Could the Next Brooklyn Be … Las Vegas?! (Ep. 205): Full Transcript

This is a transcript of the Freakonomics Radio podcast “Could the Next Brooklyn Be … Las Vegas?!

[MUSIC: The Civil Tones, “One Day, Again and Again” (from City Stoopin’)]

Hey, podcast listeners. You are about to hear a brand-new podcast, a tale of a great American city — at least some people think it’s a great city — that is in the midst of a most unlikely urban renewal. But first, I have something to tell you: we have just published a new Freakonomics book. It is called When to Rob a Bank: … And 131 More Warped Suggestions and Well-Intended Rants. It’s a compilation of the best writing from 10 years of blogging at Freakonomics.com. Here’s what the critics are saying so far: Publisher’s Weekly calls it “an energetic, charming assortment of posts, thematically arranged, on topics as varied as terrorism, restoration of the draft, getting rid of the penny, car-seat safety, obesity, the U.S. crackdown on Internet poker, steroid use in the Tour de France, and ‘No Gas Day.’”

Library Journal says “Levitt and Dubner return with more of their signature humor and economic perspective on everyday life,” and they predict, “this book will be a hit with fans of Freakonomics.” That is you, by the way. Here’s one more review: “The best book published since the Bible.” That one was from — oh, okay, that was from Steve Levitt’s mom. Anyway: When to Rob a Bank is the new book. Go get your copy right now — and then drop us a line at radio@freakonomics.com. Let us know what you think. And now: Viva Las Vegas.

[MUSIC: Dorian Charnis, “Chicago Jazz”]

Maggie HSU: We’re standing at the corner of Ogden Avenue and Las Vegas Boulevard North.

Stephen J. DUBNER: In Las Vegas, Nevada. Nevada? Not Nevada.

HSU: Nevada.

DUBNER: It is Nevada?

HSU: Nevada.

DUBNER: Oh God, I had it wrong the whole time? I always try to be so respectful of the way that a place is pronounced in the place where it is, like Oregon. Oregon. Now I’m probably wrong on that.

ADAM: No, you’re right on that.

DUBNER: It is “New Yursie,” right? No, okay. And we’re looking up at the Ogden.

HSU: Yes.

The Ogden is a luxury condo building in downtown Las Vegas. Not on the Strip, the famous part of city, with all the huge hotels and casinos and glitter. The old downtown is about 5 miles north of the Strip — but it’s still Las Vegas, still in the state of — say it with me — Nevada. Apartments in the Ogden sell in the low- to mid-six figures.

DUBNER: You’ve lived there how long?

HSU: I’ve lived there a year and half.

And you are?

HSU: Maggie Hsu and I run business development for Downtown Project.

The Downtown Project is, as the name implies, a project to make downtown a thing again in Las Vegas, a vibrant area where a lot of people might actually want to live.

HSU: Vegas is a very unique market. If you have a family, kids, animals, it’s less appealing to have an apartment downtown. What we’re really trying to do is boost up the amenities so you have a dog park nearby, you have restaurants within walking distance.

But as you’ll hear, it’s more than just that, more than just boosting amenities. The Downtown Project, founded in January 2012, comes with a big vision and a big price tag, which is being funded primarily by one man.

HSU: The initial allocation of the project was $350 million, fully funded as a for-profit entity by Tony Hsieh.

Tony Hsieh – that’s H-S-I-E-H – is already a business iconoclast. He founded Zappos, the online shoe and clothing retailer; he’s still the CEO, presiding over a corporate culture that most corporations wouldn’t recognize. Among his priorities: having fun, empowering his call-center employees, and making customers happy at almost any cost. We’ve written about Hsieh and Zappos before; how, for instance, company meetings are sometimes held in a bar. And why customer reps are encouraged to talk to a customer for as long as they want, all without a script, and how they are authorized to settle problems without calling in a supervisor; they can even “fire” a customer who makes trouble for them. And how Zappos gives new employees a chance to quit their brand-new job and even get a quitting “bonus,” about one month’s pay — because Tony Hsieh figures he would rather weed out anyone who doesn’t really, really, really want to work at Zappos.

All those gambles paid off: in 2009, Amazon.com bought Zappos for about $1.2 billion. Now Hsieh is using some of his money for an even bigger gamble: to try turning downtown Las Vegas into a very different kind of city. So, in this episode of Freakonomics Radio, we’ll do what most of you think about doing whenever you visit Las Vegas, I’m sure: we sit around a campfire and chat with Tony Hsieh — and campfire-appropriate beverages: 

Tony HSIEH: I’m not really normally a beer drinker. And this is your first PBR?

DUBNER: I think ever. It tastes like beer.

HSIEH: We had a fernet shot earlier for those of you just tuning in.

