Still fizzy-There was more to the Bay Area’s boom than dotcom froth

THE grass of South Park, once sprinkled with web-designers from
“Multimedia Gulch” on latte breaks, now seems empty. You can
stroll into the coolest restaurants in San Francisco and find a table
without booking; sometimes you can even park your car
downtown. The bursting of the dotcom bubble may have made San
Francisco a nicer place to live; but what has it done to its
economy?

From The Economist print edition

Talent has always headed for the Bay Area, which encompasses
Silicon Valley and Oakland as well as San Francisco. During the
Internet boom, the flow became a torrent. Between 1996 and
2000 there was a net migration of 200,000 people into the area,
compared with 35,000 in the preceding five years. The number of
jobs in the region grew by 660,000 between 1996 and 2000,
almost five times as many as in the first half of the decade.

This inrush of talent pushed the average economic output in the
region up 10% a year in the second half of the decade, faster
than anywhere else in America. By the end of 2000 the economic
output of the Bay Area was $65,090 per person, nearly double the
national average of $35,402, and $15,796 more than in Boston, its
closest rival in productivity.

Some of this was simply because of higher prices in the Bay Area
(it is not hard to be a more productive dry-cleaner if your prices
are double those anywhere else). But a McKinsey study for the
region’s governments still reckons that roughly two-thirds of the
Bay Area’s productivity lead was genuine. It has an unusual
number of America’s most productive industries; it also has many
of the better companies within those industries (see chart); and it
boasts the best-educated workforce in the country, with more
college graduates and fewer high-school dropouts.

Quality-of-life issues are
always hard to measure.
But economists have begun
to put some numbers on the
region’s bohemian flair.
According to a recent study
by Richard Florida of
Carnegie Mellon University,
there is a close correlation
between a region’s
openness to artists and its
prosperity. A large and
visible population of
creative types—and of
homosexuals, according to
Mr Florida—points to a
tolerant and diverse society
of the sort that appeals to
the wider class of knowledge-workers who drive modern
economies. San Francisco, with its hippies, poets and large gay
population, topped Mr Florida’s rankings of American cities for
overall creativity.

Despite this underpinning, the region has taken a battering over
the past year or so. In the first quarter, ending in March 2002,
unemployment in the Bay Area was 6.1% (compared with 2.7% a
year earlier), thanks to the closure of hundreds of Internet firms
and lay-offs at banks, retailers and other firms that had fed the
boom. The gloomsters say the city’s real competitive
advantage—its ability to attract clever people—is being eroded by
three things:

•Housing. The median house price in the region has almost
doubled since 1995, to $402,000 in April, compared with a national
figure of $153,300. After a brief shudder last year, house prices
remain high. The Bay Area Council reckons the population of the
region will grow by 1m over the next 20 years. But so far there are
plans to build only 400,000 new houses, 260,000 fewer than will be
needed to house that many new people, which means even more
people commuting to the region.

•Travel. The Bay Area is a laggard in public transport. “Places
Rated”, an annual survey of the desirability of different regions,
placed it 74th among regions for its transport infrastructure—even
lower than traffic-clogged Los Angeles or Houston.

•Schools. Nobody really denies that the Bay Area’s schools are
poor. It got its “best-educated” tag by luring in talented outsiders.
But the tightening up of immigration in response to terrorism may
restrict this source of talent (unions have anyway been
complaining about the H1-B visa programme, which admits skilled
workers). And the schools themselves are also a barrier: why come
to live in the Bay Area if your kids will get a bad education?

But gay’s not gloomy

Trying to solve the problems of growth is not easy. More than 200
jurisdictions—independent cities, nine counties, various
agencies—influence decisions affecting housing and transport.
Even schooling is balkanised. Companies often have to intervene,
for instance by offering cheap loans to their employees to buy
houses. There has also been a revival of interest in groups that
bring business and politicians together, such as the Bay Area
Council.

Yet it would be hard to describe the Bay Area’s mood as
disconsolate. Most people seem to realise that the dotcom
extravaganza was not going to last. There are also plenty of
businesses in low-tech fields which regard the bursting of the
bubble as good news. During the dotcom boom, the Mission, long a
poor district favoured by San Francisco’s bohemian set, was the
scene of angry confrontations between landlords happy to double
their rents for start-ups and the dance-studios, potteries and
writers’ workshops they were evicting to make room for them.

Miyoko Schinner, the president of Now and Zen Bakery in San
Francisco, which sells vegan products such as the “Unturkey”, a
Thanksgiving delicacy made from wheat gluten and soya, says
that it was harder to raise money when investors were fixated on
the Internet. Hiring staff was harder, too: everybody expected
stock options, and were haughty to boot. Now that the Internet
froth has gone, Ms Schinner may have lost some customers, but
she thinks her job has got easier.

http://www.economist.com/world/na/displayStory.cfm?story_id=1259292