Hello and welcome to another Oversharing Podcast Experience! Pat Garofalo is director of state and local policy at the American Economic Liberties Project and author of
, a fantastic newsletter that shines much-needed light on the corporate deals and subsidies that are kept secret and hard to track by design.Pat and I chatted about how he got into the boondoggle game, the surprising politics of corporate subsidies and antitrust, and of course Amazon and its infamous search for a second headquarters site. You can find him on Twitter while it’s still here and at his excellent newsletter
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Oversharing: Before we dig into some recent great pieces you’ve written, can you tell folks a bit about how you started Boondoggle?
Pat Garofalo: Yeah, absolutely. I am a recovering journalist. I started reporting on economic policy in 2008 and specifically got hired at my first job covering economic policy two weeks before Lehman Brothers failed. So it was a real trial by fire. But then after the crisis had passed and we were moving into the Great Recession phase of that crisis, I was covering the fallout in cities and states across the U.S.
You sort of couldn't help but see that at the same time states and cities were taking really drastic measures to cut their budgets because their revenues had fallen off a cliff as a result of the financial crisis, they were still churning out these massive corporate subsidies almost without thinking. One that really stuck with me was in Detroit, where they were literally turning the street lights off at night to save money because they couldn't afford to keep the street lights on all night, while at the same time giving the billionaire owner of Little Caesars Pizza tens of millions of dollars to build an arena for the hockey team.
That's so bleak.
Once you started looking around the country, that happened all over, all the time. And not just around sports, but around subsidies for movies, subsidies for big tech firms, subsidies for hotels. You literally have cities that build their own publicly owned hotels and lease them out to Hilton and Marriott. There's this whole machine built around subsidizing corporations with public dollars, even though the vast bulk of the academic research shows that it doesn't provide any of the outcomes boosters say that they want.
Tell people what some of those much-touted outcomes are.
It's supposed to be that it's going to create all these jobs, it’s going to create knock on spending in the local community. It's going to support small businesses through their supply chains. And none of that really happens. They are mostly just giveaways to corporations who, incidentally, usually would've done the thing they were going to do anyway, because tax subsidies are a really bad reason to build anywhere. It's actually not a good your business plan.
So that's how I got my start. I wrote a book called The Billionaire Boondoggle about that particular phenomenon, and then decided to stop pretending to be a journalist and move into the policy and advocacy side. I felt like there were a lot of really good people out there working on this, and there were a lot of really good ideas and that it would be useful to have a political structure around it. And so here we are.
Who is paying attention to these corporate abuses? I mean, you, but who else?
There's generally a motley crew of national groups, state-based groups, and honestly just regular citizens. One of the most gratifying parts of my job is meeting the people on the ground in their communities who follow this stuff just because they care. I was meeting fairly recently with a group of literal grandmas in Asheville, North Carolina, who were mad about the giant subsidy package that a weapons manufacturer received in their backyard and who now are trying to organize and lobbying their state house to try and prevent those sorts of things from happening again in the future.
But one of the problems in this area is that corporations actually go to great lengths to hide this sort of extractive activity from the public because they know it's unpopular, right? Basically, anytime you talk to a normal human being on the street and you say, ‘Hey, by the way, your community is about to give $10 million to Amazon to build a warehouse down the street that's going to be filled with cruddy dangerous jobs and cause lots of traffic on your street,’ they go, ‘I prefer my elected leaders not do that. Could they do something else with $10 million?’
So corporations and particularly Amazon have gotten very good at obfuscating and hiding these deals until it's too late for an outside political process to happen for the community to get involved. So it's really, really hard to track and keep on top of this sort of stuff.
Why do we let it be so hard to track these things? Based on everything you're saying, it sounds like it's generally disadvantageous to anyone other than a company for these deals to be hidden and this money to be given out. So why isn't there a more concerted effort by regulators to bring it into the public?
There are two reasons. One is that corporations have gotten very good at selling a particular story and a particular model of local economic development that basically is this: They claim that there is no other way to build local economies. This is what you have to do, and if you don't do it, the guy down the street is going to do it. So get on board or you're going to lose out on something. And politicians, understandably, have a great fear of being seen as losing out on something the community next door.
The other thing is that while the bulk of the academic research shows there are not economic benefits to these deals, it also shows there are big political benefits. Incumbent politicians gain a lot of political capital from engaging in this sort of corporate dealmaking. They get to send out a press release that claims they created all these jobs. They get to go to a ribbon cutting and appear in the local paper. They get to put things on Twitter and on Facebook and claim all sorts of credit.
