North American cities are competing to host Amazon’s new headquarters. Here’s what they should do

Amazon HQ, Seattle. Image: Getty.

Cities across the US and Canada are locked in fierce competition to host Amazon’s second headquarters – known as HQ2. This is a big race: a shortlist of 20 cities seems to think this particular corporate investment can go a long way to solving some of their ongoing economic problems.

The process of inward investment – whereby large firms establish operations in a new location, either at home or abroad – has been seen for a long time as a way of creating positive economic change. They can create many new jobs in areas which are crying out for them, but they also bring new entrepreneurial activity, improved management skills, international know-how and a wider boost to other local businesses.

But these decisions can cause big problems. As is typical, Amazon has effectively set off a competition between a number of major US cities for its investment, which means they will all now be trying to outbid each other in terms of the “offer” they can make. This will include their existing assets such as land, infrastructure, transport connectivity and, most importantly, people – ideally with the right blend of skills and aptitudes that Amazon needs.

The big downside of this form of competition is that cities will start offering inducements of a fiscal nature – usually in the form of tax breaks – in order to capture the big prize.

A big prize

Amazon is now one of the biggest businesses in the world, having very successfully tapped into our growing desire for the convenience of online shopping and deliveries to our doorstep. The business is evolving and expanding, and the company now needs a second major HQ operation, in addition to their existing global control centre in Seattle.

With the promise of up to 50,000 new jobs and $5bn in construction investment, it is no surprise that over 230 US cities threw their hats into the ring for this major prize. Bids were invited, and then a shortlist of 20 possible host cities drawn up. This list includes major metropolises such as Atlanta, Boston and Los Angeles, as well as smaller cities such as Indianapolis, Miami, Austin and Columbus, Ohio.

Major inward investments do indeed have the capacity for major economic uplift. But it’s not just the volume of jobs that might be created locally which is important – it’s how this new investment becomes truly embedded into the local and wider regional economy. There are many examples of big business investing in an area, only to up sticks a decade later and move on to the next best location – often overseas - to take advantage of lower operating costs.

The long game

Each bidding city needs to be very clear about what it is prepared to offer Amazon. If this includes tax incentives, then there also needs to be an obvious, long-term payoff, in terms of local economic impact. The winning city must have a firm strategy in place for receiving Amazon, and this needs to cover a few significant factors. For instance, the city needs to have a clear idea of how many new jobs will really be created, how good they are and over what time period they will appear.


Amazon, like many big e-commerce businesses, will be quick to take advantage of the efficiency savings driven by automation and artificial intelligence. This may eventually reduce the total number of jobs available in its new facility.

Ideally, the city that wins will be able to create a business environment that encourages Amazon to locate more and better quality jobs away from Seattle and not just have lower-order, back office functions in its new operation.

Similarly, inward investment can have a major impact economically by strengthening local supply chains – those local businesses that can provide specialised goods and services to the new arrival. These supply chains need to operate effectively and be supported with managerial, infrastructural and skills enhancement, so that they become a critical part of Amazon’s business model. That way, the firm will not want to move away later on, because it cannot take its unique local supply chain operation with it. Better to stay put and keep investing in the host location.

The ConversationThe race to win the new Amazon HQ should not be a quick sprint to the finish. It’s more like a marathon that needs careful, long-term planning if the full benefits are to be achieved for the winning city.

Jim Coleman, Professor of Professional Practice, University of Westminster.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

“Stop worrying about hairdressers”: The UK government has misdiagnosed its productivity problem

We’re going as fast as we can, here. Image: Getty.

Gonna level with you here, I have mixed feelings about this one. On the one hand, I’m a huge fan of schadenfreude, so learning that it the government has messed up in a previously unsuspected way gives me this sort of warm glow inside. On the other hand, the way it’s been screwing up is probably making the country poorer, and exacerbating the north south divide. So, mixed reviews really.

