Elite economists are warning cities to stand up to Amazon

Slow down.
Slow down.
Image: Reuters/Mike Segar
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Elite economists have a message for cities bidding for Amazon’s next headquarters: Enough is enough.

More than 600 influential economists, urbanists, writers, and academics have signed an online petition urging cities to curb tax breaks and other incentives they’re offering to land HQ2, Amazon’s much-anticipated second North American headquarters. The online petition, posted Jan. 30, calls for local leaders to sign a “mutual non-aggression pact” against “egregious tax giveaways and direct monetary incentives for the Amazon headquarters.” It’s signed by big names including Robert Putnam, the Harvard political scientist, and Alan Krueger, Barack Obama’s former chairman of the White House Council of Economic Advisers.

Amazon announced a shortlist of 20 cities for its second headquarters on Jan. 18, after receiving 238 bids from across the US, Canada, and Mexico. Many of the cities that made the shortlist have offered Amazon significant financial incentives to locate there. New Jersey, which has Newark in the running, has dangled $7 billion in incentives. Maryland, which is behind Montgomery County, has promised $3 billion in subsidies plus $2 billion for infrastructure improvements.

“It’s a beggar-thy-neighbor kind of thing,” said Joel Kotkin, a signatory and fellow in urban studies at Chapman University in Orange, California. “Everyone gets beggared in the end.”

The petition cautions that “tax giveaways and business location incentives offered by local governments are often wasteful and counterproductive.” Companies tend to have already decided where they intend to locate a headquarters or factory, said Amy Glasmeier, a professor at MIT and petition signatory. “The location is more likely to be driven by where the headquarters director wants to live than most other things,” she said.

Such incentives are effectively a zero-sum game for local governments. “They divert funds that could be put to better use underwriting public services such as schools, housing programs, job training, and transportation, which are more effective ways to spur economic development,” the petition reads.

Most worrying, the bidding process Amazon created for HQ2 could become the new norm for companies considering where to locate a building or a portion of their business. “States are under a lot of political pressure to provide future companies with similar deals to what they provided companies in the past,” Tim Bartik, senior economist at the Upjohn Institute for Employment Research in Kalamazoo, Michigan, said in an email. “If incentive offers are ratcheted up per job for Amazon, states will become more likely to offer similar high incentives in the future. “

Richard Florida, a professor at the University of Toronto’s Rotman School of Management who organized the petition effort, noted that it is addressed to “elected officials and community leaders” of finalist cities, rather than to Amazon itself. His hope is that even a small group of mayors and policymakers will “call a truce,” and disengage from the bidding war Amazon has set up.

“I don’t think all 20 mayors will stand up,” Florida said. “But I think if two or three or four or five did, that would make a big difference.”