How Louisville could become the home of more major companies--and more people who work from their homes

Chris Otts is a reporter at WDRB, one of the tv networks here in Louisville. He both writes articles for WDRB’s website and makes on-air appearances. His beat is business and economics. 

In my recent interview with him, Chris explained why having major corporations in a city is important, what keeps big firms from moving their headquarters to Louisville and Kentucky and how the city and state could foster a climate where more companies are initially created here. 

Perry: Louisville tried to get Amazon here, although that was unlikely. If Amazon or say, a media organization like CNN were based in Louisville, it would be cool to say we have those types of big, important companies in town. But is there any real material benefit of having big companies? Or is it mostly a symbolic thing? 

Chris: It matters. It is absolutely not just a symbolic thing. Certain kinds of jobs are much more valuable than other kinds of jobs in your local economy because of the multiplier effects that they have. Let’s just think about the difference between a Ford plant and a Walmart. So a Ford plant, the cars that they've produced are gonna be bought all over the country and the world, which effectively means that a lot of revenue comes from outside of our city and gets concentrated here in the form of employment.

So it's new money coming into the economy, which then puts money in the pockets of workers, who then go out and spend it on services, going to the movies, going to restaurants, etc. A Walmart is basically the opposite thing because by definition its customer base is limited to the people that are already here. And so when you go to a Walmart and spend your money, that's not adding anything to the local economy. It’s just recycling the money that is already here. 

So corporate headquarters have this same tremendous multiplier effect, because they can be anywhere. Corporations concentrate wealth in the places that they locate. All the white-collar jobs that come with a corporate headquarters lead to contractor jobs and disposable income that gets spent in the community, in home sales, restaurants, etc. 

Those are primary jobs. And that's a really, really important distinction. Sometimes you see people who are under the impression that retail or something like a Walmart or Topgolf or whatever is economic development. But that really can only be thought of as economic development in a very narrow sense. For the most part, economic development is industries like manufacturing, technology, and headquarters. Those are the kinds of things that cities and states are after because they bring new money into their economies. 

So it is way more than just bragging rights. When you have headquarters in town, you have a lot of jobs that could be anywhere.

So do we have enough big companies? 

We have a fair share for a city our size, but we could always have more. And unfortunately, in the last decade or so, the number has been going in the opposite direction. 

Yum Brands is still putatively headquartered here and does still have significant headquarters operations here. But the last Yum brand CEO to live here and be invested in the city was David Novak, who left a while ago [2016]. Now their top people are in Dallas. 

The hot water that John Schnatter got himself in ended up being terrible for Louisville, because at Papa Johns the people with loyalty to Louisville were no longer in any position of authority over that company. It’s really an Atlanta company now, and we've seen that they put up for sale their corporate campus that they built in their heyday, in the 1990’s. That's not good. 

We had a publicly-traded company, Kindred Healthcare, that got absorbed and cut up by private equity. The successor businesses still have a presence here, but no longer as an independent, public company. 

Humana is still headquartered here. But, as I've documented, their top people have also been drifting; they have less connection to the city than they have historically. Economic development is way more than just how many corporate headquarters you have, but corporate headquarters are an important component. It's been moving in the wrong direction. 

There are some hopeful signs too. One of the good things that's occurred in the economy lately is people at the lower end of the wage scale have been catching up. Louisville has always been a manufacturing and logistics town. We shouldn't diminish those things. So, a few years ago, I wrote a story about how, nobody was talking about this, but the Ford plants in Louisville had reached record employment. 

UPS is a juggernaut that just continues to grow. GE Appliances, our other major manufacturer, they've really grown a lot ever since their sale to a Chinese company, which caused a lot of uncertainty at the time it was announced, but has turned out to be very good for investment in that company. 

Those are also really important components of our economy, especially because they provide solid middle-class jobs with good benefits for people who do not necessarily have a four-year degree or are in a white-collar profession. So that whole side of the economy is equally as important. 

There are other ways to get new money into your community. Tourism is a great example. So if you look at a city like New Orleans, which is where I'm from, they don't have hardly any Fortune 500 companies. But they have tremendous tourism. It’s the biggest industry there. 

In Louisville, bourbon tourism has come on strong in the last ten years or so. That is a really positive development. All the new hotels downtown. If you walk around downtown, around Main Street, you'll see people who are quite obviously bourbon tourists, almost any day, which didn’t really used to be the case. So the city is starting to develop that tourist economy, which is great to see.

But historically, we've not been able to rely on tourism to support all the economic needs of the region. So corporate headquarters, manufacturing, those sorts of primary jobs are very important.

In terms of corporate headquarters, Atlanta, Dallas, Nashville, Austin, I don’t think it was obvious 30 years ago that those places would become hubs of corporate headquarters. I hate to ask this so sharply, but what’s wrong with Louisville? Why did it not become one of those hubs for corporate headquarters the way Atlanta and Austin have? 

It's a good question. There's an element of randomness to this. I hate to say that. But did Austin become what it is because there was a really good, five-pronged Austin Chamber of Commerce plan to market the city as hip and cool and attract all those upwardly mobile millennials? I don't think that's what happened. 

