For Ama­zon, big­ger cities aren’t al­ways bet­ter

Pawtucket Times - - OPINION - Noah Smith Smith is a Bloomberg View colum­nist.

The com­pe­ti­tion to host HQ2, as Ama­zon's planned sec­ond head­quar­ters is called, has cap­ti­vated the na­tion. The lucky city can ex­pect an eco­nomic bo­nanza: 50,000 jobs, plus the tech ecosys­tem that the on­line re­tail gi­ant's pres­ence will in­evitably at­tract.

But the win­ner doesn't have to be a big me­trop­o­lis. On the con­trary, Ama­zon has the power to cre­ate an en­tirely new Amer­i­can tech­nol­ogy hub.

In a re­cent piece, Bloomberg View colum­nist Conor Sen dis­cusses some of the fac­tors that will (or should) in­flu­ence Ama­zon's de­ci­sion. Th­ese in­clude an ed­u­cated work­force, an air­port, tax in­cen­tives, and ê per­haps most im­por­tantly — a tol­er­ant lo­cal cul­ture. But Sen makes one as­sump­tion that I'm not sure holds true: that the win­ner of HQ2 is go­ing to have to be a large city.

"Ama­zon says it's con­sid­er­ing metro ar­eas of a mil­lion or more, but re­al­is­ti­cally to pro­vide 50,000 em­ploy­ees a metro area is go­ing to need to be sig­nif­i­cantly larger than that . ... Is Ama­zon, a com­pany that thinks of growth in terms of decades, go­ing to lo­cate a head­quar­ters in a place where it might have to hire over 4 per­cent of the metro area's la­bor force[?]"

HQ2 would not do all of its hir­ing lo­cally, any more than Ama­zon's cur­rent head­quar­ters hires ex­clu­sively from Seat­tle. Its mere pres­ence would in­crease any city's ed­u­cated work­force — in­deed, boost­ing the tax base is one rea­son cities want it in the first place. The num­ber of tech work­ers in the area would also rise when a bunch of other tech com­pa­nies moved into town to be close to Ama­zon. This would, in turn, in­crease the skilled la­bor pool that Ama­zon could draw on — an ef­fect economists call "thick mar­kets."

Economists have long de­bated whether jobs tend to go where the work­ers are or vice versa. The most likely an­swer is "both." Ama­zon cer­tainly could de­cide to feed off an ex­ist­ing tech hub like Bos­ton, or a huge me­trop­o­lis like Philadel­phia. But it could also choose to cre­ate its own.

There's ac­tu­ally an im­por­tant prece­dent: Austin, Texas. In the early 1990s, a group of Amer­i­can tech­nol­ogy com­pa­nies and uni­ver­si­ties, along with the U.S. Depart­ment of De­fense, de­cided to band to­gether to com­bat Ja­panese dom­i­nance in the semi­con­duc­tor in­dus­try. The re­sult­ing con­sor­tium, called Se­mat­ech, held a highly pub­li­cized com­pe­ti­tion to de­cide where to lo­cate its op­er­a­tions. Con­tenders in­cluded the Sil­i­con Val­ley and Bos­ton, but in the end, the prize went to an up-and­com­ing col­lege town: Austin.

Austin's sur­prise vic­tory was no ran­dom event. The area was al­ready home to rep­utable tech com­pa­nies like Dell, Texas In­stru­ments and Mo­torola. And it had the Univer­sity of Texas, an un­usu­ally large and high­qual­ity col­lege. But the city also had an un­usual group of vi­sion­ary lead­ers de­ter­mined to trans­form the sleepy col­lege town into one of the coun­try's premier tech hubs. Th­ese in­cluded Ge­orge Kozmet­sky, a for­mer tech­nol­ogy en­tre­pre­neur who had been a pro­fes­sor at UT for 16 years, and Pike Pow­ers, a con­sul­tant with a pas­sion for re­gional de­vel­op­ment.

In a 2004 es­say, Pow­ers listed what he saw as the fac­tors be­hind Austin's suc­cess. Cor­po­rate in­cen­tives were im­por­tant, but he ar­gues that cre­at­ing ca­pac­ity was even more cru­cial. This en­tailed en­sur­ing suf­fi­cient land and water re­sources, en­cour­ag­ing univer­sity-busi­ness co­op­er­a­tion, build­ing high­qual­ity in­fra­struc­ture, and cre­at­ing a liv­able en­vi­ron­ment. Austin had it all — a tol­er­ant, di­verse cul­ture, plenty of open space, good restau­rants and bars, sports fa­cil­i­ties, and a le­gendary live mu­sic scene.

Se­mat­ech is long gone, but Austin's rep­u­ta­tion re­mains. It's known as one of the coun­try's premier tech hubs, prob­a­bly sec­ond only to Sil­i­con Val­ley. Al­though it's un­doubt­edly in the run­ning for HQ2, Ama­zon could also choose to cre­ate the next Austin — a place that's more like Austin was back in 1991.

Which up-and-com­ing tech cities might fit the bill? Raleigh, North Carolina, would be one. The pop­u­la­tion of the metro area barely ex­ceeds Ama­zon's thresh­old of 1 mil­lion, but the city is grow­ing at a star­tling pace, with tech in­dus­tries at the fore­front. With its close prox­im­ity to Re­search Tri­an­gle Park, and to three good schools — Duke, the Univer­sity of North Carolina at Chapel Hill, and North Carolina State Univer­sity — the area looks like the top con­tender.

Other pos­si­bil­i­ties in­clude Nashville and Minneapolis. Both have the req­ui­site pop­u­la­tion size and in­ter­na­tional air­ports. Both have large uni­ver­si­ties nearby, plenty of cheap land, and rep­u­ta­tions as ris­ing startup hubs. And both, like Raleigh, are lo­cated far from Ama­zon's cur­rent head­quar­ters on the West Coast.

So while a big city would be fine, Ama­zon clearly has an­other op­tion. It could use its HQ2 to cre­ate the coun­try's next great Tech­nop­o­lis.

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