The economic opportunity New York traded away in its deal with Amazon could have been better spent

Amazon and Jeff Bezos needs New York City more than New York City needs Amazon

Published November 18, 2018 10:00AM (EST)

Jeff Bezos (AP/Getty/Photo Montage by Salon)
Jeff Bezos (AP/Getty/Photo Montage by Salon)

Word last week that New York State and the City of New York pledged $3 billion dollars  to Amazon, one of the world’s fastest growing corporate behemoths, was more evidence of the race to the bottom underway between the world’s governments to attract capital that has no allegiance to any particular place.

This marks the continued acceleration of this global trend where taxing authorities outbid each other to seduce stateless capital with promises of single digit or a zero-tax rate and “off-shore” secrecy laws which help the owners of the capital amass ever greater wealth while evading their tax obligations in other jurisdictions.

Between American states, counties and municipalities this macro-trend is manifested in a dazzling array of so-called ‘economic development incentives’ offered to the holders of capital that take the form of loans, grants, tax credits, or cheap land in exchange for local employment and investment.

And as capital puts the squeeze on governments of all size and circumstance, we see that both income inequality and wealth concentration accelerate. We are well past the tipping point. As Oxfam reported last year, the planet’s eight wealthiest mens’ collective wealth is greater than that of the earth’s 3.8 billon poorest inhabitants. 

At the announcement of the Amazon deal, New York Governor Andrew Cuomo described with pride the gauntlet run to win the company’s prize as a “fierce competition” between 238 cities throughout northern America, who all were begging for the company’s headquarters. 

To get a sense of the concentration of wealth at play and its leverage consider that back in July Amazon owner Jeff Bezo’s estimated wealth hit the $150 billion mark. If Bezo’s fortune were a national Gross Domestic Product it would rank him as the 56th wealthiest country on the planet, or as the Times of India framed, it greater “than the GDP of the poorest 48 countries combined.”

Over the last few years there’s been an emerging academic consensus that the intervention by governments in support of particular corporations only enriches those corporations, leaving the rest of the local economy diminished. Whether it be the subsidized sports stadium or retail distribution center, it transfers the tax revenue collected from individuals, small and mid-size businesses and bestows it on the large corporate entity’s whose size has local elected officials falling to their knees agog.

Last year, Matthew Mitchell and Michael Farren, economists based at George Mason’s Mercatus Center, wrote in the Financial Times that it was time for all 50 states to sign a peace treaty of sorts to end this self-destructive race to the bottom.

“It’s time to end the self-destructive subsidy arms race among our cities and states,” they wrote. “And the conclusion of a real arms race can be our guide. Ronald Reagan, the quintessential cold warrior, took a bold step toward disarmament thirty-five springs ago, calling for what became the Strategic Arms Reduction (or “START”) Treaty that eliminated 80 percent of the world’s strategic nuclear weapons. Mutual disarmament not only made the world a safer place, it tempered an increasingly costly arms race that benefited no one.”

They continued, “Much like the Cold War arms race, there is an enormous cost to the mutually destructive spending by cities and states: We’re wasting $70 billion annually on corporate handouts rather than supporting genuine public goods and services or lowering tax rates for everyone. These incentives take many forms: cash payments, subsidies disguised as tax relief, targeted tax privileges, or in-kind gifts such as land, water or even factories. Adding insult to injury, these corporate privileges can throttle the productivity and dynamism of the American economy.”

In Wisconsin, iPhone giant Foxconn was offered $3 billion in public support to build a manufacturing plant which translates to a public subsidy ranging between $230,000 to $1 million per job. During Gov. Chris Christie’s tenure the Philadelphia 76ers were offered a $82 million state incentive deal to locate a training facility east of the Delaware River which NJ Policy Perspective, a non-profit progressive think tank, estimated the cost taxpayers $328,000 per job created.  

For his part Governor Cuomo would argue that it’s the gargantuan scale of this Amazon deal that redeems it.

This is the largest economic development initiative that has ever been done by the City or the State or the City and the State together, believe it or not,” he said at the rollout. “The numbers, this is up to a $3.6 billion investment by Amazon, 25,000 to 40,000 direct jobs, average salary of over $150,000 . . . . The number that we focus on is the number of direct and indirect jobs because you create that nucleus of direct jobs but there are then indirect jobs that are always created, that's estimated 107,000 jobs. Total economic impact, $186 billion.”

