Last month Oracle announced they are bringing 8,500 jobs at an average salary of $110,000 to central city Nashville. The company will invest $1.2 billion to build out its new campus, including $175 million for public infrastructure.

The city, in its statement about the Oracle investment, writes:

“We are thrilled that Oracle is ready to make a billion-dollar bet on Nashville,” said Mayor John Cooper. “Oracle will bring a record number of high-paying jobs to Nashville and they will pay upfront all the city’s infrastructure costs. This is a huge win for our city. In an unprecedented deal structure for Nashville, no new debt is being issued and there is no burden on our taxpayers. Oracle’s presence will transform the East Bank, and I’m equally excited about the ways Oracle can transform education and career pipelines in Nashville.”

…The deal would not burden the city with any additional debt. The proposal does not require any funds from Metro’s operating budget. There are no job grants or bonds required as part of the proposed deal.

In the proposal, Oracle will make a $175 million investment in public infrastructure that a city would ordinarily be required to purchase itself. This includes costs such as a pump station for water and sewer, a pedestrian bridge, street widenings, and environmental remediation. Per the Economic Impact Plan, half of Oracle’s future property taxes would go to reimbursing the company for its upfront infrastructure investment, without any interest payments.

The other half of the new property tax base would benefit the city’s general operating fund, from which funds can be directed to investments in affordable housing and neighborhood infrastructure. “The remaining property tax revenue from the project, the ‘Oracle bonus,’ can fund investments throughout the city. Creating and preserving affordable housing will be my top priority with those funds,” added Mayor Cooper. In addition to the increase in the property tax base, local sales and use tax collections from the proposed project are expected to reach about $8.8 million annually.

News 4 Nashville describes Oracle’s reasons for choosing Nashville this way:

Oracle is interested in Nashville because it provides access to world class higher education institutions and a talented workforce, boasts a diverse populations with a vibrant culture, has a high quality of life while maintaining affordability, and is a top destination for new employees.

Wow! 8,500 new high-paying jobs with very little public subsidy. Why? Because this is an economy in which talent attracts capital. The asset that matters most to high-wage employers is concentrated talent. Particularly young professionals in a wide variety of professions. 45.2 percent of Nashville/Davidson County residents 25 and older have a four-year degree or more. And Nashville has become one of the nation’s leading talent magnets.

This is the new economic development success recipe: talent driven, not business incentives driven.

There are five essential lessons our state and regional economic leaders can and should learn from Nashville’s success in attracting Oracle:

• The core of being an economic development competitive state and region is a region’s human capital, not what is included in the offer for a specific business investment opportunity.
• Placemaking––creating a place where people want to live and work––is key to retaining and attracting high-wage employers.
• Creating places where people want to live and work is driven by public investments in quality basic services, infrastructure and amenities.
• Welcoming to all is a core characteristic of high-prosperity regions. People will not live and work in a community that isn’t welcoming.
• High-wage jobs will continue to be concentrated in offices in high-density, high-amenity big cities. As we bring the virus under control people––particularly young professionals––are going to want to live in high-density, high-amenity central city neighborhoods an employers are going to want their high-wage employees working together to boost productivity.

For Michigan and its regions to be competitive with leading-edge communities like Nashville the state and its regions need to completely redesign its economic development strategy and practice. What we think of as state and regional economic development now is the icing on the cake, not the foundation of building a high-wage economy. What Michigan needs, first and foremost, is a human capital centered economic strategy not a business creation, retention, attraction centered economic strategy. The 21st Century economic development foundation is high-quality education systems that prepares the next generation for the economy they are going to work in and communities where mobile talent wants to live and work.

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This post is about what good-paying jobs focused economic development should look like. About what it takes to grow, retain and attract high-wage jobs. It draws lessons Michigan can learn about winning in the 21st Century from our posts on Austin, Denver and Northern Virginia.

Clearly economic development is just one component of state and regional economic policy and programming. It, almost certainly, is less important to economic well being than the quality of the human capital development system from birth through college. Having said that the design of economic development programming matters. So let’s look at, as Virginia puts it, what “a new model of economic development for the 21st century” should look like.

