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By Chuck Leddy
There was a time not long ago when the talk in Boston was all about why so many big businesses were being swallowed up and moving their headquarters—from FleetBoston Financial to John Hancock Insurance to Gillette.
It’s a very different conversation today. Hardly a week passes when a tech giant or biopharmaceutical company or startup announces that it’s relocating to Greater Boston or considering it as a new home.
General Electric is moving its global headquarters from Fairfield, Connecticut to Fort Point, Amazon has put Boston on its shortlist of cities for a second global headquarters, and Vertex, part of the region’s booming biotech sector, opened its $800 million global headquarters on the South Boston waterfront in 2014, just to name a few examples.
So what changed in one short decade?
A wide-ranging conversation with one of the leading experts on the Commonwealth’s economy, Professor Robert Nakosteen of The Isenberg School of Management at UMass Amherst, provides insight into where the state has been—and where it’s going. As the executive editor of MassBenchmarks, Nakosteen produces a quarterly economic journal that studies data and trends in the Massachusetts economy—and as a result, nobody knows it better than he does.
Why they come
For starters, Boston has a number of traits that distinguish it in ways that are attractive to today’s corporate culture, Nakosteen says.
“First, there’s been a trend for companies to move from suburbia into cities,” he says. “Jeff Immelt, the former CEO of GE, said he didn’t like looking out of his Fairfield, Connecticut office window and seeing only wooded area. He wanted to see a city instead.”
Boston’s walkability and livability attracted GE, just as it attracts other big businesses.
Nakosteen also cites Boston’s unique business ecosystem, one that fosters innovation in cutting-edge industries like healthcare and technology. This ecosystem includes dozens of renowned research universities, clusters of innovative companies, and a highly-educated workforce.
“GE moved to Boston in part because they wanted to refashion themselves as a cutting-edge technology company,” Nakosteen says, “so locating to a world-class tech center like Boston fit perfectly with that goal.”
Greater Boston has a number of “innovation clusters,” such as biotech in Kendall Square and software/tech startups in the Innovation District by the Seaport. “When firms doing specific kinds of business like healthcare and tech are using specific kinds of labor pools,” Nakosteen says, “they cross-pollinate, coming together for the benefit of all of those companies.”
That allows for a sharing of ideas, employees, and suppliers, and helps everyone grow together, Nakosteen says.
The most obvious benefit, says Nakosteen, is hard to overstate: Jobs. “GE has promised to bring 800 employees into its new headquarters,” he says. “Amazon has promised to bring 50,000 jobs to the city it selects for its second headquarters. More jobs raise employment and incomes throughout the city.”
When high-profile big businesses make highly-publicized moves to Boston, as with GE, it also enhances the area’s reputation as a global business center. “By the way, those reputational effects work both ways — they benefit incoming companies like GE as well,” says Nakosteen, “which is part of the reason businesses come into Greater Boston.”
As a final benefit, Nakosteen notes that more jobs means more training for local workers. “Because Boston’s labor market is already so tight,” Nakosteen says, “employers are now willing to hire people with less than the qualifications they’d typically desire, and are more willing to invest in training those workers.”
That training could offset what has long been one of the biggest frustrations of the Boston workforce: Brain drain, the argument that young people come here for a first-class education, but then bolt for other cities when it comes to finding work because they can find cheaper housing and better night life.
“If there are more jobs here,” Nakosteen says, “we may find the available talent pool actually expanding because fewer people leave.”
But if those jobs are only attainable by a certain segment of the population, that’s a problem. In the most recent issue of MassBenchmarks, Nakosteen wrote: “While Massachusetts’ economic expansion is enviable, its prosperity has not been evenly distributed, regionally and between different income groups.”
As the debate over wooing Amazon has shown, not everyone embraces the flood of new businesses. Having big businesses locate to Boston has its downsides, says Nakosteen, especially related to rising housing costs and additional stress on transit infrastructure. Those two issues are closely linked, he says. “If transportation infrastructure is improved and extended, then housing becomes more accessible in outlying areas.”
Citing well-publicized service problems with the MBTA back in February 2015 and this winter, Nakosteen says more investments are needed. “Winter weather has revealed how ancient and doddering our transportation infrastructure is,” he says. “While I give Governor Charlie Baker some credit — he’s worked hard to upgrade the MBTA — we’re not nearly where we need to be in terms of investments.”
Finally, big businesses can bring risks to taxpayers, especially if they are lured here with generous incentive packages offered by state and local governments. “What has happened in the past with these incentive deals is that incoming businesses don’t always comply with the agreements,” says Nakosteen. “The companies were supposed to employ a certain number of new workers and they just didn’t. Yet, they still got the tax breaks.”
When it comes to the $150 million incentive package given to GE, Nakosteen says, “Governor Baker and Mayor Walsh were pretty clever in making those agreements contingent upon the number of jobs created and other promises. If GE splits up, as they’ve been considering, I could see the deal being modified,” he says.
Despite the challenges big businesses present, and the stress on the MBTA and housing prices, Greater Boston needs them to keep the economy thriving, says Nakosteen.
“Getting big businesses coming here is essential for industries such as IT and communication technology, biotechnology, big pharmaceuticals, education, healthcare, and more,” he says. “It’s so important to get like-minded businesses clustering in Greater Boston, taking advantage of its highly specialized, well-trained workforce and great research universities. That brings us true resilience.
“I remember back in the late 1980s when Boston-area microcomputer companies like Prime Computer, Digital Equipment Corporation, and Data General dominated the computer industry,” he says. “That whole microcomputer industry folded up, but Greater Boston is stronger now than ever.”
The bottom line: “ Boston,” insists Nakosteen, “will live and die with the technology sector as a whole—and that sector is thriving.”
Sponsored by Isenberg UMass Amherst
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