Cities chasing Amazon's headquarters should be careful what they wish for
Why they even want a company that has done so much damage to our cities is beyond me.
There is an old Jewish joke about the Plotnick Diamond, one of the world’s most valuable gems. One woman says to the older woman who is wearing the diamond:
"It really is beautiful. I would give anything to have a diamond like that."
"NO! Don't even say that!" exclaims the older woman. "Believe me, darling, you do not want to own this diamond! It is cursed, the terrible 'Plotnick Curse.' A curse so awful and horrible that I wouldn't wish it on my worst enemy!"
"Well, what kind of curse could possibly be so terrible?"
To which the older woman replies, lowering her voice slightly, "Mister Plotnick."
One is reminded of Mr. Plotnick when watching the Amazon casting call that is going on right now, as cities across North America compete for Amazon HQ2. Because landing Amazon is both a blessing and a curse, and cities should be careful what they wish for.
When Amazon comes into your world, your world changes. It is a company that has changed the retail environment, destroying local economies; there is not an independent business on the continent that isn’t having its lunch eaten. It has changed cities, chewing its way through the main streets and shopping malls of America; vast swathes of commercial real estate sit empty -- starting with bookstores and moving through every other industry, as the great retail giants become shadows of their former selves. Real estate and sales tax revenues disappear and the city deteriorates further.
Even in Seattle, the current Amazon headquarters, it wreaked changes that are not all positive. CML, writing in the late, lamented Gawker, describes it:
Amazon has killed Seattle and gotten away with it. The counts of worse traffic, longer hours, higher costs of living, greater income inequality, and lower quality of life have no other suspects and few co-defendants. Amazon is guilty. But what little outrage there is has been mild. Anger dies out and Amazon lives on, untroubled and too big to fail. The mainstream is for Amazon, because Amazon is for the mainstream. Increasingly, Amazon is the mainstream, flooding markets with ruthless efficiency and washing Seattle clean of the grit of independent lifestyles and small businesses. Amazon explicitly aims to eradicate these. A friend works in pricing; he told me Amazon has scripts to scrape prices from competitors’ websites and undercut them, even at great marginal loss. This is the essence of anti-competitive behavior. Next to Amazon, Microsoft’s dominance in the nineties seems quaint.
It’s almost abusive. After shipping all their retail dollars and after years of losing jobs, sales taxes and so much else to Amazon, cities are lining up to say hit me, hit me again! Amazon demands incentives to offset the initial costs and ongoing costs, tax credits, relocation grants, fee reductions. They want a “business friendly tax structure.”
The cities want growth. They want the jobs and the well-paid workers. But as Greg Leroy writes in Fast Company, there is no such thing as free growth. Particularly in some of the poorer, rust belt-type cities that are praying Amazon will give them a new lease on life, they will have to bulk up on infrastructure and resources to cope.
More families arriving means more teachers to hire; more classrooms, roads, water mains and sewerage to build; more public safety to provide; and more trash to pick up. All of those things cost money. But if Amazon is paying no sales tax, no property tax, no income tax, and is getting cash gifts from its employees and/or the state treasury by selling tax credits, then Amazon won’t be bearing those new costs. Instead, there will be a huge burden shift: Either everyone else’s taxes will have to go up, or the quality of public services will have to go down, or some of both. There’s no such thing as free growth.
There are not many cities that could absorb Amazon and invest in these services without the money they would have got, had they not offered all of these bribes and concessions. In fact, most of these cities are in so much trouble already because of the sales taxes they didn’t get after Amazon sucked the life out of them in the first place. Or as Joe Cortright concludes in City Observatory, in an article nicely titled Cash prizes for bad corporate citizenship, Amazon edition:
...while Amazon may turn out to be a winner, it may come at the cost of fiscally impoverishing the city that it chooses to locate in. The other losers will be all the businesses against which Amazon competes, who are too small to have the leverage to insist on a comparable level of public subsidy for their similar operations.
A few cities have resisted the siren call. San Antonio’s mayor isn’t giving away the farm.
North of the border, the Greater Toronto Area is submitting (it’s on a roll, just having landed Alphabet’s Sidewalk Labs, more on that in a subsequent post), but not giving much away. Advisor and former TD Bank CEO tells the CBC that "There are clearly places in the United States that will, I use the word, bribe, people to come. [They] say you just tell us what cheque you want us to write, we will write that cheque. We're not in that business."
It’s all probably a sham anyway. Jeff Bezos has likely already decided where he wants to be. But what the hell! Let's have dozens of cities spend tens of thousands of dollars and hours putting together bid proposals. Who says Amazon doesn't create local jobs in your community?
Looking forward to the next round of the #AmazonHQ2 competition, when chosen cities send their tributes to the arena to battle for survival— Chris Turner (@theturner) October 19, 2017