Winning in the 21st Century Lesson 1: The primary goal of economic policy should be rising income for all Michiganders. In Michigan’s strong pre-pandemic economy 43 percent of households––most with a working adult––could not pay for basic necessities. When more than four in ten Michigan families are not succeeding, our state is not succeeding.

Winning in the 21st Century Lesson 2: First and foremost Michigan needs to learn that place attracts talent and that talent=economic growth. So that placemaking––creating a place where people want to live and work––is key to economic well being.

In Triumph of the City Harvard’s Edward Glaeser writes: “The bottom-up nature of urban innovation suggests that the best economic development strategy may be to attract smart people and get out of their way.”

Attracting smart people and getting out of their way isn’t the way Michigan and its regions do economic development today. The focus, almost exclusively, is on attracting business investment through some combination of being a low-cost place, providing investment-specific incentives, and business assistance programming.

And yet the evidence is on Glaeser’s side. The fact is that the single best predictor of regional and state prosperity is the proportion of adults with a four-year degree or more. Concentrated talent is what attracts high-wage employers. Talent is also entrepreneurial, so where it is concentrated are the places with the most high-wage business start-ups. The new economic reality is that the path to prosperity for states and regions is human-capital driven. That the asset that matters most to employers––particularly high-wage employers––is talent.

Winning in the 21st Century Lesson 3: The core of being an economic development competitive state and region is a region’s human capital based assets, not what is included in the offer for a specific business investment opportunity.

Northern Virginia’s winning Amazon HQ2 proposal offered cash incentives up to $800 million. Far less than the reported $2 billion offered by metro Grand Rapids and a reported $4 billion offered by metro Detroit, including Windsor.

What they did offer Amazon, which matters far more to high-wage employers, is a region with talent concentration; being welcoming to all, and a quality of place that is an attractive place for talent to live and work. Working on creating these characteristics, on an ongoing basis, is what matters most to growing, retaining and attracting good-paying jobs.

Winning in the 21st Century Lesson 4: Winning in the 21st century is public-investment led. Creating places where people want to live and work is driven by quality basic services, infrastructure and amenities.

Randy Thelen the new President and CEO of the Right Place, metro Grand Rapids’ economic development agency, understands the essential role placemaking plays in winning in the 21st Century. Thelen comes to the Right Place from the Downtown Denver Partnership. In a MiBiz interview he describes Denver’s success this way:

During previous recessions, Thelen said Denver “doubled down, invested in itself,” which allowed it to “accelerate out of recession and bypass that competition.” He’s leaving a “hyper growth market” in the Mile High City that’s attracted investments particularly from large tech firms such as Google, Twitter and Facebook.

“Virtually any tech company you can imagine has put up a sizable outpost in Denver,” Thelen said. “It’s a healthy reminder that the product of a region matters, and talent and placemaking drives business decisions.

Thelen’s “doubled down, invested in itself” is as true in Austin and Northern Virginia as it is in Denver. Yes, those public investments must be paid for which inevitably means higher taxes. But those taxes pay for services and amenities that are both important to improving the quality of life of current residents and are a vital to future economic growth, particularly growth of high-wage jobs.

Winning in the 21st Century Lesson 5: Welcoming to all is a core characteristic of high-prosperity regions. That is because talent is both diverse and mobile. If a place is not welcoming, it cannot retain and attract talent. People will not live and work in a community that isn’t welcoming. That means providing everyone with basic civil rights and treats everyone the same no matter where they are born, their sexual orientation, race, religion or ethnic background.

For Michigan and its regions to be competitive with leading-edge communities like Austin, Denver and Northern Virginia Michigan needs to completely redesign its economic development strategy and practice. What we think of as state and regional economic development now is the icing on the cake, not the foundation of building a high-wage economy. If Michigan is going to be competitive in retaining, attracting and creating high-paid 21st Century jobs it is going to require making public investments in creating places where talent wants to live and work. The economic policy priority for a high-prosperity Michigan is to prepare, retain and attract talent.

