People & Place > Profit

Proximity, its relationship with pro-social behaviors, and what it means for our communities in this precarious moment

I recently reported an article for The Colorado Sun that asked the question, "If there is so much vacant office space in Boulder, why isn't rent going down?"

My reporting brought a question I've wondered while covering the economy into clearer focus: What happens when owners of businesses and property aren't part of a place?

Last year, I wrote an article about private equity investment in childcare centers. During the reporting, I couldn't get a single person from a private equity-owned child care center to respond to me. I found that there are people running businesses in my community who aren't accountable to the individuals living here.

Similarly, while investigating the state of the retail industry in Boulder, I couldn't get a comment from several of the big brands that line the Pearl Street Mall. Any interaction had to go through PR and media relations teams, which resulted in long waits for replies and flattened, promotion-language-laden responses.

When a business isn't of a place, it's easier for its owners to operate in anti-social ways. If they can't be reached, what should they care if their choices hurt the people in the communities where they operate?

Proximity and pro-social behaviors are understood to be well-connected. In fact, “in behavioral economics literature, social proximity has been found to be an important determinant of prosocial behavior and cooperation in various contexts.”

Anti-social behaviors in the context of corporate power are even more concerning because of shareholder primacy — the principle that most for-profit entities operate according to, requiring them to make the most profits possible for their shareholders. The demands of shareholder primacy and public interest are often misaligned.

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I once worked as an executive for a software company that made products for the financial industry — mostly private equity and venture capital firms. I was in a marketing leadership role and so I spent a lot of time trying to understand the motivations and interests of the customers, the general managers who used the product to make decisions and coordinate their "deal making," which essentially meant the buying and selling of businesses. What I discovered was that the analysis these general managers performed to make their decisions reduced entire companies — thousands of people who contributed to communities all over the world — to a row on a spreadsheet.

These general managers worked for firms that would buy up these companies for the purpose of making a profit for their investors. Once acquired, business decisions were made by people who might never visit the company, but would maximize its value by firing employees and disinvesting from the community (e.g., reduce volunteer time, sponsorships, replace local vendors with the firm's preferred vendors, lower pay, reduce employee benefits, etc.) For them, they were doing their job at the expense of people and local economies they would never see.

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Distance enables behaviors that negatively affect the public's interest. Yet, many cities and property owners work hard to attract big corporations that are usually headquartered somewhere else. There are many reasons for this, but one of the big ones is that banks prefer the larger companies, which are considered "credit tenants." The term refers to the fact that these tenants have a credit rating. They are usually publicly traded companies and financial institutions. For these companies, breaking a contract or lease agreement hurts their credit rating, limiting their ability to borrow money and do business. So a credit tenant will likely keep paying rent within the lease term even if they vacate the property.

This makes leasing to a credit tenant less risky and makes it more likely that these groups will get a commercial lease over a small business, a business connected to the place. When you see small downtowns, like Boulder, full of global brand names, this is one of the reasons why.

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One of the unintended consequences of this is that, in a post-pandemic world, there are large swaths of commercial real estate sitting empty in places like Boulder, Denver, Seattle, Dallas, San Francisco, and others. Credit tenants are waiting out their lease, property owners are looking to turn a profit on empty buildings (as detailed in my article in the Sun), and empty spaces are filling up with banks no one needs.

Frustratingly, there's no one to be held accountable for the empty downtowns and struggling local businesses, other than city officials who have no leverage over out-of-state business interests. When companies aren't rooted in place, they don't experience the wreckage they cause. And so communities are being ruined by people who sit in offices somewhere else who don't have to answer for their impacts.

Right now, our communities are dominated by financial interests and are highly unstable. I find many economic development efforts by policy-makers and community groups like Chambers of Commerce lacking in imagination and focused on things they've done in the past that have gotten us to where we are, such as:

• incentivizing large corporations to move into towns

• lobbying/voting against regulations that protect workers (detailed in this recent New Yorker article that focuses on the “no tax on tips” policy and minimum wage in Colorado)

• failing to adapt to changing economic and technological realities.

A real-time example of financial influence and slow reaction time to technological realities is the plans that Colorado's Governor has to pause legislation that seeks to regulate AI in the state. Covered by Politico:

Colorado Gov. Jared Polis signed first-in-the-nation legislation to regulate artificial intelligence last year.

Now the Democrat is calling state lawmakers back to Denver next week to ask them to delay for a year the law’s implementation, currently scheduled for February. The big issue: the cost of implementation.

But Polis is also having second thoughts about states independently regulating AI. Earlier this year, he backed a plan by Republican lawmakers in Washington to place a moratorium on new state AI laws.

The Colorado legislation will bolster consumer protections when AI is used to make key health care-related decisions, and require developers and deployers to address algorithmic bias based on reproductive health, genetic information and other data. Developers must also make disclosures about AI systems that make high-risk decisions.

Our communities, cities, and states are being shaped by financial interests that operate in opposition to public interests. Legislators and local businesses want to create vibrant economies, but you can’t do that without inverting the current priorities — people & place over profit.