Current Affairs

How Amazon Destroys the Intellectual Justifications for Capitalism

Amazon is becoming a giant private government with the power to direct the economy.

Amazon doesn’t fit comfortably within the free-market fable of how capitalism is supposed to operate. We are, in theory, supposed to get freedom, competition, the reward of innovation, the elimination of all-powerful centralized bureaucracy. But consider this recent Wall Street Journal report on how Amazon destroys its competitors. Essentially, because Amazon is gigantic and has vast sums of money at its disposal, it does not need to “innovate” the same way smaller companies do. It can simply lift the innovations of others, and because it can undercut their prices, it can put them out of business. The Journal cites a number of examples. Amazon “cloned a line of camera tripods that a small outside company sold on Amazon’s site,” copying the whole design and even having the components produced by the same manufacturer. Then Amazon kicked the original company off its marketplace so that it could no longer sell its tripods. Amazon did the same thing for “Allbirds Inc., the maker of popular shoes using natural and recycled materials,” with Amazon last year launching “a shoe called Galen that looks nearly identical to Allbirds’ bestseller—without the environmentally friendly materials and selling for less than half the price.”

So if you are an inventor, and you come up with some wonderful new widget, and Amazon is impressed by the number of widgets you sell, well, you can expect to see the Amazon Basic Widget popping up for half the price of yours soon. (And to find yourself banned from selling on Amazon.) The Journal reports that Amazon is even willing to take a loss in order to drive others out of business; when it decided to take on diaper manufacturer Quidsi, Amazon was at one point “losing $7 for every box of diapers” it sold. An internal email said that  “we need to match pricing on these guys no matter what the cost.” Quidsi “unravel[ed]” and was forced to sell itself to Amazon.

Your first reaction might be to think “well, Amazon can’t just copy products, what about patents?” But Amazon is perfectly willing to break any law it can get away with breaking; even if a small manufacturer technically has a valid legal claim against Amazon, who wants to take on one of the most powerful legal teams in the world? In the Quidsi case, the Journal quotes a Quidsi board member’s flat statement that Amazon’s actions were illegal but that “we would be bankrupt” by the time they had concluded a legal fight with Amazon. (And of course, Amazon spends a fortune lobbying to change any laws that might place it at a disadvantage.) 

Amazon’s marketplace has become so large that it is very difficult for manufacturers not to offer products through it. But when they do, they have to agree to Amazon’s terms, and Amazon’s control over who gets to sell on their platform means they can extract nearly any concessions they like, including getting access to the kinds of information that help them launch competitor products. So manufacturers are in a bind: they can’t not sell on Amazon, but if they sell on Amazon, Amazon will try to steal their ideas and destroy them. If Amazon is willing to take a $7 loss per sale, who on earth could compete?

I once wrote a short hypothetical called “The Infinitely Rich Man” that was designed to show how large amounts of concentrated wealth can come with almost limitless power to shape the economy according to your whims. If someone has near infinite riches, and decided they would like to destroy your life, there are nearly endless ways they could do it, because money is power. Amazon, which has this kind of nearly “endless” resources, could, if it wanted to, destroy pretty much anything you love. If they wanted to put your beloved corner coffeeshop out of business, they could do it. If they wanted to buy your whole neighborhood and flatten it, they could. 

When a corporation becomes this powerful, all of the stories told about the “freedom” of the market begin to fall apart. This is because Amazon, as its unstoppable growth continues, is becoming more and more like the government in the scale of its power. Corporations are already like “private governments”—going to work is like entering a dictatorial microstate. Amazon’s control of the marketplace is as if a private company owned all of the roads, rails, and airports in the United States. Such a company would have almost endless power to make coercive demands on anyone wanting to engage in commerce. They would be a “dictatorship within a democracy.” 

Jeff Bezos’ vision for Amazon is megalomaniacal, and one company engineer has observed Bezos aspires to be the 21st century’s Alexander the Great. Bezos does not disguise the fact that there is no end to his ambition: he quite seriously wants to establish giant privatized space colonies, presumably under his sole control. We can see here how, if a single entity “wins the market,” eliminating all competition, the distinction between capitalism and dictatorship ceases to be very meaningful. A hierarchical organization exerts coercive control through its monopoly on necessary resources; the fact that it is “private” rather than “public” just means that it is free of any democratic accountability. 

The more powerful Amazon gets, the more ludicrous the argument that capitalism rewards innovators and fosters competition begins to look. Now, the proponent of Free Markets can respond to this in one of two ways: 

  1. Argue that the government needs to step in to keep Amazon from getting too big and powerful. Proponents of vigorous antitrust enforcement recognize the dangers that occur when a company like Amazon is capable of destroying all competition, and understand that for the market to “work” it will be necessary to make sure it isn’t simply controlled absolutely by a single person. 
  2. Argue that Amazon should be allowed to continue going about its business without hindrance from the government. Hardcore libertarians are reluctant to endorse the first argument, because they recognize that it implicitly contains a radical rejection of some of the core premises of free-market capitalism. If it is the case that the market, left to its own devices, tends to produce a feudalist dictatorship, the prevention of which requires the state to forcibly trammel on private property rights, the Friedmanite case that “capitalism and freedom” go hand-in-hand is severely undermined. Yet if the hardcore libertarian sticks to the belief that Amazon should be left alone, they will be forced into an increasingly untenable position, as they argue that “freedom” is synonymous with a situation in which one man can tell everybody else what to do. This takes us into an Orwellian topsy-turvy land where “dictatorship is freedom.”

It is not necessarily a bad thing to have a giant institution controlling large parts of the market. I mentioned that Amazon’s relationship to the marketplace is becoming like the U.S. government’s relationship to the highway system. Well, it’s good that the highway system is controlled by a single entity. The problem with Amazon is not necessarily that it’s too powerful, but that it’s privately owned. The proponent of antitrust looks at Amazon and sees a company in need of “breaking up.” The socialist looks at it and sees an institution in need of taking into public hands and democratizing, so that its operation is driven by the public good rather than the empire-building mission of Bezos. 

We can have a serious debate over whether the solution to the Amazon Problem is to break it up or to nationalize it. But that is the only serious debate, and unless we have it, Amazon will continue to endlessly build power. It is certainly possible to prevent Amazon from becoming a de facto feudal government. Capitalists depend on laborers, and thus organized workers, if they act as one, can seize power back from the boss. Amazon is going to continue insidiously penetrating more and more of the economy—getting people to install its surveillance devices in their own home, using its supposedly “customer focused” approach to keep the public from questioning its labor practices and the reach of its empire, and lobbying to overturn any laws that undermine its efforts. But corporations all depend on the state and their workers to survive, and thus there are ways to seize it, democratize it, and keep it in public hands where it belongs. (And to prevent it from taking over what is in public hands already, e.g., by privatizing the USPS.) If we do not tame Amazon, we will learn (too late) that letting private capital do as it pleases does not create freedom, but feudalism, a situation in which all wealth, and therefore all power, is concentrated in the hands of an overlord. 

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