The Amazon Headquarters Deal Shows Why We Must End Corporate Welfare

Rent-seeking is a practice as old as government, and one that has been debunked since, at least, The Wealth of Nations.

Amazon’s (AMZN) second headquarters has created a lot of hope and speculation since it was announced. Cities put together bids listing the benefits their areas could provide, including large tax breaks. One bid reportedly offered $7 billion in total benefits. The winners, Crystal City, Virginia, and Queens, New York, offered nearly a combined $2 billion in public funds ($2.4 billion when accounting for the late Nashville addition). This has generated a fair amount of public backlash.

Yet, as Veronique de Rugby explained, these dollars weren’t necessarily the deciding factor— local workforces, infrastructure, and access to other companies all played a more important role. Indeed, not only are other factors more important, but these costs—the subsidies and tax breaks meant to entice—do not benefit these cities in the long run. The influx of new jobs from Amazon is about what is expected without their contribution. These are areas already blessed with economic growth; jobs are created, and local economies flourish regardless of these special economic favors.

Local Cronyism

Sadly, Amazon is but one example of local governments bestowing special favor on the few at the expense of those less able to petition for tax dollars. At times, popular support rallies behind these bad deals because they appear beneficial on the surface. And since the costs are diffused and the benefits concentrated, political opposition is more difficult to rally. Some even believe they will reel in the benefits of property values or a growing economy.

A few examples of this local cronyism come to mind. In 2012, a long-standing local business, Central Radio, fought the City of Norfolk after the city seized their property for Old Dominion University, one of the largest, most notable presences in the area. Central Radio, which repaired and built ship radios, found that location particularly advantageous due to the proximity of local ports and other businesses, which allowed for better customer service. In other words, their location helped create a comparative advantage.

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