» » Analysis | The Technology 202: Amazon HQ2 debacle could increase scrutiny of corporate incentives - The Washington Post

Analysis | The Technology 202: Amazon HQ2 debacle could increase scrutiny of corporate incentives - The Washington Post

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Amazon’s high-profile search for an additional headquarters location initially seemed like a savvy strategy that would bring the retail behemoth big tax breaks and positive press. 

Instead, the marketing circus over HQ2 ended in a stunning pullout from New York City that not only upends 25,000 planned jobs there but could serve as a cautionary tale for how big tech companies court tax breaks and incentives in the future. 

Amazon's call for cities to compete for a massive campus resulted in about $3 billion in state and local tax subsidies offered by New York -- but also set the stage for a political storm as local politicians, unions and community activists argued it was a bad deal. (Amazon founder and chief executive Jeffrey P. Bezos owns The Washington Post).

 “At first it seemed like a brilliant Bezos masterstroke. It’s actually blowing up and becoming problematic for the company," said Mark Muro, a Brookings Institution senior fellow and policy director. The company  is now saddled with a “boatload of political and marketing problems," he said. 

The blowback on Amazon could more broadly ramp up scrutiny of how cities and states incentivize corporate expansions. City and state governments may no longer be able to continue the status quo of quietly doling out tax incentives with few questions from community stakeholders.

“Even the many places that will be delighted to support growth out in the country are going to be a bit more careful about it,” Muro told me. “Their eyes are wider open, and they’re going to be looking more carefully at the details.”

A protest against Amazon in New York on Feb. 14. (Shannon Stapleton/Reuters)

Politicians — looking at the pushback against the New York mayor and governor after extending Amazon such big incentives — may think twice before offering them. Some politicians are even trying to capitalize on standing up to Amazon in the wake of the deal. Rep. Alexandria Ocasio-Cortez (D-N.Y.), who criticized New York’s deal when it was announced in the fall, took a victory lap on Twitter:

It’s not just the Amazon deal that is drawing greater scrutiny to these kinds of perks. The Taiwanese manufacturer known for making the iPhone, Foxconn, struck a deal for roughly $4.5 billion in tax credits and other incentives to create a manufacturing plant in Wisconsin that promised to bring up to 13,000 manufacturing jobs to the state. But a recent Bloomberg News investigation exposed it was a weak deal for Wisconsin, with each job at the Mount Pleasant factory projected to cost the state at least $219,000 in tax breaks and other incentives. It’s unlikely the project will reach its target of 13,000 jobs.

Still, the Amazon expansion was in a class of its own, said Nathan M. Jensen, a professor at University of Texas at Austin. He said he couldn’t think of any parallels to the Amazon HQ2 search — which he said uniquely mobilized city activists against it because the company was so public about seeking offers from different American cities from the start.

The Amazon HQ2 competition — which has been compared to the “Hunger Games” or “The Bachelor” TV show — was initially expected to push other companies to get more creative in the way they court incentives from cities. It was unlike any competition for corporate development, but of course, so was the initial contest prize — 50,000 jobs at a massive technology company. City leaders across the country resorted to zany political stunts — one city even promised to change its name to Amazon.

But given the outcome, it’s extremely unlikely any other companies would try similar feats, even at a time when rising costs and steep competition for talent are pushing more technology companies to invest in offices outside their West Coast headquarters.

The flip side: If companies quietly pursue government incentives for expansions, it may be tougher for activists to learn about them and mobilize against it.

“It will go back to old school, but that old school means not transparent,” Jensen said.

Other technology giants have also been significantly ramping up their expansion outside the West Coast. Apple is investing $1 billion in a campus in Austin that will bring 5,000 jobs to the city. The smartphone giant quietly explored options in areas like North Carolina and Northern Virginia, according to the Wall Street Journal. Google said it will invest $13 billion across U.S. data centers and offices in 2019 in 14 states — an investment that got a fraction of the attention of Amazon’s contest.

For now, Amazon has no plans to reopen its HQ2 process, an Amazon spokeswoman told me. The 25,000 jobs the company committed to New York were to be created over a decade, and the company will allow those jobs to grow organically at its tech hubs in 17 cities in the United States and Canada.

