Amazon fight with Seattle is one Example of How Democracy Fundamentally Does Not Work

There are several fundamental structural problems with the current arrangement of democratic structures around the World. One case in point is the current conflict between the city of Seattle Washington and the large businesses that are headquartered in the city.

Fundamental Problems with democracy:

- Government leaders do not share in the profits so they have an incentive to seem compassionate and no incentive to maximize growth in either population or revenue

- Leaders in a democracy change frequently so that no one’s reputation or brand is on the line when they change the rules

- The key costs like taxes are not nailed down contractually for long periods of time (decades or more) But they could be if the governance model was something I call a "corporate federation"

- Governments are to large and there are large costs associated with moving the long distance from one jurisdiction to another. These costs prevent people from moving away from bad governments.

One of the problems with democratic governments at the state and municipal level is their ability to arbitrarily change the rules of the game at any time. It becomes excruciatingly difficult to engage in the kind of long term planning that large scale businesses need to engage in when governments make large changes to taxes or to regulations.

One example of this kind of short notice rule changing is currently taking place in Seattle Washington. The City counsel of Seattle recently floated the idea of imposing a 26 cent per man hour worked per employee on any company with a gross revenue of more than $20 million. This comes out to about $540 per employee per year. This included companies who are headquartered in the city like Starbuck’s and Amazon. Amazon was in the midst of building an office tower capable of housing approximately 7,000 additional employees. This would be in addition to the 40,000 employees that Amazon already employs in the city. This means that the new tax would cost $20 million in new taxes even without the additional expansion. Amazon had already sunk several million dollars into the new tower but stopped construction in response to the city counsel’s proposed employee head tax on large companies. When the counsel later reduced the proposed tax increase to $275 per employee Amazon resumed construction. Amazon’s Vice President Drew Herdener warned that Amazon remains, "very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”

The interesting thing about this particular situation is that this “head tax” is being justified to solve a homelessness problem that is largely the result of other Seattle government policy relating to zoning.

"Normally, higher [real-estate] prices would induce more construction, but zoning laws prevent that," Glenn Kelman, CEO of Redfin Corp. wrote in a blog post on Tuesday. The Seattle-based real estate company did not sign on to a widely circulated petition opposing the tax, but Kelman did argue that it would ultimately fall short. "The amount of housing the city can build with a head tax, or any tax, is nominal," he wrote.

While homelessness is driven by many factors, including the nationwide opioid epidemic and the state’s meager mental health resources, new research indicates the city’s rising housing costs corresponds to increases in the number of people without shelter. A pro bono report that McKinsey & Co. produced for the Seattle Metropolitan Chamber of Commerce found a “96 percent statistical correlation between the region’s rent increases and the increase in homelessness,” according to the Seattle Times.

These two data points taken together make it clear that the solution here is for the city to make it a priority to approve private sector expansion of housing and transportation infrastructure. This is a supply and demand pr