Wednesday, April 06, 2005

Deep in the Heart of Texas

In Richard Florida's tome The Rise of the Creative Class and How It's Transforming Work, Leisure, Community and Everyday Life, Dr. Florida has this to say about Austin TX.

Two decades ago, Austin was not on anybody's list of high-tech places, but today it ranks seoond on my Creativity Index, sixth in innovation and seventh in the Creative Class. What Happened? Austin worked hard to develop all 3Ts [Talent, Technology, Tolerance] of its economic development strategy and build the kind of habitat to compete and win in the Creative Age. [p. 298]
So it struck me when I found this very interesting article via the Austin-American Statesmant discussing Austin's $20.1 Million tax break to Freescale Semiconductor, Inc. in order to lure the company away from Chicago IL:
Austin offers $20.1 million tax break to keep Freescale

Chip maker says it will add 500 jobs as part of the agreement.

By Shonda Novak
Friday, April 01, 2005

The City of Austin will give property tax breaks worth $20.1 million over 10 years as part of a major incentives agreement with Freescale Semiconductor Inc....

Most of the tax breaks are connected to a $600 million expansion of Freescale's manufacturing facilities in Austin that will add 500 jobs to Freescale's Austin payroll, now about 5,600 workers. The average wage for the new jobs will be $77,000 a year, according to city figures.

The city is waiving all property taxes related to the expansion for 10 years. In moving the headquarters from Oak Hill, Freescale will transfer 300 jobs to its Parmer Lane complex, which will become the company's new corporate address.

The size of the package is expected to grow substantially with further tax breaks and incentives to be negotiated with the Austin Independent School District and the State of Texas. The agreement was worked out after months of tough negotiations....

Mayer said the size of the incentives package "clearly played a role in our decision" but said that Austin's unique qualities, including its quality of life, improving downtown and the University of Texas, also played a role. UT was involved in the negotiations to keep Freescale, Austin's biggest corporate headquarters.

Chicago is thought to have offered incentives worth about $20 million.

"This is not the Windy City, but we are glad" to have chosen Austin, Mayer said.
[Sorry for the long quote, but you can thank me later for not making you register.]

It strikes me as interesting that in the midst of what Florida appears to claim as a winning formula for competing in the "Creative Economy," it was a tool of the Traditional Economy (tax breaks) that attracted Freescale to Austin.

A minor blip, you say? Well, Austin is doing the same thing with Home Depot, offering abatement on "100 percent of taxes on business equipment and 50 percent of taxes on improvements to the site for the next 10 years."

That doesn't sound very "Creative" to me. Where're the coffee shops? Where're the "Hippie Hours"? Where're the street musicians? CHRIST! CAN'T A MAN GET A DAMNED GRANDE DOUBLE LATTE WITH CINAMON DUST IN THIS TOWN???

Austin sounds down right a-creative here; this is the same "old-economy" smokestack chasing you see in... say... the movie Gung Ho! Shouldn't Austin be able to ride on the crest of its Creative Class rather than stoop to the level of dirty, dirty tax incentives to attract businesses? Isn't this the kind of activity that the economic development in the age of the Creative Class is supposed to avoid? Asked a third way: if there is inherent economic value in the creative power of the City of Austin, why does it have to dish out additional public subsidies in order to attract corporations? Would these companies locate (or have located) in Austin if tax incentive had not been provided? Do you want more rhetorical questions?

In his analysis of Austin, Dr. F. has clearly left out a "T" (Taxes) to be included with his magic triad of Tolerance, Talent, and Technology (so I suppose it's a "tetragon").

Oh yeah, and beyond being a counterfactual for the Creative Economic Development Types, it's about the money. It's ALWAYS about the money.

BTW: Check out Fester's semi-related posting on the trials and travails of adaptive reuse. [Hint: It's also about the money.]


sheabriana said...

This is a really great point. Florida tries to bring a "creative" approach (no pun intended) to his own work, I think. He makes many assumptions that are indeed invalid, this being one of them.

In my opinion, though, his ideas do have a place in transforming urban landscapes, they are just secondary, though, to the initial factor- which is financial. I believe there's a lot more that must go into the economic development building of a city before Florida's tenents can take over.

O said...


To your point, in the heyday of the Dot-Com boom where there was a high demand for technology workers, Florida's insights made a bit more sense: Cities could assist in Economic Development by creating an environment in which companies could more easily attract potential workers. In that way, companies had to pay out less in upfront cash incentives to entice potential employees. Once the bottom fell out and unemployment increased, however, the demand for workers lessened, and the ability of a city to help create an incentive for potential employees diminished. The unemployed felt they’d rather have a job than work in a cool city.

So, I would argue that while there is a role for Florida’s 3Ts in Economic Development, they only become a factor when all the other economic factors are equal.

Ol' Froth said...

It'll never happen, but I'd like to see "tax-incentives" made illegal on a national scale. All tax breaks do is create a predatory system that drives the race to the bottom.