In 1589, a British curate named William Lee invented the stocking frame knitting machine, which used many needles to produce finer textured products more quickly. Aware of his invention’s potential, he travelled to London to demonstrate its effectiveness in order to obtain a patent from the monarch of the day, Queen Elizabeth I. She watched the demonstration and asked many questions about its efficiency. Then she refused his request, and the machines were not introduced for two more centuries.
“Thou aimest high, Master Lee,“ said the Queen. “Consider thou what the invention could do to my poor subjects? It would assuredly bring to them ruin by depriving them of employment, thus making them beggars.”
Today the courtship has reversed, and governments are abrogating their responsibility to protect their “poor subjects.” Leaders now subsidize and court innovators, including those who need no help and are wildly successful, like Amazon. In the past few months, dozens of governors and mayors, and even the Prime Minister of Canada, have personally called on Amazon’s fabulously wealthy CEO Jeff Bezos to persuade him to locate his second headquarters, with 50,000 jobs, in their jurisdictions.
Especially unseemly was a reported $7 billion offer by the governor of New Jersey, clearly involving money drawn out of taxes paid by the retail businesses, warehouses and logistics companies that Amazon is destroying. Yes, Amazon’s new head office would arguably plump up Newark’s employment figures, but leaders should be scolded for helping dig mass graves with the shovels paid for by those about to be buried.
On the other hand, 16th century benevolent paternalism and protectionism is not the answer either. But old-fashioned competition laws created to stop monopolies and robber barons after the first Industrial Revolution should be brought into play.
Amazon, in just 23 years, has gone from a website offering books at a discount to a behemoth with revenues that now surpass all of America’s department, grocery store and restaurant chains combined. Most worrisome is that the company dominates all e-commerce, which grows five times faster than brick-and-mortar retail, and is going to enter the financial services and healthcare sectors. This is in addition to its recent entertainment ventures and its new entry into the $8 trillion industrial market, providing everything from valves to industrial motors and maintenance supplies.
The company has a market capitalization value of $602 billion, which is, ironically, bigger than was New Jersey’s GDP in 2016. Clearly, this company needs no financial help, and its owner-founder Bezos is not only one of the richest men on the planet but one of the most influential men in America, thanks to his sole proprietorship of the Washington Post.
Concern about Amazonian dominance is valid. In retail, Amazon accounts for 53 percent of all e-commerce sales growth and cannot be matched by rivals given its robotized fulfillment centers and immediate deliveries. This has been devastating already. Twice as many stores closed in 2017, or 8,600, as the year before. Department store jobs have plummeted from 1.782 million in June 2001 to 1.27 million by November 2017. Projections suggest that between 2016 and 2026 the average annual growth of jobs across the economy will increase by 7 percent annually, but retail will increase by only 2 percent.
Of course, success and efficiency are not crimes, nor is bigness, unless it prevents anyone else from competing. Unfortunately, Amazon is on its way to becoming the next Standard Oil, which gained a stranglehold on the oil industry and related sectors so severe that capitalism itself was threatened and the company had to be busted up into competing companies in 1911.
The logic behind this is that extreme market dominance leads to monopoly power and abuses, eventually sweeping away workers, competitors, and potential competitors, while bullying suppliers and stifling innovation. A market dominated by a gigantic player is a hockey game without referees and only goons on the ice who will sideline smaller, more innovative players. Think Russia’s oligarchy. Think banana republics.
There have already been nasty price disputes involving book publishers and others over the years, but Amazon’s digital domination is now another, separate issue. The dependence on its platform and services allows it to dictate terms and prices to suppliers. Moreover, as Stacey Mitchell of the Institute for Local Self-Reliance wrote last year at Motherboard, Amazon seems to use the data it gathers from companies selling on its platform to weaken them. According to Mitchell, “A company that designs a popular product and builds a market for it on Amazon’s site can suddenly find that Amazon has introduced a nearly identical version and given it top billing in search results. One study found that after a retailer becomes a seller on Amazon, it’s only a matter of weeks before Amazon brings the merchant’s most popular items into its own inventory.”
Atop this all is concern about the fact that Amazon has inordinate market power to set the terms by which goods are bought and sold in the United States digitally, and which products will be on offer. This cartel, or oligopoly power, is why investors have bid up the value of Amazon stock beyond normal levels. Silicon Valley venture capitalist Chamath Palihapitiya described Amazon in Forbes last year as “a multi-trillion-dollar monopoly hiding in plain sight.”
Another less publicized danger concerns the company’s growing control over the underlying infrastructure of the economy itself: From its digital platform which dominates commerce, to its growing 44 percent control over cloud computing capacity used by everyone from the Central Intelligence Agency to Netflix, to the building of its own army of planes, trucks and drones, which all competitors will be forced to hire.
Such aggressive “vertical integration” is precisely why Standard Oil had to be busted up. Like Amazon, Standard Oil controlled all its marketplaces and forced all its competitors out of business or to become captive buyers and sellers of its goods and services.
The battle to protect markets and jobs is nothing new. Neither are solutions. As the Queen astutely recognized in 1589, allowing one innovator to prosper at the expense of everyone else is not only unfair but quite foolish—and simply cannot be allowed.