LA loses bid for Amazon HQ2 and thousands of possible jobs, but some experts are relieved

  • TECH
  • Thursday, 15 Nov 2018

FILE- In this Oct. 23, 2018, file photo an Amazon logo is seen on the side of an Amazon Treasure Truck in Los Angeles. Amazon on Tuesday, Nov. 13, said it will split its much-anticipated second headquarters between New York and Arlington, Va. In addition, the online retailer said it will open an operations hub in Nashville, creating 5,000 jobs. (AP Photo/Richard Vogel, File)

When Amazon launched its HQ2 contest last fall, dangling a prize of 50,000 high-paying jobs and a US$5bil (RM20.97bil) investment, 238 North American cities and regions embarked on a mad scramble, providing proprietary data and offering hefty tax breaks to host the company's second headquarters. 

Among the California supplicants including San Diego, Irvine and San Francisco, Los Angeles alone made the cut of 20 finalists, the lone survivor west of the Rockies. 

But now, with Amazon's decision to expand across the continent from its Seattle home, splitting its new corporate footprint between New York City and northern Virginia – and some jobs in Nashville, Tennessee – LA is not so much indulging in a pity party as offering up a collective shrug. 

Even the project's biggest local boosters don't seem to view the decision as a fatal snub. 

“I wouldn't say we were disappointed, because the process was positive,” said Bill Allen, CEO of the Los Angeles Economic Development Corp, the public-private entity that drafted the county's 350-page bid and showed Amazon representatives around more than a half dozen campus sites on multiple visits. Amazon “already has thousands of employees here”, Allen said. “I'm confident it will invest more.” 

The headquarters contest was arguably a small part of a vast dispersal strategy as the US$178bil (RM746.75bil) company grows at breakneck speed around the world, acquires other companies, launches new endeavours and engages in a fierce completion for tech talent with Google, Facebook, Microsoft and others. 

Just 45,000 Amazon employees, in a worldwide workforce of about 613,000, are based in Seattle. California is a close second with 39,000 – not counting the thousands who work for Whole Foods and other subsidiaries. The company says it has invested more than US$19bil (RM79.70bil) in the state since 2011. 

Three of the company's 18 North American tech hubs are in California – in the Bay Area, Los Angeles and San Diego with nearly 10,000 workers at Amazon Devices, Amazon Web Services, Amazon Studios, Prime Video, Amazon Game Studios, the Alexa voice-activated service and IMDb, the movie and television database. Irvine offices also staff Alexa, cloud computing and game operations. 

In February, Amazon added more than 400 California employees with its purchase of Ring, a Santa Monica maker of video-enabled doorbells. 

But Amazon's well-paid engineers and software developers in California are far outnumbered by low-wage retail and warehouse employees at its 85 Whole Food stores, 23 shipping centres and nine fast-delivery Prime Now hubs. 

As it sorts and ships imported goods flowing through the ports of Los Angeles and Long Beach, Amazon has become the Inland Empire's largest employer, building 13 huge facilities over the past six years, with 18,000 full-time workers. 

To some local observers, an Amazon headquarters in the Los Angeles region, despite its “Silicon Beach” ambitions, would have created more negative than positive effects. 

When the company's likely East Coast locations leaked to media this month, Christopher Thornberg, founding partner of Los Angeles' Beacon Economics, a go-to consultancy for California officials, and director of Centre for Economic Forecasting at the University of California, Riverside had an immediate reaction: “Thank God.” 

“We have record low unemployment, skyrocketing housing costs, horrendous traffic and somehow we wanted to drop 50,000 overpaid techies into the middle of this?” he said. “What the hell. I don't get the logic.” 

Economic development is “best done by helping existing businesses grow, and by building more housing and infrastructure,” Thornberg said. “Not by spending millions of dollars in subsidies and countless man-hours chasing a monster like Amazon. Why do it? So politicians can have bragging rights.” 