He continued, “The total state and city revenue that will be produced is estimated at $27.5 billion. The revenue-to-incentive ratio is nine to one. That is the highest rate of return for an economic incentive program that the State has ever offered.”

Yet, it’s not like Amazon’s rapid growth hasn’t come at quite a cost in jobs somewhere else in the rest of the economy, including in New York. As  Rex Nutting reported in  Marketwatch  last year, there’s a very good chance that Amazon’s revolutionizing the global supply chain could result in more jobs being lost than the 2 million U.S. manufacturing lost to China. 

“Add in the jobs Amazon will kill at grocery stores, drugstores, warehouses and delivery services, and the total would be well over 2 million,” wrote Nutting. “And unlike the manufacturing jobs lost to China, which were clustered in a comparatively few counties, those retail jobs are located in every city, town and hamlet in America.

Don’t worry, though. Economic theory says the displaced workers will find other jobs as the economy grows more productive. And Amazon will pay you a couple of bucks if you’ll use your own car to deliver packages to your neighbors.”

Perhaps, Governor Cuomo and Mayor Bill de Blasio need to take a walking tour throughout New York City and New York State to see all of the empty store fronts where there used to be going concerns that have to one degree or another been knocked out by Amazon’s distribution tsunami. 

In reading the Memorandum of Understanding between Amazon, New York State and New York City there’s a great deal of specificity about the obligation of the governmental entities to “assist in securing access to a helipad on the development sites” or in “reasonable proximity” to the development site for use by Amazon’s corporate executives. 

But there’s nothing in the press releases about a living wage being paid for all of those Amazon jobs being created or even a guarantee that the building that’s required will be done by the city’s unionized building trades.  Yet, the list of elected officials who have embraced it is impressive.

“The Amazon hustle is grotesque: an immense example of socializing the costs while privatizing the profits,” says Richard Wolff, an economist and professor at the New School University. Wolff says the Amazon deal is just another example of elected officials “bribing big corporations, who now have all cities and states on their knees begging, an utter perversion of even the pretense of democracy.”

We shouldn’t be surprised that so many of New York City’s elected politicians were so quick to supplicate themselves to Amazon. While there has been a proud tradition of progressive thought and radical activism out of New York, at key points in our nation’s history the ruling class sided with big money because it has always been a commercial hub where business transactions trumped any other consideration.

During the American Revolution, the ruling class in New York was at best ambivalent about pissing off the crown and going for independence. Historian Jim Davis writes that “the province of New York had a strong loyalist reputation during the American Revolution. This opinion extended to its largest municipality, New York City, derisively referred to by one rebel as "Torytown.”

Scroll forward to start of the Civil War and New York City’s monied interests were so reliant on the southern cotton produced by slavery that the Mayor at the time, Fernando Wood, publicly floated the idea that the city should secede from the union.

In the process, he reasoned, New York City would  join “our aggrieved brethren of the Slave States,” going so far as to declare that, "when Disunion has become a fixed and certain fact, why may not New York disrupt the bands which bind her to a venal and corrupt master — to a people and a party that have plundered her revenues, attempted to ruin her, take away the power of self-government, and destroyed the Confederacy of which she was the proud Empire City?”

And in living memory, in the aftermath of the Great Recession, when Wall Street pulled off the greatest heist in American history that resulted in the loss of $20 trillion in household wealth on Main Street, New York’s global banking interests still have a long list of incumbent Empire State politicians all too happy to take their campaign cash and do their bidding.

By Bob Hennelly

Bob Hennelly has written and reported for the Village Voice, Pacifica Radio, WNYC, CBS MoneyWatch and other outlets. His book, "Stuck Nation: Can the United States Change Course on Our History of Choosing Profits Over People?" was published in 2021 by Democracy@Work. He is now a reporter for the Chief-Leader, covering public unions and the civil service in New York City. Follow him on Twitter: @stucknation

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Amazon Amazon Hq2 Andrew Cuomo Bill De Blasio Jeff Bezo Long Island City New York City Oxfam Richard Wolff