Why some cities make it and others don't

Over at All About Cities, Wendy Waters asks: "Do corporate headquarters still matter?" writing that:

For years now, Vancouver has seen the number of corporate head offices in the city decline. The business community and some politicians have become pre-occupied with the issue. Many are demanding that something be done to lure new head offices or keep the ones Vancouver has. Similar questions are no doubt being raised in many medium sized cities around the world. But, the more I think about it, the more I question whether this the right issue for a city like Vancouver to be worried about in the global economy of the 21st Century?  I've been trying to find out if head office losses are issues to other cities. Montreal is an interesting study I'll blog about soon. I'd love tips from readers on other cities dealing with this question -- and I wouldn't mind hearing what Richard Florida has to say about it either... More here.

I think she's onto something. Obviously being a headquarters location was a big deal back on the hey-day of the Industrial Age. Many of you may be too young to remember, but the old way business magazines used to rank cities was with annual lists of the number of headquarters. I haven't even seen one of these lists in a long while. 

It also seems to me that headquarters are involved in pretty massive relocation in line with the basic demographic changes and talent flows that are reshaping domestic and national economies.  Second-tier cities are losing headquarters to first-tier cities for these reasons.  Even a great city like Seattle lost Boeing to Chicago. Of course there are counter-examples, there always are, but this is the main trend. The main reason is access to huge amounts of talent, especially when that talent is both concentrated and highly mobile not only between places but between jobs. If you want access to talent, you need to and have to be in a center, end of story.

Here's one for you: How long do you think it will be before at least one of the Big Three moves out of Detroit? The factories have been migrating away for a long time.  Interestingly though, the  mass relocation of manufacturing out of the old industrial belt, long seen to be the "solution" to the problem by management, has really not solved anything; the companies continue to hemorrhage. The underlying problem has always been the same--outmoded, old-school, incompetent management. If I see this, some outside investor has to see it.  Why not move GM or Ford to CHICAGO: it would clear out the ranks of deadwood management and provide a whole new talent pool from which to draw. Apologies for the digression, but you can see the main point.

For second tier cities, the issue is to understand and leverage their creative economy. In Montreal, where I worked with Catalytix, that means self-generating creative companies like Cirque de Soleil, working to improve technology, deepening connections to its great universities, continuing to leverage the music and artistic scenes, and taking advantage of affordable housing. (Our report is here).  In Vancouver, it means some of the same things, plus tightening linkages to Seattle (Cascadia according to our research is one of the most innovative Mega-regions in the world), continuing to be open and attract immigrants, and emphasizing quality of life.

Wendy also asked me about Pittsburgh a city which was hit harder in the 1980s than virtually any other.  The first thing the community did right was create the "image" of transformation.  Right away, it promoted the image of change from a steel town toward high-tech, robotics and its renaissance. Hype, you say: sure. But it worked as a short term strategy to change the city's global image. Heck, I moved there in the thick of it.  Compare to Detroit today which has not done much if anything to create an image of change and transformation..

The second thing it did was stabilize its and neighborhoods. The great legacy and learning from Pittsburgh is this. It gave rise to one of the best neighborhood-led community development transformations in the world. I've said it before and I'll say it again: the places that are thriving in Pittsburgh are the ones which were spared the heavy hand of local urban renewal schemes. 

What's hurt Pittsburgh and held it back from even greater things is its constipated, out-of-touch, old-boy leadership. The modern version of the once-heralded marriage between Lawrence (the mayor) and Mellon (the corporate titan) -the relationship between the corrupt political machine and incompetent corporate leadership (the Allegheny Conference)- has become the region's albatross, squelching all sorts of positive change and creativity. You should have heard Jane Jacobs go on about that.   A quick aside: when a very close friend asked a high-ranking Allegheny official about the need to involve citizens and people in Pittsburgh's ongoing transformation, that person replied more or less: "We just do that to placate folks; We already know what we're going to do."  Need I say more. Once the city and region shuck that off, its conditions will improve still further. It has all the assets needed to compete- from great neighborhoods to great universities. But leadership needs to chart a vision that excites people and enables them connect to these and other assets and use them in new ways.

It can be done. There are lot's of examples of older cities that have done just this. Chicago may be the best one, using a mix of strategies to leverage business, universities, arts and culture and open-mindedness and tolerance as a strategy to become a magnet for talent and investment. Providence, a much smaller city, has developed an impressive strategy to leverage its housing cost differential, quality of life, universities and colleges, and quality of life. Baltimore, under Martin OMalley's leadership, shows that an older industrial city with deep social and economic problems can turn around by directly recruiting talent (from the DC area), investing in its arts and culture scene, and developing closer ties to its universities.