What Michigan needs, first and foremost, is a human capital centered economic strategy not a business creation, retention, attraction centered economic strategy. The economic development foundation now is high-quality education systems that prepares the next generation for the economy they are going to work in and communities where mobile talent wants to live and work. The latter being what economic development programming should be focused on.

We know how to create welcoming communities. We know how to pay for and provide high-quality basic services, infrastructure and amenities. We know how to create high-density, high-amenity, transit-rich neighborhoods. What is missing is an understanding that as then New York City Mayor Michael Bloomberg put it “talent attracts capital far more effectively and consistently than capital attracts talent”. That the path to prosperity for communities is human-capital driven.

It is also clear that the desirable mix of infrastructure, basic services and amenities differ from region to region. What makes small towns and rural communities attractive places to live and work are different than what makes big metros and their big cities attractive places to live and work. So Michigan’s diverse regions need the resources and flexibility to develop and implement their own strategies to retain and attract talent. It’s an essential ingredient to their future economic success.

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Northern Virginia quite literally won economically in the 21st Century when Amazon chose them as the location for one of two HQ2s. Winning what was described by pundits as the Super Bowl of economic development competitions. HQ2 brings to Northern Virginia a commitment for 25,000 jobs with an average salary of $150,000.

(Amazon also chose New York City as the second site for their H2, but withdrew the offer after the announcement generated significant local opposition.)

As we explored, metro Detroit including Windsor and metro Grand Rapids were among the initial 238 competitors, but did not make the final 20.

This, of course, raises the question why did Northern Virginia win? What were the assets they offered that mattered most to Amazon? Understanding what assets matters most is imperative for Michigan regions to understand because HQ2 is representative of the predominant type of high-paid jobs investments being made employers.

If we want––and we should––an economic development policy focused on high-wage jobs the reality is they are highly concentrated in professional and managerial occupations. Not just STEM: think workers in offices, schools and hospitals.

And as the Northern Virginia proposal states, where these jobs concentrate benefits the entire economy:

A significant beneficiary of Amazon’s new investment in NOVA will be the region’s small businesses. Retailers, restaurants, contractors, and local service providers derive most of their sales from within the community. Those small businesses will benefit from increased demand from Amazon itself as well as from increased spending associated with Amazon’s employees, both directly and indirectly.

So let’s see how Northern Virginia sold itself to Amazon. Here is the first section of their proposal:

As a partner to Amazon, Northern Virginia (NOVA) brings several distinctive, high-impact assets to the table

North America’s top producer of tech talent.
Greater Washington is the country’s most educated region (~49% of those 25 and older have at least a bachelor’s degree), and it produces more computer science graduates than any other metropolitan area.  The region also has a ready base of talent, with the country’s third-largest pool of software developers and fourth-largest pool of management and legal professionals. The combination of depth, concentration, and growth of talent available in the Washington, D.C. metro area, with additional tech talent production from Virginia’s world-class higher education system, will ensure NOVA maintains and enhances its edge with access to the best and brightest.

A global and inclusive region…
Greater Washington is a global power center, the capital of global democracy, and one of the country’s most racially, ethnically, and internationally diverse regions. Women are twice as likely, and African Americans five times as likely, to work in the technology sector in NOVA than in Silicon Valley. Approximately one in four of its residents was born outside the United States, and the children in NOVA schools speak~100 native languages. Communities in NOVA are ranked among the most LGBTQ-friendly nationwide, and diversity is one the region’s core strengths.

…on a human scale.
NOVA offers something for everyone, with access to some of the country’s most interesting cultural and historical sites, sports teams in all major leagues, and a dynamic food and wine scene. The area is home to a broad range of outdoor activities, from kayaking on the Potomac to hiking in the nearby Shenandoah National Park, all as part of a mild four-season climate.  The region offers a diversity of housing options, some of the country’s top-ranked public schools, and one of the country’s top-rated public transit systems.

