Why New York and Virginia were right to gamble on Amazon
As Amazon boss and founder Jeff Bezos has put it, "In the end, we are our choices." And neither New York nor Virginia should already regret their gamble to pull out the financial stops to attract the retail and cloud computing giant's second and third headquarters. They should enjoy the win and celebrate the 25,000 jobs headed to each.
Of course, there is no guarantee the bet will pay off over the longer term. And the short-term impact surely means tighter housing and worse traffic. Citizens in both places should ask hard questions about whether officials overbid, especially given Amazon splitting HQ2. Still, the potential opportunity to firmly anchor and expand positions as technology and entrepreneurial hubs was probably too good to pass up.
There's also little doubt that giving companies large subsidies to relocate or open new sites is generally a pretty bad idea. An Upjohn Institute study last year looked at the record of economic development incentives from 1990 to 2015. During that period, goodies for business more than tripled, increasing in worth from 9 percent of business taxes to 30 percent. Yet there wasn't much correlation with "a state's current or past unemployment or income levels, or with future economic growth." Nor typically do these packages appear decisive in corporate decisions.
But Amazon might be different. Its gravitational pull might be large enough to justify the cities' investment.
What economists typically suggest instead of targeted incentives are broader policies to improve a state's competitiveness, such as tax and regulatory reform, as well as fashioning an education system that churns out lots of skilled workers. Indeed, Bezos chose to start Amazon in Seattle because it was a tech hub with lots of smart workers and offered a favorable tax environment.
But how did Seattle first get a reputation as a good place to start a tech firm? The city can thank Microsoft founders Paul Allen, who died last month, and Bill Gates for relocating their young software firm from Albuquerque some four decades ago. It was a big break after a tough decade for the region. Layoffs at Boeing were devastating, and the Emerald City became a national joke after a couple of real estate agents rented a billboard displaying a plea copied by struggling cities everywhere: "Will the last person leaving Seattle — Turn out the lights."
Then came Allen and Gates. Although Microsoft was expanding fast in New Mexico, the company headed for Bellevue, just 10 miles from Seattle, on New Year's Day, 1979. But it wasn't because of some analytical business decision, such as the one Bezos made. The Seattle natives just wanted to go home. And the decision transformed the city. As economist Enrico Moretti notes, college graduates in Seattle then were making just $4,200 more than those in Albuquerque vs. $14,000 more today. The arrival or emergence of dynamic tech firms can create a powerful entrepreneurial ecosystem that enables a clustering of new firms. This not only attracts knowledge workers but also generates spillover jobs for everyone from lawyers to construction workers to lower-paid service employees.
Seattle got lucky, and surely many cities that submitted bids to Amazon were hoping to get lucky, too. You kind of have to. "If you look at the history of America's great innovation hubs, they haven't found one that was directly, explicitly engineered by an explicit policy on the part of the government," Moretti, author of The New Geography of Jobs, has said.
Of course, New York City and Washington are hardly left-behind cities. But the arrival of Amazon should formidably strengthen their already strong tech sectors. It really is a unique opportunity, one that could help recession-proof both regions. And even if Washington follows through with threats to regulate big tech, Amazon should remain a pretty reliable employer in New York and Virginia for years to come due to the way regulation frequently helps incumbent players.
Yes, it would have been great for non-coastal America if Amazon had picked Chicago, Detroit, or St. Louis. Hopefully this whole process will alert city officials across America to their strengths and weaknesses in an ever-more tech-driven economy. But if Washington is unwilling to relocate federal agencies to the Midwest, as some have proposed, it's even more unrealistic to expect a company to do something it doesn't feel is in its long-term interests.
I guess we'll just have to be satisfied with a super-successful company that spends billions on research, generates gobs of jobs, and delivers cool stuff right to our door.