Bay Area Council Blog: Economy Archive

Regional Profile

PROFILE X: BAY AREA JUMPS TO TOP 20 WORLD ECONOMIES

With a GDP of nearly $750 billion, the Bay Area is now a Top 20 world economy, jumping from 23 to 19 since 2016. This was just one of many key findings unveiled Tuesday (June 10) as the Bay Area Council Economic Institute presented its Economic Profile with partner McKinsey & Company. The tenth in a series of Profile reports, this latest edition examines a new period of immense growth and innovation, benchmarking the Bay Area’s performance against other knowledge-based economies to assess the region’s national and global competitiveness.

Joined by Managing Partner of McKinsey & Company’s Silicon Valley office, Alexis Krivkovich, and Associate Partner Kunal Modi, Institute President Micah Weinberg presented to a packed room of members, guests, and the media. Key takeaways focused on the exceptional period of growth the region is experiencing including the maturation of some of the world largest companies, record employment, and an increasingly diverse technology sector. The report also examines the challenges such rapid growth has brought to housing, transportation, and equity in the region.

Read the full Economic Profile report>>

trade war

Endgame: Tariffs, Technology and China

This opinion piece by Bay Area Council Economic Institute Senior Director Dr. Sean Randolph appeared in the Silicon Valley Business Journal in April 2018.

The United States and China are aggressively sparring over tariffs, trade and technology. The real issue isn’t about the lists of tariffs that each side has announced, but what endgame both sides expect. As an investor in China and a major destination for investment from China, for Silicon Valley the outcome matters.

Let’s be clear that the latest tariffs aren’t a Trump protectionist fluke. Action is needed. China is building an innovation system based not just on its considerable capabilities, but also on laws and policies designed to extract technology from foreign partners.

One of those strategies, Made in China 2025, identifies priority technology sectors where China plans to lead global markets, displacing foreign technologies as rapidly as possible. Where it can’t develop those technologies independently, the plan calls for China to acquire them. In the meantime, Western companies are required to store their China-generated data on government servers, take on Chinese joint venture partners as a condition of doing business, and transfer their technology and source code.

This is happening as China’s market is off limits to companies such as Facebook, Google and Twitter, and key sectors are reserved for Chinese companies. Internet technologies must be “secure and controllable” — by the government. All of this inherently advantages Chinese companies and disadvantages foreign ones.

There are two types of tariffs announced by the United States: first, industry-specific tariffs on steel and aluminum, imposed on national security grounds (a risky precedent); and second, tariffs to address the bilateral trade deficit and rebalance the technology playing field. There, the Trump administration announced an initial tranche of $3 billion, which was met by a $3 billion response from China. Then the U.S. announced a $50 billion list, met again by $50 billion from China, after which President Trump suggested another $100 billion. What happens next?

What should happen is that both sides go into a room and make a deal. The tariff announcements are designed to get China’s attention, show we’re serious, and get them to negotiate. Past administrations from both parties have repeatedly tried negotiation, but with little lasting effect. The Trump team has chosen to show its muscle up front.

This can work, and taking a tougher stance with China has bipartisan support. But there are risks. Tariffs are a crude tool, with little connection to technology policy. And undisciplined U.S. tactics could backfire if both sides actually implement the tariffs.

Last year, California exported $16 billion in goods to China, many of which show up on China’s list. California’s agricultural interests — high-value nuts, wine and grapes — are particularly vulnerable. The aircraft industry, cars and chemicals are also targets. Higher steel and aluminum prices will increase the cost of everything from building materials to Teslas to craft beer cans.
Trump has said “it’s easy to win a trade war.” That’s wrong — in a trade war, everybody loses. As the world’s two largest economies, China and the United States have to live together. President Xi’s statement this week that China will accelerate its market opening is a signal that China understands the game.

In the end, the U.S. should press for a market opening that’s not just near-term and tactical, but long-term and structural. The best strategy would be to orchestrate our trading partners in a united front against China’s trade infractions, initially in the World Trade Organization, and bilaterally target Chinese restrictions with reciprocal measures — if negotiations are unproductive.
But we have the process we have. It’s in the administration’s court now to manage the process, make a deal, and minimize the damage that California and other businesses will suffer from a real trade war.

