But all of that is as nothing compared to Amazon’s latest achievement, which is bringing unity to America’s fractured political landscape. Leftwingers like Representative-elect Alexandria Ocasio-Cortez and Rightwingers like Tucker Carlson of Fox News now speak as one… against Amazon.

Indeed, an extraordinary range of American publications from the socialist Jacobin magazine to the centrist Atlantic through to the conservative National Review have published pieces lambasting the company. The focus of this widespread rage is something that might seem relatively innocuous – a decision over where to site the company’s second headquarters (the first is in Seattle). Compared to all the other controversies that Amazon is embroiled in, the acquisition of some extra office space might seem an odd thing to get so exercised about.

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Cheap consumer goods come with a high human price tag

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However, there was an awful lot at stake: 50,000 new jobs and a $5 billion investment in new construction: a huge prize for a big city; the promise of complete transformation for a smaller one.

Which is why a grand total of 238 cities (including some in Canada and Mexico) entered the competition to be chosen. This was narrowed down to a shortlist of 20 cities in January, with the final result announced earlier this month (of which, more later). The whole process was distinctly reminiscent of the competition between cities to host the Olympic Games.

Unfortunately, for Amazon, its quest to find a second home has become a symbol of corporate welfare. That’s because the company wasn’t just looking for the best possible location, it was also angling for incentives.

It is estimated that the various levels of American local government (including state governments) spend between $45 and $90 billion every year enticing businesses to invest in their states and communities (or to not move existing investments elsewhere). The sweeteners take many forms from tax breaks to targeted infrastructure investments (though what counts as a special favour and what is something that the state or city would have done anyway is not always clear). The justification is that the locality will receive much more in return once the corporate welfare recipient moves in and starts creating jobs, tax revenues and reasons for other businesses to move in. From a nationwide perspective this amounts to a system of subsidies for businesses big enough to demand them, but from the narrow perspective of the locality, it can look like a good deal.

Therefore, Amazon wasn’t doing anything out of the ordinary… for corporate America. But if they thought that the spectacle of a trillion dollar company touring the country soliciting favours from investment-hungry cities would look good, they were mistaken.

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The secrecy surrounding the bidding process didn’t help. One could argue that this is just how business is done – with Amazon expecting no more confidentiality from its prospective public sector partners than it would from the private sector. However, government, whether national or local, is not just another client/supplier, it is a democratic institution. While it isn’t necessary to give a running commentary on every twist and turn in a negotiation, the people of a community can’t be frozen out altogether – not when the deal is as consequential as that on offer from Amazon. Citizens need to be treated with at least as much respect as shareholders – in fact, rather more, because they not only ‘own’ but also legimitise the government side of the deal.

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All of these concerns and others were bubbling away during the 14-month competition, but it was the final result that blew the lid on public anger.

It wasn’t that most of the cities making the bid were doomed to be disappointed. After all, with one new HQ there could only be one winner – something the 238 bidding cities will have been aware of going into the process. As it turned out, there were two winners, because Amazon decided to split its second HQ between two locations. But rather than lessening the disappointment the joint award accentuated it. That’s because neither winner was a city that really needed the break; both winners were located along the BosWash corridor – the mighty connurbation that runs from Boston to Washington. Hopes that Amazon might establish an HQ somewhere in heartland America – helping to bridge the divide between the coastal cities and flyover country were dashed.[2. There will, however, be a $230 million “Operations Centre of Excellence” in Nashville, Tennessee]

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One of the winners was New York – always a strong contender given its global profile. But the other winner was, if anything, of greater geographical significance. Arlington County, Virginia cannot be described as heartland America. It’s not even heartland Virginia – but rather in the western suburbs of Washington. It is therefore well within the infamous ‘Beltway‘ – seen by much of America as the home of an out-of-touch political elite (though it’s also home to a great deal of poverty). The specific location is a business district of superblocks called Crystal City. Despite the name, it is not the most sparkling of places – but it is right next door to Reagan National airport. It’s also got metro stations, is just across the bridge from the Capitol and handy for the Pentagon (where Amazon has business). Jeff Bezos also happens to own the Washington Post.

So despite a high profile competition in which cities across and beyond the nation were considered, the winners were America’s biggest city and its capital city. A big-ticket investment decision that might have helped disperse the concentration of economic power in America, has confirmed it instead.

In the light of the outcome, Amazon is open to accusations of having staged the competition as a publicity stunt. Though to be fair, if it had opted for New York and Washington without the competition, it would have been accused of not giving the rest of America a chance.