To some in New York, that outcome was very disappointing. “Bad politics” blocked New York City from gaining important new tech jobs, said Julie Samuels, executive director of Tech:NYC, a network focused on drawing tech talent to New York. She said the expansion got caught in the beginning of a national debate about company incentives and tax breaks.

“All big companies do exactly what Amazon did when they're looking to move a new office somewhere,” she said. “They just don't do it as publicly. I actually appreciate they shed a light on this process.”

RANT AND RAVE

Amazon's decision to cancel its plans for HQ2 garnered a wide response on Twitter. 

New York City Mayor Bill de Blasio slammed the company:

Some noted the company was responding to a vocal minority of activists, at a time when most New Yorkers approved of the HQ2 deal. 

BuzzFeed News Opinion Editor Tom Gara: 

There were lots of jokes about how much Amazon deviated from its initial plan. Now the company will have 25,000 jobs in Northern Virginia and 5,000 in Nashville, and it will continue to organically grow its 17 tech hubs in North America. 

The Information Editor-in-Chief Jessica Lessin said: 

It didn't go unnoticed that Amazon's announced its break-up with New York City on Valentine's Day. 

From Kevin Roose of the New York Times: 

BITS, NIBBLES AND BYTES

Facebook chief executive Mark Zuckerberg on Capitol Hill in Washington on April 10, 2018. (Andrew Harrer/Bloomberg News)

BITS: The Federal Trade Commission is negotiating with Facebook over a multibillion-dollar fine for the social network's privacy lapses, The Washington Post's Tony Romm reported. Facebook and the FTC have yet to agree on the amount of the fine, but it would be by far the largest that the FTC has ever issued for a technology company. 

The fine would settle an investigation that the agency opened to determine if Facebook ran afoul of a 2011 agreement with the FTC that required the company to make its privacy practices more transparent. The FTC opened the investigation after the public learned  that a data analytics firm tied to the Trump campaign, Cambridge Analytica, obtained users' data without their consent. Facebook has said that it didn't violate the 2011 agreement with the agency. A judge would have to approve a settlement, and the FTC could also impose a new order on Facebook.

The episode could also head to court, but that could carry some risks. “If that battle lands in federal court, the move could prove bruising to both sides, analysts say, by putting Facebook’s top executives on a witness stand while subjecting the agency’s authority over tech giants to high-profile judicial review,” my colleague wrote. Previously, the largest penalty that the FTC levied against a technology company for a privacy violation was a $22.5 million fine aginst Google. 

From Tony:

From Kara Swisher, editor-at-large of Recode:

From the Information's Matt Drange:

Shoppers inside an Apple store in Shanghai on Jan. 29. (Qilai Shen/Bloomberg News)

NIBBLES: Pirates are exploiting Apple's enterprise developer certificates to distribute hacked versions of popular apps without ads or paying fees, according to Reuters's Stephen Nellis and Paresh Dave. In bypassing the App Store and disseminating hacked versions of popular apps, pirates are taking revenue away from both Apple and the legitimate developers those apps. The distributors of such hacked apps are running afoul of Apple's rules since apps have to go through the App Store — Apple's enterprise developer certificates are meant to allow companies to make apps available to their employees only.

TutuApp, Panda Helper, AppValley and TweakBox are among the illicit distributors that have used Apple's enterprise developer certificates to disseminate hacked apps. Hacked versions of apps such as Spotify, Angry Birds, Pokémon Go and Minecraft have been distributed that way. “Developers that abuse our enterprise certificates are in violation of the Apple Developer Enterprise Program Agreement and will have their certificates terminated, and if appropriate, they will be removed from our Developer Program completely,” a spokesman for Apple told Reuters. “We are continuously evaluating the cases of misuse and are prepared to take immediate action.”

Microsoft chief executive Satya Nadella in Bellevue, Wash., on Nov. 28, 2018. (Ted S. Warren/AP)

BYTES: Tech companies including Microsoft and Facebook are opposing rules that India's government is considering to police online content, the New York Times's Vindu Goel reported. Microsoft said in a filing with the country's Ministry of Electronics and Information Technology that it would be “impossible from the process, legal and technology point of view” for the company to abide by the rules. “Filtering the full range of content demanded by the government would not only violate privacy and freedom of expression, the company wrote, but would also be so challenging that ‘the cost of even attempting compliance will be prohibitive,’” the Times reported.

