b. The Back Streets Economy

“Who bakes…? Who produces…? Who supplies…?” Fundamentally, our focus should be on people and how they make their living.

Locally-owned “Back Streets businesses,” small to medium light industries, are the backbone of San Francisco’s economy, the real infrastructure for the “knowledge” and “experience” sectors (ie, the externally-focused economic sectors), and the reason those sectors locate in SF. They provide sustainable (ie, not bound to boom-bust cycles) city revenue and great numbers of working-class employment and entrepreneur opportunities. Development of these “Back Streets” sectors will be key to the peak oil economy, emphasizing local production, green manufacturing, recycling, and cultural production. Economic development investments should strengthen the existing local networks of small businesses and arts/cultural/creative industries, and support the recirculation of money within the local economy.

Much of this section is draw from the report of the Back Streets Advisory Board, 2006.

History and Role of the Industrial Business Sector

The history of industry in San Francisco is not a linear rise-and-decline trajectory, but rather an increasingly diversified and smaller-scale “back streets” sector of the economy. This is not a simple narrative about “buggy whips” and smoke-stack industries. While the role of the city’s industrial sector has evolved over time, the importance of today’s “Back Streets Businesses” to the economic diversity of San Francisco has not diminished.

Because many San Franciscans do not recognize the contributions of Back Streets Businesses, the sector has suffered from a sort of benign neglect, which has been further exacerbated by extensive land use pressure in this land-constrained city to convert traditional industrial areas and building stock into housing and non-Back Streets business uses. Yet, many of these businesses are willing to incur increased costs and these other challenges because they are dedicated to staying in San Francisco. This is a story about those people and their work—whether business owners, workers, big companies or small entrepreneurs. It is the story of an industry that often exists behind the scenes, but provides thousands of well-paying jobs to local residents and essential goods and services to Main Street businesses, local residents and the larger economy. Back Streets Businesses exist in every major city. However, despite the fact that local office, retail and commercial businesses as well as local residents depend on the products and services that they provide, Back Streets Businesses could become an historical remnant in San Francisco if nothing is done to help them overcome the many obstacles they face.

The Back Streets Businesses of San Francisco are the myriad businesses and operations that help make the city economy and residents function on a day to day basis. They are the hustle-bustle activities and jobs we do not usually see from the vantage point of the downtown core or the tourist zones or the shopping districts—kind of like the engine room on a ship, often unseen and often underappreciated, but always relied upon by the top deck to keep things moving.

The San Francisco General Plan has a number of existing policies related to the protection of a diverse economic base including industrial (“back streets”) business sectors. The Commerce and Industry Element of the General Plan in particular provides clear guidance on the importance of improving the viability of existing industry and creating opportunities for new industries. Other supporting policies are found in the General Plan’s Transportation Element and in the Area Plans for the Bayview and South of Market. The Commerce and Industry Inventory prepared on an annual basis also articulates the City’s commitment to monitoring and maintaining its industrial base as the economy evolves. Overarching these various City policies is one of the fundamental “priority policies” of the General Plan, which is also codified as Section 101.1 of the City’s Planning Code, which states: (5) That a diverse economic base be maintained by protecting our industrial and service sectors from displacement due to commercial office development, and that future opportunities for resident employment and ownership in these sectors be enhanced.

The position of the Back Streets Advisory Board is: “Back Streets Businesses are a vital component of the city’s overall economic health and diversity, employ a substantial number of local residents and offer good-paying skilled jobs, present viable opportunities for expanding businesses and workforce development, and deserve the city’s attention and assistance. In short, Back Streets Businesses are critical for the city’s economic development and diversity.”

Back Streets are Critical to SF’s Competitiveness

By providing critical transportation, distribution, construction, production and other industrial services, Back Streets Businesses move the materials, make the goods and provide the services that support the City’s export industries. Through proximity to customers, experience in serving local markets and the benefits of clustering, Back Streets Businesses provide efficiencies that help increase the competitiveness of San Francisco’s overall economy.

But this constellation of light industry, service and commercial businesses is not just an enabler of the export industries, it is also a critical determinant in the competitiveness of San Francisco’s “knowledge” and “experience” leading export sectors, inverting the hierarchy of the conventional “Economic Strategy” model of SF economy.

