Anything is possible: today was the day a group of dedicated, everyday New Yorkers & their neighbors defeated Amazon’s corporate greed, its worker exploitation, and the power of the richest man in the world. Alexandria Ocasio-Cortez, Newly elected Congresswoman from Queens, NY
Amazon’s recent beauty contest, dangling its grand prize of 50,000 high paying jobs, resulted in a surprising split-the-baby selection of New York and Northern Virginia as winners of HQ2 and then a shocking announcement as local activists intimidated the corporate giant into a hasty retreat. Mayor de Blasio took the opportunity to taunt Amazon as lacking the toughness to become true New Yorkers, ignoring his own inability to manage local politics that would befuddle just about any major US corporation. Amazon has not publically responded as it is probably busy answering phone calls from the mayors of two hundred other cities begging for a second chance.
The episode, as noisy and messy as it was, neatly frames the clash of important dynamics that will only grow stronger in the next few years. The issues involved begin with:
- Pure Play Capitalism versus Social Democracy
- The dawning recognition that high paying jobs are as scarce as are the corporations which house them. Once mighty GE, which negotiated its own deal to relocate its headquarters to Boston, is reneging on the arrangement and repaying $87 million in incentives
- The yawning chasm between the “knowledge sectors” of the economy: technology, finance, biomedical and media, where 6 and 7 figure incomes are common, and the service sectors: restaurants, Uber, custodial and home healthcare that are daunted by the growing demand for a $15 minimum wage
- The competition for the soul of the Democratic party between Tech illuminati who trend Libertarian and Alexandria Ocasio-Cortez (or more familiarly, AOC), who is an unabashed socialist and new face of the Progressive wing.
Amazon: Capitalism Unleashed
Amazon can be seen as the epitome of Creative Destruction. Founded in 1994 by Jeff Bezos it was an internet darling, an early recipient of massive doses of capital during the first tech bubble. The drum beats it marched to were: get big fast; grab revenues first, profits later (largely still waiting) and to mount an all-out assault on the old economy – the cumbersome, expensive and sclerotic ways of doing business that incorporated too many parasitic middlemen.
Amazon has been wildly successful at this mission. Many of its dotcom peers have gone away (think pets.com) but it continues to grow revenues at a pace that far outstrips its retail competitors. It does so because it brings together multiple, strategic capabilities that include:
- An “endless aisle” of products to choose from drawn from suppliers around the world
- A guarantee of the lowest price
- Unbiased customer reviews assembled through social media
- AI-based Recommendations drawn from the customer’s historical preferences and those of similar buyers
- A fast, ultra-reliable delivery capability based on huge distribution centers that operate with one third of the human labor required by brick and mortar stores.
Taken together, these capabilities have permitted Amazon to grow its sales at 30% annually over the last 3 years while its competitors can barely hold even. It is decimating malls across America, with over 500 failing, as well as the more quaint shops of the Main Streets of small towns. Despite an economy in its tenth year of recovery, retail sales employment is stagnant, which is important because it is an employer of last resort for high school graduates and those re-entering the workforce.
But wait, there’s more…After mastering eCommerce, Amazon has done things virtually no other corporation has accomplished: launching new businesses in disparate fields that require extreme technological prowess, including AWS, the leading Cloud service provider, the Kindle book reader and Alexa. On one level it resembles a conglomerate that can dominate any field it chooses to enter, in sharp contrast to GE, which has been in a two decade long retreat from the over-hyped management genius factory that was, in fact, propped up by its financial businesses.
The Everything Store is a very readable book which chronicles Amazon’s growth from its earliest days and documents how Bezos has, in true Ebenezer Scrooge fashion, exploited every possible edge such as fighting relentlessly to retain its sales tax exemption, while demanding maximum effort from each employee. Managers have been seen sobbing at their desks after encounters with Bezos. His obsessive, driven personality permits Amazon to simultaneously operate as the lowest cost provider and to innovate. This is in sharp contrast to other tech innovators such as Google, which lavishes perks on its coddled employees like rack of lamb for lunch and massage breaks or Apple which prides itself on its high margins and lavished $5 Billion on its “spaceship” headquarters.
Business strategists are taught that while many companies announce that they will be the best in their industries at creating innovative products while being the lowest cost producers and leading in customer service, it is a fool’s errand to attempt to do so simultaneously. Amazon however does this routinely with almost demonic precision. For example, to keep labor costs down at its twenty-eight acre distribution centers while dealing with the huge holiday season surge in demand, Amazon has implemented a program to recruit “RV Nomads” from around the country to camp nearby. Semi-retired senior citizens are paid $15 an hour to walk up to 15 miles a day for three months to fulfill Christmas orders. Dispensers of generic ibuprofen are mounted on the walls to prevent elderly aches and pains from draining productivity.