*      *      *

[MUSIC: Glenn Crytzer and his Syncopators, “My Blue Apples” (from Focus Pocus>)]

Compared to the rise of Las Vegas itself — a gambling and entertainment mecca built in the middle of nowhere through the moxie of some Jewish gangsters, Mormon bankers, and other colorful characters — the Downtown Project that Tony Hsieh envisions isn’t quite so bold. But for anyone who cares about cities and about the future of cities, it’s worth paying attention to. The idea for remaking downtown Vegas began when Hsieh relocated Zappos headquarters from Henderson, on the southeast edge of Las Vegas, into downtown. But Hsieh, being Hsieh, didn’t settle for some random address:  Zappos moved into the old City Hall. So today, the former Las Vegas city council chamber is now an auditorium for Zappos company meetings. The old jail has been converted into an employee gym.

And once Zappos made over City Hall, Tony Hsieh began to wonder if downtown itself might need a makeover. One of his main inspirations was a Harvard economist named Ed Glaeser, who four years ago published a manifesto called Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier. So let’s start there.

DUBNER: Professor Glaeser.

Edward GLAESER: Hi, Stephen. How are you?

DUBNER: I’m very well, thank you. How are you?

GLAESER: Great, thanks.

DUBNER: And where are you today?

GLAESER: I’m in Paris, France.

DUBNER: Poor fellow. How are things there?

GLAESER: It is a spectacular April day in Paris.

DUBNER: And now, we should just establish for the record, you do not live in Paris. Give us quickly your geographical bonafides.

GLAESER: Usually I live outside of Boston. I’m currently on sabbatical, attempting to civilize my children by taking them to a variety of different cities.

DUBNER: Very good. And you have a particular interest in cities, do you not, sir?

GLAESER: I do indeed. I do love cities very much. I’ve spent almost all of my adult life studying cities. That’s also one of the reasons why I’m here in Paris.

DUBNER: Ed, you grew up in New York City, so you may be biased, but just rank for me if you don’t mind, your five favorite cities in the world.

GLAESER: Come on. That’s like ranking your favorite children. That’s a highly unfair thing to do.

DUBNER: You don’t have that many children, so it’s probably a little easier.

GLAESER: But certainly I love New York and I love Boston, and I’m very fond of Hong Kong, and I think Singapore still remains the best-run place on the planet, and Europe is filled with wonderful cities full of charm and history that I also love very much.

DUBNER: If you had to pick one, since you’re in Paris right now, maybe it would be Paris? If you had to pick one western European city to make your top-five list, what would it be?

GLAESER: Certainly Paris is great. I also just spent a month in Barcelona, which I also love and, look, I am passionate about London as well.

DUBNER: You’ve shared with us your five or seven favorite cities, noting that what makes them your favorite is not necessarily universal. Where on your list — and this list can be as long as you want of cities in the world, where would Las Vegas rank on that list?

GLAESER: Again, I gave you cities that I loved. I’m not sure that I’m comfortable making any a list, but certainly there’s a lot to like about the dynamism in Las Vegas. Las Vegas was one of the fastest growing American cities for many decades. It was a place that, until the boom, succeeded marvelously — as many Americans sunbelt cities do — at providing vast amounts of affordable housing for ordinary-income Americans. That’s terrific. It cannot be faulted for its pro-business policies. All of these things are to be loved. It is true that what people often think of as the core of Las Vegas, the Las Vegas Strip — which is really in the unincorporated city — that’s a thing which, as a lover of cities, I may marvel at but it’s hard to fall in love with it.

Historically, the great weakness of Las Vegas has been education, so much so that in my earliest work documenting the connection between education and urban growth, Las Vegas was a huge outlier because it grew so quickly and had so little of a base in terms of share of the population with a college degree. In the city, you still have about 21% of the Las Vegas adults with a college degree, which is a lot closer to Detroit, which is about 12%, than it is to Seattle, which is about 50%. I continue to think that that is Las Vegas’s greatest challenge, is making itself attractive to a wider range of skill categories.

[MUSIC: Collective Acoustics, “Don’t Text Me Bro” (from BC≥AD)]

This message the need to attract highly educated people got through to Tony Hsieh and the other architects of the Downtown Project. One of them is Zach Ware, who’s a general partner at Vegas Tech Fund, the venture-capital arm of the Downtown Project:

Zach WARE: The work that we first found that really sowed the seeds for what would become the Downtown Project was Ed Glaeser’s book.

GLAESER: I was very flattered when Tony reached out to me. He read my book and seems to have been excited by it. It’s deeply flattering, obviously. Zappos paid me to come out and give a talk to their workers. I got to spend about three days with Tony, hanging out in the downtown area of Las Vegas. It was fascinating, what he was doing, and it always seemed like it was an uncertain bet.

The bet was whether Tony Hsieh could use his fortune to reshape downtown. Not, however, by building big attractions that draw visitors; but rather by reconfiguring things for the locals. Zach Ware again:

WARE: In Tony’s case, he set about on the real estate side to acquire a fairly large contiguous area of land. His perspective was, “I don’t necessarily need to build everything. I don’t want to. I don’t want to program the neighborhood. I’m not someone who can do that. But what I can do is be a force, as best as I possibly can.” If we wanted to have restaurant, bookshop, bar, coworking space and so forth coexisting together, our secret sauce was that Downtown Project owned all the property. The idea is that when you look at coworking spaces, offices, cities, the magic and creativity that happens in those places is as a result of random encounters and conversations with people you otherwise wouldn’t know to reach out to, couldn’t reach out to, didn’t know existed.