Critics such as civil liberties groups have also likened the rules to the kind of censorship that China imposes and have said that they could infringe on privacy and free speech rights. “The proposed changes have an authoritarian bent,” Apar Gupta, executive director of the Internet Freedom Foundation, told the Times. “This is very similar to what China does to its citizens, where it polices their every move and tracks their every post on social media.”

PRIVATE CLOUD

SpaceX chief executive Elon Musk in Hawthorne, Calif., on Sept. 17, 2018. (Patrick T. Fallon/Bloomberg News)

— The Elon Musk-backed nonprofit research company OpenAI decided not to publicly release research into an artificial intelligence system that can generate text out of concerns that it could be misused, the Guardian's Alex Hern reported. Creators of the system, which is called GPT-2 and can write text after being fed some initial text, worry that bad actors could take advantage of it. “We need to perform experimentation to find out what they can and can’t do,” said Jack Clark, head of policy for OpenAI, according to the Guardian. “If you can’t anticipate all the abilities of a model, you have to prod it to see what it can do. There are many more people than us who are better at thinking what it can do maliciously.”

— A spokesman for Google told the New York Times's Ben Hubbard that the firm is reviewing a Saudi government app that can allow men to track women's movements in Saudi Arabia. Google and Apple are both hosting the app, called Absher. Apple has also said it would examine the app. “I haven't heard about it,” Apple chief executive Tim Cook told NPR in an interview on Monday. “But obviously we'll take a look at it if that's the case.”

— More technology news from the private sector:

PUBLIC CLOUD

Rep. Peter Welch (D-Vt.) at the White House in Washington on Sept. 13, 2017. (Alex Brandon/AP)

— Lawmakers want the leaders of T-Mobile and Sprint to know that they are unimpressed with cellphone coverage in rural areas, The Post's Brian Fung reported. T-Mobile chief executive John Legere and Sprint Executive Chairman Marcelo Claure got an earful during a congressional hearing over what some lawmakers described as patchy coverage in their states and districts. Rep. Ben Ray Luján (D-N.M.) noted in a quip that Internet access is often better while he's on a plane above his state than on the ground. Rep. Tom O’Halleran (D-Ariz.) also said that coverage in his district is not up to expectations during a hearing Wednesday of the House Energy and Commerce subcommittee on communications and technology.

“Waving a coverage map of his state in the middle of a congressional hearing, Rep. Peter Welch (D-Vt.) said that despite flashy promises to build a dazzling 5G network, wireless carriers can scarcely manage to serve Vermont with regular 4G LTE,” Brian reported. Welch made his thoughts clear about the coverage maps: “These are no good! These are phony maps!”

— The Federal Communications Commission has proposed rules to crack down further on unwanted robo-calls by targeting spammers abroad, according to my colleague Brian. The agency's Truth in Caller ID rules ban Americans from illegally and deliberately spoofing their caller ID. “The FCC’s proposal would make clear that the Truth in Caller ID rules apply to text messages, some forms of voice-over-IP and to foreign robo-callers, empowering the agency to work closer with international authorities in the hopes of extracting penalties from foreign scammers,” my colleague wrote.

— More technology news from the public sector:

FAST FWD

Offices at Facebook's headquarters in Palo Alto, Calif, on April 13, 2011. (Ryan Anson/AFP/Getty Images) 

— Facebook looks for threatening comments on the social network against the company to protect its workforce, according to CNBC's Salvador Rodriguez. “Facebook is unique in the way it uses its own product to mine data for threats and locations of potentially dangerous individuals, said Tim Bradley, senior consultant with Incident Management Group, a corporate security consulting firm that deals with employee safety issues,” CNBC reported.

— More news about tech workforce and culture:

TRENDING

— Tech news generating buzz around the Web:

404 ERROR

— News about tech incidents and blunders:

BURN RATE

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