An interview with...

John Melville
Director, Collaborative Economics

Your organization recently published a report on the economic future of the Sacramento Valleys. What kind of prospects did you find for the Sacramento region when you wrote this report?

Well, first of all we found that the region itself has grown fairly significantly in the order of 20% from 1990 to 2000. It was a growth that involved a number of innovative economic opportunities across the valley -- from agriculture to electronics to software to medical devices, scientific and health products. The real opportunity for the region is to shape its economic growth. The region will grow in the future. All signs point to that; all the external forces point to that. The question is what kind of growth, and to what end?

In your report you looked at four distinct regions. Could you sort of outline those for me?

As we look at the regions and we look at the data, it seems that there were four regional economies that were fairly distinct. There were many similarities within those regions, without a doubt, but there seemed to be four distinctive economies. From the Sacramento metropolitan area; to the North Valley, which is Shasta County and centered in Redding; to the mid-valley, which includes Butte County and Chico with Chico being the core of that; and the agricultural heartland, which is a number of counties and parts of counties in the core of the Valley. That really has a similar economic identity. We saw that as a way to organize data, and to look at the opportunities across those regions.

How do you meld that diversity into a viable economy?

Well, each of these regions is a viable economy, and it's really a focus on, what we can do in the future? Where can we go with what we see as some of the exciting new opportunities that have developed in the past decade? Do we enhance those opportunities? Do we continue to grow in those high-value areas? Or do we ignore them and run the risk of having them go elsewhere? I think that is really the focus of this report: one of opportunities and how to take advantage of them.

Let's talk a bit about what it takes to succeed in an economy like the Sacramento Valley.

I think not only the Sacramento Valley, but all economies and regions need to think about what kind of opportunities they have before them. One of the things we lay out and talk about in the report is needing to think about how to broaden the economy, so you look at other sectors. If you're too narrowly dependant on either one or two sectors that puts you at risk. But that's not enough; you can have a fairly diverse economy that is a low quality economy. And so you need to think about increasing the quality -- the quality of the jobs, the quality of the companies -- and continue to move up the quality chain in your economy. Even that is not enough because a lot of people are focusing on those variables as well. A third thing you need to be thinking about is how to deepen the distinctiveness of your economy. All of these economies that we looked at, these regional economies within the Valley had distinctive areas where they had developed a top capability. We have to look at those and deepen our ability to compete. Because when you're competing in a world marketplace, you need to be able to be distinctive in a profound way. So broadening the diversity, deepening the distinctiveness, increasing the quality, those are the objectives in economic development in this day and age. How to do that? Leadership must play a very strong role in putting those pieces together. I don't mean just the elected leadership -- the business leadership, a really wide, diverse group of leaders from business, the community and education, and the public sector is really required to focus the region on these types of opportunities. Many of the opportunities will come to this region naturally. You don't necessarily need to work hard for the opportunities to sell yourself as the low cost producer, to offer cheap land. This is a low cost area, so there will be opportunities that gravitate. What do you do when you're trying to enact a proactive strategy? You shoot high, and you shoot in a direction where you can really improve the economy, the diversity, the distinctiveness, in the way that will provide opportunities for people to improve their standard of living.

With that in mind, this has got to be one of the most diverse areas in terms of population. Given the various ethnic groups, and the expected influx of immigrants both internationally and regionally, from California and out of state, what does that do to an economy in terms of the future of education and jobs?

I think the prospect of future growth in this region presents a challenge, and that is to ensure that there are quality jobs waiting for people who come to this region -- but not leave behind the people who live there now. To develop a strategy that will provide opportunities for the people living here, their offspring, as well as people from the outside. People from the outside will have new ideas, they'll have new skills. If this works out right it will provide innovation and excitement to the region. But it can't be seen as a zero sum game where the people coming in are taking away jobs from the people that live here. There must be a way to find a strategy that will bring in additional talent but also prepare people locally for opportunities.

Define for me if you could the differences between the Sacramento Valley and the San Joaquin Valley in terms of economy.

I think both have different specialties. There are certainly similarities because of the agricultural base. They're economies that have developed differently. Let's take the North Valley economy -- Shasta, Redding, the growth of healthcare, and scientific and health products, which is very different than Fresno, which although it has a very strong agricultural base, it has developed a precision irrigation technology cluster and in a way that is great. If you look at them top to bottom, Sacramento Valley and San Joaquin Valley, there's an enormous amount of economic diversity -- which is a good thing. There is also an enormous amount of distinctive specializations up and down the Valley; that is a good thing. The challenge is to continue to grow and to keep developing high quality opportunities in the economy. So you have these exciting possibilities -- what are you going to do with them?

I've heard that there's a lack of capital, finding people to invest in these new economies. What are your thoughts on that?

