WOOING AMAZON HQ2
Taxpayers and politicians, beware. Amazon is looking out for its interests — not yours.
Congratulations! Amazon is offering your area the chance to bid to be the location of its new second headquarters. This is an opportunity to bring 50,000 high-paying jobs to your town. It’s also an opportunity to waste several billion dollars, as well as much time and effort.
Elected city officials (who at the highest levels generally make less than $250,000 a year) are about to negotiate with Amazon founder Jeff Bezos (net worth of about $80 billion). Amazon’s team will be more experienced, better paid and have better resources than the government teams. More important, the Amazon team will focus keenly on what’s best for Amazon. The government teams, however, won’t necessarily be focused on what’s best for taxpayers.
They might be more interested in what’s best for the careers of elected officials (who will want a photo op with Bezos as they announce 50,000 jobs). If the deal they make turns out badly, those officials likely will have already moved on to something else. But the taxpayers will be stuck paying the bill.
A big subsidy for Amazon HQ2, as Amazon calls its new headquarters project, might make sense if Amazon is one of the long-term winners in the ever changing American economy. The technology sector has many examples, however, of great companies that failed, stopped growing or shrank. Even if it simply changes its strategic direction, Amazon may not need HQ2.
If this sounds far-fetched, consider New London, Conn., which showered pharmaceutical giant Pfizer with incentives and started to rebuild part of the city to accommodate the company’s research and development headquarters. In 2009, eight years after arriving, Pfizer changed its strategic direction and moved out. New London was devastated.
CLAW BACK YOUR MONEY
Any government-provided incentives for Amazon should be paid out over time, as jobs are added. There should also be strong “clawback” provisions. If Amazon fails to deliver jobs or closes its HQ2 prematurely, it should have to return the money.
Better yet, if your city is providing incentives, try to make them general purpose — not company specific. Government money spent on infrastructure, road improvements and mass transit to facilitate HQ2 is likely to help the area even if Amazon leaves or goes bankrupt.
Transparency is another important factor. In the end, this is the taxpayers’ money. Any nondisclosure agreement must require that before the final paperwork is signed, the public will have the information needed to evaluate the cost of the incentive package.
If Amazon won’t commit to commonsense provisions like these, then government negotiators should be prepared to say no. They should also consider some outside-the-box ideas.
If your local government is willing to provide a generous incentive package, it should send out its own request for proposal to the world’s major companies, giving them the parameters for incentives it might offer. Alphabet, Facebook, Apple or another company could be considering a major corporate move. Amazon isn’t the only company with growth prospects.
Or, perhaps approach this on a regional level. For example, the governors of New York, New Jersey and Connecticut could publicly pledge (and back up with agreements) that no matter which state Amazon chooses in the tri-state region, all three will work to make the project a success. The governors could provide Amazon with a list of favorable location options and offer collective support for the mass transit and infrastructure improvements needed for success.
The same case could be made by governors in regions surrounding Boston, Washington and other cities that draw commuters from multiple states.
THE SAY-NO STRATEGY
Finally, keep in mind that incentives are a small part of Amazon’s decision process. Moving to the wrong location for a short-term tax break would be foolish — and Amazon isn’t foolish. Its short list might have, at most, a handful of contenders.
Steve Jobs said strategy is as much about saying no as it is about saying yes. If your government is not willing to signal a serious willingness to say no, it could end up overpaying and losing by winning (the winner’s curse).
If your city or region isn’t competitive, or the deal Amazon wants doesn’t make sense, walk away. Invest the taxpayers’ money — as well as your time and effort — in some other opportunity.
Steven Strauss, a member of USA TODAY’s Board of Contributors, is a lecturer and visiting professor at Princeton University's Woodrow Wilson School, where he teaches a course on urban economic development.