What It Means When Amazon Looks Past ‘Flyover Country’

DETROIT, MI—The search is over. Amazon selected New York City and Northern Virginia as the sites to put its twin pair of “second headquarters” locations in coming years, concluding one of the biggest economic-development derbies in global history.

The East Coast bastions beat out hundreds of other hopeful cities throughout the Heartland, the South and other parts of the country in large part because Amazon executives believed metro New York and metro Washington, D.C. promised the best pools of available and potential tech workers. “These two locations will allow us to attract world-class talent that will help us to continue inventing for customers for years to come,” CEO Jeff Bezos said in a statement.

The decision is a case of the tech-rich getting richer and the entire swath of America between the coasts continuing to have to bootstrap its way to digital relevance as the economy shifts inexorably to a foundation of bits and bytes.

Seattle-based Amazon decided to split a single “HQ2” worth about 50,000 direct jobs into two “second headquarters” projects. Each site will get about 25,000 new full-time jobs with an average wage of more than $150,000, about $2.5 billion in Amazon investments, and incremental tax revenues in the billions of dollars in exchange for performance-based direct incentives of $1.5 billion in Gotham and $574 million from northern Virginia.

“Amazon’s choice highlights the competitive advantage held by metropolitan areas that have highly skilled, technology-focused workforces,” said Minoli Ratnatunga, director of regional economics research for the Milken Institute’s Center for Regional Economics and California Center, in Santa Monica, California. “Regions that invest in their human capital are well placed to attract or develop their own big opportunities.”

In that context, Flyover Country did get a sop: Amazon decided to place what it calls a new Operations Center of Excellence in Nashville, which calls for about 5,000 high-paying jobs in customer fulfillment, transportation, supply chain and similar activities.

But Nashville’s gain, as nice as it might be for the city, can be understood at least in part as Amazon’s concession to the geographic reality that, as one of the nation’s biggest shippers, it only makes sense to put its logistics nexus in the middle of America.

Meantime, Nashville’s prize is worth only about one-tenth the job count that Amazon originally promised to award to one city in an HQ2 process that was going to result in plunking down a huge new operation and 50,000 jobs all in a single new place.

Nashville, Chicago, Detroit, Indianapolis, Columbus, Dallas and dozens and dozens of other cities between the coasts failed to persuade Amazon that they could provide the transportation networks, higher-ed infrastructure and, most important, enough digital-tech talent to support Amazon’s ambitions.

So while Amazon’s siting decisions may make sense practically and financially for the company, they may make the rest of the country perceive that failure to land Amazon means a chink in the validation of their growing credentials as tech havens.

“It would have been nice to see one smaller MSA in Flyover Country selected for the HQ2 project,” said Larry Gigerich, managing director of Ginovus, an economic-development consulting firm in Fishers, Indiana. “D.C. was a heavy favorite from the start, and New York was on every short list from the start. Those two places are ones that no one from Amazon gets fired for picking.”

Also, it’s one thing for Flyover Country to have been found almost completely wanting by Amazon’s siting formula. It’s another that, as some suspect, the fix was in from the start, and Amazon simply reaped bargaining power with the eventual winners—and tons of valuable information on important markets across the United States—in its year-long efforts to get every city to come to the table with its best financial incentives.

Amazon presumably will keep growing, and certainly when it comes to siting new warehouses, for instance, it’ll have lots of valuable information on all these other cities and their relative states of generosity in its back pocket, ready to bring out at the ideal moment.

There’s disappointment among some CEOs in the Heartland, including some in Indiana.

“It [would have increased] the competition for talent but it would [have been] great,” Tom Linebarger, CEO of Cummins Engine, based south of Indianapolis in Columbus, Indiana, told Chief Executive. “It would provide jobs for a lot of people. It would be really good for [Indiana] and we would benefit.”

Added Bob Martin, CEO of Thor Industries, the recreational-vehicle giant based in Elkhart, Indiana, in the northern part of the state: “Indianapolis would have been a great spot for Amazon and created a lot of growth and opportunity there.”

Indeed, Amazon’s decision will extend in a big way the sharpening imbalance in economic power between the coasts and Flyover Country. Already home to the world’s financial and marketing capital in New York City, the most powerful seat of government on the globe in D.C., the world’s biggest determinant of popular culture in Hollywood, and the capital of technology in Silicon Valley, both coasts will host the most powerful force in retailing.

Yet some CEOs in the Heartland were indifferent. “Whatever,” said Julie Smolyansky, CEO of Lifeway Foods, a maker of fermented dairy products based in Chicago. “Of course it would have been great; we want that attention and business here. But it is what it is. Amazon has its reasoning. And it’s easier for them to attract young workers to New York than Indianapolis.”

The development found some cities turning to count the economic-development blessings they do have, such as Dallas, with the new Toyota Motor Corp. U.S. headquarters and other additions; Indianapolis, with major tech installations by Salesforce and Infosys; Detroit, with all the billions that Dan Gilbert has pumped into reviving the city’s downtown; and Chicago, which already has 1,000 Google workers and may get up to 5,000 more, and is looking at its own major expansion by Salesforce, of up to 5,000 jobs in a new riverfront skyscraper.

There may even be relief in some quarters at Amazon’s sticking to the coasts because, while cities out in Flyover Country are all trying to develop their own tech-job ecosystems, obviously they still have a long way to go to achieve true critical mass. Consider southeastern Wisconsin, where Governor Scott Walker looked to have landed a huge economic-development win by getting Foxconn to commit to building a huge glass-screen factory there which promises many thousands of new jobs.

It turns out that there aren’t enough engineers in Wisconsin, or nearby Chicago, or actually anywhere in the United States to fill some of the critical roles to get Foxconn’s manufacturing there off the ground, so some may have to be imported from China. Meanwhile, Walker’s generosity in offering financial incentives to Foxconn is getting part of the blame for the fact that he lost his re-election bid last week.

Read more: Why The AmazonHQ2 List Is Great News For Every CEO