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THE BAY AREA
ECONOMY
IN 1990—A
LOOK AHEAD
REMARKS BY
John J. Balles
PRESIDENT
FEDERAL RESERVE BANK
OF SAN FRANCISCO
American Association e C '\ ^ R ^ V^VO ?
for the Advancement of Science
San Francisco, California
February 27, 1974
LIBRA
S3 f
a
2- I n
John J. Balles
In citing the need for today's symposium
your Chairman noted that the Bay Area,
long claimed as one of the uniquely
beautiful areas of the country, now is hard
pressed to justify that reputation.
Specifically, he noted that all the marks of
civilization— congestion, dirty air and
water, scarce and expensive housing, great
energy demands and continuing
population growth— are obscuring the
landscape. In fact, these phenomena even
now are generating what many observers
believe is a crisis in the quality of Bay
Area life. The question is: where do we
go from here?
Today, I would like to share with you some
observations regarding the factors which
appear to me as likely to influence the
future growth of the Bay Area and the
policy choices which need to be made.
Our future is not foreordained. We do
have some control over it, and the manner
in which we act— or fail to act— will deter
mine whether we resolve the complex
problems bearing upon growth and the
environment.
Dimensions of Growth
"Grow th" of course, generally has been
the name of the game since the first wave
of '49ers, many of them com ing around
the Horn, flocked to the new El Dorado.
(Incidentally, Alastair Cooke tells us that
this was the route favored by politicians,
gamblers and prostitutes, which I mention
because I want you to know that when I
recently came, it was by plane.) Since the
1880's population growth has centered in
Southern California, but the rates of in
crease in both population and jobs in the
Bay Area generally have outpaced those
nationally by fairly substantial margins.
The reasons for the Bay Area's secular
growth are well understood, but deserve
brief mention. They include a succession
of powerful external factors such as World
War II, the Korean and the Vietnam con
flicts, and even the Great Dust Bowl
migration, which in the late '30's found
hundreds of thousands heading West to
the Promised Land. The growth associated
with the three Pacific conflicts contributed
to a relatively high dependence upon the
Federal sector, but this dependence was
superimposed upon a highly diversified
econom ic base.
Our econom ic base is characterized by
three major factors: a relatively low de
pendence upon manufacturing, a high
degree of diversification and a unique
specialization within manufacturing itself
(including a heavy orientation towards
electronics and R&D activity), and a
traditional and growing orientation
towards finance and international trade.
It is these activities— not heavy industry—
that have attracted and supported a welleducated, highly skilled and, generally
speaking, an environmentally-oriented
work force. To the members of this work
force, the amenities in all their dimensions
— physical, educational, etc.— are very
important.
And it is a well-paid work-force. Last year,
per capita personal income in the 9-county
Bay Area apparently rose by about 7.5
percent to somewhat over $6,000— 12
percent above the average for the state
and 22 percent above the national average.
Even after allowance for inflation, this
represents a doubling of per capita income
since 1940 and an increase of 36 percent
just since 1960. Truly, this is an impressive
performance, one which has made possi
ble a commensurate rise in the standard
of living and which seems to provide an
ongoing validation of Horace Greeley's
dictum.
Crisis in the Quality of Life
Yet, despite more people, more jobs and
higher incomes, econom ic "growth"
per se has not solved some of our most
pressing problems. And in some cases it
clearly has exacerbated them. For example,
a 55 percent increase in the number of
auto registrations in the Bay Area in the
last dozen years has been accompanied
by a 75 percent increase in both gasoline
consumption and the number of autos
crossing the Bay's bridges. And the auto,
of course, is the major contributor to
congestion and smog.
In many of its econom ic as well as its
physical aspects, the deterioration of the
Bay Area environment is evident. It is
evident, for example, in the virtual destruc
tion of the bay shrimp industry by water
pollution; in the steady decline in the crab
and fishing catch, to less than 20 percent
of their decade-ago volum es; and in the
loss to urbanization, in just two decades,
of two-thirds of one of the world's prime
agricultural areas (the Santa Clara Valley).
