Scott MacKay Commentary: What's Behind The CVS-Boston Connection

Dec 5, 2014

What to make of the news that CVS Health, which is headquartered in Rhode Island, is opening a high-tech center in Boston.  RIPR political analyst Scott MacKay has some thoughts.

CVS Health headquarters in Woonsocket.
Credit CVS Health

Rhode Island-based CVS Health employs more than 7,000 workers in our state. The pharmacy giant calls Woonsocket home, but the recent news that it is opening a high-tech center in Boston sent shivers through segments of the business and  economic development community in a state with New England’s highest unemployment rate.

Marcel Valois, state commerce secretary, said that CVS executives did not reach out to state economic officials or Gov. Lincoln Chafee’s administration before making the decision. As Valois sees it, it is a reasonable decision based on the company’s needs and future business.

"CVS is a great corporate citizen,’’ says Valois, an opinion that is pretty hard to dispute. Rhode Island government has been good to CVS. In just the past two years, the state has given the company nearly $30 million in job-development tax credits.

Valois says CVS has lived up to all of its economic agreements with the state and done even  more when it comes to hiring at its corporate office park that straddles the Woonsocket and Cumberland border, where 5,500 workers earn good wages and fine benefits.

CVS has done much more for Rhode Island than provide jobs. In  a partnership with professional golfers Brad Faxon and Billy Andrade, the company runs an annual golf tournament, the CVS Classic at Rhode Island Country Club. That event has raised millions for charities in our state. Former CEO Tom Ryan, a graduate of the University of Rhode Island,  has been a particularly generous donor to his alma mater, giving millions to support a wide spectrum of URI programs ranging from brain research to the sports arena that is named after him, the Ryan Center,

The lesson from this move to Boston from Rhode Island can’t be summed up in the usual jibberish spouted by conservatives and some in our business community – that high taxes and government corruption drives employers to flee the state.

So why is CVS  opening this new high-tech installation in Boston, where it will employ about 100 highly-educated, innovative workers? For the same reason that Willie Sutton robbed banks: because that’s where the money is.

In CVS’s case, Boston is where the workers are. "The type of workers that we’re looking for are concentrated in the Boston market," says company spokesman Mike DeAngelis.  He said that CVS, with $126 billion in yearly sales,  retains its commitment to Rhode Island.

"We are a Rhode Island company," said DeAngelis. CVS is currently hiring for about 400 positions in the Ocean State.

Innovation jobs in high-tech and bio-tech are located in hubs with lots of educated young people. These industries are clustered in California, especially in the Silicon Valley and San Francisco area, and in New England in the Boston-Cambridge axis.

Such 21st Century global innovators, including Google, Facebook and Microsoft are  all headquartered on the West Coast. Yet they and other California high-tech firms all have research subsidiaries in the Boston area.

T3 Advisors is a company that helps high-tech companies find suitable locations. It has offices in Boston, Palo Alto and San Francisco. Greg Hoffmeister of T3 says that talent has the upper hand in these industries. Companies may look at the usual other factors, such as taxes and rental costs, but in high-tech those concerns take a back seat to the top priority of  finding talent.

Rental costs in Boston are high, certainly higher than Rhode Island.  Income taxes for top earners in California are far higher than Rhode Island.  Yet companies that need to compete in the global economic village still move to these areas because that’s where the employees they need live.

Providence isn’t Boston. It never will be. Tthat doesn’t mean we will be left behind in this new economy. One Providence-based company, Swipley, is the type of high-tech business usually found in northern California or Boston.

Swipley was founded by Bristol native Angus Davis, who says he loves the Ocean State and has many friends and family here. The data-mining company has grown from a handful of employees to more than 150 and has attracted millions in venture capital. Forbes Magazine named Swipley as one ``America’s most promising companies.’’

Yet Davis concedes that he must hire talent from Boston. He gives his dozens of Boston-based employees a travel benefit – free monthly passes on Amtrak for the commute, whieh costs him nearly $5,000 per worker each year.

Davis thinks CVS missed an opportunity to grow the high-tech sector in Rhode Island. "When they didn’t feel  they could be successful  in Rhode Island…it contributes to a brain drain in our state."

Davis also acknowledges  that Boston has what he calls a concentrated "ecosystem" of talented young innovators that Providence has yet to develop.

What all this tells us that in competing for Next New Thing companies, there is no substitute for educated workers. Our state needs to make investments in higher education and worker training.

It will be interesting to see how Gov.-elect Gina Raimondo, who has pledged to be the jobs governor, handles this issue.  She says she plans to reach out aggressively to Ocean State companies to convince them to expand here. (In an interview with R.I. Public Radio, Raimondo declined to criticize the CVS move).

Boston will always loom. The venture capital company Raimondo worked at in Providence eventually moved to Boston. And her husband, Andy Moffit, works for a top-consulting firm that calls Boston home.

Maybe the General Assembly would be wiser to provide incentives for 21st Century innovators  to come to Rhode Island, rather than pursuing  Speaker Nick Mattiello’s plan to eliminate state income taxes on the pensions and social security checks collected by the elderly.

This we know: The next Bill Gates, Mark Zuckerberg or Angus Davis won't be found line-dancing at the North Providence Senior Center.

Scott MacKay’s commentary can be heard every Monday at 6:45 and 8:45 on Morning Edition and at 5:44 on All Things Considered. You can also follow his political analysis and reporting at our `On Politics’ Blog at RIPR.org