Losing Amazon’s HQ2 Was a Blessing

I n the suburbs outside Washington, D.C., politicians’ and bureaucrats’ glowing predictions have once again run face-first into economic reality. The announcement that Amazon is pausing construction of its “HQ2” project in Arlington, Va., demonstrates yet again that the best way for an American city or state to “win” in economic development is by not playing the game.

Thanks to a variety of factors ranging from inflation-driven changes in consumer shopping to tech-industry trends to post-Covid work-from-home policies and beyond, Amazon has made the reasonable business decision that it doesn’t need as much new office space as it thought it would five years ago. Amazon is far from alone in this, as companies across the country are grappling with similar challenges and making similar decisions to downsize their real-estate footprints. But Amazon’s national beauty-pageant process — which resulted in Arlington’s (and, briefly, New York City’s) tying itself and its taxpayers to that 2017 vision with massive subsidy deals — stands apart.

To be fair, Amazon hasn’t yet started collecting against the $573 million in state and local tax credits and other financial incentives it was promised, so the direct impact on the region’s taxpayers is limited. This wouldn’t have been true had the company gone with some of the other proposals elsewhere that involved much higher up-front costs to communities.

It’s worth looking back at the nationwide feeding frenzy in 2017, when more than 200 cities, counties, and states competed to come up with the most eye-catching proposals to entice the tech giant. What would have happened had Amazon gone for top dollar rather than doing what analysts had always predicted and choosing D.C. and NYC locations? What would have happened had Amazon’s site-selection team opted for the biggest subsidy it could get (rather than having used those mega-offers to keep score in a reported billionaire-ego fight between Jeff Bezos and Elon Musk)?

Consider that Maryland — just ten miles away from Arlington as the crow flies, or a half-hour Metro ride — offered Amazon $8.5 billion in subsidies for a proposed Bethesda location. It turns out that Maryland taxpayers won by losing that head-to-head competition.

Similarly, Amazon originally passed up $7 billion on offer in New Jersey and accepted a deal for roughly $3 billion for a New York City location in Queens. Then, it discovered that taking money from New York gave the state’s politicians an excuse to drag the company into New York politics, as Representative Alexandria Ocasio-Cortez (D.), union activists, and others embraced the opportunity to turn public meetings on the Amazon deal into Festivus-style “airing of the grievances” affairs.

The thing is that AOC wasn’t wrong to oppose Amazon’s getting massive subsidies from New York taxpayers. (She took a victory lap on Twitter after the Arlington news broke.) Her opposition at the time even received the ultimate endorsement of a National Review headline, “Alexandria Ocasio-Cortez Is Right about Amazon’s Corporate Welfare,” as Veronique de Rugy of the Mercatus Center found herself in the unusual position of siding with the self-professed socialist:

I can’t believe I’m saying this, but Ocasio-Cortez is mostly correct on this matter, and her conservative critics are wrong. Handouts like this to Amazon and other prominent companies are appalling in their cronyism, pure and simple. I agree that she doesn’t understand economics and that her socialist ideal is a recipe for fiscal and economic disaster. But her conservative critics reveal their own economic misunderstanding when they support targeted tax breaks as a means of creating jobs.

“First, let’s be honest. Tax incentives aren’t anywhere near the top of the factors that a company considers when deciding where to locate,” de Rugy explained, and Amazon proceeded to conclusively demonstrate this point by turning around and spending a reported $1.15 billion for the former Lord & Taylor flagship store (and onetime planned WeWork HQ) on Fifth Avenue in Manhattan. At last report, the company was planning to employ 2,000 workers there.

The price tags proposed by cities in the Rust Belt, where desperate politicians made desperate offers, were especially preposterous. St. Louis, Mo., where two years later county executive Steve Stenger would end up in federal prison on corruption charges related to economic-development programs, offered $7.1 billion in subsidies. Pittsburgh, Pa., and Detroit, Mich., each offered $4 billion. Cincinnati, Ohio, where four city-council members would soon find themselves embroiled in a corruption scandal related to development projects, offered $3.1 billion. Chicago industrial suburb Gary, Ind., offered more than $2.3 billion, while Chicago itself offered $2.25 billion.

Other places got creative, sometimes terrifyingly so.

Cleveland, Ohio, promised Amazon its own electric grid in addition to $3.5 billion in subsidies.

A collection of cities around Dallas–Fort Worth Airport in Texas offered more than $20 billion over 99 years, in a deal reminiscent of Queen Victoria’s acquisition of Hong Kong.

Atlanta, Ga., offered $2 billion, a street named after Amazon, and dedicated cars on the city’s public-transit trains to move Amazon packages around the city — plus a private lounge and free parking at Hartsfield International Airport, which frequent Atlanta flyers would probably say is worth billions of dollars on its own.

Columbus, Ohio, offered around $500 million, and also assured Amazon that it would dedicate resources to lower its “unacceptable murder rate.”

New Rochelle, N.Y., leaned into Bezos’s supervillain vibe by offering him a former Army base on a 78-acre private island.

Few of these proposals were made seriously. As researchers Nathan Jensen of the University of Texas at Austin and Edmund Malesky of Duke University detailed in their book Incentives to Pander, local elected officials get almost as much political benefit from being seen by voters to be competing for deals such as these as they do from “winning” them. That’s because, as with most economic-development programs, the point isn’t to create jobs. Rather, it’s to make voters believe that politicians are responsible for creating jobs — or at least trying really hard to do so.

The risk, of course, is that sometimes you “win” and have to deal with the consequences. There are 230 communities across America that can consider themselves lucky to have lost. The next time around, perhaps they’ll decide against even playing the game.