Amazon, Coming ‘Atcha
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Recriminations are thick on the ground in New York City, as retail and cloud-service giant Amazon announced the cancellation of plans to locate a new facility in the borough of Queens. The state and local governments offered them $3 billion in incentives, in the form of tax abatements. The company promised that the new facility would provide 25,000 new jobs. In the face of the ensuing uproar, they tucked tail and ran. The most talked-about alternative location is Arlington, Va., less than an hour’s drive from my country estate.

Mayor Bill DiBlasio, a lead architect of the deal along with Governor Cuomo, was very unhappy.

Local real estate nabobs described the debacle in apocalyptic terms

Rep. Alexandria Ocasio-Cortez described it as a victory for popular mobilization against greedy corporations.

“Morning Joe” Scarborough, who helped to bless us all with the current incumbent of the White House, declared that Rep. Ocasio-Cortez “only cares about herself.”

Some on the left, as well as some local residents, denounced the bourgeois NIMBYism of those indifferent to the well-being of the local economy and its unemployed.

Since everybody is accusing everybody else of moral turpitude, I should declare my own interest, and you can draw any conclusions you like. I get huge benefits from Amazon Prime, from the consumer information and pricing, from the free shipping (which indulges my stay-at-home proclivities), and from some of the video content (e.g., ‘Goliath’ or ‘Bosch’). If they come to Arlington, it will further snarl up traffic, which is totally screwed to begin with (but remember, I never go out), and could put upward pressure on real estate prices (good for me, as a homeowner).

So how should we think about the Amazon deal? I’d say there are at least three main issues.

The government subsidies are probably a financial boondoggle. These deals are always difficult to evaluate objectively. What’s in question are foregone tax revenues up front (the government subsidy to locate), juice for the local economy, and increased tax revenues in the future. The good people at Good Jobs First have been on this beat forever.

There is a lot of academic literature on these location incentives, and the results are never praiseworthy. They do not usually benefit the jurisdiction. Yes, there could be some boost to future revenues, but their magnitude is hard to predict. There will also be some future costs, in the form of public services required for any new, large facility.

In general, the encouragement of bidding wars among local jurisdictions for corporate hosting is toxic for local public finance and from a national standpoint, pure economic waste. A company that needs to expand, invariably for reasons outside local taxation, will find some place in any event. The firm’s choice of a location usually does not hinge on local taxes, but on other benefits of the location (e.g., shipping costs, local infrastructure) and the local supply of labor. Amazon’s refusal to negotiate in the face of the opposition, criticized by Mayor Bill himself, reflects the brute exercise of corporate power in play. This arrogance was also on display in Seattle, as the company blew away local plans for modest taxation of their payroll.

The local economic benefits are mixed and ambiguous. Local property owners will benefit, though some local merchants might be displaced, as national chain retailers serving new, upscale residents replace local bodega-scale operations. Higher real estate values will drive up rents, forcing some residents and business firms to relocate. The increase in local labor demand (also highly uncertain, given the potential variation in mix between newly resident, highly-paid employees from Seattle and local, minimum wage jobs) will drive up wages, good for workers in general, bad for local employers.

Amazon said the new facility would employ 25,000 people. None of them would necessarily be locals. The authors of the deal have an incentive to inflate that number. It was reported that the company itself promised just 30 jobs (for a call center) to local residents of public housing.

The local distributional implications reflect a many-sided conflict. Workers who need jobs, or better jobs; homeowners with secure jobs who fear the impact on their neighborhoods from increased traffic or gentrification; trade unionists who resent the arrival of a new, notoriously anti-union boss (whose net impact on wages could actually be negative); idealists who hate Amazon for its execrable corporate behavior, its treatment of its own workers, its collaboration with the hated Immigration and Customs Enforcement, and its massive challenge to anti-trust concerns.

What should be clear is that any net benefit you think derives from Amazon’s arrival in New York City would be equally available to any other place to which it decided to go. There is no conceivable moral case for favoring the needy unemployed workers of Queens, god bless them, over any other benighted locale.

Amazon is a terrible corporate citizen. Amazon’s corporate behavior will be no less evil, regardless of where it sets foot. It will cooperate with the satanic ICE regardless. You might want to limit Amazon’s expansion because it is a terrible company, but in so doing you only indulge the space for other terrible companies. (Hello, Walmart!) Bad corporate behavior demands a national response.

Subsidies aside, whether Amazon should set its big foot in Queens should be up to the people there, even, or especially, acknowledging the widely divergent local interests enumerated above. That’s why we need democracy to make such decisions. It will undoubtedly leave some people unhappy, but there is no better way to decide.

 

 

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