What drives the scores of places competing to win Amazon’s second headquarters? Much more than Seattle could understand.
When I was discussing the proposition of this column last week — why would 238 localities in North America put in bids for Amazon’s HQ2 despite the “be careful what you wish for” warning from some in Seattle — I immediately received help.
A newsroom wag offered to write it for me. Under my byline, he typed: “50,000 jobs, with an average salary of more than $100,000. -30-” The last number is old-time newspaper jargon for “end of story.”
Truth, to be sure. But other factors are worth examining, and they even hold some lessons for Seattle.
Amazon’s HQ & HQ2
A big one is desperation, as cities and states seek to fill the gap caused by the loss of their signature industries — rubber, steel, computer manufacturing, etc.
Changes in the American economy over the past 40 years have created a stark divide between winners and losers, with the latter covering enormous swaths of the country.
Dayton and Cincinnati, which submitted a joint bid, fit this category. I lived and worked in both Ohio cities.
Although Cincinnati remains a business center, thanks to Procter & Gamble, Macy’s and Fifth Third Bank, it has lost most of its manufacturing sectors and other corporate headquarters. The airport, once a major hub for Delta, was downgraded after the Northwest Airlines merger left the Detroit hub as the survivor.
Dayton absorbed much more shattering blows, losing its airline hub, auto factories and corporate headquarters including NCR and Mead.
Other Ohio cities are just as desperate and hungry. In addition to the risk of fratricide from competing bids, none stand much chance. They lack the abundant transit that is likely to be a determining factor. This is a self-inflicted wound, but one done at the state level by anti-transit, anti-city lawmakers.
Similar scenarios have played out across the country, and this helps create a second driver behind the HQ2 gold rush: Political leaders are under enormous pressure to bring jobs and investment. It’s not uncommon for them to hold lavish press events for data centers that would create only a few dozen jobs.
Now, the biggest economic-development prize in memory is at stake. It’s more than 50,000 jobs and $5 billion in investment. If Amazon actually built out “a full equal” to its Seattle headquarters, as proclaimed, this would create a wide feedback loop of prosperity wherever it is located, touching everything from higher education to small businesses.
Thus, most bidders aren’t worried that many new HQ2 jobs would be filled by high-skilled outsiders. Anyway, their problem is a brain drain, not a talent influx. They understand that housing affordability is a challenge almost everywhere — less expensive places have low wages. They won’t use this as an excuse to pass on thousands of good jobs.
Few of the 238 seem concerned about the “Amazon will hurt your city!” dirge from some people here in Seattle. That’s a delusion in which only a rich, politically liberal city could indulge.
In Cincinnati, nearly 53 percent of residents live in economically distressed ZIP codes, with only 6 percent in prosperous ones. By contrast, barely 2 percent of Seattle city residents are in distressed ZIPs, and nearly 53 percent in prosperous ones. These data come from the Economic Innovation Group’s latest Distressed Communities Index.
But not only needy places are knocking at Jeff Bezos’ door. The third push comes from the fiery economic competition among cities and states that has grown up since the 1980s. In addition to lighting a fire under politicians, it has created a large economic-development profession. Almost every city has a purpose-built eco-devo organization. Its focus is on recruitment and retention once part of the chamber of commerce’s portfolio.
One result: Even winner cities want to win more. They understand that in the disruptive/hyper-creative-destruction economy of today, if a place isn’t moving forward, it’s falling behind.
Thus, cities such as Denver, Austin, Boston, Atlanta, Toronto and New York City are in the chase. Most of these are ideally positioned, with strong urban vibe, research universities, international airport and transit. HQ2 will almost certainly go to such a city, unless Amazon is bluffing about its “must-haves” and cultural preferences.
Finally, corporations have perfected the art of demanding government incentives, playing off cities and states in search of the highest bidder. Thus, in addition to seeking a “stable and business-friendly environment,” the company said incentives would be “significant factors” in its decision.
This is a lamentable situation, unfair to taxpaying businesses and a drag on the economy. But until a Congress outlaws it and the legislation survives a Supreme Court challenge, places will pay to play.
Sure, Washington has lost around 20,000 Boeing jobs since extending nearly $9 billion in tax breaks to the company four years ago.
On the other hand, Washington leaders had to contend with the doomsday scenario had they balked at incentives: Losing many thousands more jobs and mortally wounding the aerospace cluster. Such an unsavory calculus goes on all across America when the pie doesn’t seem to be growing fast enough for everyone.
Seattle can learn from the HQ2 competition, beyond the reality check that it needs a more constructive relationship with its largest employer.
One lesson is that cities have life cycles, and are sometimes caught in downdrafts (manufacturing losses, mergers) or updrafts (the rise of Big Tech and big-winner cities) beyond their boundaries.
That’s certainly the case with Dayton. At the turn of the last century, it was a mini-Silicon Valley of its era, home to the Wright Brothers, auto-engineering genius Charles Kettering and National Cash Register’s John Henry Patterson. Dayton might have birthed IBM as well, but the ill-tempered Patterson fired Thomas Watson Sr.
Even in the 1980s, Dayton had a diverse economy and had smartly rebounded from Rust Belt days. Yet it all fell apart, driven by globalization, suburbanization, loss of major companies and decades of racial divides.
Yet cities do make their own luck, to a degree. Seattle has a long history of being ambitious — hosting two world’s fairs, for example — reinventing itself, making public investments and choosing smart over cheap.
This helped it get HQ1, a taxpaying job-and-investment machine that grew up here with the most minor public incentives. We’ll see if Seattle can keep it.