Well, a couple of things. First of all, good ideas often find capital, and to be well networked into sources of capital wherever they are globally is good thing. So the more communities are integrated into the global economy versus isolated from it, the greater the possibility for access to capital. That's the positive side of it. In addition, what we have found in a lot of regions is that there's a lot of capital presiding in the regions that could be personal wealth, or other sources of capital, that could be brought into exciting economic opportunities but often is not. So a case has to be made to those who are funding locally, and I think one of the breakthroughs interestingly has been in the Sacramento metropolitan area. They have made a lot of progress in finding investors -- a very different situation than 10 years ago. There are a number of investors that are looking for homegrown opportunities in technology and software and other types of businesses in the Sacramento metropolitan area; didn't necessarily have to go to Silicon Valley to find the venture capital. But "angel investors" can be found in any community. The question is: are there ways to get the people with the ideas together with the people with the money?

Spell out for me your view of building up Highway 99 to accommodate growth for the cities up and down the strip?

We have here in Highway 99 a major thoroughfare that should be the main street of the San Joaquin Valley, but instead we treat it like a back alley of the San Joaquin Valley. When they brought in potential clients and employees for the Valley, and they would drive them down 99, the image they got of the Valley was of a backward place, one that didn't care about how it looked. It didn't really project the innovative, exciting, historic place to live, and there was a lot of frustration. That has translated into an emerging focus on improving not only the look of Highway 99 but also the economy that goes along 99. An innovative economy, an image that really puts the best foot forward of the region that says that this really is an exciting place. We have exciting economic opportunities here. We are a part of this new economic environment, and we're open for business. And "Oh, by the way," this is a region with a lot of history and culture and we're proud of it and we're going to showcase it. Highway 99 is a vehicle for that. It happens to run through all the major communities. That's the history of the region. For efficiency purposes Highway 5 was built, but Highway 99 remains as that historic cultural icon, and now looking into the future it maybe becomes the image of the next economy, the next valley to come.

I know it goes deeper than that; in some respects, it's aesthetics.

Its aesthetics; it's the image you want to project and I think the core of the objection of these business people is that this is not reflective of who we are today. It is an outmoded image. It is not about PR; this is not about being something you're not. It's about us becoming something different. Our economy -- look at the numbers, and there are some exciting economic opportunities developing in the San Joaquin Valley, and our major thoroughfare doesn't show that image at all. So it becomes a metaphor for the whole Central Valley to say, "We need to be projecting more of what we are becoming, rather than some sort of image that we're either not anymore, or are moving away from." That's at the core of it. That's why there has been so much passion about the redevelopment, the reunification, the focus on Highway 99 as a symbol of what this valley has become. And also to be honest with you, a very good sign that leaders in the Valley don't want to accept a static image of what they are, but rather a dynamic image that can continue to change and also reflect a cultural, historical image that's important to people in the region -- and is an important calling card to people about quality of life for people that may come in the future.

Do you think it's a matter of having an image thrust upon the Valley? Everybody sees it as the breadbasket, the produce basket of the world. It's almost as if they have to live up to that, and it doesn't give people an opportunity to think of the region any other way.

I think that's true. Without a doubt, they are the world's top agricultural region and if that is to be maintained, it requires investment and certain way of life -- economic as well as social. What we found was that there were a number of activities, perhaps partially driven by the agricultural success of the Valley -- but it goes beyond that. A good example is the number of companies working in precision water flow technology. This obviously comes out of the strong need for water flow technology in agriculture; for irrigation, and water conservation. But obviously there are many other applications for water conservation technology. There are a number of parts of the world going through droughts right now that require this type of technology and this kind of expertise. The mistake is to look at the capabilities of the Valley narrowly, rather than saying, "There are other ways of applying what we're good at -- what we've become the best in the world at -- to other needs across the global economy." And that's part of the opportunity -- or taking advantage of new opportunities like e-commerce -- to be a staging area for major urban areas in California for e-commerce deliveries. So now you're talking about a logistics capability versus simply a warehouse and distribution capability, or as opposed to a call center capability. You're talking about the 1-800 capital of the United States perhaps for customer service, with sophisticated customer service as being the focal point. So there are these kinds of opportunities that have been produced in the Valley that may have broader applications or more sophisticated applications than otherwise we thought. It really requires taking a closer look and seeing what kinds of opportunities you have.

Many of the figures I've read indicate that, even though the incomes of people are increasing, there's still a divergent poverty pocket which is a problem -- specifically in the San Joaquin Valley. How do we remedy that? Is it a matter of education or job training?

I think that to participate in economic opportunity, the reality is new skills and knowledge are required, and the ability to acquire that on an ongoing basis, in a career progression. I think that's the reality of the situation. Certainly there are other barriers to participating in economic opportunity. But if we bridge those kinds of gaps, we need to make sure all people have a chance to participate in these growing areas. Now, we would not even talk about this if this weren't a region that did not have barriers of economic opportunities. If this wasn't a region that was creating these opportunities, it would be a much more difficult situation. But it is beginning to create those opportunities. What we're not doing is doing a very good job in preparing people to participate in those opportunities. It's not easy to do, and they're just emerging opportunities. A lot of times it's very difficult especially for educational institutions to know exactly how to make the new investments, and when to jump into the new training programs and all that. We need to be working more closely together -- education, industry, elected officials, etc. -- to be able to sense earlier when these opportunities are happening; to be able to move people into some of these economic opportunities with skills, education, and support, and really fundamentally get them onto a path to a higher standard of living. And that's the challenge. Can it get done? Can it get done across all those regions? I think the jury is out on that, but I think that's the pathway of opportunity for people in the Valley.

