When Amazon last week announced plans to build a $5 billion second headquarters in North America, officials from sea to shining sea immediately began to clamor for the privilege of hosting the new facility. Mayors of cities as diverse as Pittsburgh, Dallas, and Toronto declared their intention to vie for Amazon’s favor. Newsrooms everywhere produced stories on the frenzy: “Charlotte wants to be home to Amazon’s $5 billion second headquarters.” “Minnesota rushes to bid for Amazon’s second headquarters.” “Virginia plans to be ‘aggressive and competitive’ to land project.”
Naturally, Boston and Massachusetts are getting in on the act.
“If Amazon wants an East Coast headquarters, I don’t see any city better in America than Boston, Massachusetts,” proclaimed Mayor Marty Walsh. His administration, he said, would be “laser-focused” on landing the project.
Amazon says it is seeking to build its new home in a metropolitan area with a large population, an international airport, and good schools. But as everyone understands, it also expect to be courted with publicly-funded “incentives” — some combination of property-tax abatements, job-creation credits, direct grants, sales-tax refunds, land-acquisition assistance, and the other varieties of corporate welfare that governments have concocted to lure businesses. Amazon knows how the economic-redevelopment game is played in what The Economist calls this “sweet land of subsidy.” (Just this week, Wisconsin agreed to pay the electronics firm Foxconn a staggering $3 billion in subsidies to construct a flat-screen factory in the state.) If cities and states are determined to compete for Amazon’s new campus by showering it with fistfuls of taxpayer dollars, the company can’t be blamed for pocketing the largesse.
But what excuse do mayors and governors have? Again and again they spend taxpayers’ funds to woo companies in this way. Again and again the taxpayers get jilted.
Last year, when General Electric agreed to move its headquarters and 800 jobs to Boston from Fairfield, Conn., Walsh and Governor Charlie Baker beamed with pride at having sealed the deal with more than $150 million in tax breaks and financial incentives. “We won Powerball today,” the mayor crowed then.
There was no crowing, however, when GE abruptly announced this month that it would delay completion of its new Boston home by at least two years. And don’t hold your breath waiting for those 800 jobs: According to news reports, GE’s chief executive has given orders to prepare for job cuts at the new headquarters.
If subsidizing GE turns out to have been a losing bet, it will join a long roster of other losing bets. Massachusetts officials have repeatedly gambled with public dollars to entice companies to move to the state (or to keep local firms from leaving). They defend their wagers with happy talk of the jobs to be created or the cutting-edge industries to be established. Yet in case after case — Intel, Evergreen Solar, Nortel Networks, Fidelity Investments, Organogenesis — the promised jobs don’t appear, or the company doesn’t survive, or the forgone tax revenue is never made up.
The Pioneer Institute recently crunched the data on the rich subsidies paid to the state’s biotech industry, an initiative begun in 2009 by Governor Deval Patrick and continued under Baker. Of the 250,000 new jobs promised, wrote Pioneer’s executive director, Jim Stergios, in June, 95 percent never materialized. Between 2009 and 2016, private-sector employment in the state increased by 15.2 percent. Biotech, despite being nurtured with more than $650 million in government subsidies, accounted for just one-tenth of 1 percent of that growth.
Economic development shouldn’t involve gambling with public funds or cajoling private companies with giveaways. Instead of bribing Amazon or GE with custom-tailored tax breaks, states should be easing the burden for all taxpayers. Governments shouldn’t be manipulating the rules for the benefit of fashionable company X or politically wired industry Y. This may be a “sweet land of subsidy” for crony capitalists. For the rest of us, those generous incentives leave a bitter aftertaste.