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COUNCIL’S THREE HOUSING BILLS ADVANCE

All three of the bills the Bay Area Council is sponsoring to address California’s housing crisis advanced this week. The Council is sponsoring more housing-related bills this session than any other organization in the state. SB 1227 by Sen. Nancy Skinner would allow student housing builders that meet certain affordability and other requirements to exceed local limits on the number of units allowed by 35 percent and exempt them from costly parking requirements. SB 831 by Sen. Bob Wieckowski would build on the huge success of his earlier legislation the Council sponsored in 2016 to make it faster, easier and less expensive for homeowners to add accessory dwelling units, aka granny units. SB 831 would eliminate most of the fees that add tens of thousands of dollars to each unit. SB 828 by Sen. Scott Wiener would strengthen accountability rules for cities to meet their local housing obligations. All three bills still have a couple legislative committee stops in the coming weeks. To find out how you can help in advocating for passage of these bills, please contact Senior Vice President Matt Regan.

china innovation report

Opinion: What ZTE Deal Tells Us About Chinese Technological Prowess

(This OpEd by Bay Area Council Economic Institute Senior Director Sean Randolph ran in the San Francisco Chronicle on Sunday, June 17.)

By Sean Randolph

The interdependence of the United States and China is easily lost in the political debate and headlines. The future of trade between the world’s two largest economies depends on policies that recognize that interdependence and the national interests behind them. ZTE is a case in point, where the United States has penalized the company for its actions, and President Trump has correctly decided not to shut it down. ZTE also tells us something about the technological race that both countries are engaged in.

China is climbing the innovation ladder. Whether from the standpoint of government investment in science; internationally-cited scientific articles; R&D on artificial intelligence; advances in mobile commerce; the strong position of companies like Alibaba, Tencent and Huawei; or the explosive growth of domestic accelerators and venture capital, China’s capacity to innovate is advancing with its economy. At some point, the technology gap between the United States and China will significantly shrink.

But not yet.

It’s easy to think of China as a relentless juggernaut whose growth and technological competitiveness is preordained. Besides the technology generated from market competition  China has adopted a suite of Chinese industrial policies designed to create national champions, dominate or lead in key strategic sectors, and extract technology from foreign companies — a cause for deep concern in the U.S. and other economies, which is now being challenged bilaterally and in the World Trade Organization. But even if they went unchallenged, having these policies doesn’t mean that Chinese technology is on a par with that of the United States — or soon will be.

Take, for example, the explosive growth of venture investment in China. Last year it reached levels approaching that of the United States. But as impressive as this may be, it’s important to understand the large role that government money plays. Unlike the United States, where venture investment is overwhelmingly private, much of the venture capital deployed in China comes from government entities.

More than $230 billion reportedly has been deployed so far, including most recently  as much as $15 billion in the semiconductor sector. While this is significant, and leverages private investment, its source suggests that Chinese and U.S. venture numbers aren’t strictly comparable.

Or take Chinese cell phone maker ZTE, the fourth-largest provider of smart phones in the United States and producer of a range of consumer electronics and telecommunications infrastructure equipment. Two months ago, the United States barred American companies from selling components, including semiconductors, to ZTE, because of the company’s violation of Iran and North Korean sanctions (an issue unrelated to the current tariff dispute). Soon after that ZTE, one of China’s leading technology companies, announced that it would stop major business operations.

How could that happen?

Because ZTE depends heavily on U.S. companies such as Qualcomm for the semiconductors in its phones and on other U.S. suppliers for an array of critical components. Despite years of enormous government investment designed to vault China to the forefront of chip design, nearly 90 percent of the $190 billion in chips used in Chinese products are either imported or produced in China by foreign-owned companies, and the sophistication of its production continues to lag. The proposed U.S. cutoff may prod China to accelerate its efforts to upgrade the quality of domestically produced chips, but for now it’s still just a goal.