They have a word for this: collisions. Collisions are one of the most important metrics that Ware and Hsieh have in mind:

WARE: It’s engineering an environment to support collisions, to inspire collisions, and being very mindful that a master plan, single idea can be very risky; that letting the neighborhood evolve itself is what makes, in our minds, long-term magic happen.

Ed Glaeser says this vision is very different than most visions about how to build or grow a city:

GLAESER: When you look at the globe and what building cities usually means, it means that somebody has come up with a couple billion dollars to build some form of project — a convention center, a sports stadium, maybe something to do with transportation — and then they try to wrap a city around it. Sometimes it works. At least half of the time it doesn’t. But it’s very much of a view that cities are physical structures and let the people follow that. Hsieh was remarkable because his view was that the structures should actually follow the people. That’s a view I largely share, that actually focusing on the real heart of the city, which is always the humanity that is dwelling in that city, is the right thing to do.

It was very much a view that the neighborhood would grow organically, that it would originally be housed in older buildings and have businesses housed in things like shipping containers. It would focus on the social networks, on the bumping-into-each-other of different people. It was a very exciting vision. Now, I think it’s hard to make a dense downtown area work in Las Vegas, right? The entire Sun Belt area in the U.S. is an area that’s built around the automobile.

Now, I’m back on the street with Maggie Hsu, who runs business development for the Downtown Project. It was about 5pm on a Tuesday in February; Vegas was just recovering from a cold snap it had gotten into the 40s, and there had been snow on the surrounding mountains. Zappos had been planning a charity event featuring Britney Spears and a bunch of zoo animals. Britney Spears was still gonna show up, but the zoo animals were kept at home because of the cold.

DUBNER: We’re at the very beginning of the Downtown Project here in Las Vegas in Ogden. If collision, colliding, collidability and collisionability etc. are what you’re after, it’s prime time late afternoon and we’re the only people on the corner. There are 200 cars within eyesight, so they’re all colliding, or not colliding, but interacting with each other. How much more urban does it need to get before the stuff that you want to happen starts to happen?

HSU: It’s a mix of increasing the residential density, but also increasing walkability. Las Vegas is a very car-centric culture and people are used to driving places,

GLAESER: There’s nothing surprising to this. All of the world’s urban areas are built around the transportation technology that was dominant in the era in which they were being produced. The western cities, which are post-war typically, were built around the car, Las Vegas as much as any. The Hsieh vision of a denser walking area was always a little bit at odds with that. Although Las Vegas was always somewhat quirky because of the desire of tourists to be able to walk places. It always had more density, more walkability than, let’s say, Phoenix did, or Oklahoma City. The attempt to creatively reuse old space, the attempt to focus on social connections, all of that seemed exciting and visionary if indeed something of a gamble.

The Downtown Project is now one of the biggest landowners in downtown Las Vegas. It directly employs more than 250 people, and estimates that it has helped create at least 900 jobs through its start-up investments. It owns and operates some properties like the Container Park, an open-air shopping and eating and entertainment zone; a grocery store, a boutique hotel; and the Gold Spike. That’s a bar and restaurant that also serves another function. 

HSU: This is the Gold Spike. It used to be a casino with dollar strip blackjack and lots of other interesting games. We converted it into a coworking space, so you’ll notice power outlets, free wifi. It’s actually a great place for startups that don’t have offices to meet and have meetings.

DUBNER: Are these guys over there coworking? Or are they just drinking?

HSU: The gentleman in the far corner actually runs our food and beverage operations, He’s having a meeting.  A little bit of both.

The Gold Spike is perfectly inviting, but only a handful of people had taken up the invitation, at least on this one weekday afternoon. It felt a little bit like a really nice model home version of a bar.

HSU: It doesn’t have to be perfect when you first open it. The best example is the backyard. The backyard actually was a parking lot when we first opened and one day someone said, “Why not build an ice rink?” So we built out what we called The Cold Spike and we had [an] ice rink. These were all decorated as gingerbread houses. Not many people went ice skating, and so we decided to retool. What really stood out in the Yelp reviews, in customer feedback, was these giant games. We decided to get rid of the ice rink and build this area full of giant games.

There were indeed a bunch of giant games out there  including the classic backyard contest known in some parts of the country as cornhole. It is basically a beanbag toss toward a sloped board with a big hole in it.

[MUSIC: Paul Avgerinos>, “Fun Wacky Silly Circus Comedy”]

DUBNER: How do you score? In the hole is something and on the board is something? Or no?

HSU: In the hole is three. On the board is one.

DUBNER: Okay and where do we shoot from?

HSU: We can go from this line.

DUBNER: What’s our wager? A one-bedroom apartment in the Ogden? Is that too much?

HSU: I was going to say a fernet shot over at the Airstreams later.

DUBNER: Okay, it’s a deal. You go ahead.

HSU: Okay.

DUBNER: Beautiful shot. That’s three. All right, so a total of four?

HSU: Yep.

DUBNER: Okay. Uh oh, zero.

