Amazon launched its HQ2 contest before some politicians made it a corporate villain and it overreached in NYC by extracting huge tax breaks behind closed doors (Jason Del Rey/Recode)


No one looks good in the wake of Amazon’s decision to scrap plans for a giant New York headquarters in Long Island City, Queens.

The state’s two powerful politicians — Governor Andrew Cuomo and New York City Mayor Bill de Blasio — thought they had secured the deal of a lifetime when they lured Amazon and its 25,000 jobs to New York. Now they look like civic chumps.

The local politicians and activists who wanted Amazon’s job creation — but only if they came on different, less usurious terms — are now left with no new jobs.

Amazon, meanwhile, looks “like a petulant child”: an entitled rich kid who, confronted by a worthy opponent, opted to pack up and jet home.

It could have been different. But it would have required Amazon doing something it has never been very good at: seeing a loophole or advantage, but deciding it was worth it to figure out a better way. Still harder for the $800 billion tech giant: caving to pressure, whether it believed it to be right or wrong, and risking looking weak in the service of getting a deal done that all sides could live with.

This saga began with a very Amazonian creation. In September 2017, the company announced a one-of-a-kind contest — equal parts brilliant and off-putting — that pitted cities across North America against each other to make their best pitch to host a new Amazon headquarters, dubbed HQ2. Newark, NJ, offered $7 billion in incentives. The city of Tuscon shipped a 20-foot cactus to Amazon’s Seattle campus. The New York governor joked that he’d change his name to “Amazon Cuomo.”

As it turned out, Amazon settled on two locations to split an estimated 50,000 new jobs: Long Island City in Queens, New York, and Northern Virginia. For those who were already skeptical of the HQ2 spectacle, this felt like the final straw showing the whole thing was a charade designed simply to wring as much financial aid as possible from destinations Amazon had atop its list from the start.

In Virginia, where Amazon only received $570 million in promised incentives, the announcement was not met by strong opposition. It probably helps that it chose a bland, corporate locale, a spot unloved and underutilized just outside of Washington, DC.

In its negotiations with New York, Amazon circumvented the city council with the help of the mayor, the governor, and the state’s economic development arm. The path they chose was legal, but ultimately disastrous. Because when the New York deal was finally announced, with up to $3 billion tax incentives, local politicians felt blindsided — and wronged.

It didn’t matter that most of these funds would come in the form of a reduction of future taxes Amazon would pay rather than cash straight into Jeff Bezos’s coffers. What mattered was that a tech giant — run by the wealthiest man in the history of the world — was coming into a city that wasn’t its own and demanding it pay fealty. (The proposed helipad didn’t help.)

Timing is everything

To add ignorance to insult, Amazon somehow made a grave miscalculation: Its executives did not seem to grasp that they launched the HQ2 contest in one political climate and ended it in an altogether different era. This point can’t be stressed enough.

When Amazon made the original HQ2 announcement in September 2017, Senator Bernie Sanders (D-VT) hadn’t yet targeted the company’s wages and labor practices and Alexandria Ocasio-Cortez was still a New York bartender and a complete unknown on the national political change.

By November 2018, Sanders had successfully pressured Amazon into raising its minimum pay to $15 an hour and AOC was a Representative-elect with a huge following who excoriated wealthy corporations for not doing enough for everyday Americans. Democrats also won control of the State Senate in the midterm elections, which ultimately resulted in an Amazon opponent being named to a powerful state board that would vote on the deal in 2020.

The local New York Democratic party — galvanized by AOC’s election — was moving decidedly to the left and Amazon seemed astonishingly unprepared to weather the wave.

Gone was former New York City Mayor Mike Bloomberg’s idea of progress for New York City, which included the ambition of becoming a tech hub that could rival Silicon Valley. In its place, AOC drove an altogether different vision that meant going chest to chest with a corporate bully rather than welcoming it with a close embrace.

