To Win Amazon’s HQ2, Incentives Are Nice, But Talent Is Required

Amazon lists one requirement in the stunning request for proposals it issued Thursday, which invites cities across North America to compete to host a second corporate headquarters for the tech and commerce giant.

Economic development officials are justifiably salivating at the once-in-a-generation opportunity to attract what is arguably the 21st century’s most important company, and up to 50,000 high-paying technology jobs.

Amazon, in its list of “key preferences” for selecting its second home says suitable buildings and sites are of “paramount importance.” A stable and business-friendly environment and tax structure will be “high-priority considerations.” Incentives from local and state governments will be “significant factors in the decision-making process.”

And there’s this: “A highly educated labor pool is critical and a strong university system is required.”

That unequivocal language points to the real reason Amazon (NASDAQ: AMZN) would invest more than $5 billion over the next 15 to 17 years in building a second, co-equal headquarters—essentially replicating the unprecedented corporate campus it has erected in glass and steel and concrete in the heart of Seattle over the last decade. In the image of its founder, Jeff Bezos, Amazon is oriented toward the long-term like few other entities in business. There’s one thing the company knows it will perpetually need more of is talented people. And yes, that’s true even as it develops robots and artificial intelligence.

Seattle has become a company town like never before, and like no other in America. Seattleites have built Amazon, and many more have been drawn here to work at the company, helping make this the fastest growing big city in the country, with all of the aches and stretch marks that entails. But Amazon sees the limits to its growth here. The sparkling waters of Lake Washington and Puget Sound, part of the natural beauty that makes this a wonderful place to live, hem in the city to the East and to the West. A legacy of inadequate investment in public transportation makes commuting from more affordable communities to the North and South a life-sapping proposition.

Amazon says it employs more than 40,000 people in Seattle directly—part of a global workforce of 380,000—and it’s only about two-thirds of the way through its currently committed construction program. By 2022, the company is expected to occupy 12 million square feet in the city, up from 8 million now. That would be enough space for about 60,000 employees—just five years down the traffic-choked road.

Seattle’s skyline has been filled with cranes, building to accommodate Amazon’s growth. Photo by Benjamin Romano / Xconomy

Amazon’s second headquarters—HQ2—would employ 50,000 more. The idea of packing that many employees of a single company into the greater Seattle area, or really any large U.S. metro area, strains credulity. Indeed, the city’s physical limitations will eventually impinge on Amazon’s ability to attract and retain the talent that is its life blood.

Even if Amazon were able to expand indefinitely in a single location, a second headquarters brings diversification and risk mitigation. Seattle is overdue for a major earthquake, one that could cripple the region for months—a fact that is surely not lost on Bezos, a man accustomed to thinking on geologic time scales (he’s building a 10,000-year clock as a side project). While Amazon’s newly built buildings may come through the Big One, the disruption to the region’s infrastructure and the lives of its employees would surely impact headquarters operations. In that tragic event, Amazon could fail-over to HQ2 in much the same way its network of data centers has redundancies to maintain service in a disaster.

(A second headquarters would also facilitate a spin-off of Amazon’s highly profitable Amazon Web Services cloud computing division—not that that’s something Amazon is likely to do of its own accord.)

Many in Seattle’s business and political class are reading Amazon’s surprise decision to seek a second headquarters elsewhere as a rebuke of the progressive policies—some call them anti-business—that the city has enacted in recent years. It’s an understandable reaction. The region still has scar tissue from the surprise headquarters move of Boeing, the iconic Seattle corporation of the 20th century. The aircraft maker snubbed Seattle after a decade of warnings that it was dissatisfied with the local business climate, moving a few hundred headquarters jobs to Chicago.

On the other end of the political spectrum—which is really just farther to the left here in Seattle—the move is read as a classic corporate power play, meant to cow the city and extract concessions to pave the way for further growth.

The reality is that Amazon is pursuing a second headquarters for pragmatic business reasons—principally to improve its access to talent—not to spurn the polis of its first or squeeze it for incentives. It has had no obvious problem expanding and hiring here over the last decade, and has done so without much in the way of incentives—as have the likes of Weyerhaeuser and Expedia, both of which chose to relocate their corporate bases to Seattle in recent years, alongside more than 30 Fortune 500 companies that have established engineering outposts in the metro area. Until the last year or so, Amazon has been under-involved and seemingly unconcerned about local and state-level politics for a company of its size.

Amazon’s experimental convenience store at its Seattle headquarters. Photo by Benjamin Romano / Xconomy

Amazon, with a market cap of $468.7 billion and $13.2 billion in cash on hand as of the last quarter, is rightly coming under criticism for spurring a bidding war among local governments to win the HQ2 prize. It may be disappointing, but also unsurprising. This has become expected behavior from corporations that bring with them the best jobs in the economy. Witness the $3 billion in incentives Foxconn was offered by Wisconsin to build a factory there. Amazon probably views the cities that would host its new headquarters as suppliers just like any other—they’re just supplying space and people instead of, well, everything else the company sells. It’s inciting competition to drive down its costs, passing the savings to its customers—perhaps at the expense of local taxpayers.

But as a close read of Amazon’s RFP reveals, no matter how much your city, state, or province offers in tax credits, grants, permitting and fee relief, and other incentives, it won’t matter if you don’t have the talent. The deadline Amazon set for responses is just six weeks away: not enough time to build the highly educated labor pool and strong university system Amazon requires.

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