In a surprise twist, Amazon seems poised to choose two cities — New York and Washington, D.C. — instead of one for its new headquarters. Both offer skilled workforces, but there’s more to the story in D.C.: easy access to federal policymakers. Amazon’s Capitol Hill detractors may not be pleased about their new neighbor, but ironically, they helped attract the company.
In barely 20 years, Amazon has grown from an ambitious online bookstore to one of the most valuable companies in history. And over the past 14 months, states and cities have offered billion-dollar subsidy bids for Amazon’s new headquarters, HQ2. But despite having its pick of enormous subsidy packages, Amazon’s D.C. decision may well be driven by political — not economic _ factors.—Why? Because Amazon has much to fear from a federal government full of policymakers who are beholden to well-established corporations in other industries. As the company continues to boldly enter new industries, its greatest threat might not be business competition, but rather government roadblocks that could slow its expansion.
In addition, one of the greatest threats to Amazon is antitrust litigation. A popular movement is swelling, arguing that the company should be treated as a monopoly and potentially broken up into sub-companies, meeting the same fate that Standard Oil and AT&T once did. Avoiding a breakup could mean far more money in the long term than any of the subsidies Amazon’s been offered for HQ2.
It’s rational for Amazon to be proactive about molding its political environment. In the past few months it has faced overt hostility: locally, from its hometown city council in Seattle; and nationally, from Sen. Bernie Sanders, who introduced a bill last summer titled the “Stop BEZOS Act.” It’s probably not surprising, then, that Amazon increased its political donations during this year’s election cycle.
If HQ2 lands in the D.C. metro area — especially in Arlington, Va., as recent predictions claim — then Amazon would be signaling the importance of political access. It’s not healthy for America’s economy when our largest businesses focus on satisfying lawmakers as much as customers, but it’s the reality. Some corporations eagerly trade in influence — even “weaponizing” laws and regulations against their competition — while others do so more reluctantly and defensively.
In this case, a prominent D.C. presence would allow Amazon’s high-level corporate leadership to form influential ties with policymakers, cultivate a positive public image, and enmesh itself into the local identity as a “hometown” company. Perhaps selecting a Beltway site for HQ2 was the plan all along. After all, there’s no better place to do these things than Washington, D.C.
It’s possible that Amazon’s political influence could increase economic growth and opportunity for everyone. One use of its newly bolstered influence could be to ensure that industries remain open to competition, enabling Amazon (and other companies large and small) to continue disrupting existing business models by discovering new and better ways to serve customers. After all, that’s how Amazon has been so successful in its short history.
The HQ2 competition does illuminate one of the worst problems of our economic-political system, and one that existed long before Amazon: that well-connected corporations can easily influence local government policy. Foxconn, Boeing, Tesla, Amazon, and a host of others have even provoked governments to compete over who can award the most favoritism to one specific company, as opposed to creating a level playing field for all businesses.
A mutually agreed upon interstate compact that limits state and local governments from offering subsidies offers one way out of this economic arms race. It would restrict the ability of government officials to play favorites to attract or protect specific companies or industries. In doing so it would ensure that taxes paid by small businesses aren’t being handed over to big businesses.
A level economic playing field requires consistent rules that apply equally to every company. Making it harder to dole out special treatment would reduce corporations’ motivation to seek political favors.
Amazon seems to be making a reasonable choice that might very well be good for the D.C. region. But the political motivations to locate here reflect poorly on the way our economy rewards government influence.
Michael Farren is a research fellow and Anne Philpot is a research assistant with the Mercatus Center at George Mason University.