HSU: Ohh. We tied!

DUBNER: Sudden death?

HSU: Sudden death. I have to do another one.

DUBNER: Congratulations. I owe you a shot of Tony’s vile Italian liqueur.

After cornhole, the tour continued.

HSU: On the west side of the street is the Fremont Experience and it’s a business improvement district, a mix of casinos and restaurants.

DUBNER: It long predates the Downtown Project, right?

HSU: A lot of it was the original strip.

DUBNER: Okay. Then over here?

HSU: We’re calling the East of Fremont East, for lack of a better name. But many of these restaurants and bars have been around for several years and existed before Zappos moved downtown. They were this unique spot where the bartenders and the owners of the restaurants would go to other people’s restaurants after work. It was this naturally supportive community. What Tony saw there was something that had the beginnings of a really great, unique space like a Brooklyn or an Austin.

If you know Brooklyn or Austin, it might seem impossible to remake the old downtown section of Las Vegas in their image. But remember, the Downtown Project has a secret weapon: an urban economist, Ed Glaeser, who believes that the key to an effort like this is to attract a certain kind of entrepreneur.

DUBNER: Ed, you wrote a paper back in 2009 called “Clusters of Entrepreneurship.” It seems as though Tony is following this plan quite closely. I’ll read you the beginning of your abstract:”Employment growth is strongly predicted by smaller average establishment size both across cities and across industries within cities.” Tony, as you know, is trying to start up and encourage a lot of small businesses, restaurants, shops, bookstores and so on. Talk about that for a minute. Obviously you think that’s the right way to go. Why is that the right way to go? How does that work in cities?

GLAESER: This is maybe best illustrated by the counterexample, which is Detroit. Detroit goes from being one of the most entrepreneurial places on the planet in the 1890s, right? It was filled with a cluster of smart people trying to do the new thing, a lot like Silicon Valley in the 1960s. It succeeds so well that it creates these massive automotive companies that provide fantastic wages, are incredibly productive. It has a 70-year run that is almost unimaginable in terms of its urban triumph. And yet, the very success of those companies basically kills off the tradition of entrepreneurial human capital. It trains people who make superb company men, but not scrappy entrepreneurs.

And entrepreneurship, like anything else that matters is a skill. It’s something that’s built. If you’ve spent your life working for General Motors, you’re not likely to be the right person to start up some scrappy, new electronic greeting cards company if General Motors falters. That’s really what that paper’s about. What this long litany of evidence trying that shows this role of proxies of entrepreneurship as predicting urban success. It suggests that, just as normal human capital, the share of a population with a college degree is predictive of which areas do well, measures of other types of human capital, like the amount of entrepreneurial skill in the area also predict urban success.

That’s what Tony Hsieh is trying to do: create enough of a cluster of entrepreneurship, both because those entrepreneurs will themselves create employment but [also] because some of that entrepreneurial skill is likely to be infectious, that people will learn from each other, and you’ll create an overall cluster of this.

And that’s why the Downtown Project is helping fund all kinds of small entrepreneurs. So far it has put money into more than 50 businesses, and, through the Vegas Tech Fund, 100 tech startups. Here again is Zach Ware:

WARE: In our case we said, “There’s an amazing chef who wants to start a restaurant. How can we get behind that? Here are two or three really awesome tech company ideas that we think are really awesome companies to invest in. Let’s do that.” The idea for us has always been create value by creating diversity. Try not to bet on one thing, but rather have 100 amazing ideas, or interesting ideas where 20 percent, 30 percent, 40 percent can fail and you still have a very diverse, active economy and ground activity. Rather than choosing one, big gigantic thing like a stadium or a big building that can fail and when it fails the whole neighborhood goes down with it.

The epicenter of the Downtown Project the densest small-business incubator feels like a cross between an outdoor mall and a county fair.

DUBNER: This is looking like — I don’t know what to describe this — like a public plaza playground-y. There are kids and people climbing on stuff, but shops and llama signs. So what is this?

HSU: This is the Container Park. It was an old Motel 6 that we tore down. [We] wanted to build both a retail space, retail incubator for first-time entrepreneurs as well as a space for families and children. Both components were equally important. You have around the outside, a lot of first-time owner-operated small business owners that can test out their concepts in a small space. If they succeed, they can move to stand-alone brick and mortar or they can shift locations. We actually had a few stores go from second floor to first floor because they were so successful and they needed more square footage. Then, at the same time, we had this giant Swiss Family Robinson treehouse in the middle with three slides, a playspace for children, and we can actually take a walk around the park.

DUBNER: And if you would just look around and tell me the name of some of the shops here and if the name doesn’t contain what they do, tell us what they do.

HSU: Sure. So Big Ern’s BBQ is a barbeque shop. The owner is a gentleman named Ernie. He was working at the call center at Zappos and his passion was barbeque. It was another small business investment. Funded him, he was going out of the back of his truck for awhile, and this was his first-ever store. I believe he’s now the top- or second-grossing food and beverage outlet in the entire park. When the park opened, he got up on stage and I remember he was crying. This was a life-changing opportunity. Then we’ll go into the toy store, Kappa Toys. Lizzy and her husband Trevor are from Austin, Texas.

