By Kevin D. Williamson
Friday, February 15, 2019 6:30 AM
The story of capitalism since the 1980s has been that of
a kind of cold war between capital and politics.
In the decade prior, American government was at the nadir
of its prestige and credibility. The so-called War on Poverty, launched with
great fanfare and idealism in the late 1960s, quickly collided with immutable
economic and social realities that exposed its limitations. In 1969, we’d
landed a man on the moon; by 1973, we were rationing
gasoline. By the end of the decade, President Jimmy Carter was a piteous
and contemptible figure (he has not improved in retirement), inflation was
approaching banana-republic levels, and our mighty military and intelligence
agencies were being humiliated by a gaggle of dotty fanatics in Iran while our
feckless Congress was paralyzed. And it wasn’t only American government: In the
United Kingdom, doctors in hospitals were working by candlelight as a series of
strikes organized by socialists and union bosses left the country in chaos,
darkened by blackouts. The Soviet Union, a brutal gulag state responsible for
the deaths of millions upon millions in a series of politically motivated
atrocities, was still a going concern — and our most progressive intellectuals
were in its corner.
The reaction to all that misery and chaos was personified
in three extraordinary leaders: Ronald Reagan in the United States, Margaret
Thatcher in the United Kingdom, and Pope John Paul II. Each pointed to the
moral and natural shortcomings of étatism
and spoke for the dignity of the individual, the citizen, the family, and the
life that is beyond the natural reach of politics.
But there were other changes under way well outside the
realm of elected office and politics as such. NASDAQ opened in 1971 as the
world’s first electronic stock market, though it wasn’t really quite a real
full-function stock market until some years later. The primitive digital market
was a herald of things to come. In 1986, NASDAQ-listed Microsoft had its
initial public offering of stock, a financial event that created three billionaires
and 12,000 millionaires in an instant. NASDAQ was also the home of Apple,
Cisco, Dell, and Oracle shares, among other firms that would reshape the way
business is done and fortunes made. The first commercial Internet service
providers appeared at the end of the 1980s, just as Tim Berners-Lee was
inventing the World Wide Web at CERN.
The Reaganites and the Thatcherites said, “Let markets
work.” And they did, in ways that were enormously productive, sometimes
mystifying, often delightful, as the Internet and other technological
innovations made possible connections and syntheses that only a few years
before would have been the stuff of science fiction, if not quite beyond
imagining. The result was the Long Boom, a period of enormous economic growth
and innovation that stretched (not entirely without interruption, of course)
from the 1980s until approximately Sept. 11, 2001, the event that announced the
queer new reality in which we currently live.
Politics and capital have a relationship that is both
adversarial and symbiotic. There are not very many Rothbardian
anarcho-capitalists in America’s (or the world’s) boardrooms; access to such
public goods as independent judiciaries and reliable infrastructure is a
dispositive factor in a great deal of corporate decision-making. And politics
needs capital, because it can only command
resources, not having the faculty to create any of its own. For much of the
history of the Western world, politics had the upper hand in that relationship,
an almost uncontestable advantage. But that began to change with the emergence
of nearly frictionless capital flows and the integration of global supply
chains. Private corporations grew to be more powerful than the municipalities
in which they resided. Yes, Microsoft needs a fire department and police
protection, but it doesn’t have to be the ones in Redmond, Wash. Microsoft
could replace Redmond much more easily than Redmond could replace Microsoft.
Amazon exploited that new reality in a fairly vulgar way
when it went from city to city shouting, “Dance, monkey!” at sundry mayors and
councilmen eager to have their municipalities host the company’s supplementary
headquarters. They came bearing gifts worth billions of dollars, laying them at
the feet of the world’s wealthiest man in an unseemly display of
obsequiousness. Amazon settled on New York City, the greatest of our cities and
the proving ground of many of our greatest businessmen and enterprises. New
York rejoiced, until it didn’t. A new wave of angry progressive Democrats
inspired by Representative Alexandria Ocasio-Cortez denounced the deal that
brought Amazon to New York, not only for its corporate handouts but because
they object to Amazon’s business model and corporate practices. Amazon, hearing
another prelude to the litany of abuse it suffers from the left in its home
city of Seattle, canceled the project.