And that actually does pay off. One of my favorite—because it's horrifying—stats about corporate subsidies is that one of the surest ways to predict if your state is going to increase its corporate subsidy spending in a given year is not to look at any economic indicator. Don't look at poverty rates, don't look at job creation rates. Simply check and see if your incumbent governor is up for re-election, and if your incumbent governor is up for re-election, there's a really good chance that your subsidy spending that year is going to go up because the governor needs political capital.
I wanted to do a quick throwback to the Amazon HQ2 process, which for people who don't remember, was when Amazon led the corporate equivalent of a national beauty pageant to elicit subsidies and sweeteners from anywhere that would offer to host its new headquarters. That was just a wild free-for-all.
it was pretty horrifying. But I think there were two good things that actually came out of it. I'm going to start with the good and then do the bad. The good things that came out of it were, one, it did cause an increase in awareness about this issue, hands down. It was like the hockey stick chart. People became aware of the general problem of how economic development is done in the U.S. because of this blatant, awful hostage taking by Amazon of cities all across the country. So I noticed a really big uptick and people interested asking questions, criticizing these sort of practices, wanting to know what is going on in the wake of Amazon.
But also not for nothing, it showed that if a community gets organized and can push political leaders to oppose these sorts of handouts, they can win. Because in New York, HQ2 didn't happen. Amazon famously chose to actually split HQ2 two-and-a-half ways—put part of it in New York City, part of it in Northern Virginia, which is the Washington DC suburbs, and then a tiny little piece in Nashville. And local politicians and local organizers and community groups up in New York actually organized and said no, and managed to stop the project from happening. And not for nothing, Amazon then expanded in New York City anyway, because of course Amazon wants to be in New York City, because it's New York City. But without any sort of subsidies.
So I think that really showed people that you could defeat these deals, you could, if you organized well, stop them from happening and let the community have a voice and that they're not inevitable. It really put a dent in that inevitability, ‘You must do this’ narrative that the corporation sell.
The bad side, bringing it back to where I live in Washington, D.C., what's left of HQ2 is coming in in Northern Virginia. And all of the things that opponents and critics of these deals, myself included, said were going to happen, happened. There are huge gentrification pressures in the neighborhood around where HQ2 is going to be. Rents are going up, people are getting pushed out. One of the areas near there is actually one of the last bastions of affordable housing for immigrant families in Northern Virginia, and they're all going to have to leave. The studies show something like 10,000 households are going to be pushed out by gentrifying pressures from HQ2. This is in an area where home prices are already off the charts and wildly unaffordable for most people. And Amazon is only going to make that worse.
And now that we had a pandemic, there's not even any certainty that Virginia's going to get the job creation that Amazon has promised, because it's not clear that Amazon is going to have a giant in-office workforce in Virginia anymore. A lot of their office people are remote or they're going to different places. Tech is under a lot of pressure, they're cutting jobs. They're not even necessarily hiring at all. Which to me highlights one of the dangers of these deals writ large, which is that you're locking yourself as a community into a really long-term agreement with a corporation when inevitably business conditions are going to change. They can promise you the sun and moon and stars, but then something like a pandemic happens and all of a sudden they don't need that facility anymore, and you're stuck holding the bag.
Going back to what you were saying in the positive part, your point was basically that Amazon overstretched—they broke the first rule of not talking about the subsidies, and then they talked about the subsidies and it kind of backfired.
100%. A really interesting contrast at the time was Google was going around and getting a lot of subsidies for new corporate campuses and for data centers, and was doing it really quietly, and they never faced anything like the political blowback that Amazon did.
It’s super interesting. You can apply that to a lot of companies I cover too. Uber, the louder and more public it got about its lobbying and taking down taxis and stuff in the early years, that's when you started to get the bigger pushback from people.
So one thing I wanted to talk about with you specifically was corporate lobbying subsidies and antitrust as it applies to tech, because that's a nice area of overlap between Boondoggle and Oversharing. You had a piece recently on some of the antitrust abuses in the App Store. Can you talk about that a little bit?
Yeah, absolutely. So there has been, over the last few years, a pretty concerted effort to address some of the power Apple and Google have in their respective app stores. Anybody who’s downloaded an app on their phone knows you have to basically go to the Apple App Store or Google's Google Play to get the app that you're looking for.
