How Moret and Moretti Won the Amazon Deal

Enrico Moretti

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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20 responses to “How Moret and Moretti Won the Amazon Deal

  1. “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.”

    An missing ingredient critical to the mix is added below in all caps:

    “Moretti’s insights into the relationship between labor markets, education, and corporate investment (AND AVAILABILITY OF VARIED HIGH LIFESTYLE QUALITY PLACES) are accelerating a fundamental transformation in thinking about economic development in Virginia …”

    • I think that Moret fully understands the value of “high lifestyle quality places.” However, I don’t think that thinking has penetrated the “conventional wisdom” in the same way that the education/workforce development/economic development connection has penetrated.

      • I agree. No doubt about Moret, he’s far ahead of conventional wisdom, including need for “high lifestyle quality places,” given today’s circumstances, highly negative now in places, but pregnant too with exceptional possibilities near and far.

        • James Fallows part I story in The Atlantic about Danville can be the harbinger for growing numbers of Virginia smaller towns and cities. Historic town structures is only one part of the necessary mix. Done right, Virginia can bring much more to the table under the ambit of place. This will be an important key to Virginia’s future, one that maximizes the potential of its “new economy”, its ability to feed all the growing needs, hungers, and varieties of this new economy with meaningful places and lifestyles that serve all sorts of functions new and old, including those far different from No. Virginia, as important as No. Virginia may in part be now, or in the future.

  2. WAIT! WAIT! Moret is advocating more money into Education? Is this the same “education” that BR hammers as “failed” – both Higher Ed and K-12?

    BLASPHEMY!

    Sounds like Moret is on the “take” from those “corrupt” Education “unions”, eh?

    So we’re going to put MORE money into education because Moret says so?

    LORDY. That kinda wipes out a major focus of BR these days!

    I wonder if Moret reads all that stuff in BR…..

    • Moret is doing absolute wonders for education in Virginia. I support his efforts and approaches 120%. He’s a remarkable public servant. Give us another 10 like him and his crew.

  3. Virginia could attract retirees, who generally use fewer government services than people with kids, by joining Mississippi, Illinois and Pennsylvania (as well as the no-state-income-tax states) by exempting pensions from the Virginia income tax.

    While some retirees will stay in the D.C. Metro area, many will not and would likely move to the many smaller communities in Virginia.

    Retirees would be still be paying income tax on their investments, real estate taxes, sales taxes and personal property taxes on their vehicles.

  4. I think this is another area where political philosophy plays into issues and in this case – the 21st century economy – and the need for more/better PUBLIC education and Conservatives, in general, are not big supporters of public education per se – or at least, judging from all their opposition to it and their support for private sector “education” – they set themselves apart from issues like Amazon as well as urbanized areas like Arlington.

    Public education – Higher Ed and K-12 have their issues – no question about it but they are fundamental to virtually every single urbanized region with a vibrant economy.

    Conservatives seem to lack the mindset necessary to do the things that have to be done – to invest in and power an urban economy.

    Look at our rural areas including towns/cities in those rural areas, led primarily by Conservatives and ask if they are real competition to the urban centers in terms of jobs and economy.

    It’s safe to say – if you took a bunch of Conservatives and put them in charge of Arlington – they’d turn it into another Detroit!

    • Total nonsense, Larry. Conservatives support higher education — they just don’t support unlimited subsidies for unaccountable higher-ed institutions. There is nothing — NOTHING — inconsistent with saying that a quality education is mandatory for success in the Knowledge Economy while also saying that higher-ed institutions are bloated with excess bureaucracy, tenured faculty who don’t teach (much), and engage in a destructive competition for status. Or for saying that quality education needs to be affordable.

      You are an apologist for a corrupt status quo.

      • No apologist here – I’m in favor of MORE public education!

        What Moret is advocating is MORE – across the board – and I support it!

        AND he is asking for MORE money for it!

        Tell me what Conservatives would advocate for MORE ? No – they talk about how costly and ineffective it is… and how it “fails”.

        Come on Jim – want me to go dredge up some quotes in BR?

  5. “While some retirees will stay in the D.C. Metro area, many will not and would likely move to the many smaller communities in Virginia.”

    Terrific comment, and very true. This includes folks from wealthy or just affluent Maryland suburbs of DC and Baltimore even, particularly if Virginia beats Maryland’s high taxes and Virginia improves its hospitality culture, and its smaller town lifestyle quotient. Virginia has great potential here, given its existing assets, that have under performed for so long mostly due to neglect, and Va’s insular culture.

    • By definition, retirees are not part of the workforce. Therefore, they are exempt from the pull of agglomerations of scale. They gain nothing from the magnetic pull of large labor markets. They are free to live wherever they want. That’s why I agree with Reed and have always supported the idea that rural Virginia localities should compete for this slice of the U.S. demographic.

      • geezy peezy – We AGREE – Economic Development is NOT sending retirees into the countryside!

        Most cannot wait to get out of NoVa when the time comes anyhow!

        But what in the world does “enticing” retirees to the countryside have to do with Economic Development in NoVa anyhow – ESPECIALLY when Moret is talking about MORE education and MORE money for education – across the board for the Virginia workforce – and the retirees will help pay for it!

  6. re: ” Conservatives support higher education — they just don’t support unlimited subsidies for unaccountable higher-ed institutions. ”

    Which translates into “No Mo Money”. Right?

    You guys are opposed to more money for education unless they do it the way you want it done. Correct?

    • Larry, what do you think the administrator to instructor ratio is today at colleges and universities, both public and private? How about 20 years ago? How about 30 years ago?

      I’d like the answers to those questions before I spend another dime of taxpayer money.

      • TMT – I’m more than familiar with the arguments that Conservatives have against “mo money” for education – but what I’m trying to do here is for those folks to admit that they are opposed to “mo money” AND to reconcile that position with the fact that Moret and the State incentivized Amazon to come to NoVa by promising “MO MONEY” for “education”.

        Seems like Conservatives who oppose more money for education would also be OPPOSED more spending of it – for ANY purpose until as you say ” before I spend another dime”.

        All I’m pointing out here is that – that “before I spend more” point of view is pretty much standard fare for Conservative types in BR.

        Would you agree? Do you support more money for education for Amazon?

        • Personally, I’d like to see antitrust actions filed against Google, Apple and Amazon in that order. They are too big and have too much market power. I don’t have trouble spending money on education in order to achieve specified goals but I want to see the administrative costs reduced substantially. If I were Governor, I’d have pushed to fund much of the Amazon education money from cuts elsewhere in the education budget.

          Why should taxpayers fund administrative bloat? Virginia should look at best practices for managing large institutions and force their adoption in its colleges and universities. I want to see large-scale layoffs.

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