Philadelphia Reflections

The musings of a physician who has served the community for over six decades


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Philadelphia Economics (2)



Locating Corporate Headquarters

Troy Adams

The Right Angle Club was recently entertained by a director of the Greater Philadelphia movement, Troy Adams. One of their main purposes of spending several millions of dollars annually is to try to attract new businesses to Philadelphia. The money, interestingly enough, is contributed by other businesses, many of whom would be competitors of the newly attracted ones. What's the value of this? How do you go about doing it, even if it is a splendid idea?

From the viewpoint of the city government, attracting new businesses means attracting new sources of taxation. It is not surprising therefore that the Chamber of Commerce tends to believe the main obstacle to attracting new business relocations is the tax structure of the locality. That's what the officers of companies under investigation ask about. By and large, the unattractiveness of Philadelphia to such inquiry is not the size of taxes, but their complexity. New businesses are turned off by learning of new types of taxes they had never heard of. It raises suspicion, and existing local businesses are quick to confirm that some of these strange-sounding taxes are objectionable mainly because you forget about them, and then get fined for not submitting a form to pay a small amount. If you get summoned to a hearing, it is even worse than paying the bloody thing. We have, say a lot of companies, branches in dozens of different cities, and we never heard of a tax like that. Of course, a famous sage once remarked that when someone complains it isn't the cost, it's the principle of the thing, well, it's the cost.

{Chamber of Commerce}
Chamber of Commerce

Regulations, requirements, prohibitions, deadlines, reporting requirements and all of that drive you crazy when you are trying to run a business. The cost of the taxes to a businessman is a simple question: do my competitors have to pay the same amount? If it's a level playing field, businesses ordinarily don't care about the money, since they can just raise the prices to the customer to cover it. Businesses, dear friends, don't look at costs the way the rest of us do. For that reason extended a little, businesses are strongly repelled by the existence of corruption, because corruption may or may not be applied equally, on a level playing field.

All of this sounded quite plausible to the Right Anglers, until Buck Scott spoke up. " I beg to disagree, " he said. He remarked that in his experience the decision to move corporate headquarters to a city is determined by one person, or at most four. Whether the decision-maker is the CEO, a big stockholder, or a flunky assigned the task, the decision is usually not made on sensible economic grounds. It is based on the fact that the wife of the decision-maker grew up in Radnor or Chestnut Hill, and likes it here. If you are looking for access to oceon ports, railheads, Interstate Highways, airports, or proximity to big-city labor pools, Philadelphia has everybody beat. That sort of stuff is a given, and so what matters is that the decision maker wants to live here. To a certain extent, our proximity to New York and the District of Columbia is a handicap, since the lady of the family can live here while the corporate headquarters is not too far away, although too far away to be taxed. Buck Scott brought the discussion to a halt, because it was obvious to everyone that he had a strong point.

{Philadelphia Ports}
Philadelphia Ports

On another level, however, there is still debate. The question is whether Philadelphia gains a great deal by having the corporate headquarters located here. The CEO may have invisible value by his socializing frequently with the CEOs of other corporations, but no one was able to defend that as having serious advantages. Since the competitive corporations are paying for this effort to attract new corporate headquarters to the region, there may well be advantages to them which are not immediately evident. What's clearly of value is locating large numbers of employees to the region, since they do generate business activity and hence taxes. Upscale companies have employees who are anxious to find good local schools, crime-free areas in which to live, and an improved environment; getting more of them into our voting pool will result in a better city, without question. Maybe, just maybe, locating the corporate headquarters in the region is a first step in enticing the rest of the company to come here. But it has not yet been demonstrated. Quite possibly, enticing the wives of decision makers to join the social whirl is the first step, and locating the factory here is only a secondary one which follows. Somehow, it begins to seem likely that the people who can influence one step, aren't talking to the people who determine the other.

