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Analysis: Why New York's Amazon Bungle Is A Big Win For Freight Alley

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Analysis: Why New York's Amazon Bungle Is A Big Win For Freight Alley

There were only ever two good reasons for Amazon.com, Inc. (NASDAQ: AMZN) to build a headquarters in greater New York City: access to talent and $3 billion in incentives to make up for the enormous amount of local and state taxes it and its 25,000 employees would have paid.

However, the high cost of doing business in New York – whether due to inflexible work rules, pressure from union bosses or burdensome taxes – isn't a factor anymore, now that Amazon has wisely backed out.

Instead, the company is expected to expand its plans to add workers in Georgia, Tennessee and Virginia, states that in recent years have benefitted handsomely as businesses flee more intrusive state and local governments to the north and far west.

The lower cost of living and working in the Southeast – whether due to a lower regulatory burden, cheaper cost of doing business or just plain old lower taxes – has been cited again and again as a key attractor of both businesses and the talented workers on whom they depend.

Right-to-work states like Alabama, Georgia, South Carolina and Tennessee have all seen an influx of both heavy industry as well as innovative startups, building both the tax base and the talent pool. Tennessee doesn't even have an income tax.

Expansion plans for Tennessee already called for Amazon to bring an additional 5,000 jobs to the Nashville area, with an average salary of $150,000 per year. This boosts consumer spending and retail activity in the area, and also provides a jolt to the Nashville government's tax base, very different from the jolt many New Yorkers must be feeling right now, said FreightWaves economist Ibrahiim Bayaan.

"The benefits of an Amazon expansion for local communities come from the jobs that Amazon creates, as well as the investment and construction of new structures," Bayaan said. "The incremental taxes collected from these additional workers alone are projected to generate $1 billion over the next 10 years."

If, instead of 5,000 workers in Nashville, Amazon added the same 25,000 workers that New York just spurned, tax revenues could climb to $5 billion in a decade, easily eclipsing the $1.5 billion in tax rebates New York had promised.

Try getting anything approaching that level of return on your money on Wall Street.

But new business creates value for a community beyond tax revenue.

Amazon has committed to investing $230 million in the Nashville area, and plans on building one million square feet of new office space, further boosting the local economy.

The influx of employees will spur residential construction activity in the local economy, which creates jobs up and down the line.

Workers have to eat, which helps feed restaurant activity. They buy new cars, which helps fuel auto dealerships. Their children need diapers, baby food, day care, bicycles and school supplies. Some workers will hire gardeners or nannies, and their kids will play sports, or play in a band.

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And behind the economic impact, there's the cultural impact of bringing thousands of intelligent, innovative workers to town. Some will leave Amazon and start their own businesses, or bring their expertise to a business that already exists, which will further benefit the local economy by making it more competitive.

There are politicians who decry this idea as "trickle-down economics." They say that the promised benefits of such public-private partnerships never materialize. They contend that government should take as much as it can get to fuel its social programs rather than wait for the rising tide to lift all ships.

It's a fair point. In business, you aren't guaranteed anything. A lot can change in 10 years, just ask the newspaper industry, or GE or Blackberry. 

Every new product or service comes with a risk of utter and complete failure. The last decade is filled with stories of such failures, from Solyndra to Tesla Inc (NASDAQ: TSLA), in which lavish government incentives never generated the promised jobs.

Yet if you ask the average Chattanooga resident if they are better or worse off with the arrival of a $1 billion Volkswagen plant, which was heavily incentivized at the state and local level, you would be hard-pressed to find a naysayer. Try the same in Spartanburg with BMW, Charleston with Boeing, Tuscaloosa with Mercedes, or Kia in West Point, Georgia.

In New York, there were some who worried about the availability of housing, that New York could turn into another San Francisco with housing values so high that no one could actually afford to live there. They worried about parking, crowded schools and streets. They wondered if neighborhoods would lose their character.

All of that could certainly happen, though most of those problems stem not from businesses, but from bad zoning laws and restrictive construction rules. And if open parking spaces and cheap housing is a big concern, there's always Detroit, Flint or East St. Louis.

Luckily for the Freight Alley corridor, the majority of our politicians are willing to stipulate that the best way out of poverty is a job, and that the availability of plenty of jobs is the best way to promote prosperity.

And the longer that New York politicians continue to play hooky during their Econ 101 classes, the better.

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