The root cause of this dysfunction is that while the economy is regional, the politics are local. The Bay Area’s 101 municipalities are home to as many mayors and councils. The entire metro area measures 6,900 square miles and is home to 7.8 million people, a little less than New York. The Bay Area as a whole, however, has no single government responsible for the whole region.

There are pan-regional entities, like the Bay Area Rapid Transit Authority and a voluntary planning organization with no enforcement power called the Association of Bay Area Governments. Certain independent bodies have borders that overlap with municipalities in non-obvious ways—for example, over 100 independent school districts—but these entities have little authority over local governments and vice versa. Large agencies operate with no oversight to become slush funds that double as springboards to higher local politics. Even criminals know this, running crime rings across different cities in the Bay to “hop” jurisdictions. Even if they are working together, 50 different police forces are easier to evade than a single, unified department.

The lack of any central agencies makes it impossible to coordinate, and on many matters, there is no incentive to coordinate at all. This state of affairs also eliminates all stakes because everyone knows that no project will be completed during any particular official’s term, turning every plan into an opportunity for grandstanding and graft. In 2020, San Francisco Supervisor Aaron Peskin couldn’t support Measure RR, a small tax to save Caltrain during the COVID-19 pandemic, without extracting a concession. The result is a Venn diagram of governance where no one knows who is accountable to anyone.

Economic integration thus masks extreme regional variation. Monthly average rents vary wildly but are all expensive; Vallejo has the low end at $1,759, while Menlo Park carries the high at $4,395. This increases turnover and makes it difficult to attract talent, especially service workers. Instead of coordinating on housing the homeless and creating economies of scale, each city is responsible for its own homeless population with wildly different shelter costs. Thanks to different tax policies, the same company’s tax bill may be as much as 1300 times higher—that is not a typo—based on a 40-mile drive.

This results in two obvious problems. The first is a lack of economies of scale. The research is relatively clear that cities have economies of scale, especially with capital projects like transit and sanitation. But without coordination, millions of dollars are wasted on unnecessary government salaries and corruption. With so many different systems, each municipality and trans-Bay entity must negotiate separately, which is one reason BART is spending nearly $130,000 per new fare gate.

The second problem is that the large number of entities increases the number of veto points, a term for political operators that can block a decision. As the number of veto points increases, the chances the game works go down. Holdouts can bring the probability of project completion to zero, creating what Francis Fukuyama calls a “vetocracy.” In a coordination game where everyone defects, things don’t get done. For example, many cities opt to build commercial rather than residential properties because the former is heavily taxed, and the expectation is that someone else will build the latter. The problem is that there is no coordination, so everyone just suffers high rents and long commutes.