Amazon's HQ2

Amazon is planning to put up a new facility. A lot of cities are vying for the affections of the top hiring company like would-be grooms hoping the prettiest girl picks them. The internet behemoth is expected to hire upwards of 50,000 employees to fill out its ranks next year. That alone is enough to make most cities give away nearly everything in tax breaks. You can hardly blame them. City governments spend a lot of their time trying to get businesses to locate within. When giant corporations call, you get in line and make the best offer.

From the letter Amazon sent out to possible locations, it certainly eliminates a few right off the top. They want cities with more than a million people (sorry Tulsa). They insist on a business friendly environment (sorry Chicago). They insist on cities with a university system, ostensibly used as a feeder for corporate talent. Some of the final cities selected are kind of on the bubble in terms of size. Raleigh, Nashville and Newark are well below the threshold of a million. But Newark is so close to Philadelphia and New York it probably doesn’t matter as much. Raleigh has great Universities, NC State is located in the city and Duke and North Carolina are just a few hours away. Nashville is the largest of the three and probably selected for its business friendly environment within the state.

Since the details of the tax proposals are private we don’t know what was offered. We can bet there were some sweet deals though. The online retailer certainly wants a workforce that is easy to replace. I don’t know how many they expect to relocate from other areas. I imagine cities would rather Amazon hire as much talent from within the state as possible. Mayors constantly work to retain talent and bring additional business to their cities. With a large group like Amazon Co. they can expect other businesses to move along with a growing population. Not to mention, the increased tax revenue from workers who’ve seen a jump in wages.

It shouldn’t make a difference to me who ultimately gets the corporate behemoth, but for some reason I’m rooting for Indianapolis, Columbus or Nashville. Tennessee has no income tax and I like to see states rewarded for their fiscal discipline. Indiana has a very low income tax which was recently reduced. Ohio has seen countless factories shuttered and a lot of workers cut loose due to offshoring.  

Nothing against cities on the costs but it seems like the New York and Los Angeles are already stuffed with high earners and the best of city life. It would be nice if something growth oriented happened in the Midwest (minus Chicago). Maybe Nashville isn’t considered the ‘Midwest’ but there are other cities on the list where Amazon could have an outsized impact. Even Raleigh and Austin are good options.

A lot of business writers think Washington DC has the advantage because of the proximity to the national government. It makes sense. The next decade will probably see some increase in regulation directed at online companies like Facebook and Amazon that don’t do enough to protect personal data. Jeff Bezos will want to lobby for smart legislation, limited in scope and oversight. They could also make it tough for other online sellers to compete through regulation. This is always the worst part of new legislation. I don’t think he needs to be located in the district to make that work though.

There is a lot of criticism of turning cities into playgrounds for companies that leave a massive footprint. Amazon will certainly cause housing prices to rise in and around the city. The well paid tech workers tend to push out lower paying city dwellers. San Francisco is famous for driving up rents to a level that makes it impossible to live there without significant income. But San Francisco is the hub for most of the major tech companies in the country. That kind of wealth creates an environment all its own. If Amazon chooses one of the smaller cities (relatively) on the list it would make a difference, but as long as the zoning requirements aren’t rigid it won’t cause a drastic change.  

Some complain about losing the ‘local character’ of an urban area. This seems silly. Most cities experience this at some point every 30 years or so anyway. Whether through immigration or career moves to other regions of the country, most cities change as economies change. New York, Philadelphia, Detroit all experienced influxes and outflows as immigration patterns moved from Western Europe to Eastern Europe and South America during the last century. Local character is a subjective measure anyway. You’ll probably miss that famous Greek restaurant in the downtown area, but jobs are more important to most people.

The retailer will make a decision this year and start hiring next year. I don’t know the timetable but it has to be soon because this kind of construction takes a while.