New Orleans economic development chief: Growing economy about more than tax breaks
By: Michael Hecht | The Advocate | 5/9/2019
You could be forgiven if recent news and commentary have led you to believe that economic development is only about incentives. After all, there were times when the Amazon HQ2 process seemed like a competition to see which city in North America could write the biggest check to the richest man in the world.
A closer inspection reveals that this is not the case.
In the instance of Amazon, executives initially chose Washington, D.C., and New York City for two basic, strategic reasons: workers and customers. These two cities have the highest concentration of techies in America, so they were the best sources for 50,000 new employees. Also, Amazon makes all of its money on its cloud services, known as Amazon Web Services. The folks who buy AWS are large corporations and government. New York has the most corporate headquarters in North America. Washington, obviously, has the most government.
When you overlay on these strategic imperatives the prestige of New York and the political gravity of Washington, Amazon’s decision becomes clear. It had little to do with incentives.
In general, then, what do companies care about? What are the conditions that compel people to invest?
To start, reasonable costs, including taxes, are important; they form the baseline for evaluating location decisions. Infrastructure is key. Roads, rivers, air travel and pipelines are the arteries for the lifeblood of commerce. Workforce availability is the great pinch-point for business across the country, and so is of special importance (and is why higher ed is a critical partner). And in the context of attracting workers, quality of life is essential. Elements like schools and safety are major considerations. Culture also matters — and is a great competitive advantage for Greater New Orleans — as companies compete for employees from around the world.
Importantly, these conditions need to exist in a stable environment, particularly legal. Companies are wary of investing in an uncertain or overly litigious environment, where they believe they are more likely to be targeted for lawsuits. Louisiana ranks near the bottom in this regard. And having some of the highest auto insurance rates in the nation, which many consider the result of our legal environment, taxes everyone — but our poorest residents disproportionately.
Finally, partnership matters. This is not just a pleasantry. When companies are looking at the New Orleans region, they are watching how we treat each other, and how we treat them. When they see a unified team, singular in its support of job creation, it gives CEOs confidence that they will be treated as a valued partner, too. After DXC Technology announced its 2,000-job “Digital Transformation Center” in New Orleans, the largest job win in Louisiana history, we asked why they chose Greater New Orleans over 30 other cities in North America. DXC’s answer: “You qualified on cost. But you won on partnership.” For the counterexample of this, see Amazon’s experience with New York City.
Incentives do have a place in economic development. Some, like the Digital Media Incentive, can successfully catalyze permanent new sectors (GNO is near tops in the United States for tech growth). Others, like ITEP, are to keep a level playing field (39 states have a similar program). But ultimately, to use a Louisiana term, incentives should be lagniappe.
Real economic development is about creating the conditions where people want to invest. If we focus on these basics, in a spirit of partnership, the companies and the jobs will follow.
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