In anticipation of the new University of California campus, you see all kinds of growth and development in the downtown area. Do you think an institution like UC is enough to sustain a new growth for an area?

I don't think that any single institution or firm is going to carry the load here. What can happen is that new institutions like UC Merced can be a tremendous catalyst. But a lot other things have to happen. A lot of working relationships with industry, depending on what the institution is going to be. It can't be just about the city of Merced; it has to be a regional catalyst. All those kinds of things; I know in the planning they are trying to address all those possibilities, that kind of an institution can be a broader catalyst. What I think this kind of institution does represent, and what a number of the opportunities laid out here represent, is the following: that in the future, both the San Joaquin Valley and Sacramento Valley will draw more of its wealth from its human resources as opposed to its natural resources. Natural resources will continue to be a very important part of the economic well-being of this region. But increasingly, and we see it in the data, these regions are diversifying, they are becoming distinctive. These economies are becoming of higher quality and that depends on the quality of the human resources. And that will become more and more necessary for success in the future.

In your report you published a chart on the progress of change; could you go over that for us?

I think that in the Sacramento Valley, there's a change underway in those areas I've talked about: distinctiveness, diversity, quality, and leadership. The Valley has moved away from a situation in terms of distinctiveness, where there's really been an emphasis on its role as a low cost location. And that made sense in an earlier era. Now it's transforming into a "lower cost" area that's able to support high quality specializations. So the area is still a cost advantage, but really the emphasis is on the high quality specialties. In terms of diversity, we had a lot of dependence on natural resources and government in this region. That's changed, there's more of a diverse portfolio of companies based not only on natural resources, but human resources. In terms of quality, the region is dependant on its quality of natural environment. Now, not only with a quality natural environment, but we've got a growing number economic choices and lifestyles. People don't come to the region simply for the quality environment. They will -- and it's clearly an important asset. But they come because they can do interesting work, and they can live different kinds of lifestyles. So there has been a draw there, and that's been important shift. I think the final shift is in terms of leadership. I think initially a leadership arose to diversify and reach out and attract companies, and diversify what was a very narrowly based economy. That was the right thing to do based on the circumstances. Today though, it's become more of a focus -- not only the external focus of attracting companies, but also the internal focus to encourage homegrown enterprises, entrepreneurship. It's not either/or; its both, so that's a shift that's underway. So we see these shifts in those areas, and it's something that's underway and you see examples of it across the region.

Can you tell me perhaps what industries would be more open to entrepreneurial activity? I know the high tech area in Sacramento and Placer Counties has a lot of entrepreneurial activity. Are there any others you can think of in terms of industry types?

In terms of entrepreneurship and new enterprises and innovation, it's really important to understand that isn't just about high tech. This is about improving technological innovation across a number of sectors. So entrepreneurship, innovation -- absolutely. In health care, in tourism, in areas we don't necessarily associate with that. There needs to be innovation across the whole spectrum. And that's what we talk about here. Let me say it again: I think it's an important point to say, because many take a look at it and say, "Its all about high tech." It isn't. Entrepreneurship is not just about high tech. It is about innovation across all industries. In terms of products and processes, that's what the new economy is all about. It is about that level of innovation and no one is excluded from that. It also means everyone can participate and with the right set of strategies, the new economy, entrepreneurship requires growing numbers of people with the skills and knowledge to compete. There's a great opportunity to add to the equation.

If the powers that be follow the guidance you've given in your report, what do you see for the Valley in say 2020 or 2030?

I think we would see a regional economy, or sub-regional economies, that would have -- over a period of time -- broadened their diversity, deepened their distinctiveness, and improved their quality such that you would see clusters of innovative entrepreneurial companies thriving across the geography, across jurisdictions. You would have an image to match. It would be a region where the economy and the quality of life are compatible, and even reinforcing. And it would be a region where you would see that people participate in economic activities. It would be a normal level of participation. The standard of living, broadly shared would be rising.

How much time do you think the Valley has in terms of developing this new mindset before it goes into meltdown?

Well, the people keep coming, so the Valley needs to get about the business of determining its own destiny. And people will keep coming. The choice before the Valley is to find a way to take the high road and look at its distinctiveness, diversity, and quality and make choices about the kind of economy it wants to have -- rather than letting forces just have their way. I can't sit here and tell you what it will look like but what I can say is that there is an opportunity to choose the Valley's destiny. And it will be up to leadership and the people of the Valley to actually do that.

And how does this translate into approaches for the four regions you mentioned?

I think it's important to understand that for each of the regions of the Sacramento Valley, none of them has to follow the pattern of someone else's success. There doesn't need to be a cookie cutter approach here. Each of these regions can define their destiny, on their own terms, can pursue a strategy of deepening the diversity, broadening the distinctiveness, increasing the quality of their economy, compatible with their own unique quality of life. That's the opportunity of this new economic environment we're in. You can determine how you put the pieces together. Everybody will look differently, and there's room for everybody to succeed.

Presentation also made possible by a grant from
the Great Valley Center