You might mistake what Justin Fox’s recent Bloomberg View article is in reading its title, “The Stanley Cup and NBA Finals of Economic Performance”, thinking it’s an article about sports. It actually compares the performance of four U. S. cities, San Francisco, Nashville, Cleveland, and Pittsburgh, in three different regions of the country over the period of the last 20 years. Sports is just the “hook” of the story.
I found the graph above very interesting and puzzling. There’s a clear point of inflection for each of the cities in August of 2009. The reason for that is obvious enough: economic recovery. The recovery began in June and by August was well under way in all three regions (West, South or Mid-South, Midwest).
What interested me in that graph was two factors. First, the angles of the lines for San Francisco and Nashville are the same. Second, the angles of the lines for the other two cities, Cleveland and Pittsburgh, are different from the other two and from each other. Why?
The pat answer for San Francisco’s rapid growth in employment would be the tech sector but the growth rate being in lockstep with Nashville’s suggests that’s inadequate at the very least and likely to be just plain wrong.
I’m open to suggestions but the explanation that occurs to me is the increasing financialization of the U. S. economy. Both San Francisco and Nashville are major centers for the banking and financial services industries while Cleveland and Pittsburgh aren’t.
While the ongoing consolidation of the banking and financial services sector of the economy may be good for the top management of the sector and for a few places around the country, I don’t believe the country as a whole is well-served by it. I think we’d be better off with smaller, regional banks who focused on their own territories.
One thing to think about. Is that consolidation reacting to the growth of megalopolises or promoting it or both?
The article is interesting.
I personally think San Francisco is all about tech – the chart you showed listed is consistent with that. SF became a tech hub around 2010 or so, before that tech was centered around Silicon Valley which is not in the MSA of San Francisco. Hence why SF was losing jobs through the 00’s., but a rocket after that.
Maybe the question is why is Nashville so successful? This article provides a clue. Bold is mine.
Why the momentum? A growing tech sector, a Southern shift in auto manufacturing and a resilient health care sector. Meanwhile, Tennessee’s tax rates are favorable for relocating and growing businesses and the region’s low cost of living is attractive to future employees.
Nashville’s tech sector is still relatively small. It can’t explain Nashville’s strong employment growth and it doesn’t explain how parallel the growth in San Francisco and Nashville are. You’ve got to look at what they have in common and that’s banking.
Here’s another way of looking at it. It may be that the presence of the financial sector in the Bay Area is more significant in the growth of Silicon Valley than has generally been acknowledged.
Interesting article, it’s unfortunate there are more/different cities chosen.
What I latched onto was the population numbers. Nashville has the highest birth/death ratio and the largest migration, most of it internal. SF is second in birth/death with almost all of of its immigration from outside the US (I’d guess a lot of those births come from foreign immigrants).
In contrast, both Pittsburgh and Cleveland have a small amount of international immigration, but it’s overwhelmed by domestic outmigration. Add in bad birth-death ratios (Pittsburgh’s is actually negative – more people die there than are being born) and it explains why both are losing a lot of population.
Given that population and demographic reality,it’s not surprising to see Pittsburgh and Cleveland with flat employment growth – people are fleeing those areas.
Dave,
I googled around about Nashville employment and it seems most of the recent employment growth is in manufacturing, health care and especially business and professional services. Finance was generally pretty low on the list.
In short I think SF and Nashville are growing for different reasons.
The additional compounding factor is that not all jobs are created equal. It could be that the jobs created in San Francisco all pay three times the standard deviation above the median while all of the jobs created in Nashville pay three time the standard deviation below or vice versa.
The whole thing may be meaningless. You may need to compare a much broader range of statistics (which, in fairness, the original articles does) to see what’s going on.
Nashville has a reputation for growth in the health care sector, especially in big business health care. Lots of mergers. PE companies buying up practices to have the state covered by one or two big groups in the state.
Steve
Dave, there’s a valid point that the role of finance (especially venture capital) is understated in the Bay Area being THE tech hub of the world. Facebook, twitter, airbnb and uber would not be headquartered in SF otherwise.
But to support the idea that finance is a subservient factor compared to tech for SF growth, look at the West Coast city without a NBA or NHL team, Seattle. I can attest it is growing as faster or faster then SF since the recession and it is all due to tech, Amazon, Expedia, Zillow, and Bay Area firms opening satellite offices, Facebook, Dropbox, Google, Apple etc. Seattle lost its major financial services firm Washington Mutual during its panic and has a small venture capital sector. And Boeing has not expanded its footprint in the area much during that decade.
You remind me of something. Should we start a pool on how long Uber and Lyft can go on hemorrhaging money? So far disruption hasn’t been what it’s cracked up to be. Amazon is making money but not by disrupting retail. It’s making money because it was the first mover in web services and still retains about half the market. Rather than disruption I’d say it was a new category.
Airbnb has broken into profitability but Uber and Lyft are both spending gobs of money they don’t have.
We could start a pool.
I bet two years. The latest news out of Uber (firing a bunch of execs, CEO taking a ‘temporary absence’) suggests existing investors think it’s easier to clean it up for an IPO then getting it to make money. Fleecing the public, um I mean doing an IPO is the last time they can raise significant cash.