Anytown USA should reconsider Amazon HQ2

Anytown USA should reconsider Amazon HQ2

 

Sign up to write for ELGL about this topic and engage with us on social media using the hashtag #HQ2PublicFunds. Questions? Send us an email. We’ll use the hashtag on the blog to categorize all discussions on this topic. Today ELGL member Matt Lorenzen shares his perspective on the topic.


“Liberals JUST DON’T UNDERSTAND ANYTHING…..

“Ask yourself if you have the type of access to transportation that Amazon wants and the Land they need…

“HOW MUCH TAXES ARE YOU CURRENTLY GETTING FROM THEM, [ANY?]

“YOU WOULD BE A FOOL NOT TO GIVE THEM TAX CREDITS…..THEY AREN’T PAYING TAXES AT ALL NOW.

“SO YOU GIVE THEM A BILLION IN TAX CREDITS AND THEY HIRE 50,000 CITIZENS AT AN AVERAGE SALARY OF OVER $100,000 …

“NOW YOU GET THE TAXES FROM THOSE 50,000 PEOPLE  SO YOU GIVE AMAZON A TAX CREDIT THAT COSTS YOU NOTHING…..IN ORDER TO GET A LOT OF TAX MONEY FROM AMAZON AND THEIR EMPLOYEES.

“IT COSTS YOU NOTHING….YOU GAIN SOMETHING…..WHY IS THAT SO HARD TO UNDERSTAND?”

~Big Mike 34, comments on the Seattle Times article, “Petition asks cities to avert bidding war, refuse tax breaks for Amazon’s HQ2,” Feb 3, 2018


It seems “Big Mike” has been spending some time with the same playbook that a majority of economic development professionals, elected officials, and public agency executives across the US and Canada also read from. The problem is that playbook is outdated and deeply flawed.

I have the great privilege of working in economic development, for a small town 45 minutes from Portland, Oregon, pushing population 3,300. The work I do is very different from the working being done by my peers in much larger, urban jurisdictions. I don’t have a dog in the HQ2 fight. Nonetheless, let me offer a few thoughts regarding why I believe Big Mike and thousands of others have this HQ2 thing all wrong, and why HQ2 has the great potential to be a raw deal for whatever City/County/State HQ2 lands in, if those jurisdictions offer the massive tax breaks and other incentives we are seeing offered in Maryland, Pennsylvania, and elsewhere.

Big Mike and others suppose that if Amazon is not currently located in a given jurisdiction, any tax breaks that the jurisdiction grants are not a loss to the jurisdiction because they never had those tax revenues in the first place. These folks casually overlook the additional demand on public services and infrastructure (costs) that are introduced by a large-scale development and the importation of thousands of new residents. Certainly some of those costs may be recovered when new residents and new housing begin generating new income tax and property tax revenues, but time and again the data show that jurisdictions rarely see a fraction of their investment back. ROI on some incentive programs has been documented as low as 7-10 cents for every dollar spent. Who then picks up the gap?

I acknowledge that incentives are not inherently evil. There can even be an appropriate place for them in economic and community development efforts. I also acknowledge there are secondary, tertiary, (even quaternary by golly!) impacts for a community when new jobs come to town—some positive, some negative—and they can be very difficult to quantify.  But even knowing all that, subsidizing a highly profitable corporation is totally unnecessary, wasteful, and a slap in the face to hard-working taxpayers and small business owners who don’t get the same treatment, especially when the return on the public investment is just not there. Certainly this cannot be called “economic development.”

Offering these obscene public subsidies to the likes of Amazon looks even sillier when you consider that in all likelihood the Amazon site selection team already had a short list of 5 or fewer locations before they even drafted the RFP. They didn’t need to issue the RFP or the short-list of 20, but they did it anyway in order to extract as much as possible from their target communities by creating a public auction spectacle, pitting cities, counties, and states against one another. It’s pretty smart, but it’s also pretty awful. Amazon is not alone in this practice. “Site selectors” work on behalf of dozens of other corporations all over the US and the world, some “specializing” in “incentives negotiation.”

This flawed system of economic development emerged decades ago, and it’s time for it to go, especially in today’s economy which is characterized by a downward trend in new business start-ups and an increase in corporate consolidation. Mergers and acquisitions are at an all time high, topping even those numbers seen in 2007 and 1998.

Here again, Amazon is not unique. It is one of a few dozen big fish that are gobbling up smaller fish at an astonishing rate. There’s nothing inherently evil or unprecedented about this either, but when we take a step back and consider the consequencces of such aggressive consolidation of wealth as well as political and economic power, there is reason for alarm. Consider that Amazon “captures nearly $1 of every $2 that Americans spend online. […] [I]t also produces hit television shows and movies; publishes books; designs digital devices; underwrites loans; delivers restaurant orders; sells a growing share of the Web’s advertising; manages the data of US intelligence agencies; operates the world’s largest streaming video-game platform; manufactures a growing array of products, from blouses to batteries; and is even venturing into health care.” Let’s also not forget Amazon’s recent acquisition of Whole Foods—their first foray into the provision of food stuffs. “In other words, it’s moving us away from a democratic political economy, in which commerce takes place in open markets governed by public rules, and toward a future in which the exchange of goods occurs in a private arena governed by Amazon. It’s a setup that inevitably transfers wealth to the few—and with it, the power over such crucial questions as which books and ideas get published and promoted, who may ply a trade and on what terms, and whether given communities will succeed or fail.” (Quotations from Stacy Mitchell’s recent article for The Nation.) (Bolded text added for emphasis.)

Such trends suggest it is time to resurrect our dormant anti-trust laws, break up these corporate brutes, and return to a healthier, more competitive and diverse marketplace. Economies large and small, populated by many small and mid-sized businesses are more resilient and grow more quickly and equitably than do those dominated by just a few behemoths.

Lest there be any mistake, such critiques of Amazon and other giants are not anti-business or anti-innovation. Quite the contrary. Encouraging competition, marketplace diversity, and the utilization of legislative and administrative tools to ensure a fair marketplace for buyers and sellers are actually pro-business, pro-capitalism endeavors. A thriving marketplace characterized by an abundance of choice is the foundation for further innovation and small-business success.

We need to rethink our economic development practices and eschew the flawed systems of the past which are regretfully still being implemented in many cities, counties, and states across the US. To do otherwise is to put our regional and national economies at risk, not to mention our political autonomy. If every jurisdiction vying for HQ2 would sign Mr. Florida’s non-aggression pact it would be a fantastic step in the right direction, and contrary to what Big Mike may think, this is not a partisan issue. I can think of nothing that would please my libertarian and left-wing friends more than to end wasteful public subsidies while sticking it to the corporate man by creating more room for small business in the marketplace. It’s a win-win.

What I’ve written here is only a weak scratch at the surface of the deep, deep problems that exist within economic development/public subsidy programs and the giant companies they often unfairly support.

Further Reading:

The Institute for Local Self-Reliance

Stacy Mitchell writing for The Nation

Greg Leroy writing for Fast Company

Good Jobs First

The Great American Jobs Scam

Jon Oliver on Economic Development