The leading metro for public and private sector innovation.
Innovation is in Greater Washington’s lifeblood. The region’s legacy of transformative technologies transcends sectors, from the Defense Advanced Research Projects Agency’s (DARPA) role in inventing the internet and voice-recognition systems; to public/private collaboration to create more than 70 miles of automated corridors for connected and autonomous vehicle testing; to the region’s history as the foundation of the telecom revolution and our current depth of technology companies; and to the National Science Foundation (NSF) whose grant funding through the Digital Library Initiative supported the research and eventual foundation of Google, Inc.— Greater Washington sits uniquely at the nexus of public and private innovation.

A stable and competitive partner with a legacy of exceptional governance.
Virginia is consistently rated among the best states in which to do business by leading publications, and Northern Virginia local governments are well-managed, have a history of visionary leadership, and a commitment to innovation. Of all the Fortune 500 companies based in the greater D.C. area, two-thirds have chosen to locate in NOVA. In 2017, U.S. News & World Report ranked Virginia as the No. 2 best state for governance, considering fiscal stability, budget transparency, and state integrity.

A new model of economic development for the 21st century.
Virginia’s partnership proposal was customized to match the scale of Amazon’s ambition and designed to support shared growth over the long term. While the package includes a competitive, performance-based incentive offering, it focuses primarily on strategic new investments in public assets that would benefit companies and citizens across Virginia.

The state incentive package includes in the order they are mentioned in the proposal:

1. Doubling Virginia’s Tech-Talent Pipeline
2. Regional Transportation Infrastructure Investments
3. Post-Performance Incentives

Here are cash incentives:

Subject to General Assembly approval, the Commonwealth will provide post-performance incentives to Amazon that will be paid annually based on job creation and wage levels, with minimum average wages of at least $150,000, plus benefits, escalated at 1.5% annually.  The company will be eligible to receive up to $550 million in incentives if it creates 25,000 qualifying jobs (i.e., $22,000 per new job). Up to $200 million in additional company incentives (for cumulative total of $750 million) is available if the company were to create a total of 37,850 qualifying jobs within 20 years (i.e., $15,564 per new job in excess of 25,000 jobs, up to 37,850 jobs).

This winning proposal demonstrates the validity of Michigan Future’s core learning from three decades of research on the evolving American economy, that talent––not low taxes––is the asset that matters most to growing, retaining and attracting high-wage employers. In essence talent attracts capital, not the other way around. That the economic policy priority for a high-prosperity Michigan is to prepare, retain and attract talent.

The Northern Virginia description of the assets they offer starts with their current and future talent concentration of professionals and managers; their being welcoming to all, and their quality of place––with an emphasis on alternatives to the car––so that they are attractive to place for talent to live and work.

And the future investments they offered Amazon build more of those assets. The major investments proposed by state and local government are not cash incentives––their cash incentives were far less than offered by Michigan’s two big metros––but rather increased spending on K-16 STEM, transportation and affordable housing. All of which they describes as “A new model of economic development for the 21st century.”

If Michigan is going to compete with regions like Northern Virginia for high-wage employers we need to completely redesign our economic development strategy and practice. What Michigan needs, first and foremost, is a human capital centered economic strategy not a business creation, retention, attraction centered economic strategy. The economic development foundation now is high-quality education systems that prepares the next generation for the economy they are going to live in and communities where mobile talent, from all races, creeds, ethnicity and sexual orientation, wants to live and work. As Northern Virginia teaches us, these are the actions that are what positions you to win economically in the 21st Century.

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We are now living in an economy where talent is the asset that matters most to enterprise success. And that enterprises increasingly locate and invest in those communities which have the greatest human capital.

DeGraff writes:  The traditional argument is that lower tax rates attract the best companies. But the numbers suggest otherwise.

The states with the highest amount of venture capital per person, which is an indicator of growth potential, are California, Massachusetts, and New York. These are also among the top tier of places with the biggest state and local tax rates. So why are all these giant, multinational companies with tons of moving parts and pieces moving to these expensive locales?

It turns out that all three states are also among the very top tier of higher education rates. The people who live in these places are more likely to have graduate degrees than their peers elsewhere, and the states themselves are abundant with elite research universities and institutes. Additionally, they have diverse and multi-cultural populations with global perspectives on all issues. This is becoming especially important because these multinational companies are making more and more of their profits in countries outside of the U.S.