These businesses are often evolving over time to take advantage of new business opportunities, to respond to evolving customer demands, and to capitalize on new technology.  For example the convergence of Back Streets Businesses and clean/green technology demonstrates that San Francisco’s Back Streets Businesses are not static; they are dynamic businesses that are often at the forefront of their industry.

One way to understand the economic diversity of San Francisco’s economy is to illustrate the integrated linkages between businesses in various sectors – the economy on a day-to-day basis operates through a web of connections, many of which include a role played by Back Streets Businesses. Those connections are both within the geography of the city and between the city and a broader geography of outlying supply and distribution networks.

Maps show the many points of connection between “Back Streets” businesses of various types in creating these “Main Street” commodities, representing the many hands of workers and business operators involved along the way. Each set of linkages results in an interesting different pattern of connections that span various scales of geography across the eastern part of the city.

Many of the industries do not necessarily share a traditional tight geographic clustering, but rather network as self-affiliated agglomerations of “like” industries: e.g., “artisinal food”; “fashion”; “construction suppliers,” etc. This kind of “agglomeration economy” can create benefits for individual businesses that have similar suppliers that rely on the same transportation routes, that have common markets, and that regularly do business with each other, and point to ways in which City policy and workforce development can support them.

Critical Workforce Opportunities

In the 21st century workplace, education is increasingly seen as the ticket to economic success, yet not everyone is able to go on to college. More than other sectors of the economy, Back Streets Businesses provide stable, well-paying jobs for San Franciscans who have not graduated from a four-year college and who otherwise may have limited workforce opportunities to remain in San Francisco. The Back Streets Advisory Board’s workforce analysis revealed that for workers with less than college educational attainment, Back Streets jobs pay substantially more than other jobs. While San Francisco is a place with a highly educated workforce, it is critical to note that according to Census data 55% of all residents working in San Francisco do not have a degree from a 4-year college. Thus, when discussing the benefits of employment from Back Streets Businesses we are talking about potential opportunities for the majority of working San Franciscans. Back Streets Businesses remain the primary source of employment for the majority of those working in San Francisco lacking a 4-year college degree.

The Challenge of “New Industries”

There is an increasing blur of what kinds of businesses are thought of as “industrial” in the city’s modern economy. While the traditional activities continue to keep the city running on a day to day basis—the contractors and auto services and deliveries and small production houses, etc—there is also the arrival and growth of “new industry” businesses that are opening up the City’s economy to new technologies and markets. The bioscience sector has been the most highly touted of these new industry businesses, but there is an even more rapid growth of internet-related “digital media” businesses, as well as some budding R & D businesses in the “green technology” sector. These new types of businesses interface with the older existing Back Streets Businesses in a shared geography in the very same limited areas of the city where industry has traditionally clustered.

The implication of allowing or not allowing these traditional and new industrial businesses to commingle in the same zoning districts is a topic of debate in setting land use policy for the city’s established industrial areas. This blurring of traditional Back Streets Business activities with newer uses has its pros and cons. The positive side is the possibility of new mutually-beneficial synergies between an even greater diversity of businesses in the industrial areas of the city as a strategy of economic vitality. The down side, however, is that because the underlying real estate value of traditional vs. new industrial businesses is substantially different, there is the risk that traditional Back Streets Businesses will lose the competition for the use of land as other types of businesses out-bid them, thus finding it even more difficult to remain and grow in San Francisco.

The other challenge with blurring the new industrial and traditional Back Streets Businesses is to ensure that a balance of employment opportunities is retained for a wide range of workforce skills among San Francisco residents. The city’s existing Back Streets sector has provided an important source of employment for residents with limited educational training. New industrial sectors require workforce training and re-skilling that presents its own challenge as these businesses try to grow a local qualified workforce. The potential land use competition between traditional Back Streets Businesses and newer businesses thus has the potential to dislocate workers who might not be prepared to transition quickly and easily into “new industry” employment.

Policies and Actions

San Francisco is not alone in its challenge to balance the various sectors of the city’s economy in the midst of a highly competitive real estate market and a rapidly expanding high-tech business sector. The issues are complex, but the city does not need to come up with all of the solutions from scratch—there are a variety of “best practices” strategies that have been employed in other cities across the country as they grapple with many of the same issues related to light industrial/Back Streets Businesses.

Supporting Back Street businesses and their networks should be the priority of the city’s economic development programs. This would include supporting the existing businesses in the city’s industrial areas, and in vulnerable commercial corridors and retail districts, rather than prioritizing the central business district and new neighborhoods. Efforts should be made to support (through zoning, preferences in city contracts, etc.) business that are owned locally and keep profits within the city.

