Politics & Policy

Amazon’s Second Headquarters Is a Gift, Not a Burden

(Reuters photo: Mike Segar)
The economic benefits the tech giant promises its next host city far outweigh the costs.

Back in September, Amazon announced that it is seeking a North American city to become the site of its second corporate headquarters. By promising that the so-called HQ2 will bring $5 billion in local investment and 50,000 new jobs, the tech giant inspired a cross-continental bidding war for what is sure to be an easy path to soaring city-wide economic growth.

Sure enough, Amazon revealed that a staggering 238 cities and regions had submitted proposals by the October 19 deadline. The bids varied from offers of tax breaks (New Jersey’s bid for Newark included $7 billion in state and city tax credits) to more attention-grabbing approaches (a Tucson, Ariz., economic-development group sent a 21-foot saguaro cactus to Amazon’s Seattle headquarters.) The frantic response illustrated the widespread belief that HQ2 is a good bet.

Or is it? Certainly, many in the press don’t see it that way. Writing for Politico Magazine, Seattle journalist Paul Roberts alleged that Amazon has had a negative impact on his city. While Roberts grants that Amazon and other mega-corporations have been beneficial to Seattle in some ways, he explains that the rapid influx of high-paying jobs and residents has led to rising housing prices, a strain on infrastructure, and an “erosion of urban identity,” damaging the city in the long run. Be careful, he warns cities hoping to become the home of HQ2, because what Amazon is offering isn’t as great as it seems.

Roberts’s article is interesting — the world can always do with more local reporting but his conclusions are misguided, and he isn’t alone. Since last month, many have advised cities hoping to become the site of HQ2 to exercise caution, or even to opt out of the competition entirely. This crowd joins Roberts in arguing that HQ1 hasn’t been as beneficial to Seattle as it seems, and in extending that criticism to HQ2 and its eventual host city. The collective negatives, they argue, outweigh the attendant economic growth.

These claims are not wholly without merit. In King County, in which Seattle sits, rent has increased by 65 percent over the past eight years. Improvements in highways and roads have cost Seattle taxpayers billions without translating to significant reductions in traffic; the city’s average commute has risen by two minutes since 2010, and it remains the fourth most congested city in the U.S. For the second year in a row, it has also retained the title of “crane capital of the U.S.” due to its constant construction.

So yes, Amazon and other mega-corporations have caused problems in Seattle. But they’ve done more good than harm for the region, and suggesting HQ2 will inflict the same problems on its eventual host city is irrational.

The first mistake that Roberts & Co. make is to assume that city officials are unaware of the impact that HQ2 will have on their cities. Albus Brooks, president of the Denver city council, tells National Review that this is false. “The question we have specifically is, ‘How do we make sure that the economic growth and progress is inclusive of all the folks in [Denver]?’” Brooks says. “We want them to be excited about our values, like affordable housing.” He understands that it’s hard to gauge exactly what HQ2 will do to Denver, but he has a plan to address any potential housing crisis: imposing a linkage fee, essentially a tax on development within the city that is funneled directly into a housing trust, thereby helping the government maintain some stability as housing prices increase. Brooks and his fellow Denver leaders are aware of the other potential negatives of hosting HQ2, too, and are prepared to tackle them. As he puts it, “Economic growth and progress is something all cities need.”

Yes, Amazon and other mega-corporations have caused problems in Seattle. But they’ve done more good than harm for the region, and suggesting HQ2 will inflict the same problems on its eventual host city is irrational.

And for some cities that hope to become home to HQ2, both home-price increases and new development may actually be regarded as major benefits. Take Detroit, for example. Many of the city’s economic struggles are rooted in poor-quality, low-cost housing options, and few businesses are offering jobs to employ the 8.4 percent of city residents out of work and no longer looking. Central to the city’s economic comeback over the past several years has been a calculated strategy to convince businesses to open new branches or satellite headquarters in its borders. HQ2 would play directly into this strategy, bringing an influx of well-paid workers and direct investment that would help the city continue its rise out of poverty. Certainly, Detroit’s lack of a metro system and already-high levels of traffic congestion will mean a strain on highway infrastructure similar to the one experienced by Seattle, which would cost the city a great deal in the short term. But Detroit’s is a long-term plan.

