CEO of Rackspace Taylor Rhodes talks with an attendee. Photo by Scott Ball.
Rackspace CEO Taylor Rhodes is leaving the managed cloud company later this month. Credit: Scott Ball / San Antonio Report

Cloud-based innovation and artificial intelligence are in the early stages of radically disrupting traditional business models, and San Antonio has an opportunity to play a central role in the trend, Rackspace CEO Taylor Rhodes said at a panel discussion Thursday.

Developing and attracting a 21st century workforce will be the city’s biggest hurdle, he added, echoing a common refrain among Texas economists and business leaders.

“When you ask a CEO or CIO what their biggest concern is in keeping up with this race, it’s lack of expertise,” Rhodes told 150 local business leaders gathered at the San Antonio branch of the Federal Reserve Bank of Dallas. “… [That] can be a great thing for San Antonio – for Texas as a whole – but we need to think it through. We need to think about how we end up on the winning side of this equation by becoming a technology ecosystem here in San Antonio.”

Key to making the transition will be creating a vibrant downtown that attracts millennials, attracting greater pools of capital, expanding co-working spaces and incubators, and harboring a community of technology-oriented businesses that, like Rackspace, “grow up in San Antonio and choose to stay.”

San Antonio has already begun making large-scale downtown investments like the San Pedro Creek Improvements Project and Hemisfair Park revitalization. Twenty percent of the City’s $850 million bond package, should it pass in May, will be devoted to the city’s urban core.

“Ultimately, San Antonio needs to think about the things we need to do to become competitive with San Francisco, Seattle, New York, Boston,” Rhodes said. “It sounds like people are way ahead of us, but after that list it drops off really fast. So it’s really a wide-open playing field. We have an enormous opportunity here.”

Joining Rhodes on the panel were local billionaire businessman Red McCombs, UT-Austin McCombs School of Business Dean Jay Hartzell, Federal Reserve Bank of Dallas Assistant Vice President Keith Phillips, and Republic National Distributing Company partner and board member Alan Dreeben.

Although the speakers focused on a variety of topics, all voiced optimism about the region’s near-term economic outlook.

Similar to an analysis by economic forecaster Ray Perryman in December 2016, Phillips anticipates San Antonio’s job growth – 3.7% in 2016 – to continue at a rate of 2.5-3.5%. He also expects an uptick in statewide job growth from 1.4% in 2016 to 2% in 2017.

Over the past eight years, technological disruption has played a major role in shaping the nation’s economy. Recession pressures to cut costs have accelerated a shift toward automation, while cloud-based companies like Amazon, Uber, Airbnb, and Netflix are upending brick-and-mortar business models.

As with most periods of innovation in U.S. history, the result has been job losses in large sectors of society, especially manufacturing. Though the disruption can be painful for those left behind, it also provides opportunities for regions that can nimbly retrain and retool.

“Technological change often results in the destruction of jobs,” Phillips told the Rivard Report.  “…The key way to address that is [to produce] greater skills in the population. It starts with K-12 [education], from innovating schools to produce better outcomes.”

Schools also need to better use technology to “move from mass production of education to mass customization,” Phillips said.

With investments like SAISD’s 21st Century Classrooms and CAST Tech campus, local districts have already begun pushing in this direction.

Ensuring San Antonio ends up on the winning side of the the current disruption is by no means certain, Rhodes said. All business sectors need to reimagine themselves through a digital lens.

“If you’re not a technology company today, no matter what industry you’re in, you are in trouble,” Rhodes said.

Having helped grow his alcoholic-beverage distributing company exponentially over the course of several decades, Dreeben recognized the threats young Davids like Amazon can play against Goliaths like his company. He still remained confident in his tried-and-true business model.

Many analysts believe technological disruption played a key role in the political tides that carried President Donald Trump and Democratic presidential candidate Bernie Sanders to prominence during the 2016 election season. Both politicians blamed free trade for a steep decrease in U.S. manufacturing jobs seen over the past 15 years, a message that resonated in regions like the Rust Belt that are struggling with the transition from a manufacturing-based economy to a technology-driven one. Economists like Phillips, however, say a trend toward automation has been just as influential in dislocating U.S. employees. A failure to retrain workers in higher-skill jobs is the true culprit in the economic downturn seen in manufacturing regions.

Raising barriers to trade, Phillips said, will do little to solve the problem.

“In a free-trade environment, countries specialize in what they have a comparative advantage in,” Phillips told the Rivard Report. “The U.S. has a comparative advantage in high-skills jobs, so what we need to do is continue to improve the skills of the population so we can take advantage of it.”

Phillips and Rhodes also spoke out against indiscriminate bans on immigration, which they said could prevent valuable skilled workers from contributing to the U.S. economy.

“I can’t tell you how much of my week has been spent on this issue,” Rhodes said of Trump’s ban on immigration from seven Muslim nations. “… We have really created a seizure in a lot of commerce that I think is unnecessary.”

Dreeben, however, said he believed national security justified the measures.

All the panel members were optimistic about Trump’s plans for significant regulatory cuts, saying that too many regulations have overburdened small businesses. Phillips said the situation is more complicated when it comes to environmental regulations, though, because these are often important in helping society price business externalities into products.

Daniel Kleifgen graduated from Cornell University with a bachelor’s degree in English and philosophy. A native of Pittsburgh, Pa., he came to San Antonio in 2013 as a Teach For America corps member.