U.S. Army Corps of Engineers in the Delaware Valley

{Morris Udall}

It seems unlikely a peanut farmer from Georgia would have much interest in Philadelphia, let alone the activities of its local Army Corps of Engineers. But it seems there is some sort of story, there. An acquaintance chairing a local meeting of Americans for Democratic Action at the time remembers an episode dating from the 1976 presidential nominating campaign. Morris Udall was the main opponent of Jimmy Carter for the Democrat nomination. You might suppose an out of town politician would have instincts tell him to be nice to the local mayor of his own party, but Jimmy Carter went out of his way to attack Frank Rizzo. Udall took the path of conventional wisdom, and refrained from joining Carter in the attack. Since Pennsylvania votes were considered pivotal in that particular race, it was watched with considerable interest. But to the surprise of the insiders, Carter won the Pennsylvania votes, suggesting that hidden animosity to Rizzo was extensive. Furthermore, from that event it would be possible to suppose either of two conclusions. Either Carter would be grateful to Pennsylvania for putting his nomination over the top, or else he had some sort of grievance against Rizzo.

Subsequent events suggest he had a grievance, but it would be very hard to imagine where the two would even have met each other in the past. More likely, he made some slighting remark to an aide, who took it on himself to curry favor when in fact Carter had forgotten all about it.

{U.S. Army Corps of Engineers}
U.S. Army Corps of Engineers

In any event, the local division of the Army Corps of Engineers went into some sort of decline, dating from about that time, which might well have been over-reacting to the so-called Love Canal episode. The chief of the division was to have no higher rank than Lt. Colonel. The activities of the division had been centered on building dams and flood control projects, but began to be mostly environmental protection, particularly repair of hurricane-damaged ocean beaches. The headquarters was moved from the Custom House to the Wanamaker Building, because the personnel and budget had declined. There was talk of merging the district with another district. The Delaware Division is the smallest district in the country, almost difficult to find on a map whereas some other districts enclose eight states. When you get more states you get more Senators, so you get more budget, and so on. It was sad that the Navy and Marines were founded here, the Revolution and the War of 1812 caused much fortification to be centered here, the capital of the country. From that point to the present, there has been a long decline. It was particularly painful that West Point is primarily an engineering college, with a tradition that the top five percent of every class is offered a place in the Corps of Engineers. In Army politics, it is clear that a heavy proportion of the generals were West Point graduates, just as it is almost exclusively true that all admirals have Annapolis in their background. Jimmy Carter went to Annapolis, but so what?

Love Canal

Rather than follow a line of thought which leaves many uncomfortable, perhaps it is more relevant to notice that all of our rivers seem to be drying up. The Colorado and the Rio Grande are mere trickles, the Mississippi now has wide banks of mud. The Delaware has long been recognized as having a wide mouth and a short length, reflecting its origin as a small river emptying (at Trenton) into a wide bay which is really the back bay of the huge barrier peninsula of Southern New Jersey. What might have been its extensive watershed runs instead into the Susquehanna, about a hundred miles north of Philadelphia, probably because of volcanic shifts. But what was once a thriving port has dwindled as a result of labor troubles and some unfortunate legislation. That's where the number of Senators in your district makes a difference.

{Panama Canal}
Panama Canal

Wilmington, Delaware has the largest port for bananas in the nation; the Delaware points southward, toward all of Latin America. The Chinese are financing, and probably engineering, a widening of the Panama Canal to accomodate giant container ships that now can't get through. The first port on the Atlantic seaboard to deepen its harbor accordingly, will probably get first-mover advantage and hold it because it is expensive to play catch up. Philadelphia is about half-finished in the deepening of the channel to forty-five feet. But New York's deepening of the Hudson is almost complete. New Jersey politics involves both channels on its north and south borders, but New Jersey has long since thrown in its lot with New York. Now that it probably won't matter, the Pennsylvania dredging will probably be permitted to finish. If that happens, the only hope for Philadelphia in the race to be a big container port, will depend on a recession in China slowing down their import traffic until we catch up. After all, Philadelphia is blessed with an almost world-unique combination of rail, highway, airport and ocean shipping interchanges at a single point, on relatively undeveloped land close to a major city. Without wishing any evil on China, we do have to wish they would encounter some reason to slow down for us. Slow down, that is, until our natural advantages can overcome the foibles of our politicians.


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Locating Corporate Headquarters
American RevolutionaryEvery year, millions of dollars are spent by cities to induce corporations to relocate their headquarters. Does it work? Is it a goal worth pursuing?

U.S. Army Corps of Engineers in the Delaware Valley
The Delaware division of the Corps of Engineers is dwindling away. The engineers don't know nuttin', but they say on the street, Jimmy Carter did it.