So what are we to make of this? One takeaway is that while innovation in China is accelerating, in key fields U.S. companies are continuing to innovate faster. Notwithstanding the government’s support and the sophisticated capabilities of companies Tencent, Alibaba and Huawei, the lead in innovation is still anybody’s game and the United States continues to hold strong cards.

The other takeaway from the ZTE case is that when it comes to trade and technology, the United States and China are deeply intertwined. ZTE phones sold in China and around the world, and counted in U.S. trade statistics as Chinese exports, in fact incorporate high levels of U.S.-made content. Much the same can be said for Huawei, whose products are largely made with externally sourced components.

President Trump is right to make a deal that helps keep ZTE in business. The penalties it imposes are draconian and appropriate. Our goal should not be to bring down a high-profile pillar of China’s economy. The world’s two largest economies, and their  companies are deeply connected in ways that are both challenging and beneficial. Finding a way of operating that recognizes the interests of both sides will be essential for the future.

Sean Randolph is senior director at the Bay Area Council Economic Institute and author of its recent report “Chinese Innovation: China’s Technology Future and What It Means for Silicon Valley.”

rice

CONDOLEEZZA RICE, DAVID BROOKS & #METOO LEADERS WOW PACIFIC SUMMIT

The timing was ideal. As President Trump met with North Korean leader Kim Jong Un in Singapore, guests at the Bay Area Council’s 2018 Pacific Summit on Tuesday were sitting down to hear from former Secretary of State Condoleezza Rice on what it all meant. In a lengthy conversation with Andrew Westergren, Senior Vice President and Global Head of Strategy and Corporate Development for Visa, in front of almost 200 top executives and other leaders, Rice candidly acknowledged the unconventional way in which the summit came together but also said it was worth a try given the failure of past efforts. Rice also gave her insights and analysis about the tumultuous G7 meeting in Canada, talked about U.S.-China relations as a trade war looms and provided insights into the motives and agenda of Russia President Vladimir Putin.

With national attention intensely focused on the issues of sexual harassment and discrimination, the timing was also perfect for a lively conservation with two leaders of the #MeToo movement. Janet Liang, President of Kaiser Permanente Northern California, moderated the discussion with Adama Iwu, Vice President of State Government and Community Relations for Visa, and Tina Tchen, former Chief of Staff to First Lady Michelle Obama and Partner at Buckley Sandler. Iwu was honored as a Time magazine Person of the Year for her work in founding We Said Enough, a group focused on exposing and changing a culture of sexual harassment and discrimination in the California legislature. Tchen is a leader of Time’s Up, which works to support women who have suffered sexual harassment or discrimination. The three gave their personal insights on the #MeToo movement and the cultural and institutional changes that must occur in order to end sexual harassment and discrimination.

The audience also was treated to sobering and humorous remarks from renowned New York Times columnist David Brooks. Brooks, in his comments and in a Q&A with McKinsey & Co. Senior Director and West Coast Regional Manager Kausik Rajgopal, talked about cultural and political divides in the U.S. and how a sense of community that has united people in the past has been replaced by tribalism, which by its nature divides people.

See photos of the Pacific Summit>>

The conversations continued later in the afternoon in smaller group discussions, with PwC Managing Partner Jeanette Calandra moderating a conversation with Tchen, UPS Northern California District President Rosemary Turner leading a discussion with Dr. Rice and TMG Partners leader Denise Pinkston guiding a talk with Brooks. Bay Area Council CEO Jim Wunderman opened the summit with insights about the Bay Area’s run of economic success and the housing and transportation challenges that threaten to pull the rug out from under it.

The Bay Area Council extends its thanks to Visionary sponsor Kaiser Permanente and the many other sponsors whose support is critical to funding our public policy and advocacy. See a full list of all Pacific Summit sponsors. Our thanks also to the Kohl Mansion for hosting us.

taxes

2018BACPoll: Voters Hold Dim View of Tax Reform, Immigration Crackdown

As the national debate on immigration rumbles – from banning or punishing so-called sanctuary cities, fortifying borders, ending Deferred Action for Childhood Arrivals, restricting H-1B visas, to travel bans – Bay Area voters are drawing clear battle lines, according the 2018 Bay Area Council Poll.