They were at a toy store. Several of us were there for South by Southwest, stumbled upon the store. They were actually going out of business and so we said, “Why not open a toy store in downtown Vegas? What do you think about that?” It seemed like a really natural fit with the kids. They’ve been here ever since. They’re absolutely amazing, what they can do.

HSU: They’re the actual owners, Lizzy and Trevor.

Lizzy NEWSOME: Yes, you found us both. This is very rare.

DUBNER: I’m Stephen.

Trevor YOPP: Stephen, nice to meet you.

DUBNER: Nice to meet you. How do you do? Explain to me just a little bit, are you a subsidized business then? How does it work?

NEWSOME: I don’t know if subsidized would be how I would explain this business specifically, because we are part of that fully-funded, autonomous group.

DUBNER: Which is?

NEWSOME: Small business. I see it as venture capital, which I don’t see as subsidy so much as investment risk.

DUBNER: Right. What does it feel like to be the business owners in that scenario and how do you measure success? How long can you go without being as successful as you might be if you didn’t have that backup?

NEWSOME: Yeah, we’ve done small business for ten years now, specifically in the toy industry. One of the biggest difficulties in such a weird niche industry, especially since the whole banking crisis, has been finding capital. What we’ve really appreciated overall from working before is a huge pressure is off. We can focus on what we do best and we’re not constantly stressed. We’re not constantly having to also learn how to find funding and organize everything. Instead of funding, we can really work on the business and not constantly freak out about where our next line of credit is coming from.

DUBNER: You guys are a couple?

NEWSOME: Yes.

DUBNER: You have kids?

NEWSOME: No.

DUBNER: Why is that so funny?

NEWSOME: Everyone asks it. This is the best birth control you could ask for. We get really cute kids in and I love them. And every time I start thinking seriously about it, we’ll get a little nightmare in and then, all of a sudden, I’ll add another year onto our waiting period.

Trevor YOPP: We started discussing kids, but we’re a few years off.

NEWSOME: Dog first.

DUBNER: What are your big sellers here, toywise?

YOPP: Everything.

NEWSOME: We really set it up so that we keep in stuff that sells well and there’s not much we have that doesn’t move. Brody is a personal favorite. I’ve worked with this company for years. They’re bouncy ponies; they’re made in Italy.

DUBNER: They’re beautiful.

NEWSOME: They’re beautiful, so you see that design. They’re over 30 years old. Both of them are safe to 400 pounds. Even though it’s a kid’s toy, it’s totally adult friendly. There are so many drunk grownups on them every Saturday night.

HSU: Okay.

DUBNER: I guess we’re leaving.

HSU: Onward and up.

NEWSOME: You can come back. We won’t be here. You can bother the employees more.

DUBNER: Well, thank you so much.

NEWSOME: No, it’s fine.

DUBNER: Nice to have met you. Good luck with everything.

Maggie Hsu and I head out of Container Park, where the density falls in a hurry.

DUBNER: As neat as all this is, we’re encountering very few actual humans. Is that because of time of day, day of week and temperature?

HSU: It’s still less dense than you would find in many other cities and downtowns. But you’ll notice that what we’ve tried to do is build block by block. The Container Park a year ago would have even less traffic, so we built that extra block. You walk that extra block to the Container Park. We’ve started activating further down. We’re about to walk to the bookstore and we’ll see a few more people. We’re making that journey. The thought is as we build more of that out, so we’re building a music area on the right with the Bunkhouse, which is a music venue, the Wheelhouse, which will be a wind-powered stage and a record store. Once that opens you’ll have even more people. It’s this one-block strategy.

And part of that strategy is to attract technology startups. I asked Ed Glaeser what kind of tech startups downtown Vegas should be thinking about:”

DUBNER: If there was some tech cluster that you could clone or import or steal, what kind of tech cluster would it be? If you could transplant something, would it be a Silicon Valley? A Route 28 Corridor? Or a Provo environment? Or do you want a different kind of industry represented than the current, traditional tech industry? What would you bring in to Vegas, if you could bring in anything, that you think would help it to succeed?”

GLAESER: I would think the more that you go towards things like Silicon Valley, where you’re focusing on making faster and faster transistors, I can’t imagine that that has any synergies with Las Vegas. That being said, think about what Tony Hsieh found attractive about the Las Vegas area for Zappos: it was the consumer-oriented workforce. People who came out of working in the hospitality industry; people who came out of the entertainment industry; people who were fantastic manning the phones for Zappos. Now the question is, what other sort of consumer service tech companies could potentially take advantage of that? To what other areas are there synergies with the traditional strengths of Las Vegas? Maybe that’s another angle to play.

But if Tony Hsieh wants the Downtown Project to do more than just make life a bit more interesting for Zappos employees that is a much bigger challenge.

GLAESER: It all depends upon whether or not there is going to be enough entrepreneurship that he can attract into the area, and particularly enough educated entrepreneurs. This feels fairly central to me, is whether or not he can attract more people like himself into the area and probably not just people who are in service industries. He needs to get something more of a chain of tech people who decide that this is a whole lot cooler and a whole lot cheaper than other places that they can move into.

