A key ingredient in Amazon’s selection process

Whether it be a tech giant or the federal government, the best approach in targeting big investment in one place is to ensure the local community has social cohesion and common vision.

The Monitor's View

In its selection of New York City as one of two places for a new headquarters, Amazon revealed a key necessity for such a big investment in one community. The tech giant first had to make sure that Mayor Bill de Blasio and Gov. Andrew Cuomo would get along in shepherding the project. The two politicians are rivals. Yet with a mutual incentive to uplift Queens’s Long Island City, the two decided to put aside their differences.

More than 200 places vied to be a second (or third) headquarters for Amazon. New York was hardly alone in discovering that it must show the whole community was engaged and on board. In many of the competing places, local leaders in business, education, and government came together to offer financial incentives, promise upgrades, and consider other inducements. In some cities, many of the proposed projects, such as transit improvements, may now go ahead anyway, simply out of newfound cooperation over a shared vision.

This is a key lesson learned after decades of attempts by governments, businesses, and foundations to target investments in particular places, especially distressed ones. Local stakeholders must show social cohesion and a sense of a common destiny. Tax breaks can be attractive. Having a good university may help. Commute times, housing costs, and nightlife for younger workers must be considered. But intangibles like trust, unity, and caring within a community make the ultimate difference.

Amazon’s 14-month selection process came at a good time. Under a new federal program embedded in the 2017 tax overhaul, investors of almost any kind will soon be granted a long-term tax incentive to put money into low-income areas known as “opportunity zones.” More than 8,700 such zones have already been designated by states and approved by Washington. Final rules for the investments will be in place early in 2019.

The tax incentives are so generous that the think tank behind the idea, the Economic Innovation Group, estimates that as much as $6.1 trillion now held by both corporations and households could be invested in both rural and urban communities. The concept builds on previous “place-based” investment schemes, such as President Barack Obama’s Promise Zones program. Scholars who study such programs say most have largely failed. They will be watching this latest – and bipartisan – effort closely.

What could succeed this time is that investors, who must put up money for more than a decade to get a big tax break, will be very careful in choosing a low-income community that has come together to support big and small investors. Amazon’s selection process was a very public model for this approach.

Amazon’s final selections of New York and northern Virginia’s Crystal City are not a model in one respect. The two places are already well on their way to becoming big growth centers. The purpose of the opportunity zones is to reduce regional inequality in the United States and the concentration of high-growth, high-tech megacenters like Boston and Silicon Valley.

Nearly 35 million Americans live in the newly selected zones, many of them in poverty and without higher education. Previous development schemes have failed them. But like the mayor and governor in New York eager to attract Amazon, they and their local leaders may now come together to bring in investments. Opportunity knocks. But will communities open the door?