1. Create a comprehensive Back Street Business Assistance, Retention, and Attraction  Program

Through a business assistance program, create a more supportive environment for Back Streets Businesses, and work with the various City departments, agencies and City funded non-profits to develop programs for Back Streets Businesses. Funding and investment are critical. Development of new Back Street businesses may include, for example, a first-time business-owner program similar to the first-time homebuyer programs. One critical need is access to credit, and the municipal credit union (described above) is key to promoting industries and linking access to municipal credit with economic development standards (wage standards, hiring, ownership, etc.).

  • Develop a “rapid response team” of City agency representatives to handle urgent issues at existing Back Streets businesses (e.g., recently Parisian Bakery) and the recruitment of new businesses. (e.gs., Boston, Chicago and Cleveland models)
  • Provide “bulk packaging” of health insurance (eg, provided through centralized business association/alliance).
  • Provide bulk packaging of insurance bonding for small start-up businesses in contracting work (such as construction contractors).
  • Provide bulk workers compensation: possibly have coverage for a range of work ‘classifications’ under a single bulk policy—e.g. Carpenters’ Union model
  • Create ‘employer development’ programs to complement workforce development programs – a two-way “training” approach (e.g., dealing with multi-lingual workforce).
  • Provide low-cost tax-exempt bond financing to the city’s Back Streets Businesses, such as used in the Boston and Oakland models.
  • Industrial development bonds and industrial revenue bonds – e.g. to finance capital improvements with City assistance
  • Create seed financing fund for a Back Streets Businesses “backup loan program,” such as used in the Boston model. Financing packages may be assembled from multiple sources of funds – e.gs. SBA programs (7A and 504 programs—property acquisitions and equipment), amounts and terms of loans may need to be restructured/tailored for Back Streets Businesses
  • Establish a low cost loan fund, as used in the Cleveland or Boston model, for companies willing to make investments in capital investments in improving their business, as many Back Streets Businesses require extensive capital investments that are depreciated over time. Such loans should also be available to Back Streets businesses investing in energy efficiency/green technology implementation. Financing packages may be assembled from multiple sources of funds – e.gs. SBA programs (7A and 504 programs—property acquisitions and equipment), amounts and terms of loans may need to be restructured/tailored for Back Streets Businesses
  • Create a first-time business ownership program (comparable to first-time homeownership programs). For example, La Cocina in the Mission—great culinary training but little resources to help with starting a business and finding business space.
  • Develop a strategic/focused business attraction program. Attraction of symbiotic uses for existing businesses—advantages for sharing business services/facilities. Identify potential business “clusters,” such as higher-end manufacturing and designer furniture.

2.   Establish “Buy Local” Procurement Policies

The Mayor’s “Buy Local” campaign should be turned in city purchasing regulations. Launch a “Buy from SF” initiative, such as used in the Boston model, with an emphasis on locally made consumer products. Require all city contracting to be local, with preferences for locally owned companies in terms of the City’s purchasing of both goods and services, unless local businesses cannot provide the needed service.

3.   Strengthen Back Streets Land Use Controls and Infrastructure

Establish land use controls that allow Back Streets Businesses to operate and grow., and provide needed improvements to infrastructure as part of plan implementation. PDR Zoning is incomplete without a robust economic development policy to support existing and new PDR businesses, including ensuring that viable PDR spaces are built in new developments in UMU zones.

  • Rationalize zoning by area, not on a parcel by parcel basis, to avoid incompatible land uses on adjoining properties (e.gs., the “planned manufacturing districts” in Chicago, the “industrial sanctuaries” in Portland, and the “manufacturing-industrial centers” in Seattle). Adopt established light-industrial districts, such as used in the Boston, Chicago and New York City models.
  • Emphasize that space issues are critical to Back Streets Businesses. Make sure zoning decisions are built around idea of preserving viable building stock, including amount of space, type of space (clear-span ceilings; floor plates; roll-up doors, etc). Consider “work-live” rather than “live-work” as the norm in industrial areas.
  • Analyze business competition within economic development districts (e.g., distinguishing PDR from biotech and digital media sectors).
  • Adopt economic development plans as a complement to each neighborhood plan prepared for industrial areas undergoing zoning and planning revisions. Priority should be on needs of existing communities.
  • Pressure PUC/DPW to move forward quickly on needed water/sewer improvements through Sewer Master Plan and Water Dept upgrades.

