Zappos CEO Tony Hsieh was on a panel today at the Milken Institute Global Conference that I'm covering this week. The title was "Why Wait for Washington? How Can States Create Jobs and Economic Growth." Former California Governor Gray Davis was also on the panel, as was current Indiana Governor Mitch Daniels, so you had some good statehouse-level perspective. Paul Kedrosky, something of a Renaissance man, moderated.
I found one comment from Hsieh to be particularly interesting, in light of how we might reflexively think about how states can attract businesses. He said that, basically, tax breaks have not very much to do with it. Or more accurately, they're a nice bit of icing on the cake — as well as a negotiating tactic that entrepreneurs can use in their favor.
When Zappos wanted to locate their fulfillment center, they chose Louisville, Kentucky, primarily because it was close to Federal Express's hub. The company's recent decision to move its headquarters to Las Vegas — to downtown Las Vegas, no less — was because Hsieh and his team liked the weather and have some ambitious ideas about the role of cities in fostering a creating class, to use Richard Florida's term for a clustering of young, energetic people who are invested in making cities succeed.
A company generally decides where it wants to be first, Hsieh said. Only then does it act as if it hasn't made up its mind, so it can see what kind of deals it will get from the states it's interested in. But subsequent tax breaks may not really make it change its mind.
What states really need to do, if they want businesses to set up shop within their borders, is work on quality-of-life issues. They need to provide good infrastructure and a pleasant working environment, i.e., not neglect the environment. You can see where this is going. It means that states need to spend money on...making themselves better states. Not on tax breaks to bring in companies that have already made up their minds that they might want to be there...or someplace else.
One fairly successful entrepreneur's opinion, anyway.