Confidential report: Oakland fumbled economic opportunities

BYLINE: Ryan Tate

A confidential McKinsey & Co. report on Oakland calls on city leaders to reclaim opportunities they have squandered in biotech, health care, trade and retail.

The 127-page report, commissioned by the Oakland Metropolitan Chamber of Commerce in apparent coordination with the mayor's office and obtained by the San Francisco Business Times, makes detailed recommendations that tend to emphasize closer collaboration between Oakland community colleges and private industry, special government outreach to targeted industries and more comprehensive planning of both land use and economic development.

The "strictly confidential draft" of the report dated April 4 is direct in its criticism of the city's performance over the past decade.

Biotech blunders, health-care headaches

On the topic of biotech, for example, it clearly states that neighboring San Francisco "has already beaten Oakland by building out the Mission Bay area" to provide a large swath of targeted real estate. The city "lost out" in the late 1990s by not rolling the dice on building biotech space, the report said. Now the city has just four biotech firms.

"In the 1990s, while ... Oakland's near neighbors were welcoming biotechnology, Oakland did not capture any of this burgeoning investment," the report stated. "In short, the city lacked the disciplined approach and leadership to persuasively engage with key firms."

Oakland is also shown to be behind in health care. The report said the city's health care sector that "has barely grown" as a share of the city's economy, increasing just 0.1 percent over five years, despite rapid health care growth nationally. Though not noted in the report, this slow growth is also remarkable because fast-growing health giant Kaiser is based in Oakland.

The city has not nurtured an academic health center and is not pushing enough community college students into health care, with just 5 percent of area college students enrolled in the field versus 8 percent in the Bay Area generally, and enrollment growth lagging as well.

The report bluntly stated of health care: "Here is a job engine. Seize it."

Trade and the port

The city's port also has problems, according to the report, having "not grown commensurately with the sector" and having shrunk its work force 3 percent over five years. One section header states outright, "the port is underperforming."

Oakland's maritime port, ranked fourth nationally, grew container traffic a compounded annual 5.1 percent over six years, compared with 8.2 percent for the top 10 ports in North America. It has spare capacity while many ports, including Los Angeles/Long Beach and Virginia, are at full capacity and in some cases extending operating hours. The city is also not anticipated to capture its fair share of future growth, despite a location ideal for Asian trade, the report stated, citing U.S. Department of Transportation figures.

Oakland's port troubles arise largely due to an overreliance on trucks and too little rail, which carries 35 percent of incoming volume. This results in slowdowns and higher costs getting goods away from the port. Though the port is trying to secure funding for another rail terminal, the report urged it to go further, stating the upgrade will bring the rail total up to 50 percent of future traffic.

Retail issues

Turning to another sector, retail, the report includes blunt interviews with retail executives, including one who said "Emeryville wanted the large retailers and worked with them to come." The city lacked the leadership needed to encourage and develop retail, several retail leaders said.

The report also notes that crime is a major barrier to retail success.

Income has grown in the Oakland area twice as fast as on the San Francisco side of the bay in 2000-2005 but retail remains "an underrepresented sector in Oakland's economy," the report stated.

Solutions

The McKinsey study provides a series of fairly specific solutions to the problems it identified, both short term and long term.

The solutions tend to emphasize partnerships between government and industry as well as a general call, implied but never specifically stated, for city leaders to simply pay more attention to the concerns of various industries.

Biotechnology

For biotech, the report said the city should use zoning powers to encourage more biotech offices, both for simple administration and research, including the conversion of existing buildings in the short term and construction of new sites, eventually in a cluster, for the long term.

The city should also invite biotech companies to help develop special programs at its community colleges, as Genentech has done in San Mateo County, McKinsey said. The colleges should also coordinate and develop programs with major universities like the University of California, Berkeley, and UCSF. Students should be encouraged to go into biotech training.

Finally, the city should hire a biotech liaison to recruit biotech companies to the city, including work with the technology transfer offices at UC Berkeley and Stanford University.

Health care

To grow its health care sector, Oakland should likewise bring in health care and biotech companies and major local universities to develop college programs, and encourage more students to enroll.

But it also needs to cut red tape for local hospitals that are scrambling to build new facilities due to state seismic safety deadlines. The report said the city will likely lose Children's Hospital Oakland as a result of the rules, the report said.

Local poverty is also a major barrier to attracting health care companies to Oakland, McKinsey said, because uninsured residents are costly to local hospitals. The report never advocates a universal health care plan, as Mayor Ron Dellums has advocated, but spends significant time highlighting facts that would make such a policy seem more logical.

"Poverty worsens health-care outcomes when the uninsured forego care because of its expense," the report stated. "Across the nation, the percentage of uninsured among middle (class) groups is increasing ... and it is increasing faster in Oakland."

The port

The report calls for even more rail construction than the port is already undertaking, including intermodal terminals, more track and higher tunnels that would allow container stacking. It also calls for more environmental efforts, like cleaner air standards for the port.

The port should also adopt technology like special radio tags tied to satellite positioning systems, upgraded routing software for both trucks and planes and real estate development at the airport of perhaps offices, shopping and distribution facilities.

For trade, the report recommends reconsideration of a World Trade Showcase Center, a business liaison and dealmaking facility whose proposal to take over the old Kaiser Convention Center was rejected by the City Council last year. The report even advocates more Chinese language instruction in Oakland schools.

Retail

For retail, Oakland should focus on one or two locations downtown along Broadway and funnel redevelopment money, political support and improved public infrastructure amenities to those sites. It should also court "progressive retailers," with Target and Cost Plus cited as examples.

The report also said the city should nurture emerging industries like green technology, digital media and specialty food.

Within environmental possibilities, the city should consider specializing in green construction and socially responsible investing, according to McKinsey, and take cues from San Francisco, which has a special green tech advisory commission and a special advocate within the mayor's office.

For all emerging sectors, the city should consider organizing incubators and marketing efforts, including branding and special events and conferences, the report said. It should also reach out to targeted industries for advice and feedback.

Diplomacy and ducking

Blunt as it was on some topics, the report seemed to duck certain contentious but critical issues.

For example, the report's education advice, including a special section on the topic, dealt with college education, particularly community colleges, and did not significantly address K-12 schools, which were taken over by the state in Oakland and were a key issue in the last mayoral election. Nor did it speak to the idea of more charter schools, which is contentious with teachers unions.

Crime also had a special section and cropped up throughout the report, but the report did not devote any discussion or recommendations to law enforcement, an area of focus that by many accounts helped spark a turnaround in New York within the past 15 years. Instead the study focused on crime prevention through education and economic development, echoing Mayor Ron Dellums.

The document also did not address a universal health care plan, which was approved in San Francisco last year and is expected to be the subject of legislation at the state level.

Though coordinated by the Chamber of Commerce, the report makes many nods to Mayor Ron Dellums and his several dozen community task forces, repeatedly detailing task force recommendations and showing how they are compatible with the report's own advice. In a preface to the report, Oakland Metropolitan Chamber of Commerce CEO Joe Haraburda said the report would feed an "Oakland Partnership," led by Dellums, joining the public and private sectors.

The report is set for release Wednesday at a joint Chamber and Dellums event.