There’s an analogy to network effects of social media. Social media platform A may be vastly inferior to new competitor B, but if everybody is already at A, it's really hard to move people over to B. A’s growth tends to lead to more growth simply because of the network effects. 

So I think that's some of it. If you had an economist on here, they would probably point to educational attainment and the associations between high percentages of people with bachelor's degrees and these sorts of economies. 

Also, Louisville historically just does not change very quickly. If you drive through Nashville, you'll see so many cranes. It is really unbelievable how fast that place is growing and changing. And Louisville, just culturally, we've never grown and changed that fast. 

I've really had an evolution in how I think about this, over my time observing these things. At first, I wanted to do reporting on and asking these sorts of questions like, “What can we do to be a city where companies want to move here? What do we need? Is it the education system? Is it the parks? What amenities do we have?” 

But if you look at what actually happens in practice, the more important question is, “How many companies are being started here?” Companies tend to stay wherever they were founded. It’s very rare to see them pick up and move. Companies can be what I call irrationally rooted in a place for a very long time if they get started there, simply because of the inertia of people living in a place, being invested in a place. 

If you were to start a Fortune 50 health insurance company today, Louisville might not even be in the top 100 cities that would be the most logical to locate it. The only reason that Humana is here is because in 1961, the guys who started it were here. It’s as simple as that. 

Thinking about how we attract companies is the wrong question. The right question is, “How much can we do to ensure that we are attracting people who will start companies and supporting early companies? What can we do to build the environment where that sort of risk-taking is happening? How can we get those people here so that they have ideas and bounce them off each other?” 

Entrepreneurship, those are the seeds that will eventually pay off for your economy. That's primarily where these sorts of super-valuable jobs come from.

So how does Louisville become a place for entrepreneurship? 

I'm better at observing these things than predicting what's best. But just from a high level, shifting the thought process from company attraction to people attraction and to seeding the ecosystem, would seem to be a much better payoff in the long run. 

But if you think about the incentives that drive elected officials, they're short-term  ….

We need to talk about this at the state level. That’s primarily where the government subsidies for economic development are handled. 

In Kentucky, we have incentives that companies will get for coming here or expanding their operations and adding jobs. That's called the Kentucky Business Investment Program. And we spend about $50 million a year on that. And if you look at what gets incentivized through that program, it is often expansions of companies that are already here, and arguably a lot of it is things that would've happened anyway. 

This is not limited to Kentucky. This is the way it works in a lot of states. Companies love getting a little bit of free money for things that are in their business interest to do anyway. And politicians love looking like they had something to do with a positive economic development decision. They love to go to a ribbon-cutting ceremony and say, “This is in part because of my administration's efforts to grow good jobs.” 

A perhaps more productive conversation would be to look at those incentives and instead ask ourselves, “What would $50 million a year of additional entrepreneurial ecosystem support do instead?” A more forward-thinking approach might be to repurpose that money into trying to grow more companies from the ground up here that are unlikely to ever leave home.

Is our political situation a barrier to companies coming and also staying? Is our state government too conservative and potentially driving away people who might prefer to be in a place like San Francisco that is more gay/transgender-friendly/pro-choice, ….has more left of center values? 

It’s hard to make that case in a rigorous way. Nashville, Austin, Atlanta. Georgia was a pretty red state up until recently. I think we see this dynamic all over the country where there are very urban places that are liberal that are in the middle of red states. 

I think it's more about quality-of-life issues and job opportunities and where people want to live. 

That’s the other plank of this. What public investments can we make to make our city a place where people want to live? That's especially important after the pandemic because the mobility of white-collar, work-from-home workers is tremendous. 

That's a tremendous opportunity that all cities have. The differentiator there is not, “What companies do you already have that are creating jobs?” but “Where do people choose to live?” If we can get that balance right between, leveraging our very low cost of living with high quality of life, that is a tremendous opportunity.

So let’s say Mayor Greenberg puts you in charge of an initiative to get remote workers to come to Louisville and keeping those who are already here in town. What does your plan look like? 

I wanna preface my answer by saying I would be getting a little bit over my skis there, because it's just not my expertise. But just as somebody who lives here, I think the built environment is really important and I think that has been largely neglected in Louisville for a long time. The decision to separate our river from our downtown with an elevated highway, I think, was extremely foolish. The decision to invest billions to build more highways downtown, I'm not sure there's evidence that has led to growth.

I think the leadership of this city historically has had a 1950s mindset that highways mean economic development.

I think there's a lot of low-hanging fruit, like changing the streets downtown to be more pedestrian-friendly, things that we can do like that. You just have to think about all the things that make people want to live in a certain place. 

We'll never have a beach.  We’ll never have mountains. We don't have any of those natural features that are in Denver and in Florida. But what other amenities can we attract people with—public spaces, parks, libraries, a high-quality school system? 

I'm not suggesting any specific improvements to all these things. I'm just saying that is the direction that is helpful to think about because we do have this tremendous opportunity to be a low cost, high quality of life place where people who can live and work anywhere will bring their money, and that would be great.

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