Reading the Charlotte Observer, and all the hand-wringing over the departure of Bank of America CEO Ken Lewis, got me thinking about the costs of America's regulatory flexibility. Charlotte residents are understandably terrified that the loss of Lewis could ultimately lead B of A out of Charlotte. The city, once the home to two mega-banks, lost Wachovia to Wells Fargo not too long ago. And the given the central role of banks in the local economy, the possibility that it might lose its second mega-bank is obviously scary.
This urban instability is now par for the course. One huge cost of corporate consolidation is cities can be orphaned in the process. While individuals can, perhaps, switch jobs (and cities) at relatively limited cost (OK - lets be candid...the cost is often immense), cities cannot populate, depopulate, and repopulate with similar ease. It's problematic both socially - as relationships and communities are shredded by job losses - and economically. Think of the waste when a place like Charlotte builds itself up, only to find itself vacant due to big corporate mergers. That's probably a bit hyperbolic with respect to Charlotte which retains a major airport hub - a nice business magnet in itself. But even these hubs can be abandoned after a merger: have you visited the oversized, underutilized Pittsburgh airfield recently?
The question is whether this urban instability is a necessary feature of a competitive country. We could prevent mergers that cause this result - or perhaps regulate the ability of companies to abandon cities quickly. Imagine a WARN Act for cities, for example. But that hardly seems practical - either in a regulatory or political sense. And it certainly would fly in the face of market efficiency.
But what is the alternative? We know at least two approaches. One: build a community that supports new entrepreneurship. This fosters development of new businesses. These new outfits will hire lots of locals and perhaps, ultimately, buy other businesses - thus stealing jobs from other communities. Two: a race to the bottom. Big tax and regulatory breaks for existing companies, located elsewhere, that expand - or relocate - to the community. Think Boeing to Chicago (at the cost of $63 million in incentives) or Honda to Alabama (at the cost of $158 million in incentives.) At least it costs a lot of money to shutter a factory and rebuild elsewhere. But if Charlotte suddenly offers Boeing $300 million in incentives to move its starched shirts to Carolina, Chicago could be left in the cold.
And then Charlotte would be flush. For a while at least, until an even richer suitor comes along.
Image: Charlotte
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