Editorial: Subsidizing Amazon’s ‘HQ2’ not the best approach to economic development

  • FILE - In this Nov. 16, 2018, file photo graffiti has been painted on a sidewalk by someone opposed to the location of an Amazon headquarters in the Long Island City neighborhood in the Queens borough of New York. Local opposition to the proposed Amazon campus grew quickly with grievances that the deal was done secretively; Amazon didn’t need nearly $3 billion in tax incentives; and rising rents could push people out of the neighborhood. (AP Photo/Mark Lennihan, File)

  • FILE- In this Nov. 14, 2018, file photo protesters carry anti-Amazon posters during a coalition rally and press conference opposing Amazon headquarters getting subsidies to locate in the New York neighborhood of Long Island City in the Queens borough of New York. Some residents wondered why one of the world's most valuable companies needed nearly $3 million in incentives to come to New York. (AP Photo/Bebeto Matthews, File)

Tuesday, February 19, 2019

Cities around the country that offered Amazon the world in unsuccessful bids to host the company’s second headquarters must be wondering how on earth one of the winners of that competition, New York, could have allowed its deal to go sour.

The answer has a lot to do with politics, which is played with a hardball in the city that never sleeps. But it also has something to do with economics, and in particular with economic development.

The e-commerce and cloud-computing giant announced last week that it was pulling out of its agreement to build a new campus in Long Island City, Queens, where it promised to create more than 25,000 jobs in return for nearly $3 billion in city and state subsidies.

The decision to pull the plug came after the company faced a wave of fierce criticism from progressive activists, lawmakers and unions, despite enjoying broad public support around the state.

A reconstruction of the deal’s collapse by The New York Times points to several reasons:

■ The company has been used to deferential treatment at home in Seattle, where last year it waged a fierce public relations campaign that bullied the City Council there into repealing a new corporate tax that was aimed at addressing the city’s urgent homelessness and affordable housing problems. Thus it was unprepared for the rough-and-tumble of contentious New York politics.

■ Amazon’s anti-union stance did not endear it to either lawmakers or powerful unions.

■ Its deal was negotiated with city and state leaders behind closed doors, without public input.

■ The company was not willing to engage with community activists and build relationships with key players.

■ And it had developed no strategy to cope with the sudden rise of progressive politicians such as U.S. Rep. Alexandria Ocasio-Cortez, of Queens, who was highly skeptical of the deal.

“Amazon underestimated the power of a vocal minority and miscalculated how much it needed to engage with those audiences to make HQ2 a success,” Joseph Parilla, a scholar at the Brookings Institution, told the Times, using the shorthand reference to the second headquarters.

On the economic side, New York — unlike many other cities for whom the creation of high-paying jobs is the holy grail — simply did not need Amazon so badly. That perhaps presented the opportunity to ask why one of the world’s richest companies, which according to one analysis will pay no federal income tax on $11.2 billion in profit last year, needed to be enticed by tax breaks on a vast scale.

It’s a good question.

Economists have long cautioned that such incentives are rarely the deciding factor in where companies choose to locate. In fact, Amazon declined the biggest subsidies offered by other places, which ranged up to $9.7 billion, because it wanted to be in New York City. (Northern Virginia, the other winner in the Amazon sweepstakes, offered a relatively modest package, $570 million.)

Nor is it clear that the economic benefits produced by tax subsidies for corporations are in fact widely shared in the communities where they locate, rather than flowing primarily to upper-income groups.

A better way for city and state governments to approach economic development is to refrain from putting the taxpayers on the hook for rich subsidies to private corporations, and instead to invest in infrastructure — not only the physical kind.

To be sure, good roads and bridges, convenient air service, ample water and sewer capacity are all important. But also key is a ready supply of skilled labor. (Besides the direct job-creation subsidies it offered, Virginia committed to using $1 billion in taxpayer money to improve transportation and develop a pipeline of skilled technical workers.)

Other attributes that attract companies are good schools and reliable child care, an ample stock of good-quality affordable housing, vibrant cultural, social and recreational opportunities, and a host of other less-tangible things that come under the general heading of good quality of life.

Making those investments, which benefit all residents, seems far more sensible than lavishing tax breaks on companies that don’t need them.