Made by History

History Casts Doubt on the Strategies Cities Use to Attract Big Retailers

7 minute read

The city of Cedar Falls, Iowa, recently gifted Amazon—one of the world’s largest corporations—free land and a multi-year tax abatement to build a 50,000-square-feet distribution center. This is nothing new. For decades now, U.S. municipalities and states have given America’s largest retailers billions of taxpayer funds, in the name of creating jobs. City officials frequently calculate that such deals will generate new job opportunities and, eventually, increase property tax sources. But these arrangements also generate unseen and unanticipated costs.

The retail industry has long benefited from government support. In the early 20th century, for instance, downtown department stores lobbied for the construction of roads, public transportation, and infrastructure like railroads to bring consumers and merchandise to their stores. Later in the century, the rise of suburban shopping centers relied on the expansion of government-built highways. But even then, retailers—not local taxpayers—took on most development costs.

That changed as discount retailers like Kmart, Target, and Walmart came to dominate the industry by the late 20th century. New modes of distribution and new methods of logistical efficiency allowed discounters to expand rapidly and capture the retail markets in cities and towns across the nation. As economic shifts drove more workers into the service sector, states and municipalities began offering incentives to attract major retailers.

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Following World War II, over half of Americans worked in the service sector. While employment in manufacturing remained relatively stable, agricultural industrialization increased farm productivity while reducing the need for labor through mechanization. At the same time, women entered the workforce at unprecedented numbers and, with gendered labor, increasingly took on low-level service jobs like in retail.

The three big discount retailers that would come to dominate the industry were Kmart, Target, and Walmart. All three opened their first stores in 1962. The three were certainly not the first discounters, but they quickly defined the new kind of retail venture with things like reducing costs through customer self-service using shopping carts to collect goods for purchase. Kmart, while late to the discount trade, had decades of retail experience operating department stores through its parent company, Detroit-based S.S. Kresge Co. The discount division rapidly expanded with 162 stores by 1966. The expansion of discount stores accompanied a consolidation of the industry as a whole, with size and scale meaning everything to success—something Target’s owners recognized and led to their decision to follow Kmart’s national expansion path.

What helped fuel national retail expansion was the emergence of the modern distribution center. Compared to earlier warehouses, these buildings did more than store goods. They used computer technology like the barcode to maximize logistical efficiency and shave pennies off already low margin goods. Distribution centers allowed for retailers to manage merchandise across hundreds of stores in multiple states.

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At the same time that retailers were expanding their reach, broader economic shifts intensified throughout the 1980s, with the loss of manufacturing jobs channeling workers into other sectors.

To attract new industries, especially retail distribution centers, states and municipalities began competing among each other. Officials in the Midwest and West, in particular, viewed distribution centers as a solution to economic woes with their abundance of available land for development. Places like Southern California’s Inland Empire, for instance, replaced cow pastures and citrus groves with beige brick distribution centers following the loss of several large manufacturing employers. These moves paved the way to become the most concentrated inland logistical port in the country.

As competition between localities to find new employment opportunities for residents increased, they began offering incentives to attract major retailers. In early 1993, for example, Target Stores looked at over two dozen potential sites across three different states to build its Midwest regional distribution center. Wisconsin Republican Gov. Tommy Thompson’s administration offered a massive package to have Target build the over 1.1 million-sq.-ft. facility that anticipated adding up to 700 new jobs in the state. Instances like in Oconomowoc, Wisc., were only the beginning.

By the 2000s, municipalities and states across the country were giving millions of dollars to major retailers like Target and Walmart. Government officials looked to retailers and, especially, distribution centers, to adapt to the economy of the 21st century—and the handouts boomed.

In 2003, for instance, Cedar Falls, Iowa, gave the Target Corporation $11 million in incentives to build a 1.35 million-square-feet distribution center promising 900 new jobs. In return for choosing the small college town in eastern Iowa, Cedar Falls and the state of Iowa granted the company tax breaks and credit and nearly $1 million dollars for new infrastructure, among other incentives.

Countless elected officials came to see subsidies and tax breaks to America’s largest retailers as essential to job creation and increasing community tax bases. Even President Barack Obama pushed this viewpoint during a 2013 visit to an Amazon distribution center in Chattanooga, Tenn., where he touted warehouse jobs as a route to the middle class for American workers.

Recent studies, however, cast doubt on this conventional thinking. While companies like Amazon tout high wages at its distribution centers, their calculations include management positions and do not account for part-time and seasonal employees or those employed through outsourced companies—which operate a majority of Amazon centers.

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Good Jobs First, a policy research organization that tracks corporate subsidies and violations, for instance, has tracked nearly $10 billion dollars in subsidies with most data beginning in 2012. This data is far from complete, yet it provides a window that others have used to show how cities and states have paid Amazon more per job than the average employee wage, with no evidence of net job growth. And when considering the tax revenue per acreage of these massive structures, the investment is dismal compared to dense downtown development. (In a statement to the Financial Times, Amazon stated, "These incentives are typically available to any firm that meets the criteria and companies do not receive a penny until after they have created jobs and made capital investments." The company added, "In 2020 alone, Amazon invested $150 billion in the U.S., opened more than 100 sites and created more than 400,000 jobs across more than 40 states.")

There are, of course, numerous other reasons to oppose taxpayer handouts to America’s largest retailers besides being a bad investment. These companies significantly contribute to greenhouse gas emissions, with total estimates difficult—if not impossible—to establish through global supply chains. They pollute air and choke communities causing adverse health problems. And, while the National Retail Federation—the largest industry trade group—supports “balanced labor laws,” retailers have had a historic anti-union stance which has recently gained national attention through Amazon worker organization efforts across the country.

What the history shows, however, is that the rise of retail is a fairly recent development and requires elected officials to take a moment and reflect on whether spending millions of taxpayer dollars is an actual good investment to create jobs. Larger economic shifts led to the industry’s rise, and the flood of money to attract new employment opportunities made sense during the tumultuous change a few decades ago. But as size and scale remain an important part of modern retail, these companies need to expand to maintain their dominance in the industry. Retailers like Target, Walmart, and Amazon will most likely continue to expand and open new stores and distribution centers: taxpayer dollars will not change that.

Johnathan Williams is an Assistant Professor of Instruction at the University of Northern Iowa and has a chapter in the forthcoming edited volume, Big-Box USA: The Environmental Impact of America's Biggest Retail Stores.

Made by History takes readers beyond the headlines with articles written and edited by professional historians. Learn more about Made by History at TIME here. Opinions expressed do not necessarily reflect the views of TIME editors.

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