Matt Stoller: Why We Need to Break Up Amazon – and How to Do It (Naked Capitalism)

Matt Stoller: Why We Need to Break Up Amazon – and How to Do It
Posted on October 17, 2014 by Yves Smith

http://www.nakedcapitalism.com/2014/10/matt-stoller-need-break-amazon.html

BTW:The "Comments" on "Naked Capitalism" Articles are always an interesting read....


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Yves here. The main way that those of the left-leaning persuasion see Amazon as a bad guy is for its treatment of warehouse workers, who work in physically-taxing conditions and are paid what is barely a living wage for a single person.

As Matt Stoller describes in this piece, Amazon’s ambitions are monopolistic, and they’ve already gone a long way towards achieving that ambition in a large number of markets. They regularly engage in predatory pricing to crush competitors and gain market share. Their dominant position then allows them to chose how to extract more profit, which is usually a combination of squeezing suppliers and raising prices.

Antitrust has become close to a dead letter in the US. Amazon makes for a worthy object for reviving it.

http://www.nakedcapitalism.com/2014/10/matt-stoller-need-break-amazon.html

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Matt Stoller:

“Before we speak ill of Amazon, let us kneel down before it.” says Franklin Foer at The New Republic. This creature, he goes on to argue, set the goal of building a bookstore as dramatic in scope as the Library of Alexandria; such a goal seems ‘puny’ compared to what Amazon today actually is, a technological and logistical marvel that can deliver books to your phone in the time it takes to yawn. There’s a bit of a rebellion against this behemoth among the chattering classes, with George Packer of the New Yorker in February of this year warning that the company is destroying our ability to write books, enclosing our cultural commons into its own private fiefdom.

I decided to read Amazon’s 10k, the company’s 2014 annual report to the Securities and Exchange Commission, to see what I could understand from how that company describes itself. What I found is as Foer commands: bow down to this marvel. “We seek to be Earth’s most customer-centric company,” it says, under the general description of its business. “In each of our two geographic segments, we serve our primary customer sets, consisting of consumers, sellers, enterprises, and content creators. In addition, we provide services, such as advertising services and co-branded credit card agreements.” That’s it. That’s the company’s business. No mention of books, which is what the company first started selling. Or DVDs, electronics, or even shopping. They aren’t a bookstore, or a even a store at all. Because Jeff Bezos isn’t building a store. He is building a global spanning trading empire.

And who does Amazon compete with? Telecommunications, banking, retail, web infrastructure, media, advertising, publishing, computing services, consumer electronics… It might be easier to list which markets Amazon is not trying to take over. According to Amazon, it competes with “physical-world retailers, publishers, vendors, distributors, manufacturers, and producers of our products, other online e-commerce and mobile e-commerce sites, including sites that sell or distribute digital content, media companies, web portals, comparison shopping websites, and web search engines, either directly or in collaboration with other retailers, companies that provide e-commerce services, including website development, fulfillment, customer service, and payment processing, companies that provide information storage or computing services or products, including infrastructure and other web services, companies that design, manufacture, market, or sell consumer electronics, telecommunication, and electronic devices.” Well it doesn’t drill oil. Yet.

In addition, while net income is low, and while it is not even seeking to generate profits at this point, Amazon is still a very profitable enterprise. But this is hidden because Bezos, according to this 10K, is focused on free cash flow, and that isn’t counted as earnings. So you can technically say ‘Amazon doesn’t make money,’ but there’s a reason it has a $100B+ market capitalization. Bezos also seeks to increase the value of the company itself through aggressive expansion. Every year, Amazon’s net assets increase, because it is building more warehouses, software, data centers, and so on and so forth. Its cash hoard went up by $3 billion last year because it generates a lot of cash (roughly two to two and a half billion dollars a year). The best part of focusing on free cash flow is that Amazon doesn’t have to pay income taxes on it.

One particular nugget in this investment report shows just how powerful Bezos really is. This report says, “On average, our high inventory velocity means we generally collect from consumers before our payments to suppliers come due.”

Amazon is so powerful that it collects money on the stuff you buy before it has to pay its suppliers for the stuff. In its retail business, it requires negative working capital. To put it another way, if you are a supplier to Amazon, you not only sell the company goods at cut-rate prices, but you are also effectively required to make Amazon a 0% loan that turns over as long as you have a relationship with the company. Amazon is a cannibal, running itself on the working capital of other, small companies.

To take just one more example, Amazon offers great shipping prices. You might think this is due to its efficiency, and its ability to invest in robotic warehousing facilities. That’s probably part of it. But Amazon also says that “we seek to mitigate costs of shipping over time in part through…negotiating better terms with our suppliers.” Its low prices are a result of its power over its suppliers, not just its logistical prowess.

It doesn’t just cannibalize small producers. As with all empires, Bezos preys on everyone he can.

Workers? Yup. “Beginning in August 2013, a number of complaints were filed alleging, among other things, that Amazon.com, Inc. and several of its subsidiaries failed to compensate hourly workers for time spent waiting in security lines and otherwise violated federal and state wage and hour statutes and common law.”

The U.S. government? Well it keeps $2.5 billion of cash in foreign jurisdictions, untaxed, and has taken advantage of a retroactive R&D tax credit.

Foreign governments? Yup. The French Tax Administration is investigating. “The notices propose additional French tax of approximately $250 million, including interest and penalties through the date of the assessment. We disagree with the proposed assessment and intend to contest it vigorously.” The company may be investigated for tax violations by China, Germany, India, Japan, Luxembourg, and the United Kingdom.

Entrepreneurs? Yup. It has 13 patent infringement lawsuits, pending including one by a quasi-government entity in Australia. In a well-understood traditional monopoly tactic that would make John D. Rockefeller proud, the company dropped its prices on diapers to destroy Diapers.com, and then bought the company for a song.

Its own shareholders? Yup. Amazon awards a lot of stock to employees to avoid using cash payouts, so its equity base is constantly expanding. That isn’t noticeable when the stock is going up, as it has been for years. But it’s hidden risk that is to be paid on a future date.

The economy? Yup. It’s quite clear that Amazon is a deflationary force, pushing down wages, prices, tax revenues, and new non-Amazon business activity. It has deflated prices in book publishing, and retailers across the board are terrified that Amazon is in the process of ripping their guts out. The company is having a ripple effect across the economy. To the extent that deflation is a serious problem, which it is, Amazon is a villain. And this isn’t just ‘technological process’, it’s straight up market power over workers, suppliers, and even governments.

MUCH MORE AT:

http://www.nakedcapitalism.com/2014/10/matt-stoller-need-break-amazon.html

By Matt Stoller, who writes for Salon and has contributed to Politico, Alternet, Salon, The Nation and Reuters. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller. Originally published at Medium