Amazon Pulls Out of New York HQ2

Amazon, which is the largest tech firm in the world, and home to billionaire Jeff Bezos who is currently the richest person in the world has decided that the firm will not construct its second headquarters famously dubbed as the HQ2 in New York City.

In 2018, after an extensive search, the company had zeroed down on New York as the destination for its second headquarters. The company wanted to add geographical diversity to its locations. Hence, it was largely considering locations only on the East Coast.

New York had won the race for hosting the HQ2 after a long battle with many competing cities. However, critics of the deal started saying that New York had given a bit too much in tax breaks. As a result, the deal started getting negative publicity from the day it was signed. At first, Amazon tried to ignore the negative attention. However, as the protests did not show any signs of stopping, Amazon decided to pull out of the city.

Politicians, as well as the people of the city, are heavily divided about the implications of this move. Some politicians are viewing it as a victory over big tech. On the other hand, others believe that New York may have just lost a golden opportunity to diversify from the financial services industry which pretty much defines New York.

Why did Amazon Decide to Back Out?

Amazon has been receiving a lot of bad publicity in the recent past. In the earlier days, Amazon had the reputation of an innovator. However, now people all over the United States and the world have started viewing the company as a ruthless monopolist. Some even compare Jeff Bezos to the robber barons who colluded with governments to take away people’s money. Also, Jeff Bezos is in the middle of a very public divorce settlement.

Given all the negative publicity the company has already generated it did not want more. In the middle of all this, Democrats from New York area were consistently blaming Jeff Bezos and Amazon of getting an unfair deal. This is the reason why Amazon decided to pull out. Also, the spokesperson at Amazon has clarified that this is not a publicity stunt. Jeff Bezos and Amazon have no intention of sitting back on the bargaining table with New York. They have made their mind to exit the city, and that will not change.

Were The Incentives Too Much?

The vilification of Jeff Bezos and Amazon by the Democrats seemed to be more of a publicity stunt. This is because, economically, the deal did not seem to be bad.

Politicians have been clamouring about the $3 billion in tax breaks that Amazon will get over the next few years. However, they seem to have conveniently forgotten that Amazon was going to bring in 25,000 jobs with an average pay of $125000.

This means that each year, the government of New York could levy taxes on an additional $3.75 billion which was going to be paid out in taxes. These taxes would be enough to set off the tax breaks in about 5 years. Then the state would get to tax more of Amazon’s corporate earnings as well as the earnings of its employees. Given the scale of the proposed operation, $3 billion in tax breaks would not have been very much.

No Effect on Congestion

Politicians were clamouring about the fact that Amazon will bring a lot more people into the city. Hence, they will end up creating a situation wherein there are too many people in the city.

Political opponents claimed that the infrastructure of the city was already much stretched. They also claimed that the addition of new people was not a viable option. Two points need to be considered here.

First is the fact that Amazon did not want to build its headquarters in downtown Manhattan. Instead, they had chosen a distant suburb. Hence, the problem of crumbling infrastructure in downtown New York is not really relevant to Amazon since they were never planning to use that infrastructure.

Secondly, Amazon was planning to hire only 25000 employees. Hence, if including their families, 100000 people moved into the city, the effect would be negligible. This is because New York is a giant city with a population of close to 20 million. An additional 100000 would not cause as much congestion and chaos.

No Real Effect on Gentrification

Another criticism levelled against Amazon was that its high flying tech workers will raise the property prices in the city. As a result, the old inhabitants will have to move out. However, this argument is also logically inaccurate.

The average worker is projected to make $125000. That is not too much compared to what hedge fund managers, mutual fund managers, and corporate bigwigs already make in New York. Hence, it would be unfair to say that Amazon’s workers will flood the property market. In fact, their existence is not likely to make too much of a difference to the New York real estate market.

The bottom line is that many political leaders could not see the fact that a government was taking steps that would benefit the richest man in the world. Hence, their protests were more motivated by political ideology than by economic reality. The fact is that both Amazon and New York have enough options.

The fallout of this deal is likely to affect neither party too much. However, the reputation of New York City for being capitalist friendly has taken a severe beating.

❮❮   Previous Next   ❯❯

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.