Amazon HQ2: Missed Opportunity after Missed Opportunity
Updated: Feb 26, 2019
Amazon has always seemed to be two steps ahead of the calendar as it built one of the most profitable corporations in the world leaving dozens of previous goliaths and contenders (Sears, JCPenney, Kmart, Borders, Barnes & Noble, Circuit City, Tower Records, Foot Locker, ToysRUs) either dead or gasping for air by the side of the road. But the 2018 announcement that Amazon is placing its new headquarters in the New York City and Washington DC Metro areas, followed by the announcement last week that it is pulling out of New York due to vocal opposition, make it clear the online retailer and cloud pioneer does not understand the current moment in the American political economy.
Despite quite strong aggregate measures of economic health with a high GDP growth rate of about 3 percent and a low national unemployment rate of 4 percent, millions of Americans are living with high levels of economic insecurity because the rising tide of dot.com titans has not been raising all boats. There are at least two distinct kinds of inequality that have been growing worse in the US economy for many years.
First there is vertical inequality everywhere that is most on display in the largest cities where extremes of wealth and poverty live in close proximity. In cities like New York, Boston, San Francisco and Seattle billionaires live high above many homeless people while middle income families struggle to hold on against incomes that are not keeping up with the rising costs of basics like housing, healthcare, and transportation. The political energy to address this inequality fueled the Bernie Sanders campaign in 2016 and is energizing the surge of progressive Democrats and Democratic Socialists like Rep. Alexandria Ocasio Cortez in 2018.
This issue provides the rationale for the 2020 presidential campaigns of Bernie Sanders again, Elizabeth Warren, Bill de Blasio, and many others.
On the horizontal dimension we have the geographic inequality where the vast share of economic growth and new high-paying jobs have been occuring in those same largest cities on the east and west coasts. In the middle of America the mid-sized cities, small towns and rural counties have been experiencing far slower growth, or even a contraction, for at least the past decade. Despite the national statistics showing a slow but steady recovery, the economies of many mid-sized cities and small towns in middle America have been hollowing out as factories closed and as younger workers leave to find better opportunities in the big cities, the population is declining and property values are low.
This geographic inequality fueled the 2016 Trump campaign wins in Iowa, Ohio, Michigan, Pennsylvania, Missouri and Wisconsin. Many Democrats responded with plans to create better paying jobs in interior states fueling many 2018 wins, most notably the new governors in Michigan, Wisconsin, and Kansas. The need for more investment, economic growth, and higher paying jobs in the middle of America provides the rationale for presidential campaigns from Sherrod Brown, Amy Klobuchar, Tim Ryan, Mitch Landrieu, and Pete Buttigieg among others in 2020.
Amazon’s selection of the Washington DC and New York City metro areas was criticized as a missed opportunity to weigh in against the geographical inequality in America by selecting a location in a mid-sized city in the middle of America. After more than 200 communities applied to host the HQ2, many hoped Amazon would select a city like Nashville, Indianapolis, St. Louis, or Columbus to include a middle-American community in more of the tech-led growth story that has characterized the big cities on the east and west coasts.
In Amazon’s original hometown of Seattle, and in the whole San Francisco Bay area, south through the “Silicon Valley” down to San Jose, so much wealth has been created that housing prices are becoming ridiculous. School teachers, firefighters, and police jobs are hard to fill because there is not enough affordable housing within a reasonable commute.
In short, there are a small number of big cities in America that are overcrowded and unaffordable and more high-paying jobs are not seen as an unmixed blessing. There are still large pockets of poverty and underdeveloped areas within these regions, but many middle income families see a greater threat from too much economic activity driving up costs and choking transportation, than too few jobs and too little growth.
Amazon’s welcome in its home town of Seattle (also home to Microsoft and many other internet success stories) was wearing thin prompting the need for a second headquarters. But rather than going to one of the hundreds of places in America that are desperate for more higher paying jobs, Amazon chose to create 50,000 mostly six figure jobs in two of the metro areas that are experiencing these problems of too much growth. Amazon’s first missed opportunity was a failure to appreciate the importance of geographic inequality.
Amazon’s second missed opportunity was a failure to appreciate the importance of vertical inequality. Only San Francisco, Seattle, and Boston can rival New York City as the epicenter of the anti-corporate/anti-billionaire movement in progressive politics, and yet one of the world’s largest corporations headed by one of the most prominent billionaires seemed to be blindsided by the local opposition.
It seems that people who live in the cities with relatively large numbers of billionaires are more likely to want to highlight the vertical inequality in America and the huge share, about 40%, of the nation’s wealth that is owned by the top one percent of American families. It is difficult to say the words “millionaires and billionaires” without a trace if the Brooklyn accent of Bernie Sanders (who represents Vermont in the Senate) and Representative Alexandria Ocasio Cortez has become a new voice for (vertical) inequality politics. The NY-14 Congressional District she represents covers parts of the Bronx and Queens although not the planned location for the Amazon HQ2.
Whether or not they represented large numbers of Long Island City or Queens Borough residents, the HQ2 opponents were making a lot of good points. New York City is as strong of an organized labor town as any in America but Amazon was insisting that it would not allow union organization of its workers. There were many other concerns about the effect on the local housing market, traffic and transportation systems (including the aging Subway system). The overarching concern was that the area would be developed in a way that would no longer include its current residents -- the basic definition of gentrification.
Amazon’s second HQ2 missed opportunity was to leave Long Island City rather than stay and work to reach accommodation with their critics, and more importantly the local residents. As reported in the New York Times Amazon pulled out of the deal amid active negotiations. Amazon had a chance to enter New York in a relationship with the community that they are struggling to achieve in Seattle.
The criticisms of the deal Amazon reached with the City and State of New York were that the tax incentives were too large, that housing prices would rise, and transportation would become congested. Amazon did not have to give away the online store to reach a deal. Some serious negotiation could have helped Amazon deliver a message that community concerns and corporate concerns are not mutually exclusive. Long Island City is an area in need of major investment. Queensbridge Housing, the largest public housing project in America, would have been just a few blocks away down streets with few businesses other than liquor stores, fast food carryout, and bodegas. Many local businesses and residents particularly those in public housing were looking forward to jobs, more customers, and the development that HQ2 would have generated.
Working with the local political leaders and community leaders, Amazon could have worked to ensure new investments in affordable housing, public education, and job training were made to help current residents stay in the area and have a chance to find employment with Amazon or some of the other businesses that would be expanding.
Unions were working with Amazon and seemed close to a deal for those who were not yet on board. Amazon was never going to welcome collective bargaining as part of this deal, but they could have agreed to use union labor in all construction of the project. Modernization of the subway and the several MTA stations serving Long Island City would have benefited the community and the company and there would have been an equitable way to collaborate on funding it. There was a win-win deal to be reached. It seems like the negotiations were headed in the direction of a deal between the unions when Amazon abruptly pulled out.
The charge that New York City and state paid too high a price in the form of deferred taxes to win a competition of Amazon’s creation is only partially fair. Amazon worked within the system set up by federal, state, and local governments. If the system is broken, it is up to policy makers to make changes to it, and every one of the many candidates for president should use this experience to advocate for either federal legislation to stop local governments from “race to the bottom” competition for business, greater coordination, or at a minimum, greater disclosure of negotiations as they are happening. There is no reason businesses should benefit from pitting the taxpayers in one state against the taxpayers in another state in secret negotiations to cut the corporation’s taxes. We should change the rules so states and local governments are collaborating rather than competing to create more good paying jobs.