Emergency Suits, Facebook Regulations, UBS Gamble: CEO Daily for February 19, 2019
I hesitate to draw broad implications from the battle between Amazon and New York—both are sui generis, in so many ways. Still, the fight is another manifestation of the anti-business, anti-capitalist, and anti-tech sentiment that is clearly on the rise around the U.S. and beyond. So it deserves some attention.
There is something unseemly about struggling cities and states throwing tax breaks at Amazon to convince it to locate within their borders. But while unseemly, it isn’t irrational. The benefits to New York of winning the business far exceeded the cost. Moreover, much that’s been said by Amazon’s opposition is irrational. Opponents complained, for instance, that Amazon would have raised real estate prices in Long Island City. True enough. But if the goal is to depress real estate prices, the playbook is clear—chase away all business. New Yorkers need only look north to Connecticut to see that in action. On this one, the activists shot themselves in the foot.
But Amazon also suffered a self-inflicted wound. The company looks petulant and spiteful, and has further burnished its image as a symbol of corporate greed. (That’s partly why this story was Fortune’s best read last week.) The result is more fuel on the growing populist flames that are threatening the future of American business.
Was there a better way? I think so. What if, instead of demanding tax breaks, Amazon had used its bargaining leverage to demand more investments in Long Island City that would have accrued to the company’s benefit, but also the community’s? Investments in local education and training programs, or upgraded subway service, or broadband infrastructure, that would have helped Amazon and non-Amazon workers alike. Maybe even investment in affordable housing, for lower-wage workers who will be needed to maintain the area. There was some training and infrastructure money in the deal, but it was dwarfed by the nearly $3 billion in tax abatement.
There’s nothing new in this idea, of course. As my friend Rick Wartzman of the Drucker Institute documented in his book The End of Loyalty, many American companies routinely made massive investments in their communities before the rise of shareholder supremacy and global supply chains. Amazon missed an opportunity to go back to the future here. If capitalism is going to survive, companies need a new approach. They have to stand for something more than pillaging the tax system.
By the way, on a related topic, be sure and read Peggy Noonan’s column in the Saturday Wall Street Journal on what the Republican party needs to do to save capitalism. Also, check out the Economist cover story on the rise of millennial socialism.
And for another example of how not to do it, read Jake Meth’s story on P&G’s slow reaction to the tragic misuse of Tide pods in the March edition of Fortune magazine, published online this morning.
More news below.
President Donald Trump’s “national emergency” is being challenged in court by 16 states, including New York, California and New Mexico. California Attorney General Xavier Becerra yesterday: “Today, on Presidents Day, we take President Trump to court to block his misuse of presidential power… We’re suing President Trump to stop him from unilaterally robbing taxpayer funds lawfully set aside by Congress for the people of our states.” NBC
Facebook says it is “open to meaningful regulation” after a report by U.K. lawmakers said the company acted like “digital gangsters” when it came to fake news, privacy and antitrust. That’s the kind of (entirely characteristic) response that plays really badly in Europe—new regulation would be imposed on Facebook, whether or not the company welcomes it. Fortune
UBS decided not to settle in a French tax investigation, as it couldn’t agree on an amount with prosecutors. So if a verdict tomorrow finds the bank actively helped French citizens hide cash in undeclared Swiss accounts, it could be on the hook for as much as $6 billion in fines and damages. Bloomberg
Carmaker Honda will close a major U.K. plant in 2021, cutting 3,500 jobs. Why? Brexit is a factor, according to staff—although the company denies it. Speaking of which, seven lawmakers have quit the opposition Labour Party for a variety of reasons, one of which is Brexit and the Labour leadership’s apparent inability to take a firm stance on the subject. Guardian
Around the Water Cooler
Jack Ma’s Alibaba was reportedly the developer of a “hit” Chinese government propaganda app that was released ahead of next month’s National People’s Congress in Beijing. The little red app offers state media news, video-chat and scheduling functionality, and even money-transfer features. It has indeed been widely downloaded, which is largely because local governments and universities have been ordering loyal Communist Party members to download it. CNBC
Huawei founder Ren Zhengfei says the U.S. will not prevail in its crusade against his company. “There’s no way the U.S. can crush us,” said Ren. “The world cannot leave us because we are more advanced. Even if they persuade more countries not to use us temporarily, we can always scale things down a bit… If the lights go out in the West, the East will still shine. And if the North goes dark, there is still the South. America doesn’t represent the world.” BBC
The Anglo-Australian mining giant BHP suffered a “negative productivity moment” of $460 million in the last six months, thanks to various production outages. So the company no longer plants to hit a $1 billion target for efficiency gains. CEO Andrew Mackenzie claims BHP’s “transformation agenda” is still on track, though. Financial Times
Although it shrank for the third year in a row, Germany had the world’s biggest current account surplus (at 7.4%) last year, thanks to strong exports. The new figures could add to criticism of Chancellor Angela Merkel’s fiscal policies. The European Commission has been saying for half a decade now that Germany needs to use its budget surplus for more public investment and to stimulate wage growth. Reuters