Wednesday, October 1, 1997
Technology makes Golden State's outlook gleam
ECONOMY: California the hub of opportunity in Information Age
By Larry Kimbell
The UCLA Anderson Forecast for California and the nation is very optimistic about the short-term future, based on a congruence between New Economic Growth Theory and extraordinary entrepreneurial opportunities opening up in the Information Age.
New Growth Theory emphasizes that technical change spreads from the research and development (R&D) investments done by one firm to other unintended beneficiaries throughout the world. The beneficiaries of this R&D spillover receive a "free lunch"; they can exploit new ideas and pay for implementation but not origination. The explosive growth of communications on the Internet reflects radically lower costs of sharing information. The initial core activity on the World Wide Web centered on sharing scientific papers, but as the advanced research share of all Internet communications becomes miniscule, there will undoubtedly be large increases in the transfer of more humble kinds of technological change. When climbers near the summit of Mt. Everest can get more accurate information through a much safer process -by accessing a Web site - than by climbing a thousand vertical feet, you know communications has substituted for transportation to a radical new degree.
California is currently the best place in the world for aggressive risk-taking entrepreneurs in the Information Age. The technical, social and economic supernova that is exploding on the Internet will impact California and the world generally, by orders of magnitude more than the prior micro-computer revolution which laid the groundwork. We are at the gravitational center of this new world, since we have strategically placed networks of key people in: 1. entertainment; 2. communications; 3. computers and electronics; 4. transportation; 5. higher education; and 6. venture capital investment.
What evidence supports these contentions? Job growth in California is booming in the Silicon Valley, home to some of the most spectacular Initial Public Offerings the stock market has ever seen.
Non-farm employment growth was 5.7 percent in San Jose and 3.8 percent in San Francisco in 1996. Such rapid expansion is especially remarkable in San Francisco because there is no open space for easy development. Although the hottest places are in the Bay Area, stretching from Stanford to Berkeley, other hot spots include Westwood, Irvine and La Jolla, not coincidentally, we conjecture, because of UC campus spillovers. (Freeway gridlock, of course, is a negative indicator of this boom in employment and rise in peninsula commuting.) Real estate prices are skyrocketing, reflecting extremely low vacancy rates for apartment rentals, home ownership and commercial office space. Personal income tax revenues in California are rising sharply, led by large bonuses received by relatively young workers at new media companies.
If the short-term outlook is very optimistic, is the same true for the long-term outlook? Will the World Wide Web strengthen or weaken California's global competitiveness? Will California lose competitive advantage to places that are far removed but well connected? The opposite seems to be happening at this moment in time: If you are not physically right here - in the world's hottest deal-making place - you risk being left out of the next round of new ventures. Currently a crush of people are on their way to San Jose, not the other way around. The challenge facing California is to rechannel some of the energy from the current technological flash to provide forward momentum in the decades ahead.