Episode 25: What does a burgeoning tech industry mean for Virginia?

Virginia has been transforming in many ways over the last few decades, and that's most clear when it comes to government and tech. From defense contractors to Amazon's new headquarters to thousands of data centers, Virginia has slowly but surely shifted toward an economy based in technology and defense. What does that mean for workers in Virginia? For our energy needs, our demographic trends, and our political systems?

In this episode, we talk to Richmond-based journalist Peter Galuszka about how Virginia's economy ties in with energy and technology--and how these trends will change the state going forward.

Episode Transcript

Nathan Moore: This is Bold Dominion, an explainer for state politics in a changing Virginia. I’m Nathan Moore.

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So we started this podcast at the beginning of 2020, just shy of a year ago. And I’ve opened every episode with that line about a changing Virginia. That’s our little slogan. And it’s hard to believe that were actually using that phrase before our citizens, economy, and state treasury underwent massive losses due to the global pandemic.

On this podcast, we talk a lot about politics and campaigns and legislation. I mean, a year ago, Democrats won majorities in both houses of the General Assembly for the first time in decades. But honestly, that’s not even the core thing changing in Virginia. The last state elections were important, for sure… But they reflect deeper changes that are happening in the state.

And for my money, that deeper change is the core makeup of Virginia’s economy. Virginia used to be dominated by agricultural interests, particularly Big Tobacco. Then more manufacturing, and a good part of Virginia’s economy still is. Then with the expansion of the federal government in the second half of the 20th century, government work became a key industry for the Commonwealth. But over the last few decades, Virginia’s economic growth has shifted to the tech sector. In a big way.

You might know about Amazon’s HQ2 -- the east coast headquarters for the tech giant planned for construction in Arlington. Or maybe you heard about Facebook leasing a few hundred thousand square feet of office space in Reston. Or, if you’re anything like me, you’ve driven past enormous data centers on the side of the road without even realizing it. 

Now, tech companies are being wooed into other parts of the state, particularly around Richmond. And Virginia’s tech sector shows no signs of slowing down its growth. So what does that mean for Virginia and its residents? What does the future of Virginia’s economy actually look like?

Well, to talk about that, we turn to our old friend Peter Galuzka. Peter’s a journalist based in the Richmond area, and he recently investigated these questions for a piece in Style Weekly. This week, we’re taking a deep dive into the future of Virginia’s technology, energy, and economy, the way those three tie together, and where we go from here.

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Peter Galuszka: Well, I think one of the things that's going on here is that--and people have been, you know, pushing this for years and years--is tech is really here in Virginia, and has been. Especially in Northern Virginia, because something like 70 to 80% of all the internet traffic goes through Northern Virginia, for a number of reasons, basically, because a Pentagon program actually helped start the internet. You had AOL and other firms who were pioneers in it.

And so but now, what's happened is that Northern Virginia has been, you know, become a real locus, maybe one of the leading places in the world for data centers. And data centers, of course, are giant warehouses where servers of all kinds are kept refrigerated. And it's going to becoming more and more prevalent, because we're going to 5g cell phones, which are going to demand a lot more data to use.

And we're also going to more artificial intelligence, which require gobs of data and processing and the like. And one of the obvious examples for that would be driverless cars. And now what's happened is that the influence of Northern Virginia and data centers and the net and everything else is sort of trickling downstate. And you have data centers now in Richmond, you've got them talked about in Southside Virginia, and Southwestern Virginia. And it's being pushed by the big biggies of high-tech like Google and Amazon and Microsoft and Facebook, etc. And that is bringing a whole lot of changes.

It's one of the reasons Dominion Energy has gone green--because they want it to go green. And so you're seeing a real, you know, sort of disruption, which is the biggest economic term, of the old industries--you know, metal benders like shipyards and coal mines and things like that--in favor of the newer ones. And the new people really don't have the old values.

