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3-year Future: Tech Momentum Pushes Santa Cruz

By Bill Tysseling
Executive Director, Santa Cruz Chamber of Commerce

July 14, 2106 — Santa Cruz, CA

Do we still have the opportunity to define how we will be configured socially, economically, and politically within that frame work? We do today. But our window of opportunity is shrinking.

Tech companies in Silicon Valley – and presumably in Santa Cruz County as well – expect to increase their net workforce an average of 6% over the next three years with only 5% not expecting to grow according to a KPMG survey of tech CEOs.

While reflecting continuing positive economic news in the tech industries, there are some downsides for some tech company workers. The KPMG study also found that over the same three-year period machine learning and automation applications will replace at least 5 percent of current workers, principally those in sales, marketing, information technology, and manufacturing, in those same tech businesses.

For Santa Cruz County this is likely to have important implications for both the local tech industries and upon local strategic issues such as housing, transportation, and demand for industrial/commercial and office real estate. And, these forces will continue to have disproportionate influence on the overall character and vitality of our economy and our community.

Most immediately, this growth in employment suggests continuing pressure – further reducing housing availability and increasing both housing costs and travel times, especially on Highways 17 and 1. While there are some major housing projects in early stages of development in Santa Clara County (and in Santa Cruz) there is little likelihood that they will significantly increase housing supply in the next three years.

And, the only hope in the next three years for improving highway drive-times is a large defection of single-driver automobile commuters to ride-sharing or public transportation and/or a robust conversion of commuting workers to remote-worksite models.

Long-time local commuters remember the height of the dot-com era when the basic commute from Santa Cruz to the Valley was an hour and forty minutes, with the Bear Creek Road-Lexington Reservoir’s stop-and-go queue started at the top of the mountain.

The net growth of employment also suggests increased competition for talented workers. Local tech companies will have to compete in an increasing-wage spectrum to remain competitive for skilled employees. On the other hand, for the significant number of local “creative-class” workers who work independently, the opportunities for contracting, collaborations, and remote work seem likely to increase significantly.

For commercial and office property owners there is likely to be increasing demand for vacant space; the recent opening of Amazon offices in downtown Santa Cruz, taking over a floor of the Cooper House, leave few large Class A office suites available. As our already limited supply of available commercial property is let, rents are likely to increase and terms likely to tilt in favor of lessors.

Since 1989, when many of the older commercial buildings in Santa Cruz County were destroyed in the Loma Prieta earthquake, new businesses and entrepreneurs have suffered from a shortage of older, less expensive commercial and office properties. As rents go up and terms become less favorable to lessees it becomes even more expensive for start-up businesses to get a foothold.

This seems likely to again stimulate conversations about the creation of local business incubation space, especially for enterprises that require a commercial or light industrial space that would accommodate fixtures and equipment such as wet labs and “makers” tools.

The big local winner seems likely to be Looker. In recognizing both the forces that are stimulating both the overall employment growth and the significant reduction in employees working in sales, marketing, information technology, and manufacturing, KPMG specifically identifies new “big-data” analysis resources that are Looker’s meat-and-potatoes. The study finds that companies are transforming their capacity to understand market and sales processes by investing in “data analysis capability, implementing cognitive computing and artificial intelligence, and [maintaining] continuous focus on measuring and analyzing the customer experience.”

However, the impact of these technology tools is certain to have a negative impact on workers dedicated to sales, marketing, technology, and manufacturing. KPMG projected the average reduction of workforce in each of these areas to be about 25% of current levels.

What could go wrong?

KPMG asked the same executives what they feared most. Their answers were instructive, not only for tech industry executives but for other industry segments as well. Their most frequent anxieties:

  • The relevance of current products. 93% of the respondents were concerned that their current products would no longer be competitive in three years. Most tech products have a relatively short life expectancy. That executives are anxious about their comptetiveness suggests a new level of disruptive change. For the rest of us, their efforts to create tech automation alternatives to existing marketing and sales processes should be a concern for the rest of us.
  • The impact of global forces. 90% of the CEOs said that they were anxious about the impacts of global economic, political, and social forces on their companies. From Brexit and China’s debt problems to wars in the Middle East and Africa to the ineffectiveness of Congress… the list of things that could go very wrong continues to be a fogbank hovering just off of our shores.
  • The needs and wants of Millennials. 88% saw current market preferences and trends changing as millennials mature. The pessimism… even, despair… of millennials is understandable. Burdensome college debt, a lost five years of employment opportunities between 2007 and 2012, the shrinking of the middle class, and the growing disparity between low-income and high-income drive all sorts of decisions with significant economic impacts such as a delay in forming families, deferring the purchase of homes and durable goods, and limiting engagement in political processes.
  • Remaining “ahead of the curve.” 82% were concerned that their companies would not succeed at staying on top of “what’s next.” The single most consistent trend in surveys of Americans seems to be anxiety about the future. There have certainly been more hopeless times in our history (e.g., the Great Depression, the first years of World War II). What we face today is a growing economy and an unquestioned leadership in the economic world. It is the “what’s next” question that keeps business leaders up most nights. (That 18% of KPMG’s respondents were not anxious about staying ahead of the curve seems to beg the question, are these business leaders egocentric, pessimistic, or self-delusional.)

What is the “take home” from all of this for the local economic community?

We pick three things:

  1. As a community, public-sector and private, we need to create strategies that respond to opportunities and risks sooner rather than later. There is great risk in waiting to react to change in this environment. To thrive as an economic community we must be aggressive and proactive. Public issues regarding infrastructure, public employment and pensions, inter-jurisdictional collaboration and efficiency all need immediate attention. Private investment in housing and commercial real estate, the support and encouragement of entrepreneurs and new businesses, and new investments in business infrastructure and employees are both great local opportunities and key elements for future success.
  2. The differentiation between the income potential of skilled work and unskilled work is increasing rapidly. This makes workforce development – constant training and retraining – the centerpiece of a successful community, especially in the technology-centric environment in which we live. K-12 education is the starting point but skills improvement and workforce retraining are critical elements to sustaining an economic base. The risks of having capable workers, once equipped with necessary skills, unable to provide competitive-quality labor in a changing economic base has daunting consequences, both economic and social, for our communities.
  3. The probability of Santa Cruz being defined by Silicon Valley continues to increase. The cost of housing alone is likely to significantly change our demographics over the next decade. We must decide if we want to be predominantly a retirement, second-home, out-commuter, visitor serving economy or if we want to retain a vital economically-independent and self-sustaining economy. If the later (and we at the Chamber continue to believe this would be the choice of a substantial majority of Santa Cruz County residents) we must act now to develop regional plans equitably sharing the responsibilities and burdens of change. We must realign land use policy (especially regarding housing density), reduce other infrastructure constraints, and address sustainability issues.

Do we still have the opportunity to define how we will be configured socially, economically, and politically within that frame work? We do today. But our window of opportunity is shrinking.

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This article was originally published here: http://www.santacruzchamber.org/CWT/EXTERNAL/WCPAGES/WCNEWS/NEWSARTICLEDISPLAY.ASPX?ArticleID=1429

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