Amazon (River of
from the album "Jericho" by The Band [mostly] (1993)
My favorite definition of power is the freedom to safely say "F-you."
That's that kind of power we saw a couple of times last week. I'm not thinking of President Trump's trumped up emergency response to Congress rejecting his Great Wall. That's the freedom of having nothing left to lose, which is different. I'm thinking of Jeff Bezos.
Bezos, founder and CEO of Amazon, is the world's richest man because he sits atop a behemoth. Amazon is not the most profitable enterprise, it's just one of the biggest.
First, Bezos picked a pique with The National Enquirer's David Pecker over his pilfered pecker pics. When Pecker stupidly tried to sell the sordid selfies back to him, Bezos gave him a swift "F-you." It all reminded me of that scene in Batman, The Dark Knight, when Morgan Freeman, playing Lucius Fox, hears out the accountant who demands cash or he'll expose Bruce Wayne ("one of the world's richest men") to be Batman ("a vigilante who beats criminals to a pulp with his bare hands"): "And your plan is to blackmail this person? Good luck."
Second, and more interesting, was the New York City HQ2 fiasco. Amazon had announced that it would build one of two East Coast "headquarters" (3 total) in Long Island City, promising 25,000 well-paid jobs. But when community members scoffed at giving the world's richest company a $3 billion tax rebate, rather than do what community members do -- like talk things out -- Bezos simply said "F-you" and scuttled the project.
Bezos's two "F-yous" come from the same place. Amazon's bigness gives it and him that kind of power.
When I was studying economics in college, E.F. Schumacher's Small is Beautiful, Economics as if People Mattered, became faddish reading. Schumacher argued that companies should not be too big, because when too big they lord it over their customers, suppliers, employees, communities, even their governments. That argument was not new even in 1973. Justice Louis D. Brandeis had similarly preached against "the curse of bigness" 60 years earlier. https://www.theatlantic.com/politics/archive/2016/06/the-forgotten-wisdom-of-louis-d-brandeis/485477/.
Today, Brandies's and Schumacher's ideas are resurging. Two recent books, Clair Brown's Buddhist Economics and Tim Wu's The Curse of Bigness, pick up the intellectual baton, and their ideas bubble up through the political stew that is the new democratic left. It's enough to note that conservative academics like Robert Atkinson and Michael Lind feel they need to write an apologia titled -- guess! -- Big is Beautiful. See https://www.theatlantic.com/magazine/archive/2018/04/learning-to-love-big-business/554096/. They call out as myths many things we believe about small businesses. Small businesses destroy as many jobs as they create, they foster greater inequalities than large corporations, they don't take as good care of their employees, and they can't match the resources of the R&D labs of the big boys to foster innovation.
And so, both sides muddy the waters. My own view comes from Strunk and White's Elements of Style. "Omit needless words," says the 17th precept. "A sentence should have no unnecessary words, a paragraph no unnecessary sentences, for the same reason that a drawing should have no unnecessary lines and a machine no unnecessary parts." By the same token, a company should be no bigger than it needs for the business it runs.
Need is the key. Both small and big can be beautiful; it depends on what scale a business needs. Schumacher agrees: "there is no single answer. For his different purposes man needs many different structures, both small ones and large ones, some exclusive and some comprehensive." So do the authors of Big is Beautiful: "A dynamic economy requires the interaction of firms of all sizes. Small firms play legitimate if diminished roles today, and always will." Every successful company eventually grows to that size that is optimal for what it does. Beyond that, size serves dominance more than efficiency. Large firms, as they grow, can say "F-you" in more and more places. This trend to dominance that comes with size, in both business and government, is what Brandeis decried as a curse.
So, what, then, is Amazon? To say that it's an online retailer is to miss it. Yes, Amazon sells things online, beginning with books. But that's nothing special. Amazon's real power comes from the fact that almost half of all online sales flow through it. Amazon achieved that market dominance by suffering years of losses and reinvesting all its cash into long-term infrastructure improvements. Good for it!
But a large infrastructure is expensive and needs order flow to justify its cost. That's why Amazon sells the goods of millions of independent sellers as well as its own. The independents account for about half of Amazon's sales revenues. Those third-party sellers use Amazon's facilities to process orders and payments, to pick, pack and ship goods, and to handle returns and refunds. All they need to do is sign an Amazon contract and send their inventory to an Amazon warehouse. For a small retailer, it's a dream deal. Amazon needs its size and scale in order to provide all those services to all those independent retailers. It clearly doesn't need to be as big as it is just to supply you the latest bestseller.
Amazon takes a cut of the independents' revenues, but that's the least of it. What Amazon really takes is its sellers' customer data. As Lina Khan wrote in an influential Yale Law Review article, "The difference with Amazon is the scale and sophistication of the data it collects. Whereas brick-and-mortar stores are generally only able to collect information on actual sales, Amazon tracks what shoppers are searching for but cannot find, as well as which products they repeatedly return to, what they keep in their shopping basket, and what their mouse hovers over on the screen." https://www.yalelawjournal.org/note/amazons-antitrust-paradox.
That information gives Amazon a huge competitive advantage over all other retailers, including its own independents. And Amazon uses it. For example, Khan described how Amazon cherry picks its third-party sellers' best-selling goods, knocks them off and sells them at lower prices for it own account. This is Amazon saying "F-you" to any of its own third-party sellers who get too big for their britches. That's why, for third-party sellers, Amazon can be a river of dreams swarming with piranha.
All this makes Amazon more like a utility than a retailer. Utilities, like telephone, power, water and cable companies, provide essential services. No one wants to diminish what they do, because we need them. But they can only serve their purposes as natural monopolies controlling expensive large-scale infrastructures. They are all regulated, not because we want to cut them down to size, but because we understand that otherwise their bigness would allow them to say "F-you" in too many places.
The large platform data companies, like Amazon, Google and Facebook, provide services as valuable as electricity, water and cable. That they are big is not the problem. They need to be big to be effective. We've just been slow to recognize them as the utilities they really are. That's coming.
Getting back to HQ2, I sniff fake news. First, you can't have three "headquarters." The result would be the 3-headed giant from Monty Python and the Holy Grail (or Spamalot if you saw it). Second, Amazon didn't choose New York because of any tax credit. New York City is a leader in artificial intelligence, FinTech, and blockchain technology development and entrepreneurship. Silicon Alley is home to thousands of start-ups in those fields. NYC has the mix of universities and tech, media, artistic, and financial resources that Amazon needs, and more of all of those in one place than it will find anywhere else. Amazon will be forced to come here, despite itself. If size matters, there is always a bigger fish. In this case, New York will respond to being dissed in its own fashion: "F-me? No, F-you!"