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Thursday, January 30, 2020
Amazon HQ2 and Foxconn Should Never Happen Again
Trying to be a good place to build an office or factory is smarter than offering incentive packages.
By
Noah Smith
January 28, 2020, 9:30 AM CST
This is what $4.5 billion buys these days?
Photographer: Andy Manis/Getty Images North America
There have been two prominent instances in recent years of governments offering huge monetary incentives in exchange for an office or factory. Both have turned out badly.
The first
was former Wisconsin Governor Scott Walker’s
$4.5 billion
package to win a factory from Taiwanese electronics manufacturer Foxconn. The factory never made economic sense and -- to no one’s surprise -- Foxconn recently
announced
that it probably will build only a small research center in Wisconsin.
The second
was New York City’s offer of
$3 billion
-- later discovered to be closer to
$3.8 billion
-- to Amazon.com. Inc. to put its second headquarters in Queens. This was a less clear-cut case; the so-called HQ2 would have been much more economically valuable than an electronics assembly plant, and Queens residents
favored
the deal. But a backlash from some New Yorkers caused the company
to pull out
. Amazon later said it would put a much
smaller office
in the city.
The failure of these two big deals generated a lot of negative press and wasted some money. But it has raised some hope among urbanists and economists that cities and states will drop the incentive approach and embrace more effective methods of expanding their local economies.
One big problem with business incentives is that even when they’re successful at luring companies, they often aren’t worth it. A number of studies have found that the local economic benefits of paying for a factory or office tend to be
fleeting
or
nonexistent
. A
new paper
by economists Cailin Slattery and Owen Zidar confirms these findings.
The study takes advantage of a vast and comprehensive new
data set
gathered by Slattery. The 543 incentives she catalogs include targeted tax breaks, across-the-board tax breaks and direct subsidies to companies. In many cases, Slattery and Zidar were able to compare the economic performance of the places that won a company’s business with that of the runner-up.
They found that incentives do work -- but only up to a point. The average number of jobs promised to the winning location is 1,500, and companies generally do follow through on their jobs promises. But that’s just the average amount; there’s wide variability in how many jobs get created, meaning incentives are risky. Then there’s the steep price tag; in exchange for those jobs, a location pays an average of about
$178 million
, or about
$119,000
per job created.
Read more:
https://www.bloomberg.com/opinion/articles/2020-01-28/amazon-hq2-and-foxconn-should-never-happen-again
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