The trend goes beyond these three states. Forbes’ list of the most-educated American cities are disproportionately college towns with significantly higher employment rates and far better paying jobs than the rest of their surrounding regions. While some of these jobs are associated with academic institutions, most of them are with companies that have built around these areas to get talent.

It’s an indisputable fact: organizations locate in places where top talent is readily available. People want to live in these areas because of access to culture and education. Furthermore, these spots are typically more inclusive than other locales because they’ve historically welcomed people from all over the world and embraced a multiplicity of worldviews.

Ann Arbor, by the way, is ranked #1 on the Forbes list.

As we have written frequently (see this 2010 post and this from 2014) what matters is what you get from higher taxes. The places with the strongest economies are those that combine high quality education systems and high quality of place that retains and attracts mobile talent. (And, as DeGraff mentions, they are also welcoming to all.) Both education and placemaking require public investments.

That is why Michigan Future’s first ever policy agenda will emphasize building and investing in a education system from birth through higher education that will prepare all Michigan kids for a 21st Century economy and building and investing in high-amenity, welcoming communities that are places where talent wants to live and work.

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Heartwell begins his agenda with Champion of Diversity. With an emphasis on friendly to immigrants. He says: “Immigration is crucial to our economy and immigration is a bedrock principle of our American life. We have always been a people who throw our arms wide in welcome.”

Then talent. He says: “Talent comes in all shapes and forms and colors and ethnicities. It is home grown and it finds its way here from someplace else. It is the young entrepreneur and the seasoned research scientist; the designer, the architect, the programmer, the doctor, the professor. In a knowledge economy such as ours talent is wealth. The cities that retain and attract talent are winning; the others are losing. … Talent today is measured in post-secondary degree attainment. We must do better.” (Emphasis added.)

Exactly! His formula: better schools from early childhood on and, because talent is increasingly mobile, retaining talent after they graduate from college. He recognizes that the provision of quality basic services and amenities are crucial to retaining and attracting residents. Specifically he speaks of the importance of parks; roads; transit (including considering street cars!); biking and walking friendly and street lighting.

On all these issues the city is hindered by state policy. The Mayor emphasized the Legislature’s unwillingness to increase transportation funding. Which matters a lot, but so does a decade or more of revenue sharing and education (particularly higher education) cuts. And an ambivalence, at best, about being welcoming to all (including, but not limited to, immigrants).

We need state, regional and city policy across the state that starts with as the Mayor puts it: “In a knowledge economy such as ours talent is wealth.” That is the starting point of constructing an agenda that will put Michigan back on the path to prosperity. Because unless we increase the education level of those who choose to live and work here we are going to be one of America’s poorest states.

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On the topic of welcoming to all (see my pledge of allegiance post) the Governor’s signing of the domestic partner benefit ban was a big step backwards. Two columns – one by Brian Dickerson in the Free Press and other by Tommy Allen for Mlive – capture how wrong and harmful that decision was. The Dickerson column says it all in its title: The good governor sides with the bigots. As does the title of the Allen column: Domestic partner benefit ban: Can Michigan experience economic recovery when we enshrine discrimination?

On places doing well economically despite supposedly high (to listen to the small government ideologues crushing) business costs check out a fascinating account in Bloomberg Business Week on Silicon Valley and an Economist article on New York City. These are two places that the right always pontificates about are in a state of permanent decline. As companies and people supposedly flee high tax/big government/high costs places. Wrong! Here is what Business Week says about Silicon Valley:

It was never clearer than in 2011 that Silicon Valley exists in an alternate reality—a bubble of prosperity. Restaurants are booked, freeways are packed, and companies are flush with cash. The prosperity bubble isn’t just a state of mind: Times are as good as they’ve been in recent memory. The region gets 40 percent of the country’s venture capital haul, up from 31 percent a decade ago, according to the National Venture Capital Assn. And the U.S. Bureau of Labor Statistics recently reported that growth of the area’s job market led the nation, jumping 3.2 percent, triple the national rate.

