand. There is no new theory being presented at this point about how the national and global economies will be restructured to respond to the current crisis.
The current crisis, which we believe is structural and of long-term duration, invites us to revisit – once again – the question of what type of economic development we envision for San Francisco.
2. The Coming Ecological Challenges
In the longer term, ecological crisis, including the combination of climate change and peak oil & gas, will put extreme pressures on any economic recovery. So far, “the green economy” has really just been about putting a “green” spin on existing products and services. The real turn toward a green economy will require a major transition in land use patterns (abandoning the suburban development model) and transportation methods (abandoning the car as primary transportation), a re-localization of production of primary needs (ie, food security, but also the manufacture and “re-manufacture” of socially necessary goods), and a massive reduction in energy use and consumption.
It seems likely that a real transition is not likely to happen until further catastrophic climate destabilization and/or food, energy, and water crisis (and related increases in migration) makes it inevitable. California, the “bread basket” of the US, which produces 20% of its food, will be at the center of this crisis: as overlapping stresses from aquifers drying up, the ice melt from the Sierras lessening each year, soil desertification from excessive irrigation and fertilizing, and cost of oil-based inputs going up, things may get very heated (both in terms of water access and food access by those who can least afford it) in the next 20-30 years. San Francisco’s 2004 Climate Action Plan and its 2008 Environmental Plan, both lay out a series of recommendations for improvements for transportation, energy efficiency and renewable energy, and waste reduction, but at nowhere near the kinds of city investment or transformation of the economy that the analysis suggests is necessary. The city’s Peak Oil Preparedness Task Force report does much more to convey the enormity of the task and the new kinds of economic development that we should be gearing up for: including massive investment to increase capacity in public transportation (electrified trolley buses), energy reduction and efficiency (through a smart grid and building retrofits) and renewable energies (through community choice aggregation), reinvesting in the southeast waterfront for short haul water freight and regional rail transport, investing in remanufacturing industries, and a relocalizing of the city’s food shed to provide for up to 50% of the city’s food needs from within the city.[i] Unfortunately, these recommendations appear to be completely disconnected from the direction of the city’s economic development agencies.
3. The Failure of the City’s Economic Development Policies
Three decades of financial deregulation and “free market” policies, while proving quite beneficial to financial owners, top tier managers, and elite cadres of professional employees and highly skilled technical workers, have been far less salutary for non-supervisory employees, semi-skilled workers, and the large numbers employed in services and retail – in short, for the majority of those that still live and work in San Francisco. Prop 13, tax cuts and withdrawal of federal aid to the cities have left state and local government saddled with underlying structural funding gaps that have emerged in full force in the recent crisis. They have hollowed out the municipal government, and its ability to play an effective economic development role (let alone, have the resources to provide basic services).
Partially in response to the withdrawal of federal funding and to Prop 13, local economic development policy has become excessively reliant on attracting “outside” investment by capital in aggressive pursuit of high rates of return from the construction of luxury market-rate housing development. San Francisco has operated like a Caribbean island, basing its economic development policies on tourism and real estate, riding the boom/bust waves. While providing a temporary boon to property values and local revenues, market-led redevelopment has tended to exacerbate income inequality, and has failed to make optimal use of local resources, many of them as yet untapped. At national and local levels, administrations are desperately trying to return to 2006, before the bust, by trying to magically “reinflate” the real estate speculation bubble.
Locally, three ideas (from before the Great Recession) still seem to hold sway with administration and with pro-business boosters like SPUR: a.) The San Francisco economy will be primarily reliant on the “knowledge” sector (alternately dot-com, biotech, clean tech, etc.), and, consequently, the city’s housing and retail policy will be geared entirely for upscale “creative class” professionals; b.) economic recovery is entirely dependent on again attracting real estate development and speculation (reinflating the bubble) – OEWD appears to focus almost exclusively in real estate development as the only economic engine for the city – ie, even when they talk about technology or knowledge sectors, the policies are geared for the real estate development aspects of those sectors; and c.) The climate crisis and State-mandated reduction in emissions (SB-375) will be resolved through the same hyper-development geared exclusively for high-income professionals, now called “smart growth” and “green building,” with no conception that reducing emissions means reducing the transportation impacts of all workers and residents in the city, reducing energy consumption, and relocalizing portions of the economy.
It seems as if in the city’s Office of Economic Development, there is no acknowledgement of the economic role of the public sector, and of the critical role that government plays in employment. Likewise, there is little emphasis on the existing strengths of the city’s neighborhoods, communities, and cultural workers as San Francisco’s natural competitive advantage in economic development. There is little acknowledgement of how much economic activity occurs as the sum of very small businesses, or the importance of economic linkages to support these. There is little attempt to shape and link workforce development to these strengths. And there is no acknowledgment that government might have a role to play in making the economy work for people, not the other way around.
