The debate on Seattle’s homeless tax provokes an important question: What responsibility do companies have toward the communities in which they function?
There are two perspectives on this issue. Milton Friedman famously claimed that the sole purpose of corporations is to generate profits for its shareholders. In doing so, companies help communities by providing jobs and by expanding their tax base.
{mosads}In the second perspective, firms should support communities through corporate social responsibility (CSR). This means that the firms recognize that they have obligations to multiple stakeholders, including but not limited to their shareholders.
CSR includes private initiatives such as sponsoring local events, creating scholarships, supporting museums and donating to homeless shelters.
Most firms undertake some sort of CSR to support local causes. It is almost a political necessity. Now suppose the government wants to increase taxes to address a local crisis. How should the firm respond, especially if it is philosophically opposed to higher taxes or believes that the government does not wisely spend money?
Amazon confronts this complex issue as it is drawn into the debate about Seattle’s acute homelessness crisis. Some blame rapidly growing companies such as Amazon for making Seattle the fastest appreciating real estate market.
Tents and shacks can be spotted everywhere. Seattle Public School District reports 4,280 homeless students in academic year 2016-2017. The King County Medical Examiner records the dead body of a homeless individual every other day, 20 percent increase from 2016.
To address the homelessness crisis, the city government has embarked on several steps. Its homeless task force recommended that large employers with annual revenue in excess of $20 million per year be taxed to generate additional revenue to provide affordable housing.
This tax was projected to generate additional $75 million of tax revenue, with Amazon paying additional $20 million in taxes.
Several companies, including Microsoft and Boeing, are critical of this tax. But Amazon went beyond merely airing its opposition. It halted the construction of a 17-story downtown building that would have added about a one million square feet of office space and supported up to 8,000 new jobs. The message was clear: You tax, we leave.
Amazon’s decision obviously generated a political firestorm. The city council first voted 5-4 to support the tax. But under the threat of mayoral veto, it halved the tax and included a sunset clause. The labor unions are split. Broadly, while the blue-collar workers oppose the tax, service workers support it.
Amazon should not be viewed as a socially insensitive company. It has sought to address the homelessness crisis through CSR. In 2016, it converted an old motel it purchased into a homeless shelter with 200 beds. In 2017, Amazon announced that it will create a new homeless shelter in one of its new office buildings.
It will provide 47,000 square feet of space with private rooms. By some estimates, it will support 65 families or 220 people. It is expected to open in 2020.
The tax issue seems to be resolved temporarily. But the debate will continue simply because the homelessness issue is not resolved. Amazon has prevailed partially in this round but it is worth asking whether this is a pyrrhic victory?
Amazon is under attack from President Trump for not paying taxes. Might Amazon antagonize liberals as well for not paying taxes?
Amazon might find Walmart’s experience instructive in this regard. Known for its extreme focus on maintaining low costs, Walmart experienced a similar political challenge in the 1990s. It was the corporate villain of its time; lacking social conscience, destroying local economies, exploiting labor and ignoring the environment.
It was perhaps the favorite corporate target of liberal activists. It faced picketing, boycotts, lawsuits and pushback from local communities around zoning issues. But in 2005, under the leadership of Lee Scott, Walmart partially reinvented itself.
It became an environmental leader and pro LGBT rights. In recent years, it has also made marginal improvements on labor issues. But the reformed Walmart is no longer the target of activist’s ire. It has gained some level of political and social legitimacy.
The lesson is that firms need legitimacy from multiple actors to fulfill their economic mission. They cannot secure social and political legitimacy if they ignore how their operations impact their communities. This is an important reason why firms invest in CSR.
The Seattle debate raises an important question: Should companies secure legitimacy by paying higher taxes to address the social problem, or do private actions via CSR secure them legitimacy as well?
Aseem Prakash is a professor of political science for the College of Arts and Sciences at the University of Washington. He is the founding, general editor of the Cambridge University Press Series on Business and Public Policy, and the co-editor of Journal of Policy Analysis and Management.
Nives Dolšak is professor and associate director of the School of Marine and Environmental Affairs at the University of Washington. She teaches courses in climate governance, international environmental policy, economic development and the environment, public policy process and policy analysis.