On November 13, Amazon’s 13-month-long, nationwide search for a new headquarters finally came to a close. This new headquarters, or rather, multiple, new headquarters, termed “HQ2”, will be located in Arlington, VA. and Long Island City, Queens, NY. Amazon plans to invest $5 billion dollars into these headquarters, predicting the creation of 25,000 jobs in each location with an average salary of over $150,000. Nashville, Tenn. was also announced as a city in which Amazon would open a new operations center, bringing in approximately 5,000 new jobs.
These announcements came at the end of a lengthy process which began when Amazon prompted cities to essentially bid for the chance to be the site of the company’s new headquarters. Thisresulted in 238 proposals from American and Canadian cities that offered Amazon huge areas of land and financial incentives that sometimes amounted to billions. Newark, NJ, one of the top twenty contenders, offered $7 billion in tax breaks, amounting to the second largest financial incentive offered, just behind Montgomery County, MD.
What was the incentive behind offering Amazon such large tax breaks? We need not look further than Newark’s own Halsey Street, bursting with successful restaurants and stores, perhaps as a direct result of its location.
NJIT’s finance professor Dr. Zhipeng Yan explains the positive externalities that result from the introduction of wealthy corporations, saying that “the company can bring in many of its suppliers into the city, and many small firms such as restaurants, daycares, and centers thrive because of it.” Halsey Street is located between University Heights and large corporations such as Prudential, and hosts wealthier residents, who bring more spending to Halsey’s businesses. Indeed, Halsey Street has often been referred to as a revival of Newark’s more impoverished community.
Here stems the first of several criticisms against Amazon’s announcement. Many say that Amazon, a company that has previously made moves to improve communities, such as raising the minimum wage to a living wage earlier in October, could have done better. With other cities offering billions of dollars in tax incentives—the supposed driving force behind Amazon’s request for city proposals—critics say it makes little sense for Amazon to choose to enrich the already-rich east coast.
For example, should Amazon have been chosen a community such as Newark to locate their HQ2, the result could have been transformational, finance professor Dr. Theologos Bonitsissays. He further describes the potential as having the ability to introduce “a major new-economy firm into the area, leapfrogging the city of Newark’s slow-pace economic renaissance.”
While a city such as Newark would benefit economically from the flow of workers, Bonitsisexplains that “a byproduct would be the significant gentrification of the city to the dismay of long-term residents, for many would be priced out of the city.”
Yan, as well as NJIT economics professor Dr. Michael Ehrlich, both agree that Amazon’s decision was not significantly dictated by the amount of tax incentives offered, but rather what the location of the city had to offer.
Ehrlich explains: “skilled and trained employees want to live in major urban cities like NYC and D.C., so Amazon wanted to be where their potential employees were located,” and that Amazon perhaps wanted to locate “closer to their key markets for influence and consumers.”
Additionally, as Yan delineates, both locations are transportation hubs and can “absorb tens of thousands of new residents without putting too much burden on existing facilities and the housing market.”
While both locations represent an ideal, to many, Amazon’s contest reflects a broken system of wealthy corporations receiving welfare they don’t need, raising taxes, and constraining public budgets that could have gone to cities’ respective schools, roads, prisons, etc. Ehrlich believes that while Amazon acted legally, they probably did not do so ethically, and the country could potentially benefit from outlawing the subsidy of corporations moving into new jurisdictions. On the other hand, as Yan explains, ethics should not be brought into the question, as large corporations asking for subsidies is a common practice and the introduction of a large corporation into a city can provide long term benefits and maximize shareholder wealth.
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