The ambiguities of the Amazon mercantile jungle

From Robert Whitcomb’s “Digital Diary,’’ in

Boston did well in failing to snare an Amazon “Second (or is it third?) Headquarters’’. The hysterically hyped project would have overwhelmed city services; stolen a lot of tech talent from the startups that are the foundation of the region’s economic future; worsened the city’s traffic woes, and driven up already sky-high housing costs.

And it’s unlikely that Boston and the Commonwealth of Massachusetts would have come up with a bribe to Amazon’s Jeff Bezos that would have been big enough to offset Boston’s drawbacks, especially that it’s probably too small for the likes of Amazon. Despite the company’s show of looking all over America as a place for a “Second Headquarters (which of course turned out to be two “Second Headquarters’’ – New York and metro Washington, D.C.), it probably always planned to set up in cities too big to be overwhelmed by it, and with many, many techies already in residence. The apparently bogus national auction seems to have raised the bribe money that New York and Virginia, whose Washington inner suburb of Arlington, Va., won the prize, were willing to pay. Amazon says it will put 25,000 employees in each place.

Massachusetts Gov. Charlie Baker and Boston Mayor Marty Walsh were unwilling to get into a bidding war with the rest of the country for the projects.

New York State is giving the company a package that includes $1.525 billion in incentives, including $1.2 billion over the next 10 years as part of the state’ s Excelsior tax credit. The state also will help Amazon with infrastructure upgrades, job-training programs and even assistance “securing access to a helipad”. There’s still some confusion about the total package, but by one measurement, it works out to $48,000 per job.

Virginia, for its part, is giving the company an incentive package worth $573 million, including $550 million in cash grants – and a helipad (for Bezos’s convenience to commute to his Washington Post?) in Arlington, right across the river from Washington, D.C. The Old Dominion also pledged $250 million to help Virginia Tech build a campus in Alexandria, near the Amazon site, with a focus on computer science and software engineering degrees. Folks are still trying to figure out the precise total cost.

By one estimate in this rather confusing bag of bribes, the basic package works out to $22,000 per job. We’ll see.

(As sop to the Heartland, Amazon will also put a 5,000-person facility in Nashville, at an estimated $13,000 a job.)

So the individuals and companies already in New York and Virginia will subsidize through their taxes an enterprise that had $178 billion in 2017 revenues and is run by the world’s richest person. And of course it’s impossible to know how well Amazon will be doing in a decade. Might it become the online version of Sears? Nothing lasts.

Think of how much stronger their economic development would be if New York and Virginia had put the bribe money into improving transportation infrastructure, education and other stuff that would make their markets better for everyone!

And will Amazon keep its promise to create all those jobs? Don’t bet on it! Big companies are notorious for breaking employment promises. An irritating recent example:

Wisconsin, with an outrageous $4 billion subsidy, lured Foxconn, the Taiwanese manufacturer infamous for not keeping employment promises, to the state with the promise of 13,000 jobs. But the company now plans to employ only a quarter of that; much of the work will be done by robots. You can bet that Foxconn would like all of the work done by robots! One estimate is that the project works out to $500,000 per Foxconn job.

No wonder that Scott Walker, the Republican governor who pushed for this deal, just lost his re-election bid. But then, Democratic and Republican governors and mayors do these deals with enthusiasm.

The politicians know that such extravaganzas sound great, for a while, and that few citizens look into the fine print or scrutinize these sweetheart deals for their long-term macro-economic effects. And by the time that the full bill comes due, the politicians who initially got credit have moved on to something else.

Anyway, such places as tech-rich Greater Boston (and less tech-rich Providence) would do better to make their communities better places in which to start and nurture companies than to break their banks by trying to get big ones from far away whose loyalty is apt to be remarkably evanescent. That isn’t to say that Boston (which already has a couple of thousand Amazonians) and Providence (with its graphic and other designers) won’t benefit from spillover Amazon jobs from the New York operation. They probably will.

A March 2018 report by the Brookings Institution says that state and local governments give up to $90 billion worth of subsidies to individual businesses each year. How much of this is worth it? To read the report, please hit this link.

Columbus, Ohio, offers an example of how an economic-development policy delighting in diversification, encouraging local startups, and improving local amenities and infrastructure, as opposed to focusing on luring a big, fat famous company, as well as strong civic engagement by a city’s established business community, can pay off.

From 2000 to 2009, Columbus added 12,500 jobs. From 2010 to the present, it has added 158,000!

To read more, please hit this link.