NM: Alright, well, I definitely--there's a lot there, and I want to definitely tease it out as we go. But let's take a minute to kind of look back at how Virginia's economy got here. A little thumbnail sketch. What did Virginia's economy lean on back in the early 20th century?

PG: Well, of course, the thing was, is that Virginia from day one, I think, has been very tobacco-oriented. I think one of the first, if not the first, laws passed in the Williamsburg legislature was price supports for tobacco, and--

NM: This is back in like the 1600s?

PG: Yes, 1619, 1620, something like that. I don't remember exactly the date but it was one of the first things they really thought about, because they wanted to support price of tobacco. Which has been going on for many years, it's been a heavily subsidized crop. Anyway, so that's--the whole plantation mentality, the whole plantation economy sort of came around tobacco. And it has ever since, you know, brought in slavery, brought in all kinds of things. And so you had this sort of plantation mentality that has dominated the legislature.

And of course, then, of course, then by the 19th century, you started having more industries, especially in the Richmond area. Iron, things like that, manufacturing. And of course, you have tobacco plants. You have textile plants, you had furniture plants, especially in Southside. And these were the the industry sets that really supported Virginia well into the 20th century.

NM: It's interesting, Peter. I've looked at stats on Virginia's population over the years, and you and I both have a connection to West Virginia as well. And so just by comparison-- and as recently as 1940, the two populations of the states, Virginia and West Virginia, weren't that far apart. You know, Virginia had two and a half million people, West Virginia had 2 million people. And from then on, there was a big divergence. And now, you know, West Virginia has actually lost people. Meanwhile, Virginia is up around eight and a half million or so. A lot of that is from the expansion of the federal government after World War Two. So how did that come to be? What's the story on the second half of the 20th century here?

PG: Well, I mean, it was really interesting. I was watching, in my boredom with the COVID crisis, I was watching something about Dwight Eisenhower. And you know, he warned--when he left office in 1960, he warned of the military industrial complex as being a major, major new force that developed after World War Two, and became sort of cemented the United States in a wartime economy.

And Virginia was a great benefactor of that. I think Virginia is either today the number one or the number two state, depending on what California is doing, in the defense industry. And this involves all kinds of stuff. Of course, the major--you know, the Pentagon is in Virginia, the CIA's headquartered in Virginia, and many of the other ancillary government, federal government operations are. You've got a huge complex in the Hampton Roads area with the Navy and the Air Force, you've got the Marine Corps in Quantico, and, and all their supporting industries. And you know, logistics are based in Richmond and Petersburg, actually, at Fort Lee. And on it goes. And it just keeps on going and going and going. And so with the Cold War, Virginia has really, you know, dashed forward. And you mentioned the internet, that was the defense, you know, DARPA, Defense Advanced Projects Agency, you know, part of its initiation was there.

NM: Is that how Northern Virginia became a big home for tech sector jobs in the first place?

PG: It is. I mean, there's several reasons. I've done some research in the area. And part of it was you had a really strong infrastructure there to begin with. You had everything you needed, you had the connections, it was wired. And believe it or not, as much as we criticize our utilities compared to other states, the power here is pretty cheap. You need a great deal of electricity. And that's why a number of companies have relocated to Virginia from, say, the West Coast, because their electricity is a lot more expensive. And here, it's available and cheaper.

NM: You know, what's been happening in the tech sector in the last couple decades here in Virginia?

PG: Well, what's happening is that more and more net stuff is going through and the net has really transformed the economy. And what you're seeing now is one of the--I wrote a story recently in Style Weekly in Richmond about this, which I didn't really quite understand. But a lot of the really high speed, high volume undersea cables used to go say, from Europe to New Jersey or New York. Now, they're really...some brand new lines that are super high capacity, or going through Virginia Beach to Richmond, and all over. So you're seeing these, you know, new lines, undersea cables are being sponsored by people like Google. Because you know, you're having lines coming in from Brazil, you have lines coming in from Spain and France, and soon to be South Africa. And so it's kind of transformative, and much more so than before.

