Silicon Valley’s exodus: Stop blaming tech

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Silicon Valley’s exodus: Stop blaming tech

Much has been made of the “Silicon Valley Exodus.” The conventional wisdom holds that the discovery of feasible remote work arrangements during this pandemic has employers — and their employees — fleeing the Bay Area for more affordable destinations. While true, that narrative remains incomplete; Austin, Texas, for example, isn’t a particularly cheap housing market.

More important, it evades harder questions. Policy choices got us here. We can change those policies — if we’re willing to do something other than blaming tech for them. The tech-resentful might cheer as companies depart, but after a year in which the Bay Area shed 360,000 jobs, we’d do better to focus on solutions.

For example, applause-seeking and responsibility-evading politicians blame tech for high housing costs, but finger-pointing obscures the fact that the Bay Area has become the nation’s most expensive place to build housing, at roughly $700,000 per apartment. Amid cost-reducing advances in the building industry — such as prefabricated construction, micro-housing, and co-living — we see little policy innovation to disrupt the 4L’s of construction cost — litigation, labor, land and the most holy of sacred cows, local control.

First, litigation: Urban apartment builders could save years of delay and millions in cost if the Legislature sharply limited project-halting lawsuits under the well-intended but often abused California Environmental Quality Act.

Chronic labor shortages — and inadequate expansion of the training pipeline — add delay and cost, despite prevailing hourly wages and benefits exceeding $100 for some trades in the Bay Area. We could reduce per-unit land costs by boosting housing densities, but suburban cities thwart density by erecting regulatory barriers, including prohibitively high impact fees and parking requirements. Solutions such as Sen. Scott Weiner’s density-boosting proposals draw angry opponents with strong voices and legislators with wobbly knees.

California’s public finance system allocates tax revenue to reward cities that favor commercial development and discourage housing, but the Legislature has shown no stomach for reform. These are all “fixable” policy constraints on housing — if we’re willing to fix them.

Not all of the “exodus” can be attributed to housing, however. Consider two companies, Hewlett Packard Enterprises and Align Technologies, which have actually expanded in San Jose in recent months, yet moved their headquarters out of state. While they pay more to keep the valley’s high-skill engineers and software designers — though not the lawyers and administrative staff they can more cheaply hire elsewhere — they realize dramatic savings by avoiding California’s regulations and taxes.

In other words, regulations and taxes matter. Studies consistently demonstrate that California imposes the heaviest regulatory burden of any of the 50 states on businesses, particularly small businesses. A cacophony of recent privacy regulations targeted at large behemoths will cost all employers $55 billion for compliance, while others face a flurry of Prop. 65 “shakedown” lawsuits.

Last year’s ballot-box fight over AB5 — which sought to recast gig-economy independent contractors as “employees” — protected on-demand ride-hailing and delivery companies, but left freelancers, nonprofits and businesses of all sizes to muddle through a sometimes conflicting and confusing array of exemptions to comply. California needs a regulatory cleansing — starting with a “pandemic holiday” of those regulations that most inhibit hiring.

Then there are the taxes. California consistently ranks among the most burdensome states in business taxation; even high-cost Austin provides companies an estimated 20% savings in operating costs. The answer isn’t to offer special subsidies or tax breaks for tech employers, nor to launch some puritanical crusade against taxation. Rather, we should follow the “rule of holes”: when you find yourself in one, stop digging. As our state struggles with its brutally high unemployment, San Francisco voters passed three business-targeted new taxes last year alone, and state legislators have teed up several more for 2021.

Finally, tone matters. Other states eagerly welcome technology employers to their communities, yet California politicians too eagerly denounce tech as “the problem” — without forging solutions. The response of one legislator to Tesla’s objections over public health rules: “F— Elon Musk.” Musk’s reply: “Message received.” He and his taxable billions have moved to Texas.

The departure of a few cranky billionaires won’t doom the Bay Area, but our region’s declining appeal to early-stage companies — and the talented entrepreneurs that drive them — will. Innovators came to the Silicon Valley because we presented low barriers to entry — an egalitarian, open-source ethos that welcomed and celebrated immigrants, geeks and eccentrics. Increasingly, we’ve erected barriers — financial, regulatory and even cultural — to the new and the ambitious. There’s much we need to do to reduce those barriers, but here’s a simple place to start: Let’s stop blaming tech.

Sam Liccardo is San Jose’s mayor.

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Silicon Valley’s exodus: Stop blaming tech


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