4.   Improve workforce development and employer assistance programs targeted to Back Streets Businesses

A critical need is connecting small employers to trained employees. Improve coordination of small business employers and workforce development organizations.

  • Return to vocational training opportunities at high school and community college levels as alternative for those students so inclined. (e.gs., Chicago and Cleveland models)
  • Provide educational opportunities to both businesses (to know what people are available through the one-stop programs) and to the one-stop programs (so they have a better understanding of business needs).
  • Coordinate efforts and programs available to businesses to hire from underserved populations. Start summer and youth employment programs earlier in the year (waiting until May to start such programs limits the ability of smaller seasonal businesses to hire students). Provide language education to employers and potential employees lacking second language skills.
  • Research possible coordination of “customized training” program for Back Streets worker pools (tailored to sub-sectors of businesses). Possibly coordinate as off-site “classroom” training through City College or subsidize direct employer training. Provide incentives for on-the-job training, with focus on specialized sectors. Look at Bridges to Biotech program as potential model for other coordinated workforce training.
  • Stress job-readiness skills in workforce training. While specific employment circumstances may differ, basic job readiness skills apply across the sector. Industrial businesses can be very diverse. Further research on possibility for centralized “pre-apprentice” training—e.g., Carpenters union program as a model
  • Develop an “employer development” program to mirror job readiness programs currently available—with a two-way “training” approach—so that employers are better able to avail themselves of potential employees in underserved communities. This should include cultural awareness and language classes.
  • Involve community organizations that are involved with worker outreach in targeting workforce training efforts.

5.   Support development of an inclusive Back Streets Business advocacy voice

Backstreets businesses are most effective as part of networks of interlinked businesses, “a hidden economic web.” This is what office of economic development should be supporting. (See Third Italy / Emilia Romagna region as model). Industrial/ PDR/ Innovative Technologies BIDs should be set up to include deep participation by neighboring residents, not just large property owners.

  • Establish a Back Streets/PDR association of businesses to act both as clearinghouse to get information to individual businesses and an advocate for Back Streets businesses. The advocacy organization should not be an exclusive business model like Chamber of Commerce — should include both business owners and workers
  • Create a technical assistance “mentor” program for Back Streets Businesses by leading corporations/institutions for marketing advice, competitive procurement opportunities, and technology adaptations, such as used in the Boston, Chicago and Cleveland models.
  • Research potential for “matching” to create/reinforce synergies among similar businesses, e.g., bulk purchases, logistics coordination.

6.   Create a green business incubator with a focus on R&D and Manufacturing of Appropriate Technologies

“Green jobs” shouldn’t really be just construction and retrofits, but recycling our PDR (Production, Distribution & Repair) infrastructure for new kinds of green manufacturing. The PDR zoning that was won in the Eastern Neighborhoods rezoning is not enough, but needs to be followed up by specific policies that would support, attract, or start new desirable PDR businesses (ie, that employ community folks in career ladders, or give them opportunities for ownership, and that are healthy workplaces). While many “green technologies” being developed locally may end up being off-shored (at least, until rising transportation costs shifts the priorities), some may continue to require local assembly and proximity to installation. The City should take a proactive approach in encouraging and developing these businesses.

One Response to b. The Back Streets Economy

  1. David Giesen says:

    So many of these proposals are good, solid programs. A huge question remains, though, regarding how to fund them. Leon Phat’s (http://www.LeonPhat.com) recommendations, laid out on his “real issues/fictious candidacy” SF supervisoral campaign website lead us in the right direction. Leon correctly points out that land values are community-generated, so he remains focused on land values as a community funding source. Of course, implementing the shift which he advocates is no mean piece of work, but it has theoretical integrity. What’s more, all one has to do is look about to see that underused land (high commercial vacancy rates) and high rents make doing business and creating community a real challenge in San Francisco. In other words, there’s empirical evidence backing up Leon’s observations. But comprehending the extensive effects of community retrieval of land values is not gained in a cursory look, otherwise the many community organizations would be focused on socializing land values. But they’re not.

    That’s why I encourage activists and planners alike to visit http://www.TheCommonsSF.org and enroll in the low cost ($25) classes in commons economics described there.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s