February 21, 2019
Economist's Perspective

McKinney: Amazon to NYC was a bad deal; CT shouldn't try to follow suit

Fred McKinney

On the street they will tell you -- "that if you have to pay for it -- it ain't love."

The deal between Amazon and New York City broke down recently in acrimony and accusations. One side led by New York Gov. Andrew Cuomo, Mayor Bill de Blasio, and powerful commercial and real estate interests viewed the $3 billion public investment as a small price to pay for the thousands of direct and indirect jobs and future tax revenues.

On the other side, there was a motley and diverse collection of labor, progressives, anti-gentrification activists, environmentalists, political opportunists, and Luddites who each had their own reasons for objecting to the deal. The motley crew won.

I believe the decision by Amazon to withdraw from the deal is ultimately the right outcome, even it was for the wrong reasons. It is time for public-sector leaders to stop throwing money at large private corporations to attract them, or to retain them in their jurisdictions.

Surrendering taxpayer funds to billion-dollar corporations is toxic. Within minutes of Amazon's decision, governors and mayors from around the nation, including Gov. Ned Lamont, have publicly invited Amazon to consider taking their money to open-up shop in their markets. It was bad policy in New York City, and it is bad policy everywhere. This type of competition among states and cities results in one clear and permanent winner -- the corporation and its shareholders.

Amazon is not the first and will not be the last large corporation to drink freely from the public trough. The same day that Amazon made its decision to withdraw from the New York City deal, General Electric, the formerly Connecticut-based company that left in a huff for greener pastures in Boston because it could not get all of the concessions it desired from Connecticut, announced it was giving back money to Boston because it was not going to fulfill its promise to employ as many people in their new "home."

Foxconn, the Chinese company lured to Wisconsin earlier this year by President Trump and then Gov. Scott Walker with over $4 billion in concessions, has already tried to withdraw from its commitment, before they even broke ground.

If there are any lessons from GE and Foxconn, it is that companies are fickle in their attraction to any location. "If you have to pay for it -- it ain't love."

My objection to these deals is that they fail to consider the opportunity cost. There are viable and profitable alternatives to giving Amazon $3 billion. These alternatives might have a far greater economic impact on communities. The $3 billion could be used to create the next Amazon. It's enough money to provide the first round of financing of $100,000 to 30,000 to New York City entrepreneurs. I like the chances of funding 30,000 well-thought-out creative New Yorkers over chasing Amazon. Can you imagine the attractive power of this kind of activity?

Entrepreneurs and technologists from around the world would be drawn to New York City to take advantage of this funding opportunity. Certainly, most of these ventures would fail, but chances are, some would be wildly successful, and perhaps most importantly, they would be tied to the community. If New York City wants to create Silicon Valley East, funding 30,000 entrepreneurs is a superior strategy than giving the money to one successful tech giant.

Additionally, it was reported by Yahoo Finance that in 2018 Amazon earned $11 billion in profits, yet will owe $0 in federal income taxes. If you are an Amazon shareholder, this is great. But if you are just a regular middle-class taxpayer, something is wrong with the picture of a multibillion-dollar profitable company owned by the wealthiest man in the world not contributing anything to the federal government directly.

And don't get me wrong I have nothing against Amazon. ("Don't hate the player -- hate the game.") I have become dependent on Alexa for my morning weather and traffic reports and to humor me with her jokes when I am feeling down. Amazon provides great service and literally the ability to buy anything from the comfort of your bedroom. I don't want to see them harmed. But I also know Amazon does not need $3 billion from New York or taxpayers from any other state or city.

The desperate and unseemly recruitment of large companies by governors and mayors fueled by political egotism is counterproductive, economically inefficient, and does great damage to wealth and income equality.

States and cities could end this by agreeing to attract companies not with bribes, but with better public schools, better public transportation, a commitment to a clean and healthy environment, and better leadership. If public-sector leaders want the love of corporations and future tech leaders, this is the way to earn it.

Fred McKinney is the Carlton Highsmith Chair for Innovation and Entrepreneurship and director of the Center for Innovation and Entrepreneurship at the Quinnipiac University School of Business.

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