Wednesday, October 1, 1997
Technology makes Golden State’s outlook gleam
ECONOMY: California the hub of opportunity in Information
Age
By Larry Kimbell
The UCLA Anderson Forecast for California and the nation is very
optimistic about the short-term future, based on a congruence
between New Economic Growth Theory and extraordinary
entrepreneurial opportunities opening up in the Information
Age.
New Growth Theory emphasizes that technical change spreads from
the research and development (R&D) investments done by one firm
to other unintended beneficiaries throughout the world. The
beneficiaries of this R&D spillover receive a "free lunch";
they can exploit new ideas and pay for implementation but not
origination. The explosive growth of communications on the Internet
reflects radically lower costs of sharing information. The initial
core activity on the World Wide Web centered on sharing scientific
papers, but as the advanced research share of all Internet
communications becomes miniscule, there will undoubtedly be large
increases in the transfer of more humble kinds of technological
change. When climbers near the summit of Mt. Everest can get more
accurate information through a much safer process -by accessing a
Web site – than by climbing a thousand vertical feet, you know
communications has substituted for transportation to a radical new
degree.
California is currently the best place in the world for
aggressive risk-taking entrepreneurs in the Information Age. The
technical, social and economic supernova that is exploding on the
Internet will impact California and the world generally, by orders
of magnitude more than the prior micro-computer revolution which
laid the groundwork. We are at the gravitational center of this new
world, since we have strategically placed networks of key people
in: 1. entertainment; 2. communications; 3. computers and
electronics; 4. transportation; 5. higher education; and 6. venture
capital investment.
What evidence supports these contentions? Job growth in
California is booming in the Silicon Valley, home to some of the
most spectacular Initial Public Offerings the stock market has ever
seen.
Non-farm employment growth was 5.7 percent in San Jose and 3.8
percent in San Francisco in 1996. Such rapid expansion is
especially remarkable in San Francisco because there is no open
space for easy development. Although the hottest places are in the
Bay Area, stretching from Stanford to Berkeley, other hot spots
include Westwood, Irvine and La Jolla, not coincidentally, we
conjecture, because of UC campus spillovers. (Freeway gridlock, of
course, is a negative indicator of this boom in employment and rise
in peninsula commuting.) Real estate prices are skyrocketing,
reflecting extremely low vacancy rates for apartment rentals, home
ownership and commercial office space. Personal income tax revenues
in California are rising sharply, led by large bonuses received by
relatively young workers at new media companies.
If the short-term outlook is very optimistic, is the same true
for the long-term outlook? Will the World Wide Web strengthen or
weaken California’s global competitiveness? Will California lose
competitive advantage to places that are far removed but well
connected? The opposite seems to be happening at this moment in
time: If you are not physically right here – in the world’s hottest
deal-making place – you risk being left out of the next round of
new ventures. Currently a crush of people are on their way to San
Jose, not the other way around. The challenge facing California is
to rechannel some of the energy from the current technological
flash to provide forward momentum in the decades ahead.