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Talking Points | Larry Edelman

Go ahead and scoff, but Amazon HQ2 was not all about money

Amazon will split a planned second headquarters between Crystal City in Arlington, Va., and Long Island City, in the New York borough of Queens.Bloomberg photo by Andrew Harrer
Welcome to Talking Points AM for Wednesday, Nov. 14. Here's what's happening in business.
Off the Top
Call me naive: It's tempting to take the cynical view of Amazon's Great HQ2 Bake-off: That it was all about seeing how much money cities and states would pony up for the privilege of being the home away from Seattle for the borg (resistance is futile) of Internet retailing. Why else would super-secretive Amazon make the process public, when most companies conduct location searches discreetly?
“They literally set in motion a bidding war and these communities literally groveled at the table of the possibility of seeing HQ2 located in their community,” Richard Florida, a University of Toronto professor who studies urban economic development, told The Wall Street Journal.

And while there are plenty of smart and reasonable people who will never see it otherwise, let's consider other reasons why New York's Long Island City neighborhood and the D.C. suburb of Arlington, Va., beat out more than 200 other bids, including Boston's.

1. The more than $2 billion in tax credits, infrastructure spending, and other incentives offered by New York and Virginia are rich but still rather insignificant for Amazon. The company had revenue of $178 billionlast year. It spends about $5 billion a year alone on video programming for its streaming service, Reuters says. CEO Jeff Bezos is the richest man anywhere, with a net worth of $135 billion, according to the Forbes real-time wealth tracker.
2. If Amazon's decision was driven primarily by money, there were better offers on the table, including from New York neighbor New Jersey and Maryland, just over the D.C. line. As The New York Times notes: "On a per-job basis, the packages offered to Amazon are smaller than some previous megadeals. For example, Wisconsin last year offered the Taiwanese electronics manufacturer Foxconn $3 billion in incentives for a project meant to employ 13,000 workers, at wages far lower than those promised by Amazon."
3. The real driver: access to talent. To create up to 50,000 new jobs, any Amazon company town needs a lot of highly skilled workers. Even 25,000 jobs each in New York and Virginia will be tough to fill.
4. New York and the D.C. area come with advantages that other bidders just couldn't match. Washington, of course, offers access to lawmakers, regulators, and the White House, and being a player there is increasingly important as calls to limit the power of big Internet companies gain momentum. New York is an an unrivaled hub for media and finance.
There are doubtless other factors that influenced Amazon's decision. But in this light, it's easy to see why Boston didn't make the cut. The Globe's Tim Logan explains: "In its initial proposal, Massachusetts did not offer any incentives to Amazon beyond relatively modest existing programs available to any company that adds jobs and invests in the state. Talks over HQ2 never advanced to the point where larger subsidies were on the table, people familiar with the discussions said, while both [Mayor Marty] Walsh and Governor Charlie Baker made clear in public comments that they wouldn’t try to win a bidding war for Amazon."
What about our region's vaunted institutions of higher education, which turn out engineers, coders, marketing whizzes, MBAs, and every other kind of employee Amazon could need? Well, the company has a significant and growing presence here of more than 4,000 employees. It will be able to tap Harvard, MIT, and other schools for talent any time it needs fresh blood.

“I don’t think this choice says anything bad about Boston,” Aaron Jodka, research director at real estate firm Colliers International in Boston, told Logan. “Boston just didn’t have the strategic advantages, or the volume of workers, that Amazon was looking for.”

Old radio waves get new life:  The Federal Communications Commission today begins auctioning off licenses for extremely high frequency radio spectrum for wireless service once considered useless. (WSJ)
US said to delay car tariffs:  Sources say the Trump administration wasn’t ready to act on tariffs. (Bloomberg)
Makers of top-selling drugs hike prices in lockstep:  Extraordinary tactics used to preserve drug exclusivity in the US undermine patient care and increase costs. (STAT) 
SoftBank’s $3b investment values WeWork at $45b:  The financing would rank the company as the second-most valuable US startup behind Uber. (MarketWatch)
New auction record for Hopper painting:  Edward Hopper joined the unreality of today’s art market when his 1929 painting “Chop Suey” sold for $91.9 million, with fees. (NYT)
US stock futures rise:  Markets in Europe are down and Asia closed lower. (CNBC)

Executive Summary

An apology, at last: Sometimes it takes a powerful message to get action. That happened this week after journalist Peter DeMarco told the painful story of his wife's death in Sunday's Globe MagazineLaura Levis, suffering from an asthma attack, walked early one morning to Somerville Hospital but had to call 911 when she found the ER door was locked. When firefighters got to her, she had stopped breathing for too long to recover. She was 34. On Tuesday, DeMarco met with hospital leaders, who for the first time apologized for the "multiple errors" that contributed to Levis's death in 2016. Why did it take them so long? The fear of litigation. DeMarco has vowed not to sue. After the CEO of the hospital's parent company said he took personal responsibility, DeMarco said simply, "It’s good to finally hear these words from you." You can read the full story by the Globe's Priyanka Dayal McCluskey here.
Paying the price: The human toll of the opioid epidemic has been well documented. Now comes an attempt to tally the economic damage. Some numbers from a new study from the Massachusetts Taxpayers Foundation, funded by the anti-addiction nonprofit Rize Massachusetts: $2.7 billion a year in lost business productivity from employees who aren’t functioning at full capacity; $5.9 billion in lost productivity from people who aren’t even in the workforce; $1.9 billion a year for state agencies; and more than $500 million in public safety costs for cities and towns. The Globe's Jon Chesto has the story here.
Citizens united:  Citizens Bank and the city of Boston are leading a group of organizations to provide nearly $500,000 for programs to help minorities, veterans, women, and at-risk youth prepare for full-time employment. The bank will announce this AM that is kicking in $100,000, with the rest coming from nearly a dozen sources, including the Boston Main Streets Foundation.
Citgo signs earns landmark status:  Boston Mayor Marty Walsh and the City Council must still approve the Landmark Commission's decision. (Boston Globe)
Sweet Georgia Brown: I don't know about you, but I loved the Harlem Globetrotters as a kid. Maybe Patriots owner Bob Kraft still does. The team released a video Tuesday of Globetrotters Zeus McClurkin and Firefly Fisher greeting Kraft at Gillette Stadium and lofting an array of eye-popping trick shots into a basketball hoop carted into the seating area, the Globe-trotting Travis Andersen reports. We don't know if Zeus and Firefly are members of Patriots Nation. But we do know they are hyping their own team’s New England tour. (Boston Globe)
Watch List

Post-market earnings: Cisco Systems

6 p.m.: Fed Chairman Jerome Powell discusses the economy with Dallas Fed President Robert Kaplan

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