Feb 4, 2018 5 min read

Amazon is an amazingly (ruthlessly?) efficient company. It has expanded exponentially as it has helped drive the movement of shopping from bricks-and-mortar stores to online.

Knowing that competition can drive performance, a few months ago Amazon dangled the prize of a second headquarters with the prospect of 50,000 jobs for the city that could convince it to build there. This is a brilliant strategy, because not only does it provide Amazon hours of mostly positive free advertising, and gets the economic development departments of competing cities to do most of Amazon’s research for them, but it also gets cities that want Amazon’s second headquarters to offer economic incentives to entice the company there.

Cities have been vying with one another for economic development since our nation’s founding; the location of the nation’s capital was one of the first contentious issues faced by the new government, with Philadelphia and New York City each hoping to be the host, but their desires were sacrificed by a compromise with Southern states, and it was placed in undeveloped land at is current location. When the state of New York completed the Erie Canal in 1825, Pennsylvanians immediately saw that New York City would replace Philadelphia as the port through which goods from the Midwest would travel, and built a combination railroad/canal system in an attempt to restore western shipping to Philadelphia. The state-subsidized canal building craze of the 1830s took off because governments realized that a canal was an economic lifeline. Even when governments were quite small, they invested in efforts to promote economic development, knowing that failure to do so could leave them isolated and stagnant.

More recently, instead of transportation infrastructure or the placement of capitals, state and local governments have provided economic development packages to entice large employers. In the 1970s, trying to encourage foreign investment, Pennsylvania provided $70 million in incentives for Volkswagen to build a plant in New Stanton, but the jobs created there only lasted 10 years, since VW closed the plant in 1988. Recently, Pennsylvania provided $1.65 billion in tax credits to get Shell to locate its cracker plant in Beaver County.

Popular sports teams create a similar dynamic by threatening to move out of a city unless a stadium is built or other economic incentives are offered. The teams argue that public money should be invested because of the economic returns to the city, though numerous studies show that stadiums produce little overall economic development, they simply move entertainment dollars around.

These efforts often end badly, because taxes are such a small part of the overall equation for most businesses that these incentives are insufficient to determine success. Market conditions change, and businesses have to change with them, which often means projected jobs never appear, or disappear all too quickly. Market fundamentalists would argue that these incentives are essentially an effort to subsidize a bad decision. Decisions should be based on market conditions, not tax incentives. And if the tax incentives are not decisive in making those decisions, since that is their entire purpose, providing such incentives is essentially throwing away tax dollars.

That being said, Pittsburgh is actually an ideal location for Amazon. Carnegie Mellon University is one of the premier universities for computer research and development in the country, and the other major local universities, such as the University of Pittsburgh, Robert Morris University and Duquesne University, make Pittsburgh a true college town, with the associated young, educated pool of potential employees. Pittsburgh’s location is a perfect complement to Amazon’s existing Seattle headquarters, because Pittsburgh is within a day’s drive of not only the entire eastern seaboard, but also the major cities of the Midwest.

Pittsburgh’s industrial past is what makes it an ideal location. As recently as the 1980s, the steel industry dominated the region’s river valleys. But the decline of heavy industry provides opportunity to develop a 21st century economy. The city of Pittsburgh has transitioned quite well to a service economy – “Eds and Meds” – and, as a result, has a revived downtown and many vibrant neighborhoods. But the Mon Valley has not been a part of that transition, which means there is still plenty of inexpensive real estate in an area that already has a lot of the infrastructure necessary to support a much larger population.

Developing Amazon’s headquarters in the Mon Valley not only puts it in Pittsburgh’s orbit, but it also provides a mix of the mill towns along the river with easily accessible suburban and rural areas nearby. Amazon employees would have immediate access to the Allegheny Passage, one of the nation’s preeminent bike trails, and the outdoor playground of the Allegheny Mountains is within a short drive. Amazon could revitalize the Mon Valley and create the epicenter of an East Coast Silicon Valley. Travel from the airport to the Mon Valley is currently very difficult, but the completion of the Southern Beltway, which is two-thirds finished, would make that trip relatively simple.

The Pittsburgh region is historically very affordable, and unlike most of the competing cities, has experienced little population growth, so it can accommodate 50,000 new residents without adding to the problems of rapid growth. Instead of Amazon paying top dollar to invest in some trendy city’s development, exacerbating the growth problems there, it could help revitalize a region while getting in on the ground floor of an area with a lot of unrealized potential. Regional leaders should not offer tax subsidies, since they would only be necessary were the location not to be appropriate on merit, but should offer investments in infrastructure, like a modern transit system connecting the Mon Valley to Pittsburgh, that would facilitate the region’s growth.

If Amazon wants to solidify its reputation as a forward-looking company, it should locate its second headquarters in the Mon Valley.