Commentary: Lessons from Amazon's threat to leave Seattle

Commentary: Lessons from Amazon's threat to leave Seattle

Amazon is indifferent to the costs created by its success and cities need to get smarter about how they handles such businesses, says one observer at the Financial Times.

People are offered free reusable bags as they enter the new Amazon Go store in Seattle
People are offered free reusable bags as they enter the new Amazon Go store at Amazon's Seattle headquarters in Seattle, Washington, US on Jan 29, 2018. (Photo: REUTERS/Lindsey Wasson)

SAN FRANCISCO: Another week, another piece of “tech-lash”.

Facebook has been in the cross hairs for its mishandling of consumer data. Now, Amazon has become embroiled in a separate tussle about tax and inequality in Seattle.

While the sums involved are tiny, investors should take note — if nothing else because the Seattle saga captures the wider challenges being created by the stunning success of tech today.

THE ISSUE? A NEW TAX 

The issue at stake is a new tax that the city of Seattle is introducing to tackle homelessness. The council had initially proposed asking each local company with more than US$20 million revenues to pay US$500 tax per employee.

However, Seattle-based businesses like Starbucks and Amazon complained. Indeed, the latter company was so angry that it halted a downtown expansion in protest. 

So this week the city cut the tax to US$275 a head, hoping to raise US$45 million or so.

At this point, you might stop reading. 

After all, US$45 million is a piddling sum for a company such as Amazon, which employs 40,000 people in the Seattle area and just notched up US$1.6 billion quarterly net earnings.

Meanwhile, everybody agrees homelessness is now a dire problem in the city, fuelled by opioid addiction.

Meanwhile, everybody agrees homelessness is now a dire problem in the city, fuelled by opioid addiction.

Sleeping
A person sleeps under a blanket on the grass at Denny Park in Seattle. (Photo: AP/Ted S Warren)

THREATENING TO LEAVE

But Jeff Bezos, the Amazon chief executive, is still seething. This week, an executive declared that the company is “disappointed” by the new tax and “very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.” 

In plain English, it is threatening to leave.

No one knows if Amazon will carry out this threat. But the saga highlights at least three striking points

The first is that America’s digital giants can be shockingly blind to “externalities”, or the costs they create in the wider political and social ecosystem (and vice versa).

One reason this fight exploded is that business leaders think Seattle’s leftwing council is ineffective. They have a point - the city has mishandled the homeless crisis.

But the other reason is that Amazon has expanded at such dizzy speed, and with such single-minded focus on profits, that its leaders have paid scant attention to local politics — and the divisive impact of the tech boom.

FILE PHOTO: A woman holds a sign during a protest outside the Amazon Spheres to demand that the cit
 A woman holds a sign during a protest outside the Amazon Spheres to demand that the city of Seattle tax the largest corporations to help fund affordable housing in Seattle. (Photo: Reuters)

BETTER VISION NEEDED

Some local companies have been savvier. Microsoft, which is based in a nearby suburb, has learnt in recent years to court local politicians. Starbucks has poured energy into social projects.

But Amazon executives seem genuinely surprised by the anger of local leftwing politicians. Having given money to local philanthropy projects, Amazon did not expect to be asked for tax as well. 

That suggests they urgently need to get better lateral vision.

The second point is that policymakers and tech leaders alike need to find ways to spread digital activity more widely across America.

This is starting to happen. Google, for example, has been quietly placing data centres in various regions.

But Amazon’s main attempt to “diversify” has been to launch an all-too-public contest to choose the location for a second headquarters.

Ironically, this process may spark even more tech-lash. Not only is it costly for cities to make this type of public bid, but the beauty parade will make it even easier for Amazon to extract tax concessions.

A sign for the new Amazon Go store on 7th Avenue at Amazon's Seattle headquarters in Seattle
A sign for the new Amazon Go store on 7th Avenue at Amazon's Seattle headquarters in Seattle, Washington, U.S., January 29, 2018. REUTERS/Lindsey Wasson

CITIES SHOULD GET SMARTER ABOUT GROWTH

That points to a third lesson. Cities themselves need to become a great deal smarter and more proactive about how they handle digital growth.

In decades past, optimists hoped that tangible geography would be irrelevant in cyber space. Sadly, that has proved to be wrong.

Digital innovation is still tightly concentrated in urban clusters. This is creating bottlenecks, spiralling house prices and homeless encampments next to the houses and offices of billionaires.

It can only be resolved if public authorities learn to work with business to develop infrastructure.

Of course, if Amazon does follow through on its threat to take more operations outside Seattle, this may ease local overcrowding somewhat. Indeed some city officials would be almost relieved by this outcome.

But moving a few thousand jobs will not solve the bigger issue: How to handle the inequalities of money — and of power — being created in America by big tech’s stunning success.

In that sense, then, Seattle, like Silicon Valley, is a worrying barometer. The tech-lash is likely to worsen.

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Source: Financial Times/sl

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