Google Doesn’t Owe Us Anything
Misguided Interpretations of Entitlement and Externalities in San Francisco
I was flipping through my Facebook news feed today, and I ran into this article on the San Francisco Chronicle. It’s a report that Google brokered a deal with San Francisco Mayor Ed Lee to donate $6.8 million to fund free MUNI transportation for low- and middle-income youth for two years. This news comes amid growing tension among San Francisco residents about Google and other tech companies moving into the city, raising housing costs and putting pressure on gentrification. These are some comments on the article’s website:
gfunk69: “Let’s hope this is a realization that Google (and other tech companies) can’t just set up shop in the Bay Area, use its top talent, and not expect to shoulder some of the social costs that the resident population has to deal with.”
concerning: “It is like the fat lords throwing food scraps to the peasants to keep them content…”
San Francisco Supervisor David Campos also sounded off on these same sentiments: “This is a good first step, it’s a sign the community is being heard and, certainly, it’s appreciated, but there are still more discussions to be had around the future of free Muni for low- and middle-income youths and other issues around affordability.” And Campos added that he hopes that the gift won’t stop Muni from making the program permanent or from expanding it to include 18-year-olds.
What amazes me is how San Francisco residents act as if Google owes them something. Hate to break the news to people in my hometown: Google doesn’t owe you anything. [Cue anger]
I grew up in San Francisco and moved to Washington, DC for college. Since then, I’ve become distant from my hometown, but I check-in from time-to-time. I grew up in a working-class neighborhood. Being a second-class citizen in a wealthy city is rough, I understand.
Today, San Francisco residents are protesting the change that is occurring in the city, most notably higher property prices and gentrification. However, this change is not a recent phenomena and it’s not caused solely by the booming tech industry. This change has been in the process for a long time due to simple market factors.
Hate to break it to you San Francisco, but you’re tiny. 49 square miles is very small area of land. When land is scarce and demand for land is high, you get higher housing prices. It’s as simple as that. And yes, demand is stimulated partly due to the booming tech industry and good jobs, but also because San Francisco is such a beautiful city and baby boomers are seeking to retire in nice places. Moreover, rising home prices have been a staple of San Francisco, even before Google became a tech behemoth.
And I know, some of you are saying, “The fact that our city is beautiful and lovely to live in is beside the point. Google is imposing externalities on our city through driving gentrification, more traffic, and using public resources. And of course, to manage these externalities, Google must compensate us because we are the victims of its actions.” Externalities are indeed, by definition, social harm (or benefit) that is uncompensated. A clear example is pollution. But is gentrification really an externality of Google?
You, the residents of San Francisco, are well-educated. You should know the difference between causation and correlation. Now, please prove to me that Google is “causing” your hardship, and not simply correlated with a readjustment of housing prices after the 2008 financial crisis (again, recall that the intrinsic value of San Francisco property is very high).
On the gentrification argument, consider for a moment that gentrification is just another word for redevelopment. Property, like most forms of capital, depreciates over time. In order for the owner of that property to hold onto its value and ensure it doesn’t depreciate, the owner must maintain that property. There is no difference between whether the owner is a family, a landlord, or the government. Of course, when renovations are done to a property, the market value and the intrinsic value of that property rises. And from that, some renters must bear the cost of that renovation because they stand to benefit the most. Yes, some rents might rise too much for these renters, but that is something that renters and their landlords must negotiate between themselves to find the right balance between renovation and affordability. The government cannot determine what balance achieves the goals of both the renters and the landlords. From this perspective, I don’t see how Google plays a role here.
“Ok,” you say, “even if Google may not be causing the rise in housing prices and gentrification, it still has a social responsibility to the city because it is a commercial industry that uses the city and its resources for its own profit.” Yes, corporate social responsibility is very important, especially in settings where the corporation imposes an externality on an area. However, the fact that Google is present in San Francisco is not sufficient to argue that Google owes San Francisco or its residents anything. Its buses are providing transportation for its employees because (1) if they used MUNI or BART they would be late (let’s face it, MUNI sucks — why else would Google give it $6.8 million?), (2) public transportation is a common good that Google is not utilizing so other people can use it, and (3) Google wants to retain talent.
But let’s put it a different way: You walk into a butcher’s shop and ask for a pound of beef. The pound of beef is $15 and you pay for the beef. You are now the proud owner of a pound of beef and the butcher is the proud owner of $15. Does the butcher owe you anything else because he set up shop in the city that you live in? How about because he is using public services (the roads, the sidewalks, etc.)? Clearly not. Both you and the butcher walked away from the transaction fulfilling each one’s respective duties. The butcher doesn’t owe you anything else, and certainly not free public transportation.
Google gave us the search engine for free. Imagine trying to find your beloved cat videos without Google — it would be a nightmare. And Google’s service has raised our ability to search for and obtain information to unprecedented levels. Not to mention all the other free services that Google provides. But the reactions I’m getting from Google’s generous donations is, “Great, what other free stuff can Google give us?” It takes a serious sense of entitlement to carry such a mentality.
Allow me to digress for a moment. Even if Google was imposing an externality on San Francisco and its residents, would monetary compensation really be the best way to handle it? Those who are familiar with the externalities and the Coase theorem would say ‘yes’ because Google is the perpetrator and the people of San Francisco are its victims. That answer would be a misreading of Coase. Too many times, we look at externalities as a relationship between a perpetrator (Google) and a victim (San Francisco residents). Viewing externalities in this way yields a call for justice. But is justice really served if the San Francisco government says, “Google must give the city $6.8 million to fund our transportation system”? Doesn’t that then make Google the victim and the people the perpetrator? I’m not seeking to override our ideas about externalities, but we should be careful about personifying externalities as “perpetrator-victim” relationships. /end digression/
Finally, all of this talk about Google and San Francisco has got me thinking: Why is all this turmoil happening now? Why weren’t issues related to rising housing prices and gentrification raised when I was growing up in San Francisco? One reason is because housing prices are rising at a rate higher than the rate of income over the past nine years. Fluctuations in the housing market make it harder for people to plan, save, and spend their money efficiently. The other reason is because the median San Francisco resident is now affected by home prices rising at a higher rate than income levels; whereas in 2005, maybe the 30th percentile of residents had to deal with this issue. It’s just unfortunate that in spite of how talented and smart the people of San Francisco are, they must rely on scapegoats to explain fundamental problems.
Thomas Wong works at the Office of the Comptroller of the Currency and is a graduate student in economics at American University. He writes on public policy and economic issues.
