The City Turns Into a Boutique

SAN FRANCISCO —  Barely three months after losing its most important corporate citizen, the Bank of America, to Charlotte-based Nations Bank, San Francisco seems to have lost none of its usual air of self-satisfaction. Rather than panic over the loss of the long-time banking powerhouse, the city’s establishment seems to be adopting the watchword of Mad magazine’s Alfred E. Neuman: What, me worry?

One business leader was satisfied that the merged entity would retain “a strong presence” in the city of its birth. Others conceded a certain “loss of cachet” for the city, then cited San Francisco’s strong local economy, which has driven office vacancies into the low single digits and unemployment to roughly 3%, as evidence that the city can absorb the bank’s loss with relative ease.

More than anything, these blase reactions signify a more subtle reevaluation of the role played by the city, both nationally and within its own region. Once envisioned as the Bay Area’s and West Coast’s corporate center of power, San Francisco increasingly promotes itself as a service and entertainment boutique servicing the dynamic, burgeoning high-tech economy along its periphery.

“Ever since the 1980s, the real growth in the Bay Area has been in San Jose and the other peripheral areas,” says Lynn Sedway, an urban economist. “Everyone realized that San Francisco had to become a subsidiary of Silicon Valley. There’s really no choice if we want to grow.”

A close look at some key indicators underscores Sedway’s judgment. Just 20 years ago, according to Palo Alto-based economist Steven Levy, San Francisco was the largest employment center in the Bay Area. Today, it has about the same number of jobs, but the outlying areas--the Silicon Valley and the East Bay--now boast roughly twice as many positions. In 1990, San Jose, with nearly 900,000 residents, emerged as the Bay Area’s largest city. Partly as a result, the Bay Area economy increasingly resembles the multipolar model developed by the much despised Los Angeles region. Just like Los Angeles, parts of the Bay Area now wake up with an unwelcome blanket of smog, and the entire region is plagued by traffic jams of, well, Angeleno proportion.

Current trends suggest that this dispersal pattern will continue into the foreseeable future. From April 1996 to April 1997, San Francisco’s job growth stood at 1.5%, almost one-third San Jose’s 4.2% and barely half the 2.8% increase enjoyed by Los Angeles. Despite a surge in new construction, San Francisco’s ’97 levels remained below those a decade earlier, accounting for well under one-tenth of the total for the overall region and barely 20% of that for the San Jose area.

Corporate-headquarter sitings have followed a similar course downward. Compared with downtown Los Angeles, San Francisco hosts a respectable number of Fortune 500 and other large companies. But it can no longer even pretend to be the corporate center of the Bay Area. This year, for example, the San Francisco Chronicle’s list of the Bay Area’s 500 largest public companies showed roughly half were located in Santa Clara County, 68 in neighboring San Mateo and 80 across the bay in Alameda. San Francisco had fewer than 50.

This is a long way from the days when Bank of America founder A.P. Giannini was building California’s greatest bank in San Francisco. In Giannini’s time, San Francisco was a brawling industrial and trade city, the premiere corporate center of the Western United States. But by the 1930s, the city’s status was being challenged by Southern California, whose population was growing rapidly. Unable to compete with greater Los Angeles in terms of size and sheer economic energy, San Francisco’s business leaders, in the 1950s and 1960s, began to emphasize their city’s “lifestyle.” Seeking to create a highly compact alternative to New York and other traditional financial centers, the city’s corporate elites envisioned a West Coast Gotham, complete with its own transit-centered high-rise complex, luxury apartments and upscale shopping.

Yet, by the 1970s, “Manhattanization,” as critics described it, collided with the determined opposition of counterculture champions and neighborhood activists. By the late 1980s, the antigrowth forces had prevailed, imposing strict limits on high-rise development throughout much of the city. The antigrowth movement preserved the city’s physical charms at the expense of its business appeal. Under a succession of ineffective mayors and an increasingly left-wing Board of Supervisors, the city seemed unable to manage its growing homeless population, keep the streets clean, or run its municipal transit system. Between 1990 and 1993, nearly 40,000 jobs were lost.

Today, a broadly based new growth coalition, led by Mayor Willie Brown, controls city politics. Rather than attempt to recreate Manhattan, the city is pursuing a more practical strategy of both promoting tourism, the city’s largest industry, and nurturing the development of financial and legal services, multimedia and software tied to the explosive growth of the Valley’s high-tech complex. In essence, the city is marketing itself as a preferred-lifestyle option for postindustrial elites, a group that tends, as one scholar puts it, to be “very sophisticated consumers of place.”

Accordingly, virtually all the new development going on in San Francisco, mostly in the industrial and warehousing region south of Market Street, targets either information industries, including multimedia and biomedical research, or the vast tourist/convention business, including several new luxury hotels. Elaborate condominiums are planned for workers whom a City Hall planner describes as “empty nesters, people without kids or young professionals.”

In building a better boutique, San Francisco is abandoning its blue-collar heritage and much of its economic diversity. Its once-fabled port has been supplanted by Oakland’s; export business has shifted toward San Jose, which exports four times as much as San Francisco. Other blue-collar industries have lost ground, and scores of smaller manufacturers have departed or closed shop.

The Silicon Valley boutique strategy has helped offset these loses, but it is not without great risk. For one, if the Asian financial crisis takes a greater toll on the valley’s powerful exporters, as appears likely, the fundamental premise of the new economic strategy might unravel. Similarly, the tech-generated run-up in commercial properties in the city may make it difficult to nurture many of the start-up companies capable of generating new jobs.

There also may be significant social costs. San Francisco already ranks with New York City as the least affordable-housing market in the nation. With the average price of a house more than $308,000, compared with about $184,000 in Los Angeles, the city is pricing out middle-class families. Studies by University of Washington demographer Richard Morrill show that San Francisco has among the smallest percentages of children and families of all major U.S. cities.

Others fear that the gap between the city’s super-affluent and large impoverished population could turn San Francisco into a “a cross between Carmel and Calcutta.” A largely deindustrialized economy offers relatively few opportunities for blue-collar employment among less-educated San Franciscans, particularly recent immigrants from Asia and Latin America.

More worrisome is the continuing presence of a seemingly permanent underclass of between 8,000 to 16,000 homeless people. Recent moves by the city to clear out homeless “encampments” in Golden Gate Park has simply forced more of them into the city’s varied neighborhoods.

Having returned to fiscal and economic health, the city’s greatest challenge remains reducing its stubborn underclass while finding ways to preserve working and middle-class neighborhoods. Having survived both the delusions of Manhattanization and the excesses of the 1960s, San Francisco must find ways to make its boutique strategy work for the broad range of classes and neighborhoods that together shape the life of this and all great cities.*