Los Angeles County Supervisor Mark Ridley-Thomas, who commissioned the bid, wished New York and Virginia well, but said: “There are enough jobs in innovative growth industries to go around. Los Angeles is doing quite nicely – thank you very much – and we're poised to do better.” 

No information was released about promised tax breaks in Los Angeles' bid, although Amazon made it clear in its request for proposals that incentives would be a major factor. The LAEDC signed a non-disclosure agreement with the company. And because the bid was handled by a public-private corporation, it is not subject to Public Record Act requests, Allen said. 

The housing and traffic impact would not be as much as feared, Allen suggested, because Amazon's headquarters, while it would have brought new jobs, would not necessarily have attracted a large influx of people. Many of the jobs could have gone to current residents, he said. 

Daniel Flaming, president of the Economic Roundtable, a Los Angeles non-profit research group, said that an HQ2 workforce could have created “problematic secondary effects of housing displacement as these high-paid workers settled in Mar Vista, Santa Monica and Venice – places that had been affordable”. 

But, he said, added, “It is good for the region to have a stronger income base and more consumer buying power – and that outweighs the displacement effects.” 

Nonetheless, 16 California groups were among the 125 community organisations that signed an open letter to Amazon CEO Jeff Bezos last year, somewhat hostile in tone, demanding that the company allow labour organising and contribute financially to affordable housing. Amazon has fought off attempts to unionise. 

“It goes without saying that you can't have great public services without paying taxes,” the letter said. “We know you've had a little problem grasping that, sometimes. Here's the deal...You must pay all of your property taxes [and] sales taxes.” 

Cynthia Strathmann, executive director of Strategic Actions for a Just Economy, a Los Angeles nonprofit and one of the letter's signers, said she is “very happy” HQ2 is going elsewhere. 

“Amazon is not known as a good employer,” she said. “We need employers where workers have some control over their working conditions.” 

In Seattle, she said, “we've seen the upward pressure Amazon put on housing costs. We've seen it with other tech companies in the Bay Area. City officials are dazzled by the prospect of business expansion without looking at the costs.” 

Economist Amihai Glazer, director of the Program in Corporate Welfare at the University of California, Irvine, sees political opposition to Amazon growing since the HQ2 announcement. 

“Firms are facing pressure when they grow too large,” he said. “They're blamed for political ills. Seattle's city council tried to tax Amazon to pay for homelessness. In Anaheim, a successful ballot initiative to raise wages was aimed at Disney.” 

This month, San Francisco voters approved a ballot measure raising taxes on companies with more than US$50mil (RM209.87mil) in annual revenue to pay for housing and services related to homelessness. In Mountain View, an initiative raised business license fees on large companies to pay for transit infrastructure. Google will owe as much as US$3mil (RM12.59mil) a year. 

Glazer was sceptical of HQ2 benefits. 

“Amazon played cities against each other,” he said. “But incentives often lead to winner's remorse. Last year, for instance, Boston offered US$145mil (RM608.63mil) to General Electric (for its new headquarters) but the promised employment has not materialised.” 

Amazon said Tuesday that New York had agreed to at least US$1.5bil (RM6.29bil) in tax credits and grants; Virginia will award US$573mil (RM2.40bil) in cash grants and US$195mil (RM818.78mil) in infrastructure improvements; and Tennessee will provide US$102mil (RM428.28mil) in cash grants and tax credits. 

HQ2 jobs “would not have made much difference in a big place like L.A. with a population of 13 million”, Glazer said. “Would we have become a second Silicon Valley? That is what people dream of. But I don't have the sense that Amazon has spawned many startups, although we know they have spun off from Microsoft and others.” 

At the LAEDC, Allen disputes the idea that Amazon's new jobs would not have made a difference. 

“Economies are cyclical,” he said. “It is true we have low unemployment now, but look back eight years ago to the economic crisis. By the time Amazon built out over three to 10 years, we could be in recession and thrilled to have those jobs.” – Los Angeles Times/Tribune News Service 

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