There’s a lesson to be drawn from how Amazon.com Inc. got cities across North America to become competitors in a reverse-Dragon’s Den, fighting for the prize of subsidizing the tech and retail giant’s second headquarters.
There’s also a lesson to be drawn from the fact that the so-called HQ2, which is now being split in two, has been awarded to the Washington area and New York – the two places that likely would have won on their merits even if Amazon had never been given a single cent by taxpayers.
These cities won because they are among the few with the quality of life that can produce and attract the skilled people a company like Amazon needs. They won because of what they are, not because of what they paid.
The first lesson is a very old one: Governments have to learn how to stop getting played.
Cities, states and provinces have a long history of buying jobs – using generous tax breaks and other financial inducements to bribe businesses into moving, or staying put.
The Amazon story took things to the nth degree. New York promised around US$3-billion in tax breaks. Other bidders offered far more.
And Amazon also got confidential access to the finances, development plans and willingness to pay of 238 city governments. That sets up the company to profit from its next self-declared bidding war for a new fulfillment center or data hub.
Amazon says that HQ2 will create 50,000 jobs over the next decade – 25,000 in each of the winning cities – paying an average of US$150,000. What will be the net benefit to the U.S. economy of subsidies spent luring the company to one side or the other of a state or municipal line?
Zero dollars and zero cents.
According to the Brooking Institute, U.S. local and state governments annually spent US$90-billion inducing companies to move from one place to another. In Canada, though the total cost is unknown, municipal and provincial governments also engage in quiet bidding wars.
This is not a job-creation strategy. It’s a job-movement strategy – benefiting the destination to the same degree it harms the departure points.
And it sums to less than zero, since the transaction involves a taxpayer payoff. It does not grow the economic pie. Instead, it pays the pie-marker to pick up an existing pie and move it to another table, while offering the first table every incentive to demand another payment to move it back.
The list of cities Amazon could have chosen for HQ2 was always a short one, and New York and Washington were always at the top of the list.
Amazon cannot send thousands of jobs for highly paid workers – people who have choices about where they want to work and live – to an industrial park in a suburb in Middle America. A company looking for low-wage workers may be able to use that strategy, but a company looking for the best software engineers and data scientists can’t.
And that’s the second lesson from the Amazon HQ2 search. It’s about what cities must do to attract high-paying, high-skills jobs – and more importantly, attract and develop the people who have the skills to do those jobs.
Neither Washington nor New York is a small-government jurisdiction. Both are, on the contrary, the kinds of places that have, by American standards, a lot of public services, from universities to the extensive public transit systems that make urban life possible.
Amazon’s site across the river from Washington is four subway stops from downtown; Amazon’s New York site is served by four subway lines, multiple train lines and a ferry to Wall Street.
What’s more, neither of the places that attracted Amazon is a low-tax place, at least not by American standards. In which state do residents pay the highest percentage of their income in state and local taxes? According to the Tax Foundation, that would be New York.
Creating a city where the best and the brightest want to live and work includes nurturing the kind of quality of life and good public services that benefit everyone. That’s the real challenge when it comes to fostering and attracting good jobs.
Instead of buying jobs from next door, which is an expense of taxpayer funds that leaves everyone poorer, focus on investing in what makes a city successful, in ways that work for all of its residents.