Posted by Brandon Copeland
Two major tech companies have found themselves in the centre of urban controversies during the early part of 2019. Amazon and Alphabet (Google’s parent company), two of the world’s four largest companies, have waded their way into the world of urban issues. Intentionally or not, these two entities have created a unique opportunity to think about what role private enterprises should be playing in city building. What should the relationship between government and large private sector organization look like, and what expectations should we as citizens have about how these organizations interact with our homes?
The controversies are different, but the larger issue seems similar – society is skeptical when cities promise to incentivize investment in municipalities. The way in which this incentive is provided, and what specifically the city is receiving in return, is different in both of these cases. Those differences are incredibly important when assessing if we feel good or bad in the involvement of major multi-nationals in our city spending.
So What’s Going On?
We have two stories to tell. Amazon and Alphabet.
Let’s start with Amazon. In 2017, the online giant put a call out to cities across North America. They wanted a location for their second headquarters, and they were looking for proposals from municipalities explaining why they should bring as many as 50,000 jobs to their new location. Sure, they were curious about the culture and the transport options and the vicinity to the airport – understanding these things would be key when thinking about employee satisfaction. However, there was another motive – something that the numerous cities that submitted proposals seemed willing to provide. Tax incentives. Free land. Public gifts.
As expected, the hunt quickly became less about marketing a city and describing what Amazon would inherently get, and more about what the various cities were willing to give to the tech giant. Apparently 238 cities submitted proposals.
The added layer that made this entire process a little odd to watch was that most people paying attention felt that they knew where Amazon was going to go – New York or Washington DC. New York was an obvious choice, being the largest city in the country, featuring top tech talent, and being conveniently located on the opposite coast from Amazon’s current operation. DC was a slightly different case, but would give Amazon access to high-level decision makers and also conveniently would put the HQ close to one of Jeff Bezos’ other major businesses, the Washington Post.
Cynics certainly had their opportunity to be cynics. In November, Amazon announced not just one, but TWO new HQ locations. After reviewing all the offers and case studies presented by cities across the continent, Amazon made the “tough” decision to put a new headquarters in TWO cities. Washington DC and New York City.
Shocker!
Alphabet’s situation is a little different. In February, The Toronto Star leaked details of what Sidewalk Labs – the citybuilding arm of Alphabet – was hoping to accomplish in Toronto. Beyond their currently accepted Quayside neighbourhood (something I’ve chatted about before), Sidewalk Labs had high hopes of expanding to some 350 acres of Port Lands, representing an area about 30-times larger than what they are currently discussing with the public. While it has always been known that Alphabet saw more in the Toronto project than just Quayside, many readers were up-in-arms over the notion that in return for their investment, Alphabet Inc. would be looking for a share of property tax and development fees in areas that they develop.
Both companies have seemingly earned the ire of the public, despite attempting to demonstrate efforts to improve the urban fabric. Are all these criticisms warranted? Perhaps more interestingly, are both of these situations the same?
And What are the Criticisms?
So now that we understand what has happened, let’s understand why people are up-in-arms about all of this.
The criticism Amazon has received during the whole process transitioned from a dull grumble to a ferocious roar. The entire process, some claimed, was designed to leverage smaller cities in order to push bigger cities to “race to the bottom” and give Amazon as much as could be taken in order to attract them to the locations they would ultimately arrive at anyway. This isn’t unreasonable. The chosen municipalities were not shocking. Amazon isn’t swooping in and saving urban areas in need of a facelift, like say… Detroit. They ultimately chose to move to places that they likely would have chosen on their own.
The difference, is that after the HQ2 bidding process, the incentives they receive to move are significantly greater. If you don’t make it seem like you might go somewhere else, why would these municipalities give you all sorts of cool stuff? The answer is, they wouldn’t. Essentially, Amazon artificially increased demand – shooting the price way up.
Several politicians in New York pushed back – perhaps most notoriously U.S. Representative Alexandria Ocasio-Cortez. Surprisingly, Amazon opted to cancel its Long Island City location due to opposition – a move heralded by some and criticized intensely by others. Plans for Washington continue moving forward. Needless to say, the entire ordeal since the initial HQ2 announcement in 2017 has been interesting to watch.
The criticisms leveled at Alphabet were two-fold; a lack of transparency, and an expectation for a “payout” from things that normally would go to the public coffers: things like taxes, and development fees.
On the transparency front, people were upset that they were exposed to this information by the press and not by any public proposal Sidewalk Labs was presenting. The information on the proposal was leaked, and Sidewalk Labs has pleaded that they are only exploring options and nothing is yet set in stone. From Sidewalks’ perspective, they weren’t ready to release this information yet because they weren’t confident that this was the proper way to pursue a return on their investment.
In terms of the profit from development, Sidewalk Labs’ line is very much about pitching their involvement as an alternative to the city financing projects. Their logic is essentially that if the city wanted to invest in building out these neighbourhoods, there would be costs. The overhead and administrative cost of the efforts of the Planning and Development Department. The cost of building the technology and infrastructure. Project management costs. Make no mistake, these would be costs incurred by the municipality and paid for with taxpayer money. Sidewalk is offering to heroically swoop down to manage and fund the risk. Of course they want to partake in the reward.
As many have noted though, Toronto is rapidly expanding and downtown property is worth a fair amount of money. The level of “risk” is debateable. A cool neighbourhood built from the ground-up in downtown Toronto is probably an investment I would bet on.
So What Do I Think?
Both of these cases are interesting, but they are not the same.
In my opinion, the most important difference between the two proposals is WHY each of these tech companies would receive benefits from the municipalities in question. In Amazon’s case, they are receiving incentives for existing there. They are conducting their standard business, they are simply being paid to do it in one location over another. Alphabet’s case is different. They are being paid back for their investment – essentially they are taking on work that a city would normally do for its citizens, and asking to be paid in the same way that a city would normally be paid by its citizens (tax dollars).
With this in mind, I am very much okay with the idea behind what Alphabet is proposing, and very much not in favour of what Amazon has done.
Quite frankly, I don’t think that planning and development departments are the be-all-and-end-all to city building. Sidewalk Labs is in a unique position to apply some of their state-of-the-art technology to an emerging neighbourhood. They are looking to innovate and develop a new business model, and they are trying to do this while working with the City of Toronto. It stands to reason that a new way to think about neighbourhood building may also result in a new way to pay for neighbourhood building. Especially if the neighbourhood in question simply won’t exist (or won’t exist in the same way) without the investment of the party in question.
Amazon I have much less sympathy for. Yes, jobs are important. Certainly Amazon operating in an area is a benefit for the local economy. However, in my mind urban development is not a question of what comes first. Cities invest in themselves to build upon their strengths and create the tempting business case for residents and companies alike. New York and Washington DC are certainly two places that have succeeded in this. They have competitive advantages that Amazon wants. Jeff Bezos and Co. also know that they want to be there. As was predicted, it is likely that the HQ2 project was a way to use the hopes of less attractive cities to stiff-arm the places they really wanted to be.
In closing, I don’t think cities should have to pay to bring in companies. They should invest in themselves, and create a place that is optimal for companies of 50 or 50,000 to setup shop. However, paying companies to invest is not the same thing as paying companies to come. In the case of Toronto, that is exactly what Sidewalk Labs is looking to receive – a return on an investment. In my mind we can be more creative with how we do that. Creating these unique urban neighbourhoods is exactly what cities should be looking to do in the 21st century.
Who knows, maybe getting Alphabet to invest in the neighbourhood of the future will be enough to attract Amazon HQ3.