Why did the finalization of Amazon’s second headquarters worth 5 billion attract nationwide attention?

Amazon's HQ2 (second headquarters) has been finalized: New York and Northern Virginia.

One year ago, Amazon wrote a huge check to the city where it would be located for its second headquarters: a plan to recruit 50,000 new Amazon employees, $5 billion in building construction costs, and the city would have the halo of being the headquarters of a tech giant. The cost to the city would be only billions of dollars in tax incentives and potential improvements to the host city.

Located on the Long Island City waterfront in the New York borough of Queens, along the East River. Amazon is expected to locate part of its expansion nearby.

For a time, the whole country was in an uproar. If it could be described as an "All-American draft," the basic situation would be as follows:

• Pageant goal: To select the best new Amazon headquarters.

• Participants: 20 states, 238 cities.

• Audition period: 14 months.

• Prize: $5 billion, 50,000 jobs, and endless possibilities for the future.

• Champions: Long Island, New York and Cristal City, Virginia.

• Drama: I originally wanted to choose just one city, but ended up with a second headquarters split.
  

• The end result: Amazon has a significant presence in all three of the nation’s coastal cities.

This incident is worth studying because there are too many unknown questions worth exploring, such as why Amazon relocated? Why were these two cities selected? What is the sensitive relationship between technology companies and politics? Of course, there is also the role of Amazon CEO Bezos, who is very controversial, in this incident. Leifeng.com will explain them one by one for you.

In fact, there are many speculations. Some of them are different from the city mayor’s opinion, some are Amazon’s desire to be close to Washington to ease regulation, and some are more attractive to cities like New York. But fundamentally, Seattle’s urban development has become somewhat “out of touch” with Amazon’s development.

Leifeng.com learned that looking at the broader metro areas, the median housing cost in Seattle, New York and Washington is about $400,000 to $450,000, while the monthly rent for each house in the three areas is only $1,900 to $2,200.

• In terms of home purchase prices, the price in Arlington (near Crystal City) is $664,000, in Seattle it is $740,000, and in Long Island it is $846,000.

• In terms of rental prices, Long Island City's monthly rent of about $3,100 is much higher than Seattle and Arlington (both about $2,100).

Comparison of housing prices in Seattle, Washington, and New York

Amazon previously said that its Seattle headquarters has injected $38 billion, exceeding the company's expenses on buildings for the regional economy. Local government officials in Seattle have not disputed these figures, but they have also been working hard to keep up with Amazon's staggering growth and its requirements for public transportation, schools, road networks, parks and utilities. It is reported that Amazon currently has more than 45,000 employees, occupies more than 40 buildings and has an office area of ​​10 million square feet.

Amazon's footprint in Seattle

As can be seen, the tech giant owns about 4 million square feet of space in Seattle and has an additional 6 million square feet of leased space.

Although Amazon has purchased bus passes for its employees and is building a dedicated bike lane to ensure that 55% of its employees can walk to work, Amazon's business growth is so strong that Seattle has become one of the most expensive places in the United States, forcing low-income residents to move to distant suburbs. In 2015, King County around Seattle saw its first homeless population.

King County had an estimated 11,643 homeless people in 2017, the most recent data released by the federal Department of Housing and Urban Development, second only to New York City and Los Angeles County. That number includes people living in facilities such as shelters as well as those sleeping outdoors.

King County ranks third in the nation in terms of total homeless population (data source: Federal Department of Housing and Urban Development, image source: Seattle Times)

King County also has the third-highest number of unhoused homeless people in the country, including those living in cars, tents and on local streets. In 2017, there were 5,485 unhoused people in the county, a 21% increase from the previous year.

The above figures highlight the severity of the homelessness problem throughout the West Coast. In September 2018, Bezos announced that he would donate 2 billion of his own money to support groups that address homelessness in the United States and build more preschools in underserved communities. Amazon also announced that it would increase the minimum wage for all employees to $15 per hour after months of criticism from Senator Bernie Sanders over the treatment of workers.

However, the minimum wage is unlikely to have much impact on the company's hiring in Northern Virginia, as Amazon has previously said its facilities will primarily employ white-collar workers with an average annual salary of more than $100,000.

Of course, Seattle and its surrounding areas are not the only ones having such concerns. Even Washington, which “won the prize” this time, must catch up from an economic development perspective.

The Washington Council of Governments estimates that even without Amazon, the region would need to add 235,000 housing units by 2025 to keep pace with projected job growth. Amazon’s arrival could push that target to more than 267,000, according to a recent analysis by the Urban Institute. Currently, it would add about 170,000 units by 2026.

Some people questioned this massive site selection activity: Did Amazon really need to spend 13 months to select a second headquarters from 238 cities? And the final conclusion was New York and Virginia (the former is the economic center of the United States, and the latter is the cultural center of the United States). Isn't this ridiculous? They think this is a waste of a lot of social resources. In the final analysis, Amazon wants to get more preferential policies from cities.

But others defended Amazon. Splitting up the company makes sense because it is difficult to find 50,000 qualified workers, many of them computer engineers, in one area. Dividing the project could also ease pressure on housing, transportation networks and schools as the company grows.