[MUSIC: Laura Ault, “Here’s Lookin’ at You” (from The Greatest Thing)]

DUBNER: Let me propose something where Tony Hsieh could be killing a couple birds with one stone: what would it take for you to bring your family to Las Vegas, to Downtown Project, for, let’s say, three years, to establish a Triumph of the City Urban Institute where you’d be the star attraction. You’d work there, live there and then the other I.Q. would flow? How much does Tony Hsieh need to pay you per annum?

GLAESER: I don’t know about money. The problem is that in my welfare function depends critically on having people who are smarter than I am around me. I would need to make sure that my kids also had a lot of people who were smarter than they were around them. If you can guarantee me that I’d be willing to go. That is some sense the challenge that you face in starting a new city is to attract a cluster of talent that can then feed on itself. I don’t know how feasible that is or whether or not that will be achieved. But if you judge the project in the abstract — if it were me doing it, I’d be pretty sure that I would screw it up, right? But he is a remarkable guy with a remarkable track record who is deeply charismatic in many ways.

You would’ve lost money in the past betting against Tony Hsieh. I’m not sure I would be ready to start betting against him now.

[MUSIC: Donvision, “Waiting for You”]

Coming up on Freakonomics Radio: we finally get around the campfire with Tony Hsieh himself to hear what he’s got in mind:

HSIEH: A lot of city revitalization projects are really top-down, master planned, and we’re really anti-that. It’s really more about backing the entrepreneurs and their passions.

And don’t forget to pick up a copy of our brand-new Freakonomics book, When to Rob a Bank. You can also subscribe to this podcast at iTunes or wherever you get your podcasts, and we will send you the next episode automatically, every Wednesday.

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[MUSIC: Angela Easterling, “Stars Over the Prairie” (from BlackTop Road)]

After our tour of the Downtown Project, we head to the outskirts of the area. The streets here are very quiet, the sidewalks empty. It’s getting dark now. We turn right and come upon a guard shack; we get waved through, we’re with the band, and now we find ourselves standing in what looks to be a very funky trailer park.

DUBNER: We’re walking on a very nice, astroturfed, not trademark astroturf, but artificial grass walkway with colored lights and a canopy and the structures are some Airstreams but also a lot of…

HSU: Tumbleweed Tiny Houses.

DUBNER: Tumbleweed. Is that a name brand?

HSU: It’s a trademark. Tumbleweed Tiny Homes.

DUBNER: How many residences or how many buildings are there here?

HSU: There are about 20 Airstreams and 10 Tumbleweeds.

DUBNER: Are they all full?

HSU: It’s a mix.

One resident is Tony Hsieh, CEO of Zappos, the man who is putting his own money into the Downtown Project. We began as apparently many get-togethers begin with Tony Hsieh with a shot of his favorite drink, Fernet.

HSIEH: That is an Italian liqueur that’s soaked in 40 herbs including ginseng, myrrh, chamomile, anise; it tastes and smells like Chinese medicine.

DUBNER: Okay.

HSIEH: 60 seconds after you drink it, it coats your stomach. It’s a digestif. It actually gets rid of nausea, so it’s healthy.

SERVER: Would you like it in a cup, or no?

DUBNER: I’m not fancy.

SERVER: Okay.

DUBNER: Cheers. Cincin. L’Chaim. Everything. This is delicious. It felt like I hurried through it just out of being the only one with a bottle.

HSIEH: But you’ll see throughout the night as it evolves, as you evolve.

DUBNER: You want to go talk?

HSIEH: Yeah. You want to do this outdoors? What’s easier for you? Because there’s a great spot up there.

DUBNER: On top of the Airstream?

HSIEH: Yeah.

DUBNER: Cool.

HSIEH: Or we can do next to the campfire so you can get the crackling every once in a while for the background.

DUBNER: I like that. Tony, can you just set the scene? Say where we are and what happens here.

HSIEH: We are in a half a city block and this was just a completely empty lot 3 and a half months ago. A bunch of us decided to move in as a living experiment. The original idea was, “Let’s see what happens if we do an urban version of Burning Man.” There’s probably 15 or so of us that live here. But then we also have a whole bunch that are set up as guest Airstreams and guest tiny houses.

DUBNER: You’re living here now? You sleep here every night?

HSIEH: I’ve been here over three months now. Since November 4th.

DUBNER: No kidding. Okay..

HSIEH: I used to live there, in the Ogden.

DUBNER: In the Ogden? When you say, “used to,” you literally don’t live there anymore? You moved out of there? This is temporary, right? The Airstream?

HSIEH: No.

DUBNER: Really?

HSIEH: Yeah. I’ve probably been back there five times this whole time.

DUBNER: Wow. You have an Airstream?

HSIEH: Yeah, it’s the one behind that one.

DUBNER: Okay, so Maggie walked us around and it was great. I’m baffled that you’ve been able to do what you’ve done so far and even more baffled that you’ve wanted to do what you’ve done because it seemed like such a massive undertaking — not just physically, logistically, financially but psychically. That’s what I wanted to talk to you about: what made you want to reinvent a part of a city? Where did the desire come from?

