"Nothing in public life is more dangerous to the public interest than politicians chasing 'jobs' with the people’s checkbook. They can buy their way into the ribbon-cutting photos knowing that, if they grossly overbid, they won’t be around when the bills come due," wrote former Governor Mitch Daniels of Indiana in the Washington Post. Media outlets across the country took note as Amazon narrowed its list of candidate cities in which to build its second corporate headquarters, as politicians pledge to bring the company to their state.
Politicians have done a lot of job-chasing with taxpayer money in recent months, and done a great deal of bragging about it. Governor Scott Walker of neighboring Wisconsin recently assured over 3 billion dollars in tax breaks and cash incentives for Foxconn to build a flat-screen LCD display plant in Mount Pleasant, Wisconsin, which approved additional incentives for the company, provided it follows through and invests ten billion dollars of its own money into the state. These deals are pursued by politicians across the political spectrum and seem unbounded by the reality of job creation.
Amazon in particular has made quite the show of having cities compete, show off and offer incentives to build its new headquarters, drawing 238 bids and recently drawing the list down to 20 final applicants. The advantages for the lucky winner of this contest? The company promises five billion dollars in investment and 50,000 employees will come with the headquarters. With the headquarters of an e-commerce giant in their backyard, services and other businesses will naturally sprout up to serve the needs of the behemoth. At least that's the corporate line.
Amazon analyzed the 238 candidate cities based upon the criteria in its "Request for Proposal" document. Such criteria include "Capital and Operating Costs," where the company specifies that it requires a business environment and tax code to its liking, openly stating that incentives to offset the initial capital investment will be closely tied to their decision. Minnesota's tax code is not very business friendly and the stark divide between the legislature and the governor seem to indicate that it will likely not change anytime soon. While it is ranked highly for business, some part of the state's environment failed to meet Amazon's criteria, so Minneapolis was bumped off the list.
Before the list was narrowed, many mayors made huge publicity stunts to announce that they wanted their metro to be host to the new Amazon HQ. From Little Rock to Newark, from Tuscon to Calgary. All across the United States, Canada, and Mexico, mayors put forth applications, stunts and gimmicks to get public opinion behind their respective cities. Bids were launched and Amazon seemed to encourage the outlandish displays for publicity.
The public bidding process, akin to the Olympics, has drawn criticism from across the political spectrum and the business world. Apple, which is also building a second headquarters somewhere in the United States, has kept its shortlist private and is not accepting bids for the placement of the new facility. The idea that such large companies as Amazon and Apple would require taxpayer subsidy to expand their facilities is not widely believed, but it is firmly embraced in the policy choices of cities around the United States.
The cities face a problem commonly called the prisoner's dilemma: if they all refuse to subsidize sports teams (through stadiums) or large corporations, the teams and corporations will be just fine and expand where they will. However, if a single city breaks the rules, the team or the corporation will come to it. This has led to cities trying to offer the most incentives, in a race to the bottom that reduces their ability to refuse such subsidies to companies in the future. In essence, for short-term political gain, cities gleefully screw themselves in the long term, burdening their future tax base with huge breaks on the very companies that tout their services and location as a perk.
Practices such as this may be common, but there has been serious debate in the media and the public forum as to whether they should continue. Rent-seeking behaviors, whether requesting that the government impose tariffs on imported goods or blatant attempts to solicit corporate welfare, negatively impact the prices for consumers and increase the demand for exemptions and tax breaks in the future. Requesting handouts and carve-outs for their behavior creates a complex regulatory system that disadvantages small businesses disproportionately and can increase or reinforce income inequality.