Here’s the story. This week the Centre for Cities (CfC) published a major report on Britain’s productivity problem. For the last 200 years, ever since the industrial revolution, this country has got steadily richer. Since the financial crash, though, that seems to have stopped.

The standard narrative on this has it that the problem lies in the ‘long tail’ of unproductive businesses – that is, those that produce less value per hour. Get those guys humming, the thinking goes, and the productivity problem is sorted.

But the CfC’s new report says that this is exactly wrong. The wrong tail: Why Britain’s ‘long tail’ is not the cause of its productivity problems (excellent pun, there) delves into the data on productivity in different types of businesses and different cities, to demonstrate two big points.

The first is that the long tail is the wrong place to look for productivity gains. Many low productivity businesses are low productivity for a reason:

The ability of manufacturing to automate certain processes, or the development of ever more sophisticated computer software in information and communications have greatly increased the output that a worker produces in these industries. But while a fitness instructor may use a smartphone today in place of a ghetto blaster in 1990, he or she can still only instruct one class at a time. And a waiter or waitress can only serve so many tables. Of course, improvements such as the introduction of handheld electronic devices allow orders to be sent to the kitchen more efficiently, will bring benefits, but this improvements won’t radically increase the output of the waiter.

I’d add to that: there is only so fast that people want to eat. There’s a physical limit on the number of diners any restaurant can actually feed.

At any rate, the result of this is that it’s stupid to expect local service businesses to make step changes in productivity. If we actually want to improve productivity we should focus on those which are exporting services to a bigger market.  There are fewer of these, but the potential gains are much bigger. Here’s a chart:

The y-axis reflects number of businesses at different productivities, shown on the x-axis. So bigger numbers on the left are bad; bigger numbers on the right are good. 

The question of which exporting businesses are struggling to expand productivity is what leads to the report’s second insight:

Specifically it is the underperformance of exporting businesses in cities outside of the Greater South East that causes not only divergences across the country in wages and standards of living, but also hampers national productivity. These cities in particular should be of greatest concern to policy makers attempting to improve UK productivity overall.

In other words, it turned out, again, to the north-south divide that did it. I’m shocked. Are you shocked? This is my shocked face.

The best way to demonstrate this shocking insight is with some more graphs. This first one shows the distribution of productivity in local services business in four different types of place: cities in the south east (GSE) in light green, cities in the rest of the country (RoGB) in dark green, non-urban areas in the south east in purple, non-urban areas everywhere else in turquoise.

The four lines are fairly consistent. The light green, representing south eastern cities has a lower peak on the left, meaning slightly fewer low productivity businesses, but is slightly higher on the right, meaning slightly more high productivity businesses. In other words, local services businesses in the south eastern cities are more productive than those elsewhere – but the gap is pretty narrow. 

Now check out the same graph for exporting businesses:

The differences are much more pronounced. Areas outside those south eastern cities have many more lower productivity businesses (the peaks on the left) and significantly fewer high productivity ones (the lower numbers on the right).

In fact, outside the south east, cities are actually less productive than non-urban areas. This is really not what you’d expect to see, and no a good sign for the health of the economy:

The report also uses a few specific examples to illustrate this point. Compare Reading, one of Britain’s richest medium sized cities, with Hull, one of its poorest:

Or, looking to bigger cities, here’s Bristol and Sheffield:

In both cases, the poorer northern cities are clearly lacking in high-value exporting businesses. This is a problem because these don’t just provide well-paying jobs now: they’re also the ones that have the potential to make productivity gains that can lead to even better jobs. The report concludes:

This is a major cause for concern for the national economy – the underperformance of these cities goes a long way to explain both why the rest of Britain lags behind the Greater South East and why it performs poorly on a

European level. To illustrate the impact, if all cities were as productive as those in the Greater South East, the British economy would be 15 per cent more productive and £225bn larger. This is equivalent to Britain being home to four extra city economies the size of Birmingham.

In other words, the lesson here is: stop worrying about the productivity of hairdressers. Start worrying about the productivity of Hull.


You can read the Centre for Cities’ full report here.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites

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