Amazon and Hickey Freeman: two kinds of incompetence

By now, you have no doubt heard that New York City, co-winner of the Amazon lottery, blew it by so alienating Amazon’s corporate management that HQ2 of the world’s most valuable corporation will not be located within the five boroughs. Opponents of HQ2 decried the $3 Billion tax giveaway cobbled together by the city’s mayor and the governor.  Of course, they were giving away something that they weren’t going to get if Amazon didn’t choose New York in the first place and won’t get from someone else any time soon.  

I am empathetic to the forces that succeeded in rejecting Amazon.  Their primary motivation was to preserve their community in a city where gentrification has left few neighborhoods affordable for middle- and working-class families.  They could see events trending in the direction of San Francisco and Seattle and didn’t like what would happen.

On the other hand, Republicans and center-left Democrats understand that economic growth relies upon innovation and efficiency created by high tech enterprises.  The high-skilled, highly paid labor that HQ2 would attract would increase the city’s tax base and beget other high-tech enterprises. Bowing to the whims of a minority of citizens enabled by a handful of extremist politicians is a mark of how incompetent our political leaders are. 

Not noticed nationally but a big story here in Rochester was a $4.2 Million private investment in Hickey Freeman that was nearly matched by $4 Million from the state.  It was hailed by one and all because it retains a handful of low skilled jobs in a failing enterprise.  There’s enough bad news here to make it difficult for me not to toss my cookies.  I’ll try to control my gag reflex long enough to unpack it. 

The Hickey Freeman news is just the latest example of Blue State Folly. The state has taken money out of the economy and reinvested it in businesses that can’t attract sufficient capital on their own. In this case, they’ve invested in a company that makes clothing for the WWII generation rather than allowing the free market for capital to do its work.  

The state’s investment was made through the Finger Lakes Upstate Revitalization Initiative established by one of our governor’s famous contests.  (I wrote about the perversity of taking money out of the economy just so we can compete to get it back in the Rochester Business Journal when the winners of a similar competition were announced.)

Like New York City, San Francisco and Seattle, Rochester has a highly capable workforce and business leadership with the technical skills to support any innovative enterprise owing to the legacy of the vanishing Kodak and Xerox.  We are supported by a local network of more than a dozen colleges and universities and have a low cost of living.  What holds us back is high taxes and a state bureaucracy that makes it difficult to operate a business.

Our greatest challenge is to continue our legacy into the next generation.  Unlike New York City, we are not threatened by gentrification but rather by its opposite.  We may be unable to thrive unless we, as a community, can do something about a failing school system and inner-city poverty.  Perhaps the governor should focus on that for a while.

WHO WILL LEAD? 

#justanoldwhiteguy

Something happened while I wasn’t paying attention.  It was a slow, subtle shift that took place over many years.  Consider this:   the death of Elvis was barely a footnote on the evening news when it happened in 1977.  When Michael Jackson died, some three decades later, it was the lead story for days.  What happened? How is the death of a pop star the most important news of the day?  Any day? What has this manifested?

Well, here’s an example: an actor I’ve never heard of who stars on a show I’ve never watched is accused of making a false police report alleging he was attacked by the evil forces of #MAGA.  Aside from feeding the #fakenews narrative of our prevaricating president, the event has made me wonder what’s happened to our society.  Perhaps if we weren’t so focused on Pop Culture, the foolish acts of a C-List actor wouldn’t be national news. 

What I’m reading

Tom Freidman speculates we may become a “Four-Party State” in his weekly column in the New York Times. I hope we are….  David Houle writes in his blog about the social and economic effects of Millennials and Digital Natives (those born since 1981) now outnumbering Baby Boomers…   Economist Greg Ip writes in the Wall Street Journal about the “Unrealistic Economics of the Green New Deal.” 

Pittsford should care and here's why

Note: An edited version of this post was published in the June 17, 2018 edition of the Rochester Democrat & Chronicle.

The problem?  We’ve all heard it before.  One of the nation’s worst performing public school districts (Rochester) coexists a mere five miles from one of the best in Pittsford.  

It’s a sound bite, one that is meant to call our attention to a social justice argument.  How can the wealthy residents of Pittsford and other suburbs tolerate such injustice?  It seems unconscionable to some.  There is certainly a social justice argument to be made.  But, that term – “social justice” – has become a linguistic marker for liberals and that leads us down a dark road into divisive politics.

I’d like to take a different approach. 

For a century, Kodak, Xerox and Bausch & Lomb attracted talent to our community.  While it could be argued that there are still talented executives and scientists moving to our area, it can’t be said that the number is sufficient to drive our local economy as it once did.  As our children grow up and go to college, some will settle here and some will not.  For our community to continue to thrive, we need a profile that will attract companies to move their operations here. 

