Amazon, the Global Economy, and Long Island City

By now, everyone knows that Amazon, a company that many of us rely on, outgrew its West Coast home and held a national competition for a second headquarters. In a disgusting spectacle of cities genuflecting before the electronic retail giant, cities and states offered tribute to attract the huge company. The contest rules required an element of confidentiality in the bids and while originally the company was only going to pick one HQ2, in the end they picked two or possibly three: New York, northern Virginia/DC, and (perhaps) Nashville. Virginia and Tennessee remain grateful for the company’s move and don’t seem to mind handing over taxpayer money, but New York is not just the city that never sleeps, it’s also the city that never stops arguing.

Last week, the newly Democratic New York State Senate appointed Sen. Michael Gianaris of Queens to the Public Authorities Control Board, a government body that could block the subsidies promised for the Amazon development plan. According to J. David Goodman and Jesse McKinley of the New York Times:

“The selection of a vocal Amazon opponent to a crucial state board with potential veto power over the deal riled those inside Amazon — and inside of the governor’s mansion — according to two people with knowledge of the discussions. Executives have grown increasingly frustrated that the company is not being welcomed in New York as it has been in Virginia and Nashville, two other places where Amazon is adding corporate offices.”

Next, the Washington Post reported that Amazon was reconsidering its New York move and Governor Cuomo started hammering opponents of the deal saying that if the Amazon deal collapsed, these legislators would pay at the ballot box. What exactly is the richest company in the world getting from New York and what will New York get for the money? Again, as J. David Goodman reported in the New York Times:

“To attract Amazon, New York’s leaders agreed to remake plans for the Queens waterfront, move a distribution center for school lunches and provide a sweeping package of $1.7 billion in incentives from the state and hundreds of millions more from the city. They even agreed to allow a helipad for Jeff Bezos, Amazon’s chief executive. Under the plan, within 15 years the company could occupy as much as eight million square feet of office space, the rough equivalent of three Empire State Buildings…”

Three questions: 1) Why is this happening? 2) Is it a good deal for New York? 3) Why is Amazon demanding payment to come to town? Let’s start with the third question. Amazon is doing it because they can. State and local officials, helpless to prevent the outmigration of once local businesses, are desperate to show that they can win some jobs to stem the tide of losses. For decades, state and local governments have created institutions and subsidy programs to attract companies and make their places more business friendly. These government economic development organizations need to earn their keep. Amazon knows a good bargaining position when they see one. Amazon presents an image as a consumer-friendly low-priced provider of goods and services. The reality is that Amazon is a successful 21st century corporate giant whose only aim is to make as much money as possible and win the war for commercial dominance. Using a locality and its tax incentives to decide where to locate is as natural to Amazon as breathing is to you and me.

Why is this happening? The global economy and advances in communication, information and transport technology makes all businesses moveable. At one time, place was important. You made cereal near the places you grew wheat and corn. You made cars and all of their components in one giant factory in Michigan. Where once we saw factories and warehouses, today we see just-in-time production, global supply chains, and massive automation. In 2018, 80 percent of America’s GDP was in the service sector. Many services must come to the places that people live, but much of the supporting infrastructure for those services can be anywhere. When you call from New York to ask about your health care benefits you may be speaking to someone in Kansas. At one time the cost of long distance phone calls was high enough to locate that call center nearby. Today the cost of information and communication is nearly negligible. Especially when compared to the cost of land in New York City. Because businesses can move anywhere, nations, cities and states compete for them. Amazon knows this and they took advantage of it by packaging an expansion move in grandiose terms as HQ2. Win Amazon and your city can prosper like Seattle. It was a grotesque and unseemly spectacle as otherwise dedicated public servants offered sacrifice on the altar of modern global mega-capitalism.

Is it a good deal for New York City? The city really has no choice. Unless the federal government develops methods of regulating these state and local bidding wars, the city has to play. Keep in mind that when a company moves once, it can always move twice. Once the subsidies have run their course, the city and state will need a second round of payments. But why do I believe the city has no choice? New York has many advantages for a technology company like Amazon. We are highly educated, highly motivated, and loaded with ambitious immigrants. About 40 percent of the people who live here come from other countries, and unlike the idiotic mantra emanating from Trump and his pals, immigrants are the best of America. They’ve uprooted their lives and their families often at great sacrifice and risk to seek a better life. They tend to work hard, study hard, and are central to New York’s dynamic core culture. We also have a mass transit system so that new immigrants need not own a car or have a driver’s license to go to work or school. We also have great entertainment, arts, health care, parks, universities and restaurants. People want to live here.

But New York has risen and fallen before. During the 1960s and 1970s we lost a million people as the manufacturing base of the city disappeared. The city was seen as hostile to business, and industries flocked to the south and the southwest. Rejecting Amazon will reignite the sense that we are hostile to business. The Amazon deal will generate much more money than it will cost. In pure monetary terms it is not a bad deal. What’s bad is that these incentive packages are now a normal function of state and local government. The funds that will subsidize this company could be used to build public housing for the city’s 60,000 homeless or repair the apartments of 400,000 in public housing. They could help fix the subway. But someone has to pay for Jeff Bezos’ helipad. And if Amazon doesn’t come to New York because our ego-driven or ideologically motivated politicos scare them away, there will be even fewer resources left to deal with our real problems. To make the money that Amazon will generate, we need to spend some money.

No one should pretend this deal is good, but it is necessary. Because people want to live in New York we have some leverage in bargaining with companies, but we should not overplay our hand. We should also not expect these companies to behave like good corporate citizens. They are about maximizing profit, market share and return on equity. Everything else is peripheral and superficial. Amazon is quite shameless in its pursuit of profit, but we should be ashamed for expecting anything else. Once they arrive and they have sunk some of their money in our home town, we may have slightly more leverage than we have today. Maybe we can charge a toll on helicopters landing in Queens. But let’s make sure we don’t lose Amazon.