Lever Time – Amazon Is Eating The Economy (Episode Transcript)

3:07AM Apr 26, 2024

Speakers:

David Sirota

Ronald Reagan

News Anchor

Jeff Bezos

Robert Bork

Lina Khan

David sirota

Steve Jobs

Stacy Mitchell

Franklin D. Roosevelt

Dana Mattioli

Lex Luthor

Keywords:

amazon

antitrust

monopoly

company

power

bezos

laws

prices

government

book

antitrust laws

sellers

product

predatory pricing

retail

railroad

small business

pepsico

robert bork

competition

From the levers reader supported newsroom, this is lever time. I'm David Sirota. In these polarized times, there seem to be fewer and fewer common experiences, but one of them is the use of amazon.com. By some counts, two thirds of American adults are Amazon Prime members. And one poll found that 92% of online shoppers have bought an item from Amazon. The company founded by billionaire Jeff Bezos attracted this huge customer base by promising consumer choice and promising lower prices. But federal regulators now argue that the promise is false. In a lawsuit against the company, they say the retail giant has become a predatory monopoly, harming not only its small business partners, but also its customers by stealthily jacking up prices in ways that are imperceptible to the average online shopper.

On this episode of Lever Time, we go inside Amazon, to explore how it became one of the world's most powerful and feared companies. It's transforming the global economy. It's a company that is becoming so large, that many can't avoid doing business with it, even if they tried. The question we asked is what can and should be done, not just about Amazon, but about the Amazon ification of America, where ever larger conglomerates have pushed out competitors, pushed up prices, and taken over the entire economy.

In 2024, it's hard to remember a time when online shopping wasn't a part of American culture. And it's getting hard to remember a time when Amazon wasn't a central part of that cyberspace economy. Amazon today seems as central to the retail economy as Google does to online search. But while Amazon is a tech company, its origin story is less a futuristic tale of technological innovation and the internet. And more a classic story torn out of the Gilded Age, a tale of good old fashioned size and scale. From the beginning, Amazon's top brass seemed to understand that the faster the company could grow, the more it could become the central mediator and middleman in America's retail transactions. In fact, the company's founder and CEO underscored just how important scale was to the whole business model. During an interview in 1999, what we're

trying to do is very complicated, there's huge execution risk involved. We have a terribly complicated business. We're growing, you know, historically, very rapidly. We're opening new product categories, we're expanding in new geographies, we have whole new business models with things like auctions. And we think this is the less risky of the two approaches because scale is important in this business. And it needs scale also to offer the lowest prices and the best customer service to people. So scale is important to us. And we're gonna go after that kind of scale. But it does mean that as

Amazon grew, it provided price competition against old brick and mortar retail giants, and it helped small businesses sell products to far flung customers across the globe. And its early competition against those legacy brands helped the company avoid scrutiny from antitrust regulators, who were operating under the Consumer welfare theory articulated by conservative Judge Robert Bork, a theory that basically says that if a huge company is providing something good to the consumer, like low prices, then it shouldn't really face any kind of antitrust crackdown.

As to goals. The question is whether judges and juries in deciding cases may consider anything other than the welfare of consumers as determined by economic analysis. The answer, I believe, must be no. If people want to talk about broader social and political goals on the Fourth of July or some other celebratory occasion. That's fine. But if those goals are introduced into the decision of cases, the results are catastrophic for the rule of law.

But as Amazon grew and became wildly popular, there was another story unfolding, a much less happy story. For many years, Amazon was reporting big revenues, but not big profit margins. At times it was reporting losses. This kept it out of the crosshairs of antitrust regulators. It was touted as proof that the company was committed efficiency, reinvestment and long term low prices. But a young law student named Lena Khan, who's now the Federal Trade Commission chair, she saw something more nefarious at play, accompany using predatory pricing, to undersell competitors at a loss to put them out of business, and then be in a position to jack up prices for the long haul. As she told NPR a few months ago,

one of the arguments was that a focus on short term price effects, for example, could disable us from recognizing monopoly power in its earlier stages, especially in digital markets, there can be a real premium on getting big as quickly as you can. And when you're looking to do that you may not be focused on short term profits in the same way you're really looking to expand to build, you know, a huge user base to build market share. And so some of the tactics that firms can deploy in those early stages can be anti competitive, but they can really fall off the radar from antitrust enforcers if they're just looking at for example, price or output as key metrics. In

