Philadelphia Reflections

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

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 ocean 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

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.

Originally published: Saturday, January 15, 2011; most-recently modified: Thursday, May 23, 2019