Friday, January 19, 2018

Why Amazon's HQ2 rejection is good for Houston (plus a winner prediction)

Ok let's talk about the elephant in the room, Amazon's rejection of Houston for its HQ2 top 20 finalists list, validating Oscar and I's prediction (my key point: nobody wants to compete with energy companies for tech talent when oil might shoot up to unknown highs at any time!)  I don't think it's anything we need to panic about - I'm sure the freak timing of Harvey was the dominant factor. It's also important to remember that economic incentives are driven far more at the state level than the city, and so Amazon wants a wide range of states in the bidding war.  Amazon knows that by including cities like Indy and Columbus, Indiana and Ohio will go all-out on incentives, which they can then leverage over more desirable locations that aren't as likely to play the incentive game (NYC, DC, Boston, LA, Denver, etc.).  It doesn't mean they're more desirable locations than Houston.  Houston was not needed because Texas is already in the game with DFW and Austin, which are honestly better fits for Amazon if they choose Texas.

I personally think they want it in the DC region if they can get the incentives they want:
  • DC, Northern Virginia, and Maryland all made the final cut - lots of options.
  • Bezos has a home there and owns the Washington Post.
  • Most importantly, it's perfect from a talent perspective: DC is filled with underpaid and disillusioned government workers (including tech) - so it will be easy pickings.  In fact, I think an argument can be made that taxpayers are likely to be screwed twice over: once for the direct incentives, and a second time as the government has to raise salaries to recruit and hold on to tech talent in competition with Amazon.
There is one great silver lining for Houston, as Aaron Renn points out in his piece:
"The cities which made this list may also regret it. Putting together an initial bid only required a limited amount of money and civic time and attention. Now the costs start going up for the losers. It may well have been better to be one of the people who got cut early than to keep making through all these rounds only to lose (or potentially even to win)."
We're saving a lot of resources we don't have to spend on a losing battle, or even risk the "winner's curse" for whoever does win the bidding war.  We'll just keep growing with lots of small under-the-radar wins like we always do.  I'm not saying we don't have work to do as a city to attract more tech talent and companies (something Houston Exponential is directly addressing), but let's not blow this up to be more than it is.  Houston is doing fine - more than fine - and most cities would kill to be growing and thriving like we are.  Amazon was an unnecessary distraction. - let them cause havoc (talent poaching, driving up home prices, increasing traffic, draining tax incentives) somewhere else (Why You Shouldn’t Wish for Amazon’s HQ2 in Your Town).

Update: This Washington Post analysis includes why Houston didn't make the cut. Note that they give our transit high marks, as opposed to those who bias rail over bus.

Update 2: My thoughts on Dallas vs. Houston for Amazon HQ2.

Update 3: Texas Monthly backs us up on our creative "think big" Astrodome Amazon HQ2 idea!

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At 7:17 PM, January 19, 2018, Anonymous Anonymous said...

Good points, and I totally agree that Houston was not going to win, so being cut sooner rather than later eliminates substantial effort and expense.

I also agree with the Metro DC prediction, but for another reason. Being part of the Washington establishment should strengthen Amazon's lobbying strength and overall influence in the federal government. Amazon may eventually receive scrutiny for monopoly status, and they probably also want to erect barriers (i.e. more regulations) to suppress any upstart competition.

At 7:19 PM, January 19, 2018, Blogger Tory Gattis said...

Total agreement. If DC wins it, I think that should be good impetus for the idea currently gaining traction to break up the federal government agencies and spread them around the country, especially in struggling metros (mainly in the Midwest).

At 9:17 PM, January 19, 2018, Blogger George Rogers said...

Also we need to ban interstate banking.

At 1:31 AM, January 20, 2018, Anonymous Anonymous said...

Tory, great points which I never considered. My comment in previous post was knee jerk. Never mind the winners' curse which makes sense, no telling if Amazon will continue monopolizing it's sector, they will make mistakes creating new competitors and it could end up being an expensive behemoth to the winning city.

Your right, we are on the rebound and even at the bottom of this last downturn, we might just have enough critical mass now at $500B+ GMP and other significant sectors like oil exports and the Keystone PL isn't complete yet, plus produce imports in which sector I trade.

Good discussion!


At 2:47 AM, January 20, 2018, Anonymous said...

Washington D.C. (where I worked for over 6 years, including in the federal gubmint) doesn't have talent as much as it has arrogant, lazy tax-leeches who think the taxpayers owe them a living. They also love to claim they could make so much more in the private sector (when in reality, the genuinely private sector typically doesn't want them). How often do you see a good college sports team emerge from that region of the country? Work ethics aren't cool out there; they're symbols of dependence and weakness. The overall Northern Va. economy is based on govt. contracts more than probably anything else... that's not entrepreneurial, it's parasitizing...

Breaking up the federal government would create more interest (from the provinces) in keeping the federal government over-sized. There are two links that are well worth visiting, especially the second one:

Having said that, the FBI building in D.C. reportedly costs taxpayers around $2 billion annually. If the FBI headquarters went to Detroit, instead, maybe it would take a while before corruption sets in up there. Still, Texas is better off pulling a Texit ASAP.

Texit! :-)


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