The wrath of local politicos and activists was plain at Amazon’s first hearing with the City Council. And company officials did themselves no favors by arriving nearly empty-handed when it came to benefits the tech behemoth would offer the local community, segments of which had legitimate fears about what kind of impact Amazon’s invasion would have on real-estate prices and an already faltering subway system.

Amazon expected some community pushback but thought it had a bit of time to prove it would be a good, and generous, corporate neighbor. It was once again wrong.

By the time the second hearing came around in late January, Amazon had announced funding for several educational initiatives, but they barely registered and ultimately did not move the needle. Protests were gaining steam and local politicians were emboldened, even as some polls suggested the project had support among a majority of local residents.

“There’s a real disconnect between decision makers and the feeling on the ground,” New York State Senator Michael Gianaris told my colleague Shirin Ghaffary in January. “It’s a problem across the country where the anger at wealth concentration is not appreciated by people who are making decisions.”

Less than a week later, Gianaris was nominated for a state board that would ultimately vote on parts of the deal. That nomination — and the fear that Gianaris could single-handedly scuttle the whole thing — played a role in Amazon backtracking, according to a source. Right up until that point, Amazon officials gave no indications that the New York fight would change their minds. But within days of Gianaris’s appointment, reports surfaced saying that Amazon was reconsidering bringing its headquarters to Long Island City.

Perhaps Bezos still considered the HQ2 selection at this point to be a “Type 2 decision,” ones that are “changeable, reversible.” “If you’ve made a suboptimal Type 2 decision,” Bezos once wrote, “you don’t have to live with the consequences for that long. You can reopen the door and go back through.”

Still, Amazon had a golden opportunity in its grasp — one that would have secured it a bounty of praise. “We messed up, local friends,” the company could have said. “And we’ve decided we want to be here bad enough that we don’t need many, if any, incentives.”

Imagine the victory parade for all involved. Imagine Amazon as the model of a tech giant willing to shed its arrogance to do the right thing.

Yes, I can hear some of you laughing:

“Jason, you are so naive.”

“Jason, that’s not how big business is done.”

“Jason, you take what is given to you or someone else will. And this was all political grandstanding anyway.”

I hear you. And for its entire existence, Amazon has made a practice of leaning into every advantage it’s had.

Exploiting advantages

For years, that meant exploiting tax laws that allowed internet retailers to avoid collecting sales tax from shoppers, thus creating a pricing advantage over brick-and-mortar shops.

“Amazon had avoided sales-tax collection for years with various clever tricks,” journalist Brad Stone wrote in his 2013 book The Everything Store. “In states where it had fulfillment centers or other offices … it skirted the definition of what constituted a physical presence by classifying those facilities as wholly owned subsidiaries that earned no revenue.”

As a public company, Amazon also long ago convinced investors to let it play by a unique set of rules, where it was rewarded for revenue growth even if it didn’t allow much profit to drop to the bottom line. While Walmart’s stock might nosedive if the traditional retailer reported fast growth but no profit, it was not uncommon for Amazon’s stock price to rise with those kinds of results.

And in Seattle, Amazon flexed its muscles when the city threatened to curtail its office expansion in its own hometown over a new business tax. After initially passing it, the City Council quickly repealed the law. But Amazon and Seattle have a 25-year history with each other; Seattle needs Amazon, for better or worse.

This New York City battle felt very different. For starters, New York City does not need Amazon. Plus, Ocasio-Cortez’s election and subsequent celebrity meant that when she focused her laser on the Amazon deal, her massive following did too.

Among a growing segment of the left, it was cool to hate on Amazon. And other politicians took note.

Amazon needed to draw up a different playbook than the one Jeff Bezos followed from an upstart online book seller to a $800 billion titan of industry. It would have felt risky. It would have felt un-Amazon. It would have required Amazon to be okay, for once, with looking weak to some insiders and outsiders alike.

But it would have been the right move.

This post was originally published here