Wednesday, June 24, 2015

Are Fortune 500 companies overrated in economic development?

Montgomery County has failed to attract a single major corporation to relocate here in over a decade. Much less draw a Fortune 500 company. The county's elected officials have yet to be called on that record of failure by the local media. But in public comments on economic development, many of those officials - and their political operatives - have argued that we don't need Fortune 500 companies in our future. Instead, they've said they're focused on small ventures in small offices. Indeed, a recent economic development effort to fill vacant office space in the county was limited to small companies only.

Are Fortune 500 companies "overrated", as these folks suggest?

I would say the answer is clearly, "no." Large corporate headquarters are not only sources of high-wage jobs, but also generate economic activity in other sectors around them, from hospitality to finance to real estate. More importantly, Fortune 500s can serve as halo companies, economic development trophies that can attract companies of similar caliber or aspirations.

But enough about what I think. There was a great article by Ana Swanson in the Washington Post Business section recently that backs up what I've been writing about economic development and Fortune 500 companies since 2006.

Rather than becoming outmoded dinosaurs, Fortune 500 companies "are more vital to the U.S. economy than ever," Swanson wrote. "In 2014, the Fortune 500 companies together had revenue that equalled 72% of U.S. gross domestic product, up from nearly 59% in the 1990s," she added.

The county has also struggled to attract and foster startups. It recently booted several startups from a facility it owned in Rockville to make way for a cybersecurity center there. That won't build trust in Montgomery County among entrepreneurs. Should you commit to an incubator you might get kicked to the curb from next year?

And how strong is Montgomery County as a cybersecurity brand around the world? Councilmember Hans Riemer has talked a lot about cybersecurity. But then it was revealed that the county government was running on Windows 2000 last year, four years after cybersecurity "guru" Riemer took office. A county that runs on perhaps the most vulnerable operating system in the world should probably not be talking about cybersecurity.

Is the information economy bigger than Fortune 500s? Not quite.

"For all the buzz about start-ups and small business in the United States, the massive corporations of the Fortune 500 are actually more important to the economy than ever," Swanson reported.

Should we be depending on small business to create the high-wage jobs the county has failed to attract over the last decade in the private sector? Not according to Swanson.

"Although politicians often talk about the importance of small business creation, most U.S. jobs do not come from start-ups," Swanson asserted. "According to research from George Mason [University], half of all jobs generated by newly formed companies disappear after five years."

With all of the solid evidence that we are on the wrong track, why are our elected officials so blasé about attracting Fortune 500 companies? The most obvious reason is to distract from their utter failure to attract any. "We don't need them anyway," they'll suggest, hoping to continue to get a free pass from the media.

But a second reason is increasingly becoming clear: corporate headquarters take up large real estate footprints. That's land that developers could make a lot of money on with residential development, not office space.

With the vast majority of councilmembers beholden to the developers who fund their campaigns, it's not surprising they're heading in the direction of making the county the region's ultimate bedroom community. "Live-Work-Play" is rapidly devolving into "Live-Drive-Pay", as more commuters are living in, but working outside of, Montgomery County.

That the "independent" office market report prepared for those officials would echo their call for converting most office space in the county to residential housing is not a surprise. That they can continue to get away with an economic development policy that appears to be at cross-purposes with reality and common sense is.

53 comments:

Anonymous said...

F500s almost never move and almost always cost $$$$$$$$$$$$$$$$$$$$$ in handouts to attract. That's the point of going after smaller companies - you know, the ones that grow very quickly and actually see job growth - and having them organically grow into larger companies, e.g. MoCo's newest F500 company - Discovery Communications. No one is stubbing their nose at F500s; most people are just realistic about what companies make financial sense to go after. Dyer, you're welcome to go out and court F500 companies; lord knows that'd be a more worth-while endeavor than simply whining for the 837374398th time.

Anonymous said...

This is the stupidest rant yet, Dyer. "[C]orporate headquarters take up large real estate footprints. That's land that developers could make a lot of money on with residential development, not office space" - stupid. Developers will ALWAYS build what makes them the most money and right now - across the DC region - that's residential, because supply doesn't meet demand. It's called capitalism. This isn't some conspiracy between county councilmembers and developers.

Peter said...

