The bidding war for Amazon’s HQ2 is a race to the bottom

When Amazon announced it was accepting proposals from cities interested in hosting its second US headquarters last September, it kicked off a bidding war like none other we’ve witnessed before.

With more than 200 cities and states across the US entering the race, offering up a series of perks and generous tax incentives to entice Amazon, the competition quickly became more like a beauty pageant.

Up for grabs is a promised investment by Amazon of $5bn and a headquarters that would host 50,000 workers, making an average of more than $100,000 a year. It had the usual kind of wishlist – educated labour force and access to airport, road and mass transit infrastructure – but it also called for a business-friendly tax structure and incentives to offset things like ongoing operational costs and land grants.

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The result was quite the circus. The city council of Stonecrest, Georgia, voted to de-annex 345 acres of land and officially rename the land Amazon, while New Jersey offered up to $7bn in tax incentives. One developer in Irvine, California, even offered to pay the entire $5bn in construction costs himself.

The bidding war represents a tectonic shift in the rules of attracting inward investment, which London and other cities around the world should be suspicious of. The battle lines of global trade are becoming ever more commercial and characterised as a traditional buyer-supplier relationship, which is a dangerous route to go down.

Amazon has very cleverly structured a two-step competition to elicit the maximum response and the greatest possible range of incentive offers, while effectively pitting city against city. It’s highly likely the company already knows the top contenders, but recently announced its list of 20 finalists in all likelihood to encourage even more competition. Through the long process, it has shaken down communities that are desperate to win jobs and prestige, leading them to jumping in feet first and offer money that ultimately could be going to things like schools, transport, housing and other public services.

There is even some scepticism among site selectors in the US about how genuine the competition really is. Given Amazon has more comprehensive data sets than any economic development community, it may simply be flexing its political muscles to lobby policy makers on US tax, immigration and labour reform.

While it’s easy to be wooed by the prospect of Amazon, cities and regions need to think carefully, beyond the lure of a short-term boost and the wave of kudos that one single investor may bring.

Giants like Amazon offer high salaries which can drain talent in the local area, dominate R&D, increase the burden on infrastructure and increase the cost of living for local people, such as house prices. For many cities, it’d be better to focus energies elsewhere on more viable, smaller companies which offer a more stable return on investment and make a genuine contribution to the local economy.

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