The California formula

1 out of 3 Fortune 500 cities are headquartered in 6 metropolitan areas. New York has 65, Chicago has 33, Dallas has 22, Houston has 21,and Minneapolis and San Francisco have 18 each.

We’re going to ignore Texas because of the great blackout of 2021, which is bad for business.

Which leaves us with 4 cities. New York and Chicago were historically much larger than the Bay Area, and Minneapolis punches far above its weight.

What makes Minneapolis and San Francisco outpace Los Angeles and Washington DC?

Well… let’s look at the following facts:

In the 1990s Arne Carlson was a very moderate Republican governor of Minnesota. He invested heavily in transit and education. Minneapolis led the country in investing heavily in building one of the most educated workforce in the nation. This was work which had been built up over multiple decades with Minnesota having a fairly bipartisan consensus which led them to having one of the most successful economies in the world. In a region which is dominated by a former over-reliance of manufacturing and economic inflexibility, 20 years of government in Minnesota built a modern workforce diversified into many different industries which made them the richest state in the Midwest.

The same story can be found in California. In the 50s and 60s California invested heavily into education, and in the 1970s there was one region in this country with a large educated workforce, a growing transit network, and many quickly growing companies. That area is the San Francisco Bay Area.

At the same time that Chicago was selling off the Skyway, New York failed to maintain the subway, Texas has unreliable power, and almost every other city in the United States was busy selling off their transit systems and becoming car dependent, Minneapolis and San Francisco grew that great combination of great transit and world class education which allow them to punch above their weight.

The only other city in the United States which has the potential to punch above their weight like San Francisco and Minneapolis is Denver, which has the good transit network which is necessary to build a well functioning metropolitan area.

In every other major city in the United States if a company wants to expand it needs to ensure that there will be enough parking for all of their employees. But this is not the case in the Bay Area, New York, Chicago, and Minneapolis. There can be improvements in local route connections, but compared to any other major city they stand out.

Boston is another city with great transit, excellent education, and Massachusetts boasts the second highest average income in the nation. I think their economy is less dominated by giants. In a way this is more healthy for Boston and the competition probably contributes significantly to Massachusetts having the second highest income in the nation.

If you look around the United States, nothing looks like it will change.

  • Seattle is finally building a transit network which will be sufficient for how big the city was in 2000, and it will be running in 2040. It will never catch up.
  • Portland uses MAX which is extremely low capacity, and there are no plans to upgrade the system or even extend it to Vancouver, Washington.
  • Los Angeles is growing its transit network, but it will take decades for it to work for most people in the region.
  • DC is dominated by the federal government, and this is unlikely to change.

Looking towards the future, cities which I expect to only grow in the future have a large population, high educational attainment in their state (at least 30% of their states population have at least a bachelors degree), and good quality transit (at least one system needs at least 1000 riders per mile, which is a quality metric, and be at least 160 km long, showing that it is long). Those cities have followed the California formula which is what created Silicon Valley. They also have stable electric grids, sorry Texas, you need to fix your shit. These cities also have at least 2 million people so they have enough people to compete on the world stage. Those cities are:

  • New York
  • Chicago
  • Washington DC
  • San Francisco Bay Area

The reasons for these are the following:

  • Building a big company means people need to not be stuck in traffic. Transit is a must.
    • Traffic sets a hard limit to how far a city can grow. In order to truly compete with an area like the Bay Area, you need to be able to grow your population. If you start growing a tech sector somehow, and your population starts to grow and your city is clogged with traffic, your growth will stop.
  • Building a big successful economy needs a lot of people.
  • Building high value added economies requires people to be educated. The more people have a bachelors degree, the better.

This is why no other city in the United States compares. No other city in the United States is going to grow to beat the wealth which is found in these four cities for at least another 50 years unless if there are some major policy changes in the very near future which plan not just on fulfilling the needs of past growth, but also future growth.

Welcome to the Bay Area, the hub of American tech.

References:

https://www.usatoday.com/story/money/business/2018/11/01/fortune-500-companies-list-cities/38215229/

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