...and the available evidence still concludes that small business in America is actually a greater generator of jobs than corporate enterprise....

Nick Hanauer talks a lot about this.... https://www.youtube.com/watch?v=bBx2Y5HhplI

Anonymous said...

There is plenty of empty land in MoCo. If a large corporations wants to buy some, pay for the utilities and infrastructure needed to they can go ahead. I am sure a Fortune 500 company has cash on hand or can get that financed. But they shouldn't have the county "attracting" (using taxpayer money to pay for everything and cut the corporation's taxes) just so their CEOs don't have to lose any bonuses.

Anonymous said...

Has Dyer ever created even one job himself? Does he even have one?

Anonymous said...

"There was a great article by Ana Swanson in the Washington Post Business section recently..."

Why didn't you link to it?

Anonymous said...

We're already giving incentives for big companies to stay here (see Choice Hotels, for example). Let's get real. Marriott will get a big package to stay as well. These companies have jobs, good jobs.

Robert Dyer said...

10:02: In fact, as a professional musician, I haved hired, managed and fired employees.

Robert Dyer said...

7:31: Texas and Virginia are "realistic about what companies make financial sense to go after," and they're completely destroying us in economic development with major corporations. Discovery was already here. No company like that has started, much less moved here, since.

Anonymous said...

"Discovery was already here."

I see that 7:31 AM's point went entirely over your head.

Robert Dyer said...

9:17: Of course developers build based on market demand. The question is, why are the elected officials actively pursuing policies that will severely reduce demand for office space? Why is there a biased report to give them cover to continue and accelerate those policies?

The fact is, residential by nature is always going to be more profitable than office. But up until now, it would have been considered insane to convert most office to residential. In fact, county politicians have spent over a decade selling us on live-work-play smart growth. Play back the tapes of their advocacy of people "living where they work."

You can't do that without the jobs. But in very recent times, we're hearing some new and radical talking points attempting to create a new model - small schools with no facilities, no new road capacity even where the growth is planned, and - yes - elimination of existing and planned office space. You have to admit that councilmembers aren't actively courting large firms, and aren't even in the game for economic development trophies like the Redskins or DC United.

Robert Dyer said...

2:19: How so? There is no "next Discovery" here poised to attain Fortune 500 status. Discovery was here before the political machine simply surrendered in the regional economic development competition a decade ago. Discovery would not start or move here in 2015.

Robert Dyer said...

9:54: The study cited shows those small business jobs to be less stable, and quick to disappear. And what are the wages? Are you comparing a minimum wage job folding jeans to Google or Northrop?

Anonymous said...

"Discovery was here before the political machine simply surrendered in the regional economic development competition a decade ago"

What was the date of this "surrender"?

Anonymous said...

Dyer still hasn't bothered to explain why people with jobs in NoVa and DC prefer to live in MoCo.

Anonymous said...

Where could a pro football or soccer stadium be built in Montgomery County? There are no large sites available that are close-in, and convenient to both Metro and major highways, unlike DC (RFK site, Capital Waterfront and Anacostia) and Arlington/Alexandria (Potomac Yards).

Robert Dyer said...

3:41: The surrender date was apparently Election Day 2002, when the "End Gridlock" (pause for hysterical laughter) slate was elected.

Robert Dyer said...

3:45: I did, but we'll try it again more slowly for you so you can keep up - Montgomery County is "a great place to live." But the topic is economic development, which has nothing to do with residential housing. The question is, why aren't the high-wage jobs coming to Montgomery County?

Robert Dyer said...

5:38: The fairgrounds are right on a MARC line and I-270. Gude Drive industrial sites. Remember, DC is just going to seize industrial land for the stadium from the current landowners. The county is giving large properties away left and right near Shady Grove Metro to developers - surely you don't believe they couldn't do the same for a stadium nearby? There's arguably a larger number of DC United fans in MoCo than DC. Yet we never even made an effort to get the team. Embarrassing.

Anonymous said...

Spending hundreds of millions in taxpayer money to subsidize a professional sports stadium being built in MoCo? Are you insane? Thank goodness few voted for you; you'd be the worst thing to ever happen to taxpayer wallets. Congrats, Mr. Dyer, you just spent $400M in taxpayer dollars to create concession stand jobs for 8 Sundays a year. Best idea yet.

