Maybe California really wasn’t golden after all, but bronze that was unmaintained for years and the tarnish now unmistakable. The decline in the rate of growth went largely unnoticed as silently and quietly, businesses and their well-paid employees began to leave. In recent years, California has been shocked to learn that its population has actually declined. Has California lost its locational advantages?
Why was Pittsburgh the steel capital of the world? Or Detroit Motor City? Locational advantage. The core tenets of locational advantage remain:
- Local endowments, that is proximity to raw materials, energy sources, and lower cost labor
- Proximity to markets
- Infrastructure and policy
- Agglomeration effects
Some sectors are much more spatially constrained than others – such as gold mines and deepwater ocean ports – while others could pretty much occur anywhere. And yet they don’t.
Go back 60 years. Massachusetts Route 128 (I-495) was known as the computer capital of the world and Motown ruled the auto industry and pop radio. The Great Lakes inland port cities were bustling – from Lake Superior to the St. Lawrence River. Los Angeles was a major and smoggy industrial city, and even automobiles were being built here.
Although their growth was less than the west coast, key industrial cities in what is now sadly known as the Rust Belt were still growing rapidly – Kansas City, Minneapolis, and even Detroit, which grew over 25% during the 1950’s. There were, however, signs of the crack to those who would care to look – Pittsburgh did not grow during a decade when nearly every major metropolitan area across the country was growing.
Fast forward. Detroit is but a shell of its former self. The steel industry in Pittsburgh and Buffalo? All but gone. And the ports of the Great Lakes? Annual tonnage is half of what it was in 1950. The southeast has a booming auto manufacturing industry, and nobody makes cars in California anymore, or frankly, much of anything as even the high-tech manufacturing to support the computer industry has long gone.
In what we have been told is our post-industrial phase, the concept of locational advantage seems to have taken a back seat. The information industry has thus far had few physical limitations constraining its location – so the once superb California universities plus the beaches, mountains, and weather naturally attracted the highly educated and mobile workforce. But just like Pittsburgh, the cracks have been there for some years.
Locational advantage is a private sector concept that assumes economically rational behavior, that is profit seeking. Governments locate their “businesses” not to maximize efficiency (profitability), but rather to implement regional economic policy or for political advantage. The relatively small government footprint of the 1950’s has been replaced by a much larger scale operation that has major effects on the geography of the country. Behavior that is not economically rational is by definition irrational and inefficient.
Governments continue to view their actions in isolation. Why are the Chiefs bailing on Missouri and moving to Kansas? Why are the tech leaders of Silicon Valley headed for Texas and Florida? Or the financial sector quietly relocating many key functions out of Manhattan?
In an era where proximity to the Kentucky coal mines and the upper peninsula iron mines matters little, government policy has become a key locational advantage. In the case of California, it has become its Achilles heel.
The next technology wave, with AI as just the visible public face, is power hungry. It may be nearly too late for California to save its information industry. No sane company is going to build a data center in California. Why would they? Oil refining is being regulated out of existence while the state is replacing inexpensive and reliable energy sources (nuclear, hydro-electric) with expensive and inconsistent ones (wind and solar). The rolling blackout is a probability game played every summer now – will my power be shut off today? While a nuisance for residents, it is untenable for businesses.
Data centers are cropping up like crazy in regions far from the tech centers of the coast. Silicon Vally is losing its founding generation, and with affluent workers increasingly the target of taxation and regulation, it is inevitable that those remote data centers will act as spatial magnets. The local and state governments long opposed to energy projects and in favor of any and all taxes will find themselves abandoned by the industry that built them in the first place.
The state seems committed to their path of self-destruction by focusing on taxing billionaires and excessive regulation, blissfully unaware that LA and the Bay areas could become then next generation’s Detroit and Pittsburgh, albeit with nicer weather.
It might not be too late, but it is high time Sacramento woke up and realized that all that glitters is not gold. It could be bronze.