- Tech companies are overwhelmingly centered on the West Coast of the United States, with 5 of the world's biggest companies based near San Francisco and Seattle. Silicon Valley is known worldwide as the number one center for technological innovation and tech startups.
- As Silicon Valley and San Francisco are to tech companies, New York City is to traditional media, especially print publishing like books, magazines, and newspapers.
The two most influential newspapers in the country, the Wall Street Journal and the New York Times, are both based in New York City. Arguably the 3rd most important, the Washington Post, is wholly owned by Amazon CEO Jeff Bezos. Time magazine, America's first newsmagazine, is based in New York City and was recently purchased by a big tech CEO.
New York and the West Coast have a couple of important things in common. They're both terrible places to do business, and they're both very liberal. Those two issues are perhaps not unrelated.
New York State, California and Washington state ranked respectively 48, 50, 32 on CNBC's "business friendliness" index in the 2018 listing of the best states to do business.
New York's politicians first welcomed a new Amazon Headquarters, then rejected the deal after it had already been announced. California decided that the new transit system could not be built - after spending $3.5 billion in federal money on trying to build it. According to a recent poll, most Californians are considering leaving the state due to the very high cost of living. These have simply become dysfunctional places to live and work.
In fact, California and New York have the highest cost of living in the continental United States.
Even the cost of very basic things, like electricity, is much higher in California than elsewhere in the US. Average retail price of electricity was about 50% higher in California than the national average, and about twice as high as other Western states, in 2017. And this difference will rise even more as California's electric utility faces massive charges as a result of the 2018 wildfires.
California and New York also face a host of other problems. California is regularly plagued by natural disasters ranging from wildfires to earthquakes to flooding. 2018 saw the worst fires in the state's history. Such fires are not unusual. In fact, according to the California Park Service, portions of the Santa Monicas have burned ten times since 1925, an average of once every eight years. High visibility New York City has been the target of the worst terrorist attacks in US history.
Despite its reputation as a mellow sun drenched place where everyone is either surfing or doing meditation, the reality is that crime in California is quite high. According to the most recent edition of "Crime in the United States, published by the FBI for 2016, the incidence of violent crime in California – adjusted for population – is 445 incidents per year per 100,000 population. That is one of the higher crime rates in the nation; at the low end of the scale is Maine (124 per 100,000) and Kentucky (232). In Oakland, where many Google employees and other techies have moved, the city violent crime rate in 2016 was higher than the national violent crime rate average by 259%.
In large part, tech and media companies continue to flock to Silicon Valley and New York simply because they are known quantities, and other tech and media companies are located there.
But will this continue, in particular in California?
At the end of 2018, Governor Jerry Brown was leaving office, and the fiscal situation going forward was very unclear. According to a Wall Street Journal article:
"California's reliance on high-income taxpayers leaves the state budget susceptible to wild revenue swings—and at risk of the same kinds of deficits, Mr. Brown vanquished early in his tenure. Gavin Newsom, the new Democratic governor-elect, will take the helm at a moment when Democrats so dominate the legislature that California's GOP is largely irrelevant, making the temptation for higher spending harder to resist."
"I lived a charmed life because I'm governor at the time of the longest bull market in history," Mr. Brown said in an interview. "What happens after me? I assume there is going to be a lot of borrowing." During a budget presentation earlier this year, he said, "The next governor is going to be on the cliff."
Indeed, because California relies on income tax payments on the top 1% of its residents for 35% of its total budget, as soon as the next recession comes, and IPOs dry up and the stock market tanks, California revenues will indeed fall off a cliff.
"The technology boom, in particular, has given California a large pool of very rich people. But critics say that California is far too reliant on its income tax, which now accounts for about 70% of state revenues. About half of that comes from the top 1% of the income distribution, with about a quarter of those wealthy residents' income coming from volatile capital gains. When Facebook (based in Menlo Park) went public in 2012, the state reaped a windfall of at least $1.4 billion. But following the dot-com bust of 2001, the state faced a $12.4 billion deficit in the span of a year. That unpredictability remains a permanent part of the California fiscal cycle."
"Home prices and rents have skyrocketed, and large homeless populations can be found in nearly every major city. Adjusting for the cost of housing, California has the highest poverty rate in the nation, according to the U.S. Census Bureau."
California almost seems to taunt tech companies. To add insult to injury, the most recent tax in San Francisco, approved in the November, 2018 elections - supposedly to help the homeless - was spearheaded by Salesforce CEO Marc Benioff. Of course, if you're already a billionaire, paying more taxes is no big deal. But for new companies, dealing with the highest cost of living in the US, repeated natural disasters, an unfriendly business environment, a labor shortage, terrible traffic, high crime, and skyrocketing housing costs, one more tax may be all it takes for tech companies to abandon the Golden State in a big way.
After all, techies don't surf.
Of course, culturally, California, and the Bay Area in particular, is very welcoming to gays, people of color, and working women. But despite the endless efforts of Big Tech to placate these groups, the reality is that most programmers and other technical workers are straight young or middle aged white or Asian men. And in the hierarchy of California values, straight white men are somewhere below house dogs on the cultural pecking order.
Why, exactly, would new tech companies want to be in California?