Robert Dyer said...

8:13: A supporter of the current Council claiming I'd be "the worst thing to ever happen to taxpayer wallets"?! You've become a parody of yourself. Have you looked at the County budget lately? Hysterical.

Last time I checked, arenas and stadiums can be operated 365 days a year for concerts, shows and sporting events.

Anonymous said...

Dyer: "No company like that has started, much less moved here, since."

There are plenty of fast-growing companies that have started and moved to the county since Discovery. Heck, just look a block around Discovery and you'll find plenty - Radio One moved in across the street, United Therapeutics down the block is getting ready to break ground on their FOURTH new building in the last few years. You'd be hard pressed to find any company in the region expanding as quickly as UniTher; they literally are adding a brand new building to their campus every year. It's nuts how well some MoCo companies are doing - quit shitting on them for no reason, other than being completely ignorant of their existence and success, that is.

Anonymous said...

"I'd be 'the worst thing to ever happen to taxpayer wallets'?!"

Uh, yes. Do I need to explain it to you again, but with smaller words?

Anonymous said...

Corporate welfare queens.

G. said...

Here's the article Dyer's referencing, since he can't bother to provide a link.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/06/09/why-disruption-happens-a-lot-less-often-than-ceos-think/

This article is also worth reading on the subject:

http://fortune.com/2014/06/02/fortune-500-shuffle/

Look at what California has done. They've succeeded in growing new industries to replace the loss of traditional F500 firms (like Lockheed Martin). Meanwhile, Texas is largely reliant on oil and gas companies. About half of the F500 companies in Texas are oil and gas.

Look at Maryland as is. Look at the dynamism with respect to market cap vs. others in our region (see Fig. in Fortune article). I'd love to see that figure adjusted for per capita comparison with Virginia and Pennsylvania.

And yes, small businesses fail at a higher rate than large corporations. This is not news. Small businesses are also not all created equal. In particular, knowledge-intensive small and medium businesses are disproportionately responsible for high wage job growth in the U.S. While some of these businesses fail, the people who lose those jobs typically go on to start new businesses or move to firms that have achieved sustainability. These are the types of businesses Maryland should be trying to foster. We don't need to lure some elusive, lumbering giant with ludicrous tax incentives.

Anonymous said...

The Fairgrounds may be convenient to the soccer fan demographic in Gaithersburg, but the site is even farther from the center of the metropolitan area than Woodbridge. The MARC trains run only run weekdays during rush hour. Connections via public transportation to areas such as Aspen Hill, Wheaton and Langley Park are very poor - it's much easier to get to Buzzards Point, Poplar Point or Potomac Yards from those areas. And that doesn't even touch on the enormous fan demographic in Northern Virginia.

The MoCo Machine is smart enough to figure this out. You're not.

G. Money said...

Also, putting the D.C. United stadium at the Fairgrounds is an abysmal idea. Leave D.C. United where it belongs, accessible by public transit to fans from around the region. Move the Pigskins/Hogs/whatever new name back to D.C. as well.

Anonymous said...

General Dynamics relocated to Virginia in 1991. That year, they were #48 in the Fortune 500. This year, they are #100.

Northrop Grumman relocated to Virginia in 2010. That year, they were #61 in the Fortune 500. This year, they are #72.

NoVa's Midas touch. The MoCo is smart to not waste time trying to poach defense companies.

Anonymous said...

On the other hand...

Martin Marietta was #111 in the Fortune 500 in 1995. The next year, they merged with Lockheed, which had been headquartered in California, to form Lockheed Martin. This year, they are #64 in the Fortune 500.

Advantage: MOCO MACHINE!!!!

Steve D. said...

Yeah, but Lockheed Martin is constantly threatening to leave the county.

Anonymous said...

Hooray, we beat Dyer!

Anonymous said...

MOCO MACHINE ROOOOLZ!!!1!

Robert Dyer said...

8:35: Radio One is not Northrop or Intelsat; United Therapeutics was already in Silver Spring when the End High Wage Jobs, er, End Gridlock team was elected in 2002.

Robert Dyer said...

G. Money, Texas has moved ahead of California in the export of technology. That has nothing to do with gas and oil.

Robert Dyer said...

