Incentives are an economically inefficient way to do business. They're unfair. Yet there's no chance that even the biggest sweepstakes of all will stop their use.
The petition urging cities to refuse subsidies for Amazon HQ2 has about as much chance of success as the “ban the bomb” campaigns that began in the 1950s.
Just as no nuclear-weapons state is going to unilaterally disarm (Ukraine was an exception after the breakup of the Soviet Union), no city or state wants to be the first to give up what has become a common way of luring jobs and businesses.
The analogy is imprecise, of course. Nukes are meant not to be used. Since the end of World War II nations have kept and developed them for deterrence against rivals. If deterrence broke down and the weapons were used, the results would be catastrophic for both sides.
Subsidies and incentives, on the other hand, have been used with abandon for decades. The competition for HQ2 is only bringing out the thermonuclear version of this arms race.
Amazon’s HQ & HQ2
- Amazon names 20 finalists in search for HQ2
- A not-so-short HQ2 shortlist, and other take-aways from Amazon’s finalists
- 2 kinds of cities made list of finalists for Amazon HQ2
- See how the 20 Amazon HQ2 finalists compare, and vote on your choice
- Amazon receives 238 bids for its second headquarters
- Cities are free to discuss Amazon HQ2 bids, but many won’t
- Amazon’s surprise plan for HQ2 is a bold experiment
- Thanks to Amazon, Seattle is now America’s biggest company town
- Read more about Amazon and its HQ2 plans.
In both cases, however, the actors believe these weapons are essential to protect their interests.
New Jersey believes it’s worthwhile to pony up incentives of $7 billion to win the project for Newark, which is among the 20 finalists. The tax breaks were proposed by departing Republican Gov. Chris Christie and sharply criticized by incoming Gov. Phil Murphy, a Democrat.
Yet now in office, Murphy supports the giveaway. “This is a once in a lifetime opportunity,” he told reporters.
Maryland might offer $5 billion in tax breaks and infrastructure projects, proposed by Gov. Larry Hogan to aid Montgomery County’s bid.
Philadelphia, Pittsburgh and Atlanta might be able to muster at least a billion or more each. And this doesn’t even count “soft” incentives such as speedy permitting, land assembly, etc.
Many competitors don’t have to disclose their packages. We also have no indication that the bids are requiring a certain number of jobs to be created and maintained.
Scholars such as Richard Florida, who is leading the anti-subsidy petition, have argued for years that the giveaways (about $45 billion nationally last year) are a waste of taxpayer money. In a roundtable, Florida said HQ2 “is the start of a troubling arms race — one that pits cities against each other in a ploy for unnecessary giveaways.”
As a consequence, “tax breaks simply transfer public funds that could be used for more much-needed public services like schools, housing programs, job training and transportation to private corporations.”
But elegant arguments fail before Amazon’s promise of $5 billion in investment and up to 50,000 good jobs, a prize that will be “a full equal to our Seattle headquarters,” as CEO Jeff Bezos said when the HQ2 search was announced this past September.
This is no data center or warehouse. It is nothing less than the economic-development win of the decade, maybe our lifetimes. These will be elite, high-paying jobs at the top of the food chain in one of the world’s largest, richest companies. And it could even be outside the usual winner’s circle of top cities.
It’s enough to make leopards change spots. Indiana is so politically red that it passed a law to prevent Indianapolis from building light rail. Now, with Indy a finalist, the state legislature is reconsidering. A Georgia bill on religious freedom that LGBTQ supporters consider discriminatory is facing pushback because it might antagonize Amazon.
Red state, blue state — they’re all green when the economic stakes are high enough in a time of slow growth.
Remember, Washington gave Boeing some $9 billion in breaks to win the 777X, and may give more if the company stages a competition for its next airplane (and it has options: South Carolina, St. Louis, Salt Lake City).
Our pot should not be wagging its finger at aspiring kettles when we got black for virtually no incentives at all. That was a matter of luck. Amazon grew up here. It became a giant with huge economic and tax benefits for the city, thanks to Paul Allen’s South Lake Union Innovation District, Bezos’ desire for a compact, green space, and Seattle’s natural and urban assets.
That such success stories happen so rarely now is a big reason why even the most progressive cities and states will ante up big when something as rare as HQ2 comes along.
Whether it causes the arms race Florida fears is an open question. Companies rarely dangle prizes this big, and players such as Alabama, which won Airbus and Toyota/Mazda, have been using incentives for years anyway.
Incentives might justify themselves if the economic activity they spark is greater, especially to the public coffers, than the cost of the subsidies. Still, it’s a lousy way of doing business, where the wealthiest companies in the world — or the wealthiest man in the world, in Bezos’ case — can play places off against each other for corporate welfare.
To be fair, we don’t know how large a role incentives will play in Amazon’s decision. Talent, tolerance, transit, urban assets, research universities, big airport, “business-friendly” climate — all these are among the company’s desires. It will be interesting to see how it plays out.
Maybe Bezos always wanted to be in or near the Other Washington, given Amazon’s large and growing base of federal customers, as well as a desire to be near political power. If so, he’s got three jurisdictions in the area (D.C. itself and northern Virginia, as well as Montgomery County, Md.,) competing against each other.
Joe Cortright at the urbanist site City Observatory floats the idea that more than one finalist might win, with the locale’s strong points determining the branch of the business Amazon bases there.
If that’s true, the location(s) wouldn’t be a “full equal” to Seattle. And a good thing for us, whatever some of the company’s critics think.
My concern is that HQ2 will become the headquarters. Or a weapon to deploy against Seattle to get incentives the next time around.