NM: And one thing I learned, Peter, from your article, was that a big push for some of these new cables coming from--rather, coming into Virginia Beach and Richmond was to build up redundancies. Right. So if you had Hurricane Sandy and other ones go hit New York and New Jersey and take down the grid for a while, take out the connection for a while. You're kind of screwed!

PG: Yeah, really. So that's what happened. I've heard that a number of people that during--Sandy happened, what about eight years ago? Anyway, that was a huge, you know, mega-storm, late season storm. And it really knocked out power in the grid in the Northeast, around the New York City area. And it did affect, you know, capacity and information communications. So this idea is to--course, I mean, frankly, I mean, undersea cables have been around since the 1850s. So it's nothing really new here, just that the new ones are extremely fast. And they really are competitive. And as the world becomes more globally interconnected, they are becoming more and more important.

NM: You know, it's funny, we think of--or at least, I think of the internet as this invisible thing that, you know, flows through wires to other computers, but I don't often think about how the data flows or where it flows through physically, or who the people are who make it work. You know, it's just you drive by these nondescript buildings, and it's like, oh, yeah, that process is billions of bytes every day.

PG: Ironically, one of the downsides of the data centers...I mean, they don't, they don't really--even though more and more are being planned in other parts of Virginia, they don't really have permanent jobs in any great number. I mean, usually, they can usually be staffed by 150 to 200 people on a permanent basis. So that's sort of their downside.

And the other thing Virginia is doing, which may not always be a good thing--I know some environmentalists have raised questions about this is that they often, you know, get a lot of incentives from localities, and they really lower their taxes to get these things. And, you know, sure they pay back taxes later. But you know, you got...it's the same old Virginia problem is a problem everywhere, where, you know...is it really that competitive when everyone's throwing money at you, you know?

NM: Yeah, there's always a ceiling that seems to be hit when you're trying to attract out-of-state industries to, you know, set up shop. How much are you going to benefit, you know, or how much you paying per worker in tax breaks?

PG: Exactly.

NM: Let's get into that in a sec. I want to talk a little bit about how these tech jobs and data centers--with Northern Virginia being somewhat saturated with them, there's more of a movement into the Richmond area, now. How come?

PG: Well, I think there are a number of reasons. One is that, you know, they are saturated, getting saturated in Northern Virginia, and especially in Loudon County. You know, they're basically started around Sterling, it's sort of the mega center of the data centers. And, you know, land is becoming more expensive there. And I know Facebook, for example, was seduced to go to Henrico County, just east of Richmond several years ago, and they're building a very large data center there. I think it's partially in operation. That's Facebook, and other ones are coming in, too, and have come in. And ones planned, I think, in Pulaski County and other places. And land is cheap, and, you know, just spreads around. So that's what's happening.

And I mean, it's a good thing. And one of the things that's, you know, as I mentioned, we might want to get into this a little bit, but it's really had an impact on say, Dominion. And a lot of these people like the Zuckerberg and the Bezos of the world, like AOL, people, they want green power. And all of a sudden, two years ago, Dominion started making a major shift--that I didn't first take seriously, but now I kind of do--to go towards wind power and solar power. And these new companies want 100% renewable energy, because their data centers require a great deal of electricity.

NM: Yeah, I was thinking about that a little bit, too. As we describe these data centers moving in, and the flows of data, you know, east, west, north and south that...I was kind of reminded of, like, the Industrial Revolution, those early manufacturing factories in the Northeast and then later the Midwest. And then after the invention of air conditioning, they moved to the South where labor was cheaper.

But thinking about data centers is kind of like the post-industrial equivalent of factories. It's sort of similar, at least in my head space seems to work as a metaphor. But there is a big difference. Factories, you know, at least most of them back then didn't care about what they did to the environment. Today, the tech industry really wants that cleaner electricity.