6:23: Smart enough to disappoint the large fan base for D.C. United here by not pursuing the team?

Robert Dyer said...

7:23: You celebrated too soon.

Anonymous said...

"8:35: Radio One is not Northrop or Intelsat; United Therapeutics was already in Silver Spring when the End High Wage Jobs, er, End Gridlock team was elected in 2002."

Don't you just love how Dyer just keeps moving and moving the bar as people repeatedly rebuke his dumbass claims with actual facts with actual examples?

So, Dyer, UniTher's massive MoCo expansion has happened after 2002, that's a sign of something bad, right? Is there a reason why you're perpetually trying to twist every success into a failure? I suppose you just can't fucking stand that good things are happening in MoCo.

Anonymous said...

And Discovery Communications grew into a Fortune 500 company after 2002, as well.

Dyer is a communist. He thinks that wealth can never be created, only stolen from others.

G. Money said...

Dyer, what companies do you think are primarily responsible for Texas being the top technology exporter? How about Dell and Texas Instruments? How did Texas get those Fortune 500 companies to move their headquarters to the state? Oh, by being started and developed into Fortune 500 companies in Texas? Interesting.

Additionally, I'm curious as to what the state rankings are in terms of technology exports per GDP. Maryland has a higher GDP per capita than Texas as it stands.

And in case you missed it the last time I schooled you on this, since you didn't respond:

Maryland's median income is $74k, Texas' is $52k (and is still lower even when accounting for cost of living differences in most cities).

Maryland has a much higher percentage (37% vs 27%) of the population with at least a bachelor's degree.

Maryland has a much lower percentage (10% vs 18%) of people below the poverty line.

What Maryland doesn't have is a lot of oil money to subsidize highly questionable corporate tax incentives. Unfortunately for Texas, oil money is unstable in the long term and is loaded with unaccounted for negative externalities.

G. Money said...

Dyer, I've been a DC United fan since 1995, and there is no way I would support moving the team to Shady Grove, much less somewhere that's only accessible by MARC train and car. DC United also has large fan bases in Virginia, PG County, and DC. You're like a greedy child trying to take away everyone else's candy.

Robert Dyer said...

10:46: You're projecting your own behavior onto me. You've diverted from the question of Fortune 500s to smaller success stories. I'm delighted that smaller businesses are funding success in the county. But that doesn't address the question of the larger, moribund economy, and lack of high-wage private sector job creation in MoCo.

UniTher's expansion is great - but my point was that, unless clouded by political ideology, no company like UniTher would choose - and has not chosen - Montgomery County as its headquarters since the political machine became anti-business.

Robert Dyer said...

G. Money, the question wasn't companies started in Texas. You had said California was better than TX and TX was all oil money. And my point was, TX has recently surpassed CA in the export of tech.

The reason TX exceeds MD in poverty is quite simple - it is a border state, with more jobs and more affordable living than MD.

Again, I don't see a Discovery-type company poised to attain Fortune 500 status here that wasn't already headquartered here prior to 2002.

We were fortunate to have better leadership prior to then on the County Council.

Anonymous said...

"La la la! I can't hear you! La la la!" says Dyer.

He sounds just like a Global Warming Denier. Oh, wait, he is one.

http://robertdyer.blogspot.com/2009/11/global-warming-hoax-one-step-closer-to.html

http://robertdyer.blogspot.com/2008/08/sarah-palin-wow-what-fantastic-choice.html

G. Money said...

No, I didn't say Texas is all oil money. I said its success is largely reliant on oil money. First off, about half of the F500 companies in Texas are oil and gas companies. Second, without that oil money, Texas wouldn't be in a position to give out ~$19 billion in corporate subsidies annually. That's almost ten times what Maryland gives out per capita (see link below). And third, yes, since you mentioned it, Texas is a border state. The largest recipient, by far, of Texas technology exports is Mexico. If your plan is to turn Maryland into a border state you're going to need more than a bridge across the Potomac.

Also, your explanation of Texas vs. Maryland poverty makes no sense. I already said that the median income in Maryland in higher when ACCOUNTING FOR COST OF LIVING DIFFERENCES. Why would having more jobs create more poverty? Because they are shitty jobs, that's why.

My point is that you consistently try to compare Maryland with Texas, without accounting for any of the massive differences between the states, be they size, natural resources, etc.

