What to do when your city loses the Amazon HQ2 Lottery (and it will)

The Amazon HQ2 lottery is the biggest bonanza for public relations firms in many years. Everyone wants a piece of what L2 Communications founder Scott Galloway calls "the Prosperity Bomb". It's hard to blame them. I've been to Seattle and seen the wealth created by companies like Amazon and Microsoft. It's hard not to envy the scale of economic activity these global enterprises bring to their local communities.

Hundreds of cities around North America are now competing with each other to bestow generous tax concessions and other location incentives upon one of the biggest companies in the history of the world. The PR firms are raking it in while coming up with clever, attention-grabbing schemes winning new coverage for themselves and Amazon. You know it's a PR bonanza when the stunts start getting covered by Vanity Fair of all publications.

We used to name streets after big companies. Now towns are offering to re-name themselves. Tax incentives used to be measured in the millions or tens of millions. Now they are measured in the hundreds of millions and billions.

The competition is good-hearted and Amazon shareholders should be proud of the company for making the most of their opportunity. Some of the bids are obviously about marketing the towns more than they are about really winning the bid. Those are clever moves too.

With all the talk of income disparity these days, particularly from politicians, these incentives being offered to Amazon are also ironic. Municipalities will reward one of the richest companies in the world, at the expense of their taxpayers. Many taxpayers are small business owners or employees of enterprises that will never be large enough to warrant the type of incentives offered to Amazon.

Like every lottery, the real winner is the house. In this case, that means Amazon.

The city that becomes Amazon HQ2 will realize massive economic benefits. That's the payoff. There will be costs too. Not just the tax concessions offered to lure Amazon but also likely increased rents, traffic and labor costs that go up when a firm like Amazon comes to town. Have you seen what real estate in Seattle goes for? Have you ever attempted to drive 10 miles from Seattle to Bellevue at rush hour? This is what glass door indicates it costs for an entry-level software developer in Seattle.

Amazon's arrival may not move the needle much in a place like New York, but in a city like Pittsburgh or Baltimore, it would be disruptive in both good and challenging ways. Sometimes winning the lottery isn't everything you thought it was going to be.

The fun part about playing the lottery is fantasizing about how you would spend the winnings. The fantasy explains why we buy tickets even when we rationally know winning is statistically improbable. The real "secret" to getting rich is saving and generating compounding interest over the long term. Saving is boring. It doesn't sell newspapers and it definitely doesn't sell lottery tickets. But if cities and states really want prosperity, they need to invest broadly in their future rather than trying to win the Amazon lottery.

One great way for a city to invest broadly in the future is by making it as easy as possible to start new businesses. That will attract hard-working entrepreneurs who will invest in the community. One of them might even found the next unicorn. Any ask baseball general manager, good farm teams are more cost-effective than free agents. Start a virtuous cycle.

My own home state of Maryland was recently highlighted as the least tax-friendly state in this article. We tax businesses a lot here in Maryland, most controversially the rain. My wife's graphic design company pays $300 per year just for the privilege of filing her businesses' personal property tax return. That's just the filing fee, not the tax. These conditions are burdensome on businesses large and small.

The thing is that Maryland has an enormous amount to offer in terms of our educated workforce and lower cost-of-living relative to nearby cities like Washington D.C. or New York. Yet we lack the density of prosperous businesses compared to our more business-friendly neighbors Virgina, Delaware, and Pennsylvania. There is a huge potential waiting to be untapped.

I'm not arguing that businesses shouldn't pay taxes. I'm simply saying that broadly lowering taxes for ALL businesses is better than giving special deals to the biggest businesses simply because of their economic clout or political influence.

So, to all those mayors, governors, senators, and other politicians who are soon to be disappointed by Amazon's HQ2 choice - just remember that prosperity is not won with lottery tickets. It's earned with fiscal responsibility and stable governance.

Here's a suggested to do list:

1. Make your towns attractive to small businesses. Good schools, safe communities and stable infrastructure are table stakes.
2. Make it easy for your entrepreneurs to register businesses and form legal entities.
3. Simplify or eliminate complicated and unnecessary licensing schemes and regulations.
4. Broadly lower your taxes and use the taxes you do assess in a fiscally responsible manner.
5. If you decide to attract new businesses, look to small business and entrepreneurs, not mature companies who have an incentive to hold their market share dominance.
6. Stay out of bidding wars and lotteries.
7. Let the PR firm go and the use the money you save to launch another solar-powered garbage munching water clean-up robot.

Regardless of who wins and despite my skepticism, I hope the benefits of Amazon's HQ2 exceed the cost of winning for whichever community Amazon selects. Those who know better than me predict Maryland will dodge this lottery. I'm okay with "losing". Prosperity shouldn't come all at once in a "bomb". That kind of prosperity can leave as quickly as it comes. Lasting prosperity should be built slowly, with a wide foundation firmly secured to a stable community. There are no shortcuts to this kind of prosperity. It will take hard work, persistence and a lot of cooperation.

I'm hopeful that under the leadership of Governor Hogan, Maryland will take a long view of prosperity and begin building the foundations we need to improve our State's economic competitiveness.