The Biggest, Richest Cities Won Amazon, and Everything Else. What Now for the Rest?
Posted November 19, 2018 11:07 a.m. EST
Updated November 19, 2018 11:13 a.m. EST
Amazon’s decision to open secondary headquarters in New York City and near Washington sends a clear message: There is no Bezos ex Machina on the way for struggling cities, no single big gift from the heavens that will change everything.
Instead, we are living in a world where a small number of superstar companies choose to locate in a handful of superstar cities where they have the best chance of recruiting superstar employees.
But what is the economic future for a Hartford, Connecticut, or Akron, Ohio, or Tulsa, Oklahoma, or the countless smaller towns and rural areas that did not get so much as a serious look from Amazon?
Some promising answers are bubbling up, although there may not be a single plan that all the people who study these issues can agree upon.
A new paper by Clara Hendrickson, Mark Muro and Bill Galston at the Brookings Institution aims to summarize the facts about these regional divides, as well as how policy contributes to them and how it could help reduce them.
They argue for heavy investment in digital skills, even in areas without a large existing high-tech sector. They seek new channels to ensure that businesses in struggling areas have access to capital, including small-business lending from banks and venture capital for startups.
Parts of rural America lack fast broadband internet, a big disadvantage that the authors want to see addressed. They urge heavy federal investment in 10 or so “growth pole” midsize cities that are close to struggling smaller towns and can serve as economic drivers.
And finally, they suggest more federal support for people who want to move to greater economic opportunity — a countermeasure for one of the more surprising trends of the last generation, a decline in Americans’ mobility in pursuit of better jobs.
The authors also point out things they think have not worked in reducing regional inequality.
Using tax incentives to try to poach companies from elsewhere, for example, tends to weaken communities’ tax bases, while any growth benefits are zero sum, at least in economywide terms.
The authors are similarly skeptical of large-scale infrastructure projects, arguing that such efforts in Europe, called “cohesion policy,” have tended to create nice roads and bridges in remote, poorer areas, while doing little to help incomes and employment rise in those areas over time.
“What’s increasingly clear after the 2016 election is that the forces that have been really good for the economy in the aggregate, like globalization and technological change, create local shocks that are extremely powerful,” Hendrickson said.
Their work is only the latest in efforts to wrestle with potential policy answers.
In one of a series of papers published by the Hamilton Project, David Neumark of the University of California, Irvine, described a plan in which the federal government could subsidize the wages of newly hired workers in extremely poor areas. The subsidies would be 100 percent at first before tapering off — in hope of pulling more people into the labor force so they can develop skills that will allow them to earn a nonsubsidized wage.
In another, Tracy Gordon of the Urban-Brookings Tax Policy Center argued for rejiggering the formulas to set federal grants related to Medicaid, highway funding and other infrastructure spending so as to better reflect the economic conditions in different places.
And the economists E. Jason Baron, Shawn Kantor and Alexander Whalley argued for expansion of a program meant to ensure that innovations developed at universities are spread to nearby employers.
Steve Case, whose venture capital firm Revolution has worked to advance entrepreneurship outside the big coastal tech hubs, said, “With the Amazon second headquarters, if the result isn’t what people may have wanted, it could still help jump-start a discussion around regional innovation that could lead to better results down the road.
“I’m just eager for it to move into action so there’s less of a feeling of being left behind and more optimism about the future.”
Case, who calls his effort “Rise of the Rest,” focuses on the funding dimension of entrepreneurship and is seeking to encourage the big venture capital firms in Silicon Valley to explore opportunities in cities like Nashville, Tennessee, and Columbus, Ohio. He wants to encourage the growth of homegrown regional firms and networks of angel investors who might spur the next generation of companies in smaller cities.
At the Economic Innovation Group, a tech industry-backed research outfit, the ideas veer more toward getting people the training and education they need.
“We have to leverage universities better,” said John Lettieri, the group’s president. “How do we make them healthy, how do we upgrade the ones that need upgrading, make them more research focused?”
He also mentions an overhauled immigration policy to help attract more people with advanced skills, especially to struggling regions, and changes to labor laws such as banning the “noncompete” clauses that make it hard for people to switch jobs. Reading the various academic papers, think-tank policy briefs and business pitches makes it clear there is no conventional wisdom on how to address these issues. But there are a range of possibilities for a politician to choose from in shaping an agenda.
Even as Washington prepares for divided government, regional development is one area where ideological lines are not calcified. There may be some room for dealmaking, as with the Jobs Act, aimed at spurring small business, that was passed by a Republican Congress and signed by President Barack Obama.
Even if that does not turn out to be the case, candidates for the presidency in 2020 have a huge political opportunity to pull together a policy approach that sends a message that the whole country can enjoy the benefits of prosperity, not just a handful of rich regions.
For the people most in the thick of the research on the issue, there is a sense of urgency — but also a feeling of modesty in facing this complex challenge.
“While we may not know the complete and perfect solutions,” said Muro of Brookings, “we do know that we need to get started with the experiments.”