By Christopher Farrell
Rarely have a city and a company been so closely identified as Seattle and Boeing. Three generations of workers from the Puget Sound region have labored for the aerospace giant and, at least to this occasional business visitor, it seems that half of the Seattle area is named after Boeing. That's why it came as such a shock when Phil Condit, the company's chairman and chief executive, announced in March that Boeing would move its headquarters to one of three cities: Chicago, Denver, or Dallas/Fort Worth. (See BW Online, Video Views, 3/27/2001, "Why Boeing Is Outward Bound", and BW Online, 3/28/01, "Lots of Green Left in the Emerald City")
Whatever the merits of Boeing's relocation decision -- and they don't seem to be many or especially compelling -- the message is clear: Get used to it. No metropolitan area should take its multinational corporate behemoths for granted anymore, no matter how big or how deep the historic roots.
On the flip side, a major economic policy implication of the rise of the mobile multinational headquarters is that homegrown entrepreneurs are even more critical than before to an area's economic vitality. "Are you attracting entrepreneurs?" asks Mitchell Moss, professor of urban policy and planning at New York University. "The challenge is not which companies are you keeping, but what companies and entrepreneurs are you attracting." But entrepreneurs worry about costs in a hypercompetitive global economy. Governments shouldn't ignore the pressure to eliminate regulatory barriers to new business creation as well as to reform inefficient tax policies. Another potential policy implication: Metropolitan areas should invest in basic public goods, such as airports and universities, and pursue policies that ensure plenty of telecom bandwidth and an adequate housing stock. These investments don't move, and, at the same time, they do attract the kind of entrepreneur that creates future corporate behemoths. "It's a long-term strategy with a long-term payoff," says Mark Zandi, chief economist at Economy.com.
The numbers suggest that hosting a corporate headquarters does benefit a metropolitan economy. For instance, jobs grew at a 2.4% average annual rate in metro areas that added major corporate headquarters from 1989 to 1999. Job growth sputtered along at a 1.1% annual rate in urban areas that lost at least three headquarters over the same time period, according to a study last year by economists Toni Horst and Sophia Koropeckyj of Economy.com. The intangible benefits are also large for civic culture. Corporate bases tend to be generous with their time and money to hometown cultural, charitable, and nonprofit institutions. In sharp contrast, once the headquarters is moved, the former hometown becomes just another outpost in a far-flung corporate empire.
The shifts in headquarters have been going on since the 1970s, along with the massive migration from the Northeast and the Midwest to the South and the West. For instance, from 1975 to 1999, New York's concentration of corporate headquarters fell 50%, and Chicago's dropped by a quarter. Thanks to global telecommunications networks, it's easier now than in the '70s or even the '80s for a major multinational like Boeing to relocate its HQ. And the factors forcing relocations aren't about to abate. International mergers and acquisitions often force a change in headquarters. The new sociology of executive suites may be an underappreciated reason. Home is almost synonymous with airplanes and hotel rooms for top executives overseeing vast global enterprises these days. Senior management executives are like sports stars, free agents lured from elsewhere by a lush pay packet, with little or minimal connection to the local community. The "senior management at major multinational corporations are increasingly footloose," says Zandi.
Yes, losing the headquarters of a multinational corporation is a major blow to a city, region, or state. Prestige is at stake. Minnesota worked itself into a frenzy of civic angst when Norwest moved its headquarters from Minneapolis to San Francisco following its merger with Wells Fargo. If the unthinkable can happen -- Boeing severing its headquarters ties with Seattle -- isn't it conceivable that 3M's management might flee the frozen prairie of the Twin Cities for a warmer climate? Or that Hallmark Cards could abandon Kansas City for a gateway burg on a coast, that Anheuser-Busch might leave St. Louis, and so on?
This poses a severe challenge to local officials and legislators. They know it would be irresponsible to ignore the needs of major companies in an area. But policymakers should recognize that local entrepreneurs have potentially far deeper ties to the community. Indeed, even if an enterprise eventually evolves into a major national and international player, the founding entrepreneur often retains strong emotional and investment links to the local community.
All this suggests that local government should focus more on crafting policies that unleash entrepreneurs. In a global economy, it's the smartest strategic move.
Farrell is contributing economics editor for BusinessWeek and co-host of Minnesota Public Radio's Sound Money, which is broadcast on Saturdays in nearly 200 markets nationwide
Edited by Beth Belton