Amazon has released the eagerly awaited shortlist of 20 cities for its second headquarters. Only one contender of the several Canadian cities—Toronto—remains. And when Amazon announces its choice later this year, it will be one of the American cities—as it should be.
Amazon is a successful, profit-making company—somebody has called it the “Wal-Mart of the internet”—and therefore it should keep its second headquarters away from Canada.
Why do I, as a Canadian, argue this?
Because Canada at present is not a friendly political environment for business, and it’s in all Canadians’ interest that Amazon maximizes profits rather than sacrifices them due to government intervention in business. Profit-maximizing Amazon keeps growing and offering more products and more convenient service to its customers, including in Canada. Expanding business means more distribution centers and other logistics support functions, and therefore more jobs, also in Canada. And Amazon’s shareholders, including Canadians, benefit from the company’s profits through increased share prices and dividends.
Should Amazon locate its second headquarters in Toronto or elsewhere in Canada, it would be sacrificing profits due to government intervention. In the United States, the Trump administration has lowered the corporate tax rate below that in Canada (26% versus 27% when state/provincial tax is included). This has already been good to companies’ profitability, and further tax cuts are likely, given the positive economic impact. The tax cut has prompted U.S. multinationals to repatriate profits from overseas, such as Apple’s $38 billion, to benefit from a lower tax bill and to increase profits.
In Canada, on the other hand, the Trudeau government and some provincial governments have increased the corporate tax rates. The Canadian government also introduced a carbon tax, as did some provinces, to increase the tax burden further (which, of course, is ultimately borne by customers and employees when companies increase their prices and lower their salary and wage costs). The U.S. government, in contrast, has refused to introduce a carbon tax.
Government interventions in business in Canada are not limited to taxation. Other cost-escalating measures affecting business are the bans on coal, particularly, coal-powered electricity, in Ontario (Toronto’s home province) and Alberta. At the same time, the Ontario government is subsidizing unreliable and expensive wind and solar power, making the cost of electricity about three times higher in that province compared to others that use coal—which is one of the least expensive, cleanest sources of energy, with the modern scrubbing technology. This has not been lost on political decision makers in the U.S., where the affordable, clean coal is used extensively.
And if higher taxation and expensive—and unnecessary—environmental regulations and subsidies were not sufficient to deter Amazon from considering Toronto as its second headquarters location, there are other intervention schemes planned by the Canadian government. The Innovation Minister Navdeep Bains is trying to push through Bill C-25, legislation to force more diversity in corporate boards and among senior management—because he claims it will improve profitability. Terence Corcoran’s editorial in Financial Post provides an excellent analysis of how unfounded such a claim is by rigorous academic research.
While Bill C-25 (not yet a law) is just a one example of the interventionist approach of the Canadian government, both federally and provincially. True to their ideology, government decision makers in Canada are willing to ignore all evidence in their mistaken belief that they know best what is good for Canadians and Canadian businesses. They will not shy away using force to impose their ideology, as all the examples I have discussed here show.
If Amazon wants to maximize its profits, as it should, it should drop Toronto from being considered a location for its second headquarters. That way it can avoid the higher costs of operating in Canada as well as the unpredictable, but continual, stream of government interventions in business—the current reality in my country today. (And that reality will change only when voters start to experience the negative economic impact of the government’s toxic policies).
The current political and economic climate (despite the erratic president) is much friendlier toward business in the United States than in Canada. The lower taxes and dismantling of regulations (although not sufficient as of yet) are steps to the right direction towards smaller government and freer markets, which increase opportunities for profit maximization for business and prosperity for everyone.
Clearly, it’s in Amazon’s self-interest to choose a U.S. city for its second headquarters.