Amazon has not grown to its massive size without doing a lot of good. At $15 per hour, Amazon’s wage is more than double the Federal minimum of $7.25 and significantly more than Walmart, which pays $11. It provides fast, reliable access to over 350 million items in its marketplace to virtually any place in the country – you would have to live far off the grid to avoid taking advantage. Its ultra-efficient distribution capability is also used by almost 200,000 third party sellers which, taken together, account for almost half of Amazon’s sales, thus permitting small businesses to jump into ecommerce at the highest level. Its ability to drive costs down creates immense pressure on its retail competition to do the same, ultimately saving families money and vanquishing the threat of inflation. This benefit to society however is not broadly recognized and has taken a major hit in the sudden resistance emerging from Queens.
In This Corner: Queens, New York
Oh, and let’s not forget where HQ2 was going to be located: in a Queens neighborhood called Long Island City, near the largest public housing project in the Western Hemisphere, the Queensbridge Houses. Queensbridge consists of 26 buildings, and its largely black and Hispanic population has a medium family income of $15,843, according to the New York Times. (That’s $10,000 below the federal poverty line.)
Joe Nocera, Bloomberg, The-Amazon-in-New York Lessons for Cities: Don’t be Arrogant, Bloomberg, February 15, 2019
Queens has perhaps the most diverse population of any place on earth. More than half of its 2.3 million people are immigrants drawn from Latin America, Asia and Africa. They speak 138 different languages and cluster in ethnic neighborhoods where they can more comfortably continue to maintain their country-of-origin traditions – something New York has accommodated for centuries. In the birthplace of our current president and the fictional Archie Bunker, whites are a minority, but just barely, at 47.9%. Hispanics of any race are the next largest group at 28% (some self-descrbe as Caucasian) and Asians at 27%.
With much lower real estate costs than Manhattan, Queens was once an industrial center and even home to film studios. Its housing costs are relatively the lowest among the five boroughs, with renters paying 36% of their income ($46,549 annually) in rent. This percentage, while low for NYC, is still significantly above the 30% cost ratio that is defined as the upper limit of affordability. Given that incomes in the $40,000 to $100,000 range have been flat for decades in Queens, the fear of rising housing costs is real and exacerbated by the sprouting of million dollar condominium projects.
Alexandria Ocasio-Cortez is perhaps the personification of the American Dream updated for this century. At age 29 and working as a waitress/bartender in a tacqueria, she waged a bootstrap congressional campaign against a ten-term Queens congressman, Joe Crowley, and beat him handily. In doing so she became the youngest woman ever elected to the House and one of the few identifying as a socialist. Her bold personality and outspoken ways have made her into a go-to quote for both left and right wing media, rocketing her notoriety. There is already talk of a Bernie Sanders/AOC ticket for the 2020 election. It was working for Bernie in 2016, after all, that inspired her own campaign and political outlook.
In her first weeks in office she pushed forward a bill co-sponsored by Senator Edward Markey of Massachusetts known as the Green New Deal (GND). The resolution was accompanied by a sheet of Frequently Asked Questions, which included errors such as jobs would be available to all, including people unable or unwilling to work. At its essence the GND aspires to reach a carbon emissions level at “net-zero” over a decade by a massive deployment of renewable energy technologies, particularly wind and solar. This program, and related infrastructure projects, will contribute to full employment, similar to the Works Progress Administration that Franklin Roosevelt launched in 1935, in the depths of the Great Depression.
In the interest of brevity it is potentially helpful to encapsulate the views of the clashing parties. Jeff Bezos is the ultimate disrupter, supplying more and more goods for less money where and when we want it. If that means the elimination of millions of jobs, well that is someone else’s problem.
|Aspiration||Billionaire Space Explorer||Bringing Power to the People|
|Principal Weapon/Tool||Venture Capital||Voter Registration|
|Stakeholders||Consumers, VC’s, Wall St||Politicians, Unions, Pastors, Party Loyalists|
|Government is?||A clumsy threat to over regulate and tax||The Answer, at least when led by the enlightened|
|Success is when?||Prime membership is Universal||Low cost housing + healthcare + $20 hr wage|
|People are:||Desired Customers but also headcount to be downsized||My base who need guidance and protection from the 1%|
|Taxes are:||To be negotiated away or avoided entirely||Too Low. Bring back the top rate of 70%|
|At Age 30:||Founded Amazon||Will not be 30 until October 13, 2019|
There are similarities: AOC has already demonstrated a brash ambition similar to Bezos and at approximately the same age. Bezos is the adopted child of a Cuban immigrant, while AOC’s background is Puerto Rican.
