Amazon’s New York deal; something rotten in the state of local economic development

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Amazon’s cushy deal with New York State is further proof that local economic development has become dominated by a failed model; one which enriches global corporations and impoverishes local residents. We must be bold and recognise that agglomeration economics will not save our cities, writes Jonty Leibowitz.

Last week, Amazon finally announced that they would be building their $5bn new national headquarters in Long Island, New York, as well as a new national ‘Centre of Excellence’ in Virginia. The reveal of the location for ‘HQ2’ has been the culmination of a thirteen-month process in which Amazon received bids from over 238 cities to host the new sites, which will bring in an estimated 50,000 jobs.

Local authorities fought fiercely to offer Amazon the best possible package, promising a combination of tax breaks, low regulations, and other incentives. One town only half-jokingly offered to change their name to ‘Amazon’, but were ultimately beaten to the pump by New York, whose winning bid included up to $1.2bn of tax exemptions, a cash grant of $325m based on the square footage of buildings occupied, and other vast city benefits such as New York City’s Industrial & Commercial Abatement Program (ICAP). Governor Andrew Cuomo even reportedly claimed that he would change his name to ‘Amazon Cuomo’, in an effort to impress visiting Amazon officials and secure the bid.

The state of local economic development

That local authorities were practically tripping over each other to win Amazon’s heart tells us a lot about the state of local economic development. Since the 1970s, local policymakers have been taught that the best way to stimulate a local economy is to attract inward investment from global corporations, through a combination of tax breaks and other such incentives. This approach has mutated across Britain and America, and has essential become the only game in town with regards to local economic development.

New York’s desperate attempts to win Amazon’s attention – so much so that the city is willing to pay tax breaks worth $48,000 of taxpayer money to Amazon per job created – reveals the now hegemonic power of this approach. Local authorities have long ceded the craft of building communal wealth, and instead see their job as simply to pave the way for the arrival of multinationals. This process of attraction is concurrent with a more sinister, forceful eradication of dissenting voices – see for example the forced removal of low-income communities from London as the city attempts to make space for large corporations in urban areas.

The tragedy of this approach is that it simply doesn’t work. Rather than the vaunted notion of wealth ‘trickling down’ from the arrival of a new local sugar daddy, the evidential truth is that the proceeds from these deals tend to go straight to the corporation’s shareholders, as opposed to local people. At the conceptual and spatial centre of this model of economic development is agglomeration: Amazon hoover up the proceeds from their tax breaks, land and property appreciation, and hand-outs from the state, fuelling ever-increasing returns to investors. In the last ten years alone, major companies such as Nike, Tesla, and General Motors have made billions of dollars benefiting from local state tax-breaks alone.

“Meagan Day is correct to describe the process by which Amazon forced the 238 bidders into a race-to-the-bottom bidding war is a ‘municipal hunger games’, whereby the notion of civic ownership over urban spaces is systematically undermined by a market liberal logic which asserts that cities can be bought and sold to the highest bidder.”

The longer we rely on this outdated model of economic development, the more we enrich private shareholders, impoverish local residents, and undermine the capacity of the local state to affect real economic transformation in our communities. This is not simply an economic question, but one of democratic ownership and accountabilities. Allowing corporations to treat local authorities as pawns in a chess game inverts the power-balance between the two in former’s favour. Meagan Day is correct to describe the process by which Amazon forced the 238 bidders into a race-to-the-bottom bidding war as a ‘municipal hunger games’, whereby the notion of civic ownership over urban spaces was systematically undermined by a market liberal logic which asserts that cities can be bought and sold to the highest bidder.

Rewiring the political economy

Cities in Britain, America, and across the globe can do better than pay the Amazons of the world for the privilege of extracting wealth and resources from our communities. Activist local authorities such as Preston, Barcelona, and many more are trialling new actions which have reanimated the lost craft of local economic development. There are plenty of ideas out there for local authorities who want to actively create wealth for their local citizens, rather than rely on the benevolence of a passing billionaire. Imagine if every local authority in Britain set up a local Fund for Employee Ownership, as being modelled at the Evergreen Cooperative, or if every local authority harnessed the power of social procurement in the way Preston has? We could find ways to rewire the political economy of our urban spaces, away from extraction and towards wealth that is held and shared by all.

CLES is committed to exploring new forms of local economic development because we believe that the inward investment, agglomeration model has been proven to fail. Cities should not be playgrounds for billionaire capitalists, whose coffers swell with state handouts. From New York to the Northern Quarter of Manchester, we cannot rely on Amazon saving us. It is time to take back control.