Not to worry, the second part of my previous post is coming, but today I wanted to focus on a different topic altogether — that is, on Amazon HQ2 announcement.
As I am sure most of you have heard by now, Amazon finally announced the location of its HQ2 yesterday, which, after all, isn’t going to be exactly an HQ2 (surprise!). Instead, the company has decided instead to split the jobs between Crystal City in Northern Virginia and Long Island City in Queens. This news was met, well, unfavorably by most, to say the least.
HQ1, HQ2, HQ[X]?
Perhaps the first thing one would notice is the outrage over the fact that HQ2 ended up being, well, not exactly a full-blown HQ. On the surface, that’s a fair thing to fume about — after all, Amazon has spent over a year promoting their plans to create a huge office that would be comparable to its current base in Seattle both in terms of influence and the number of jobs, and the company has obviously used such framing to try and extract concessions from the cities lining up to compete for the opportunity, which again might justify the outrage over the fact that there would actually be no HQ2, at least not as it has been previously described.
That being said, focusing too much on this would mean missing two important points. First, if we are really talking about the global headquarters here, there is simply no such thing as a second headquarters, no matter the rhetoric. Instead, the global headquarters is by definition a singular phenomenon, and Amazon is by now so deeply rooted in Seattle that no other office would stand a chance to assume a comparable position, no matter how large it would be. And while one might argue that if that’s the case, then it was from the start deceptive of Amazon to describe their plans for a new office in a way they did, this point is so simple that the only people who might have been deceived by Amazon’s marketing spiel, were, well, willing to be deceived in the first place.
With that comes the second point — while there is no such thing as the second HQ, you don’t really need to have the same number of jobs as the original HQ to wield a very significant influence over the company — just take a look at Google Zurich office, for example, which houses only about 2,000 employees, but still managed to gain a wide recognition as a very well-respected engineering & research location, wielding significant influence over the company. And there are many more examples like that.
So, if the influence is what you’re after, how many jobs your local office houses doesn’t really matter that much — rather, what really matters is the kind of those jobs, and whether there is a substantial number of them are in engineering, research, and product, not just sales and marketing — which is not to say that those jobs are in any way less important — but it’s often the engineering jobs (or lack thereof) that define the nature of the office. Quantity should really be at best a second priority here.
In any case, I find the statement that going from the initially promised 50,000 jobs in one city to 25,000 in two of them somehow changes the nature of those offices and turns them into “glorified satellite offices” to be quite ridiculous. To my knowledge, no tech company today has offices even remotely approaching this size — again, just as an example, Google in NYC has recently stated that it plans to grow to (only) 14,000 employees in the 10 years — so there is simply no point of reference to use to judge what those offices might turn into, but, if anything, it seems highly unlikely that an office of 25,000 corporate jobs would ever be reduced to being a mere satellite to the headquarters.
The Poisoned Apple of Tax Subsidies
Next, the announcement has surfaced (or, rather, resurfaced) a growing wave of complaints about Amazon securing substantial tax subsidies that it doesn’t really need while putting additional strain on the already overextended infrastructure of NYC and Northern Virginia.
To that point, I am not here to argue that Amazon really needs or deserves to receive those tax subsidies (there is simply no way to objectively judge something like that in any case), or that tax incentives always work out as intended (hint: they don’t). Truth is, tax incentives can in some cases be quite harmful to the local municipalities, creating situations where they have to spread thin the tax dollars they collect from the rest of the taxpayers or even downright depleting cities’/states’ coffers in some cases (see cash grants). To echo the recent article in the Atlantic, one could make a sound argument that at least some of the tax subsidies that are currently being offered by the regional governments to woo corporations to their dominions should be made downright illegal, or at the very least frowned upon (although to be fair, that mostly applies to tax subsidies that are being used to move the existing jobs across the state lines, which is very different from creating new jobs, as is the case with Amazon here).
Still, while it might be fair to pose the question of whether the big tech companies are the best recipients of the significant tax breaks they are often able to extract from the local governments, as long as such subsidies are legal and available, it seems strange to blame Amazon, or any other company, for taking advantage of such opportunities — after all, big tech companies remain commercial entities whose key purpose for existence is to make money for their shareholders, not try and solve the complex social issues of the cities or states they happen to reside in (which, realistically, they are simply unequipped to tackle too, for all their size and power).
Moreover, tax subsidies are, well, subsidies, meaning that, at least in theory, they shouldn’t really make local budgets poorer, if set up correctly (that’s why I am personally inclined to argue that cash grants shouldn’t be classified as mere subsidies, and probably deserve to be banned altogether). It is still possible, of course, for the subsidies to become so large that the company receiving them would be essentially capitalizing on existing infrastructure and using city/state services without ever (or at least or a long time) paying its fair share for those, — but the point is, it doesn’t have to be that way. Instead, smart tax subsidies could be tied to specific KPIs, be it number of jobs created, the amounts invested in the region, or something else, essentially functioning as profit-sharing agreements between the companies and local authorities, and thus benefiting both, and it’s the job of the governments to ensure that this is indeed the case.