But it takes real leadership. What separates Chicago, Providence and Baltimore from Pittsburgh and Detroit, in my mind, is just this. And it need not be yuppie leadership. Chicago did it with Daley's son at the helm. Providence did it with Buddy Cianci, now doing time in federal prison, though they now have the openly gay David Ciciline as mayor.  Detroit suffers from out of touch corporate leadership and a split between suburbs and city that is truly frightening. I always say it amazes me that the region can squander the talent of Kwame Kirpatrick and launch a full-fledged attack on him, when to my mind he may well be the smartest and most charismatic young African American leader on the scene today. The key to Detroit's future is not to retain its headquarters, but figuring out how to capitalize on the energy of its mayor; leveraging the long history of musical innovation; and once and for all seeing Ann Arbor and the University of Michigan, arguably the greatest research university in the world, an source of incredible talent and technology, and not the auto industry, as the center-piece of its economic development effort.

To my mind, what cities today need is not more corporate headquarters. In fact to answer Wendy, cities like Detroit may well be better off when the old-boys leave town, finally opening up space for new ideas and new leadership. What cities today need is visionary and forward-looking leadership that can embrace and extend the benefits of the Creative Economy, tapping the creative energy of their many and varied institutions from universities to startups and the music, art and design scenes, and unleashing the incredible creative energy of their people.

I've laid it on the line. What do you think?

Comments

[brad meacham]

You're right that leadership is critical. Communities compete in a global marketplace whether they like it or not. But, as I mentioned at www.cascadiareport.com, losing headquarters means losing jobs in related fields. Boeing left Seattle for its own political reasons, not to find more talent. But the loss still hurt Seattle's economy.

[Stu]

Your candid comments were enjoyable to read...Thanks for historical perspective of Pittsburgh...interesting... I hear a lot of people saying how Roanoke VA has lost a lot of headquarters to Charlotte, Richmond, Hampton Roads, Winston-Salem, etc, and how important that was, but this post seems to indicate otherwise...

[Wendy]

Richard,

Thanks so much for the insightful, thorough response to my questions. In searching for "powerpoint bullets" on these issues, perhaps it comes down to:

1. Cities with political, social and business leaders looking forward and thinking about all the new potential of the region.

and

2. Cities where the leadership looks to restore what has been lost and overlooks what new options might be available. (In many cases it may be this leadership itself that is losing power)

Thanks again

Wendy

[Suzanne Lainson]

Colorado has been concerned about our relative lack of corporate headquarters on the assumption that companies with headquarters here will be more involved in the local community than those with branch offices.

On the other hand, it is the nature of Colorado (i.e., its strong entrepreneurial environment) that we don't have more big headquarters. We have lots of start-up companies, many of which get acquired by companies based elsewhere.

And relatively few major corporate headquarters are lured here because the state does not offer big relocation incentives. When companies do relocate here, it is generally for lifestyle reasons (i.e., ready access to cultural and recreational activities).

Another interesting dynamic, perhaps as a result of the lack of large corporate headquarters, is the accessibility of movers and shakers within the state. As the recent elections have indicated, and the overwhelmingly positive marks given to Denver Mayor John Hickelooper by local, national, and international observers, Colorado is able to reshape itself as is needed. We've always been a boom-and-bust state (gold and silver; energy; real estate; high tech) and it's our history to make progress when times are good and regroup when times are bad.

[Wendy]

Suzanne,

I love your point about how fewer large corporate head offices actually makes it easier for the city's "movers and shakers" -- be they business people, politicians or others -- to adapt to new challenges and reshape or remake the city quickly. And, the point about access to "movers and shakers" is an important one as well.

[Kim Siever]

"How long do you think it will be before at least one of the Big Three moves out of Detroit?"

Considering Ontario has surpassed Michigan in total vehicles produced annually for the past five years, I don't think that day is too far off.

