I watched on the news tonight how people who have lived in San Francisco for decades are being evicted from their homes by landlords eager to cash in on the rich rents they can charge to incoming techie types on large salaries from the tech giants.
The news program showed the hippie generation blockading the luxury buses taking people to work at Google. Google pays well to get high quality intellect. There is nothing wrong with that. Those employees have lots of cash but they still need accommodation, so the poor are kicked out of their rented accommodation because they can no longer afford the rents. So it finds itself at war with the longer term residents who made the city what it is, the reason Google wants to be there.
A simple question sums up the whole problem. Who owns San Francisco? Answering that isn’t simple and leads directly to how we must change capitalism if it is to survive, and since we must, we eventually will. The gentle protests of the weak and disenfranchised in San Francisco will once again put that hippy generation at the front line of change.
I am no expert on San Francisco. I went to Menlo Park once to give a talk, then left, spending less than a day there in total. I’ve seen it many times on TV and the media of course. It is famed for the hippies, Alcatraz, being a gay hub, being the focus of west coast IT development, and a few movies. Some other things happen there, but these are the things it is mainly known for.
A city is lots of things. It is the land, with some buildings and infrastructure on top, and some resources below. Some is owned collectively, some by individuals or companies. Those are very important, but they are only a fraction of what a city is. It is also the people - the activities that go on there, the culture, the customs, the ideologies, the intellectual activities, the business, the entertainment, and it is also a brand – when someone thinks of San Francisco, a bunch of associations appears in their minds, just like any commercial brand, making it very different from London or New York or LA. It is also the geography – the location, the climate, the risks of quakes. And it is also the history, the accumulated associations over decades.
When a property developer buys a building somewhere, they may add to its physical value by renovating it, decorating it, extending it, or adding some nice furnishing. But any property developer has a choice of where to buy, and chooses an area they think will increase in value. The increase in value comes from all the other intangibles I just mentioned, (mostly what economists call social capital, but I don’t like using jargon where ordinary words do perfectly well) so the underlying question is: why should all the value increase go to the developer. In essence they are getting all the efforts and talents of everyone else, all the magnetism they create, for free. Why? Why should they get it all? Why should the person living in the flat not get it? It is they who are the magnet. You can get a flat anywhere. The reason you want that one is because of where it is. Does that value-add not belong to everyone who made that place the place to be?
Look at it another way. Suppose it’s the 1960s. You are a hippie and you want to go where it is happening. Suppose all the hippies had a flash of insight and realised what would happen 50 years later. Suppose they all decided to build their own town next door. Suppose they decided that capital isn’t everything, and decreed that the value of each property there would be split. Part would be the physical property and that would increase in value at the construction industry inflation rate. The other part of the property value would be the cultural value, and that would increase to whatever the market stands. The property developer would get a fair ongoing rent for that class of property. The community would get the remuneration for the value they have added. Each year a market valuation would show how much property has increased in value, how much value of new business has been generated because of the local atmosphere. The people who lived there the last year would get a share of that. A hippie moving into the area wouldn’t go to San Francisco, that sterile could-be-anywhere town with no culture. They’d go to the really cool trendy town next door where everyone wants to be and property costs a fortune. But as they live there, as they contribute to the area’s atmosphere, so they too get a ‘citizen wage’, their share of the value add. That offsets the rent they pay the next year.
If they did that, the rewards would go to those who create them. Isn’t that the way it should be? Why should someone get all the rewards just because they provided some cash up front, but perhaps did nothing more to contribute? Why should the property owner also be the assumed owner of the value the community has added to the area? Why is capital more important than investment of time, energy, emotion, and love?
The hippies didn’t do that, neither did the gay community. Now the enormous value they all added to San Francisco is all going to the property developers, 100% of it, even though all they did was own the flats. In gratitude, they are now evicting those contributors to make way for others whose sole advantage is having more cash to offer. That is capitalism. Well, if that is so, capitalism needs to change.
We are watching economics evolve worldwide. In most developed countries, automation is concentrating wealth with the company owners. Buy 100 machines and employ no staff, keep all the proceeds to yourself, and get rich. It looks very different, but actually it is the same. The provision of the capital is assumed to be the only part that matters. The access to a market, the development of all the infrastructure, the culture in which the product will be used, the political stability, the banking system, the accumulated human knowledge that went into every aspect of the product, every other aspect of the modern world that makes the product possible, and makes it possible to sell – all of that is assumed to be of no value and receives none of the proceeds other than the same tax rate that a company would pay if it contributed heavily to culture and society and employed thousands of employees. If it were given an agreed value, that could become a part ownership of the company, proceeds allocated to the capital providers and the silent partner culture capital provider.
Capitalism worked well when the immaturity of technology meant that about half of the wealth generated went to employees and half to the owner. You could get very rich, but others still had enough income to buy your products, and it all kept working. If we automated every job and a few people own all the machines, nobody else could afford to buy and capitalism would grind quickly to a halt. We aren’t there yet, but somewhere like that is the ultimate destination if we don’t start adjusting it. Even those wealthy young programmers could be automated by an advanced AI.
So we need to adjust capitalism. Working out some way of valuing the entire cultural contribution of a society or region so it can stand side by side with the provision of capital would be a good start. Then some sort of culture tax can distribute wealth between the factory owners and those who own the culture in which it exists, i.e. all of us.
Capitalism is a good idea, one that has served America and the free world very well. It doesn’t need thrown away, just adjusted a bit. We need to look at it afresh and realize that capitalism isn’t the same as materialism. Just because something isn’t physical doesn’t mean it has no value. Surely we already understand that with all the media we consume? All we need to do is extend that understanding a bit further, to the other intangibles. Everyone contributes to the character of a city, from the mayor down to the bum on the street with a begging bowl.
So looking at San Francisco and the bus demos, it seems that the nouveau riche of the internet generation are only rich because of the inability of capitalism itself to keep up. Google is only wealthy because the rest of the market is slower to evolve, even most of the IT industry. They can only make money at all because the internet hasn’t evolved fast enough and much of the original dream is yet to be realized. It it had kept up, the perfect market would have no need for ads and they’d have little income.
San Francisco beautifully illustrates the clash of the permanent and the transient, the old and the new, the material and the emotional. Its done it a few times before, and it may again now.
If Gibbon were alive today, he wouldn’t be writing about the rise and fall of the Roman Empire. He’d be writing about San Francisco and the decline and fall of overly simplistic capitalism. I’m no Gibbon, but I hope I managed to explain my point.