The world of inducement

The National Enquirer has engaged in behavior so lowly and unscrupulous that it created a seemingly impossible storyline,” wrote controversial investigative reporter Glenn Greenwald last Friday, “the world’s richest billionaire and a notorious labor abuser, Amazon CEO Jeff Bezos, as a sympathetic victim.” After describing the threatened invasion of Bezos’ privacy by the publication of sexually salacious material by The Enquirer if, among other things, the Bezos-owned Washington Post wouldn’t lay off the Trump-protected Saudi government, Greenwald pivoted to characterizing Bezos’ long-time relationship with the military and spying agencies of the federal government as “a central prong of Amazon’s business growth.”  

Under a ten-billion-dollar contract for which Amazon is presently competing, for instance, the company would provide exclusive cloud web services to the military.

If you Google “Greenwald Amazon,” Greenwald’s newest book, No Place to Hide, comes up on the Amazon books site. You can get the book from Amazon for as little as $1.47 plus a shipping fee of $3.99. Or you can pay $5.49 and get free shipping.

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You can’t make this stuff up. Amazon is ubiquitous, its products available equally to friend or foe.

Governments at every level routinely offer consequential incentives to induce businesses to locate in the jurisdictions they favor. The premise is that these businesses will hire workers and help local economies. Sometimes these inducements pay off. Often they don’t: the increased revenues never catch up to the costs to taxpayers of the inducements. Or the induced businesses decide a few years later to take somewhere else’s deal and move on.

It’s the nature of the game. Especially in hindsight, some deals work and others don’t. One might think that the governmental players would at least owe their taxpayers a very careful examination of the costs and revenues of what’s being induced. But in practice a sensible level of due diligence seems rare.

Why? Apparently governments believe they have no choice. “If you don’t have anything on the table, you are going to lose,” explained the mayor of a small town near Cleveland. “If we said we don’t have any incentives, but we have a low income-tax rate and we would love to have you, they wouldn’t be here.”

According to a piece in The Week, tax incentives in the form of income-tax credits, exemptions, property-tax abatements, land grants, low-interest loans, cash giveaways and other services now total $80 billion a year, three times what they were in 1990.

Amazon has been aggressive in seeking tax breaks for its network of fulfillment centers around the country and in its dedication to a low-wage policy. Last October, however, Bezos announced a $15-an-hour minimum wage for its warehouse workers. At the same time, Amazon has continued to investigate alternative sites for its upstate New York warehouses, making little effort to disguise its interest in attractive inducement packages. You can be sure it’ll get some.

Led by its competitive-minded governor, New York State has struggled to attract various kinds of new industry north of New York City. New jobs for upstate have been a tough sell even with the $600 million annually of upstate economic development grants and other inducements thrown in. In the past 30 years, New York City’s labor force has increased by almost a million workers. In the balance of the state, the labor force has gone up 300,000 — but 100,000 of that increase is from Long Island and another 100,000 from the Hudson Valley. (Ulster County contributed 6000 of those.) Without tax breaks, state aid and any other inducements they could offer, upstate jurisdictions think of themselves as incapable of creating a significant number of new jobs.

To its credit, the Ulster County IDA has created its own Uniform Tax Exemption Policy (UTEP), an analysis that sets the level of tax break it is willing to offer. But that’s not all the agency can do. In January it said it was prepared to offer a $88,000 loan or a contract for services (it didn’t decide which) to help Ceres Technologies move from its Saugerties and Rhinebeck facilities to TechCity in the Town of Ulster. The money would come from IDA funds accumulated from the agency’s fees from other projects. A few days later, the company withdrew from those discussions.

An IDA is not all-powerful. It is only one tool in the toolbox of governmental bodies intent on inducement. If inducement is to be successful, more than one source of public resource must increasingly to be available. 

The inducements offered prior to Amazon’s 25,000-jobs-at-$150,000-a-job selection of Long Island City for part of its second world headquarters were epic in scope. Though no one knows what the ultimate deal will look like, plenty of people have decided they know whether they will like it (”the tax incentives are worth it”) or not (“worse than useless”).  

Both supporters and opponents invoked the words of Berkeley economist Enrico Moretti, whose book The Geography of Jobs had explained the increasing concentration of job growth in regions of the nation where both skilled workers and growing firms are available. The upstate city of Buffalo, where the “Buffalo billion” initiative proved such a flop, lacked the entrepreneurial climate and other advantages New York City enjoyed, the Mercator Center, following Moretti’s argument, explained. Amazon’s first headquarters, Seattle (where Amazon will soon occupy 14 million square feet of space), had high-tech industries, capital and an educated workforce.

What did Moretti think of New York’s huge inducement of Amazon at Long Island City? He estimated the spillover effects of Amazon’s presence could add as many as 150,000 other new jobs in two decades. “This definitely beats other deals I have seen, to be sure,” he responded. “It would certainly increase the attractiveness of that city for other well-paying high-tech jobs.”

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