Amazon’s plan to build a second headquarters away from Seattle has triggered a bidding war among North American cities. A reported 238 cities, big and small, submitted inducement packages to the tech giant, each jostling to entice the company to their own metropolis.
The scramble to please Amazon marks the return of a very old dilemma that American cities faced with the rise of capitalism in the 19th century: roll out the red carpet to investors, with tax breaks and other subsidies, or lose development funds to more pliant competitors.
In the past, these pressure tactics often failed to accomplish their desired results. Geared to exact valuable concessions and pit one city against another, they instead inspired fierce and widespread opposition.
Like today, urban boosters in the 19th century dazzled ordinary Americans with grand visions of economic growth. In the fast-paced age of the railroad and the telegraph, they explained, corporate capital had become more mobile than ever before and much better able to choose between contending sites for investment. Cities that garnered favor with investors would win a prosperous future, securing an abundance of financial resources, thriving industries, and thousands of high-paying jobs.
The policy prescriptions for cities were clear: eliminate corporate taxes, provide public subsidies, and avoid heavy-handed government regulation. “What we want is capital,” one member of the chamber of commerce in Laramie, Wyoming, advised. “Is it not rather to throw open the gates wide and welcome capital with outstretched arms?”
Any departure from these tenets, a prominent lawyer from Olympia, Washington, warned, would “paralyze the great enterprises of improvement which have already been commenced, and … prevent the inauguration of others now in contemplation”. In the context of competition for investment among cities, the disastrous results would be a languishing economy, unrealized development potential, and lackluster job creation.
Fortunately, urban leaders stood up against the race to the bottom that these methods aimed to generate. Many lawmakers remained skeptical about doomsday scenarios painted by investors and refused to cater to corporate demands. They mocked the notion that they had “to coddle and fondle and caress these great capitalists in order to get them to … invest their money”, as Charles Hartman of Bozeman, Montana put it.
Corporate giveaways not only undermined political sovereignty, these lawmakers explained, but also surrendered precious tax revenues and regulatory authority. These concessions weakened a city’s ability to invest in neighborhood infrastructure, social services, and public education.
To “sacrifice everything … for the purpose of building up these corporations” would be bad policy, Alexander Mayhew from Coeur d’Alene, Idaho, argued. It was “a dangerous precedent to establish … to encourage [them] in such manner”.
The pushback against concessions produced legal prohibitions, often inscribed in state constitutions, that explicitly barred politicians from succumbing to pressure from investors. Lawmakers in Colorado, for example, explained that cities had at times been overeager in their dealings with business interests. These municipalities had struggled to protect the people “from the grasping and monopolizing tendencies of railroads and other corporations”.
The Colorado constitution, written in 1876, thus placed such legislative initiatives beyond reach. It included an explicit injunction against any legislation offering special tax exemptions to corporations. It likewise prohibited cities from using public borrowing to subsidize corporate ventures.
Determined to advance public priorities over corporate profits, many state constitutions sanctioned broad government authority to regulate corporations. These provisions, and many others, did not entirely eliminate special corporate incentives, but they made such policies much more difficult to enact.
Tax breaks and government subsidies have of late become synonymous with development strategy – something Amazon is now skillfully taking advantage of. An influx of unregulated private investment, however, has never in itself been enough to nurture urban prosperity and well-being.
In the heyday of American urban growth, cities expanded and proliferated and did not do so in an environment of submissiveness to corporate ultimatums. They instead benefited from political institutions that carefully guarded their tax revenues and were therefore able to invest in long-term foundations for development.
Cities did not narrowly serve corporate needs but the expectations of a diverse urban population that clamored for a broad range of public services, including roads, sewers, water, parks, and schools. This underappreciated legacy greatly improved city life for a large urban population. It also allowed American cities to forge better foundations for long-term economic development, something mayors and governors today, but more importantly ordinary citizens, would be well served to keep in mind.
- Noam Maggor teaches the history of capitalism at Cornell University and is the author of Brahmin Capitalism: Frontiers of Wealth and Populism in America’s First Gilded Age