Another narrative is that companies like Google, Facebook, and Amazon are attracted to cities like New York, Los Angeles, Seattle, and Washington because they have made transformative public investments in assets like culture, parks, universities, and transportation.

So the question is, why are so many cities in the United States willing to spend tens of billions of dollars to compete for this opportunity?

According to data, every year, states and cities spend up to $90 billion in tax breaks and cash grants to urge businesses to move between states. This is not just federal spending on housing, education or infrastructure, but because cities and states can't print money or have large deficits, these deals take scarce resources from everything that local governments pay for, such as schools, roads, police and prisons.

Someone has done statistics, in the past 10 years, Boeing, Nike, Intel, Royal Dutch Shell, Tesla, Nissan, Ford and General Motors have each received more than $1 billion worth of subsidy packages, either to move the company headquarters to the United States, or often keep the headquarters in place. According to reports, New Jersey and Maryland previously provided Amazon HQ2 with $7 billion in subsidies - which would have been the largest government funding "gift" in US history (although all of them have vanished).

Awkwardly, the confidentiality clauses Amazon signs with cities effectively give Amazon access to a ton of information about the city while preventing citizens from knowing what the city’s elected officials are doing to attract Amazon, which is worth $860 billion.

Previously, some people thought that Washington would become the location of the second headquarters. The main speculation was based on Bezos' strong personal ties to the region from the beginning, especially the $23 million mansion he bought in the city's Kalorama community last year and his ownership of the Washington Post. Of course, some people also pointed out that Amazon hopes to be able to seek help from the federal government near Washington, either because of growing concerns that regulators may take antitrust lawsuits against the company or because the government has become a key customer of Amazon. After all, Washington also meets the hardware conditions.

• Located in a metropolitan area with a population of over one million

• Stable and friendly business environment

• No more than 30 miles from a population center

• No more than 45 minutes’ drive from the international airport

• Access to major highways/arterial roads within 1 to 3 miles

• Convenient public transportation

• Office space can be expanded to 8 million square feet in the future

The picture shows the "hardware conditions" set by Amazon

According to Amazon's previous list of site selection criteria for HQ2, the Washington area naturally meets many of the criteria required by Amazon, including a large number of talented workers, a strong public transportation system and convenient airport access. Of course, there is no point in guessing now, Washington was not selected.

The New York Times wrote in a previous article: The myth of innovation once appeared in the back of garages or office parks in the suburbs of Silicon Valley. The technology industry was not incubated on the streets of big cities, but in sleepy small villages such as Murray Hill, New Jersey (the area with the highest concentration of scientists in the United States) and Silicon Valley, California (where technology companies are everywhere).

It can be said to be very vivid.

Leifeng.com believes that this is indeed the case in China today. Alibaba and Hangzhou, Huawei, Tencent and Shenzhen are all proving this. In the United States, this phenomenon is still happening.

A few years ago, Wisconsin Governor Scott Walker lured Foxconn with a subsidy package of more than $3 billion (Leifeng.com Note: The same amount of money can give each Wisconsin family about $1,700). Foxconn said it would build a large manufacturing plant and create about 13,000 jobs. Now, Foxconn appears to be building a much smaller plant, investing only a quarter of the initial commitment, and most of the assembly work may be done by robots. Meanwhile, the expected value of Wisconsin's subsidies has grown to more than $4 billion.

Kansas and Missouri have spent billions of dollars hauling companies back and forth across state lines in the same metro area. A few years ago, Kansas gave AMC Entertainment tens of millions of dollars in subsidies, and Missouri used another incentive program to get AMC to move Applebee's headquarters from Kansas. The two states settled the case privately for $500 million.

If Amazon actually comes to New York, it won't be alone. Google and Facebook have already set up headquarters here (without state subsidies). Google plans to double its New York City workforce to nearly 20,000 (it is mainly this group that just went on strike), and Twitter's second largest office is in Manhattan, New York (its largest is in downtown San Francisco).

Interestingly, business analyst and Amazon expert Scott Galloway posted a funny but real image showing the distance between Bezos' residence and the company's current and future headquarters.

The distance between Bezos' home and company in three cities

“City life is built around a social contract,” said Vishaan Chakrabarti, a Columbia University professor and founder of the architecture firm PAU. The economic value creation of superstar cities like New York fuels a “feedback loop” that both companies and cities want to be a part of.

What’s a “feedback loop”? For starters, it means the city and state now have more reason to pour money into subways, buses and new tunnels under the Hudson River and to support the stalled BQX streetcar project connecting Brooklyn and Queens, all of which will serve Amazon.

In turn, Amazon, which dominates e-commerce (especially books), could make self-interested commitments in advance to local school curricula, helping the city prioritize education.

Amazon can profit from New York's growth, just as New York can profit from Amazon's presence. It's not just Amazon's technology that's at work, but a lot of political, economic and cultural issues are involved.

This is how modern big cities work - maybe we don't understand it, but we have to acknowledge it.

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