Friday, July 24, 2015

Amazon Is A Job Killer

Amazon may become world wide lightning-rod for discontent
Amazon is a major job killer and should be recognized as such. While politicians tout how they helped Amazon create a few hundred or thousand jobs in a certain area or state they often fail to comprehend the number of jobs they destroyed or the damage they do to the communities devastated by the unfair competition they have endorsed. This includes things like not insisting Amazon collects sales tax in all states or offering the company special and costly incentives to locate operations in their state. Amazon abuses and exploits the brick and mortar stores in the malls and lining the streets throughout America. These are the stores that employ our family members, support little league teams in the community, and add value to our lives.

In many cases, our local stores have become showrooms for consumers who then look for cheaper deals online. Amazon’s "no sales tax" advantage can often make a difference with penny-pinching shoppers. When looking for big-ticket items, such as consumer electronics, the absence of sales tax can be more appealing than instant gratification.  Remember these stores build or lease space, buy supplies from the other local businesses, and pay both sales and real-estate taxes. With internet shopping posing a mounting threat to bricks-and-mortar stores and U.S. shopping-center owners smarting from high vacancies an effort to level the playing field is being made. Many supporters of local business are now throwing their weight behind federal bills aimed at requiring online retailers to collect sales tax, but until now nothing has been done.

This is not to say the sale of goods over the internet does not have a great deal of merit, but it is how this is used that determines its effect on society. Republican Governor John Kasich from Ohio is one of the many politicians including Obama himself that I have heard bragging about their association with Amazon as a good thing. They talk about how jobs were created, in Kasich's case full discloser would have him talking about how The Ohio Tax Credit Authority approved tax incentives for Vadata, a subsidiary of Amazon Web Services, worth an estimated $81 million in August. Amazon’s $1.1 billion investment will be made over three years and is expected to create only 120 jobs that would pay an average of $80,000 a year. It must also be noted that while Ohio Governor axed and rejected the so-called "Amazon tax", he approved a sales tax rate increase on brick and mortar retailers in his state that went into effect on September 1, 2013. When government chooses winners and chooses to subsidize groups like Amazon the cost is shifted onto other businesses.

Amazon spins focus away from the limited amount of financial data it releases and when promoting its cloud fails to talk about the data it collects and government connections to spying on the American people. The recent 20th anniversary of Amazon celebrated by a their "Amazon Prime" sales event is the catalyst for this posting. A lack of supply on hot items and a hard push on unexciting merchandise adds to original suspicions that Prime Day was less about celebrating Amazon's 20th birthday and more about moving unsold inventory at discount prices. It appears many consumers were left feeling it was a frustrating endeavor and found that the best deals ran out by the middle of the afternoon. This sale was more reminiscent of a giant internet garage sale than the kind of quality of items people were expecting and hoping for from Amazon.

What I want to make clear is that Amazon is a self-promoting hype machine that is far from transparent and while politicians fall over themselves to be in its shadow it is not our friend. Amazon looks to a future where workers are replaced by robots as it goes about putting small companies out of business. Companies selling over the internet do serve a clear purpose by making hard to get items or products that have a small market available to people everywhere and this is a good thing. Small business working through companies like eBay in many ways help grease the wheels of commerce by linking buyers and sellers in what are often very illiquid markets. Many of the items sold on eBay fall into the category of "used" and when they get put back into service this even has a positive environmental impact that could be put in the "recycle and reuse" category. This is a far different business model than the one we see from Amazon where often UPS trucks often drive many miles to deliver a small item packaged in a fresh new box.

At some point in time, Amazon may become a lightning rod of discontent because of its anti-social behavior. With each announcement that it intends to expand into even more areas and sectors of the economy just as Wal-Mart angered Americans, Amazon may begin to share the same fate. In Germany anger has risen about how they treat their workers and in Britain for sidestepping taxes. A May 2014 article by Graham Ruddick delves into how the US online retailer had previously reported in its US accounts that sales in Britain grew to 6.7 billion dollars in 2013. However, new accounts filed at Companies House show sales of just 620 million dollars for Amazon.co.uk. Limited Pre-tax profits for Amazon.co.uk rose 56 percent to 26 million, with tax payments rising from 5 million to 6.5 million dollars. The company claims all is on the up and up and it has to do with the point of origin and from where the goods are shipped.

Margaret Hodge, chair of the public accounts committee, said that UK shoppers should boycott Amazon over the level of tax it is paying. Amazon’s tax bill will infuriate its UK rivals, such as John Lewis, Home Retail Group, and Dixons, who are shelling out hundreds of millions of pounds on business rates for their property as well as corporation tax. The bottom-line is that sooner or later more and more people will realize the damage exploiters like Amazon unleash upon their communities. Also, I expect at some point investors will begin to reflect in the company's stock price that it make no profit. This may happen just about the time new competitors begin to cheaply and easily replicate the most profitable parts of Amazon, by doing this they can cherry pick much of its future potential. Amazon will not be the first big company to get its comeuppance.

With its history of little or no profit, the disruption Amazon is causing has drawn the ire of people across the world. This is not about trying to tamp down efficiency or set back the process of economic creative destruction that replaces uncompetitive institutions. It is a call that we recognize balance, sustainability. and a warning of the danger government subsidies coupled with unfair tax policies is bringing about. It is ironic and borders on hypocrisy, that so many of those who have criticized and boycotted Wal-Mart over the years have become staunch Amazon customers. While I concede the company may offer good prices and service I for one refuse to feed a beast that will, in the end, do me harm.

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