According to the 2018 Bay Area Council Poll released today, 55 percent of Bay Area voters disagree with the federal crackdown on undocumented immigrants. Another 28 percent favor the stronger actions under the Trump Administration on those here illegally and 17 percent aren’t sure what to think.

“Regardless of what side of the immigration debate you’re on, there’s just one thing to know: our immigration system is broken,” said Jim Wunderman, President and CEO of the Bay Area Council. “What we need and what we’ve been calling on Congress to do for years is comprehensive immigration reform. Immigrants have and continue to be valuable contributors to our economy and our communities. But we also need to recognize that we need a better, more accountable system for securing our borders, enforcing our laws and making sure that people are treated fairly and humanely.”

Republicans and Democrats are highly polarized in their opinions on immigration. The poll found 80 percent of Republicans think cracking down on undocumented immigrants is a good thing while 76 percent of Democrats disagree. Geographically, San Francisco led the nine-county region in opposition to the crackdown at 70 percent, followed by Alameda County at 59 percent. At 47 percent, Contra Costa County registered the least opposition to the harder stance against undocumented immigrants.

On another unrelated federal issue, Bay Area voters also weighed in on the tax reforms Congress approved last year and President Trump signed. The poll found 45 percent of voters anticipate their taxes will go up as a result of the reforms, while 19 percent said their taxes will go down and 21 percent expect them to stay the same. The results were similar across incomes. Republicans as a group was the only demographic to say their taxes would go down.

The 2018 Bay Area Council Poll, which was conducted online by Oakland-based public opinion research firm EMC Research from March 20 through April 3, surveyed 1,000 registered voters from around the nine-county Bay Area about a range of issues related to economic growth, housing and transportation, drought, education and workforce.

harassment

2018 BACPoll: 4 of 10 Have Witnessed Sexual Harassment in the Workplace

Almost four out of 10 Bay Area voters say they have witnessed sexual harassment in the workplace and a quarter say they’ve personally experienced sexual harassment on the job, according to results of the 2018 Bay Area Council Poll, which explored attitudes on a range of workplace issues.

Noticeable differences emerged among men and women. The poll found 41 percent of women say they have experienced sexual harassment in the workplace compared to just 11 percent of men. And 44 percent of women voters say they have witnessed bad behavior compared to 32 percent among men.

“The #MeToo movement has helped end the silence on sexual harassment and discrimination, but we have a lot of work to do to stamp it out completely,” said Jim Wunderman, President and CEO of the Bay Area Council. “The disparity between how men and women experience the issue is very concerning and shows that our work remains ahead of us.”

harassment

Still, an overwhelming 91 percent said they feel safe from sexual harassment at their current job and another 82 percent trust their employer to handle sexual harassment complaints appropriately, the poll found.

See the results>>

And while high numbers of both men and women say they feel safe from sexual harassment in their current job and trust that their employer will handle complaints in the right way, women are more likely than men to feel threatened and believe their complaints won’t be handled appropriately.

It is difficult to draw any conclusions from the results about the prevalence of sexual harassment within industries given the smaller sample size of each group. The poll found 16 percent of workers in the presumably male-dominated tech industry reported experiencing sexual harassment, the second lowest behind trade workers and much lower than the 35 percent in education and nonprofit fields.

On pay equity, the poll found 82 percent agree their employer attempts to pay fairly regardless of gender or ethnicity. There was only a small difference between the sexes, with 79 percent of women saying pay is handled fairly and 85 percent of men. Along ethnic lines, 88 percent of Latinos agree their employers attempt to pay fairly regardless of gender or ethnicity while 82 percent of whites and 81 percent of Asians believe that.

