HBS Cases: 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 writer based in Brookline, Massachusetts

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    • Hugh Russell
    • Cambridge Planning Board
    It sounds like the unintended consequences of the growth of tech companies are similar in San Francisco to what we are experiencing in Cambridge and Boston, where additional insights on solving the problem of middle income getting squeezed out would be most welcome!
    • Venkat Warren
    • Cardiologist, Self employed Physician
    My daughter lives in the Potrero Hill section of San Francisco with her husband and daughter. Rapid gentrification has created the unintended consequence of exaggerating the Unaffordability of buying a house !The rent is also going over the roof literally!! The young high techies working in the Silicon Valley all want to live in the city! She is lucky; she owns her home !
    • elliott tepper
    • International Director, Betel International
    Most of the problem lies with the local governments and their unwillingness to change and adapt zoning regulations to actual character, development, and needs of San Francisco. Read this excellent article: http://www.slate.com/blogs/moneybox/2013/11/25/bay_area_zoning_if_you_want_to_talk_housing_you_have_to_talk_zoning.html
    • E. Quintana
    • Education
    I wanted to retire in the Bay Area as I lived there in the '70s before going to HBS. However, the price of housing makes it out-of-reach to singles or moderate two income seniors who have a lot of give. San Francisco is also losing its young who can't afford to live there, its ethnic neighborhoods as they are purchased by wealthy mainland Chinese, and other high wealth speculators (foreign and domestic). Oh, and let's not forget the techies.
    San Francisco and the Bay Area has changed greatly since I was a young, 20 something at Berkeley. I agree with the author that it has lost most of its soul. I also wonder how MBAs, the wealth makers, can turn this around? Great course, Prof. Rose.
    • Emily Van Dyke
    • Program Administrator, College & Career Readiness, San Francisco Unified School District
    If you are an engineer, programmer, computer scientist, etc and you are interested in volunteering in a Computer Science class in San Francisco public schools, please visit: http://www.tealsk12.org/volunteers/
    • Govindraj Dempo
    • CEO, Santacruz Technologies
    I lived in Mt. Davidson and was a pleasant experience for me to reside in the city. The rent was affordable and the right balance of freedom, price and climate provided a memorable experience in San Francisco. No wonder they sing " I left my heart in San Francisco"
    • Stan DeVaughn
    • VP customer and partner development, RightOn Mobile, Inc.
    I'm old enough to remember two generations of neighborhoods in San Francisco being displaced by changing economics. Hasn't this always been the nature of urban reality in every large city in America? S.F. is no different, despite the myth and folklore some of its denizens have always cultivated. Too bad so many of them choose leaders who fail to lead when it comes to realistic planning and policy.
    • Jeff Carroll
    • VP, Catalina Marketing
    There exists a poor neighborhood (or city), but with low rents, so the artists move in, conferring by their presence a certain hipness to the area, so the restaurants, night spots, retailers, and art studios and real estate developers all follow in the course of gentrification. And the prices go up, and the artists seek the next Greenwich Village, Soho, TriBeCa, Williamsburg, or...
    New problem? Unique to San Francisco? 'Twas ever thus.
    (but I wish I could take the course!)
    • David Prentice
    A tourists sad view of San Francisco.
    This bright, shiny, vibrant city has slipped into darkness. The heart of the city is broken. The streets are grubby and forlorn, occupied by the homeless and addicted. Pressure from The Valley has pushed shabby hotel room rates sky high. Yes, I've lost my heart in San Francisco.
    • Denise Smith
    • Community Health Worker, Streetlight
    Why weren't MBAs and community residents brought together to discuss the problem. The cultures are divided by privilege and wealth. Create a genuine bridge.
    • Mark
    • San Francisco resident
    This is rather exclusionary approach. One of the reasons for the drastic inequality is that Ivy Leaguers et. al. have crowded out the local labor market. I say this as a UC-educated capitalist. I'm not arguing against knowledge or begrudging quality education. But the doors just are not open to the middle class.
    • Joe
    • San Francisco Resident
    There is an unmentioned question in this article, which is will these techies stay when the tech industry experiences a downturn or when venture capital stops its liberal funding of startups? Many of these young professionals moved here for work and would likely move right back if the tech industry stalls or if their startup funding becomes exhausted. Any policies put into place should consider the sustainability of what is occurring.
    • Eric B.
    • Software Engineer, 20+ year SF resident
    Having survived the last boom in the nineties, I can unequivocally say that this time it feels different; the cultural landscape of San Francisco feels like it's being completely gutted and replaced with moneyed privilege - as if it's an amusement park for the wealthy, with food taking the place of rides and any dissenting voices already displaced in the initial waves of this change. Some of us are trapped by the lack of affordability and the resentment simmering under the surface manifests in worrisome expressions of classism, racism, and worse.
    • Tom Nemeth
    Why is it that we seem to think that whoever got somewhere first is more worthy than someone who arrives later. It doesn't matter if the newcomer is a poor immigrant or a rich techie. People don't like change and they'll bemoan anyone who is different. The current idioms revolve around places losing their souls. When immigrants move in, the language is about a loss of historical perspective. Do we really expect, or even want anywhere to just stay like it is? How could that possibly happen anyway, as a given population ages along with the infrastructure?
    • Matthew Priest
    This article misses the core of the problem. Massive companies like Google, Apple, Facebook and eBay develop ever-larger campuses for tens of thousands (hundreds of thousands?) of employees in the suburbs. Those suburban cities are very anti-housing, so the untold thousands of employees cannot live anywhere near their work. Those suburban cities benefit hugely from the property taxes of the businesses, but provide minimal services to the employees in return: schools, libraries, hospitals, parks, police, and fire services are all the responsibility of other cities. In general, their employees are paid well and have a choice where to live (except nearby), and so San Francisco, historically the economic powerhouse of the West Coast, is becoming a bedroom community for Silicon Valley. The workers of San Francisco, many of whom are not paid as well as Valley tech workers, are displaced even farther to the East Bay and even the Central Valley.

    The first step of addressing the tech companies' negative pressure would be for them to build _at least_ one square meter of housing for every square meter of office space they operate in the same city as their offices.
    • Hap Burnham
    • Real Estate and Legal Professional, Several
    In my view the San Francisco situation is mis-described / mis-identified as a problem in need of solution. Welcome to the real world of people interacting with each other and the planet, whose most common characteristic since the beginning of time has been CHANGE. In that sense, San Francisco is no different than anywhere else. It is only a place with a population of people who constantly change. If housing costs are too high, people can move to places where housing is more affordable. Government "solutions" such as rent control, zoning and tax policies invariably don't work well to motivate desirable social behaviors. Allow the "invisible hand" of economic self-interest to provide such motivations.

    One of Harvard Business School's greatest strengths has been helping its students and graduates recognize, understand and cope well with CHANGE. Preventing change is impossible. Get over it. Don't worry. Be happy. ADAPT or move elsewhere (which itself is a form of adaptation)!
    • Alison
    • Anchor & Leap
    Very interesting read and questions you purpose. Thank you.