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Amazon and the troubling rise of superstar cities

Why We Wrote This

By picking New York and Washington as its new HQ cities, is the retail giant missing an opportunity to help the parts of America that are left behind?

Elaine Thompson/AP
Employees traverse the lobby at Amazon’s Seattle headquarters. The retail giant ended its 14-month-long competition for a second headquarters Nov. 13, 2018, by selecting New York and Arlington, Va., as the joint winners.

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Is geography economic destiny? It can seem that way when Amazon announces it’s going to split its second headquarters between New York City and greater Washington, D.C. Those metros are already superstar cities. They don’t need an extra 50,000 jobs the way other areas do. The phenomenon is hardly limited to Amazon. Between 2007 and 2016, the most prosperous one-fifth of ZIP Codes created more jobs than the other 80 percent of ZIP Codes combined, according to the Economic Innovation Group. What’s the answer? Inland states and metro areas can still prosper by pursuing business opportunities tailored to their regions, experts say. A key answer is also investing in seeds of jobs creation like worker skills, transportation infrastructure, and university research. On those fronts, extra federal help could be targeted toward less-advantaged places. Already a bipartisan feature of the 2017 tax-cut act gives incentives for investment in less-prosperous locales. John Austin, a development expert in Michigan, notes that Germany has a “national place-based effort to help all parts of the country achieve equal quality of life and economic opportunities,” adding, “It’s in their Constitution.”

The decision by Amazon to add new “headquarters” in New York and metro Washington, D.C., has laid bare a stark economic fact: Rich cities keep getting richer, while many other places are left behind in the race for new investment and jobs.

A year-long bidding effort by cities became a kind of “America’s Got Talent” contest for high-tech jobs. Amazon narrowed a lengthy list down to 20, dangling the prospect that the giant retailer might favor some unexpected inland city like Pittsburgh or Atlanta to set up its second HQ, with 50,000 jobs.

Instead Amazon went with cities that already rank as superstars. Splitting the HQ in two, the company will hitch its high-ambition future to the nation’s political capital and its financial and cultural capital.

The drama reveals a deeper challenge for America, beyond just what critics see as a self-destructive bidding war by localities to offer billion-dollar tax breaks and incentives to companies like Amazon. It’s the tendency of geography to become economic destiny.

Consider that, while all parts of the country were hit by the Great Recession, the recovery of jobs since then has been heavily centered in the most prosperous areas, whether measured by city or ZIP Code. By 2016, the one-fifth of ZIP Codes that rank as “prosperous” had 3.6 million more jobs than in 2007, a gain greater than the bottom 80 percent combined, according to the Economic Innovation Group, which advocates for more widely shared creation of businesses and jobs.

By contrast, the “distressed” ZIP Codes where 1 in 6 Americans live are unlikely to ever recover their lost jobs, unless current trend lines change, the group estimates.

 

Kevin Lamarque/Reuters
Virginia Gov. Ralph Northam speaks at a news conference after Amazon announced Nov. 13, 2018, that it had picked Crystal City to be one of two homes of the company's new second headquarters..

Cities across the nation aren’t blind to these challenges. But experts on economic development say new steps are needed, both in local and national policies, to help spread economic success more fairly and widely across America. The task has implications not just for material well-being but also for the nation’s political and social health.

“The real drivers of new economic activity are where there is innovation and talent generation and talent wanting to live there,” says John Austin, director of the Michigan Economic Center in Ann Arbor and a scholar with the Brookings Institution. “Accelerating that dynamic in more of our communities … would be healthy politically, so we wouldn't have these yawning divides of income, [of] opportunity in communities, and then angst and anxiety about the future and social change.”

Changing with the times

The good news, Mr. Austin notes, is that lots of metro areas have already been charting paths forward. Pittsburgh, one of the contenders for the Amazon “HQ2,” is a case in point, having transformed from a reliance on steel manufacturing into a hub for metal research, robotics, and other advanced fields.

“Minneapolis/St. Paul has been there for a long time,” he adds. “Indianapolis has gotten there now. Detroit and Cleveland are moving a little slower, but they’re getting there.”