[Louise Jezierski]

The role of community leadership IS crucial, but people in Michigan - as well as outside Michigan - would see the departure (or collapse) of Corporate Giants like GM and Ford as devastating to Michigan's future. GM's commitment to downtown revitalization along the Detroit River is sustaining new growth along the Jefferson Corridor and providing the physical infrastructure for a lot of "creative city" events and creative small businesses like restaurants. Moreover, GM is still crucial to Lansing's future and jobs in all parts of the state - as is Ford. Ford's commitment to physical and financial infrastructure - including green technology at River Rouge - not to mention that to tour the renewed River Rouge plant is one of the coolest things to do in the area. It has long been noted that the Big 3 have not been committed urban regime partners (Orr and Stoker (1994) Urban Affairs Quarterly), but that doesn't mean Detroit - and Michigan - doesn't still need them. Moreover, while the ACCD may have been stodgy and elitist,they were crucial for supporting the infrastructure for the Hi-Tech partnerships on which Pittsburgh's new growth has depended for 25 years. As an aside, why would Richard M. Daley not also figure as the head of an elite, narrow, controlling urban growth machine? Corporate HQ's DO mean a lot for the image of any city as an important, powerful, place to be. Would NYC be NYC without them? They provide some of the infrastructure of the city as a "container of power" (Castells) that promotes financial, political, and cultural capital to a regional economy. For declining cities especially, there is need for both big and little capitalism.

[Noshua Watson]

I disagree that the Boeing HQ move was a talent issue, although it may benefit from being in Chicago. Regardless of the political issues, Boeing is now in the same city as Chicago O'Hare, one of the world's busiest airports, the headquarters for United Airlines and the second largest hub for American Airlines. That means Boeing is now smack in the middle of its customers (both airlines and passengers). The extent of Boeing's exposure to international demand factors is also crucial, since most of its demand comes from growing airlines elsewhere. At O'Hare, Boeing will also get to see the operational and logistic issues of the competing Airbus 380 super jumbo when it comes into use and how the airlines that buy it will use it. As nice as Seattle is, it simply is not a major international airline hub and Boeing is in the major international airplane business. The transport industry is inherently NON virtual(for now).

[Frank the Tank]

To expand upon Louise's comment above, the strongest regional economies need to have a base of both large corporate headquarters plus an environment that encourages innovation. The main benefit of a city being the home of corporate headquarters is that it provides a infrastructure and framework to spur growth in tangential knowledge industries (i.e. law, finance, accounting, information technology).

On another note, corporate mergers are more of a catalyst for the movement of headquarters locations than unilateral internal decisions a la Boeing. My hometown of Chicago, which has largely been portrayed as the beneficiay of corporate moves in the post and subsequent comments, has actually seen more large corporate headquarters move out of the region as the result of mergers (i.e. JPMorganChase's purchase of Bank One, BP's purchase of Amoco, etc.) instead of an influx. While Mayor Daley has done a great job in attracting other businesses and turning the city into a professional economy that is more on par with New York and avoiding the fate of its Midwestern Rust Belt counterparts, the loss of headquarters is still detrimental to the perception of the town as a top financial center.

In the end, there needs to be a solid balance between large and small companies in any region. An area that is too dependent on a few large companies (such as Detroit with the Big 3 automakers) is overly exposed to the risk of those companies experiencing a downturn or even leaving, while a region that doesn't have any large corporate headquarters isn't going to have much overall power and influence in the global economy by virtue of not being the home to any of the top business leaders and decision makers.

[Amanda]

I have to take issue with any praise doled out for Mayor Kilpatrick. To name a few of his many, many questionable judgment calls I'll quote Time: "After weeks of denying it, the mayor admitted in January that the city paid $24,995 to lease just such a car for his wife. That outlay showed what Alan Ehrenhalt, executive editor of Governing Magazine, calls 'a tin ear for symbolism,' given that Detroit's $230 million budget deficit has prompted the mayor to eliminate 3,000 city positions and end 24-hour bus service."
This is the dynamic leader Detroiters should look towards? I believe he is part of the problem and an example of the bloated administration of the city. Why do true leaders like Dennis Archer run from office in Detroit when they could easily be re-elected? I think that's the question that should be asked.

[Leadership Conference]

A favorite quote of mine about Leadership is from former President Dwight Eisenhower: Leadership is the art of getting someone else to do something you want done because he wants to do it.

[MinchinWeb]

I get a yellow box showing up in the middle of the page telling me to update my bookmarks to www.creativeclass.com, with no way to get rid of it. There's lots of good information on this site, but it's hard to read with said box in place. Can something be done so the box can either be made to dissappear or move it so it doesn't cover the content?

Thanks!

[muska supra]

Good stuff as per usual, thanks. I do hope this kind of thing gets more exposure.