How a failing capitalist system is allowing Amazon to cripple America

Capitalism is failing in America, and Amazon is both the cause and beneficiary of much of the breakdown. Jeff Bezos said, “We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient.” He might have added three capitalist practices familiar to his company: (1) Pay no taxes; (2) Drive competitors out of business; and (3) Exploit workers.

Anarcho-capitalism: The sordid details of Amazon’s tax avoidance

In 2018, according to its own SEC filings, Amazon claimed a refund on its $11 billion in U.S. profits. It did the same on nearly $6 billion in profits in 2017. The company has reportedly positioned itself to avoid even more future taxes with unspecified tax credits.

In the most extreme form of capitalism taxes do not exist. This is called “anarcho-capitalism.” Among all corporations, Amazon may be the leading advocate of this philosophy. They haven’t paid federal income tax for the past two years. They set up headquarters in Luxembourg for tax breaks that are now being challenged. They claim minimal profits on hundreds of billions in revenue, resulting in one of the lowest profit margins among major corporations, and thus much less tax. Of course, Amazon claims to be using tax credits from past losses that stemmed from investment in research and development (R&D). But the company appears to overstate and obfuscate the R&D numbers. Its only ‘explanation’ of R&D in its annual report comes in an ambiguously all-encompassing section called “Technology and Content.” Plus, that’s no excuse to dodge taxes. Walmart and Google each spent nearly $12 billion on technology in 2018, almost as much as Amazon, but Walmart paid 28 percent in federal taxes, and Google 14 percent.

We learn much more at the state level. Amazon has played one state against another for tax breaks over the years, most recently negotiating an estimated $3 billion tax credit from the state of New York before residents rebelled – as well they should have. The Economic Policy Institute found that employment levels don’t significantly change in communities with new Amazon warehouses, and a recent study by The Economist concluded that the opening of a fulfillment center in a given community actually depresses warehouse wages. Furthermore, as an indication of the folly of wooing corporations with state subsidies, Upjohn research found that in the great majority of cases incentives are not even a part of a company’s decision to locate in a given area.

Most insidiously, Amazon’s seemingly fair-minded acceptance of state sales taxes likely has a dark side. For years the company fought the state tax as it built a competitive advantage over smaller firms. Now that it’s firmly established, online variety and convenience have replaced price as the primary incentives for most consumers, and so Amazon now supports a sales tax, very likely to discourage competition. Evidence comes from one study that found Walmart 34 percent cheaper than Amazon in four of five product categories.

Monopoly: Amazon and the killing of competition

Kiplinger compiled a remarkable list of 49 companies, many of them familiar to almost all Americans, that are in danger of being driven out of business by Amazon. One of them, Toys ‘r’ Us, has already succumbed. Sears is nearly gone. Others include Barnes & Noble, Kroger, Rite Aid, Best Buy, Etsy, Yelp, Pandora, and even stalwarts like Target and Trader Joe’s and UPS and Fedex and Office Depot and Staples. Investopedia agrees, adding Macy’s and even Walgreen’s and CVS and Costco.

In a summary of “The Myth of Capitalism,” by Jonathan Tepper and Denise Hearn, it is argued that “an increase in market concentration across the United States has resulted in a system that is not true capitalism, since freedom is being restricted…Amazon is crushing retailers…It can determine what products can and cannot sell on its platform, and it competes with any customer that encounters success.” Columbia University and UN economist Howard Steven Friedman adds, “Monopolies are one example of capitalism failing. Monopolies have virtually no competition and can dictate prices to their customers unless they are restricted by regulators.”

Of course, along the way Amazon has destroyed or dismantled or discouraged many smaller businesses. Like the jewelry store in New Mexico owned by Candelora Versace, who said her customers have started buying gems online, in part to avoid state taxes, and then visiting her store just for the settings. She considers the far-reaching effects of Amazon’s tax avoidance: “The roads don’t pay themselves. The schools don’t fund themselves…When they don’t want to pay the tax, it cheats us.”

Labor in decline: The economic and physical abuse of Amazon’s workers

Amazon warehouse workers make about $13 per hour. That’s not a living wage for a U.S. family of four, and not even for a single person in many areas of the country. So the employees of this super-rich company turn to food stamps, letting U.S. taxpayers take care of them. In Ohio and Pennsylvania, one in ten Amazon workers were recently on SNAP. In Arizona, one in three. Along with the low pay comes intolerable working conditions, with overheated warehouses and employees using water bottles to avoid bathroom breaks in order to meet their schedules. And worse, employees have suffered workplace injuries that leave them homeless, disabled, or unable to earn an income. Employees are also forced to deal with constant surveillance, anti-union pressure, and the threat of losing their jobs. Much of Amazon’s over-hyped R&D spending is focused on the development of robots to replace human workers.

Capitalism has failed workers, and it has caused a surge in inequality that gets worse with each passing year. In Capital in the 21st Century, Thomas Piketty showed that for 40 years, from 1970 to 2010, labor’s share of national income (wages and salaries) has declined. Stanford research reveals that “the declining labor share at the economy level is driven by the growth of large firms.” Like Amazon.

A good reason for democratic socialism

There may be no better argument for democratic socialism in America than the way individual state leaders have been falling over each other trying to lure corporations to their states with tax subsidies. We Americans have never been able to cooperate in ending this pointless waste of tax money that should be going to education and jobs and infrastructure.

Does Jeff Bezos have any sense of social responsibility for all the societal benefits heaped upon his company? Amazon has arguably benefited more than any other company from what The Economist calls the “game-changing breakthroughs” of the Internet, which was built with our tax money through the National Science Foundation since the 1980s, and before that by the taxpayer-funded Defense Advanced Research Projects Agency (DARPA). Fortune refers to Amazon’s actions as “extracting public money for its own enrichment.”

But perhaps the Amazon boss doesn’t care. According to The Atlantic, “Bezos has argued that there is not enough philanthropic need on earth for him to spend his billions on.” If that truly reflects the man’s attitude, it shows an incomprehensible ignorance or disdain on his part. Bezos himself said, “The only way that I can see to deploy this much financial resource is by converting my Amazon winnings into space travel…I am going to use my financial lottery winnings from Amazon to fund that.”

Good work, Jeff. Benefit from seventy years of public inventiveness and productivity and funding, and then fly off to the skies before you have to pay for it.