Other critics see the competition as a clever way of obtaining commercially useful information about the expansion plans of candidate cities – handy when you’re in the business of building a nationwide distribution network (not to mention a chain of automated retail outlets). That said, obtaining such information is what major developers are pretty good at anyway.

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Who will take on the undeserving rich?

By Deborah Hargreaves

The fiercest aspect of the backlash centres on the corporate welfare aspect of the final decision. Despite picking the most ‘Amazon-ready’ locations, the company has nevertheless secured a reported $2.2 billion of additional inducements. Even the most reliable defenders of corporate America have had enough. In an editorial entitled ‘Amazon’s Golden Fleecing’, the Wall Street Journal had this to say:

“We rarely agree with socialist Congresswoman-elect Alexandria Ocasio-Cortez, but she’s right to call billions of dollars in taxpayer subsidies for Amazon “extremely concerning.” These handouts to one of the richest companies in the history of the world, with an essentially zero cost of capital, is crony capitalism at its worst.”

Fox News host, Tucker Carlson also weighed in: “the richest man in the world just got $2 billion in taxpayer subsidies. How does that work?”

And yet, some of the rival locations were offering a lot more than that. Amazon literally turned down billions of dollars so that it could locate in New York and Washington. What clearer proof could there be of the pulling power of a fortunate few locations over everywhere else.

The fact that this involves Amazon only makes it worse. This is a company with a physical footprint of facilities and employees across America. With its expertise in cloud computing services, logistics and distribution, there can be few organisations better positioned to overcome the tyranny of distance. If anyone could have made a non-obvious location work, it was Amazon.

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The ‘Amazon moat‘ is not a water feature planned for either of its new headquarters, but a reference to the company’s well-defended position in the marketplace. Its operational infrastructure from websites to warehouses is so extensive and interconnected as to make it all-but-impossible for a serious competitor to emerge. Without the Amazon’s economics of scale (and accumulated expertise), it’s very hard for rivals to compete on price across such a range of goods and services – and if they can’t do that they can’t grow big enough or last long enough to match Amazon’s heft.

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What does the 'charging elephant' - also known as Amazon - want? Only everything (and beware of getting in its way)

By Peter Franklin

‘Superstar cities’ like New York and Washington also have their metaphorical moats: the connections, attractions, size and diversity that smaller and/or poorer places cannot compete with. Unlike a company, a city is limited in the scope of its geographical expansion. A city cannot grow ever onwards across the world. What it can do, however, is bring the world to the city. Companies are nothing without people and are, therefore, drawn inexorably to the places that have the people it needs, which in turn attracts more people and, of course, their money.

So is that it, then? Are nations like America doomed to a circular process of growing geographical inequality? A favoured few mega-cities monopolising a favoured few mega-corporations?

A country can’t afford to give up on its smaller cities (or to ignore the interests of its smaller businesses). However, changing the dynamics of economic concentration will require concerted action on the part of central and local government. Here are five things they should be getting on with now:

A crackdown on corporate welfare. It should be against the law to offer inducements to one business that aren’t available to all businesses – especially when it comes to their treatment in the tax system.

A transparent city planning system. All information about governmental land-use and infrastructure investment decisions should be open source – with no privileged access for powerful interests. Maximising the involvement of local citizens in key planning decisions requires radical openness anyway.

Giving communities more control over their land. One of the reasons why Crystal City was so attractive to Amazon is that much of the relevant land was owned by one developer – greatly simplifying matters for a major investment. Instead of offering tax breaks and the like, local government would be much better engaged in entrepreneurially obtaining and preparing land for development.

Rethinking the way the state allocates capital spending – which should be counter-geographical as well as counter-cyclical. Investing to maximise returns on the basis of conventional assumptions means that the same places will get most of the public investment as well as the private investment. It would also help not to include rent in GDP calculations, which counts the inflation of land values in overheated property markets as ‘growth’.

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The cost of property may slowly kill Silicon Valley - but a Land Value Tax might give it new life

By Peter Franklin

Introducing a land value tax. The concentration of development in a few favoured locations sends rental values soaring. Not only should this bonanza for landlords not be counted as growth, it should also be properly taxed. In the long-term, this would help shift investment out of economically unproductive, socially useless speculation. In the shorter-term, it would raise revenues that could be invested locally in social housing and community land trusts – and nationally in boosting the potential of smaller cities.

Finally a word of warning: dominant cities don’t stay that way forever – and neither do dominant companies. The tendency towards economic concentration is driven by factors that shift over time. Taking active steps to spread the productive potential of a nation isn’t just a matter of maintaining social cohesion, still less is it an act of ‘charity’. Rather, it is the policy of keeping options open in a world where change is inevitable.

