Amazon’s New York Reversal Shows Exactly Why Crony Capitalism Fails

COMMENTARY Jobs and Labor

Amazon’s New York Reversal Shows Exactly Why Crony Capitalism Fails

Feb 15, 2019 3 min read
Rachel Greszler

Senior Research Fellow, Roe Institute

Rachel researches and analyzes taxes, Social Security, disability insurance, and pensions to promote economic growth.
Amazon announced on Thursday it will not open a new headquarters in New York City after announcing the plan in November. Michael Lee/Getty Images

Just months after announcing it would locate one of its headquarters in New York City, Amazon has announced that it’s pulling the plug on the Big Apple.

Based on Amazon’s public statement, it seems the company couldn’t rely on the deals it had cut or the political support it had received to last beyond the next election. And businesses can’t base long-term decisions like this on shifting political sand.

That’s part of the problem with crony capitalism. It may procure short-term wins for a select few politicians and for businesses that can afford to pay to play, but it’s not a strategy for long-term success.

Employers want to set up shop in places where they can grow and succeed. The best environment for that is a level playing field with minimal government interference and low, broad-based taxes—not picking winners and losers through special-interest subsidies

A favorable business environment is one where local leaders work to help all businesses equally, not a select few. Employers want leaders who can listen to their needs without telling them how to run their business, and they want communities and leaders that welcome the jobs and economic growth that employers bring, instead of protesting their presence. 

It turns out this is not what New York City had to offer. Amazon said that certain politicians “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.”

New York City is not a friendly business climate, and losing those special “relationships” would have left it exposed to the same burdens and barriers that other businesses face in New York. 

Those include: a top state marginal corporate tax rate of 17.2 percent (compared to a U.S. median of 6.8 percent); onerous zoning and land use laws (which could have prevented Jeff Bezos from arranging special helicopter pad access); outrageous property taxes; and all sorts of heavy-handed labor regulations, like Mayor Bill De Blasio’s proposal to mandate that employers provide all workers with two weeks of paid vacation.   

Amazon’s other choice for its headquarters location—Crystal City, Virginia—comes with greater certainty. Amazon still received significant deals and subsidies to build that headquarters, but even if it loses those special breaks, it will fall back on a far more favorable business climate than in New York City. 

According to the ALEC-Laffer State Economic Competitiveness Index, “Rich States, Poor States,” New York ranks dead last in the overall economic outlook ranking, while Virginia ranks among the top 10. 

And Amazon isn’t the only company wary of locating in New York. Plenty of individuals, families, and businesses are fleeing the state, and they’re taking their income and tax revenues with them. 

In fact, between 1997 and 2016, every dollar of income that left New York was replaced by only 71 cents coming in. That deficit will only continue under New York’s current policies.

Democratic state Sen. Michael Gianaris likened Amazon to a petulant childthat “insists on getting its way or takes its ball and leaves.” But the reality is the ball has always been in Amazon’s court. It gets to choose where to play ball—just like every business.  

Crony capitalism may be tempting for large companies, but it’s no match for a friendly business climate under stable political leadership. Amazon should stop looking for a sweetheart deal and instead choose to do business in places where low taxes and minimal government intervention are the norm. 

States and cities should also take a lesson from this New York episode: Crony capitalism isn’t the way to win over more business. The key is to provide a level playing field that offers opportunity for all businesses to grow and thrive.

This piece originally appeared in The Daily Signal