Some of that job growth is auto related. Ford just announced that they will be joining many auto companies in Silicon Valley. Why? Concentrated talent.

And then there is New York City (check out my recent posts here and here)  which as the Economists writes is doing well and is positioning itself to do even better in the future with their investment in the new Cornell/Technion campus. As they write:

Some $1.2 billion was invested by venture-capital firms in New York in 2010. The Big Apple even overtook Massachusetts in venture-capital funding for internet and tech start-ups, making it second only to Silicon Valley. And in the third quarter of last year, it surpassed it in venture capital in all categories. Between 2005 and 2010 employment in New York’s high-tech sector grew by nearly 30%. Google alone has about 1,200 engineers in the city.

Finally, as you know a central conclusion of ours from the years of research we have done on the characteristic of the most prosperous places around the country is that, with the exception of a few energy production states, the states that do well are anchored by a vibrant central city. As our Governor says Michigan can not succeed if the city of Detroit isn’t succeeding.

Dome Magazine published a terrific series of four columns by Craig Ruff on the importance of cities to Michgian’ success. You can find the first here. Definitely worth checking out all four. Ruff sums up how important this is to Michigan’s success this way: “Does Michigan need cities? Unequivocally, I say “yes.” Getting there is a whole ’nother kettle of fish. Why we, virtually alone and voluntarily, turned vibrant cities into detritus defines us and, very sadly, forecasts our future.”

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More specifically the growth in the immigration share of the labor force and growth in big metro economies, by and large, go hand in hand. For example, metro Phoenix which had the second largest percentage point gain in immigrant share of the labor force from 1990-2007 had, by far, the highest economic growth rate.

The new isn’t all positive. Almost never is. There is some evidence in this and other studies that immigrants, in lower skill occupations, put downward pressure on wages. Which means that the contribution immigrants make to income growth per worker is dependent on the education attainment of a region’s foreign born population

How does metro Detroit stack up? Immigrants share of the region’s economic output is eleven percent, more than their share of the population. Metro Detroit’s workforce is ten percent foreign born compared to twenty percent for the nation’s largest metros and twelve percent nationwide. Between 1990 and 2007 the region’s foreign born share of the workforce grew from 5.5% to 9.9%, the third smallest increase of the twenty largest regions nationally.

Hard to look at this data and conclude, as many do, that immigration is a cause of metro Detroit’s economic decline. In fact, the preponderance of the evidence is that the opposite is true: we would have a stronger economy if our foreign born population was closer to the national average.

Immigrants, along with recent college graduates, are part of increasingly globally mobile talent who add to economic growth. The places that will do the best are those that are welcoming to talent from anywhere on the planet.

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I keep coming back to the central conclusion of our New Agenda work that culture trumps policy. (For details read our New Agenda for New Michigan report.) This is culture as attitudes and beliefs, not arts and culture.

We surprised ourselves in developing our New Agenda by concluding that what most distinugishes those places across the country that are doing best in a flattening world is their culture. That if you got the policy right and the culture wrong, you would not be successful.

The places with the most prosperous economies highly value lifelong learning, an entrepreneurial spirit and being welcoming to all. This is what matters most along with an acceptance – rather than resistance to – globalization and technology.

The importance of valuing learning is obvious. Education attainment is what is driving success for individuals and communities. And because the world is constantly changing learning needs to be for a lifetime.

We use entrepreneurial spirit in its broadest sense, the opposite of entitlement. It means a community with a DNA that values risk taking and taking responsibility for your own career whether you start a business or not. It sure means giving up on the notion that you are owed a job with good wages and benefits as long as you do your job, whether your employer is successful or not.

Talent increasingly can live anywhere they want on the planet. Its no longer can we compete for mobile talent with Chicago and California. Its now those places plus China, Africa, Europe, you name it. And one thing is clear, if people don’t feel welcome, they will not come. The places doing best are those that are open to having folks come and live in their communities from anyplace on the planet.

These cultural values far better characterize California than either Michigan or Indiana. And are a more powerful driver of economic growth than getting state and local spending and taxing right. Changing culture is hard, but its something we need to put at the top of our priority list. Its that important!

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