New York and DC Bribed Amazon for HQ2 — and Amazon will pay for it

A bribe is “something that serves to induce or influence”.

When Amazon amounted that it would split its new second headquarters between New York and Crystal City, VA, it also announced that it would receive over $2 billion in “subsidies” from both localities.

Sounds like something that might have induced or influenced Amazon.

So…a bribe.

Locating in New York and the DC area make sense for economic reasons: they are the two largest metro areas on the East Coast of the US which itself is the most highly populous area of the US.

But Amazon will have nothing but trouble from these sites for the foreseeable future all because they took the bribe, even though they didn’t have to.

What’s interesting is that management theorists like Peter Drucker have been making this point for more than 20 years.

Corporate strategy on bribes by local governments

In his famous, “Management Challenges for the 21st Century”, Peter Drucker describes the “New Certainties” of organizational strategy. The fifth is the growing incongruence between political and economic realities. He offers first some context.

Because the political unit is becoming increasingly less powerful economically, it is increasingly tempted to offer all kinds of bribes — exemption from taxes, for instance…— to obtain an economic advantage.

Drucker was writing in 1999 and already many local governments in the US and governments of smaller countries throughout the world were providing these sorts of “bribes” to get big companies to locate facilities there.

Companies will often locate to places where they receive these bribes, usually more-diplomatically termed as “incentives”.

Drucker’s advice?

Just say no.

“There ain’t no bargains” is old folk wisdom…The first question has to be: “If [the company] didn’t get the bribe, would [it] do this as part of its business strategy?” If the answer is “no”, don’t do it…it will be a costly failure.

Okay, don’t move to a place where the economic reality does not justify the movement. Makes sense. The ludicrous Foxconn-Wisconsin deal is a great, recent example of how this can blow up in a company’s (and government’s) face.

But Drucker continues:

But even if the answer is “yes”, it is almost certainly wise to say “no” to the proffered bribe. All experience — and there is plenty of it — indicates that, in the end, one pays and pays heavily for accepting such bribes.

What does Drucker mean by this? He doesn’t elaborate in “Management Challenges” but his indication about “experience” is quite right. Company after company after company has struggled even when making the right economic decision to relocate because they accepted bribes offered by local politicians.

Why? Political backlash and infrastructure.

Amazon will face both political backlash and infrastructure problems because it took NY and DC’s bribes

Politicians tend to tie themselves to getting these massive companies into their districts, even at the expense of the taxpayers. Once that happens, those same politicians are handcuffed by the bribe and cannot do as much as they would have been able to otherwise. This further erodes support for the politician and weakens his/her position electorally.

These bribes are also coming from somewhere and many taxpayers, but especially those who would have received the money otherwise, now have a strong motivation and platform on which to oppose the politician.

This is already happening.

Additionally, that money will get drawn away from budgets that would otherwise support infrastructure around a new facility and make it more successful.

These two factors combined mean that companies like Amazon which accept such bribes to move to locations are sure to have the political winds move against as they become perceived of as too closely aligned with one administration’s policies and the opposition makes the presence of the company — and its tax breaks — an election issue.

Compare this reality of being dragged into the political game with turning down the bribe. Not only are you largely viewed as a model corporate citizen, but now the government has both money and incentives to provide your facility with better infrastructure and resources, things they couldn’t do if they paid you the bribe.

Professor. Lawyer. Researcher. Writer. I help people learn to run better, more sustainable businesses and be better humans. Opinions my own.

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