How an Amazon HQ might change how Philly operates
Among other things, it would tinker with how power is brokered, and how business is done, around here.
Adam Ozimek of Moody's Analytics in West Chester has been one of my favorites of the rising generation of public intellectuals since before I was paid to moderate an "American economy under Trump" panel featuring him and a Vanguard prognosticator last winter. His Twitter feed, @ModeledBehavior, is provocative and evidence-based. (We disagree about minimum wages.)
When Jeff Bezos' Amazon said it was looking for a headquarters location to host 50,000 employees, setting off a mad scramble among American and Canadian cities to be That Lucky Town, Ozimek Twitter-challenged me to list possible sites around his favorite city: "Joe I have a request for a piece from you: the top spots in Philly where Amazon could build a massive HQ". (Read Amazon's Request for Proposals here.)
In a striking example of just how small the circular world of journalism can be, not one but two Inquirer/Daily News colleagues —Inga Saffron and Howard Gensler — promptly cited Adam's hometown-favorite article as a leading endorsement for Philadelphia as Amazon's new center. (Inga also noted Bloomberg reported Boston has the inside track, while the New York Times has triangulated Denver.)
There are also, of course, less-prejudiced endorsements for Philadelphia as Amazon's choice, including these, from city-lovers close to Adam's and Inga's sensibilities:
• Stephen Smith, a Brooklyn-based, Georgetown-educated, self-described supporter of "liberal urbanism" who runs the @MarketUrbanism and NewYorkNimby.com feeds, lists "Philly (University City)" alongside New York's Hudson Yards and undefined sites in Boston, Toronto and Denver as "top guesses for Amazon HQ2."
• Jon Coppage, a "conservative urbanism" fan and UChicago alumnus who is a visiting senior fellow at R Street, a conservative think tank in Washington, made his social-media choice @RSI for "an early bet on Philly … It's a hugely slept on city. Needs to fix its taxes, but otherwise."
• Lyman Stone, a U.S. Department of Agriculture economist writing on medium.com, makes a more persuasive Philly case that works around Amazon's preference for growing metro areas. (Philly has mostly grown below other big metro areas for decades, despite Ozimek's recent brag that recent gains, especially among young people in Center City, have finally pushed Philadelphia's workforce above early 1990s levels.) "Cities with very weak household growth" can actually be highly affordable places for Amazon to locate, Stone argues. "St. Louis, Baltimore, Philadelphia, Rochester, and Hartford all have extremely weak growth in the household population. They also have lackluster total population growth. But they have been adding new housing! Much of their housing supply may be dilapidated, but that might not be a big problem for Amazon."
Because, if you are really determined to locate in a fast-growing area, you risk limiting yourself to very expensive, carefully zoned places like San Francisco or Boston, where there's not much room and acquisition costs are sky-high. Philadelphia is the largest of the U.S. cities Stone listed where weak growth has kept office and even housing rentals relatively affordable.
Which, however, is a result of some other reasons why it may be tough for Amazon to locate here:
• Slow growth. After 20 years of writing about business here, I've come to believe this is intentional, because the people who run things, despite their claims to support growth, like things they way they are, with them in charge. City Council is notoriously hands-on and tends to drag out or sink sweeping initiatives that members perceive as a threat. Planning, zoning, historic review, and councilmanic prerogative can stop or slow big projects. You must have friends, or make them fast, to gain the tax breaks developers need to make the city's much-lower-than-New-York rents profitable for developers. It's a comfortable system, if you're part of the club. Adding Amazon as by far the largest corporate force in town could threaten those cozy relationships.
• Taxes. Though Amazon Web Services makes a lot of money, Amazon's main retail business barely breaks even, considering its scale. Philadelphia's infamous gross-receipts tax and Pennsylvania's high corporate tax rate discourage many kinds of profit-margin-conscious companies The state (and city) long ago proved they are eager to make exceptions for favored employers. But again, you have to have friends, or make them fast, to win those concessions. Does Amazon want the hassle of negotiating this, if so many other places are tax-friendlier?
