Have we ever seen a company like Amazon?

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By many measures Amazon is an unusual company. A breathtaking example of building a business. But is it the kind of company we want?

Half of the 10 largest public companies launched in the last three decades. One is a Chinese investment conglomerate. The rest are tech-enabled upstarts that have become household names - Amazon, Alphabet, Facebook and Alibaba.

Amazon’s top of the class from the 90s and early noughties. At 24-years-old it has a staggering market capitalisation now north of $1 trillion.

Its growth - and the company’s resultant power - raise serious questions. It’s aggressively targeted tax minimisation and leveraged government subsidies. From government infrastructure investments to its US workers’ use of public welfare. Not to mention its laughably small UK tax bill.

Should we be re-thinking the way we tax these companies or trying to level the playing fields in some other way?

Spending billions on acquisitions

Amazon invested $795 million in 2015, $116 million in 2016 and $14 billion in 2017. The most jaw-dropping among these was Whole Foods, which it acquired for $13.7 billion in August last year.

The so-called ‘Amazon effect’ quickly came into force. Prices were immediately lowered for the supermarket’s best-selling staples. New price decreases followed in November. It gave free delivery and cashback to Prime members in March 2018. Products became available on Echo and Amazon packages can be collected in stores.

The integration opportunities offered by Amazon's network leave investors quaking in their boots. Amazon’s acquisition of online pharmacy PillPack in June wiped $11 billion off its competitors' market values in a single day.

Acquisitions dramatically increase Amazon's market-shaping power.

Growing beyond a platform business

Large online marketplaces are often worth more than their asset-owning counterparts. Amazon’s unusual among these businesses because it’s set out to usurp the companies it lists.

Amazon entered the private label business in 2009 with AmazonBasics. It's now reported to sell more than 100 products under a variety of brands. Analysts SunTrust Robinson Humphrey predicts this will grow to $25 billion in sales per year by 2022.

This apes the approach taken by big retailers. But, Amazon’s domination of online sales - 49% in the US - and its ability to bundle services makes it a new kind of threat.

First it undercuts prices, then it replaces third-party products with its own.

A taxpayer-subsidised workforce

Amazon employs 560,000 people, five times as many as Apple and Alphabet. The relentless pressure on margins leads to low pay.

Fulfilment centres can dominate local workforces. But the jobs aren't always what they're cracked up to be. Policy Matters Ohio found one-in-10 Ohioans employed by Amazon rely on food stamps.

“Why is this giant, successful company offering such limited pay and hours of work that many of its workers need help buying food?” Asked research director Zach Schiller.

To make matters worse, Ohio's given Amazon $123 million in tax breaks and $2.9 million in cash grants since 2014. Ohio's a petri dish for what’s happening across the US - Amazon’s estimated to have received $1.2 billion in subsidies.

Amazon’s disruption of commerce doesn’t just mean fewer jobs, it means worse jobs; we should be approach its rapid UK expansion with apprehension.

That tiny UK tax bill

Amazon UK Services made an operating profit of £79.8 million in 2017 - a three-fold increase on the previous year - on a turnover of £2.0 billion. Yet the warehouse and delivery company paid just £1.7m in tax.

It paid employees shares, which were offset against corporation tax (the Financial Times estimated this reduced the tax bill by £17.5 million).

Amazon Web Services UK's turnover jumped by 85% to £98.8 million, while profits increased from £2.7 million to £5 million in 2017. Yet tax fell from £404,000 to £155,000 over the same period.

However, neither of these company’s include retail sales, which are reported through Amazon EU Sarl in Luxembourg, making it hard to know the true extent of its tax minimisation activity. We at least know that its US 10-K puts UK revenue at £11 billion in 2017.

That should make HMRC’s eyes water.

Should we support this company?

Amazon's evolved into an apex predator: acquisitions allow it to capture new markets; private label products replaces retailers it has symbiotic relationships with; and the government provides subsidies and permits outrageously low tax payments.

These regulatory benefits are simply not available to small businesses, which are suffering under the strain of business rates.

While Amazon’s heralded as a startling entrepreneurial success story - and Bezos truly has few peers - it shows us the prototypical monopoly of the future. Platform-based businesses that acquire or displace, depress wages and grift every penny they can from the state.

The question we have to ask is: do we want to support this kind of company?

There’s already talk of a possible antitrust case akin to Microsoft’s anti-competitive practices, so that’s one possibility.

The other is to put pressure on the UK government.

Chancellor Philip Hammond recently hinted that the government may look at changing taxation to level the playing field between online and brick-and-mortar retailers. Booksellers, the first industry to face Amazon, have been campaigning for such an Amazon Tax since 2012.