This loss is attributable in no small degree
to the pressure of population and rising
taxes on farm lands. Nor has the steady
encroachment upon farm lands and openspace to accommodate people obviated
against a rapid rise in land and home
prices. In fact, the cost of shelter has more
than doubled in the Bay Area in the last
20 years, compared with an 83 percent
increase nationally. Even more disturbing,
to homeowners and renters alike, has been
the steady rise in taxes, which in many
cases appear to have failed to stem a
deterioration in the social infrastructure.
Economic Opposition to Growth
And spending by the public sector in
support of the social overhead has soared.
Since 1960, per capita expenditures by the
9 Bay Area counties (including their cities,
schools and special districts) and per capita
property taxes have almost tripled, to a
level well above the state average. (And
here I would note that even the great
potential of BART has been clouded by
the announcement that its survival may
depend upon a substantial Federal bail
out.) But the impact of rising taxes upon
the Bay Area's elderly, who live on essen
tially fixed incomes, and upon the poor
who own their homes, frequently has been
devastating. Nor have efforts to "relieve"
the rising burden of local taxes by in
creased spending at the state level been an
unqualified success. Just since 1960, the
state budget itself has quadrupled— and
on a per capita basis, has tripled. And even
though upwards of 60 percent of expendi
tures are in support of local assistance,
ultimately these are financed out of some
one's pocket at the local level. If local taxes
have been reduced in some cases, this is
only because they have been shifted to the
state or the Federal governments. In the
last analysis, there is no such thing as a
"free" lunch.
Thus, opposition to growth— at least to
some facets of growth— is not just
environmental and ecological in its dim en
sions. To a very considerable extent it
reflects, I believe, a disillusion with the
traditional booster syndrome that "econom ic-growth-will-broaden-the-tax-base"
(which it has) "and-m ake-possible-areduction-in-taxes" (which it hasn't).
The stresses and strains produced by
growth thus have made the Bay Area a
focal point of anti- and controlled-growth
sentiment. This phenomenon is by no
means new— sixty years ago California
conservationists took to heart Teddy
Roosevelt's admonition to preserve "a
very wonderful and beautiful country."
But the sentiment is now much more
widespread.
Recently, concern over growth and the
environment has found expression in a
number of organizations designed to cope
with one or another aspect of the problem
— agencies such as the Coastal Com m is
sion, The Bay Area Air-Pollution Control
District, the Metropolitan Transportation
Com m ission, and the Association of Bay
Area Governments. The latter, as you
know, has developed a blueprint for a
Regional Growth Policy, the thrust of
which parallels, in a number of respects,
The California Tomorrow Plan of 1971.
("California Tom orrow" is a non-profit
organization dedicated to increasing
public awareness of the problems of
maintaining a beautiful and productive
state.) W hile the outcome of the growing
debate over growth and the environment
is not certain, especially given the com pli
cations introduced by the energy crisis,
the success or failure of these or similar
plans will have an important influence on
the future nature and dimensions of the
Bay Area's development. It is to these
efforts that I therefore would like to turn
my attention.
Regional Growth Plans
In assessing proposals for coordinating
and rationalizing growth, such as those
advanced by ABAG and "California To
morrow," I would first note what appears
to me to be the general reasonableness of
their overall thrust. For example, I would
concur with ABAG's basic tenet that the
Bay Area, if its quality of life is to be
retained, cannot sustain the amounts and
types of growth of the past. I would agree
with its basic assumption that a region
does, in fact, have the right to opt for a
policy other than "anything goes," and
consequently to set guidelines condition
ing its growth rates. And I would support
its basic goal of "lim iting population
growth and concentrating on improving
existing communities and the standard
of living of present Bay Area residents"
rather than sim ply striving for "a larger
society."
Specific proposals for achieving a slower
and more balanced growth are, to be sure,
a matter of controversy. But with some
notable exceptions they too, generally
appear reasonable in terms of achieving
their objectives. The various recommenda
tions include tighter land use controls
on residences and industries, plus man
power programs to provide jobs for the
locally unemployed rather than jobs for
new workers from outside the region.
