Derek Thompson at The Atlantic has a concise but thorough review of the public shakedown constituted by Amazon’s just-concluded “search” for a second headquarters location, which resulted in the on-line goliath picking Long Island City in Queens and Crystal City in northern Virginia. The troubling dynamic involves Amazon settling on two locations — Washington, D.C. and New York City — that were glaringly top contenders at the start of its search, but with Amazon extracting billions of dollars of tax benefits from the two winners through its pretense of a competition. But Thompson moves on to a larger point: that this practice of pitting localities against each other is both widespread and economically dubious.
The numbers are huge; according to Thompson, “American cities and states spend up to $90 billion in tax breaks and cash grants to urge companies to move among states” every year. These expenditures take money away from other government services, like schools and police. Yet defenders argue that companies have a right to try to make money, and that states have a right to try to lure business in; and so is this behavior really a problem, or just an inevitable cost of the modern economy?
Thompson cites three enormous and damning refutations of this common practice. First, companies often have already decided where they’re going to expand, and simply use the charade of looking to shake down their target location for money. Second, companies don’t always follow through with their commitments. But his third point is the most damning - even under the best circumstances, “it’s still ludicrous for Americans to collectively pay tens of billions of dollars for huge corporations to relocate within the United States.”
Another way I’ve been thinking about looking at this decisive third point: every year, American taxpayers are collectively throwing away $90 billion dollars that could otherwise have been spent on actually growing the economy. This is staggering, yet it also seems so obviously wasteful. So why isn’t this raising even more red flags (as Thompson damningly points out, the consensus behind this practice is bipartisan)? The two broad reasons he cites — that companies have a right to make money, and that states have a right to lure in business to benefit their communities — seem correct, yet the logic and implications are worth exploring.
For corporations to be in a position to pit cities and states against each other speaks to the imbalance of private and public power in our time. I’m struck by how natural this is to so many people, when the ultimate reality of an economy is that it should serve the citizenry, and not the other way around. In this, there is an almost feudal element in such arranged competitions, our political groupings fighting it out for the pleasure of corporate overlords who win no matter what city or state ends up the victor.
This gets us to a fundamental upending of the free market capitalism that’s held to be at the heart of the economy, and which common wisdom would say is the most efficient system for producing economic wealth. Rather than corporations engaging in competition that benefits the consumer, it’s our political system that is made to compete, against itself, for the benefit of corporations. Corporations, it seems, are the new consumers, and consumers, the new corporations. Alongside this, it becomes glaringly obvious the degree to which economic ideas have supplanted political ones in the realm of politics, and to which not only cities and states, but individual Americans, have been encouraged to see their fellows as opponents and competitors, rather than as fellow citizens and allies.
The alternative to cities and states competing for business, after all, is cooperation. The possible solutions to this current pitting of all against all cited by Thompson lie in such a direction: federal laws against the practice, tax policies that nullify certain incentive structures, fiscal punishment of cities and states that steal jobs from other localities, and use of the presidential bully pulpit to call out corporations that set Americans against each other. The fourth is obviously not going to happen under the current president, and Thompson doesn’t seem optimistic about the first three.
Yet this is an issue that will need to be addressed if we are to restore economic fairness in this country. This is not just because forcing Americans to compete for jobs in such a wasteful way in inherently unjust, but also because of how it embodies the darkest developments of both our economic and political systems. At a time when we need far more government intervention in the economy, whether it’s to break up monopolies, ensure all Americans can make a decent living, or transition our economy to a carbon-neutral future, state-sanctioned bribery of corporations constitutes a sort of anti-socialism or crony capitalism. The urgency of a better way is amplified by how distorted economic outcomes have become, both in terms of inequality among individual citizens, and between those regions that benefit and those that fail to thrive in the current economy.
Here are some statistics that are essential to understanding our current predicament, whether it be the rise of Trumpism or why it’s so necessary to press the Democratic Party for real economic change. First, as noted by Annie Lowrey in another piece on the Amazon headquarters search, “the wealthiest 20 percent of zip codes have generated more new businesses than the bottom 80 percent combined.” Second, the economic power and growth of a small number of urban areas dwarfs that of the great majority of American regions: according to Lowrey, “[j]ust five metro regions, out of the nearly 400 across the country, produce more than a quarter of all economic output.”
These are staggering and upsetting numbers. In light of this, the idea that already-successful areas of the country continue to lure even more business at the expense of other regions, in a way that ends up wasting money better invested in the American people, seems even more objectionable. This also raises the possibility that there may be more support for an end to this useless economic arms race than most observers realize.