Two Cities Vying for Amazon HQ2 with People, Not Pennies

Two Cities Vying for Amazon HQ2 with People, Not Pennies
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Can taxpayer money buy corporate happiness – or will a city’s talent win out? The answer to that question – or at least Amazon’s answer – may come soon when the online giant decides where it will locate its second global headquarters.

Many local and state governments have already signaled they are opening the vault. A few cities have taken a look at the possible price tag, and taken a pass. But a couple are making strong bids while making it clear they will not provide a nickel in direct financial incentives. They are placing their faith in another form of capital – human capital.

The deadline for cities to make a formal proposal is today, and at least four dozen cities across North America have made it clear they intend to enter the competition for Amazon’s HQ2, which will be home to as many as 50,000 jobs, providing financial compensation of more than $100,000 on average.

It is not surprising that so many cities are prepared to open their wallets to entice the headquarters, which would carry a large multiplier and burnish the reputation of existing technology clusters or help a region build one. New Jersey Governor Chris Christie, for example, has already put together an incentive package worth roughly $7 billion to lure Amazon to Newark.

But both San Jose and Toronto have made it clear they will not ante up any money or tax breaks in their attempt to persuade Amazon to set up their second home in their cities. While inviting financial incentives, Amazon had made it clear they are looking for a city thick in talent and possessing the ability to attract more. They have emphasized that any location must have a strong education system, and the airport links and transit system that ensure mobility.

That is what San Jose and Toronto are focusing on – enticing Amazon with pools of talent rather than  pools of money.

San Jose Mayor Sam Liccardo has said that his city will not enter a bidding war, even warning against building public transportation to a large open-acre site. As he sees it, the most important war is the one corporations are engaged in for talent. “Far more than subsidies,” he says, “what encourages an employer to plant a seed and to water the seed in any community is the availability of talented creative people.”

That may be easier for him to say than most. Few regions can match Silicon Valley for the depth of its talent pool. And it has paid off. Between 2014 and 2015, the San Jose-Sunnyvale-Santa Clara metropolitan area posted an 8.9 percent increase in economic output, significantly more than China’s growth rate of 6.9 percent and almost four times the overall U.S. rate for the year.

Toronto is in a very different situation, While the city is centre to an urban region with a population of about 6.5 million people, with three large universities and an extensive public transportation system that is being extended and modernized, there is no point ignoring the elephant in the room. Toronto is not in the United States, a fact that may cause Amazon CEO some pause, especially as he considers the prospect of anti-trust and other issues that may come up in Washington, D.C.

But rather than try to avoid the problem, Toronto seems to be shining a lantern on it, trying to turn a potential liability into an asset. While the U.S government seems to be looking at ways to reduce immigration, Canada has been hanging out the welcome mat. The Toronto area is already home to one of the largest multicultural populations in North America, with many first-and-second generation students filling its universities and community colleges.

The Canadian city is doubling down on that advantage. Ed Clark, a former bank CEO who is coordinating the provincial government’s bid, has said that rather than offer direct funding to Amazon, the province of Ontario will increase by 25 percent the number of university and college students graduating with degrees in the STEM disciplines. The plan will focus on artificial intelligence, seeking to graduate 1,000 masters students in AI-related fields a year within five years.

It’s a risky approach. After all, there will be no shortage of cities offering both money and talent. But with the bidding likely to be fierce, trying to top everybody else may end up costing taxpayers more than the development is worth. Moreover, there is the moral hazard to consider. Paying top price to Amazon would prompt other companies considering where to locate to seek the same incentives, with some local companies even threatening to move. The last thing a government should do is ignite a vicious cycle of more and more taxpayer dollars chasing fewer and fewer jobs.

Investing in STEM education, on the other hand, will pay off regardless of Amazon’s decision. In a time of growing specialization and deployment of sophisticated technologies, the most important asset is people.

Allan Golombek is a Senior Director at the White House Writers Group. 

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