After months of speculation, and a surprise twist worthy of “Survivor” wherein Amazon’s second headquarters was split into two, the company announced Tuesday that Northern Virginia and Queens were the big losers.
The Democratic governors of the Empire State and the Old Dominion State offered up a combined $3 billion in corporate welfare for the split second headquarters. The subsidy deals were less shameless than the goodies offered by my own home state of Maryland, whose Republican governor promised a shocking $8.5 billion in “incentives.”
The race for Amazon’s “HQ2” was a shameful debacle. It resembled nothing so much as the stunt pulled by Natasha Aponte, the woman who got hundreds of men to compete in Union Square—doing pushups, sprints, poses—for the right to date her. States, counties, and cities were all asked to debase themselves before the altar of Bezos. And dozens did exactly that.
The first casualties of this process were incurred before a single tax break was granted or a single dollar handed out. Harm occurs when politicians genuflect before the altar of Big Business.
New York City Mayor Bill de Blasio lit up the Empire State Building in Amazon orange. New York Governor Andrew Cuomo offered to change his name to Amazon, and offered to rename a creek in Queens the “Amazon River.” Kansas City Mayor Sly James wrote 1,000 5-star reviews of Amazon products. Stonecrest, Georgia, offered to rename itself Amazon.
It was painful to watch.
Here’s what’s worse: These subsidy deals are widely understood to be money-losers.
One study of firm-specific subsidies in Kansas found that most subsidy recipients, in an anonymous survey admitted that they hired zero extra people thanks to the subsidies. A 2014 study of hundreds of studies on incentives found a slight negative effect on employment in the short term, and no effect in the long run.
The money Chicago spends to lure Boeing, or Maryland spends to lure Lockheed Martin, is money that the governments must make up for through tax hikes or cuts in spending for legitimate government purposes, such as schools, roads, and police.
Liberal Rep.-elect Alexandria Ocasio-Cortez on Tuesday expressed outrage that New York had paid so much to lure into Long Island City a company owned by the world’s richest man. The socialist politician was right.
Amazon is a for-profit company. It can fund its facilities through its profits or anticipated profits manifested in loans or investments from private lenders choosing to finance Amazon. Public funds, on the other hand, should be for public goods. An Amazon job is not a public good—it’s payment in return for a private good. That a corporate headquarters might have positive spillovers into the surrounding community is not a reason to subsidize it. Capitalism, as a whole, has massive positive spillovers, but in America we generally think the government’s job is to create a level playing field where the rule of law and a decent infrastructure allow companies to flourish—or not.
[Also read: Amazon HQ gives New York biggest return in history on economic investment]
Subsidy deals like the Amazon ones are indefensible morally and suspect economically.
A state would do better—in the long run for sure, but probably also in the short run—by offering a broad, level, open playing field. If Cuomo had $3 billion in tax cuts to give, why not reduce the state’s 6.5 percent corporate tax or cut the sales tax?
That would bring in hundreds of other business, and allow thousands of current New York businesses to thrive. Throw in some simplification of the tax code and deregulation, and you would have an environment where all businesses—big and small—can thrive. Instead of throwing billions at specific companies, spend a billion or two improving the subway, which would have a positive effect, again, on hundreds of businesses.
Why don’t governors and mayors do that instead? Because a welcoming environment to all businesses, while providing superior economic growth to the area, doesn’t provide the same political gain to the politicians.
Dozens of Mom & Pop shops opening up in a neighborhood doesn’t allow for the great ground-breaking and ribbon-cutting ceremonies and photo ops. Andrew Cuomo will take credit for the Amazon jobs. It would be more complicated for Cuomo to take credit for a restaurant that expanded because of a generally favorable environment.
And a system a la carte subsidies to favored companies necessarily gives immense power to the politicians. A system of low taxes, low regulation, and strong infrastructure actually takes power away from politicians.
So we get big government, picking winners and losers. The winners are the politicians and the politically favored businesses. The losers, in this case, are the people of New York and Northern Virginia.