HSIEH: For me, it wasn’t really about reinventing. This area we’re in, near Fremont East — which is an area that most tourists don’t know about, already existed and just by magical coincidence it was a few blocks from the former City Hall, which is now Zappos headquarters.

DUBNER: You didn’t have any desire or idea to do this until Zappos moved there?

HSIEH: Originally, actually, we were looking to do what a lot of corporate campuses do,  where we were looking to buy a big plot of land and then build our own little community for the company. We actually toured campuses like Apple and Nike and Google that have these amazing campuses, and then asked our employees for ideas for what to have in [a] dream campus. We literally got hundreds and hundreds of suggestions, where we realized it was going to be physically impossible to fit all of those things.

DUBNER: What kind of suggestions?

HSIEH: Actually, the number one request we got from employees was actually doggie daycare, which ranked significantly higher than human daycare. 

DUBNER: Is that because more of your employees have dogs than kids? Or they care more about their dogs than kids? Do you know?

HSIEH: I’m guessing more people have dogs than kids. But as we got all these requests, we realized that it was going to be physically impossible to fit all of them under one roof. The other thing we realized was that all those other campuses that we had looked at were great for employees but were actually really insular and didn’t really integrate or contribute to the surrounding community. We started thinking, “What if we actually turned the entire concept inside out and rather than just focusing on ourselves, we took an approach that was more analogous to N.Y.U., where the campus blends in with the city and you don’t really know where one begins and the other ends?”

DUBNER: Why did you care about that? Aesthetically, I understand and I personally happen to agree that it’s a nice idea. But the typical corporate campus throughout history has been very segregated from where people live. What made you think that was worth doing?

HSIEH: It was based on a lot of just different research reports I read. We were talking about Ed Glaeser earlier and then there’s also Jeffrey Moore that’s done research on cities. Every time the size of a city doubles, innovation and productivity per resident increases by 15%. But the opposite generally happens with companies. As they get bigger, innovation or productivity per employee generally goes down. Part of it was wanting to avoid that fate and really think about how do we, over time, get Zappos to function more like a city and less like a typical, bureaucratic —

DUBNER: How much of that from your end was a desire for business growth and how much of it was [an] aesthetic choice for you? You thought it would be better, nicer, cooler if your company could be like that, as opposed to necessarily the productivity end of things?

HSIEH: It was a few different things. There’s the productivity part of it, and then there’s also the attracting and retaining employees part of it. If employees that we’re looking for want to be part of an urban environment, then that was definitely part of the motivation. But then, the other interesting research is that most innovation actually comes from something outside your industry being applied to your own. Companies that are just in four walls ultimately end up being less innovative because they don’t have the interactions with people from other industries and so on, or on a typical suburban campus.

DUBNER: Most people who know you, know who you are, know what you’ve done — would consider you an innovator. In addition to being a success at business, that’s what you’re known for. Do you think that having been an innovator in business has inherently turned you into an innovator in this kind of thing, this kind of social/urban experiment? Is it one and the same? Is it necessarily related? Or is it just something that’s an outgrowth of who you are as a person and what you like to do?

HSIEH: I was never interested in anything related to urban revitalization or anything or real estate until relatively recently. For me, ten or fifteen years ago, I used to throw a lot of parties. I would think about, “How do you design the space so that people collide with each other and interact with each other?” For example, if there’s two bars at a party, then I would shut down the first bar that’s closest to the entrance. Then everyone eventually finds the alcohol. Then maybe an hour or two later, open up the first bar and that promotes the circulation. Then within an office environment at Zappos, culture is really important to us. We want people to have those equivalent of water cooler conversations and so we do a lot of thinking about, “How do you create more collisions?” We would do weird things.

In our Henderson office, in the building I was in, the parking lot was behind the building. There were doors on all four walls of the building and employees would go in and out whichever door was most convenient. We actually shut down those doors and had everyone actually walk around the entire building and come in the front entrance, which ended up making the reception area this collision point where guests and employees would collide.

DUBNER: Do you have evidence that that leads to better outcomes?

HSIEH: Part of it is just personal experience and anecdotal.

DUBNER: Do you really care if it’s empirically a lot better? Because when I talked to Levitt about you recently, he said that as much as he is a slave to the data at the end of the day — like if he’s trying to do something as a consultant with a business or with an NGO or with a government — even if there’s a 1% advantage in secenario A over B, and that might require doing something that most people would think unpopular, he’s going to do it because it’s gonna be better. He said that, “Tony doesn’t care at all about anything like that.” He said, “Tony just cares about people being happy and people having a good time.” And with Zappos, it’s been incredibly successful. But Levitt, for instance, wasn’t sure if the success was due to that happiness or maybe orthogonal to that happiness. Do you know? Do you care?

HSIEH: I do care. I’d be interested in whatever data or research that maybe you guys could come up with, but if you read books like Good to Great or Tribal Leadership, there’s a clear, at least correlation, if not cause, between companies that do well in the long term financially and culture.

