Recently Intel announced they are going to invest an initial $20 billion in a new chip fabrication plant in metro Columbus Ohio. Initial because Intel’s CEO Pat Gelsinger indicated that Columbus could become “the largest semiconductor manufacturing location on the planet.” With a total investment of $100 billion in eight fabrication plants. The first plant will employ 3,000 at an average annual salary of $125,000.
This clearly is an economic development home run for Ohio and more specifically for metro Columbus. Which raises the question “why did Intel choose Columbus?”
In a must-read Market Watch column Michael J. Hicks, professor of economics and the director of the Center for Business and Economic Research at Ball State University, provides an answer to the why Columbus question. The column is entitled Intel’s choice of Ohio for its $20 billion factory shows what matters at least as much as low taxes — and it costs money. The column’s subtitle is: A sobering lesson for states like Indiana that can compete – or even beat – Ohio on tax breaks, tax rates and regulatory environment.
Hicks compares Columbus to Indianapolis. What he writes about Indianapolis is equally applicable to metro Detroit and Grand Rapids. Hicks writes:
This factory is a 25-minute drive from the College of Engineering at Ohio State University and close to the fastest-growing parts of the Columbus metropolitan area. The entire metro area has absorbed some 130% of the state’s population growth since 2000 .
The salary levels also suggest that the workforce at this plant will be primarily comprised of college graduates. Ohio workers in the semiconductor industry earned $65,490 per year in the last 12 months before the COVID downturn. To be profitable, this factory will be much more than the clean-room production facilities of a traditional semiconductor factory. I suspect this site will involve considerable product development and testing.
This evidence points to the need for a large number of college graduates as a driving factor in Intel’s decision. Close to a dozen top engineering colleges are within a five-hour drive. These include Purdue University, the University of Michigan, Michigan State University, Carnegie Mellon University, the University of Kentucky and of course Ohio State.
The only other Midwest location that could boast the same geographic concentration would be Indianapolis. The fact that Indiana was not chosen in this case offers a harsh lesson for states that rely on incentives rather than an educated workforce as an economic development strategy. It is the same lesson the Amazon HQ deal provided state policymakers around the nation.
The Indianapolis and Columbus metro areas are similarly size and have absorbed all their state’s population growth in this century. Both were finalists in the Amazon headquarters competition and were wooed by Foxconn as well. Purdue has an objectively better-ranked engineering college, and taxes in Indiana are lower than those in Ohio. Indiana’s use of tax abatements and credits suggest it would have offered a similarly sized package.
So why is Indiana going to Indiana and not Ohio?
The short story is the abundance of educated workers in Ohio. The Columbus metro area is already rich with college graduates, but it also has the local environment that can attract more.
Exactly! This is the core lesson Michigan Future has learned from decades of research on what defines the nation’s most prosperous places. Talent––particularly the proportion of adults with a four-year degree or more––not “tax breaks, tax rates and regulatory environment”––is what matters most to prosperity. That talent attracts capital, because talent is the asset that matters most to and is in the shortest supply for high-wage employers. As Hicks writes that is the lesson from Amazon HQ2 choosing New York City and Northern Virginia and from Intel choosing Columbus.
The places with the most prosperous economies are those that combine high quality education systems and high quality of place that retains and attracts mobile talent. Both education and placemaking require public investments. These types of public investments, paid for by our taxes, are the state policy playbook most likely to return Michigan to high prosperity, creating an economy with lots of good-paying jobs.
Imagine if we had spent the last two decades not cutting taxes, but investing in education from birth through college and creating places where young talent wants to live. It is far more likely that Michigan would have been a strong competitor for Amazon HQ2, the Intel fabrication plant and all the other high-wage job creation that comes from being an attractive place to locate a knowledge-based enterprise.
We will know that Michigan is serious about working on investing in education from birth through college and creating places where young talent wants to live when Michigan economic development officials and entities push to pay for increased public investments. Saying you want education and infrastructure is easy, paying for it is hard. Economic developers and policymakers across Michigan for decades have been part of the push for lower taxes and big incentives as the key to economic development. Amazon and Intel make clear that it is time for a fundamental change. Only time will tell if those in charge of economic policy and programming are ready to take the lead to make that change happen.