This Is What Really Happens When Amazon Comes to Your Town – POLITICO Magazine
SEATTLEâ€”Thursday is the deadline for cities bidding to host â€œHQ2,â€ as Amazon calls its planned second headquarters, and the competition has been intense. More than a hundred would-be hosts have assembled generous packages with everything from multibillion-dollar tax breaks to free utilities to an offer to build Amazon its own city (also named Amazon) in the hope of enticing the online retail giant and up to 50,000 of its handsomely paid employees.
But as these cities go all-out to win Amazonâ€™s affections, they might take a lesson from the city where those same affections have dimmed: Seattle. To be sure, the townâ€™s business community is mortified to be losing so much of Amazonâ€™s future growth to another city and has roundly blamed the cityâ€™s left-leaning â€œanti-businessâ€ politics. But many ordinary Seattleites seem relieved. Most would acknowledge the extraordinary prosperity that Amazon has brought to Seattle since Jeff Bezos and his startup arrived in 1994. But they are also keenly aware of the costs, not least the nationâ€™s fastest-rising housing prices, appalling traffic and a painful erosion of urban identity. What was once a quirkily mellow, solidly middle-class city now feels like a stressed-out, two-tier town with a thin layer of wealthy young techies atop a base of anxious wage workers. As one City Council member put it, HQ2 may give Seattle â€œa little breathing roomâ€ to cope with a decade of raging, Amazon-fueled growth. A commenter on a local news site was less diplomatic: â€œAmazon = cancer.â€
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None of which will deter Amazonâ€™s suitors. In their view, any downsides from HQ2 will pale against the upsidesâ€”the six-figure salaries and the $5 billion campus, of course, but more than that, the legendary Amazon power to transform a city, as it has Seattle, into a â€œknowledge capital.â€
Yet as anyone who has witnessed that Seattle transformation firsthand could tell you, Amazonâ€™s suitors may be laboring under some fairly unrealistic expectations. Certainly, they are underestimating the impact that tens of thousands of young, well-paid â€œknowledgeâ€ workers can have on local infrastructure, housing prices and even politics. But theyâ€™re probably also overstating the benefits of being Amazonâ€™s second company town. Thatâ€™s because they donâ€™t fully appreciate how much of Seattleâ€™s Amazon miracle was due, not to Bezos or Amazon or even the knowledge economy, but to Seattleâ€™s own very particular mix of economic, cultural and environmental ingredients. These homegrown upsides might not be so easy to replicate.
When outsiders gaze covetously at Seattleâ€™s Amazon boom, what theyâ€™re really seeing isnâ€™t the effect of a single company, but of a chain reaction. Amazon is now so central to the global knowledge economy that it exerts its own economic gravitational force on the tech industry. The companyâ€™s dominance in cloud computing, for example, means that other cloud players feel pressure to be in Seattle. This clustering of firms around Amazon has created a talent vortex, which has drawn more tech workers to Seattle. And that enlarged talent pool has in turn attracted still more tech firms, which have drawn still more workers to the city, and so on.
This self-feeding dynamic, known as â€œagglomeration,â€ has been a huge force in Seattle. In the past seven years aloneâ€”the period of Amazonâ€™s most explosive growthâ€”more than 20 Fortune 500 companies have opened engineering or R&D campuses hereâ€”including Facebook, Google and Apple, techâ€™s three other giants, plus newcomers like Uber. The city has gained 53,000 jobs (on top of the roughly 40,000 at the Amazon headquarters), some $17 billion in new wages, salaries, and other compensation, and $38 billion in new investment, according to Amazonâ€™s own analysis. (Indeed, even since the HQ2 announcement, Amazon has locked up an additional 1.2 million square feet of office space in downtown Seattle.) Little wonder that other cities believe HQ2 will be â€œa transformational event,â€ as one consultant put it. Or that the Seattle Chamber of Commerce would reprimand its own citizens for not recognizing that â€œAmazon is the best thing that has happened to the city in the modern era.â€
But cities hoping for their own transformational event should keep several caveats in mind. Most obviously, Amazon isnâ€™t the only reason Seattle has been attracting all the firms, talent and capital. The areaâ€™s â€œotherâ€ tech icon, Microsoft, headquartered since 1986 in nearby Redmond, is still spinning out its own considerable agglomerative powers. It boasts the worldâ€™s second-largest cloud operation, a huge workforce and a famously productive web of spinoffs and startups, many of which now exert their own Seattle gravitational pull. Former Microsoftie Richard Barton, to take one example, founded online travel company Expedia and real estate website Zillow, both now based in Seattle. Microsoft co-founder Paul Allen, a prodigious startup launcher in his own right, also developed the vast business park downtown that became Amazonâ€™s campus. Other gravitational centers abound. AT&T Cellular and Nintendo are here. The very tech-focused University of Washington has launched scores of ventures and technology transfers. And for all the talk of the â€œnewâ€ economy, one of Seattleâ€™s biggest tech firms is also one of its oldestâ€”aerospace giant Boeing, which has been attracting engineers and computer scientists, and launching spinoffs, for decades.