Findings among voters on several other workforce related questions include:

  • 33 percent expect a significant labor shortage in the next three years while 31 percent say there will be no shortage.
  • 66 percent have a favorable view of the business community
  • 83 percent say they are happy in their current job
  • 80 percent say they plan to remain in their current industry for at least the next five years

The 2018 Bay Area Council Poll, which was conducted online by Oakland-based public opinion research firm EMC Research from March 20 through April 3, surveyed 1,000 registered voters from around the nine-county Bay Area about a range of issues related to economic growth, housing and transportation, drought, education and workforce.

housing

BACPoll: Housing Frustration Spikes

Frustration over the Bay Area’s housing crisis intensified over the past year as the number of voters in the 2018 Bay Area Council Poll who say it’s gotten much harder to find a place to live spiked. The poll found 53 percent saying it’s gotten much harder to find housing compared to 36 percent last year, while the overall number of voters who say it’s gotten much harder or somewhat harder jumped from 64 percent to 76 percent.

housing

That certainly explains why Bay Area voters most frequently mentioned the region’s housing shortage and affordability crisis as its biggest problem and why, along with the high cost of living and epic traffic congestion, 46 percent say they are likely to leave in the next few years for presumably less expensive cities outside the region and outside the state, including Texas, Oregon and Nevada.

“Forcing people to leave the Bay Area is not the solution to our housing crisis,” said Jim Wunderman, President and CEO of the Bay Area Council. “We have one of the world’s most envied economies and near full employment, but that won’t last unless we provide the housing our region so badly needs. Every housing unit we fail to build in the Bay Area is a brick in a big wall around the Bay Area.”

Voters share similar concerns, with 75 percent saying the housing shortage threatens to undermine a Bay Area economy that has led the nation in creating jobs. Overall support for building more housing is strong.

Almost 30 percent—up slightly from 2017—of Bay Area homeowners said they would consider adding an accessory dwelling unit (ADU)—aka granny or in-law unit. Legislation authored by Sen. Bob Wieckowski that the Bay Area Council sponsored two years ago to ease local restrictions on ADUs has spurred a statewide surge in applications and the Council is sponsoring another Wieckowski bill this year (SB 831) that would remove even more barriers. Translating homeowners’ intentions into reality would create an estimated 450,000 units of new housing in a region with an estimated 1.5 million detached, single family homes.

Voters also expressed overwhelming 73 percent support for policies that make building more housing near transit and commercial areas easier. That support, however, didn’t translate into passage of legislation (SB 827) authored this year by San Francisco Senator Scott Wiener and supported by the Bay Area Council that would have made it easier to do exactly that. The bill drew strong resistance from local government and some environmental and social equity groups, but is expected to return next year.

housing transit

Support for building housing in and around existing residential neighborhoods is also strong, but has largely stagnated in recent years. The poll found that 59 percent of voters support more housing near them, but the figure dipped slightly from 62 percent in 2017 and remains largely unchanged from 2014.

Newer residents are more supportive of housing than those who have lived it the Bay Area the longest. Among residents who have lived in the region 10 years or less, the poll found that 73 percent say they’d like to see more housing while 52 percent of those who have lived in the Bay Area for 20 years or more say they would support more housing in their neighborhood.

For those who don’t flee, the housing shortage comes with financial impacts. While a little over half of voters say they are spending up to 35 percent of their income to keep a roof over their head, one third are spending 40 percent and more. Renters are among the hardest hit financially by the region’s stratospheric housing costs, with 40 percent spending 40 percent or more of their income on housing compared with 26 percent of homeowners.

housing income

The 2018 Bay Area Council Poll, which was conducted online by Oakland-based public opinion research firm EMC Research from March 20 through April 3, surveyed 1,000 registered voters from around the nine-county Bay Area about a range of issues related to economic growth, housing and transportation, drought, education and workforce.

leaving

BACPoll: More People Looking to Leave Bay Area as Housing, Traffic Problems Mount

Growing pessimism among voters about the overall direction the Bay Area is heading has more and more people thinking about heading for the doors. Bay Area Council Poll results released today (June 3) found that 46 percent of voters are ready to leave in the next few years, up from 40 percent last year and 34 percent in 2016.

And once again, millennials are leading the charge for the doors with 52 percent saying they will be seeking greener pastures in the next few years, up from 46 percent in 2017. Renters, people without college degrees and those spending 50 percent and more of their income on housing also want out.

leaving

Where They’re Headed

Where people are headed drew a range of destinations. Of 461 voters who said they plan to leave, the poll found 24 percent plan to move elsewhere in California while 61 percent said they would look outside the Golden State. Texas was a popular destination, according to the poll, with 10 percent saying they would mosey on down to the Lone Star State.