• What will Comcast do? As the largest private employer left in the city since the banks, factories and railroads sold out (the other big Philly employers are all hospitals, colleges and government agencies), Comcast benefits from the city's relatively low wages, office rents, and metro housing costs. But a second, much larger, corporate employer — Amazon plans five times Comcast's 10,000 local workers — would inflate prices and threaten Comcast's advantage. So whatever CEO Brian Roberts or master deal-maker David L. Cohen may say publicly about supporting Philadelphia growth, Comcast bosses are somewhat in the position of the major employer in any factory town in America: A larger tech-based competitor would compete for talent and other resources. Especially because Comcast, since about 2012, has seen the writing on the wall with regard to the decline of television and is betting hard on proprietary apps, tech patents, and start-up acquisitions — and the engineers it needs to make this work. As Inga pointed out, Philadelphia already has a relatively small software sector. Amazon could swamp it.
• Labor. Unions have invested in Philadelphia political support to maintain their hold on commercial construction projects. Wages aren't the problem — skilled building-trades workers are scarce everywhere — but good union medical and retirement benefits cost more. It's true that the most obstreperous of Philadelphia's building-trades unions — the Carpenters and the Ironworkers — have had their leadership ousted in the past two years, leaving the more forward-looking John Dougherty of the Electricians and the Building and Construction Trades Council to negotiate terms that might make a massive building project that would keep members busy for years more attractive. That's if Dougherty survives the latest of the investigations that bedevil successful Democrats around here.
• Engineering talent. It remains in short supply, especially for a region Philadelphia's size. Penn's Moore School may have built the first modern computer, SAP's U.S. operations are out in Delco, and the remnants of locally based Unisys and SunGard still employ thousands worldwide. But our start-up scene and the supply of software developers to power it is underweight. Engineering schools at Drexel, Penn, Villanova, Temple, Delaware and Penn State would benefit from Amazon hiring. But mostly, we'd have to import engineers and developers to feed Amazon, even more than Denver or Boston would.
(Maybe Amazon is big enough that rumor of its coming will bulldoze obstacles? On Thursday, City Councilman David Oh rolled out a quick proposal to ease expenses for "new Megabusinesses, defined as those which realistically offer the prospect of creating 50,000 jobs in the City and bring a capital investment of $5 billion in new construction within the City." These "would have no business net income tax imposed by the City for their first ten years in Philadelphia. The tax benefit would be capped at $2 billion over 10 years for any individual New Megabusiness.")
What would we gain, in the end? It should be obvious: jobs, commerce, demand for housing, restaurants, better schools and public amenities, and a flood of new public revenues — if not from Amazon, which is great at squeezing tax breaks from Pennsylvania and other states, then from 50,000 new wage- and sales-tax-paying workers.
But, again, plenty of Philadelphians, especially people who run things, like the city just the way it is — not as fast as New York, nor as slow as all those hollowed-out Midwest ex-factory towns like Pittsburgh (more on shrunken Pittsburgh's swollen pretensions from our Inquirer colleague Angela Couloumbis here), as octogenarian Pittsburgh native-turned-Philadelphia real estate investor Walt D'Alessio told me in an interview last spring. Until recently, D'Alessio was chairman of the city's dominant health insurer (financed by all the major employers), and also chairman of the city's largest landlord, and of his real estate brokerage, which made millions doing deals with both the companies he chaired. That's the kind of power people who play by Philly rules tend to amass, and that a new heavyweight could threaten.
Of all the stories being written about Amazon maybe coming here, it was our colleague Will Bunch who wrote the most cranky old-time Philly column when he argued that Amazon would only dull the dating scene, require too many embarrassing tax breaks, and enrich that multibillionaire squeezer Bezos, so as far as Will is concerned, they can all stay in Seattle. Or go to Boston.
My own bright kids — software guys and CPAs — have been migrating from Delaware to Philly to New York. For the city's sake, I hope Adam, Inga and Howard are convincing and Will is wrong and Amazon settles here. But that means big changes in the way the city does things, and the power structure. And that's not gonna happen until it's made very clear how exactly that will benefit the people who still run things and the constituencies who keep them in power.