Amazon has dropped blood in the water.
Cities across the United States and Canada are circling, looking to win the bidding war to become home to Amazon’s second headquarters, despite a multibillion-dollar price tag and a solid body of evidence showing that these sorts of investments are inefficient.
Chicago needs to take a hard look at the realities of any Amazon deal.
Good Jobs First, the nation’s leading watchdog on corporate subsidies, estimates that state and local governments fork over $70 billion a year in cash and tax abatements to economic development projects, overwhelmingly to big business mega-deals. The excitement of “winning” blinds elected officials to history, economics and basic math.
History. Amazon boasts of its primacy in Seattle’s economy as if it’s a good thing. But we have seen the dire fate of cities that became too dependent on any one industry or company. Cities are more resilient when their business mix is diverse and their economies are as self-reliant as possible. Amazon may look unstoppable, but its business model is founded on inexpensive fossil fuel and a lack of anti-trust enforcement, neither of which is a good bet long term.
Putting billions of eggs in one basket is risky; Seattle residents point to Boeing as evidence that businesses that chase incentives are not stable tenants. The aerospace giant moved its headquarters to Chicago, built a duplicate 787 plant in South Carolina after Washington State gave it $3.2 billion to make the model, and has laid off many Puget Sound employees since getting a second Washington State package worth $8.7 billion.
Economics. A myriad of studies has shown that economic growth and stability are highly correlated with the presence of many small, entrepreneurial employers, not a few big ones. Job growth comes primarily from start-up and small businesses. Areas that have more small, locally owned businesses experience greater per-capita income growth than those with a few large entities. Dozens of economic multiplier studies have demonstrated that locally owned, privately held firms recirculate two to three times more money back into local economies than non-locals, and contribute more taxes per square foot occupied.
There’s also the question of who benefits from economic development. Amazon’s presence in Seattle has helped to give the city the dubious honor of having some of the highest housing costs in the world. The city that “wins” Amazon HQ2 may find itself with massive displacement of residents, and no money left in the economic development coffers to counter the trend.
Math. In its report Smart Skills Versus Mindless Megadeals, Good Jobs First finds that workforce development programs, entrepreneurial assistance, and small business cluster development initiatives create jobs at a fraction of the cost of giant subsidies, and that the economic returns of those initiatives remain in communities even if one company departs. Good Jobs First has also found that subsidy “mega-deals” rarely generate enough in additional tax revenues to re-pay the cost of the subsidies on which they’re based. That means that the citizens of whichever city gets Amazon HQ2 may pay for the deal in tax hikes.
Finally, there’s the “digging your own grave” aspect of giving money to Amazon. The Institute for Local Self-Reliance’s 2016 study “ Amazon’s Stranglehold” finds that Amazon is destroying far more jobs than it creates and devastating the property tax base of local governments. Amazon has already garnered over $1 billion in subsidies nationally for its data and fulfillment centers. It is not prudent to continue to feed this beast.
What could the money being considered for Amazon — or even a sliver of it — do if invested in education? In entrepreneurship and job training? In building a diverse, resilient network of local manufacturing, technology, services, and retail that will provide greater, more stable and more equitable economic benefits than one big deal?
Like many elected officials, Mayor Rahm Emanuel routinely praises small businesses for their contributions to economic growth and job creation but gives big businesses nearly all of the economic development incentive awards. He owes it to all of us to do a smart evaluation of whether subsidizing Amazon HQ2 will provide the best bang for our bucks.
Ellen Shepard is CEO of Community Allies, a Chicago-based economic and community development consulting firm. She has served on Mayor Rahm Emanuel’s Small Business Advisory Task Force and Retail Advisory Committee. For 16 years, she was the executive director of the Andersonville Chamber of Commerce.
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