They also include tax incentives to single
people and small families, tax penalties
on econom ic developments that generate
relatively heavy population increases, and
reform of the tax structure to reduce
dependence upon the growth-oriented
property tax. And they also recognize the
im pelling need for mass transit systems
to reduce dependence upon the private
automobile.
At the same time, some proposals may
contain built-in conflicts. For example, The
California Tomorrow Plan, which may well
qualify as the most thorough and com pre
hensive effort yet designed to "put the
pieces together," recommends "massive
state and regional building programs that
create many jobs." But, construction per
se ranks relatively high among the activi
ties which can exert a negative environ
mental impact. Sim ilarly, the plan's
"guaranteed incom e" proposal appears
to be a throwback to the "Ham and Eggs"
and "E P IC " ("End Poverty in California")
movements of the '30's, which I under
stand were rejected by California voters
precisely out of fear that their adoption
would induce yet greater waves of in
migrants and a drain on the state's
finances.
How Realistic are Projections?
As a planning target, ABAG last year
embraced what it considers to be "a
moderate" population growth for the Bay
Area, from 4.6 m illion people (and 1.7 m il
lion jobs) in 1970, to about 7.5 million peo
ple (and 3.1 m illion jobs) at the turn of the
century. The projections, which represent
the m id-point of a "probable" population
range of between 6.2 million and 8.8
million in the year 2000, are based in part
upon population estimates made by the
State Department of Finance in 1971. Last
month, however, the state released revised
(and substantially lower) projections,
including a 30-percent reduction in
expected growth for the Bay Area by the
year 2,000. This would mean an increase
of under 2 million people (to 6.6 million)
compared with the earlier estimate of
about a 3 m illion increase.
Nevertheless, it seems to me that even
this projected increase may turn out to be
on the high side. The state's new projec
tions now assume a lower level of inmigration into the state (100,000 per
annum, far below that of the early '60's)—
but they still assume a high fertility rate
of 2.45 per woman. This is on the grounds
that the low fertility rates of the last few
years— including an apparent drop last
year to the 2.1 rate which would mean
“ zero" population growth by the year
2040— are attributable to "temporary
conditions, including econom ic uncertain
ties and sudden relaxed abortion restric
tions." This assessment may be correct.
However, my own view is that a funda
mental shift in attitudes favoring smaller
rather than larger families is taking place,
and is not likely to prove transitory.
I believe this shift is based upon a growing
conviction that more is not necessarily
better, and that smaller families and fewer
people are more likely to be consistent
with the objectives of achieving both
a rise in per capita income and environ
mental balance. In any event, the lower
population projections do not obviate the
underlying rationale and need for formu
lating coordinated policies and growth
objectives. The projected increases are
still considerable, and will require more
vigorous, not relaxed, efforts to harmo
nize growth and environmental objectives
if the quality of life in the Bay Area is to be
preserved. But what then will determine
the success of efforts to harmonize these
objectives and solve our problems?
Metropolitan Approach
First and foremost, efforts directed at
solving the Bay Area's problems will re
quire that solutions not be diluted by a
multiplicity of local government organiza
tions and special-purpose agencies work
ing at cross purposes. Rather, it will
require a comprehensive metropolitan
approach which carefully assesses the
trade-offs between growth and the
amenities of life in the Bay Area.
The success of such an approach will itself
depend upon the surrender of varying
degrees of local authority and a har
m onizing of divergent local interests.
Such changes do not come easily, but as
ABAG has noted, movement in this direc
tion is evident in several developments:
communities are responding to the
demands of their electorates for a re
ordering of priorities; individual com
munities with limited resources have not
been able to solve their problems; and the
prerogatives of local autonomies already
are being eroded by the establishment of
independent regional agencies designed
to cope with area-wide problems.
In this connection, my own experience in
Pittsburgh convinces me that the business
community can exercise real leadership in
helping to solve the Bay Area's problems.
