Technology’s Impact on the Economy of NYC and the Loss of Amazon HQ2
In the aftermath of the global financial crisis in 2007-2008, the traditional industries that had powered the New York City (NYC) economy – finance, insurance, and real estate (FIRE) – were left in a damaged state. Not only were their revenue streams down, but heightened regulatory scrutiny made it difficult to regain the levels of growth that they had reached before the financial crisis. This proved to be a critical problem for NYC government, who heavily relied on the tax revenue from the FIRE industries. It was during this time that Mayor Michael Bloomberg recognized that NYC would have to become less dependent on the FIRE industries if the city were to recover from the financial crisis. In particular, technology promised to be a viable alternative that could help NYC thrive. Thus, Mayor Bloomberg’s plan relied on the development of tech startups and on strengthening the technology workforce. In order for NYC to become the tech capital he envisioned; technology-oriented policy would need to pave the road forward – a challenging task for a city in crisis.
A critical element of Mayor Bloomberg’s effort to transform NYC into a technology hub was education incentives through which he hoped to develop new tech talent. In his State of the City speech in January 2008, Mayor Bloomberg announced his plan to create a task force focused on better preparing NYC high school students for technology focused careers. In January 2009, Mayor Bloomberg pledged to “create or save” 400,000 jobs in the city over the next six years. In 2010 Mayor Bloomberg partnered with IBM and the Bill and Melinda Gates Foundation with hopes to double college graduation rates and double the amount of skilled technology workers by introducing courses which had previously not been available, such as computer science. The ability to develop talent is as crucial to a city’s drive to become as the ability to draw companies in. NYC recognized this and it has paid off in spades.
By February 2019, NYC surpassed San Francisco as the world’s best tech city. In the culmination of the results of multiple surveys, NYC ranked first in an index measuring 30 cities across the globe. This is a result of NYC’s unparalleled ability generate and attract talent and as a source of venture capital, particularly in the coveted “fintech” sector. The city’s natural affinity for the FIRE industries remains and helps to explain why most tech jobs in the city are not with technology companies, but with firms such as J.P. Morgan. It shows that these companies have adapted to the digital age in order to survive in an increasingly interconnected world.
Though FIRE industries have been a critical part of NYC’s push to become a tech hub, traditional technology companies, such as Google and Apple, have also expanded in the city. Google opened its first NYC office in 2000 and has continued to expand. In December of 2018, Google announced that it planned to invest over $1 billion in the city, expanding its footprint to 1.7 million square feet in lower Manhattan. Furthermore, due to the lack of tax incentives offered, Google’s plans for expansion received little to no backlash. The experience of Amazon was far different.
When Amazon announced that it was canceling its plan to build part of its HQ2 in the Long Island City neighborhood of Queens, it did not place blame on any particular person or group. Amazon instead stated that, “A number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward.” While some, such as Representative Alexandria Ocasio-Cortez (AOC), celebrated Amazon’s withdrawal, many more were less than happy about the outcome. In a poll of 700 New Yorkers, two-thirds said that they felt that Amazon’s withdrawal was bad for New York, including 63 percent of Democrats and 56 percent of those who self-identified as liberals. Notable proponents of the deal, including New York Governor Andrew Cuomo and NYC Mayor Bill De Blasio, were quick to place blame on the New York State Senate, where crucial leaders, such as Mike Gennaris of Queens, opposed the deal. Others found AOC, who railed against the deal, to be a critical reason why it failed. In her criticisms of the Amazon deal, she stated that the $3 billion in tax breaks and incentives could be better spent elsewhere, such as the subway. Thirty-eight percent of those surveyed in the Siena College poll pointed to AOC as the reason the deal fell apart. In the suburbs of NYC that number was 50 percent, and within the city it was 29 percent. Many criticized AOC as being an ideologue and not recognizing the benefits Amazon could provide to NYC, and this poll implies that the progressive base that rallied around Rep. Ocasio-Cortez was not representative of the majority opinion of New Yorkers.
Under closer investigation. the critique by AOC is found to be wanting. In particular, when she said,“If we were willing to give away $3 billion for this deal, we could invest that $3 billion in our district ourselves, if we wanted to. We could hire more teachers. We can fix our subways. We can put a lot of people to work for that money, if we wanted to,”many found this argument as not a valid criticism of the Amazon deal, especially given that Amazon would have to meet several thresholds to unlock the money. After much backlash, AOC attempted to clarify her statement on the matter, but the damage had already been done. Her comments on the incentives became a major rallying point among Amazon's critics, who would then place enough pressure to force Amazon to withdraw from Queens.
It is worth mentioning that it would be hard to argue that the $3 billion in tax breaks, subsidies, and incentives that New York promised Amazon was not excessive. Amazon is a financially sound company, led by one of the world’s least charitable billionaires. Amazon did not need significant incentives so that its executives could have a helipad – it could have afforded it on its own. And the HQ2 function would have generated a significant profit for Amazon regardless of the incentives. Yet, what is lost here is that the incentives were contingent on satisfying multiple goals set by the municipal governments. They, contrary to popular, progressive belief, were not a handout by any means.
The tax incentives would only become available once a sufficient number of jobs and revenue promised by Amazon had materialized. In fact, $2.5 billion of what Amazon was promised was contingent on creating enough jobs to generate $27 billion in city and state revenue. With the amount of additional revenue and jobs that Amazon would’ve brought to the city, the tax incentives would have been a drop in the bucket for the municipal tax collection, especially as other businesses opened to cater to their new tech neighbor. It goes without saying, that there are some valid criticisms of the Amazon deal, especially given the precedent it would have set for businesses opening offices in the United States’ many cities. However, from mathematical and optical perspective, the Amazon deal would have benefitted NYC more than it damaged it. Without Amazon, the municipal and state administrations are left looking for another breakthrough to keep the city at the forefront of innovation and progress.