What you may not know is that those two corporations treat developers in the app store in two ways. For a large corporation like Uber, which is a great example, you download the Uber app, you enter your credit card into the Uber app itself. You pay Uber directly every time you're requesting a ride. But for a subset of developers in the app store, the ones that Apple and Google have somewhat arbitrarily designated as digital goods, you are not allowed to do that. You need to transact with Apple and Google first, and then they pay the money that you've paid forward on to the developer. But they take a 15-30% cut first. So for this roughly 15% of developers in the apps who are, again, air quotes, “digital goods”—
Is Uber a digital good?
Uber is not a digital good. Uber is a real world good. This is kind of what I'm getting into, these designations are so goofy.
I believe Uber is just a transportation network company connecting people who want to give rides with people who want to get rides.
So, connecting with someone over an app for a ride is a real world good. Connecting with someone over an app for a date on one of the match.com apps, that is a digital good. Meeting someone at the bar for a date, totally digital. Apple and Google decide this. And from the apps that are designated digital, they take a 15-30% cut of every transaction, every single month. If you're paying a subscription to these, they take a 15-30% cut. So this is newspapers, music streaming, fitness apps. There's a lot of stuff that folks probably use every day that's in this bucket.
There's been a concerted effort to try and break some of this power and specifically give app developers alternatives to transact directly with their own customers. Because this isn't only about the cut, this is about allowing the app developers to know who their customers are, to talk to them, to communicate with them. You literally are not allowed in the Apple or Google app stores to even tell your customers, ‘Hey, if you went and actually decided to pay us through our website on the web instead of through the app store, prices would be lower because we wouldn't have to turn over 30% to Google.’ You're not allowed to say that. You literally cannot communicate that.
There’s an antitrust term for this.
It’s anti-steering, yeah. There's been both an effort in the federal government in the U.S. with something called the Open App Markets Act, and then similar legislation in about a dozen states over the past two years that would simply say if a developer of a “digital good” wants to route their payments through something else, PayPal, Venmo, build something on their own, whatever—they have to be allowed to do that. And so those bills have been very controversial. Every time one of them drops, Apple and Google throw a fit.
What is the politics of that? Is there a conservative-liberal split?
It's so funny. It's all over the place. This is kind of like all the corporate subsidies. I don't really break it into a left-right, blue-red thing. It's more of an elites versus not. The last state session—and for folks who don't know, most state level legislative sessions only happen in about the first half of the year, so from about January to June—so during the 2022 legislative sessions, these bills were carried by super conservative folks in Arizona, Louisiana, and Florida, and super liberal folks in places like Illinois, Massachusetts, and New York. It really was the folks who were focused on concern for small businesses, concern for local tech development, not for nothing concern for local revenue, because this is revenue that's getting sucked out of their communities from their businesses and sent to Silicon Valley.
Not even to Silicon Valley, right? I mean, a lot of that revenue goes offshore and then no tax gets paid on it ever.
Absolutely. Yeah. So every time one of these bills drops, Apple and Google get very upset. They lobby very hard against the federal bill. They lobby very hard against the state bills. They have so far successfully managed to block them at all levels of government.
But I feel optimistic that one day one of these dominoes is going to fall. Because it is one of those very clear abuses of power on the part of tech firms. If you want to download an app, you really can't go anywhere else other than through these two companies on their respective devices. They really are siloed monopolies. On Android devices, you have to go through Google Play. On Apple devices, you literally can't go anywhere else. You must go through Apple's App Store. So they have these siloed monopolies. So I do think there is enough momentum that one of these measures—it would obviously be easiest if it were the federal one—will become law someday.
And this is, as I'm sure you know, and your listeners know, this is something that's an issue all around the world. There have been European countries trying to deal with this. South Korea actually passed a law very similar to the federal Open App Markets Act. It's a worldwide issue in the way in which these two large corporations are treating the folks who have to go through them to get to market. This is a toll booth that Apple and Google have placed between developers and their customers, and for a lot of these folks, there's just nowhere else to go. You have to go through, and you have to pay that toll.
It's amazing how secrecy is such a core part of so many of these things. It's written in the rules, but you can't talk about the rules.
When you were talking about the steering provision, it made me think of this case pending against the food delivery companies right now. I wrote about it a couple months ago. It argues that food app delivery companies have raised prices in restaurants indirectly because they've told restaurants as part of their contract that you're not allowed to charge less anywhere else than you would on their app. So it's a most-favored nation provision.
The argument this case is making—we'll see how far it goes—is that has contributed to escalating prices everywhere. Because if you can't discount, or not even discount, but if you can't mark up on the app compared to what you're selling in your restaurant, then everyone's paying more.