PG: Exactly.

NM: How much are they succeeding and changing Dominion's model?

PG: Well, let's put it this way. Facebook, when it went into Henrico, and it's already partially in operation. It's at least a billion dollar project. They entered into an agreement with Dominion, that they will need, eventually, 500 megawatts of power to operate. And they got Dominion to agree to and offset that. Dominion, which of course still has a mix of fossil fuel and some renewables and nuclear will provide--they will make sure that the 500 megawatts that they they provide the data center to Facebook will be offset by renewable power. And that's why most of it will be solar initially. And Dominion is involved with some very large projects right now to, you know, spread solar throughout the state, and in wind turbines off the coast of Virginia Beach. And, you know, there are only a couple of operation now. But they plan on, you know, a lot more. 183 of them, maybe.

So that--I talked to Dominion about it, and they say: "Well, yeah, the customers want this. So that's what we're doing." And as I said, I didn't take it too seriously, because Dominion had been a die-hard fossil fuel, you know, kind of operation, and, you know, pushed a lot of, you know, gas situations, such as the Atlantic Coast Pipeline. But now, they scrapped the Atlantic Coast Pipeline, and they're going to towards renewables, which is kind of remarkable.

NM: It's an interesting confluence of a couple things. I mean, you know, politically, Dominion has been this big political donor, old-school, supporting both parties and getting favorable policies, just, you know, left and right, politically. And, you know, have been the biggest corporate player in state politics. The pivot to this kind of greenwashing model seems to have gone pretty quickly. How will the heft of the big tech companies change that dynamic on the political side?

PG: Well, first off, I mean, Dominion still is a major political power, even though some--mostly Democratic--politicians say they're not taking donations from Dominion, but Dominion still has tremendous influence. And one of the things that people wonder about, is that even though Dominion does seem to be going towards renewables, it's going to be done on the shoulders of the ratepayers. Because a lot--if you look at some wind projects, especially in New England, and overseas, there tend to be independent operations, where they're kind of like, you know, private investors go in and invest in them. But in this case, Dominion has succeeded in having ratepayers, you know, pay for this stuff. So it's really kind of not too much risk for them.

And is that good or bad? I don't know. Some people say it's bad, because, you know, why should we, you know, people like me, I pay my electric bill every month. Why should I have to, you know, worry about something that may or may not work? And it's a fair argument.

NM: So Dominion is, though, you know, they've got some solar projects and turbine projects in the pipeline, so to speak. Are these going far enough? Are there enough of them? You know, you talked about how these data centers are big electricity hogs.

PG: Exactly. I know, I spoke with Ivy Main, who's a former EPA lawyer, and she now is with the Sierra Club. And she just said, you know, you're going to need far more renewable sources than what they have right now in the planning boards to really meet the need. And so I don't know, you know, as I say, I mean, Dominion is getting a big public relations boost out of this. And they don't really...they're their shareholders aren't that exposed, because it's guaranteed by the State Corporation Commission, that they'll be paid through rates. So you know, that's kind of a good question. You need more but who's paying for it? What's gonna happen?

NM: I am reminded of a refrain you and I have concluded with a number of times over the years, with--when it comes to Dominion, it's nice work if you can get it.

PG: Exactly. So that's it. Those are all good questions. But I mean, you know, some people, including some at UVA have said, to me, at least, you know, this is still a good thing. Because, you know, we're not pushing coal plants. We're not trying to, you know, push more gas. I mean, Dominion also has dumped a project in Southside for a big gas plant, it didn't make much news, but recently they did that too. So this is a move towards carbon reduction, which could do something about global warming.

NM: Peter Galuszka is a journalist based in the Richmond area. We’ll hear more from him after a short break.

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By the way, our next episode of Bold Dominion will drop around December 29th. We’re doing a year-in-review for what might have been the craziest year of my lifetime anyway… And a fun thing about this next episode: it’s going to be another crossover episode with the guys from Transition Virginia. They’re pretty smart fellas who *also* started a Virginia state politics podcast this year. So don’t miss our conversation.

