Just Incentivize It

Why is it that our elected officials at the city and state levels are so quick to promise the moon to corporations looking to expand, relocate or establish themselves? The short answer, of course, is that they are not looking for long term returns or benefits for their constituents but are instead looking only at the short term political scores that come from securing major corporate projects. This is perhaps nowhere more vivid than in the current battle among dozens of locales vying for Amazon’s second global headquarters (HQ2). Cities such as Pittsburgh are looking to attract the future companies that have all but replaced the old industrial powerhouses of the early 20th century. Metropolises like Dallas want to diversify for a time when oil and energy companies may not dominate their skylines and entire states like North Carolina want to attract mega employers to the campuses left vacant by GlaxoSmithKline. The HQ2 project, we’ve been told, would bring with it something like 50,000 jobs directly and possibly twice that in residual and ancillary jobs. In short, this would be an extraordinary win for any mayor or governor, one that would likely secure his or her political fortunes for many electoral cycles.

There is no question that 150,000 or more jobs would be a boon for any municipality or state, but there is so much more that goes with this top-line number that must be considered. For example: in 2004 the computer company Dell decided to build an assembly facility in Forsyth County in North Carolina. The total incentive package provided by state, county and Winston-Salem city officials totaled well over a quarter billion dollars. There was a tremendous amount of support among governmeas this was going to help modernize the area’s industrial base and replace the last remnants of textile and tobacco manufacturing. Jobs were going to be created and investment would follow. By 2010, the facility was closed and most of those promises made by Dell and its government backers went unfulfilled. It’s been unclear how much money the people of North Carolina were able to recoup, but the figure is certainly a tiny percentage of the money put in [1].

HQ2 is, in many respects, different from a 1000+ job factory. HQ2 will generate unbelievable amounts of business and will make its host city a technological hot spot. But there are many additional problems that would have to be addressed for such a huge undertaking. During a panel discussion on WAMU’s A1 in mid-May, there was a point made that there is not a city in the United States, possibly even in North America, currently prepared for the challenges to its infrastructure [2]. The Raleigh-Durham metropolitan area is a strong contender for the Amazon project, but what would this win mean for an already expensive and congested area? The area’s roads and highways are inadequate for the traffic it currently handles — what would happen to the incessant gridlock if tens of thousands of new cars and drivers were to suddenly be added to overburdened pavement? Traffic is one of the major concerns of many, but there are many other matters that are not always addressed: increased energy consumption, increased air pollution, loss of public space to construction, water quality and access to healthcare. These are all questions that would have to be carefully examined and prepared for with an eye to long-term development and with the knowledge that much of this expense would be on the shoulders of taxpayers, not Amazon. There is also the matter of viability. Yes, right now Amazon is riding high in the technology and retail worlds, but if we have learned anything in the past 20 years (first with the tech bust of the late 1990s and then the recession of 2008) is that nothing lasts forever. Amazon may be the current disruptor, but we also have to take into consideration that they will one day soon be the establishment. In other words, taking the Dell assembly plant as an example, we can see that what seems like a great investment in the future one moment can be an overpriced relic in short order.

And this brings us to the question of incentives. How much money can or should officials offer to land such a colossus? If we were to look at all the public incentives offered to companies over the past 25 years, I suspect we would see that few of them ever reached their full potential and that even fewer ended up breaking even for the taxpayers. What is unfortunate is that we are in a time and place where courting multi-national corporations has become not only routine but expected. I would love to see the list of cities that put in an initial offer for HQ2 — I’m sure it would be replete with towns and cities wholly incapable of supporting such a venture, but that made a bid anyways because councils and mayors can’t been seen as passing up such a huge opportunity, even if it’s a complete fantasy. Sure Amazon is going to look at education, transportation, the workforce and other factors, but the winning locale will not be the least generous one. . . that I am sure.

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