Inviting Amazon: Toronto’s Trade-Off

After a year of cities petitioning their services and assets to Amazon, the tech company announced their shortlist for potential areas for their second HQ on January 19. Out of 20 cities, Toronto was the only one outside of the United States to make the list, which included strong competitors such as Washington, Miami, Boston, and Denver.

Toronto showcased its offerings as a tech city.  Expert Market ranked it the world’s third best global tech hub, and KPMG ranked it fourth worldwide for global competitiveness. Richard Florida – University of Toronto’s acclaimed urban policy expert – commented that Toronto is easily in the “top five” for contention, due to its strong universities, embracement of multiculturalism, along with Canada’s open immigration policy to attract new tech workers.

Exploring the Amazon

On the surface, Amazon’s offer seems irresistible. The second headquarters  will be equal in size and operations to their Seattle office, and the company has promised long-term investments of up to $5 billion and 50,000 jobs. Such an effect would be transformative to any city.

In the contest to incite the company, cities have offered tax breaks, relocation grants, fee reductions, and other financial incentives. An online petition against the pandering was launched, calling for a “mutual non-aggression pact” against the monetary incentives cities offered to Amazon, as the money would likely detract from public services. At the time of publication, over 600 economists, urban policy experts, and academics, had signed the letter.

Toronto stood apart from the U.S. competition by not offering such incentives, but instead focusing on its status as an innovation hub. Despite refusing to offer up financial sacrifices, there are other aspects of Toronto that could be forfeited if it were to host the tech giant.

Keep Toronto Innovative

Despite Toronto’s robust tech ecosystem, the city has faced a chronic skills shortage to feed its innovative economy. The city’s tech ecosystem has 400,000 jobs, with 51,000 of those added in the last six years alone. The skills supply issue has been a problem in Ontario for a while: the Information and Communication Technology Council (ICTC) reported that 53% of tech employers found attracting and recruiting employees to be a major issue. Even Shopify – one of Canada’s largest tech success stories – has found talent attraction to be a roadblock.

Enter Amazon’s promise of 50,000 jobs to a tech ecosystem already starved for skilled labour. Amazon’s size and upward pressure on wages would put strain on Toronto’s ecosystem which caters to a diversity of small start-ups. Hence why Carl Rodrigues, CEO of SOTI Inc., claimed Amazon’s job offer is one of “smoke and mirrors”. Given the skills shortage, Amazon would pull talent away from Canadian-made companies in the Toronto-Waterloo corridor, depriving Canada’s domestic companies of their most-needed resource.

Given Amazon’s promise that the second headquarters would be a counterpart to their initial office in Seattle, a comparison of how the tech company has affected the West Coast city is warranted. The city has a conflicted relationship with Amazon’s headquarters due to its role in rising housing costs and increasing economic inequality. Seattle’s rent prices have risen three times faster than the U.S. median since 2005, and the tech jobs brought increased traffic and clogged infrastructure. Toronto is already grappling with similar issues: its transportation network has severe capacity issues, and an affordability crisis has priced much of the city’s residents out of the market. Even for those able to pay, there is little rental housing stock available, with a vacancy rate of below 1%. Former head of Amazon Services James Thomson warned the Toronto Star that to accept Amazon, Toronto would have to accept a trade-off against public services. The company’s size would have huge economic clout in the region, and Amazon’s influx of high-net earners could mean even greater risk for Toronto’s already vulnerable populations.

Big Tech-nicalities

The U.S.’ current political environment has created favourable conditions for establishing the second headquarters on home turf. The future of NAFTA remains uncertain, making the US’s relationship with Canada (and the ease of access for American foreign direct investment in the country) rockier than in the past. The new American tax cut lowers their federal tax rate to 21%, down from 35%. In comparison, Canadian federal and provincial tax rates go as high as 27%, meaning the tax advantage now lies with the U.S. The tax cut has already succeeded in attracting tech to reinvest within the United States, with Apple announcing it will repatriate much of its overseas cash back into the country because of the new favourable tax laws. Though Apple has somewhat exaggerated their new investments by including the amount they already spend domestically in the announcement, the business-friendly policies established by the Trump administration make a tempting offer to remain headquartered in the U.S.

This compounds with the potential political ramifications of Trump’s “America First” policy if Amazon defies the President’s message and sends their investments to Canada. Given Amazon’s fast-growing expansion into supermarkets and health care, a second headquarters on the east-coast of the U.S. where the company would wield effective lobbying influence may be a stronger and safer bet.

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