Blue States are the epicenter of American capital investment and economic growth in the new economy. Republicans are supposed to the be the party of “big business” and commerce. Yet almost all new venture capital investment happens in Democratic-controlled regions. Only one city in a Red State, Austin, makes an appearance as a target of meaningful investment. And it is the most solidly Democratic stronghold in the South.
The unemployment rates in super-blue cities like Boston, Seattle, and San Francisco are lower than in Dallas or Houston and almost half the rate in Atlanta. Since the recession, California has absolutely swamped every other state in terms of overall job creation. The Bay Area is now the country’s undisputed wealth engine. Florida, Texas, and Arizona may be attractive places for the wealthy to retreat with the money they’ve earned, but if you want to get rich in our era you need to go to a blue city like Boston, New York, Seattle, or San Francisco.
So why are Blue States losing population in relative terms? Why does population growth in booming economies like San Francisco and New York lag behind poorer cities like Atlanta, Miami and Houston despite their economic vitality?
One explanation has to do with the fundamentally unequal shape of the knowledge economy. The rewards of success in Seattle or San Francisco are enormous, but it costs a lot just to get a seat at the table. And the industries generating this wealth are not like industrial age businesses. They need a few smart people with expensive, advanced educations, not hundreds of thousands of men wielding shovels or picks. That is a subject for another day.
What also burdens these places, especially the older Blue State cities of the North and East, is a heritage of ‘clientelism.’ To call it corruption is too simple an explanation.America’s big blue cities have inherited a culture in which incumbent industries and capital owners leverage a dense network of preferential regulation as a barrier to new competition.
This heritage may help explain why San Francisco is starting to displace New York as the global hub of capitalism despite its weaker access to the finance industry. It may also explain these blue cities on the West Coast are generally outperforming their peers in the Northeast. San Francisco is a relatively new city, with younger institutions that have less connection to 19th century clientelism.
Here’s a great explanation of clientelism, as defined by Princeton professor Francis Fukuyama, and digested at the fogbanking blog:
In this case we need to step back to “why corruption is bad”: it distorts economic outcomes in a way that we generally agree is not helpful, and it damages legitimacy of the government.
Fukuyama identifies two activities generally confused with corruption but are “not identical” to it: rent-seeking and “clientelism” (or “patronage”).
Rent Seeking: a rent is “the difference between the cost of keeping a good/service in production and its price.” Rents are driven by scarcity. Land in Manhattan is high in demand and low in supply, so rents there are high. Taxi licenses in New York are artificially low and thus pretty expensive, too. [All regulatory functions the government performs create artificial scarcities of some kind, so Fukuyama is careful not to indict all rents on principle or anything like that.]
Clientelism: Patronage is the reciprocal relationship of favors between a patron and client. Clientelism, to Fukuyama, is large-scale patronage, often involving a hierarchy of intermediaries. While usually considered a deviation from “best democratic practice”, Fukuyama considers clientelism to be at least a somewhat accountable (and, considering the natural pattern of human sociability, an incredibly common) situation. The setbacks to clientelism: a lower quality of government through nepotism instead of a more meritocratic bureaucratic model; strengthening the existing selectorate and dampens broader democratic accountability. Fukuyama suggests that poor citizens are cheaper to ‘buy’ than rich citizens, and therefore as countries become wealthier, the cost for clientelism spikes.
“The patronage-dispensing Big Man and his followers has never been fully displaced as a form of political organization up through the present.”
This blog seldom ventures into issues affecting the Democratic Party. Your fair author has little interest in matters over there. However, we are about to experience a generation of Democratic ascendance nationally and across most of the country. The single most vital issue that Democrats can address, the one that most defines the boundary between Clinton and Sanders Democrats, is the party’s approach to clientelism.
If the Republicans are at least by origin, The Party of Lincoln, then Democrats are the Party of Clientelism. There are benefits to this structure, as demonstrated by the ability of a competent politician like Hillary Clinton to resist The Politics of Crazy and defeat a political gadlfy like Sanders. There are also costs, like the way a patronage engine has successfully stunted the kind of political policies that a solid majority of Democratic voters wish to see.
Just dropping a thought on a quiet weekend, where perhaps it will send out tendrils.