Here we see the second flaw in the anti-HQ2 argument. By contending that any money spent in order to make HQ2 viable will never be recouped, the naysayers are assuming that HQ2 will follow the same long-term trajectory as high-cost, short-term projects such as the Olympics. Eager to reap the rewards promised by a huge influx of temporary visitors, international media, and construction jobs, cities put together elaborate proposals for the International Olympic Committee that wind up costing more to implement than they earn. Long-term projects, however, are different. Research conducted by University of California, Berkeley economist Enrico Moretti shows that Big Tech companies like Amazon generate up to five additional jobs for every one they create. As a result of this “clustering effect,” HQ2 would generate up to 300,000 jobs over 20 years. While the costly additional metro stops and highway expansions in Olympic host cities wind up largely unused after the conclusion of the games, the same infrastructure investments for projects like HQ2 enable the economy to continue growing long after the initial boom.

Finally, Seattle is a poor test case because the growth it has enjoyed since the late 1990s is unique. Native John Murray, of Opportunity for All, a coalition founded to fight progressive income-tax policy in Seattle, argues that the city’s unique mix of economic, cultural, and political factors is what made it the ideal location for the inchoate company. That growth, he concludes, cannot be repeated elsewhere. “You’re not going to have the same secret sauce as you have right here,” he says. While HQ2 will bring investment and jobs to its host city, it won’t come close to matching the investment and jobs HQ1 brought to Seattle. But the cities vying to be the home of HQ2 know this: They don’t expect Seattle-level growth, just a fraction of it.

Which is to say that the anti-HQ2 crowd is simultaneously arguing that the city hosting HQ2 won’t enjoy the same economic and population growth as Seattle and that it will suffer under the same degree of rising housing prices and infrastructure strain.

Perhaps the argument against HQ2 has deeper roots? A popular theory in Seattle is that part of Amazon’s decision to build its second headquarters outside the area was a growing hostility from the city council and progressive city residents. Following Amazon’s announcement that it was seeking a home for the second headquarters outside Seattle, city politicians’ statements suggested they were surprised by the decision and concerned by its implications. Then-mayor Ed Murray, for example, said he would “immediately begin conversations with Amazon around their needs with today’s announcement and the company’s long-term plans for Seattle.”

Maybe they should have thought about that earlier. Since 2009, the city council and the state have each attempted to impose a city-wide progressive income tax, which while probably more symbolic than anything (the tax violates the state constitution and is widely unpopular outside the borders of Seattle), is hardly friendly. Part of the reason companies like Amazon flocked to Seattle in the first place was to take advantage of its low taxes; to then turn around and squeeze more money out of the highly paid workers that business-friendly climate attracted comes off as ungrateful. In the meantime, local politicians are allowing the problems of homelessness, housing prices, and strained infrastructure to spiral out of control. Blaming Amazon, it seems, is much more effective — and cheaper — than good governance.

Indeed, one might suggest that the anti-HQ2 narrative cannot be taken at face value. Take the last sentence in Roberts’s article:

Whether these cities realize it or not, [Seattle pollster Ben] Anderstone says, the decision to bid for HQ2 is a decision not merely about their econom­ic future, but “about their identity as well: what kind of political culture they want to have and what kind of people they want to bring to shape it.”

Political culture. Watching cities fight each other to become the site of mega-corporate expansion must be morally horrifying to progressives, who would rather Amazon create economic growth by breaking itself up into smaller pieces and spreading them across multiple regions or, more simply, redistributing some of its great wealth to the people. But it was attempts at socialization such as these on the city-wide level that drove Amazon away in the first place, and it’s reasonable to assume that one of Amazon’s unpublished requirements is a city that won’t try to bleed it dry. The anti-HQ2 crowd ignores the fact that if cities want to achieve real growth, mega-corporations like Amazon promising local investment and jobs are the best bet, even if they bring with them a longer commute and rising home prices.

READ MORE:

Amazon Monopoly Fears Are Misguided

Amazon & Whole Foods Merger: Why?

Competence at Amazon

— Philip H. Devoe is a Collegiate Network Fellow with National Review.

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