Did Detroit and other cities get suckered by Amazon?
More and more it sure looks that way. Amazon hasn't yet announced where its sought-after second headquarters, known as HQ2, will go. But the latest news is that Amazon is close to splitting the decision between two cities: New York and Washington, D.C., which were the obvious front-runners all along.
If the outcome was fore-ordained, more or less, why then did Detroit and more than 200 other metros in North America throw vast amounts of tax incentives at Amazon hoping to lure HQ2? Detroit alone, working with state officials, offered Amazon $4 billion to get the 50,000 new jobs and billions in investment that HQ2 supposedly will mean.
At the time it seemed the obvious pitch to swing at. All those jobs and all that new investment in Detroit? Certainly worth a try, right?
But now it appears that Amazon's lottery-like competition for HQ2 was more about sussing out every city's best offer so Amazon could gain bargaining power with the eventual winner or winners.
More: An Amazon HQ2 timeline
Amazon, meanwhile, collected a huge amount of data about metropolitan assets throughout North America, which no doubt it will put to its own internal use.
It's left people in a lot of cities feeling used.
Even the eventual winners in a competition like this sometimes have regrets. Consider what happened in Wisconsin after Taiwanese tech giant Foxconn chose that state for a vast new facility similar to the Amazon HQ2. Wisconsin will wind up giving more than $4.5 billion in various incentives to Foxconn when everything is counted.
Besides all the tax breaks and incentive payments, Gov. Scott Walker has proposed diverting federal highway funds from other projects around the state that need the money to build an expressway near the Foxconn site. And Wisconsin will allow Foxconn to gulp several million gallons of water per day from Lake Michigan.
On top of all that, the state has shown itself willing to use eminent domain powers to broom aside hold-out property owners who resist selling their land to Foxconn.
These excesses have left a sour taste in the mouths of Wisconsin voters. Walker's defeat Tuesday in his re-election bid was viewed by some as a reaction against the Foxconn deal.
Weighing the costs
What to take away from the feeding frenzies over Amazon and Foxconn? Once a state or city decides to "buy" a major project like Foxconn or Amazon, it's the company, not the state or the public, that takes control. Once committed, officials find it hard to draw a line; they must continually pump resources into such a project, always with the justification that the new jobs will be worth it.
But are they? Tim Bartik, an economist with the W.E. Upjohn Institute for Employment Research in Kalamazoo, estimates that the costs per new job in the Foxconn deal are already more than eight times the amount in the usual incentives package. That's a pretty steep price to pay.
Or think about the 50,000 jobs that Amazon has promised with HQ2. That would represent only about 1 percent of the Michigan total workforce today. Nice to have, sure, but worth throwing billions of tax breaks at a company to get them? Maybe not so much.
Now that Amazon appears to be splitting HQ2 between New York and Washington, Detroit's offer of $4 billion in incentives looks even less justified.
There are plenty of good points on both sides, and I'm certainly not against offering tax incentives in all cases. Often it's justified, especially in a city that faced the sort of economic distress that Detroit has faced for decades.
But this much I know: Behemoth companies like Amazon should not be allowed to play cities like Detroit against each other for its own benefit and to our detriment.
So next time a giant corporation dangles the lure of new jobs and investment in exchange for billions and billions of public dollars, let's take a pass.
Contact John Gallagher: 313-222-5173 or email@example.com. Follow him on Twitter @jgallagherfreep.