Today, inner city poverty and our broken school system may be the biggest deficiency in that profile.  I am not alone in this opinion nor is it uninformed.  Last month, the American Enterprise Institute released the results of a study that concluded in part that (1) a key element of any successful economy is the quality of its workforce and (2) simply increasing funding for schools is unlikely to improve results.  The study goes on to suggest structural reforms and changes to incentives for teachers and education leaders.

It may be appealing to business leaders and conservatives to embrace this study.  But, those of us who live in our comfortable suburbs can be subject to what psychiatrist Robert Jay Lifton called “psychic numbing,” the tendency to withdraw from issues that are too overwhelming to envision a solution or to participate in it.  And, yet, we must participate because failing to do so will undoubtedly lead to a steady decline in our fortunes as a community.  Our renovated airport, economic development initiatives and downtown redevelopment will all be for naught if we don’t have a workforce to attract new businesses.

Rochester has a proud heritage; a culture formed by the legacy of visionary leaders Frederick Douglass, Susan B. Anthony and George Eastman.  Each had a vision the impact of which outlived them.  Now is the time for community leaders, from both inside and outside the city, to develop a new vision, one that will create the momentum to overcome our biggest challenge.  Our future depends upon it.

The Demise of the Big 3 is Good for our Community

Last week’s announcement of the acquisition of Xerox by Fuji, Ltd. is another nail in the coffin of Rochester’s Big 3.  I would contend that they have been long dead and good riddance.

I don’t mean to minimize the suffering of those who may lose their jobs as a result.  Nor, am I ignoring the emotional impact on a community that long identified with our erstwhile leading employers and benefited from their contribution to our community. 

I am simply saying that these events over the last 25 years or so are part of the natural order.  Just as the Bronze Age gave way to the Iron Age, companies come and companies go.  Both Xerox and Kodak were part of the Nifty 50 highflying stocks in the early 1970’s, a list that includes many companies that are long gone.  Those that have survived, including GE, IBM, and AT&T, have done so by morphing into something else.  A time traveler from the 70’s wouldn’t recognize them today.

I am tempted to quote Michael Douglas’ “greed is good” speech from the movie “Wall Street.”  But, the last time I did that I was buried by hate-email.  I could also quote its counterpart in economic theory, Schumpeter’s “Theory of Creative Destruction.”  But, that would put you to sleep. Instead I’ll simply point out that the demise of the Big 3 is not one of the Seven Deadly Sins and, moreover, we are complicit. 

As a consuming society, we have explicitly expressed a preference for email over the post office and Netflix over Blockbuster – to say nothing of the number of businesses that have been disrupted by the Internet from travel agents to Big Box retail.  No one looks back and mourns the loss of jobs from those transitions.  We’re too busy consuming what they sell.

And, so, the Big 3 are no longer Rochester’s biggest employers because their customers now prefer the better products and services of others. 

For the most part, the impact of the Big 3 on the local economy has been gradual.  The move of Xerox’ headquarters, the big layoffs at Kodak, and the sale of Bausch & Lomb occurred over a 30 year period.  And, what has happened in the wake of those activities?

Entrepreneurs have founded companies, like Conserve, eHealth Technologies and SunCommon NY, which have grown quickly, providing jobs and healthy working environments.  In short, our community has become less dependent on large mega-corporations and thrives on fuel provided by smaller companies with local owners. 

Local business owners are more likely to be good citizens of our community.  They support local charities, create jobs locally, and ask less of taxpayers in the form of infrastructure and tax breaks. 

We -- their neighbors, customers and stakeholders – should stop mourning the loss of a bygone era and begin to identify with the community we have become.

We Shouted; They Listened

When I tell folks I moved to Rochester from Florida, they think I’m nuts.  “This is a great community,” I tell them.  But, they don’t get it.  This week’s interaction with the management of the NYS Canal Corporation validated my theory.  Indeed, we live in a great community. 

In case you haven’t heard, the Canal Corp. has begun a project to clear the earthen embankments of all vegetation along 122 of the canal’s 524 miles. They were so confident they’re doing what’s right, they plunged ahead with no public hearings and barely a heads-up to those affected.

Local politicians have supported the community’s call for officials to address the reasons for the project and its sense of urgency.  So, senior management arrived in our region this week to conduct a series of meetings to convince the community of the wisdom of their plan.

They told the editorial board of the local paper their sense of urgency results from an imminent danger of a breach of the earthen structures that protect adjacent properties.  When asked if there was anything or anyone that would stop or slow their project, they replied that only a “higher power” would do.  I’m not sure if they meant God or the courts.