Or, to put it more succinctly, don’t put your eggs all in one basket – Amazon baskets included.

Bezos has asked 238 North American cities if they could help out funding his next big Amazon office. Specifically, he asked for help to “offset its costs for building and operating its second headquarters.”

Meanwhile, as my colleague James Bloodworth makes depressingly clear in a new audio documentary for UnHerd, Amazon is engaging in exploitative workforce practices – not fussed about employee welfare, but aggressive in pursuing ‘corporate welfare’.

Demands for subsidies and sweeteners are not new, American companies have become adept at squeezing the public purse. In 2013, for example, Boeing gouged a historic $8.7 billion out of the state of Washington just by threatening to move. [1. Lydia DePillis, ‘The state’s tax deal with the company now runs to the year 2040’, CNN Money, 13 February 2018]

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Platform cooperativism – an alternative to technopoly

By Peter Franklin

This is how it works: corporations come to town saying they need to build a big new plant. For local economies that means jobs, often much needed jobs. And once those jobs have been dangled in front of local politicians, the company asks for a nice tax break – otherwise they will go elsewhere. Even worse, these demands are occurring at a time when states and cities are in the throes of a potentially disastrous revenue crisis.

Amazon’s high-profile ‘HQ2’ circus, scouring the nation for a second huge headquarters office base, is an egregious case in point. Bezos’ public bidding (begging) process “has garnered the kind of enthusiasm normally reserved for bids to host the Olympics.”

They say they’re after a location with local tech talent and a pleasant environment, but the real reason for the circus is the bottom line. HQ2 is a bidding war. The most eye-popping of those offers was New Jersey’s at $7 billion in tax incentives.

As Harvard’s Ed Glaeser drily remarks: “At its best, the competition for Amazon has spurred cities to think about how to improve their quality of life more generally,” he said. “At its worst, the competition has become a distraction and a contest for throwing cash at the giant.” [2. Nick Wingfield, ‘Amazon Chooses 20 Finalists for Second Headquarters’, New York Times, 18 January 2018]

The problems inherent in tax-cut bidding wars have recently been illustrated by the efforts of another mega-company, Tesla, and its Nevada battery “Gigafactory.”

Like Jeff Bezos, Elon Musk is a billionaire with fingers in a lot of pies – not only Tesla, but the Boring Company (digging tunnels), SpaceX (rockets), and Solar City (huge batteries). Musk has proved adept at taking government money over many years – one report calculated his car company alone had pocketed $3.5 billion in subsidies and tax breaks, another that the grand total is nearer $5 billion.

And this isn’t just a problem for the United States. Amazon’s vast distribution centre in Swansea was built by the British taxpayer to the tune of £4.9 million – on top of an £8.8 million sweetener to get the company interested in locating in Wales.

Further reading

Warehouse work needn't be worthless

By Polly Mackenzie

The non-profit group Good Jobs First has been tracking the efforts by tech giants to get local governments to pay up, and the remarkable willingness shown by politicians to give away future tax revenues – or even shell out cash. While these deals may have economic merit, it’s hard to tell since politicians interested in short-term acclaim are trading it for long-term costs that their successors will have to bear.

Musk’s latest effort is attracting particular scrutiny. Located in Nevada, the Gigafactory is not just the world’s largest factory, it’s claimed to be the world’s largest building. According to a report on The Verge, having narrowed its search to four states the company initially asked Nevada for $500 million up front, in cash. Nevada baulked, but in the end agreed $1.3 billion in tax breaks spread over the next 20 years.

One economist reckons that will amount to a cost of nearly $200,000 per new job – assuming everything goes according to plan. Of course, if it does not, and the company’s plans end in bankruptcy, there will be nothing for the state to claw back.

As a recent report in The Guardian notes, there’s already evidence of a downside for locals. In a town called Sparks, 20 miles away from the factory, rents and house prices are rising – and forcing out poorer locals. The tax breaks also mean there is little in the way of funds to help local communities handle the influx of new people. While the state claims to help out, according to Sparks’ city manager “despite surging population growth and increased strain on police and fire departments and schools” his budget is flat.

While governments all over the world cut deals to encourage development in poorer areas, that’s not the same thing as having vastly wealthy companies double dipping into the public purse.

It’s plain that corporate welfare deals like these require long-term impact assessments that take into account public welfare issues – from Seattle’s spiralling house prices and homelessness, to the needs of the schools and police and fire services in Sparks. And these assessments need to be the subject of press scrutiny and public debate before decisions are made.

Cities and states – and their citizens – need to wise up.

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