Friday, August 30th, 2013

Making the Link Between Quality of Life and Economic Development

A rather prosaic economic development announcement in Indianapolis provides an opportunity to hammer home in a concrete way the connection between quality of life investments and economic development. This is something I’ve long argued we urbanists do a poor job of. We tend to adopt a “build it and they will come” marketing approach to quality of life initiatives where the connection between cause and effect is tenuous. Additionally, these tend to focus almost entirely on and tell stories about “the best and brightest” which in a country dying for middle class jobs can rightly cause the majority of folks to ask: why would we support spending money on that? That’s why it’s critical to tell stories – to tell them loud and tell them often – that show the link between quality of life and economic development, and also how these relate to the average person on the street.

The announcement in question is the relocation of a company called American Specialty Health from La Jolla, CA to the Indianapolis suburb of Carmel. This will involve 300 initial hires, growing to 675. While the company will retain a California operation as well as one near Dallas, the headquarters will be in Carmel, IN and 50 top managers, including the CEO, are relocating.

Why is the company moving to/growing in Indianapolis? Central location and costs. Plus the CEO has a personal connection of sorts to Indiana. (He attended Culver Academy, an elite military boarding school, but one located in northern Indiana nowhere near Indianapolis and of which most Hoosiers have never heard).

Why is this relevant to the average person? There will be top executives and such relocating, as well as new employees added in high skill areas like IT. However, this is also a general operations center containing what appears to be every type of employee, right down to customer service and call center types. This enables people who aren’t elite techies or execs and who might not even have college degrees to potentially be hired on. While the company is an an upscale location, it’s easily commutable from more average places like Tipton County, and commuting will be made easier when US 31 is converted to a freeway (which is in progress).

Here’s the link to quality of life investment: how do you get these call center and IT and other jobs? You do it by convincing 50 people, including the CEO, to move from La Jolla, which if you don’t know is, to put it mildly, a nice place to live. The average home price is north of $2 million. The people who live there (or elsewhere in the San Diego region and commute in) aren’t there because it’s cheap. These are people with enough money to buy nice stuff and with choices about where to live. Like most of us they are probably interested in saving a buck, but not at the expense of moving to the equivalent of Siberia.

I have written extensively before about the major quality of life improvement initiatives in Carmel, IN. This is a validation that those improvements have tangible benefits. While Carmel has long been a destination for estate homes for the wealthy of Indianapolis, it was not really at that level nationally. Now it may be that some of the ops jobs could have been won without the headquarters, but certainly that HQ represents a huge commitment to the community. And I can tell you that a decade ago these jobs simply would not have been addressable in Indianapolis/Carmel. It wouldn’t have even been in the discussion. Today because of the quality of life improvements, there’s a much larger addressable market for economic development wins like this. Without that investment, had the ASH HQ moved from San Diego it probably would have ended up in Dallas.

Carmel’s quality of life investments have been controversial in many quarters, sometimes justifiably so. There definitely needs to be a debate on these things. But a more Tea Party aligned city council majority has clamped down in opposition to these things. While I think they have been right to criticize certain things, hopefully this will prompt them to understand the value of what’s been going on. And it’s to their credit that they were very collaborative in and supportive of winning the deal for this company. Incidentally, Indy Star reporter Dan McFeely says that while there are state tax incentives, there are zero local tax incentives for this move. That speaks for itself.

I also want to review a couple of other local examples I’ve already highlighted in the past. Medco opened a mail order pharmacy distribution center employing 1,300 in Whitetown, a suburbanizing area northwest of Indianapolis. Sprawl? Yes, but major distribution centers have to go somewhere and I don’t think the urban core is the best place.

Medco obviously employs a number of six figure pharmacists, but I can assure you the focus is doing as much as possible with machines and lower priced pharmacy technician labor. You can be a pharmacy tech without a college degree. Additionally, pharmacy tech jobs at Medco come with full benefits.

How did Indy win Medco? Reportedly for a few reasons. First, Indiana moved much faster than competitor Kentucky in getting the regulatory authorization in place. Second, proximity to the Fed Ex hub (not a distinguisher vs. Louisville, but a necessary attribute) and pharmacy schools at Purdue and Butler. But third was that Indianapolis had needed amentities that were beneficial to entertaining customers.

You have to take any claims in announcements with a grain of salt, but it’s obvious that all of these are prima facie valid. Whitestown is within easy commuting distance of lots of rural and small town Indiana areas in places like Clinton and Montgomery County. Why are investments not just in obvious items like professional schools and transport infrastructure, but creating an environment you can entertain the executives of your customers in downtown Indianapolis important? Well, if you’re a single mother with a high school diploma from Clinton County who can get a decent job with benefits at Medco, it’s obvious why it’s important to you. But that’s a story that doesn’t get told, making it easy to criticize downtown investments as simply catering to fatcats.

Similarly, just 45 minutes south of downtown Indy is the thriving small manufacturing city of Columbus, Indiana. It is hands down the best performing small city in Indiana despite having the second highest percentage of its jobs in manufacturing. It’s also the top recipient of Japanese foreign direct investment (as measured by the number of firms) in Indiana after Indianapolis.