recent years cons thesis seem to be confirmed. congressional investigators and reporting by The Wall Street Journal found that Amazon began spying on the small businesses on its platform, using data about the sellers transactions to market Amazon's own version of their products and preferencing those Amazon branded products in its search results. The company was also reportedly barring sellers from offering their products at lower prices on non Amazon websites. Meanwhile, cons FTC sued Amazon spotlighting what the agency said, is the company's secret algorithm that raises prices and keeps them raised when other stores follow suit. None of this sounds like consumer welfare, as Robert Bork originally articulated it. In fact, it sounds like exactly the opposite. Today on labor time, we're going to go deep on why the government allowed so many companies to become monopolies or oligopolies in the first place. We're also going to look at whether regulators should or even could break up giant conglomerates that are now so woven into our daily lives. And to explore those questions. Senior Podcast Producer Arjun Singh is going to give us an inside look at one of the world's largest of those conglomerates amazon.com.

Every single day on my street here in Washington DC, I see an Amazon truck drive by In fact, if I sit on my front stoop long enough, I can see multiple occasionally one pulls over and a driver precariously holding an armful of packages walks up and down the street. And when I say every day, I mean literally every single day. Like I'm sure many of you, I have used Amazon to buy a variety of things. Sometimes they're things I can't find anywhere else, like a Lego recreations of the living room from Seinfeld, and I'm not proud to admit this. But occasionally I've used it to order things like a pair of jeans or shoes. Even though there's a sneaker store right at the blog. One friend I know buys all of their dog food on Amazon, another buys exotic spice blends. Amazon's been dubbed The Everything Store. And that actually might be true, although I don't think you can buy a pet there. At least not yet. But that's kind of wild when you think about it, if you wanted. And I don't really know why you'd want to, you could probably order only from amazon for the rest of your life and be able to purchase almost anything you want it. And everything store sounds nice, almost like something from a children's book. But I think there's already a word for what Amazon is a monopoly. in the most literal sense. A monopoly is when one company controls the supply of a good or service without any competition, giving them complete control over prices. But it can also be when a company has such a dominant position in a market, they can more or less control it without any major competition. Traditionally, monopolies in the US have been discouraged. In fact, a lot of capitalists have said that monopolies are bad. Here's Steve Jobs, for example, talking about monopolies in the tech industry.

John came from PepsiCo, and they they at most would change their product, you know, once every 10 years. I mean to them a new product was like a new size bottle, right? So if you were a product person, you couldn't change the course of that company very much. So who influenced the success of PepsiCo, the sales and marketing people? Therefore they were the ones that got promoted and therefore they were the ones that ran the company. Well, for PepsiCo, that might have been okay, but It turns out the same thing can happen in technology companies that get get monopolies like, oh, IBM and Xerox, if you were a product person at IBM, or Xerox, so you make a better copy or a better computer. So what, when you have a monopoly market share, the company is not any more successful. So the people that can make the company more successful are sales and marketing people. And they end up running the companies and the product, people get driven out of the decision making forums. And the companies forget what it means to make great products. It sort of the product sensibility, and the product genius that brought them to the to that monopolistic position gets rotted out. But

in the US today, a lot of companies seem to be becoming monopolies in their industries, to jobs as point in the tech industry, many have considered Google to be a monopoly. And of course, there's Amazon. But it wasn't always like that in the United States. So first, it's important to know how we got here,

concerns about economic power go all the way back through through US history. Indeed, the idea that economic liberty was essential to political liberty was something that English colonists learned from native peoples of this continent. The US revolution was very much infused with those ideas. I mean, when residents of Boston dumped 92,000 pounds of tea into Boston Harbor, the specific thing that they were protesting was the monopolization of the tea trade by the East India Company. So there was this understanding that liberty and democracy really had to be built on economic freedom as well as political freedom.

Stacy Mitchell is the CO executive director of the Institute for local self reliance. And she's an expert in monopoly power in the US, in the early

days of the Republic, it was states that had laws that constrained corporate power. And that approach no longer worked so well in the 19th century, because, you know, a group of men came along and harnessed this disruptive new technology, the railroad, and they realized that they could use control over the rails in order to build monopolies across the economy. So John D. Rockefeller, for example, who had Standard Oil, he entered into a deal with Cornelius Vanderbilt, who was a railroad magnate, whereby the rails carried standard oils products and charged competing oil companies, huge prices, to ship their products by rail. And that's how Standard Oil became a monopoly. Standard

Oil is a prime example of monopoly power. And its founder, Stacy mentioned John D. Rockefeller, he was one of America's original tycoons. And he was one of the most dominant businessmen of the 19th century, his influence was spread out around multiple companies throughout the country, all united under the banner of the Standard Oil trust. And because of that, he was often depicted in newspaper cartoons as an octopus whose tentacles stretched everywhere.