Absolutely. There’s similar cases against Amazon for literally the exact same thing. There's a case out of Washington D.C. and then out of California making the same argument that because sellers are not allowed to sell on either their own website or another platform like Walmart or Target for less than they sell on Amazon, that Amazon is indirectly raising prices all across the internet.
Yeah, I find it very interesting. A hallmark of these digital sellers and providers is toeing that line between independence and control. No one wants to be hiring people, employees are over, we're done with that, unless you're an instant delivery firm and you're crashing your way into oblivion. But I was just listening to a call with Bird where they talked to investors, and Bird is trying to figure out its business because it's burning through money. It's issued a going concern warning, it’s trying to claw back 50 cents from customers who haven't taken a ride in years. This is not a good position to be in—and Bird is trying to figure out how to restructure its operations and improve utilization and make the business better.
And the CEO was saying they've been investing a lot into figuring out where scooters should go and be deployed to get the highest use, which seems like an obvious thing to do. But then the problem is Bird has contracted most of its management through franchisees, and so they can't tell them what to do, because they're independent. They can only heavily encourage them with incentives and algorithms and every other digital manner that we know these companies do. And so because of that, reading between the lines, that's why they can't make this transition right now, it's going to take a couple quarters, because it's not their team. They can't just go do it. They have to nudge people in the direction without overstepping their boundaries as the franchiser and not the employer.
The threads between all these big tech firms are sort of the same. Amazon contracts out a lot of its drivers and delivery folks, Google contracts out its data center workers, and actually treats them really shabbily, makes them reapply for their jobs every six months to a year. A whole lot of nonsense. But yeah, getting these people off the books but really on the books. This is such an old business model in some ways. I can remember back in like 2009-10 writing about the way that FedEx was calling all of its people independent contractors, even though they had to dress up in FedEx colors and drive a giant FedEx truck, but no, they're independent. They can do whatever they want. They're not exactly reinventing the wheel, but they're finding new ways take advantage it.
You can do whatever you want, as long as you comply with our 20 rules first.
Exactly, yes. As long as you drive this exact route and drop off these exact packages in this order and wear this hat.
So actually bringing it back to Amazon and delivery, you also wrote recently about how Barcelona has introduced an ‘Amazon tax’ that is an example of a step that a city is taking to try to level the playing field a bit between Amazon and local businesses, and urban space and the public.
Barcelona is moving towards doing this tax, which will be implemented next year on large home delivery platforms, of which, of course, Amazon is the largest and most prominent. It's in reaction to two things, as you said. One. the pressures that are put on local retail by these large delivery platforms.
But then also—and this is something I hear all the time, I run around the country trying to tell people not to subsidize Amazon warehouses and the logistics network for lots of wonky economic reasons, but the thing everyone wants to talk about is how traffic will increase and it will be really noisy to have all these Amazon vans around—and that's the other reason that Barcelona is moving towards this model, is to get some large trucks off the street and to incentivize people to go either pick up packages at central points or to just go to the local retailer and buy your stuff. The law very specifically exempts deliverers that drop at a central location and business-to-business transactions.
So this is really all about home delivery and I think it's a great idea. Here in the U.S. we’ve done the opposite. We've given Amazon a loan, $5 billion in state and local subsidies. Most of that, except for the chunk that it is for HQ2, was for warehouses and logistics. And that's literally asking local businesses with their tax money to subsidize their dominant competitor. That's exactly what it is. Amazon needs this logistics network. It builds warehouses where it needs them near its customers, near transportation infrastructure, and gets these massive handouts, which a local hardware store is never going to get, right? You're never going to subsidize mom and pop's hardware store with a billion dollars to build warehouses all over the country. So I really like the idea of specifically going at the delivery platform to try and even things up a little bit.
There have been a couple of little efforts to do that here in the U.S. One in New York City, where the elected official behind it wanted to put a $3 fee on every package delivered in the city. So that was a political non-starter and not the way you really want to do this. Then an effort in San Francisco was going to be on the ballot this year in the 2022 election, but it was drafted really badly and would've affected way more businesses than it was supposed to, so they had to pull it off the ballot. So that might be back someday.
But I think it's in general the right idea. You want to stop preferencing these destructive activities and start making them cost something. And not for nothing, sort of put some of the costs of convenience back onto the consumer. One of the things that's hardest about the delivery app, instant-package world is that it does work well for people because they actually don't have to feel the costs of them. Someday they will, right? Once these monopolists gain the entire market and then recoup all the money they've been burning in order to gain the market. Someday you'll be paying for it, but right now you're really not. The cost is being foisted onto workers, the community in the form of infrastructure harm, and small businesses, those are the ones who are to pay for the entrenchment of these large dominant platforms. So I think putting a tax on that activity is a really good idea.