Why do Japanese manufacturers find Columbus a good place to do business? Not only it is pro-business and low cost, it also has a focus on design quality, including a world-renowned collection of modernist architectural masterpieces by the likes of Eero Saarinen and I. M. Pei. The Japanese are famously design conscious and also focus on competing through high quality and engineering excellence, not just low costs. This is speculation, but I can’t help but think that the link between the Japanese ethos and that of Columbus created a values fit. And keep in mind that those foreign manufacturers have to convince their plant managers and such to relocate – with their families – to the community in question. Columbus’ approach made it easier to make the sale. Because if those Japanese executives didn’t want to live in Columbus, all those regular Hoosier folks working in the Japanese plants wouldn’t have jobs.

In any case, in a competitive world, only firms that deliver excellence as well as cost effectiveness can survive the brutal global competition. Which workers are more likely to produce excellent products, ones that demand excellence in their own communities, or ones who embrace mediocrity? How can any investor believe that residents who tolerate a run down, mediocre community for their own families to live in will suddenly start taking pride in the products coming off their employers’ production lines? It makes no sense at all.

Low costs, low taxes, and a business friendly environment are clearly important. In fact, if you don’t have some stunning advantage like Southern California’s climate or NYC’s unparalleled talent base, it’s almost the price of admission. But that’s all it is – table stakes. In an era where quality global labor is available at prices no American place can match, you just can’t win on low costs alone.

This is why the Tea Party mentality which treats government purely as a fiscal engine in which the only goal is to reduce the dollars coming in and going out is so destructive in the long term. Because competing purely on low costs only works if you are the low cost producer like Wal-Mart. And 95%+ of American communities have no basis to claim to be that.

You would think that in states that are struggling, policy makers would go look at the places that are doing well, find out what those places are doing right and then figure out how to get other places to start doing some of that. Some things can’t be replicated. There’s only one Indiana University, and it’s in Bloomington. But there are lots of strategies and approaches that are more broadly applicable. Sadly, not many leaders seem interested in that. In fact, many of them seem more interested in stopping anybody from doing more of what places like Columbus and Carmel have done.

Unquestionably there needs to be a debate about whether any particular expense makes sense. Without a doubt many proposals are boondoggles and should be rejected. Places like Indiana aren’t San Diego and absolutely need to keep low costs, a strong balance sheet, and a light regulatory touch. But that in and of itself is not enough to attract businesses. You might gain some low-wage table scraps that way, but not many jobs that pay decent wages for the average person.

Places that want to be competitive in the modern economy need an environment that is relevant to the 21st century, not the 1970s. But to make the case for that investment it’s important to start identifying how these make a tangible impact and really making the case and telling the stories about them.

5 Comments
Topics: Economic Development, Strategic Planning, Talent Attraction
Cities: Columbus (Indiana), Indianapolis

5 Responses to “Making the Link Between Quality of Life and Economic Development”

  1. James says:

    I haven’t read this whole article carefully, so perhaps I missed it. But haven’t you previously criticized cities from trying to grow by merely poaching another city’s business? Isn’t Carmel engaging in that rather than thinking globally?

  2. Haha, touche.

    In fairness, the bulk of what I mention are expansions, not relocations. None of the Japanese factories in Columbus, nor the Medco facilities, nor most of the ASH jobs are relocations.

    I generally don’t believe relocations are the foundation of economic growth. Rather, it’s home grown companies and new expansions. What’s happening in California, for example, is not so much an exodus as companies like Apple building big facilities elsewhere, like Austin, when it comes time to scale up or expand.

    Having said that, competition is good and I don’t think all such attempts to lure in play businesses are bad. What I tend not to like is when this falls into the beggar thy neighbor category, such as incentives to get companies to relocate within a metro area (especially a problem in multi-state metros) or this idea that a place like Indiana can win by poaching from Illinois, Michigan, and Ohio, especially when the jobs aren’t already in play.

  3. Racaille says:

    So they had/have offices in LaJolla(expensive) and Southlake(expensive).

    They are moving to Indiana because it’s cheap and has easy access to the enormous Chicago medical market.

    Try not read too much into it.

    “Without that investment, had the ASH HQ moved from San Diego it probably would have ended up in Dallas.”

    Don’t bet on it.

    http://www.utsandiego.com/news/2013/aug/30/san-diego-american-specialty-health/all/?print

    “Cafferty said it soon became clear that a Midwest location was a requirement. He said it was likely an example of family preference, combined with cheaper costs and government incentives.”

    Yes. An 11 million dollar requirement. Rick Perry simply didn’t write a big enough check.

  4. DAN WOLF says:

    Aaron, I strongly agree with you re the point that quality oriented corporations want to see evidence that their work force, labor and mgt, will be earnestly embrace quality in the jobs and carrer. Great case you site with Columbus Indiana.
    You also touched on the necessary competitive advantage offered by the Home City being well run in fiscal and regulatory matters. Strongly agree. Any city that exhibits corruption and wasted tax payer money should understand how ugly that will be perceived by all levels of companies; who cannot off-load their fiscal errors and sins onto the city citizens in the forms of more taxes and not very good service. Business folks more than anyone understand value received for cost incurred.
    Aaron, do you believe that most major metro core city mayors and city councils understand that they have to compete to win or retain the corporate citizens and that includes all manner of fiscal management? thanks

  5. DAN WOLF says:

    1st para, 3rd line that should be “careers”

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