What Makes Cities Attractive Places for Business in the 21st Century?
Here’s What You Need To Know
Last week, Amazon announced 20 finalists from 238 cities that submitted bids for its “HQ2,” leaving cities left off the list to do some serious soul-searching in the wake of its decision. The public competition, which has been ripe for parody, has mostly been noted for civic leaders scrambling to make their cities sufficiently attractive, often by attempting to outbid each other on tax incentives, to lure the e-commerce giant, and the 50,000 high-paying jobs and five billion dollars’ worth of investment, that it brings.
But is a big tax incentive package really all it takes to get HQ2, or to attract other innovative companies for that matter? Amazon’s original request for proposal (RFP)highlights the main factors driving its process, and although tax incentives are one part of this, other factors point to broader public policies that make for a better economic environment for all businesses, not to mention help cities improve the quality of life for all of their citizens. As cities consider what makes them attractive investment targets in the 21st century, here’s a sampling of those policies:
- A Stable And Business-Friendly Tax Structure: While the bidding war to provide greater tax and other incentives to Amazon has been the focus of scrutiny and criticized across the ideological spectrum, recent actions suggest that the desire for a stable, business-friendly environment and tax structure is shared by many businesses. After tax reform was signed into law, Apple announced an investment of $350 billion in the U.S. economy over the next five years, creating more than 20,000 jobs, and paid $38 billion in taxes on money it was previously holding overseas. Additionally, a business-friendly tax structure benefits employees, with over 125 U.S. employers announcing cash bonuses and pay increases after the corporate tax rate went to 21% from 35%. Rather than punish business, like the lawmakers in the California State Assembly who have already introduced a bill to force large companies to give half of their expected savings due to the tax law over to the state, facts suggest that a stable and business-friendly tax structure can enable economic growth, jobs, and wealth – without wasting money, time, and effort on incentives.
- Affordable Housing: The price of housing, and the cost-of-living more broadly, impacts a company’s ability to recruit talent and the salary it pays them. HQ2 is predicted to drive up rents in whatever city is ultimately chosen, so major metro areas with large housing markets may be impacted less than smaller ones. Housing policy is also intertwined with congestion and gentrification, which resulted from Amazon’s growth in Seattle and helped contribute to its decision to find another location for further expansion. Therefore, cities looking to create or maintain more affordable housing may look to Houston for some inspiration, whose relaxed zoning policy has helped it remain an affordable place to live in spite of its growth.
- A Culture Of Entrepreneurship: In a recent Forbes article, the Mercatus Center’s Adam Millsap examined Dayton, Ohio’s past as an innovative and successful city during the first half of the 20th century. To help spur that vibrancy in this century, Millsap proposes implementing policies that enable local entrepreneurs to “plant a thousand seeds,” rather than have the city hinge “its economic hopes on large, footloose companies.” One way to do this is to remove regulation and red tape – in the form of local ordinances that make it difficult for small businesses to open or expand – as a means of generating employment growth.
- “Permissionless Innovation”: Mercatus’ Millsap also proposes an attitude change on the part of the city’s leadership towards a policy of “permissionless innovation.” Instead of a regulatory environment that operates on a “precautionary principle,” which insists that new innovations fit within the existing regulatory framework, “permissionless innovation” would allow for experimentation that could lead to new technologies and business models by default due to this light-touch approach.
Only one city will be the home of HQ2, but that does not mean others need to miss out on jobs, improved quality of life, and vibrant economic growth. With the right policy approach, a city can not only attract the next Amazon, but more importantly, enable its creation.
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