What Amazon HQ2 says about American inequality

More than a year ago, the leaders of scores of up-and-coming cities across America's Heartland entered Amazo...

Posted: Nov 15, 2018 5:56 AM
Updated: Nov 15, 2018 5:56 AM

More than a year ago, the leaders of scores of up-and-coming cities across America's Heartland entered Amazon's HQ2 contest, embracing the idea that the e-commerce giant might choose a mid-size city or metropolis in the Rust Belt, like Detroit or Columbus, for its second headquarters location.

Alas, we all should have known better. On Tuesday, Amazon officially announced its decision to split its award of 50,000 headquarters jobs — not to one up-and-coming city in the Midwest — but between Long Island City in Queens, New York and Crystal City, Virginia, just outside Washington, D.C. (The company also plans to create around 5,000 jobs in Nashville.)

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So much for the Rust Belt uplift story, one that might help knit a divided country together through mid-market, Midwestern economic development.

Which raises the real story here: Amazon's decision to invest heavily in two preexisting "superstar" cities perfectly epitomizes one of the most troubling aspects of digital economies: their strong tendency to concentrate people and investment in a very few well-educated, tech-rich hubs that have, in recent decades, continued to pull away from the rest of the country on basic measures of prosperity.

Scholars for years have suspected that tech might alter the hierarchy of cities. Economist Elisa Giannone recently found that beginning in the 1980s the wages of cities — after converging for generations — had begun to diverge as tech began to inordinately reward dense clusters of highly skilled workers and firms. Likewise, research at Brookings has shown that a short list of highly digital, often coastal, tech hubs are pulling farther away from the pack on measures of growth and income, concentrating more of the nation's tech activity and talent.

In short, the "digitalization of everything" is exacerbating the unevenness of America's economic landscape and making it increasingly likely that new tech headquarters go not to new places, but to the same places. What just happened proves the point.

This matters because the widening gap between "superstar" cities and the places left behind by economic transformation is creating a troubling panorama of untapped potential and frustration. On the one hand, the drift of scores of promising cities filled with talented people, outstanding institutions and underutilized infrastructure mean that America is not fully delivering on its promise for economic fulfillment. On the other hand, whole swaths of the country that have fallen behind in a changing economy are marked by political discontent that has contributed to the nation's populist backlash and widening social divides.

The nation as a whole will need to push back against today's widening regional gaps with specific, intentional action.

What might such action look like? For starters, it might begin by implementing policies that limit the kind of locational sweepstakes that impelled hundreds of places to ante up billions of collective dollars of business relocation subsidies in order to attract Amazon. One idea we endorse in a forthcoming paper is a 100% federal tax on every dollar in state and local tax incentives directed toward a specific company.

At the same time, local governments — ideally supported by Congress — should also take this moment to double down on focused initiatives that emphasize training workers with digital skills, while venture capitalists should ensure more local startups outside the coasts have access to the capital they need to grow. The federal government, for its part, should get serious about helping the Heartland and offer grants to 10 or so competitively selected, mid-sized business centers that show promise of emerging as regional "growth poles" that will ensure more people reside near top-quality jobs and opportunity.

To be sure, such an agenda would be an undeniably heavy lift for today's divided Congress. And yet, for all that, a growing chorus of policymakers and thought-leaders is increasingly calling for such action.

Indeed, even those who see the concentration of economic activity in cities like San Francisco, Boston and New York as a good thing for the national economy may soon find themselves calling for a more geographically balanced national economy. After all, concentrating economic growth in just a few prosperous cities works as a national growth stance only up to a point. Eventually, even today's winners will be left to grapple with the side effects, like traffic congestion and expensive housing, while others will continue to struggle with too little growth and hope.

Many hoped that Amazon would bring economic opportunity to the places left behind in the shift from a manufacturing economy to a tech economy. Now that it's clear that will not likely happen by itself, it is time for policymakers and concerned citizens to ensure that the current market forces don't deepen the economic and political divides between the places that have benefitted from the tech revolution and those it has left behind.

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