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So we’ve talked a fair bit about the rise of data centers and tech in Virginia, but let’s take a step back and look at the bigger picture. What do these data centers mean for Virginia more broadly, and for our choices going forward? And what kind of impact will the coronavirus pandemic have on these trends? We’re back with Richmond-based journalist Peter Galuszka.

I want to go back to the economics of data centers a little bit. You know, you mentioned that...well, and again, kind of like using that Industrial Revolution comparison, again, you know, factories needed thousands of workers. Data centers need, like you say, about maybe 150. How much do these data centers actually contribute to the state's economy?

PG: Well, they do pay taxes. And that's good. And that's important. And they're draws for other ancillary facilities. I mean, I know that...for example, take the example of Henrico in suburban Richmond. Back in the 90s, Henrico and also Goochland Counties, made big deals with Motorola to get semiconductors, you know, computer chip makers. And most of those, those projects failed, because, you know, semiconductors are really kind of easily made, and they've been off sort offshored for years. But now they've come in, they repurpose some of those sites into data centers, and data centers can't be as easily offshored.

So that's the kind of thing. You get something a winner kind of industry say like textiles for a while. Then all of a sudden, you can make them a lot cheaper and Guatemala, so you go to Guatemala, and you screw over Virginia workers. So this is going to be a little--that's one of the things there seems to be more promise of staying power for these. And also they do attract other industries and supporting industries. And they have and you get a draw. And you know, there's one center, White Oak I think it's called in Henrico, that was repurposed from semiconductors to data. And it's now like the terminus of at least two new undersea cables, which is going to draw more people in other industries. So we'll see.

NM: Yeah, I want to look down the road a few years, then. Northern Virginia continues to be pretty saturated with data centers. 5, 10 years down the road, 20 years down the road, Richmond, Henrico develop a bunch more, then that area becomes a bigger part of the state's tech sector. How does that change the state's population? Not just numbers, but you know, overall?

PG: Well, during the last year, the coronavirus has made people work from home. I mean, I was working from home, so it's not anything new for me, but I could not survive without my internet and my phone system. I just couldn't. And now more companies who had been investing in, say, downtown offices and cities are no longer considering that. They're saying they can--it may be cheaper for everyone to work from home. I know this is a bad example, but I know Tribune Publishing is closing newsrooms around the country, including Hartford, Connecticut, and in Newport News and Norfolk and having everyone work from home.

NM: And even from a non-media example, but over in the insurance sector, you know, State Farm has closed their Charlottesville building and their office buildings and more than a dozen other cities around the country. Insurance Claim Adjusters and all the rest. Now they're not laying those people off. They're just saying: "Yeah, work from home." And that's fine for now. We still have whatever that is--1200, 1300 people on the payroll of State Farm living here. But what happens when those people retire and move on and the new employee in that role can work from anywhere? What happens to towns and communities?

PG: Well, it's gonna change things. I mean, there was a big movement back to the city movement that had been really strong, especially with millennials. That seems to be changing and now 'burbs are back in. Because you know, land is cheaper and you don't have that. So I think you're going to see longer-term, a major change in, you know, humans settlement patterns, as people can work from anywhere they want to, even rural areas. The problem with Virginia is that broadband doesn't stretch everywhere. So we'll see.

NM: You know, we talked about this a little bit, how the growing tech sector in Virginia changes or is changing the state's politics. But what are the sort of longer-term, 5-10 years down the road?

PG: Well, I just think that what you're seeing is that, you know, with the Black Lives Matter movement and the killings of black people by police has just brought on a sweeping change of, like Confederate memorials and attitudes. And one of the reasons that that's being pushed forward is because so many people have moved to Virginia who didn't grow up with that. You know, I mean, I grew up, you know, with, you know, like Clarksburg, West Virginia and Stonewall Jackson and I worked in North Carolina, a little paper, and just a few years before that they had segregated columns. And you know, I remember that, but to new people who are coming into the state, who are better educated, etc, don't have that baggage. You know, they don't have that kind of memory. And a lot of this stuff is best done with anyway.

