On Friday, I shared thoughts on Twitter about the Amazon HQ2 sweepstakes. I was stunned to see the virality of engagement that ensued. Typo aside, this message seemed to really resonate with a wide set of people.
The point I was trying to make is simple: if public officials are willing to laud Amazon with literally billions in tax breaks in exchange for bringing 50,000 high-paid workers to town, they should consider doing more to support the local business environment and entrepreneurs — and at a fraction of the cost.
The winning city will be changed forever — receiving a once in a lifetime boost that will ripple through the local economy for decades to come. Research that I have done in the United States and across Europe demonstrates the sizable multiplier effect that high-tech companies like Amazon can have on a local economy — whereby every one Amazon employee generates more than four additional jobs in the local service sector over the long run. This will come with the usual challenges of growth — congestion, housing costs, and gentrification, to name a few — but those issues aside, this will probably be a major win for whoever Amazon ultimately selects.
But, only one city can win. And that has me wondering what will happen to all of the other cities now that officials have shown how far they are willing to go to support a single business — one that has public shareholders and is from another city no less. More to the point, I worry about the message it sends to local business owners and entrepreneurs who are looking for just a little more help to seed the local business ecosystem.
In the end, will Amazon mania do more harm than good? Will it come back to haunt policymakers in these cities?
It doesn’t have to—and in fact, this might even be the greatest opportunity for cities around the country to rethink how economic development is done. I’m a firm believer in bottom-up economic development policies that set the table and provide critical resources that promote collaboration and learning at a systems level. As public goods with substantial positive externalities (the latter, a primary rationale for subsidizing Amazon), local governments are ideally suited to help bridge these gaps.
In subsequent Tweets, I highlighted some ideas for how to do this:
First, city leaders should make their cities attractive places to live. High-skilled knowledge-economy workers have many options when choosing where to live. Local amenities are near the top of the list of factors that draw them in. It’s not always the big shiny toy that needs cultivating—having suitable local transit, walkable, safe, and clean neighborhoods, good schools, and a thriving local services sector with local flair can have a larger impact on economic development over the long run, albeit indirectly.
Second, supporting organizations that convene entrepreneurs and connect them with needed local resources to scale and grow is of vital importance. Remember, Amazon was a startup too. The surest way of having an Amazon in your city is to grow one locally. But this is really hard to do. It requires patience, persistence, and a comfort with uncertain, non-linear outcomes — many, many failures will take place before successes occur. Critically, by supporting entrepreneurship at a systems level, governments should do so at an arms-length — support the experts, let them determine what to do.
A third potential activity — and I stress the potential here — is matching funds with local investors or lenders to increase the deployment of startup capital. Governments are terrible at picking winners and losers, but they could play a role in making sure that professionals who are best suited at deploying capital have an incentive to do so more frequently and more locally.
Finally, none of this has to cost anywhere near the reported billions that were being offered to Amazon (or to Taiwanese electronics manufacturer Foxconn, which was bestowed $3 billion by the State of Wisconsin a few weeks ago for bringing an LCD screen plant to the state.). What it does require is a sustained commitment over the course of many years. People forget that the making of Silicon Valley didn’t occur overnight — it unfolded over several decades, and was the result of a sustained commitment at a community-wide level.
So, if your city is lucky enough to win the Amazon sweepstakes, I extend you an unambiguous congratulations — this is one hell of an opportunity. But if your city is one of the many that did not, I encourage you to challenge your local leaders to make a similar commitment to the homegrown entrepreneurs already there — at a fraction of the cost, and with an upside that is potentially even bigger (though harder, and more uncertain to achieve).
My critics on Twitter have pointed out that the incentives offered to Amazon are meant to pay for themselves, and that the missing hole in my story is that 50,000 well-payed Amazon workers will go a long way to filling public coffers. They contend that my point of view, while cheery, misses out on that reality.
Fair enough. But my retort back is simple: they are assuming that a more full-throated attempt at building a vibrant local business ecosystem would not produce those same results over the long run. That’s an assumption I’m ready to challenge — I’m more optimistic.