It's interesting also because I feel like Amazon, if it wanted, could do a lot more to incentivize better consumer behavior. A thing I feel like I always say about Amazon is it's great that you can get something delivered in two hours, but how many things do you actually need in two hours? Most things that you're going to need, you can plan for. You could make a list and then order them and then wait a couple days. And maybe it wouldn't be as instantly gratifying, but it would also work fine. And I think this culture of ‘I need it now, and I just press a button and it shows up,’ it's bad for the environment, it's bad for consumption. It is just not a healthy way to be.
And it's horrible for labor too. The horrendous injuries slash death traps that are some of these warehouses, that speed is possible because of the conditions that they put on these workers.
And for the delivery workers because they have these impossible schedules and goals to hit. And it's very punitive if they don't. It's snowed here in London, and the other day and I was watching out my window these delivery drivers trying to still go on their motorbikes and deliver food. And I feel so bad for these people because they're probably worried about not completing the task, but also this is incredibly dangerous. London, let me tell you, does not know how to deal with snow. There is no salt. There is no sand. I saw not a single snowplough. Every sidewalk is a sheet of ice. You do not want to be transiting around London in the snow.
The other thing I was going to say, anecdotally, is the other day I got a delivery that I wasn't expecting. So they rang my doorbell and I was like, one minute I'll, I'll be right down. And then they rang again and I came down and the guy yelled at me and he was like, ‘we don't have all day, you know?’ And I was like, I know. I get it. I don't like that this man yelled at me. But also I sympathize with him because I'm sure he has some crazy target being imposed on him, and he's really stressed out about getting everything done.
Totally. There have been efforts in a few states, California most prominently, but also in New York to regulate some of those quotas that the warehouse and delivery drivers have to have to work under. An interesting point about this whole debate is that Amazon acts like it's this high-road employer, ‘We pay a $15 minimum wage, everything's great, we pay so much money.’ It's actually the fact that in most of their markets, that is undercutting the local labor market. Delivery driver and warehouse workers is actually a pretty decent job because they're mostly unionized. It's going to vary depending on state, but in a lot of places, these are unionized, good-paying $20, $25, $30-an-hour jobs. Amazon comes in, patting itself on the back for paying $15 an hour. It's actually undercutting the local labor market and driving down wages in those sectors.
Is there anything else you want to talk about? Boondoggle, your book, corporate secrets are no fun, unless they're shared with everyone…
Exactly, unless you can tell everybody. If folks want to, if they're interested in keeping up to date on particularly the secret angle, you can go to bansecretdeals.org, which is a coalition that I helped found that works across the country on getting these secret deals out of particularly state government. You can go there, sign up, see a database I've built of secret deals across the country. You can sign our petition that we send to state electives to try and eliminate this practice, and you can just generally stay up to date on this stuff, if I have peaked your curiosity.
Very cool. Actually, follow up question: other than that, what would you recommend impassioned citizens who want to work on this issue?
A lot of this can be regulated at the state level. There was a bill in the New York State Senate last year that would specifically ban the sort of secrecy provisions and a lot of these deals that prevent elected officials from talking about them. And our theory of the case was that once you put this in front of politicians to have to vote on, it was going to be really hard to vote against, because it's a clear, obvious, corrupt practice that needs to go. Got a bill on the floor of the New York State Senate and it passed 61 to nothing. Literally no one wanted to vote against it. Couldn't get a vote to come up in the New York Assembly, because the New York Assembly can be quite wretched sometimes, but I feel pretty good about the way that movement is going.
So I think that's the way to get involved. Talk to your state lawmakers. The barrier to entry at the state level in most states is really low. If you write to a statehouse rep or a state senator, it's going straight to them and they're going to see it. If you start complaining about this stuff, they'll actually notice. The other thing is just show up to city council. If you know something is happening in your committee, show up to the city council meeting, show up to the school board meetings, show up to whatever it is, and complain about this stuff.
Because the folks running this machine aren't used to pushback. And when they get some, they're going to reweight the political calculation. Like, ‘oh, is it really worth it for me to do this? I thought I was just going to get to send out a cute press release and show up at the ribbon cutting with one of those giant pairs of scissors, but now this is making people mad. Maybe I should do something else.’ There's a lot of power in that.
Have you ever gotten one of the giant pairs of scissors?
Not yet. It's on my of list of goals.
Pat Garofalo on secret dealmaking and corporate subsidies