Arguments

Imagining a Democratic Amazon

While the company is performing essential functions, its unaccountable and exceptional power are unacceptable in a society committed to democratic ideals.

By Sandeep Vaheesan

Tagged AmazonAntitrustconsumersMonopoliesworkers

Amazon has made clear during the pandemic that it is the infrastructure of online commerce. In the United States, Amazon controls around 45 percent of Internet retail sales (Walmart is in a distant second at 7 percent). The Seattle-based corporation has a share of 80 percent or more in certain product lines including books, cleaning supplies, and kitchen and dining. With COVID-19 forcing brick-and-mortar retailers to reduce hours of business or close temporarily, even pushing many into bankruptcy, Amazon has filled the void and built on its existing dominance. It recorded a 26 percent increase in first quarter sales and has hired hundreds of thousands of workers at a time when other firms have collectively laid off tens of millions. In the words of one commentator, “Amazon became a utility in this crisis – defensive, reliable, indispensable.”

Yet such dominance means that Amazon holds great power over its workers, suppliers, sellers, and customers that it too often wields in nefarious ways. During the crisis alone, the company has retaliated against workers for organizing to demand better conditions on the job, used coercive non-compete clauses against employees, reportedly eyed movie theater chain AMC as an acquisition, and shutdown warehouses in France to protest public safety rules.

In 1890, Senator John Sherman (of the eponymous Sherman Antitrust Act) questioned the power of then-emerging corporate titans and asked his colleagues whether it was wise for economic life “to depend upon the will of a few men sitting at their council board in the city of New York.” Extrapolating this well beyond one city, Sherman’s quote would describe Amazon and the U.S. economy in 2020. How do we structure and govern Amazon in a way that is faithful to the principles of democracy? An answer lies in anti-monopoly policies that constrain and reduce Amazon’s dominance and reallocate power to the millions of individual workers, independent firms, and members of the general public whose labor, enterprise, consumption, and support have made Amazon a trillion-dollar corporation. A publicly accountable Amazon would be built on the three-legged stool of fair dealing, structural breakups, and cooperation among the workers and firms that sustain Amazon. So, how exactly can we go about this?

Public Policy Endows Amazon with Power

Before diving into the solutions mentioned above, it is important to note a few things. First off, Amazon is not a purely private entity and is, like all corporations, a creature of public power. Presuming that public regulation of Amazon is somehow illegitimate is to ignore the extensive state action that already supports the corporation—and the government’s allocation of power to certain individuals and constituencies rather than others.

Amazon and its top brass enjoy important corporate privileges due to state-granted charters, which set out the privileges to be given to the firm. State law thus awards Amazon limited liability: Shareholders cannot be personally liable for Amazon’s potential debts and other liabilities, such as backpay to workers due to violations of wage-and-hour laws and damages for polluting the environment, and so are protected against important downside risk when they invest in the company. Also,  unlike in the case of a business partnership, state law gives Amazon potential immortality as a corporate “person.”

Importantly, state charters vest power in Amazon’s board, and therefore in Jeff Bezos, to manage the company—and correspondingly deprive its workers, suppliers, and customers of governance rights in the business.

The company holds other state-delegated powers, as well. Management controls and runs warehouses as they see fit because a state government stands ready to defend the corporation’s property rights through police and judicial action. Similarly, Amazon executives exercise control over nominally independent sellers and delivery firms using contracts that the courts will enforce.

On top of these usual privileges, Amazon has special arrangements with the government that smaller companies do not. For one, it has a contract with the U.S. Postal Service that allows it to ship packages at low rates and reach rural and other less densely populated areas, which are difficult to serve profitably under normal circumstances. And during the crisis, several states awarded contracts to Amazon to upgrade outdated unemployment insurance systems to handle the surge of jobless claims.

In short, Amazon and other large corporations today enjoy a one-sided bargain with the government: private privilege in exchange for minimal public duties or limits. The crisis has shown and strengthened Amazon’s state-like power—a power that is not paired with the ordinary checks and balances we associate with state authority. Thankfully, we can change these arrangements.

Fair Dealing

Amazon wields great power over trading partners as well as rivals. Consider Amazon’s marketplace. Two million sellers depend on it to reach customers and, together, sell more on the platform than Amazon does itself. Thanks to these third-party sellers, Amazon offers a dazzling array of products while not bearing the risk of poor sales and mostly avoiding the legal liabilities from defective and dangerous products. Amazon enjoys control without responsibility, a common pattern in today’s economy.

