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A Modern Business Case Review - Growth Vs. Ethics, New York Vs. Amazon

Updated: Mar 25, 2019

*February 20 2019*

New Yorkers Were Not Happy About Amazon's Tax Benefits!
“You have to be tough to make it in New York City,” Mayor Bill de Blasio stated, as it was revealed that Amazon had cancelled its plans to build a new headquarters in Queens, New York.

It has been nearly a week since New York Mayor Bill de Blasio boldly boomed these words over the microphone. It was looking to be the partnership of a lifetime- Amazon and New York warmly shaking hands with each other to create the next great leap into the future. Unfortunately, this would not come to pass.

At the heart of this almost bizarre story lay this fundamental and ethical dilemma: Should New Yorkers put local economic growth and prosperity first or should they rise up against what looks like corporate greed and potential moral hazard, lessons learned from the Wall Street meltdown almost a decade ago. Let us examine.

Seeking a new East Coast corporate headquarters to its already established base in California, Amazon sought a lucrative deal for themselves with the City of New York to establish its campus in the borough of Queens. This new Long Island City campus would have offered 25,000 new jobs and approximately $27 Billion in tax revenues over 20 years. Select real estate areas in Queens were showing promising signs of increased prices and new infrastructure development plans were in the works within and around the borough because of Amazon's planned entrance. However, last Thursday on Valentines day, Amazon officials announced they were pulling out of the New York project permanently. This was met swiftly with a gambit of local emotions: some with cheers, some with sadness, some with anger, and most with harsh criticism.

So what happened that upset New Yorkers so much? Well for one thing, much of the negotiations between New York leadership and Amazon were done in complete secrecy. Transparency on the project development was almost nil. Further, amidst these secret talks, Amazon had somehow managed to secure tax benefits from New York in the amount of $3 Billion! That's a monuments tax break and, when revealed, was immediately met with harsh criticism from various local New York activist groups and top New York Senate politicians. Many of these big voices began painting Amazon as a voracious shark and a vehicle of greed and inequality. Once in the limelight, it seemed that few from either Amazon or New York's leadership wanted to come to the table and make this work for both New York and Amazon.

They say, "If you can make it here, you can make it anywhere!" Indeed this is true! But this also seems a missed opportunity for Amazon to have solved for local infrastructure, housing and of course employment development issues.

“The New York State Senate has done tremendous damage,” New York Governor Andrew Cuomo went on to say last Thursday. “They should be held accountable for this lost economic opportunity.”

New York politicians were immediately against the tax break given to Amazon and wanted to see a greater investment from Amazon into New York- the $5 Million in initial Amazon investment into workforce development was regarded as not enough. I'm trying to understand what greater investment is needed than Amazon providing 25,000 jobs, local infrastructure and housing developments, and local branding and marketing plays. It would certainly have been great from a business and economic perspective.

On the other hand, what kind of a broken system do we have that rewards powerful corporations with billions in tax benefits that might constitute genuine moral hazard. Amazon displayed arrogance of its own and seemed to have little respect for greater public scrutiny and review. Amazon, one of the richest companies in the world, run by the richest man in the world, had held a nationwide contest in which governments scraped together enough entitlements to satisfy it, even as those same cities struggled to fortify corroding infrastructure and stave off a housing crisis that has pushed the middle class to the brink and forced the poor into homeless shelters. Does this sound right to you? To me it conjures images of the powerful Microsoft of old and the Wall Street power plays not a decade ago.

Suffice it to say, New York's leaders could have worked with Amazon to create a deal better suited for both parties. New York would have diversified its economy and leveraged the power of a tech giant to help solve big problems. Amazon could have gained much from New York's prestigious location and its tremendously diverse and talented people.

Indeed it remains an opportunity missed by both parties, one that I am sure will be studied for the future.

Thank you for reading,

Val Misra, MBA

Founder @ MBA Accepted


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