Eduardo Munoz/Reuters
People walk along Gantry Plaza State Park in Long Island City, a New York City neighborhood where Amazon plans to build a new second headquarters.

Not everyone can be the headquarters of an $800 billion company that aims to dominate everything from the global retail industry to providing web-based data solutions for clients including the US military.

Losing the battle for Amazon may actually free cities to focus on the nuts and bolts of digital-era growth.

“Places should be creative,” says Steve Glickman, who co-founded the Economic Innovation Group as a bipartisan initiative. “I think there is really no such thing as a technology sector anymore. Everything is technology-enabled, and you have to find a way to play in that new economy.”

But if he’s bullish on the opportunities, he also sees a worrying level of inertia.

“You functionally can't grow an economy unless you’re creating new businesses that lead to new industries that create new jobs. [And] a smaller and smaller part of America is doing that,” he says. As he sees it, widening place-based gaps are one important factor behind the frayed political cohesion not just in the US, but in other countries with advanced economies.

Mixed blessing

Meanwhile, the growth of superstar cities isn’t easy, even on the winners.

Here in Arlington, Va., where Amazon’s new HQ will sit across the Potomac River from the US capital and adjacent to Reagan National Airport, residents see the company’s arrival as a mixed blessing.

“It’ll probably drive prices up” in an already expensive housing market, says Brian Conley, a government worker in Arlington, who lives nearby. But overall he says “it’s probably good for the area” because of “a lot of good jobs.”

As he speaks, he’s waiting for a ride on the Metro, the area’s decades-old subway system that’s already often crowded, delayed, or partially shut down for repairs.

“Commuting is somewhat challenging on its own,” even before Amazon and the added spinoff jobs that may arrive with it, says another worker in Arlington, who asked that her name not be used.

Similar questions about housing and commutes swirl around the Queens neighborhood known as Long Island City, where Amazon’s big new New York City venue will be located. (The company’s current HQ is in Seattle.)

In New York, Amazon will be able to tap into what’s arguably the world’s leading consumer and media marketplace to hone and promote its business. CEO Jeff Bezos, now the world’s richest person, will be able to hop between the two East Coast HQs by helicopter from his home in Washington, D.C.

But what can be done to distribute prosperity more widely across the US map? Policy experts see a range of promising options:

• End the metro arms race. Economists widely agree that efforts to shower incentives on companies, in order to lure them to particular places, is a waste of money – providing no net value to the nation while costing localities billions that could be spent on other needs. Ending or at least reducing the practice might be accomplished by some kind of collective accord, or with a nudge from federal policy.

• Deploy the right kind of tax incentives. Mr. Glickman sees great promise in policies aimed at bringing business in general – not any specific company – to economically disadvantaged areas. It’s not a new idea, but it could get a kick-start from a bipartisan feature of the Trump tax-cut act: incentives for “opportunity zones” that states identify based on need. Glickman now leads a venture called Develop, to promote such investment.

• Build individualized local strategies. Not every city boasts a world-class research university. But a rural community might have what it takes to be a player in local green energy, for instance.

• Invest in the seeds of jobs creation. In any city or region, things like education, worker skills, transportation infrastructure, and university research develop the roots for new businesses. And some experts say that, for greater social fairness in an era of superstar cities, some extra federal help for less-advantaged places is warranted.

Austin, in Michigan, notes that when he visited Germany’s industrial region he saw many of the same challenges that the US faces, but with a stronger policy role being played by the national government.

“They do have an explicit federal national place-based effort to help all parts of the country achieve equal quality of life and economic opportunities,” he says. “It’s in their constitution. We don’t have such a thing.”

“[Americans] understand the economy is changing. Their problem is they don’t think they're part of it,” says Rep. Ro Khanna (D) of California, who represents part of Silicon Valley and spoke with Monitor editors in Boston Friday. “They think when we talk about innovation, the economy, and entrepreneurship, all that investment is going to benefit my district. It’s not benefiting them.”

It’s time that they be included, he adds.

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