So I think that's going to change things. That's one of the reasons why Virginia has become a bluer state. Because, I mean, it's really broken down into, you know, very Democratic voters in Northern Virginia and the suburbs of Richmond and Hampton Roads, against diehard Republicans in rural areas. And that's still gonna play out. But we see the trend.

NM: And speaking of trends, you know, we've seen Virginia, you know, turning a little bit more liberal, centrist liberal, over the years. Certainly in statewide races. As a whole, I'm not sure if you would describe Virginia yet as progressive when it comes to economic policies. It's still a Right-to-Work state, it's still, you know, there's movements toward raising the minimum wage, but it's not exactly a big-time pro-worker state at this point. In fact, it still ranks pretty low on those lists. How much will the tech sector impact that side of things?

PG: Well, I've got a raise a nasty little point here--is that the tech center is not really that pro-labor. Look at Google. I mean, come on. Amazon, look at them. They're very, they don't want unions, either. It's still going to be a Right-to-Work state for at least for the foreseeable future. So I think that partially answers the question.

NM: Yeah, so tech sector, maybe kind of likes that it's still a Right-to-Work state.

PG: Well, on the on the upside, though, you'll probably get paid more and have more progressive or more, you know, liberal policies on, you know, work conditions and benefits and things like that. So that's probably the good side, because, you know, the old Virginia was, you know, "we want to provide you with our cheap labor, and we're not going to give them anything," and they're still that kind of attitude. And we'll see.

NM: What'll keep the tech jobs that are here, or coming here...what'll make them stay instead of moving somewhere cheaper?

PG: Well, I think what's happening is that the whole impetus is towards more and more data. And as I mentioned, the 5g phones, I've heard mixed reviews of them, they're really expensive, and don't do that more, much more for you. But anyway, that's the trend. And they use more data, we're gonna have more artificial intelligence doing, you know, things that only humans can do now. And that's going to require a lot of data. For example, if you have a driverless car, you need some kind of sensors that can process tons of data instantly, like how to stop to avoid hitting a pedestrian or hitting another car. And that trend is just going to be on ongoing. And so I think that that secures the industry to some extent.

NM: Well, in summary, what do you make of all that. How are things gonna be?

PG: Well, I think what's gonna happen is that it's a bright thing for the state to keep going this way. It will provide some well-paying secure jobs, although not a ton of them. ou're not going to have a plant with thousands of workers. You're going to see, it's going to be better for the environment, it's going to be more carbon-neutral. And that's good. And so I think it's a good thing. Virginia is very lucky in many ways. And so I think it's a you know, a little bit of good news in an otherwise bad year.

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NM: Peter Galuszka is a journalist in the Richmond area. Thanks to him for joining us on this week’s show.

My name’s Nathan Moore, and I’m the host of Bold Dominion. Huge thanks as always to our producer Aaryan Balu. Find this show online at BoldDominion.org. Go ahead and subscribe… it’s just a click away.

Our next episode of Bold Dominion will drop around December 29th. It’ll be a year in review for one of the weirdest and least predictable years in Virginia poltiics… And it’s a crossover episode with the guys from Transition Virginia. Be sure to check it out as you take your long winter’s nap.

And hey! As the year wraps up and the holiday season comes around, we’re always on the lookout for topics for future episodes. We’d love to hear your thoughts. Send your ideas to our email address -- Bold Dominion at virginia dot edu. That’s Bold Dominion at Virginia dot edu. Or direct message us on Facebook, Twitter, or Instagram.

Happy holidays, y’all, and make sure to keep social distancing. I’ll talk with you again in two weeks!