The Fight for Amazon HQ2

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(Image courtesy of The Seattle Times)

In 1994, a 30-year-old Seattle-based entrepreneur named Jeff Bezos decided to start an online bookstore in his garage.  The company he built has clearly come a long way from those early days.  According to one report, Amazon is likely well on its way to achieving a market cap of $1.6 trillion within the next 10 years.  In addition, the online retailer has started to disrupt entire industries.  Former retail industry giants such as Sears and Macy’s are struggling to keep their doors open because of their inability to compete with Amazon’s convenience and competitive prices.  Your neighborhood grocery store could be next.

It’s an economic revolution, and Massachusetts’s political leaders want a piece of the pie.  After all, who can blame them?  Soon after Amazon announced its plans to build a second headquarters somewhere in North America, communities throughout the Commonwealth quickly moved to draft bids.  In the text of the announcement, Amazon promised to invest more than $5 billion in the construction of what they call HQ2.  On top of the anticipated economic investment, the residents who live in the chosen region will have access to their pick of upwards of 50,000 lucrative jobs.

The failure on the part of any elected official to submit an application (or participate in a regional bid) to receive such a windfall would be considered malpractice, especially since it is evident that Amazon has provided Seattle with some tangible economic benefits.  An NBC News report made note of the $38 billion in economic growth that the city experienced between 2010 and 2016, which is an accomplishment that Amazon claims as their own.  However, the same report highlighted some troubling trends.  On the housing front, Seattle’s home values have increased in excess of 11% and rents have jumped more than 7%.  All of these increases took place during the past year.  Remember that housing costs in Massachusetts are already 24% higher than the national average.  What would the presence of HQ2 do to those costs?  As a columnist for The Seattle Times recently put it, “Heads up, Other North American City: Amazon is about to detonate a prosperity bomb in your town.”

Prosperity is a goal that most elected officials rightfully share.  However, Amazon’s tendency to disrupt industries could also result in a disruption of our entire region.  Just as traditional brick-and-mortar retailers struggle to compete with Amazon’s business model, smaller Massachusetts-based companies could find themselves in the midst of a challenging fight for human capital.  We must also remember that skyrocketing housing costs could result in a level of gentrification we have yet to experience.  Although a victorious effort to woo Amazon to Massachusetts could do great things to the Commonwealth’s economy, we should remain cautious about the potential downsides.

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