DUBNER: Although, if you look at the Good to Great companies … Have you looked at those lately?

HSIEH: There’s a follow up book that Jim Collins came up with, which was How the Mighty Fall. That’s also interesting reading, but generally the great companies, whether it’s in Good to Great or in general, have strong cultures. Some people might think it’s the strong culture that results in the long-term positive financial results and some people could say it’s the other way around.

DUBNER: You have the ability to develop your culture if you’re being successful?

HSIEH: Right. I can also tell you from personal experience and from experience, at least, of the close friends I have at Zappos that I talk to, that when you’re working with friends and super-engaged, time flies and you want to do the best job possible, not because you’re incented to, but because you have that intrinsic motivation.

DUBNER: You grew up, Marin?

HSIEH: Marin County, just north of San Francisco.

DUBNER: And borderline rural-suburban. What was it like?

HSIEH: It was in the suburbs.

DUBNER: And you went to college where?

HSIEH: I went to Harvard.

DUBNER: What did you study?

HSIEH: Computer science.

DUBNER: Okay. Tou lived in Marin County and then you lived in Cambridge. What did you think of cities? Had you been in cities a lot? Had you lived in any other cities and which cities did you love?

HSIEH: No, actually, I guess. Aside from Cambridge …

DUBNER: Did you go into Boston much?

HSIEH: I went twice during college, so I was never a city person. But I did like the community aspect of living in the dorm environment.

DUBNER: Right. Then obviously, you went on to do a whole bunch of things, including Zappos, where you still are. What are your favorite cities now in the world?

HSIEH: I love visiting New York, Amsterdam, Downtown Vegas, obviously, San Francisco.

DUBNER: What is it about those cities that makes you happy?

HSIEH: Probably a combination of the walkability and the accessibility of whatever you want. If you’re in the mood for some random type of Indian food, you can find it. Or if you want something delivered, you can find it.

DUBNER: Where we’re sitting here doesn’t resemble what most people think of as city at all. What’s your ultimate dream of where we’re sitting right now, which feels more Burning Man at the moment than the middle of a city. Do you want to have this feel like it’s what Brooklyn now feels like someday or no?

HSIEH: I don’t really know Brooklyn that well, but a few years ago the easiest way to describe what we were trying to do from the Downtown Project perspective was imagine TED, the conference, meets South by Southwest meets Burning Man, but as a lifestyle instead of as an annual event. More generally, a lot of city revitalization projects are really top-down, master planned, and we’re really anti-that. It’s really more about backing the entrepreneurs and their passions. Our goal is to help accelerate stuff, help make Downtown Vegas a place of inspiration, entrepreneurial energy, creativity, innovation, upward mobility, discovery, and all that, combination of creativity and entrepreneurism.

DUBNER: Glaeser’s whole thing is that the density of cities creates not only productivity, but a whole lot of other gains that are not necessarily predictable and not necessarily even that measurable; that just the density and the propinquity of all the people coming together in terms of value, intellectual property and stuff, totally changes the game. I’m just curious: do you see Glaeser as a guru for what you’re trying to do and how did you come to like him so much?

HSIEH: Reading his book was probably a big part of formulating the strategy behind what we’re trying to do. If cities are ultimately about the acceleration of idea flow and different industries and so on, just being more purposeful about that approach, versus — he has something he refers to as the ‘Edifice Complex‘ in his book — versus, “let’s build a giant whatever” will magically revitalize a city. But for me, it was more the progression of looking at party flow to within an office, getting employees to flow and collide — this is the same concept at a different scale — getting residents to collide, talk to each other and knowing that the more often that happens, statistically, the magic will happen on its own.

Will the magic happen on its own? It’s obviously too early to say,  but that shouldn’t stop you from rooting for it if cities are your kind of thing. As they are for me, and for Tony Hsieh, even though he came to them late, and as they are for Ed Glaeser.

DUBNER: Ed, let’s say that 50 years from now, or 100 years from now, downtown Las Vegas has turned into one of the most dynamic, original, productive and even aesthetically pleasing cities in the United States and the rest of the world. You and I will presumably be long gone by certainly 100 years from now. What does it feel like to be the economist who studies cities, how they thrive and how they’ve triumphed — how would that feel to have played a not-insignificant role in that triumph?

GLAESER: That would be lovely. Of course, if it doesn’t do well, I have to take the bodes for that as well. But to be clear, if I’m one hundredth of one percent of this, that would be a lot. This is the dream and the energy of the Downtown Project and Tony Hsieh and his people. There’s often a tendency of people to point to academics and say, “Look at this fancy Harvard academic who gives me an imprimatur for the idea that I wanted to do anyway.” While it’s lovely for me to puff myself up with importance and think that I played some huge role in this, really the vision was in Tony’s head and the people on the ground. But look, I’m not trying to dodge responsibility if it goes badly. I certainly didn’t say it was a bad idea in a major way to him, so if it does crash you can come knocking on my door and tell me I screwed up.

[MUSIC: David M. Young, “Iridentalism”]

This is a transcript of the Freakonomics Radio podcast “Could the Next Brooklyn Be … Las Vegas?!