Also, what does "I don't see a Discovery-type company poised to attain Fortune 500 status here that wasn't already headquartered here prior to 2002" mean? If you can't predict a company's growth then it can't happen? You must have an amazing stock portfolio.

http://www.nytimes.com/interactive/2012/12/01/us/government-incentives.html#TX

Anonymous said...

Don't expect any big ideas from MoCo leadership like pursuing a sports franchise. They specialize in playing small ball: banning cardboard, etc. Important stuff, but not exactly inspiring.

Anonymous said...

So Texas incidentally has oil. Maryland incidentally has the federal government. Neither would be doing as well without their respective lucky draws.

Robert Dyer said...

G. Money, I never said Maryland should become a border state. What I said was, the reason Texas has higher poverty numbers is that it is a border state, and has to absorb a constant stream of immigrants crossing its border (I am to the left of President Obama on immigration, in case you think this is a Tea Party rant about illegal immigration).

You also have to compare the policies - and the results - of the state governments of Texas and Maryland.

Robert Dyer said...

2:48: On the contrary, I have engaged every counterpoint and handily defeated each one. Anyone can read the comments here and see that. Last year was the coldest on record in the DC area since at least the early 70s, by the way. Including the summer. There's a reason the world has moved on to the more accurate term of "climate change". But there's still time for you to join the other 98% of us.

Anonymous said...

"Last year" was nowhere near being "the coldest on record since at least the early 1970s". For both the winters of 2013-14 and 2014-15 were a few days on which the low temperature was the coldest since 1994. However, it was colder before then - the temperature used to drop below zero regularly around here - it hasn't done that since 1985. However, temperatures for the summer of 2014 were above average, and the mean temperatures for May 2015 have been the hottest on record for that month, and it looks like June will be the same.

Use of the term "climate change" does not mean that "global warming isn't happening, so they had to find a new name". It's just another name for the same phenomenon. The use of the former does not imply that they latter isn't happening.

Sorry, you're not with "the other 98%". You're with the 3%.

"I have engaged every counterpoint and handily defeated each one. Anyone can read the comments here and see that."

LOL... dunce.

Anonymous said...

And the cold temperatures in the past two winters were strictly a regional phenomenon, affecting only eastern North America, and occurring only during the winter. Everywhere else was warmer than average for the entire year. In fact, the global mean temperature for 2014 was an all-time high, exceeding that of the previous peak in 1998. And, nearing the midpoint of 2015, it looks like this year will exceed even that.

You suck at science just as you suck at economics.

Robert Dyer said...

12:28/6:21: You seem to forget that the winter of 2013-14 had about 2 solid months of days on which the temperature never went above freezing, and was far colder than any winter in Bethesda since the early 70s. Day after day for a time, it was 4 or 7 degrees outside every morning. That was unprecedented in my lifetime.

Your assertion that summer 2014 was hotter than average is also false in regard to Bethesda. That was the coolest summer here in my lifetime, as well. This summer is notably hotter than last summer, I will agree.

The biggest thing we could do to reduce climate change is to force companies to bring back our jobs from countries like China, who are the biggest polluters in the world. It turns out Mitt Romney, Hans Riemer, and Mitch Rales are partly responsible for climate change. Who knew?

G. Money said...

It's called global warming, not Bethesda warming.

This link has a chart of summer temps in DC dating back to 1963. Last summer was certainly cooler than average over that time period, but it was not the coolest summer since the 1970s (see 2000, 1997, 1996, 1992,1984).

Agreed on the last point though. The U.S. and European emissions cuts over the last 20 years (especially prior to the last five years) largely have come through moving energy intensive manufacturing to China, which relies on dirtier fuel sources (primarily coal) than developed nations. Moving manufacturing back from China is unlikely to produce a great many jobs here, since the higher cost of labor will favor increased automation. But a carbon tax, including on imported goods, would certainly raise the cost of manufacturing in China and would encourage the movement of manufacturing to where clean energy is cheaper and where goods are being consumed. And I'll acknowledge that the carbon tax was originally (as far as I know) a Republican idea, although it doesn't seem to be very popular among the GOP now.

Robert Dyer said...

G.Money: True, as were the healthcare mandate and concepts behind Common Core.