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The Battle for San Francisco


In San Francisco, tech companies are hoping to make the world a better place—but the fabric of the city is changing in the process. A new case by Clayton Rose explores this clash of cultures, and the role of business in promoting the right balance.


by Michael Blanding

San Francisco has always been a beacon for people who want to change the world. From beat poets to hippies to gay activists, each wave of counterculture immigration has put its stamp on the city, creating a unique blend that has set it apart from any other in America.

That culture, in turn, has been a draw for innovators of a different sort—technology workers who began populating the suburbs of the South Bay, which came to be known as Silicon Valley, in the 1970s and '80s. In recent years, they have increasingly put down roots in San Francisco itself, commuting south to work by day and coming home for restaurants, art, and culture at night. And more and more, tech businesses are locating here.

“THIS IS A PLACE WHERE THE EFFECTS OF INEQUALITY APPEAR TO BE HEIGHTENED AND MOST PALPABLE”
In doing so, however, technology workers may be threatening the very culture that they came to celebrate. The influx of wealthier professionals has driven up housing costs, increased the pace of gentrification, and threatened the city's rich racial and socioeconomic diversity. Tensions came to a head in December 2013, when a group of angry protesters stopped a Google commuter bus leaving San Francisco for Silicon Valley, brandishing signs that read "Stop Displacement Now!"

"The incident brought to the surface the values and aspirations of long-standing residents and the challenges they were facing," says Clayton S. Rose, professor of management practice at Harvard Business School. "There is this real squeeze on certain parts of the community—housing prices are out of sight, the middle class is leaving, and homelessness is a serious problem. This is in the face of great prosperity for many technology workers."

In addition, San Francisco presents a unique case, says Rose, who grew up in the Bay Area. "People are afraid that this special culture in this special place could get lost."

WEALTH AND CULTURE
Rose tackles these tensions in a new case study, San Francisco, 2015 #tech #inequality, cowritten with HBS California Research Center Director Allison Ciechanover (Harvard MBA 2002) and Kunal Modi (Harvard MBA/MPP 2013), a manager at McKinsey & Co. in San Francisco.

The influx of wealthy tech workers into San Francisco's
neighborhoods is the subject of a case study.©iStock.com/franckreporter
At a time when economic inequality is increasing globally, San Francisco may be the proverbial canary in the coal mine, displaying the negative effects of such rapid increases in wealth on a city's culture.

"This is a place where the effects of inequality appear to be heightened and most palpable," says Rose. "Even though San Francisco may be ahead of the curve, these same issues could well affect many other cities, from Austin to Atlanta."

In order to more deeply explore the issues around these issues, Rose and his fellow researchers sought to add a personal perspective to the case. They invited 22 Bay Area-based Harvard MBAs who had graduated as recently as a year ago and as long as 30 years ago to a series of roundtables to discuss their perspectives on inequality and the tension between the community and technology firms and their employees. Far from the unfeeling interlopers depicted by the Google bus protesters, they found a group that cared deeply about preserving the culture of the city, and that wrestled with how they might understand and change the underlying conflicts.

"They realize that they are operating in a remarkable environment, where there is true innovation going on. They're energized and proud that their companies are creating products and services that are changing the world for the better," says Rose. "At the same time they realize that San Francisco is changing, and almost certainly not changing for the better."

“THEY REALIZE THAT SAN FRANCISCO IS CHANGING, AND ALMOST CERTAINLY NOT CHANGING FOR THE BETTER”
At the root of the issue are a series of questions: What is the problem? Who is responsible for it? And who is responsible for fixing it? Coming up with answers to these questions is not easy.

Looking at the role of government, for example, many of the policies around rent control and restrictions on building heights put in place to preserve San Francisco's character have also limited the amount of housing, forcing up rents and speeding dislocation.

Last year, officials responded with a series of initiatives to increase the number of housing units by 30,000 by 2020, using city revenues to subsidize affordable housing, as well as a resolution to preserve a portion of the Mission District, the city's historically Latino neighborhood that has been increasingly gentrified. A city ballot measure to limit residential real-estate speculation by increasing taxes on property sold less than five years after buying it, however, was defeated over fears that it might hurt homeowners who needed to sell newly acquired property.

At the same time it has tried to ease the housing crisis, the government has pursued policies to attract more tech firms to revitalize the downtown area using generous tax incentives. This effort has led to a 40 percent increase in tech companies with offices in the city from 2010 to 2013.

"They have been trying to balance the encouragement of technology companies and employees to make a home in San Francisco, in order to bring in the revenue and vibrancy, with protecting and enhancing the traditional communities," says Rose—a difficult, if not impossible balancing act.

Many of the MBAs who Rose and his colleagues interviewed for the case expressed a desire to contribute to their community, but felt there was little they could do to address systemic problems of such magnitude. "I think of San Francisco as many layers of communities that see right past each other, but live right on top of each other," one MBA observed, noting that residents were more apt to interact with their community online than with the community outside their door.

Companies often limit their community engagement to contributions to nonprofits or organizing volunteer opportunities. "Traditionally, the way these companies engage is through a service day for employees to volunteer at a soup kitchen or picking up trash," says Rose. More recently, there have been efforts by some companies to connect techies who have certain skills to nonprofits or city agencies to help tackle issues such as homelessness or education—for example, by tracking patterns of homeless people or analyzing school statistics.

"They say, 'My skill set is coding, so how can I take that and apply it to the problem?' " says Rose. "There are incremental moves to get these folks involved in a more meaningful way, and you can see the power of that emotional engagement."

DIFFICULT PROBLEMS TO SOLVE
Despite such promising trends, the questions raised by economic inequality in San Francisco are not easily solved.

Rose is teaching the case in a relatively new MBA elective, Reimagining Capitalism: Business and Big Problems, taught with John and Natty McArthur University Professor Rebecca M. Henderson, who founded the course, and Jakurski Family Associate Professor George Serafeim.

The course asks students to explore why and how business leaders should engage with some of society's biggest problems, like economic inequality, environmental degradation, and crony capitalism. "We aren't packaging it neatly," says Rose. "We are exposing students to important questions and issues, and giving them the space to wrestle with what they might do to engage with and help mitigate them."

ABOUT THE AUTHOR

Michael Blanding is a senior writer for Harvard Business School Working Knowledge.


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