potrero view

February 2010

Publisher's View: Industrial policy

By Steven J. Moss

In the early 1980s “industrial policy” – government attempts to direct investment into specific economic sectors, not just exclusively manufacturing – was a key part of political discourse.  In 1982 gross domestic product (GDP) – the estimated value of all goods and services produced in the economy – fell by 6.4 percent.  That same year California’s unemployment rate peaked at ten percent.  Policy makers and economists struggled with ways to jumpstart the economy, and attract businesses to job-weakened areas.  

The Reagan Administration did little to adopt industrial policies, but state and local governments actively provided tax incentives and other inducements for businesses to locate and grow in their jurisdictions.  These efforts, as well as fiscal and monetary policies and external conditions – such as the easing of gasoline prices, which reached a still unmatched inflation-adjusted peak in 1981 – helped lower the state’s unemployment rates to less than six percent, and raise GDP growth to roughly two percent, by 1990.    

Today the economy feels quite similar to the early 1980s.  In 2009 GDP declined by 3.8 percent.   Unemployment in the state hovers at twelve percent.  In this economic context it’s time for state and local governments to renew their focus on industrial policies.  This is particularly true for San Francisco, and its southeastern neighborhoods, where a large number of development projects could provide essential launching pads for environmentally sustainable economic growth.  

The City and County of San Francisco has implemented ad hoc industrial policies for decades.  Yerba Buena and the associated Moscone Center reflect a successful attempt at attracting conventions and increasing tourism.  Mission Bay is emerging as a world class technology center, in large measure because of its association with one of the state’s most successful quasi-industrial policies, the University of California, San Francisco.  Redevelopment, enterprise zones, and even land use regulations represent other policies that have influenced the pace and characteristics of economic growth, with mixed results.

Placed-based industrial policies need to achieve multiple goals.  Community-based economic engines catalyzed by public policies should reflect neighborhood values, hire local residents, be environmentally sustainable and result in community-friendly places.  Southeast San Francisco, which has an even higher unemployment rate than the state, has several opportunities to get things right, at Seawall Lot 337, Pier 70, Schlage Lock, and the mother of all projects, the Hunters Point Shipyard.  In between there’s opportunities for micro-industrial policies along Third Street and other key commercial strips.   An important element for all of these projects needs to be finding suitable, employment-rich, anchor tenants while also encouraging the development of diverse moderate and mini-sized neighborhood serving enterprises.  The results have to include ample open space, good transportation infrastructure, and friendly, inspiring, buildings, things which Mission Bay has so far not achieved.

A philosophical underpinning of industrial policy is that government must create the conditions for competitive businesses that reflect our values to thrive.  Such a perspective is an essential part of state and local economic policies.  Outside of direct hires and ongoing expenditures – for which there’s a limit – government can’t effectively create or sustain economic activity.  It can, however, spark its creation, shape its character, and ensure that the right mix of public amenities comes with it.  And that’s exactly what we should be doing.   

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