Governments should compete for residents, not businesses

Amazon.com Inc.'s pause of its plans to expand its second headquarters in Northern Virginia reflects some deep underlying trends — not just for metropolitan Washington, where I live, but for regional development more generally.

First, with the end of the U.S. Federal Reserve's zero interest rate policy, many developments are being canceled or postponed. Long-term projects are less profitable than they used to be, and capital is harder to come by. As the major technology companies lose market value, their urban and suburban refurbishment plans become less of a priority.

Over the last 15 years, many U.S. cities — Austin, Miami, Nashville and Boise, to name a few — have become far more "business-friendly," to use a term, and have in fact attracted many new businesses. This process may well be at an end. U.S. regions may be entering a new era in which they simply try to maintain what they have, or manage their decline.

Northern Virginia is a very wealthy and livable area, and for decades it has strived to move beyond its reputation as just a suburb of the nation's capital. That pretense is likely now over. While the region is highly educated, it isn't well-suited to being a tech center. The prevailing ethos is federal power, with a healthy dose of suburban retail — not radical innovation.

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The cultural norm in Silicon Valley is to share aid and information. Here the cultural norm is to hoard information. The major status markers are those of government and real estate, not the ability to build scalable software. When local tech companies do succeed, often the federal government is their main customer.

In other words, this area is going to stay "as is."

This stasis is further enforced by the growing difficulty of courting corporations. If Amazon stiffs Northern Virginia, future politicians elsewhere may be less eager to promise tax breaks and infrastructure investments, not to mention spend their reputational capital. Politically speaking, it will be harder for urban and suburban leaders to rise to the top by attracting new major corporate tenants. "Pro-business" local governments may be less common in the years to come.

Another relevant trend is the work-from-home and hybrid models. Why should a major corporation invest in more office space if a lot of that space will be used only part of the time?

It is worth thinking through how remote and hybrid work will affect regional evolution. There have already been "booms" in some relatively small resort areas, such as parts of Maine, Long Island and West Virginia. But there will be a more general impact as well. To the extent corporations give up on clustering their talent in big office buildings, people will spread out where they live. Not everyone will set down stake in the Hamptons or along the Irish coast. Plenty of people will want to live near family or where they were born, or perhaps a few hours away from the main office as part of a hybrid arrangement.

In this new world, it will be much harder for a well-governed region to rise to the top. Even if its leaders succeed in convincing a company to relocate, for instance, there may be fewer workers who do so. Or perhaps there will be the same number of workers but they will come into the office less frequently and live scattered in many directions, sometimes in other states or metropolitan areas.

There is nothing necessarily wrong with this outcome. But the potential parvenu region just won't feel that exciting, and the level of activity won't feed upon itself in terms of attracting more retail and cultural amenities.

Conversely, it may be harder for regions to fall into decline, at least once the initial adjustment period passes (midtown New York and Washington are ailing at the moment, due to a loss of office workers). It may be less of a big deal if companies decide to move their headquarters from a particular city, since their departure will result in the loss of fewer jobs.

Overall, there may be less competition to attract corporations. At the same time, political competition for residents may become more intense, because more people will be able to choose where to live regardless of where they work. This competition could lead to improvements in schools and parks.

As far as Northern Virginia is concerned, I'll miss the effect those Amazon workers might have had on the value of my home. But I feel pretty good about a possible new era of intense political competition for actual residents.

(COMMENT, BELOW)

Cowen is a Bloomberg View columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include "The Complacent Class: The Self-Defeating Quest for the American Dream."

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