The government needs to stop being awestruck by Amazon’s big numbers. Its activities in the US show the impact it can have – we need to act before the company gets any bigger.

About Chris Goodfellow

Chris Goodfellow

Journalist and editor with eight years' experience covering politics and business. His work has been featured in a range of publications including The Guardian, The Financial Times, The Independent, the BBC and Vice magazine.

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06th Sep 2018 09:57

Amazon is simply an example of how capitalism enables very clever (and very hard working and arguably very lucky) people to become very rich and whether you can say this is at the expense of others is really a moral/political question that is resolvable by the very same system at the ballot box (and by the many allegedly exploited people), so I see no problem here and good luck to JB et al.

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By edhy
to Justin Bryant
07th Sep 2018 09:12

At ballet box voters are offered bouquet not single items,it is not possible to balance the choice. Further the voting is done every 4-5 years, too long period for action / damage control.

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to edhy
07th Sep 2018 11:10

My obvious point is that if this is a sufficiently big enough problem in the first place it can be resolved via the democratic process. If there is no will amoung the general public (the exploited masses?) to change it then it suggests it is not such a problem in the 1st place (for the general public at least; individual views like yours & mine are irrelevant there, unless perhaps you get off your [***] and organise protest marches and campaign for political change etc. and the fact you won't do that again suggests it's not such a big issue as you appear to suggest - compared to all the other problem issues the general public have to worry about at least). The alternative is to change to an autocratic or communist etc. system (where outcomes like Amazon are simply not possible - but then again, I heard the equivalent of Amazon in China is doing pretty well too), which again is a political/moral thing.

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to Justin Bryant
07th Sep 2018 10:31

The below was written before I saw your 10:23 reply. To add to my point; I think the debate often falls into a false dichotomy between capitalism or another system like socialism. We don't need to change the system, just improve it.

There are a plethora of examples of implementations of capitalism - the US is a much harsher version of ours (weaker labour laws, less company regulation, tax breaks for the rich etc.)

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to Justin Bryant
07th Sep 2018 10:21

Hello Justin,

Thanks for the comment.

You're right - Amazon's done nothing wrong. Jeff is an incredible entrepreneur and they are very good at working within the current system (apparently JB started in Washington State because the small population minimised sales tax, so this mindsets been there from the beginning).

The aim of the article is to use the example to examine what this system permits and provoke thought about how we might want to change it. It's about what kind of capitalism we want - what should we be voting for and campaigning for? Where should we spend our money?

For my money - and vote - it's not healthy for a small high street retail business to compete with Amazon on these terms. Business rates are tough. Not getting grants to establish locations is tough. Competing with an international conglomerate that sells the same product but pays little-to-no tax is ridiculous.

Thanks,

Chris

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By edhy
07th Sep 2018 09:09

Aren't there minimum wages laws in USA?

As to tax, it is governments' job to keep tax laws updated and effective. There could be minimum tax based on turnover.

Capitalism without control will destroy itself and everything else.

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to edhy
07th Sep 2018 10:27

Hello,

The turnover tax is interesting. The EU's looking into something like that now:

"Under the Commission’s plan, companies with significant digital revenues in Europe will pay a 3 percent tax on their turnover on various online services in the European Union, bringing in an estimated 5 billion euros (£4.37 billion)."
https://uk.reuters.com/article/uk-eu-tax-digital/eu-proposes-online-turn...

I'm interested to know what the AWEB audience thinks of the idea. Could it solve the problem?

Thanks,

Chris
Ps. on the minimum wage point, have a look at the Policy Matters Ohio link in the article. It provides more context. Several large low wage employers have people on food stamps, Amazon's just the most prolific.

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to Chris Goodfellow
09th Sep 2018 10:07

In general sales taxes (in the country of consumption), employment taxes and land taxes are the way to go. They are least avoidable. Corporation tax is outdated in the modern world.

The answer to have we ever seen anything like Amazon in terms of power is "yes". Try the East India Company. The main difference there, however, is that it was still rooted in a single country which ultimately curbed its power. Powerful companies these days are multinational and will need multinational agreement (doubtful) to deal with.

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to mgbacchus
12th Sep 2018 09:22

General sales tax and employment tax make sense. I don't know as much about the latter, but Francois (the AWEB's business editor) is a big advocate.

mgbacchus wrote:

The answer to have we ever seen anything like Amazon in terms of power is "yes".

Apparently, I've defied Betteridge's law of headlines!

I did think about including historical comparisons but as you point out it's there are larger and more powerful companies in the past. The thrust of the article is; Do we want a company like this? Perhaps the headline should have focused more on that.

Chris

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