In other words, long before Amazon was even a business plan, Seattle had developed what urban geographer Heike Mayer calls the â€œentrepreneurial ecologyâ€â€”a potent mix of talent, institutional expertise and networks that startups like Microsoft and later Amazon were able to plug into. And that ecology still provides a critical advantage to newcomersâ€”one that could hardly be expected to transfer neatly to another city simply because Amazon builds a headquarters there.
Prospective host cities will point to their own nascent tech sectors, prestigious universities and other local sources of tech talent: Amazon would hardly be starting from scratch. But a closer look at Seattle makes clear that this cityâ€™s powerful entrepreneurial ecology wasnâ€™t driven only by its tech sector. Seattleâ€™s deservedly outsized reputation for inventiveness runs the full business spectrum. The city is a long-time leader in medical, bioscience and genetics research. It is the epicenter for some of the biggest retail innovations of the modern era, including Starbucks, Nordstrom, REI and Eddie Bauer. (Costco is based just outside the city.) Even the cityâ€™s art and indie music scene is enormously enterprising: SubPop Records almost single-handedly launched grunge music. By the time Bezos arrived, Seattle boasted a proven culture of innovating, executing and branding that would have been fertile ground for a company trying to reinvent retailingâ€”and that is still giving a unique boost to the cityâ€™s tech sector.
Other cities will have skilled workforces and universities, says Andy Yan, director of The City Program at Simon Fraser University in British Columbia, and a longtime observer of Seattleâ€™s economy. But what they canâ€™t duplicate is Seattleâ€™s weird mix of history, culture and business, â€œThe same culture that came up with Amazon also came up with grunge,â€ Yan says. â€œI mean, how much of Amazon is actually the â€˜childâ€™ of Nordstrom and Nirvana?â€ And how much of that â€œalchemy,â€ as Yan calls it, will transfer to another town?
Yanâ€™s alchemy underscores another important, and hard to duplicate, factor in Seattleâ€™s Amazon moment: This city is a bizarrely powerful people magnet. Decades before urban theorist Richard Florida advised cities to recruit the â€œCreative Classâ€ with parks, nightlife and other amenities, Seattle was not only pulling in a disproportionate share of creative newcomers, but also was retaining them, even when times got tough. Case in point: During the brutal â€œBoeing bustâ€ of the early 1970s, a national recession and the collapse of the aerospace sector cost Seattle more than 100,000 jobs and bumped unemployment to 17 percentâ€”the worst for any U.S. urban area since the Great Depression. Yet the city held onto most of its talented workers and even continued to bring in new ones, according to a 1973 Rand study More impressive still, Rand found, half of these well-educated newcomers arrived without secure employment: The cityâ€™s â€œattractions were such that workers came looking for jobs even during times of monumental unemployment rates.â€
Seattleâ€™s high labor â€œstickiness,â€ as economists call it, is hardly surprising. Beyond its gorgeous setting, charming single-family neighborhoods and hip culture, Seattleâ€™s atmosphere of entrepreneurship and the ever-present possibility of rags-to-stock-options riches has been a powerful attractant in its own right, says Jacob Vigdor, an economist and urban policy expert at the University of Washington. Even for the out-of-work, says Vigdor, â€œthereâ€™s this inclination to think, â€˜Hey, this is a town where new stuff is happening, where thereâ€™ll be some startup or some other sort of opportunity for me.â€™â€
This urban brand has been a critical piece of Seattleâ€™s tech success. During tech booms, it has helped tech firms poach talent from bigger, better-paying places like Silicon Valley; but during the busts, it has also helped Seattle hold onto skilled workers who are laid off, thus preserving a talent pool that helps the tech sector bounce back sooner. But, like the rest of the cityâ€™s entrepreneurial ecology, that stick-around-factor will be no easier for other cities to import.
Winning HQ2 may be â€œa great way to get an â€˜anchor tenantâ€™ around which you can build,â€ says Ed Lazowska, a top University of Washington computer scientist who has watched Seattleâ€™s tech scene develop since the 1970s. â€œBut the notion that Amazon is going to be your ticket to a glorious future, absent all the other things that a place like Seattle has to offerâ€”thatâ€™s delusional.â€ Put another way, it may be that Seattle was actually the best thing that happened to Amazon.
To be sure, much of the hype over HQ2 is just thatâ€”hype. Most would-be host cities surely know they canâ€™t expect a full repeat of Seattleâ€™s Amazon miracle. But they do expect, quite reasonably, that the sheer scale of the second headquartersâ€”the $5 billion spent on a campus, and the 50,000 jobs, with an average salary of close to $100,000â€”will create ripple effects that, while not as big as Seattleâ€™s, would still be quite large.