It can delist or discriminate against sellers for virtually any or no reason at all. A merchant that has built a business selling through Amazon can find itself removed overnight and cut off from its customers. For the merchant, this decision can be ruinous. Without Amazon, many sellers have no feasible means of reaching customers and may quickly be out of business. For Amazon, in contrast, the loss of one merchant is typically inconsequential.

The company grew and attained dominance, in part, because of unfair competitive advantages and methods. Pricing has been one important weapon for Amazon. For years, Amazon customers in states where the company was not physically present did not have to pay sales tax on many purchases. Until 2018, federal law granted this unfair advantage to Amazon to undercut rivals. Amazon also used below-cost pricing to acquire the leading position in e-books and to discipline market entrants it viewed as threats. Amazon can engage in this type of aggressive pricing because of its favorable access to finance (its trillion-dollar equity valuation indicates Wall Street’s confidence in and willingness to fund Amazon), a privilege that its small and medium-sized rivals do not have.

Amazon has also used coercive and exclusionary practices to give itself a leg up over rivals. For example, it has required or pushed sellers to accept price parity provisions, which prohibit sellers from offering their wares for lower prices on rival retail platforms and their own sites. Even if a seller avoids commissions and incurs lower costs on direct sales than it does selling through Amazon, it cannot list lower prices on its site. This contractual restraint robs sellers of their freedom over pricing and prevents them from sharing any distributional cost savings from direct sales with consumers. With these restrictive terms, Amazon has suppressed the growth of rivals and cemented its own online retail dominance.

This unfair competitive practice by Amazon is not an isolated case. The company favorably displays the products of marketplace sellers who also use Amazon for shipping and delivery and thereby pressures sellers not to use potentially lower cost rivals. The corporation has also been accused of improperly bundling warehousing with small business credit, meaning sellers in need of financing for their operations have to turn to Amazon. Coincidentally, Amazon just announced a partnership with Goldman Sachs to offer sellers a line of credit up to $1 million.

To prevent Amazon from arbitrarily dropping sellers and favoring its own goods, Congress and federal regulators should impose common carriage rules on its marketplace. This means every seller would enjoy the right to use the Amazon marketplace on the same terms as other similarly situated sellers, provided it is in compliance with public laws and regulations. In implementing common carriage, statute and regulation should compel Amazon to grant due process and show cause to a seller it proposes to suspend or delist (cause should include, for instance, the sale of illegal goods).

The non-discrimination principle embodied in common carriage is a venerable one applied across the economy. It is also a landmark achievement of the civil rights movement. The Civil Rights Act of 1964 applies principles of common carriage to restaurants, hotels, and other public accommodations and prohibits denial of service or other discrimination based on color, national origin, race, religion, or gender. Today, common carriage also allows us to also limit Amazon’s power to favor certain sellers and discriminate against others for commercial, political, or other arbitrary reasons.

Antitrust authorities should enforce existing case law and enact regulations to require Amazon to abide by rules of fair competition. These rules would restrict the business strategies that Amazon (and other dominant firms) can use to take over a given market. Amazon would not be allowed to sell products and services at a loss. It also would not be able to restrain the pricing freedom of sellers or to bundle separate products and services. By prohibiting these coercive and exclusionary tactics, rules of fair competition would prevent Amazon from using its market dominance and financial power to grow and thrive at the expense of rivals.

Structural Breakups

Amazon is large and diversified. The company has an equity valuation of $1.3 trillion and is on pace for around $300 billion in sales for the year. It is a conglomerate active in numerous lines of business, such as Internet retail, a massive online marketplace for third-party sellers, private-label products, the largest cloud computing system in the world (Amazon Web Services), and supermarket chain Whole Foods. The sheer size and breadth of these activities gives Amazon power over many different markets and industries at the same time.

The contest among states and cities over Amazon’s second headquarters revealed the power that comes with size. Capital mobility and political competition to attract business are not unique to Amazon and are part of a broader problem that permits corporations to play governments (domestically and internationally) off against each other. Amazon’s size, however, means extraordinary power to disburse—and withhold—economic fruits, permitting it to extract breathtaking favors from governors, mayors, and other democratically elected officials.

