After a tremendous backlash from community leaders and activists, Amazon is reversing plans to place a new headquarters in Queens — and more importantly, giving up a giant sack of tax benefits (totaling over $3 billion) from various parts of the New York government. That outrageous handout — negotiated in secret with New York Mayor Bill de Blasio (D) and Gov. Andrew Cuomo (D) — was the main motivator for the outrage.
On balance, it's great news. Amazon did not remotely need the money, and New York City already has low unemployment, a severe housing shortage, and a dysfunctional transit system. Now it's just up to other cities in America to tell corporations of all kinds to go pound sand when they come begging for tax goodies. If companies want to build something in an American city or town, they should do it like anyone else — with their own money.
There are two main reasons why. First, all the available evidence demonstrates these corporate handouts are a bad deal. Research from Tim Bartik shows that even in narrow economic incentive terms, the deals are very often ill-chosen and badly structured to actually produce the economic goods. This should not be surprising, because they're usually either handed out to well-connected insiders, or extracted from desperate, impoverished communities through threats to go elsewhere — not exactly ideal conditions for intelligent policy design.
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Often companies renege on the deals after collecting the subsidy. This appears to be what happened to Wisconsin, which then-Gov. Scott Walker (R) turned into basically a satrap of Foxconn in return for a promised big factory, only for the company to reverse course. Now it might build a smallish office park instead, if even that. Elsewhere, an initial compilation of less than half of America's school districts found they were deprived of at least $1.8 billion in revenue through such policies.
On the other hand, additional research from Bartik finds that these deals mostly don't even work at actually changing companies' decisions about where to locate, only tipping the balance in between 2 and 25 percent of cases. This sounds odd, but on reflection shouldn't be surprising. A tax benefit might be a nice boost to a company's bottom line, but location, quality of the local labor force, access to freight rail or ports, and so on are still decisive. You couldn't build a big car factory in, say, Hanksville, Utah (population 219) no matter how big the subsidy was.
This almost certainly was true for the whole Amazon HQ2 project. After soliciting secret requests from cities across the U.S. and Canada, it ended up settling on what would be the most logical locations on the merits — Crystal City for access to D.C. and lobbying, and New York as the top city in the country. Indeed, it could easily be that this entire process was a scam to collect tons of non-public data.
The motivation behind these bargains appears to be a mixture of corruption, desperation from city governments devastated by de-industrialization, and a general background assumption that the proper role of public policy is to cater to the needs of business. For decades, the hegemonic ideology in American government is that human communities should bend themselves to the needs of businesses and the market instead of the other way around.
But whatever the reason, it would unquestionably be better to have a level playing field for all businesses across the whole country. Businesses should make decisions about investment based on businesslike considerations, not on which community can best be scammed out of tax money — which often has to be made up by pillaging poor and minority communities with fines and fees.
(As an aside, the federal government should push the operations of business into depressed communities, but with anti-trust policy, common carrier regulation, and transport infrastructure instead of bribes.)
Especially in the case of cities which are doing reasonably well (and probably most others as well), political leadership should realize the power they actually hold and summon forth some dang confidence and dignity. It is not necessary for New York City to offer billions in tax benefits to get businesses to come there — witness Google, which is buying up tons of Manhattan office space without being bribed up to its back teeth. Facebook also has a big office there — and even Amazon already has a few thousand employees in the city.
Worse, it's a profound affront to democracy. Watching the governor of a state with 20 million people and a GDP of $1.6 trillion promise to call himself "Amazon Cuomo" like some court jester capering for the king's amusement demonstrates that real power comes not from the people of New York, but from the wealth of the world's richest man. Let's hope this is the first step in rolling back this aspect of the American oligarchy.
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