The Great Californian Tech Exodus
2021 has been an eventful year for big tech companies. The Covid19 crisis made their sales spike up amid lockdowns and the development of remote working due to mobility restrictions. This process of growth has been ongoing throughout the following months of the pandemic up until today. Despite that, many tech companies like Tesla or HP have been reevaluating their financial gains and have thus decided to move their headquarters from California to other states like Texas. This process has been coined “California’s Tech Exodus”, and these events have shaped the structural layout of the state’s economy.
The Californian economy has seen better days. The Bay Area has always been known for its hipster neighborhoods, sandy beaches, cool-ish weather and most recently, big tech companies, and the Southern region has always been known for its depiction of a multicultural, warm and sunny California dream lifestyle. However, certain factors are downsizing the sunny state’s performance and that has been seen in the utmost recent events like the supply chain crisis and, in the long run, the so-called tech exodus, which will be explained in this article.
What is Silicon Valley?
The Palo Alto region is an industrial area that lays on the Bay Area, right south of San Francisco. What once used to be a highly agricultural region due to its highly profitable weather and land conditions soon became a hub for most technological companies since the latter half of the 20th century that has seen an exponential growth with the arrival of the computer and the internet altogether, mainly thanks to institutions such as Harvard University, that pushed for the development of the region. The current core for American technology is an attractive hotspot for most headquarters of big tech companies.
Nevertheless, this explosive growth has been experiencing some sort of recoil in favor of other states that many argue are on their way to becoming what Silicon Valley used to be beforehand. A combination of fiscal disadvantages for the big corporations and harsh living conditions for the workers has made the Bear Flag State’s status as a telecom Mecca shudder.
What Societal Problems do Californians face?
As expected, with any major influx of wealthy individuals into an area where working class citizens used to reside, the intensive urban development and the aggressive capitalization of the soil and real estate cause massive gentrification, which puts the most unfavorable in a compromised financial situation due to the heightened costs of living this process entails. In the case of California, 5 of the 20 most gentrified cities in the US belong to the state, with San Francisco topping the list. This is no coincidence, as the Bay Area’s economy is highly reliant on tech companies, with information being the 4th biggest contributor to the Golden State’s industrial GDP.
Although this development has contributed to California’s demography, with a massive influx of young, educated individuals that have brought economic development to the state, this has caused a major setback to the ones who were living there before, with forced displacements and evictions taking place and, as a result, making California the state with the highest percentage of homelessness in the US with about 28% of the country’s homeless people residing in the state, 72% of which remaining unsheltered.
High rent is the main reason behind this homelessness crisis in California, and this is the reason why many Silicon Valley workers have moved out of the state to cheaper states with more livable standards, taking advantage of the development of remote working. Companies like Twitter or Square have implemented a permanent work from home policy for those willing to relocate to other areas away from the office, and this has been a leading factor in the output of white collar workers in the state.
This has slowed the state’s demographic growth and has contributed to other states’ like Texas or Arizona, where living standards are cheaper in comparison, though tendencies are starting to suggest that this massive displacement is leveraging the living standards, and some locals in the hosting states are starting to notice prices going up and the Californian gentrification problem just being transferred to other states rather than being worked upon.
What about the Tech Companies?
For as unfair as it may seem to many, people have very little action in this corporate-driven world, especially in very capitalist countries like the US, and it is mostly companies that have the word about where their development focus is. Even though some tech companies like Apple take great pride in being based in California- ask Siri where it was born and you will see what I mean-, some others do not seem as attached to their roots. Take Tesla for example: the Palo Alto based company decided to relocate to Austin, Texas in 2021 regardless of California being their number one customer source in the country. Even though the company does not plan to stop their operations in the state, it used to be unthinkable that a giant tech corporation like Tesla would even plan on moving out.
The reasons behind this relocation vary greatly, with taxes being the top one. With vaguer labor and fiscal regulations like Texas’ lack of personal income tax, business owners find it easier to broaden their surplus and increase their fortune. This is a phenomenon that is not unique to the United States, as the EU has its own version of these procedures with most regional headquarters located in countries with little to no taxes like Ireland or the Netherlands.
What many call tax dumping based on the unlawful practice where a company sells their products at an extremely cheap price in a foreign market to wreck their market competition, is something that federal political systems like the USA or the EU contribute to, since relocating to a place where taxes are cheaper is not unlawful unless it is legally considered a tax haven. This has sparked a lot of controversy, as wealth inequality grows in some areas in favor of billionaires, and many argue that nothing is being done to palliate the long-lasting effects of poverty among the general population.
Great uncertainty at the moment
Even though it is true that a considerable number of people and companies are outbound due to all the reasons stated above, most Californians seem reluctant to leave the state, with roughly about 23% of the state’s population seriously considering moving out. There are several lobbies and movements to boost the process of relocation, such as exitcalifornia.org, but that does not mean that for now, it is the leading trend.
Whether or not this Tech Exodus is as massive as some claim it to be is something only time will tell. For now, the future of the Gold Rush State remains uncertain and California continues to be the main reference for technological development in the United States of America.