Economy

Amazon, City Killer?

Amazon has whittled down the list of contenders for its second headquarters.

Photo Credit: Jonathan Weiss / Shutterstock.com

Trying to figure out where Amazon will set down roots or, depending on your perspective, spread its tentacles, is the newest capitalistic cage match. Nineteen American cities and one Canadian metro area, down from the original 238, now go into overdrive to secure what promises to one of the most transformative economic decisions in the world: a single $5 billion investment in a second headquarters that brings 50,000 high-tech workers and their families, plus thousands more jobs in associated sectors.

This competition spurred the type of collaboration between private sector and political leaders that only develops when a trophy like an Amazon comes into view, according to Susan Wachter, a University of Pennsylvania Wharton School professor of real estate and finance and co-director of Penn Institute for Urban Research, which assembled a group of urban experts to weigh in on the Amazon competition.

In a conversation with The American Prospect, Wachter uses the word “transformative” often to illustrate what the next Amazon outpost can expect—for better and worse.  Certainly, becoming Amazon’s HQ2 would come with a long list of bragging rights, beginning with a straight shot to world-class status (except for finalists New York, Los Angeles, and perhaps Washington, that already hold that distinction) for the winner. Amazon may even offer or stimulate major investments in education, infrastructure, and arts and culture.

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But one critical question gets glossed over in headquarters horse race: why would state and local political and civic leaders participate in an economic development free-for-all that is guaranteed to lead to the Seattlefication of their metropolitan area?

Amazon has turned Seattle, its current headquarters, into a 21st-century exemplar of income inequality. Living in the Pacific Northwest’s largest city is a beautiful thing for a worker with the skill set to slip effortlessly into a high-tech job. For everyone else, Seattle now features all the disturbing traits of any place that rewards knowledge workers at the top of the food chain and flushes away just about everyone else: from astronomical housing costs that have long since displaced middle- and lower- income people to punishing commutes for everyone who has to move in and out of the city.

Amazon’s arrival is bound to accelerate the displacement of people of more modest means and send the cost of living in the “lucky” victor soaring. The New York and Washington metro areas, already two of most expensive places to live in the United States, would become even more unaffordable for the average worker. (There are actually 15 “cities,” not 20, competing. New York and Newark constitute one mega-city; while Washington, D.C., Montgomery County, Maryland, and Northern Virginia are effectively another single metropolitan area—whether local leaders like it or not.)

Wachter notes that the inclusion of Washington on the short list is especially puzzling, since the city “is on the cusp of being totally unaffordable and congested.” She added that Amazon could have another longer-term goal when it comes to the District. “In most of the rest of the world the major city of the country is the capital; this [move] would do that [for Washington],” she says. Though New York, with its preeminent financial, media, and arts and culture communities, isn’t likely to slip into second place any time soon. (Self-interest could also be at work: Amazon CEO Jeff Bezos, a married father of four, who also owns The Washington Post, is already renovating a mansion—a former museum—in Washington’s exclusive Kalorama neighborhood.)

The scale of the Amazon competition and the lengths that some cities and towns were willing to go to influence the company turned into an economic development decision into reality-show spectacle, featuring a plethora of tax incentives. New Jersey lawmakers plan to offer as much as $5 billion in tax breaks. That’s a dubious use for public funds. The tax revenues that a $600 billion company like Amazon could generate would accomplish more if invested in public services: local schools, housing, and New Jersey Transit, the much-castigated state wide public transportation system. (Only Toronto offered zero tax dollars.) Besides, Amazon needs taxpayer dollars for a new headquarters as much as an owner of a professional sport team needs tax incentives to build a new stadium.

Timothy J. Bartik, a Penn IUR fellow and a W.E. Upjohn Institute senior economist offered this sobering take on tax-incentive arms race: “If the winning city provided large long-term tax incentives, this may be interpreted by many local policymakers as a rationale for escalating incentive offers to other businesses.” He added, “This may divert resources away from educational investments that may be more cost-effective in promoting local economic development. … But such incentives are often not the most cost-effective way of creating local jobs.”

Tax breaks can also come back to haunt a city. Boston and the state of Massachusetts offered millions in tax incentives and other benefits (including “concierge services” like customized employee training) in its successful bid to secure General Electric’s corporate headquarters, only to discover this week that the company may be on the verge of breaking up into smaller entities. GE is already cutting back its Boston-based workforce, although the company claims that it still intends to bring nearly 1,000 jobs to the city.

There is an additional challenge for contenders like Chicago, Newark, and Philadelphia, with their high concentrations of poverty. Those cities must address what Wachter calls the “challenge of inclusivity.” “If Amazon chooses one of these cities, [that decision] should be accompanied by] a transformation initiative so that the move is not just a move to bring in high priced talent, but a move to grow the talent in that city,” she says.

In this new Gilded Age, cities can aspire to improve the lives of its citizens, courtesy of multibillion-dollar companies like Amazon. Perhaps the winning city and Amazon will join forces to fund education programs and repair and build schools, buy new buses or rail cars, incentivize workforce housing development, or back rent control initiatives. Maybe Amazon will take its corporate responsibilities seriously, realize that public funds should go to public purposes, not into company coffers, and decline tax incentives.

Or maybe Toronto gets the nod.

 

 

The finalists are:

·      Atlanta
·      Austin
·      Boston
·      Chicago
·      Columbus, Ohio
·      Dallas
·      Denver
·      Indianapolis
·      Los Angeles
·      Miami
·      Montgomery County, Maryland
·      Nashville
·      Newark, New Jersey
·      New York City
·      Northern Virginia
·      Philadelphia
·      Pittsburgh
·      Raleigh
·      Toronto
·      Washington, D.C. 

Gabrielle Gurley is The American Prospect’s deputy editor.