As you know, Pittsburgh in the mid-'40's
was a disaster center, environmentally
speaking. The choking pall of fumes which
required 24-hour a day lighting of the city's
streets almost reached near calamity
proportions. But under the leadership of
the business community, and with ex
cellent cooperation from local government
and organized labor, the Allegheny C o n
ference on Com m unity Developm ent
sparked Pittsburgh's environmental and
econom ic renaissance. Not only did the
air become fit to breathe, but in the
process, the city's econom ic base shifted
from excessive dependence upon heavy
industry to more emphasis upon such
sectors as industrial research and cor
porate headquarters. I would hope that,
unlike the Pittsburgh experience, we will
not wait to take corrective measures in the
Bay Area until our health and livelihood
are seriously threatened.
Actions at the State Level
W hile concerted action at the local and
regional levels will be critical, the success
of coordinated Bay Area planning and
growth policies also will depend, and
perhaps in no small degree, upon actions
at the State level, both in California and
elsewhere. Such actions presumably might
include the adoption of a statewide zoning
and land use plan, the creation of an
agency (such as New York's Urban D e
velopm ent Com m ission) to plan and
control New Towns, and so on. The New
York Urban Developm ent Com m ission,
incidentally, is counting on New Towns
to accommodate one-half of the Empire
State's population growth by the end of
the century, and the success or failure of
these efforts may have significant im plica
tions for what even now is a major source
of in-migration into the Bay Area.
Actions at the Federal Level
Sim ilarly, the success or failure of efforts
to solve the Bay Area's problems also will
be strongly influenced by a host of policies
and actions (or non-actions) at the
national level. These might include the
adoption of a national land use policy, the
adoption of a national energy policy, and
the resolution of many conflicting policies
such as presently involve housing and
energy. This effect will require not only
the placing of a clearer price-tag on
environmental and growth activities, but
also the elimination of a host of conflicting
special incentives, quotas, subsidies and
pricing arrangements by various govern
ment agencies which encourage the un
economical use of energy and other real
resources.
Impact of the Energy Problem
The question naturally arises as to what
impact the energy crisis is likely to have
on the Bay Area. My own view is that the
energy problem is real, that it is not short
term, and that its potential impact may
turn out to be every bit as great in the
Bay Area as elsewhere.
This assessment is based upon several
considerations. One is California's de
pendence upon outside sources of energy
supplies— primarily Canada and Texas—
for three-quarters of its natural gas and
oil requirements. A second is the prospect
of, at best, a stable supply of hydroelectric
power (including power imported from
the Pacific Northwest). A third is Califor
nia's (and the Bay Area's) relatively rapid
population growth, and a fourth is the
soaring rate of per capita energy con
sumption which has accompanied the
growth in population and incomes. The
State Resources Agency, for example, has
placed California's energy requirements
in 1985 at double those of 1970. And if
this seems remarkable, consider the fact
that in the 9-county Bay Area, consum p
tion of gas by businesses, households
and the utilities increased by 72 percent
between 1960 and 1972, while consum p
tion of electricity more than doubled— far
outpacing a 30 percent increase in the
area's population. This is but one more
dimension of our "rising standard of
living."
California, of course, has substantial
proven oil reserves, including off-shore
reserves, which hopefully can be tapped,
under appropriate safeguards, to avoid a
repetition of the 1969 disaster which still
finds 400 barrels of oil a day seeping from
platform "A " in the Santa Barbara Chan
nel. And in order to accommodate
expected future energy demands, the
utilities themselves are counting on a
sharp rise in their own consumption of oil
(from 7 percent of their energy sources
in 1970 to almost 30 percent in 1985) and
upon an even greater rise in the use of
nuclear fission materials (from 1 to 40
percent of their energy sources). This
prospect, of course, is viewed with mis
giving by a considerable segment of the
population, and is a source of some of the
"no growth" sentiment. However, with
this specific consideration in mind, and
with the energy, the environmental and
the population situations all considered
in the larger context of the Bay Area's
future, several observations may be perti
nent.
