08 Oct 2020 Abandoning Broken Locales Has Become A Fiduciary Obligation For Firms
Only an Icarian mixture of high-test naiveté and hubris would lead anyone to dare fate to create more headaches in 2020. One conundrum that has reached, or soon will reach, migraine status for businesses (and families) is whether to move out of increasingly dangerous, expensive, and generally unfriendly locales to the broad, sunlit uplands. There has seldom been so great a concentration of spurs to relocation, and there has never in modern times been so much freedom to move.
The lockdowns have underscored the expanded ability to shift base. While businesses have increasingly recognized throughout the century that improving technology has made remote work more attractive and increasingly both more productive and less costly to firms and workers than pointless daily travel to an office, that learning process was rapidly accelerated by the lockdowns. The more that employees can work from anywhere, the smaller the need for businesses to be anywhere in particular.
The finance and trading industry, essentially Wall Street, illustrates this dynamic. Until recently, the masters of finance had to live in (or very near) Manhattan, commuting distance from their trading floors. This kept the giant banks nearby too, and this massive concentration of money underwrote a host of secondary and tertiary businesses, from high-end jewelry and real-estate hawkers to owners of corner hot-dog carts.
That has all changed. Trading and a great many investment-banking activities can proceed anywhere. These firms can thus radically decrease their presence in New York City. Similar opportunities grow ever clearer to the market-bestriding colossi of San Francisco and Silicon Valley as well – though one wonders why they didn’t realize them rather earlier, being tech companies and all. And significant numbers of those firms are seizing the chance, including Facebook and a host of other firms.
These businesses are certainly not jumping the gun. Even as the freedom to move has grown vast, so too has the need in many places. New York, San Francisco, and Silicon Valley had famously grown impossibly expensive long before 2020. Now they will grow even more untenable, as the governments of those areas (along with the bedroom locale of so much of Manhattan’s not-quite elite, New Jersey) are all moving to significantly increase already crushing tax burdens, especially on those who already generate so much of their tax bases. The impetus to allow employees to relocate, if not to shift operations entirely, presses hard.
Add to these financial considerations the one-two punch to civil and civilized living in 2020: the lockdowns and riots. The areas with the highest tax burdens and the greatest eagerness to raise them more (make sure to include Chicago and Illinois, and Seattleand Portland as well) are also jurisdictions that have maintained the longest and most brutal lockdowns, while – in a masterpiece of hypocrisy, scientific illiteracy, tyrannical malgovernance and unconstitutional discrimination by subject matter and viewpoint – also permitting essentially untrammeled “protesting,” often of the fiery and fighty kind that’s usually called riot. This combination renders these cities and states both unlivable and extremely dangerous.
Then finally there’s Covid itself, and the possibility of a resurgence, or an overreaction to a perception (real or generated) of resurgence, or the possibility of a future outbreak of some new communicable disease. Higher population densities increase risk while making the measures to reduce risk much more unpleasant. It’s certainly better to be locked down in 2,500 square feet on an acre or two than in 700 square feet with, if fortunate, a 2’ x 5’ balcony. And it’s safer to pass a few neighbors on the streets and in the stores than tens of thousands.
So many people have already left New York, and bid fair to stay away, that its insuperably arrogant governor Andrew Cuomo has been reduced to begging them to return. That his state’s policies are so at odds with his plea suggests properly dire prospects for what was once the Empire State and is now the sick man of a generally unwell Northeast.
Given all of these factors, businesses – especially businesses significantly exposed to large and ill-governed cities – will face fiduciary obligations to study whether they would be better positioned in different locations. This obligation will not be limited to financial and tech companies. Any companies that have operations in these unstable and unsustainable locales that can reasonably be moved will have to decide whether they should. Many will have no choice but to conclude that they should, which means that they must.
Already, Boeing has announced the relocation of its Dreamliner production from highly dysfunctional Seattle to business- and resident-friendly South Carolina. Boeing is certainly right to leave; in response to its announcement, Washington Governor Jay Inslee stomped his jack boot: “Let me be clear – when the market for airplanes comes back, Boeing must bring these jobs back to Washington state.” This astonishing misconception of how limited government works in free society requires sensible companies to get as far away from Inslee, Washington, and similarly “governed” states as possible. It ratifies Amazon’s determination to diversify away from Seattle particularly and Washington generally. Meanwhile, the move out of California, already grown from a trickle to a churning river before this crisis year, is reaching flood tide and will soon spill over the levies entirely.
Investors should monitor their companies’ managers (the “C-Suite,” which often strives to forget its secondary position) to make sure that they’re conducting these analyses, and doing so fairly, honestly and with full consideration of all factors, not just the ones that favor their pre-existing personal preferences. They should be ready to take to law or the airwaves to thwart recalcitrance. And employees endangered by forced continuation in dangerous locations have their own sets of options.
Scott Shepard is a fellow at the National Center for Public Policy Research and Deputy Director of its Free Enterprise Project. This first appeared at Townhall Finance.