Data Centers Reveal America's Economic Development Brain Rot
PLUS: Two good updates.
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The Maine legislature last week became the first in the nation to adopt a moratorium on data center construction. If signed into law by Democratic Gov. Janet Mills — and that seems like quite the “if” at the moment (Update: She vetoed it.) — Maine will pause new data center projects until November 2027. Legislators in at least 10 other states proposed similar legislation this year, and many municipalities across the country have already adopted their own holds on data center construction, with Oklahoma City being the latest.
The anger at the rapid building of data centers to fuel big tech’s artificial intelligence apparatus is widespread, deep, and non-ideological, and voters are voicing their wrath at the polls, rightfully concerned about the effect booming data center construction will have on their utility bills, environment, and quality of life. $64 billion worth of data centers projects have been blocked or delayed in just the last two years.
There’s a story there about this particular political moment, of course, with tech and AI receiving a backlash to real (and perceived, to be fair) overreaches. But the data center boom is also, in many ways, emblematic of the larger failure that is U.S. economic development policy at the state and local level.
Bereft of ideas for building up local businesses and deprived of options by increased corporate consolidation, politicians and economic development bureaucrats have defaulted to data centers as the hot, new thing they can entice into their community as evidence they’re doing their jobs, and they’re doing whatever they can to get a slice of the action. Once data centers are off the table, some or even most of those political actors will inevitably fall for the next thing.
Remember, data centers exemplify all of the worst aspects of U.S. economic development: Billions of dollars in unjustified taxpayer subsidies, few permanent jobs created, and secret arrangements protected by nondisclosure agreements that cut communities out of key decisions. There’s also the ever-present threat that there’s an artificial intelligence bubble that will pop, leaving states and cities that were counting on data center revenue stuck holding the bag, much like the previous iterations of company towns that were abandoned by the failed economic development projects of yesterday.
There’s been some encouraging movement on data center reforms this year at the state level, with several states adopting measures that require data center operators to shoulder the cost of any new power buildout they require. As I wrote in Governing Magazine recently, 10 states have proposals to ban or limit nondisclosure agreements for data center projects (or, even better, economic development projects in general). Several others have proposals to limit or eliminate the tax subsidies those centers receive.
And yet, the legislative agenda hasn’t met the level of anger out there, with many of these bills stalled or watered down. Too many governors, state legislators, and in particular the civil servants who keep the economic development bureaucracy running still suffer from what I refer to as “economic development brain”: The idea that the goal of economic development policy is to close the deal with a specific business, no matter what.
This mindset was on perfect display last month during a Maryland committee hearing on a bill to ban nondisclosure agreements for data center projects at which I testified. Democratic State Sen. Ron Watson defended NDAs because they shield specific corporations from competition, which is a “sound way to grow a business.” When asked by one of the other testifiers whether he thought it was the role of local government to help a specific corporation secure land at the cheapest possible price, he responded “of course it is!” (You can view the committee hearing here, and this exchange is about an hour and 22 minutes in.)
Indeed, I get why corporate leaders likes NDAs. They don’t want competition! But government — public officials, who are the ones signing these NDAs with corporate actors — should want open, transparent, business dealings, which drives down public costs and secures public goods for constituents. Watson’s remarks make it sound like he thinks the goal of public policy is to help a specific corporation secure the best deal for the corporation, rather than the public, in the name of Maryland being perceived as pro-business. Under this mindset, the first mover on a project gets the full protection of the state from its competitors — or even businesses in other, non-competing industries — potentially offering a better deal to the public.
I’m picking on one state senator a little bit, but his viewpoint is pervasive. There’s simply a firm belief out there that completing whatever economic development project is currently on the table is more important than seeking out the best deal for a community. Data centers have revealed this problem in spades, but that’s a symptom of the deeper rot.
And yes, before the complaints roll in, I know data centers are necessary (even just to read this post!) — but they’re also the necessary infrastructure for the corporations that are building them and profiting off the activity they enable. If data center operators and developers want access to substantial public resources, then they need to receive them on terms that actually benefit the public. And that’s not what’s happening at the moment.
UPDATE I: Last month, I wrote about how the Department of Justice’s settlement in an antitrust lawsuit against LiveNation-Ticketmaster was a sham. Well, good news: More than 30 states carried forward the lawsuit, refusing to join the settlement, and they won, with a jury deciding LiveNation-Ticketmaster is indeed an illegal monopolist. The next phase of the trial will determine what sort of actions the corporation needs to take to remedy the situation.
UPDATE II: A couple of weeks ago, I wrote about how CVS was attempting to threaten the Tennessee legislature into voting down a bill to break up pharmacy benefit managers. But the threats didn’t work, with both the state House and Senate approving it this week. The bill now goes to Gov. Bill Lee for his signature or veto.
SIMPLY STATED: Here are links to a few stories that caught my eye this week.
California Attorney General Rob Bonta released new evidence in a price-fixing case against Amazon, which shows how the online retail giant coerces brands into raising prices at other stores.
The Louisiana House of Representatives approved a bill to rein in online subscription traps by a vote of 95-1.
New York is the latest state to sue prediction market firms for violating state gambling law. (Background on this issue here.)
Amazon is still behind on the promised hiring at its Virginia “HQ2.”
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— Pat Garofalo
you don't need these ai and crypto data centers for the normal Internet don't fall for industry lies
Stadiums are part of the scam. I've come around to thinking all the public officials in those deals are taking bribes.