Each year, billions of pounds and euros and dollars are spent by towns and cities trying to entice big businesses to establish headquarters or factories or warehouses within their boundaries. It is hardly surprising. The benefits to the selected community are obvious: jobs, tax receipts, enhanced infrastructure, consumer spending, economic uplift, status, the possibility of attracting further companies, of becoming a business centre or hub.
Hence, when any behemoth announces it is looking for a location, councillors across the land dangle as large a carrot as they can afford. Invariably, this consists of a mix of tax breaks and grants, low-interest loans, planning short-cuts, the prospect of new infrastructure. Inevitably, commercially and sensibly, the company vacillates; offers are nudged upwards. Finally, a shortlist is announced, allowing another opportunity for bid ‘repositioning’.
Overlooking issues of politicians never being chary of spending taxpayers’ money, there is no doubt attracting a major corporation is a godsend for a mayor keen to improve their city or political standing. In many places it is imperative. Countless towns and cities are wrestling with the fall-out from the collapse of manufacturing, structural unemployment, zero-hours contracts, the challenges of the gig economy.
Unfortunately, big business is not known for its charity, at least not when conducting business. Every councillor knows any deal he or she strikes could prove a chimera. As the bids rise, the staggered auction sets one town against another, a race to the bottom.
Councillors are in a no-win situation. Either they pay up – a euphemism for overpay – to attract the big-name firms that create jobs where before there were none, or they accept any deal may be uneconomic. If the latter, they stand back, watching their city rust and communities die while another town upriver readies itself for a brighter future.
This is the problem. Given the hand they hold, no matter how they play their cards, they are unlikely to be the winner. Big business holds the aces. The company has the jobs, the money, the mobility. With modern communications it can settle almost anywhere. It has the infrastructure – lawyers, real estate experts, accountants, brokers, bankers, planning experts – and the capital to drive the toughest bargain. Standing against it will be a council, often in a deprived city or borough, probably in debt, desperate to create jobs, with minimal access to the finest legal or financial minds and suffering from insufficient tax take and budget cuts. Who do you think will come out best?
This is why many economists argue municipalities should never enter into such horse-trading. They point to the imbalance between the dealmakers as a guarantee the company will derive the value. Fortunately for the value-destroying council there are enough variables to allow political spin: “If we had not induced Company A to set up in our town, we would not have had the investment to build the infrastructure to attract Company B, who in turn attracted Company C, making us a regional hub, and so on, meaning overall we made a return.” Company A, in short, showed a town was ‘open for business’, though it is hard to imagine a town that isn’t. In human terms, it is hard to argue the politicians took the wrong decision.
Cynics are quick to impute a baser motive: re-election. Even if the city-state bears the brunt of the deal, the numbers can always be washed through the books. Meanwhile, the politician can trumpet investment, jobs and the new standing of their city. That the money ‘invested’ might have been spent on schools and hospitals rather than flowing into the pockets of shareholders and middlemen is conveniently forgotten.
So, much as companies invariably overpay for ‘strategic’ acquisitions, politicians overpay for headline-grabbing good news, particularly when there is bad news downriver. Hence, the ‘cost per job created’ is often high. This is particularly the case when attracting tech companies with low numbers of employees relative to manufacturing.
There can be other, hidden costs. Often the company makes little effort to integrate into the community, and even charitable donation can be in lieu of tax. One reason is companies are mobile. Contracts and agreements do not last forever. A corporate can leave as easily as it arrived, knowing there will always be another town keen to have a shot at prosperity. When companies leave, the abandoned infrastructure and dreams are almost worse than if they had never appeared.
If councils are ill-equipped to deal with, or contain, big business, it is impossible for individuals living in blighted areas that attract low-paid work. Hired: Six Months Undercover in Low-Wage Britain by the journalist James Bloodworth, recounts in Orwellian detail the horrors of labouring in the gig economy. Bloodworth worked as a care worker, Uber driver, Admiral call centre operative and Amazon warehouse packer.
The latter caught the eye. He describes working as an order picker in the sort of Amazon ‘Fulfilment Centre’ most post-industrial towns would swoon to attract. “The place had the atmosphere of what I imagined a prison would feel like,” he writes, and the company is obsessed with theft, both of goods and time.
As a picker, he worked ten-and-a-half hour shifts with an unpaid half an hour for lunch that was nearer fifteen minutes given how long it took to walk from his position in the ten-football-pitches-sized centre to the canteen. He carried a handheld device that tracked every move and into which a line manager would send orders and exhortations to work faster. All employees were ranked for speed and productivity by algorithm. To be near the bottom, to be ill too often, to spend too long in the men’s room, might lead to dismissal. On an average day he covered ten miles. Employees queued (unpaid) for fifteen minutes to pass through metal scanners when leaving. The contracts were zero-hours and temporary. Graduating to the permanent staff was theoretically possible but in practice unlikely. There was no union. Health insurance was not included.
However, there were benefits. It was a job. The food in the canteen was cheap. Some people, albeit few, survived more than nine months or became permanent. Those became eligible for benefits, their pay increased and there was scope for promotion.
It is the terrible beauty of the big business model. In towns with no hope, any job is better than no job, any pay is better than no pay, any working conditions better than none at all.
Many of the jobs created in a modern economy are not only hard work physically and poorly paid, but are stressful too. In some warehouses, employees are required to pick or pack faster than the average, which sets picker against picker as surely as dangling the prospect of a warehouse sets city against city.
There may be no alternative. When consumers demand cheap goods, or cheap taxi rides, or cheap food delivered to their door, and those demands are keener in a cost of living crisis, there must be a human cost.
Money is power. It is visible in the donations made to political parties, in the balance of the deals offered to cities and employees. Capitalism, like politics, is about acquiring power and using it, extracting the maximum rent, taking your pound of flesh.