The question, of course, is whether those benefits would outweigh the costs. These include the billions of dollars in tax breaks and other explicit giveaways. But they also include the broader impacts that Seattleites have seen in the past few years as Amazon and its rivals have boomed. The influx of well-paid tech workers has helped drive up the median house price by 69 percent since 2012, and has added to income inequality: The average tech salary was $98,215 last year, while more than half of the cityâ€™s residents earned less than $50,000. And rich and poor alike must endure traffic congestion that is now the fourth worst in the United States. Such â€œnegative externalities,â€ as economists call them, arenâ€™t the fault of Amazon or any of its tech peers. Even pre-Bezos, Seattleâ€™s housing market and transportation infrastructure had struggled under the cityâ€™s superstar status. Seattleâ€™s new Amazon headache is simply what happens when a hyper-successful company meets an already popular city.
But that is precisely the point. Were Jeff Bezos to build HQ2 in a less popular cityâ€”Detroit, say, or St. Louisâ€”where housing and infrastructure arenâ€™t already under such pressure, the negative externalities truly would pale against the benefits.
Yet itâ€™s hard to see that happening. Although company officials have extolled the virtues of geographic diversityâ€”one executive says a non-Pacific Northwest headquarters would let Amazon â€œrecruit a different collection of employeesâ€â€”Bezos has made clear he wants a city similar to Seattleâ€”which is to say, a city that is already a magnet for the kind of person Amazon wants to hire. Such a city, says the University of Washingtonâ€™s Vigdor, is almost certainly already in the red zone for things like affordability, which would only be intensified by â€œbringing in 40,000 highly paid employees to compete for the same relatively constant supply of housing.â€
True, these externalities would be countered, at least in part, by HQ2â€™s massive benefitsâ€”such as more tax revenue for city services and schools. The problem, says Vigdor, is that neither the benefits or the costs will be evenly distributed. Although residents may well benefit from things like more school funding in the long run, he says, most wonâ€™t be getting any of those six-figure salaries. â€œBut what they are going to find is that the price of many of the things that they have to buy is going to trend upward.â€ And if Seattleâ€™s experience is any guide, Vigdor says, â€œitâ€™s not just the poor who are getting squeezed out. Itâ€™s the firefighters and school teachers and a lot of other traditional middle-class occupations where a $600,000-dollar house does not look affordable.â€
Such a situation, as Seattle has also discovered, is not a recipe for civic tranquility. In recent years, hostility toward Amazon and its employees has grown palpable. That is one of the factors, according to Seattle business leaders, that helped drive Amazonâ€™s HQ2 decision. Where a more appreciative town would have been proud of its corporate citizen, Seattle went the opposite direction. There were constant anti-Amazon harangues in the media and, worse, a series of less-than-business-friendly policies, among them, a $15 an hour minimum wage, strict limits on how companies can schedule employees, and the piÃ¨ce de rÃ©sistance, a citywide 2.25-percent income tax on individual incomes above $250,000 and jointly filed incomes above $500,000 that, as one opponent put it, â€œclearly targets higher wage earners at companies like Amazon.â€ (A subtext in the city is that both Bezos and Microsoft founder Bill Gates have opposed previous efforts at a statewide income tax.)
But the complaints that Seattle has turned anti-business miss the point. Seattle has indeed tilted decidedly and often absurdly to the left in recent years. (Socialist Seattle City Council member Kshama Sawant once proposed nationalizing Boeing.) But even a more conservative Seattle couldnâ€™t have come close to absorbing the 40,000 additional workers Amazon is going to hire for HQ2. More fundamentallyâ€”and more relevant for would-be host citiesâ€”these â€œanti-businessâ€ complaints ignore the way Amazon and other tech firms themselves have helped foster Seattleâ€™s disloyalty. Even residents here who are thankful for Amazonâ€™s presence recognize how the companyâ€™s rapid growth has added to affordability and inequality problemsâ€”and as a result have been more willing to support worker-friendly policies, such as the $15 minimum wage.
But tech firms have played another, more paradoxical role in the cityâ€™s growing skepticism for its tech elites. The young, educated army of knowledge workers who have flocked to Seattle since the 1990s have also helped alter Seattleâ€™s political chemistry. Many are highly supportive of progressive causes, says Seattle pollster Ben Anderstone, and have tended to vote for Seattleâ€™s ever more left-leaning politicians.
And itâ€™s these politicians who are enacting the policies that so irk local businessâ€”including some of the same businesses that recruited these youthful voters in the first place. As Anderstone observes, there is often â€œa significant gulf in attitude toward politics, if not ideology, between tech company workers and tech company management.â€
This political paradox may be the ultimate example of both the costs and the benefits that come with Amazon. No doubt, most cities bidding for HQ2 believe themselves capable of handling the housing costs and the traffic. But they may be less prepared for the fact that they would also be importing a culture. Whether these cities realize it or not, Anderstone says, the decision to bid for HQ2 is a decision not merely about their economic future, but â€œabout their identity as well: what kind of political culture they want to have and what kind of people they want to bring to shape it.â€
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