Oregon, Nevada and Arizona also can expect to see a bump in former Bay Area residents in the next few years, the poll found. Another 6 percent said they would go just about anywhere that was more affordable and has lower taxes.

“These results are tough to report, but we can’t let this growing pessimism become a self-fulfilling prophecy,” said Jim Wunderman, President and CEO of the Bay Area Council. “There’s still time to get a handle on our housing and transportation problems, but it will require strong leadership and partnership across the region to do it combined with bold thinking and decisive action. We can’t wait until our economy tanks to fix these problems and letting our economy tank is not a solution.”

Housing, Traffic, Homelessness Top Issues

The Bay Area’s stratospheric housing costs, overall high cost of living and bumper-to-bumper traffic are the main culprits behind the region’s worsening grumpiness. The housing crisis topped the list of most nettlesome issues for the fourth straight year, according to the Bay Area Council Poll, with 42 percent mentioning it in an open-ended question as the region’s leading problem. Traffic was the second most-mentioned problem. Homelessness followed closely behind. Fewer mentioned concerns over development, over population and gentrification.

Read the poll results>>

Who’s Responsible for Fixing the Problems?

Bay Area voters are clear on who they think is most responsible for fixing the region’s housing and transportation travails. The poll found that 56 percent of voters think cities, counties and other public agencies are most responsible for making housing more affordable while an even bigger 66 percent say government agencies bear primary responsibility for improving traffic and transportation.

And while much blame has been heaped on the booming tech industry for the region’s problems, the poll found that just 19 percent of voters think it is the responsibility of tech companies to solve the housing affordability problem while 18 percent said it’s the job of tech employers to fix the region’s worsening traffic.

Economic Outlook on Sharp Descent

While Bay Area voters continue to be mostly optimistic about the regional economy, their outlook has dimmed dramatically over the past four years. Just 25 percent of voters surveyed say the Bay Area is headed in the right direction, a precipitous drop from just four years ago when 57 percent held a favorable outlook for the region. That pessimism is also creeping into voters’ attitudes about the Bay Area’s seemingly invincible economy, even as unemployment reaches record lows.

In 2014, 50 percent of voters surveyed in the Bay Area Council Poll expected the economy to improve. In 2018, that figure has plunged to just 25 percent. Just as troubling, the poll found 47 percent of voters expect a significant economic downturn sometime in the next three years.

econ outlook

Voters’ view of their own financial outlook has also slipped. Since 2016, the poll found a considerable narrowing between the number of voters who see happy days ahead for themselves and those who expect to things to get worse financially. Echoing concerns about the region’s soaring cost of living, those with lower incomes harbor the greatest pessimism about how they are doing financially.

The 2018 Bay Area Council Poll, which was conducted online by Oakland-based public opinion research firm EMC Research from March 20 through April 3, surveyed 1,000 registered voters from around the nine-county Bay Area about a range of issues related to economic growth, housing and transportation, drought, education and workforce.

THE COCA-COLA FOUNDATION TO HELP BAY AREA YOUTH “TASTE THE FEELING”

The Bay Area Council’s Workforce of the Future Initiative received a big boost of support from the Coca-Cola Foundation with a year-long grant to advance the Council’s inclusive economy work with regional community-based organizations and employers to train and upskill youth of color. Despite booming economic growth in the Bay Area, certain communities, such as youth of color, have not been able to tap into this prosperity. This grant will address these disparities by further engaging youth of color in workforce development programs, beginning this week at SFO International Airport’s “Working at SFO: A Day of Career Exploration” on May 16th where over 400 students, parents, teachers, and trainers will learn and interview for aviation industry jobs. The Council is thrilled to be working with the Coca-Cola Foundation and its local North America Group to help give local youth opportunities to work with our member companies. For employers who want to participate in this effort, please contact Senior Vice President of Public Policy Linda Bidrossian to get involved.