We must recognize that like our nation and our state our local political system is broken. The “strong Mayor” system approved at the end of the last century looked backward, not forward, and has produced gridlock between the Mayor and the Board of Supervisors as the Mayor continually asserts his budget priorities over all others, priorities that often meet the Mayor’s political needs and not the needs of San Franciscans. The 19th century organization of our departments produce top heavy bureaucracies that oppose change and fail to address persistent urban problems – homelessness, unacceptable high dropout rates in public schools, poorly maintained streets and parks – because to do so would require intra-departmental cooperation which might diminish a particular department’s traditional prerogatives. The concentration of the media into fewer and fewer hands has produced media giants more intent on setting us against each other, playing on our fears to preserve their economic power than informing us on the challenges we face in a new century and helping us figure our way, as a free and democratic people, through these challenges.
The sum result is a failure to develop and articulate a coherent, democratically controlled, environmentally sustainable and socially just mode of urban development. We need to re-envision and re-create local government as an effective player in the city’s destiny, and not simply a booster for the latest economic boom cycle, and to reclaim the concept of economic development from an equity and racial justice perspective.
4. The Vision: A New Deal for the 21st Century
We support the democratization of the market by making developers and corporations responsible to community, and by ending the unilateral control over investment by real estate interests.
We believe in subordinating the profit motive to a more encompassing vision of all-sided social and economic development.
We envision a new conception of government as the nexus for effecting a major reallocation and democratization of investment. We seek not more roads and bridges, but more childcare, more arts programs, film centers, urban gardens, schools, alternative health care, local history projects, libraries.
We seek to re-distribute income by putting additional financial resources in the hands of local government, together with reforms of the allocations process to insure greater opportunities for local constituent involvement in the local budgeting process.
We support massive undertaking of publicly financed investments to reduce our dependence on auto transport and unsustainable energy sources – for instance, through public transport projects and high speed light rail transit.
We seek the dedication of city streets and neighborhoods to the arts; to theater; to music, to performance. We aim to reclaim the urban street as a public space. We believe culture (in the broadest sense) is central to any system of alternative economic development.
We seek to actively foster local permaculture and other forms of local, ecologically sustainable urban agriculture.
We seek to actively promote alternative systems of more worker-controlled, (potentially) democratically controlled worksites such as work cooperatives and worker collectives, local trade associations that provide local markets and mutual support; and the use of the technical capacity of local government to provide shared administrative overhead.
We seek to foster spaces dedicated to learning and intellectual and creative development through expansion of support to local writers, musicians, and artists.
We embrace a vision of San Francisco as a global city, as a place where regional, national, and global flows of labor, ideas, culture, and commerce intermingle and co-germinate. From its inception San Francisco has been imbricated within international flows and circuits of goods, money, idea, and, most importantly, the flow and intercourse of peoples. It is a City that has encouraged each successive generation to actively shape its own sense of place in this unfolding saga of history. This embedding of San Francisco within international circuits of trade and investment has also meant often-traumatic changes to existing patterns of residential settlement due to unwanted change and displacement. This collision of large-scale forces of economic and demographic change and development with place attachment and a sense of continuity has been a birthing ground for social movements seeking to shape the larger forces of social, economic, and demographic change that confront each new generation with both opportunity and peril.
Our task is to reconcile our embrace of the historical dynamism of San Francisco with the vision of a more egalitarian and democratic form of economic development mindful and sensitive to the need of conserving much of what is unique and distinctive about San Francisco. Our mandate is to create a new form of urban development that is both dynamic and that preserves the ability of teachers, artists, cultural workers, political activists, those living on the economic margins, those who have not sought to spend their lives pursuing careers as bond traders and corporate lawyers – in short, those who have different values, different aspirations, different predilections – to continue to live and work in San Francisco.
Even as we construct policies and politics that takes local government as its basic terrain of engagement, we need not limit our understanding and conceptions to a local frame of reference. In fact, most major democratic gains in US have ultimately occurred through struggles – local in the sense that everything takes place somewhere – eventually staking claims to political resources at a national level — e.g New Deal, or civil rights.
Humanity is confronted by new circumstances and threats linked to the potential for ecological crisis and the end of the era of cheap oil. The potential for progressive exhaustion of the resource base, generation of excessive heat (CO2 emissions) threatens our ability to perpetuate and sustain our current way of life. This requires us to radically rethink the question of how we conceptualize what is meant by “economic development” to reflect consideration of natural constraints. We nonetheless reject the notion that the myriad of economic and environmental problems facing humanity at this historical moment can be solved through purely local action. Local economies based on localized circuits of production and exchanges do not offer a viable long-term path towards a more socially just and ecologically sustainable form of development. Nor is there anything inherent “more democratic” about the decision-making process of local government. On the contrary, we affirm the need for constant engagement at the larger level, understanding the national and ultimately global developments will ultimately determine the limits of what is locally possible.
The question of creating a more socially just, inclusive, and ecologically sustainable form of economic development must accordingly center on how to mobilize local resources to capture a greater share of the economic surplus, and to the use this surplus to fund social projects and endeavors that would other wise be ignored or neglected – or actively destroyed – by the private market. Accordingly, our proposals all center on an understanding of the centrality of government as the critical driver of economic development. To achieve this, we submit or consideration two new major proposals, together with a host of complementary policy recommendations that build upon and extend existing City policies promoting mixed-use development, support for small business, cultural institutions, and affordable housing development.
[i] San Francisco Peak Oil Preparedness Task Force Report, 2008