Culture Builder: Local governments should attract people, not companiesAugust 23, 2021 Category: Featured, Long, Purpose
Written by Technically Media CEO Chris Wink, Technical.ly’s Culture Builder newsletter features tips on growing powerful teams and dynamic workplaces. Below is the latest edition we published. Sign up here to get the next one this Friday.
In February 1981, the late Delaware governor Pete duPont signed legislation that dropped restrictions on interest rates and offered tax breaks to the newly ascendant credit card industry. It worked. That economic development strategy is still a major reason why so many banks have major offices in Delaware.
Local economic development has changed a lot in the last 40 years. Though politicians still love to cut a ribbon on a new manufacturing facility or glitzy office, for much of the last 10 years, focus has grown on cultivating entrepreneurship. The City of Baltimore helps fund the Emerging Technology Centers, and the City of Philadelphia piloted its Startup PHL investment fund. All these efforts follow the same philosophy: Rather than courting one big company, help foster a startup community that will in turn grow and hire people from near and far.
The pandemic has made a clear point more obvious: Companies once determined where workers lived; now workers determine where companies go. An ongoing trend was laid bare over the last 18 months. Software company offices sitting in prized low-tax innovation zones in city centers are empty. Desirable residential neighborhoods populated with remote tech workers have proved resilient.
What, then, if states and cities prioritized people, not companies?
So-called “talent-focused economic development” is not a new concept that emerged with COVID-19. The spectacle that was the pursuit of Amazon HQ2 was a telling, if perverse, example: City leaders around the country touted their skilled workforces and amenities for attracting more. The cities that offered the biggest tax incentive did not win their corporate prize. The ultimately victorious Northern Virginia bid was flush with non-financial incentives, like commitments to invest in transit infrastructure and state university programs.
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There’s an important lesson for those building companies.
In a bruising labor market, hiring managers chase talent where it can be found. For one, I believe you need to tell your employer brand story, to give professionals insight into why yours is a company of choice. Much has been said, too, about the opportunity for a distributed workforce — hiring the best fit from any place, rather than limiting your talent pool to only those who happen to live nearby. Hiring patterns emerge, though, exactly because there are more React developers and product managers in San Jose than in Salt Lake City.
One big software company CIO told me recently that no matter how distributed a workforce is today, most companies eventually will find cost benefits in hub offices. Even if a new generation of startups have grown their teams without geography in mind, clusters will emerge.
Bluster aside, it’s hard to envision top-tier global talent hubs like Silicon Valley and New York City to lose relevance. The results from the 2020 U.S. Census, released this month, then, are an important benchmark. Our country continues its population shift to the South and Sunbelt, though the country’s biggest cities were also big winners — even old Philadelphia, where the population grew by more than 5% since 2010, its fastest rate of growth since the 1950s. Smaller and regional cities in the Northeast and the Midwest fared worse. Baltimore continued to shrink, as did Pittsburgh, though its rate of decline slowed.
Entrepreneurs and other hiring managers, then, might still very much care that their home city is attracting new people. Remote-flexibility is an important tool for building the best teams but most companies just aren’t going to be fully distributed. Whether a company has many hub offices or one headquarters, bringing employees together physically will only make sense where there are enough of them.
For decades, many local governments have been trapped into thinking that the best way to attract a workforce is to attract companies. To attract companies, many state and local governments offer an array of tax rebates, reductions, subsidies and cash grants to the collective tune of $90 billion annually.
Yet much of that is understood to be misdirected.
At least three in four of companies that receive relocation incentives are thought to have already planned their move, and the offerings hurt existing homegrown firms. Incentive programs empower elected officials to steer their economy toward areas in which their regions may not actually have a comparative advantage — like the pursuit of being “the next Silicon Valley.”
But incentive programs can be effective marketing campaigns for politicians, so they’ve surged. From 1990 to 2015, the size of many business incentives tripled, and the largest kind have ballooned to 30% of state and local tax revenue, according to Brookings.
Perhaps the pandemic-fueled focus on remote workers and distributed companies will help prove the point out. The first step toward becoming a great place to do business is to be a great place to live.
The city of Las Vegas has interested me for years. Zappos founder Tony Hsieh, who died last year, famously pumped $350 million, much of it his own money, into making downtown Las Vegas a more vibrant innovation hub. City and state incentive programs mostly fell flat. When I last visited in late 2018, the “Downtown Project” was underwhelming. In 2020, though, far flung tech workers found their way there — people, not companies.
Look back at Delaware. A credit card company executive said to me this week: “They’re making us go back to the office for lots of reasons. One of them is to justify our tax incentives.”
That legislation from 40 years ago has proven remarkably effective for Delaware. It remains a crucial foundation for Wilmington, but as one founder put it to us last fall: Are our cities for companies or for people?
Local tech communities will be as important as ever, as they prove ways to bring together workers.
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