Economists Are Begging HQ2 Finalists Not to Offer Amazon Huge Incentives. Fat Chance. | News
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Tuesday, February 13, 2018

Economists Are Begging HQ2 Finalists Not to Offer Amazon Huge Incentives. Fat Chance.

Posted by on Tue, Feb 13, 2018 at 8:52 AM

This post is excerpted from the INDY’s morning newsletter, Primer. To read this morning’s edition in full, click here. To get all the day’s local and national headlines and insights delivered straight to your inbox, sign up here.

More than anything else, what Amazon’s RFP for HQ2 sites was intended to do was to induce a bidding war, in which cities try to one-up one another to win Jeff Bezos’s favor. With the promise of fifty thousand good jobs in the offing, the world’s richest man was, in essence, asking the “winner” to spot him a few billion bucks in tax breaks and other assistance. Already, Newark has offered $7 billion, Maryland is offering $5 billion, and Chicago will give Amazon $2 billion. The Triangle hasn’t made its financial-incentive offer public—Raleigh, of course, was one of the twenty finalists for the project—but you bet it, too, will fall in the billions. Economists across the political spectrum aren’t generally don’t think these sorts of lavish incentives are smart policy. And so urbanist Richard Florida and hundreds of economists, policymakers, and city experts started a Change.org petition asking cities to enter into something of a nonaggression pact.
  • From the petition: “Tax giveaways and business location incentives offered by local governments are often wasteful and counterproductive, according to a broad body of research. Such incentives do not alter business location decisions as much as is often claimed, and are less important than more fundamental location factors. Worse, 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. While we are supportive of Amazon’s quest to build a new headquarters, we fear that the contest among jurisdictions—cities, metro regions, states, and provinces—for this facility threatens to spiral out of control. Already, at least four jurisdictions have proposed multi-billion-dollar incentive packages. This use of Amazon’s market power to extract incentives from local and state governments is rent-seeking and anticompetitive. It is in the public interest to resist such behavior and not play into or enable it.”
  • “We call upon you to forge and sign a mutual non-aggression pact that rejects such egregious tax giveaways and direct monetary incentives for the Amazon headquarters. States, cities, and metropolitan regions should compete on the underlying strength of their communities—not on public handouts to private business.”
  • As of this morning, the petition has more than thirteen thousand signatures.
  • As the Indianapolis Star reported last week: “Don't expect to hear much more from Amazon.com Inc.—or any of the 20 finalist markets vying for the company's second headquarters, HQ2—for months to come. Amazon reportedly has required all 20 hopefuls, including Indianapolis, to sign nondisclosure agreements that cover all details of their bids.”

WHAT IT MEANS: Nonaggression pacts only succeed if everyone is willing to play. If nineteen finalists rule out incentives, but one doesn’t, the one that doesn’t is in a better position to win the “competition.” And if nineteen cities refuse the pact but one accepts it, that city has no chance of winning. So, in a way, Amazon is forcing cities to play a version of the prisoner’s dilemma. It’s in all of their interests to not pay subsidies, but it only works if everyone forgoes self-interest.
  • The bottom line: not happening. As the Star’s story points out: “Economists have little hope that cities and states will adhere to their call for disarmament. But, as most governments finalize their pitches in private, economists also have little evidence of how much the bidding war has escalated.”

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