2002 Bay Area Economic Profile Finds Life After the Bubble; Despite Recession, Bay Area Still Leads Nation in Productivity and is Poised for Strong Recovery with Sustainable Growth.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--Jan. 7, 2002

The Bay Area Council, the Bay Area Economic Forum, and the Association of Bay Area Governments today released a comprehensive profile of the regional economy that finds the fundamentals of the Bay Area economy remain strong and that the region is positioned to return to robust, sustainable growth over the next three to five years. The report, After the Bubble: Sustaining Economic Prosperity, was prepared with the assistance of McKinsey & Company and informed by interviews with business executives and public officials throughout the region. After the Bubble is the third in a series of Bay Area Economic Profile reports that, starting with the inaugural 1996 edition, analyze the status and competitive position of the Bay Area economy.

The Bay Area Economic Profile describes how the majority of the Bay Area's recent economic gains derive from fundamental and sustainable factors that are likely to fuel continued economic growth in spite of the recent economic downturn. After the Bubble explains the drivers of the Bay Area's economic performance in recent years, while assessing prospects for the economy in the years to come. Specifically, After the Bubble asks how much of the Bay Area's economic boom over the last few years was due to a temporary "bubble," and how much was real and sustainable.

"In 2000, Bay Area per capita output exceeded the national average by an unprecedented 84 percent" said Sunne Wright McPeak, president and CEO of the Bay Area Council. "Additionally, Bay Area productivity exceeds that of all seven comparable regions in the United States -- Austin, Boise, Boston, Houston, New York, Los Angeles and Seattle. The majority of the Bay Area's recent economic gains are actually due to sustainable factors that, if properly shepherded by sound public policy, will fuel continued economic growth."

"While the 1999 edition of the Bay Area Economic Profile found the Bay Area economy the most productive in the nation, After the Bubble shows that the region's productivity lead has actually increased," said Lenny Mendonca, Director of McKinsey & Company. "Productivity growth is what drives standard of living increases, so enhancing our productivity advantage and translating it into an increased standard of living will keep attracting companies and talented workers to the area," said Mendonca.

After the Bubble identifies several sources of the Bay Area's overwhelming productivity advantage:

-- A high concentration of more productive business activities, and fewer lower
value-added business activities.

-- A culture of innovation, an extraordinary concentration of leading
universities and research institutions, and an impressive array of
industry-leading companies.

-- The aggregation of skilled workers. A highly educated, technically trained
workforce is one of the region's greatest assets, and a primary reason why
companies locate and remain the region.

Most significantly, this base advantage accounts for an impressive 65 percent of the Bay Area's overall productivity lead. Higher prices in the Bay Area account for 25 percent of the productivity advantage, while the temporary bubble created largely by the flood of venture capital money into the Bay Area in 1999 and 2000 accounts for only 10 percent of the advantage.

"Based on productivity growth potential, which is key to the region's competitiveness and economic success, and assuming no additional unforeseen catastrophic events, the Bay Area is positioned to grow at a sustainable 4.2 - 5.1 percent annual rate over the following three-to-five years," said Bay Area Council president and CEO, Sunne Wright McPeak.

"The message of this report is that while the Bay Area is well positioned for sustained long-term growth, this is never guaranteed," said Sean Randolph, President of the Bay Area Economic Forum. "To maintain its competitive edge and retain the workers and companies we need to prosper, the Bay Area must work harder to address the critical problems of inadequate housing, overburdened transportation systems, and underperforming public schools that threaten our long-term prosperity."

"Despite the very good news about the region's competitive advantage, there is also concern about the high cost of doing business in the region," said Executive Director of the Association of Bay Area Governments, Eugene Leong. "Working together, for example, the region simply must build a lot more housing closer to where the jobs are, and produce housing which is considerably more affordable than it is today. If we don't, transportation congestion will worsen and environmental and energy problems will continue. The choice is ours."

After the Bubble: Sustaining Economic Prosperity can be viewed online at: www.bayareacouncil.org and www.bayeconfor.org.

About the Bay Area Economic Profile

This report represents the third volume in the Bay Area Economic Profile series that began in 1996 with The Bay Area: Leading the Transition to a Knowledge-Based Economy. In that report, and in the one that followed in 1999, The Bay Area: Winning in the New Global Economy, a research team led by McKinsey & Company analyzed the strengths and weaknesses of the Bay Area economy relative to other regional economies across the United States. Taken together, these volumes tell a remarkable story of how technology and innovation have helped the Bay Area achieve unprecedented levels of economic prosperity.

About the Bay Area Council

The Bay Area Council (www.bayareacouncil.org) is a CEO-led, business-sponsored public policy organization founded in 1945 to promote regional economic prosperity and quality of life. The Council presents a strong, united voice for more than 275 major Bay Area employers and coalition partners to help shape public policy affecting transportation, housing and land use, environmental quality, economic development, sustainable development, water policy, energy, education and workforce preparation, and telecommunications infrastructure. The Bay Area Council will hold its annual Outlook Conference on January 11 in San Francisco featuring Alan Greenspan, a panel of Nobel laureates, and business leaders exploring the regional economy.

About the Bay Area Economic Forum

The Bay Area Economic Form, a non-profit, public-private regional partnership of business, government, academic, labor and community leaders, carries out projects to:

-- Foster an outstanding environment in the region for a

competitive economy to thrive; and

-- Enhance the overall quality of life in the nine-county Bay

Area.

Created through a partnership of the private sector Bay Area Council and the public sector Association of Bay Area Governments, the Bay Area Economic Forum produces focused analyses of key infrastructure and other key economic issues of critical regional concern and provides a "forum" for high-level leaders to examine and take action on economic issues impacting the region.

About the Association of Bay Area Governments (ABAG)

The Association of Bay Area Governments is the official comprehensive planning agency for the San Francisco Bay region. The ABAG mission is to strengthen cooperation and coordination among local governments. In doing so, ABAG addresses social, environmental, and economic issues that transcend local borders, such as land use, growth management, housing, and economic competitiveness. All nine counties and 99 of the 101 cities within the Bay Area are voluntary members of ABAG, representing nearly all the region's population.

About McKinsey & Company

McKinsey & Company (www.mckinsey.com) is an international management consulting firm that helps leading corporations and organizations make substantial and lasting improvements in their performance. With approximately 6,000 consultants deployed from eighty-two offices in forty-three countries, McKinsey has expertise on strategic, operational and technological issues.