Governments should compete for residents, not for 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.

One 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.

— Tyler Cowen

Bloomberg Opinion