Everybody who pays attention to economic development in Virginia knows by now who Stephen Moret is. He is the Louisianan, recruited to turn around the Virginia Economic Development Partnership and rethink the state’s economic development strategy, who landed the Amazon HQ2 deal. Few are familiar, however, with the theoritician behind the practitioner, a man with a near-identical last name — Enrico Moretti.
Bacon’s Rebellion readers learned of Moretti, a Berkeley University professor, when I reviewed his book, “The New Geography of Jobs,” back in 2012. Moretti’s analysis of the primacy of labor markets in the Knowledge Economy — metropolitan areas with deeper, richer labor markets enjoy a tremendous competitive advantage in competing for both corporate investment and skilled/educated workers — has informed my economic-development commentary ever since.
Well, it turns out that Moret is a big fan of Moretti. Indeed, when fashioning a new economic development strategy for Virginia, Moret engaged Moretti for input. That insight emerges from an excellent article in the Washingtonian by Luke Mullins, “The Real Story of how Amazon Won Amazon’s HQ2.” Mullins’ article provides the most incisive reporting on how Virginia won HQ2 that I have yet seen.
In “The New Geography of Jobs,” Moretti explored a seeming contradiction. The cost of doing business in the nation’s “brain hubs” is exorbitantly expensive. But the brain hubs offer something companies can’t find elsewhere — not just a reservoir of skilled/educated workers, but innovation ecosystems that generate fresh ideas and spark innovation. These powerful metropolitan labor markets create productivity gains that offset the high cost of doing business.
Reports Mullins:
When it came time to reimagine a new economy for Virginia, Moret wanted the Berkeley economist’s input. He called with an offer, and Moretti accepted.
The Virginia team worked through much of 2017 and concluded that the state’s biggest opportunity was in the high-tech sector. After all, as Moretti’s work shows, each new tech job creates an additional five positions in other fields. The economist advised that the best way to lure more tech employers was to build out the pipeline of highly skilled employees through investments in education. “That’s education at all levels,” Moretti says, “whether it’s pre-K or community college of local college.” He also suggested that Virginia partner with a public university and create a new innovation-and-technology campus similar to the Cornell Tech institute in New York.
By the end of the process, the economist had been a profound influence on the blueprint for Virginia’s economic future. Then, just as Moret’s team was about to release their plan publicly, the big news broke: Amazon was launching a search for a second headquarters. All the work Virginia had just done with Moretti was about to become more consequential.
Competing metros organized their proposals around public subsidies. Moret’s team pitched Northern Virginia as a brain hub.
Virginia’s team understood that an abundant supply of highly skilled workers was actually more valuable to tech firms than infrastructure upgrades or tax giveaways. In fact, when Moret’s team analyzed the Seattle market, they came to believe that a shortfall of qualified workers was one of the reasons why Amazon had launched its HQ2 search in the first place. “So why don’t we build a strategy that really focuses on that?” Moret thought. “Let’s dramatically expand our tech-talent pipeline.”
… Moret’s team proposed increasing tech education from kindergarten through 12th grade, expanding university offerings to produce up to 17,500 new bachelor’s degrees in computer science and related fields, and building a tech campus that could produce the same number of master’s degrees. All told, Virginia offered Amazon $550 million in tax breaks and $195 million in transportation improvements. But it pledged to plow $1.1 billion into tech schooling. According to Moret, it was the only place in the nation that made education the centerpiece of its pitch.
As Moretti counseled: “What I really thought was that ultimately [Amazon’s] choice would be based on the type of underlying economic factors that I describe in the book. I always thought that the subsidies were going to be a not-so-important factor.”
In the end, Moret and Moretti nailed it. Virginia won Amazon’s HQ2 and a promise to invest $2.5 billion and create 25,000 jobs. As momentous as the Amazon deal is, it represents only the beginning. Moretti’s insights into the relationship between labor markets, education, and corporate investment are accelerating a fundamental transformation in thinking about economic development in Virginia. Economic development, once seen as a specialized branch of real estate development, is increasingly entwined with workforce development.
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