Given his prominence and commercial interests, Bezos has not taken a strong political stance other than owning the liberal Washington Post and contributing millions to a scholarship fund for “Dreamers” – immigrants brought to the US as young children. It may be safe to assume that he has a Libertarian streak similar to other tech magnates
How Does All of This Play Out?
- The Scarcity of Jobs is Real: Amazon ignited the original clash by dangling 50,000 new jobs that came with an average salary reported variously to be a range of $100,000 to $150,000. Ironically, the fifty story Citigroup tower in Queens was to be the initial home for HQ3 and was being vacated as Citi is shedding jobs, falling worldwide from 300,000 to 200,000 over the last decade. NYC appears to have been merely replacing high paying jobs that were lost, not seemingly contributing to new gentrification pressures. This is not unique to New York however – as the competition to lure Amazon demonstrated – most American cities felt even more desperate to get those jobs.
- The Type of Jobs are in sharp contrast: Amazon is unique among tech giants because it employs both knowledge workers such as data miners and brand managers as well as manual laborers who walk up to fifteen miles a day in its huge distribution centers. The focus of HQ2 is the former, hence the higher salaries paid to college graduates, many with advanced degrees. The residents of Queens however primarily do service work: home healthcare aides, Uber drivers, restaurant and food preparation. A significant percent work at New York’s two airports: La Guardia and JFK. Only 31% have college degrees and few would profile as the knowledge workers Amazon would be likely to hire.
- The Battle for the Soul of the Democratic Party: Despite the appearance of progressive politics, AOC appears to be advancing the interests of her constituents like a big city ward boss a century ago, attending to the fundamentals of food, shelter and a job, at the most basic level, except the recipients are no longer Irish, Italian or Jewish immigrants. This is in sharp contrast to the elite funders of the Democratic Party drawn from Wall Street and Silicon Valley whose definition of Immigration policy is more HI-B visas for Asian PHDs. They resent government intrusion in their personal lives and prefer market based solutions and fiscal discipline in government spending, knowing whose wallets will be ultimately tapped. They are not, however, anything like the Tea Party Darwinians who wish to strip food stamps and medical care from the poor.
- How far do the Democrats go with Socialism?As Bernie Sanders has said: “So the next time you hear me attacked as a socialist, remember this: I don’t believe government should own the means of production, but I do believe that the middle class and the working families who produce the wealth of America deserve a fair deal.” Sanders and AOC advocate for universal healthcare and free college tuition as well as strong policies to confront climate change. They are not promoting government involvement in business a la Venezuela but will likely be accused of that anyway. Sanders himself admires the social democracies of Scandinavia, with their very sturdy safety nets and high happiness indices. This contrasts with the moderate wing of the Democratic party led by the Clintons. The surprising campaigns that Sanders ran in 2016 and AOC this past year indicates that they may be on to something that Biden or other moderates cannot easily reign in during the upcoming primaries.
- How will Capitalists respond? The recent CPAC convention, capped by Trump’s two hour speech, demonstrates that conservatives, who have tightly aligned with capitalism, have lost control of the Republican party. Central tenets such as free trade, immigration (as prominently demonstrated by Reagan’s amnesty program) and strong international alliances have been kicked to the curb. The problem is that while Capitalism has pulled over a billion people out of poverty worldwide, including 600 million in China, it contributed to the stagnation and dislocation of the middle classes of the US and Europe. This was inevitable because capital will always flow to the lowest cost labor pools and to emerging markets. Capitalists rarely hand out crying towels to the losers in this dynamic.
- Keynes has some thoughts. In 1930, John Maynard Keynes wrote to reassure people in the Great Depression that productivity gains over the 20thcentury would quadruple the standard of living and permit a comfortable middle class existence requiring only a 15 hour work week. Keynes proved correct in the predicted economic growth but not in the shortened week. This did not happen because a disproportionate amount of the gains have been captured by the one tenth of 1% of extremely wealthy families and by the people of third world countries that escaped poverty. Keynes anticipated that capitalism would be less needed to meet society’s material needs and would fade away.
Taken to extreme, the ability of Amazon to creatively destroy large segments of the global economy by using technology to replace two thirds of the workforce it touches is frightening and unprecedented. In the Keynesian model the benefit would flow through to the populace, with our work weeks reduced by the same amount without diminishing our standard of living. This is hard to imagine given the “winner-takes-all” race that made Bezos the world’s richest man.