It is past time for governments to act to regulate economic power. From financial markets to the corporate power of global corporations governments are taking little or no responsibility in the face of dangerous levels of monopoly power.
This is increasingly the case in new areas of mergers and acquisitions with global tech companies who are buying up or providing a sales platform for real economy companies at an alarming rate and destroying fair competition. Combined,
Wall Street values the giants known as the FANGS — Facebook, Amazon, Netflix and Google — as larger than the Russian economy.
Competition policy failure
Increasingly these companies are apparently too big to touch. Their business models are destroying whole areas of the real economy and decent work. Governments are offering vast amounts of taxpayers money in incentives, ignoring tax violations and taking no responsibility for fundamental labour rights, fair wages or safe workplaces.
Urgent regulation is needed to protect workers, ensure these companies pay their taxes, and enable a fair competition floor for all enterprises.
Amazon is a case in point. It is now one of the world’s largest companies with a global reach through an online marketplace and distribution capacity that defies national rules. Since launching in 1995, it has evolved from a modest online bookstore to a retail giant. Amazon is the 12th largest company in the USA by revenue and third largest by market capitalization. Indeed it is the largest global retailer by market capitalization and there is some speculation that suggests will be the world’s largest retailer by 2025.
Then there is the vast amount of data, especially data relating to consumers behaviour held by Amazon. This concentration of data goes hand in hand with the concentration of market power. In many e-commerce sub-markets, competition conditions are worsening as start-ups struggle to enter the market in the face of the enormous convergence of corporate ownership such as the Amazon acquisition of Whole Foods Market in 2017.
This concentration of market power has dire implications for supply chains. And we have seen instances when Amazon abused its market power unashamedly.
Amazon controls about a third of the US books market and disagreements between the Hachette publisher and Amazon saw Amazon diverting traffic from Hachette’s books in its platform. And when a client would still choose a Hachette book, the (usually express) delivery time was extended to become a few weeks.
When Amazon decided to force a 30% discount on products from Diapers.com and undercut them by manipulating prices of other brands until the diapers company agreed to be acquired. This is not only market gangster behaviour but a hint of what’s coming next for when data, manufacturing, and retailing power are combined, there are very real threats to competition.
Speculative investment of capital without profit
Despite the largest global retail capitalization, Amazon reported $1.9 billion in net income on $51 billion in revenue for the quarter. A 3.7% profit margin that it has taken 14 years to achieve, yet there is another story here. When you separate out AWS (Amazon Web Services) and Prime from the retail side of the business and despite $45.6 billion in revenue only $500 million is earnings from the rest, Margins outside of AWS are barely 1%, but retail is actually worse than that. Without AWS and Prime, Amazon lost about $2 billion last quarter. Although advertising is included here, too, this loss is almost all from the retail side of the business.
When retail accounts for most of the revenue: 60% of Amazon’s revenue comes from retail, so 60% of the business is losing money.
The question is if 60% of your business is losing money, shouldn’t a company’s valuation reflect that? And why would almost all of workers’ pension funds — workers capital — have some stake in a company that doesn’t make money?
Real economy risks
Apart from unfair competition, the market risks would appear to outweigh the gains.
Loss of tax revenue, impediments to local business development, suppression of wages and job losses can’t instil great economic confidence in governments yet the competition for Amazon to locate business operations is very high in cities all around the world.
The irony is as governments hand over tax and other incentives numerous studies are showing that Amazon is destroying more jobs than it creates. The Economic Policy Institute has reported that when Amazon opens a new fulfilment centre, the local county gains roughly 30 per cent more warehousing and storage jobs but no new net jobs overall, as the jobs created in warehousing and storage are likely offset by job losses in other industries.
And the Institute for Local Self Reliance’s research has also shown how Amazon is causing more job losses than gains. At the end of 2015, Amazon had 146,000 employees in the U.S. but had displaced enough sales at stores to force the elimination of 295,000 retail jobs. That works out to a net loss of 149,000 jobs.
Providing tax incentives and spending public resources to attract Amazon operations is therefore not an effective strategy to boost local employment. The New York decision to hand Amazon $3 billion dollars is an extraordinary decision when this company exploits workers and the jobs and income questions are speculative. It would appear that the 2008 ‘too big to fail’ banks have become the 2018 ‘too big to touch companies’ and Amazon is a lead example.
Exploitation of labour
Jeff Bezos has a net worth of $156 billion, and he is now the richest man in the world. Meanwhile, in at least four states in the United States, the company is one of the top 20 employers of people dependent on food stamps.
Amazon has a long history of suppressing freedom of association, Amazon has hired law firms, fired spoke-persons and even shut down a call centre to suppress organizing efforts.
The gruelling working conditions in Amazon warehouses in the US and the UK have been well documented. For instance, in James Bloodworth’s undercover book, Hired: Six Months Undercover in Low-Wage Britain, he highlighted how many Amazon workers suffer from injuries and exhaustion due to fulfilling ambitious targets — with workers even skipping bathroom breaks out of fear of losing their jobs. Pregnant women have been reported to stand for at least 10 hours a day and undertake heavy lifting. In UK warehouses alone, at least 600 ambulance calls were made for workers in the last three years.
In 2014 at the ITUC Congress in Berlin, Bezos was voted worst boss of the year and the fact that workers were treated like robots in a nearby German warehouse was exposed.
And taxpayers have been paying for Amazon’s greed by subsidizing workers’ low wages. This is why US Senator Bernie Sanders proposed a bill that would have forced Amazon to repay any government assistance taken by Amazon workers to make up for dismally low wages.
While Amazon recently announced that it will increase wages in the US and the UK they subsequently declared workers in the UK would lose existing benefits and no indication of fair wages for workers in the rest of the world.
This is morally bankrupt.
Jeff Bezos predicted to Amazon employees last week that “one day Amazon will fail,” according to a recording of an internal meeting heard by CNBC. With the company valued at just shy of $1 trillion and Bezos being the richest man in modern history, the Amazon CEO said his 24-year-old firm was far from invincible.’
Economic stability requires governments to regulate. If they fail to break up Amazon and the company continues to exploit workers, erode data privacy, contribute to greater financial speculation, avoid taxes and impede sustainable development then monopoly power is putting us all, even democracy itself, at risk.
Fair competition, human and labour rights with freedom of association and collective bargaining are not outdated principles and standards.
The answer, in part, is to break up Amazon and their corporate kind — and apply the rule of law.