Going back to Amazon HQ2, if we look at the arrangement it negotiated with Long Island City as an example, the company is expected to receive up to $1.2 billion in tax subsidies over 10 years, in exchange for investing $2.5 billion in office space, and then paying up to $10 billion in taxes over the next 20 years, which roughly translates into $48,000 to $61,000 in subsidies for each of the 25,000 jobs it promised to create there, according to TechCrunch calculation. With the cited 31% tax rate for a job paying $150,000, the subsidy would translate into ~1.5 years of foregone tax revenue for the city. Is that a lot? Maybe, but I am inclined to say that that’s not necessarily an outrageous price to pay, especially taking in account all the additional spending that typically follows those high paying tech jobs (again, quoting the same article, Amazon claims that it boosted the local economy by $38 billion from 2010 to 2016).
Now, one might argue that Amazon was likely to pick up NYC for their HQ2 in any case, even if the city had decided not to offer any tax subsidies. That, of course, might be true (after all, NYC was deemed a top contender from the start), but it’s also possible that Amazon would have chosen a different location (e.g. one of those that would have still offered subsidies), and all the upside from capturing those jobs would be lost to NYC. The point is, there is simply no way of knowing this, so it all again comes down to the question of whether tax subsidies are beneficial and should remain lawful, but whatever the answer to that question, it seems reasonable that as long as those continue to exist, the companies will (and should) continue to use them, and the cities or states should continue to offer them whenever they believe it would boost their chances of securing the business — after all, that’s what rational market participants are supposed to do.
Actually, We Don’t Want Those Jobs Here
Finally, the announcement led to an outcry from some of the people who live in the neighborhoods selected to house the new Amazon offices, as well as the local politicians, already blaming the company for the upcoming increases in the cost of living, and the inevitable displacement of the local communities that would come with it.
While the other two issues discussed above are rather complicated and hard to untangle (and also might justify different opinions), I find this one to be ridiculous in a sense that it completely misplaces the blame, and also risks throwing the baby with the water, metaphorically speaking.
Of course, it’s true that the ever-increasing COL is a huge issue in many places with the strong tech presence, and it’s a tragedy when people in local communities find themselves unable to stay in the neighborhoods they often spent a significant chunk of their lives in, and had no intention of leaving, if not for the rising costs. But it is hard to see how this is the fault of the companies based in those places — if anything, the blame should really lie with the local politicians (and sometimes, in the end, with the people themselves, however unfortunate that might sound), who often help to create the conditions that eventually lead to these problems in the first place.
Therefore, I am willing to argue that focusing on questioning the cities’ or states’ officials’ decisions to grant permissions to build in already congested areas, calling to investigate the reasons for the underinvestments in local infrastructure if that appears to be the case, or gathering political will to repeal regulations that prevent construction of additional housing (which often has a lot to do with the NIMBY attitudes of the locals — take SF, for example, whose ridiculous cost of living to a significant extent is a direct result of the laws passed 30 years ago that put severe restrictions on the amount of housing that could be built in any given year, coupled with the desire of those who already own real estate in the city to preserve their way of life) would do much more good than lashing out on the companies as the ultimate evil instead.
The main point, however, is to remember that in order to pull people out of poverty and help them, one still needs to command the necessary economic resources, which in turn could only come with the jobs, and, at the same time, that it’s not the job (no pun intended) of the private companies to address the broad social issues, but rather it’s the exact reason for existence of the local governments, and one of the means to achieve that is to tax the economic outputs of those companies and then responsibly spend the collected resources. This idea, however simple, seems to be escaping a lot of people lately — I’ve previously written how, for all their benefits, some of the EU members are starting to forget this, and now it increasingly seems that some parts of the U.S. are following suit. This is most unfortunate, if only for the reason that vilifying successful companies doesn’t really help to resolve any issues, and instead diverts the attention away from the real source of the problem, which could eventually deepen the issues even more, and make the processes that lead to them in the first place even more broken.
P.S. I do think that it’s possible that creating multiple relatively large offices in 2-tier tech hubs instead of putting two huge ones in the already saturated markets would have been a better idea, but I also reckon that even if Amazon had decided to do that, those would have still been the cities that are already doing quite well (Denver, Austin, etc.), and not the mid-western cities or deep south cities many hoped Amazon would help to revitalize. That, again, goes to back to a point that it’s not exactly Amazon’s job to rebuild the economies of the struggling regions, and the hard truth is that the company has to go where people who will fill the jobs it creates are or want to be, not where others need them to be.