At their first town hall meeting, they played the “Fear Card”, showing how a breach could affect the Jefferson Avenue School in Perinton.  Yet they haven’t notified anyone in jeopardy of imminent danger.  As for why there has been no breach in the last century, despite the existence of vegetation on the embankments, they have no answer other than to say it could happen at any time.  Where’s Nostradamus when you need him?

A local citizens group led by Fairport’s Elizabeth Agte did some research in anticipation of the meeting.  Their conclusion:  they’ve cherry-picked the science to support their plan, refusing to consider alternative guidance. The owner of a local excavation company told me he faces similar challenges almost daily. Vegetation should be removed if the soil is clay, he asserts.  On the other hand, if the soil is sandy, root systems stabilize embankments.  The approach would vary depending upon not only the type of soil but also the types of trees.  Deep root systems stabilize banks.  Shallow ones do the opposite.  You would have to take soil samples and analyze what types of trees are present before taking action. 

When I asked if soil samples had been taken, we were told us it wasn’t necessary.  Yet, when challenged by a Perinton resident whose 5-acre property is mostly sand, they responded, “we'd need soil samples.”

Faced with a possible lawsuit by three towns, they backed down.  Thursday night, they announced a modified plan – one that takes into consideration possible differences in soil types and vegetation.  We got what we asked for. 

"Yes," I thought. "Rochester is a great community."

The Hunger Games: not everyone is a winner

An edited version of this post appeared in the December 18th edition of the Rochester Business Journal

My wife and I have moved around the country quite a bit, following one professional opportunity or another – nine states at last count.  When it came time to settle into semi-retirement, we decided to return to Rochester for one simple reason:  it’s a great community. 

When you live in many regions of the country, you notice differences – those things that most people don’t think about because they’re ingrained in the local culture.  They’re taken for granted. 

So, what sets New York apart from other places we’ve lived? 

A broad swath of the population expects the government to affect positive social and economic outcomes. 

Last week’s award of $500 Million in economic development funds is a perfect example.  It was greeted with enthusiasm by one and all.  The common refrain from all those interviewed by WXXI’s Morning Edition was “everyone is a winner!”

Everyone, that is, except the New York taxpayer.

New York and other northeast states have been losing jobs and population for decades; and, it’s not just because Florida, Texas and Arizona have better weather.  It’s because of high taxes and overbearing regulation. 

The Empire Center reports, “Between 2010 and 2014, all regions of New York have lost population due to domestic migration – the movement of residents to other states”.  Meanwhile, the independent Tax Foundation ranks New York 49th on its State Business Tax Climate Index and further points out that, in the first decade of this century, New York lost more than 1.9 million taxpayers representing some $119 Billion in adjusted gross income.  That’s investable and taxable income.

“So what?” you might say.  We’re getting something back for our tax dollars.  The plan developed by the Finger Lakes Regional Economic Development Council (FLREDC) “leverages” tax dollars to great effect.  Businesses will be enabled to grow by virtue of the governance of a local steering committee that guides the investment of funds and reports on its activities and results to the state government.  Private capital will be attracted to the region, jobs will be created and the region will be revitalized. 

Here’s an alternative view. Government consistently misallocates capital.  When the FLREDC’s plan mentions “leverage”, they’re talking about contributing taxpayer dollars to the projects of private developers and enterprises pretending to free market status. The coalition of business leaders, non-profits and government agencies that will determine how the funds will be invested each have their own agendas.  There is a real cost to this kind of oversight. Capital doesn’t necessarily go where it will get the best return. 

It’s hard to blame business leaders for playing the hand they’ve been dealt.  But, is that how we want things to work?

At some level, the governor recognizes these problems.  He has created tax-free zones at college campuses to attract new businesses.  And, the recent restructuring of regulations affecting craft brewers was an uncharacteristic response to the needs of small business owners.  

So, why hasn’t that awareness translated into broad-based tax and regulatory reform?  Why does he – and, by extension, we – prefer high taxes and state control of the investment of capital? 

Your guess is as good as mine.  

When I have challenged business people on this matter, I get one of two responses.

“At least we got our share,” is a common refrain. Hence the competition’s nickname:  The Hunger Games.  We win and someone else loses. 

A more thoughtful response is the assertion that we should be happy to have government collaborating rather than regulating.  It’s a move in the right direction.  But, is it really? 

New York’s problems in retaining jobs are structural.  The right direction would be to restructure – to reduce taxes and reform our regulatory regime.  A one-time grant of a large sum of money does nothing to advance the process. 

What if this project does not yield the expected results?  We would be back where we started.  The high cost of doing business in New York will continue to drive away businesses and population.

Wouldn’t it make more sense to emulate the policies of states that are taking our jobs?