Views on the News: New Amazon HQ
After considering more than 200 different cities for the location of its second headquarters, Amazon has decided on splitting its East Coast center of operations between Long Island City, New York, and Crystal City, Virginia. According to a Nov. 3 Wall Street Journal , these new work spaces will create over 25,000 jobs for each city, in addition to marking a shift in large corporations having their main offices within urban areas as opposed to the suburbs. How will the arrival of Amazon affect the economies of both cities in the long term, and what are the costs and benefits of this monumental move?
Prof. Ben Gomes-Casseres (IBS)
With its split-decision on HQ2, Amazon is admitting that it may be hitting some diseconomies of scale. It chose to put half of HQ2 near the American center of political power and the other half near the world’s center of financial and media power. The DC location will help Amazon sell its profitable web-services to government and may help protect the tech conglomerate against antitrust stirrings. The NYC location will help Amazon sell these services to the financial and media industry. Both locations will see old industrial areas refurbished and filled with young workers. Both areas will also see added pressure on traffic and housing, but big cities are used to that. Boston and Brandeis will be fine without Amazon. The entrepreneurial ecosystem in our city may well have been squashed by Amazon, so we will continue to see new ideas flourish here. And Brandeis students can get still get jobs at Amazon, just in a different city.
Prof. Ben Gomes-Casseres (IBS) is a Professor of International Business and the author of “Remix Strategy.”
Prof. Daniel Bergstresser (IBS)
New York and Washington “won” Amazon’s second headquarters in what has been a lamentable and embarrassing spectacle. I applaud the cities like San Antonio, Texas that declined to play into Amazon’s destructive exercise. I suspect that the entire exercise was largely bogus – one of Amazon’s key goals, as others have pointed out, may have been to get cities and metro areas to share with Amazon useful data, for example data on the bidders' economic conditions and development plans. Over 200 cities and areas shared these types of data with Amazon during this silly bidding process. Amazon will now move forward, and will take advantage of the valuable data that they have gathered from the bidders. Taking a step back from this scam, I think it is time for us to reinvigorate antitrust policy. Our largest corporations have too much power over their employees, customers, suppliers and the communities that host them.
Prof. Daniel Bergstresser (IBS) is an associate professor of finance at the International Business School, specializing in municipal finance and household financial behavior.
Prof. Stephen G. Cecchetti (IBS)
Firms with assets that can move easily frequently obtain subsidies from communities or countries that wish to attract and keep them. Auctions like one run by Amazon intensify the competition for these mobile assets, allowing the firm to extract a large share of the value from the place where they locate, boosting the likelihood of winner’s remorse. Even when the subsidies are tied to job creation, the communities bear much of the business risk. The most prominent recent example is Wisconsin’s payment of $4.2 billion to Foxconn in exchange for the creation of maybe 13,000 jobs – state taxpayers are unlikely to see a positive return. In the case of Amazon, the only sure winners are the firm and the local politicians in the headlines. Corporate subsidy auctions are contests that I am always happy to lose.
Prof. Stephen G Cecchetti is the Rosen Family Chair in International Finance in the International Business School.
Prof. George Hall (ECON)
I agree with the many others who characterize Amazon's search for a second headquarters as an exercise to collect confidential data on two hundred cities and tax breaks from the almost certainly predetermined "winners," New York City and suburban Washington DC. Amazon's presence will add little to these already thriving cities. In fact, given the backlash from locals who would have preferred that their taxes be used to address other issues than subsidizing Amazon, the winning cities may regret their decision to be so generous. Amazon stated that it was looking for a site with a stable and business-friendly environment, sound infrastructure, a diverse population, excellent institutions of higher education, strong local schools and plenty of recreational opportunities. Going forward, state and local leaders should invest in building communities with these characteristics so that they will attract businesses without taxpayer giveaways.
Prof. George Hall (ECON) is a professor at the International Business School and the Department of Economics, specializing in fiscal policy and industrial organization.