Mercatus scholar Matthew D. Mitchell points out that
Amazon’s now-rescinded decision to locate in New York (it still plans to build
another facility in the Virginia suburbs of Washington) was not a case of
follow-the-money. The company was in fact offered much larger incentives in
other places not too far away from the ones it settled on, including Newark,
N.J., and Montgomery County, Md. For a company such as Amazon, there’s a lot
more to picking a new home than tax breaks. Mitchell writes:
Amazon has decided not to build
one-half of its HQ2 in New York after all, teaching Empire State politicians a
lesson that economists have known for years: targeted corporate subsidies are
not an effective strategy for economic development.
With much fanfare, New York had
offered Amazon nearly $3 billion in incentives. The tech giant had chosen New
York in spite of much more generous offers from others like Newark, NJ and
Montgomery, MD. One reason they may have been willing to [spurn] these more
generous offers is that even enormous subsidies pale in comparison to other
location factors. It’s been estimated, for example, that locally-supplied labor
costs are about 14 times the size of state and local tax costs.
There have now been over 100
peer-reviewed academic studies of targeted subsidies. The overwhelming majority
of these fail to find any evidence that subsidies benefit the broader
communities that offer them. What does matter is the overall environment.
Policymakers who stick to the provision of public goods, keep their taxes low
and their regulations reasonable can see their states and cities grow. Those
who offer targeted subsidies to high-profile firms like Foxconn and Amazon do
nothing to improve the lot of their constituents.
Amazon does not need New York City. There are many
advantages to operating in a city such as New York, which offers experiences
and opportunities that well-paid tech-company executives are not going to find
in such business-friendly alternatives as Houston or Las Vegas. But Amazon has
decided that these are not worth the price of admission, which in this case
would be subjecting itself to a political climate dominated by people who
detest the company, its chief executive, and the model of business it stands
for. There was a time when a major financial institution, publishing house, or
media company simply had to have a New York City presence — preferably a
headquarters — as a matter of course. But that time has passed.
New York’s anti-capitalists are cheering Amazon’s
abandonment of their city. They think they won.
Governor Andrew Cuomo doesn’t think so. He is not a very
intelligent man, but his parasitic instincts are functional enough. Faced with
an unexpected $2.3 billion dip in tax collections, Cuomo explained that the
problem was that wealthy New Yorkers were leaving the city to take up legal
residence in Florida and other lower-tax jurisdictions. The federal government
had long provided a subsidy to high-tax jurisdictions such as New York in the form
of a federal income-tax deduction for state and local taxes. The recent
tax-reform bill reduced those benefits, and that did not go unnoticed in New
York City, where a handful of high-income taxpayers together pay nearly half of
the city’s income tax and a good share of the state’s taxes, too. Even before
that, tens of thousands of high-paying Wall Street jobs had disappeared as
financial-services workers fled to friendlier jurisdictions. And 2
percent of the city’s business taxpayers pay 85 percent of the city’s business
income taxes. So long as taxpayers have the option of exit, there are real
limits on what can be taken from them. As the much-maligned corporate inversion
trend of a few years ago demonstrates, that is true for countries as well as
cities.
The balance of power has decisively shifted toward
capital away from politics. But rather than deal forthrightly with that new
reality, politicians have adopted an ever-more-frantic carrot-and-stick
routine: bribing Amazon to choose New York City on the one hand, threatening
businesses and their high-income executives with punitive regulation and
confiscatory taxes on the other. The politicians should instead take Matthew D.
Mitchell’s advice and work on their potholes. Which is to say, government should
govern rather than try to act as a dealmaker and kingpin in the business world.
Providing excellent public goods economically is difficult enough, but you
don’t go to a couple of crassly opportunistic knuckleheads like Governor Andrew
Cuomo and Mayor Bill de Blasio, two outstanding specimens of parasitic
politics, if first-rate municipal services are your goal.
And that’s the pity. A New York City with a functional
subway system and schools you wouldn’t mind sending your children to wouldn’t
need to bribe Amazon to set up shop there. It could hold its head a little
higher, too.
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