No Growth Not the Answer
The first is that "no growth" clearly is not
the answer, and for several reasons. One
is that heavy investments— much heavier
than in the past— are going to be necessary
both to finance new, alternative and clean
sources of energy, and to put our environ
mental house in order. A second reason
is that additional financial and real
resources of some type will be necessary
to provide jobs not only for present resi
dents of the Bay Area who are now un
employed, but to accommodate the
hundreds of thousands of Bay Area
children who will enter tomorrow's job
market— a market which, they no doubt
hope, will be in the Bay Area. Finally,
imagine for a moment the intensity of the
tensions which would result in our society
if the already conflicting claims of various
groups had to be divided up on the basis
of a no-growth econom ic pie.
Harmonized Objectives
A second observation is that, far from
posing a conflict with environmental
objectives in the long run, the energy
problem may lend credence to a number
of proposals long advocated by envi
ronmentalists. These proposals include the
need for energy conservation through the
elimination of waste (estimates of waste
range from V a to V 2 of energy consum p
tion), the development of mass transit
systems to reduce dependence upon the
automobile, and growing recognition that
the resources of Spaceship Earth are
indeed finite.
Industries of the Future
A third and related observation is that,
given the nature and magnitude of the
growth and environmental problems
which have emerged in our society gen
erally, it is at least conceivable that heavy
industrial enterprise may cease to be the
key wealth-producing and innovative
force. If this assessment is correct, not only
are environmental industries likely to rank
among the growth industries of the future,
but information technology will itself
assume critical importance by providing
a much better basis than we now have
for reassessing our goals and formulating
specific policy alternatives. Inevitably, such
policies and programs will require a total
or social accounting system, one which
includes the cost of the amenities. Without
such a system an accurate assessment of
the trade-offs between various types of
growth is extremely difficult.
Certainly efforts to measure and assess
both the environmental and econom ic
impacts of growth policies are a step in
the right direction. In any event, given
the Bay Area's relatively lesser dependence
upon heavy industry, these considerations
suggest to me that the future of Bay Area
research and development industries, in
liaison with the area's world-renowned
higher education facilities, will be every
bit as dynamic as in the past— perhaps
even more so, given what is at stake.
Summary
To sum up, I have noted that the stresses
and strains produced by growth have
made the Bay Area a focal point of antiand controlled-growth sentiment, and that
this sentiment is partly econom ic and not
just environmental and ecological. I also
have attempted to identify a few of the
factors that will influence the nature and
profile of econom ic activity in the Bay
Area over the next several decades, keep
ing in mind the fact that our future is not
foreordained. In part, it will be influenced
by policies and actions at both the state
and Federal levels, including policies
bearing upon such matters as land-use,
energy and housing. But first and foremost,
our future, and the success or failure of
efforts to harmonize growth and environ
mental objectives, will be determined by
the development of coordinated and
comprehensive planning and growth
policies at the metropolitan level.
W hile the no-growth approach clearly is
not a feasible solution to the problem of
maintaining environmental balance, the
prospect of a slower population growth
and an attendant reduction in pressure on
real resources is not something to be
lamented. It is, in fact, an objective whose
implementation would be facilitated by a
number of recommendations made by
ABAG. At the same time, there is every
justification for developing a policy to
assure that econom ic growth, in both its
structure and spatial distribution, occurs
in those sectors which are less "entropy"
or "disorder" creating. Specifically, these
sectors would include finance and inter
national trade, as well as R&D activities.
The latter, as I have indicated, might play
a critical role in filling our information gap
and thereby helping to determine just
which types of growth are in fact con
sistent with considerations of environ
mental balance. And certainly the appro
priate growth areas would include the
services sector— especially here in the
Athens of the West, where a growing
demand for more and better education
and a surge of interest in recreation and
the arts demonstrate a deep interest in
those activities which are m ind-expanding
in the noblest traditions of civilized men.
In conclusion, I would note the recent
comment of an official of the California
Cham ber of Commerce, who observed
that "most logical-thinking business lead
ers, legislators, economists and every day
citizens are in agreement that growth
simply for growth's sake is no longer the
order of the day." I would suggest that this
assessment represents both a challenge
and an opportunity, and the Bay Area has
a demonstrated capacity for dealing with
both. Personally, I also believe that our
area, which counts, among its contribu
tions to Western civilization, magnificent
wines, Pisco Punch and the Martini, has a
good chance of finding the answer to its
problems.
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