A breakup of Amazon (using existing antitrust laws and, as necessary, new legislation from Congress) should take two forms. First, the government should separate Amazon into multiple lines of business. Its retail platform, AWS, grocery chain, and private label goods business should be split into separate firms. Following this division, it could not use profits from one division to support aggressive pricing in another line of business, and the retailer would no longer have a private label affiliate that it could favor at the expense of rival brands.

Second, the government should split the core retail platform itself into multiple entities that compete against each other to serve sellers and customers. Each platform would seek to attract both sellers and costumers by offering better terms and greater convenience. For instance, a small seller of kitchen accessories would have multiple mini-Amazons by which to reach purchasers, instead of being dependent on a single Amazon. Similarly, book publishers would no longer be at the mercy of one monopolistic entity.

A single dominant platform is not necessary on operational efficiency grounds. As a preliminary matter, business productivity is important, but it is not the sole criterion of social well-being. Dispersal of power, human dignity, and justice matter too.

Amazon’s defenses of its scale should be treated with the same skepticism given to the now-discredited claims of banks that institutional gigantism is necessary to serve consumers and the public. The efficiency purportedly deriving from size can serve as cover for power to control workers, suppliers, and sellers and depress their incomes. What appears to be greater productivity may actually be greater exploitation. Indeed, dominant retailers, by squeezing their suppliers, force wage reductions up their entire supply chain and, as such, have been an important driver of wage stagnation since the 1970s.

Cooperation Between the People and Firms Doing the Work of Amazon

Amazon operates as a single entity and those workers, sellers, suppliers, and delivery firms who are used to interacting with it on an individual basis must have the freedom to exercise their collective power. Amazon has thwarted organizing among its workers, including during COVID-19 as the virus has spread around its warehouses due to poor working conditions. Its many independent contractors and small and medium-sized sellers and suppliers cannot legally organize. Ironically, their concerted action against Amazon’s consolidated power would run the risk of violating antitrust law.

Congress should give the workers and firms that support and sustain Amazon the right to engage in collective bargaining and other concerted activity against the company. Affirming and expanding these rights would restructure the internal governance of Amazon and inject democracy into an autocratic entity—a democratic dearth that rules of fair dealing and breakups cannot remedy alone.

Labor and employment law reforms are essential. The present National Labor Relations Act regime makes unionization very difficult and gives employers many tools by which to keep their workers atomized and weak. The list of necessary legal changes is long and includes granting all workers just cause protection against termination, allowing workers to form a union once a majority of relevant workers indicate they want one, and barring states from opting out of federal labor law through so-called right-to-work laws.

But freedom of association should extend beyond the employees of Amazon. Congress should ensure that independent contractors, sellers, and suppliers, who currently fall outside the umbrella of labor law, can still organize. They, like regular employees, are in a position of weakness in the face of companies like Amazon.

A legislative model to protect small player cooperation already exists. The Capper-Volstead Act grants farmers and ranchers the right to form collective bargaining units and cooperative enterprises to sell and process their crops, livestock, and produce and, in turn, subjects their concerted action to public oversight by the U.S. Department of Agriculture.

This law should be generalized to cover all small players in the economy, including sellers, suppliers, and delivery firms serving Amazon. Through concerted activity, they can strike better terms of trade with Amazon in the short term (higher wages and lower sales commissions, for instance). Over a longer time horizon, they could break the effective monopoly of executives and shareholders over corporate decision-making and reconstruct the governance of Amazon. Imagine an Amazon in which workers, small sellers, and delivery drivers have representatives on the board of directors, help set business strategy, and share in the profits of the corporation.

Amazon has revealed its indispensable character during the COVID-19 crisis. When millions of businesses are shuttered, and tens of millions are confined at home, the online giant has continued to deliver essential products and been an important source of employment. Yet while it is performing essential functions, the corporation’s unaccountable and exceptional power is unacceptable in a society committed to democratic ideals. Fortunately, the structure of firms and markets is a matter of legal choices and policy decisions and ultimately moral judgments. They are questions of politics—the philosophy and determination of Americans and our elected officials—not something preordained by nature or technological changes. Through enforcement of existing anti-monopoly laws, regulatory action, and new legislation, we can have an Amazon, or something akin to it, that serves affordable prices and convenience to the public yet is governed by principles of fairness and democracy.

Read more about AmazonAntitrustconsumersMonopoliesworkers

Sandeep Vaheesan is the legal director at the Open Markets Institute. He previously served as a regulations counsel at the Consumer Financial Protection Bureau.

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