That's what led to our first antitrust laws in the late 19th century. And I should say, the railroad barons that the kinds of abuses that they perpetrated, you know, not only in building these industrial monopolies, but they also charged ordinary people, farmers and small businesses that had to get their goods to market at exorbitant prices on the rails. And so there was this huge mass movement against the railroad, the power of the railroad barons, your workers, small businesses, farmers across the country. So it was really this grassroots movement that led to the passage of our first federal antitrust laws and the 19th century,

that law was known as the Sherman Antitrust Act, and it outlawed monopolies and also monopolistic behavior. One of the biggest things that did was allow the government to break up Standard Oil into 34 Different companies. And that movement really gained momentum when FDR was elected president in 1932.

On nearly four years now, you have had an administration, which instead of pulling its thumbs, as roll up its sleeves.

And I can assure you that we will keep our sleeves rolled up.

On nearly four years now, you have had an administration, which instead of pulling its thumbs, as roll up its sleeves.And I can assure you that we will keep our sleeves rolled up.

It was really Franklin Roosevelt who, who came in and fully animated those laws, put them into full activation. He very much he talked about when he campaigned this idea of you know how people were increasingly being controlled by this industrial dictatorship. He defined corporate power very much in political terms. And his thinking was that the central role of government in a democracy had to be about just you know, breaking up concentrations of economic power and really giving everyday people more economic agency.

So with the public now fired up and galvanized against the influence of monopolistic firms, antitrust became part of the conventional wisdom of the US using the same tools and laws that were born out of the government's fight with Rockefeller and Standard Oil. The period after World War Two up through the 70s, was a peak era of antitrust enforcement in the US,

the government went after companies like a&p, big retail chain of its day, government went after AT and T and IBM and got them to open up their patent vaults. And so suddenly, things like the transistor, which would later lead to the computer revolution and the web were kind of released into the wild. So it was a period in which we had, you know, this broader prosperity, and you know, innovation and so on.

But that era would quickly come to an end when a charismatic former governor had his eye on the White House. And the

leadership that I envisioned in Washington, if I should have enough of your support, would be to take the lead in getting government off the backs of the people of the United States and turning you loose to do what you can do so well.

And Reagan staffed his administration with like minded conservatives, many of whom were influenced by this guy, a former solicitor general to Richard Nixon named Robert Bork,

I remember when I first started teaching antitrust law, I thought it was hopeless. The thing was intellectually corrupt. And the best you could do was cause pain on the way out, you

know, he had gone back into being a legal scholar and wrote a book in 1978, called the antitrust paradox, in which he forwarded this theory and set of ideas that if you go back and read that book now are just complete nonsense. But nevertheless, he got some traction for this idea that we really should roll back antitrust and reorient what antitrust was all about. He said, Oh, the only thing that matters is efficiency. And, you know, embedded within in that idea was that the bigger that companies got, the more efficient they would be. And that would be great for consumers, and that he basically turned antitrust on its head, he said, you know that this is not actually about dispersing power, antitrust really should work to encourage the accumulation of power, and therefore we'll have a more efficient economy. And so when Reagan came into office, folks that were followers of Bork came into his administration, and they use that opportunity to undertake what is, you know, something, something that is very much akin to a coup.

And none of this was an accident, Reagan and trying this view of antitrust and government. But it had been a long running goal of groups like the US Chamber of Commerce to help steer political interest to kill antitrust efforts,

there was a very intentional effort by large corporations to advance this ideology, the US Chamber of Commerce in particular, in the 1970s, they realized, hey, we're going to start talking a small business game, we're going to start making everything that we're doing, we're going to do in the name of small business, and we're going to call for this, you know, shrinking of government regulation, and so on dismantling of antitrust, we're going to say, hey, that's great for small business. And you see Reagan kind of imitating some of that language,

there's very little that government can do as efficiently and as economically as the people can do themselves. And if government would shut the doors and sneak away for about three weeks, we'd never miss them.

So this was very much kind of under the radar effort by large businesses connected to a set of political players that effectively gutted our the enforcement of our antitrust laws with no actual political mandate and no process through Congress. You know, these laws were not overturned. They remain on the books in

the mid 80s, firms began merging at a rapid clip. during the Reagan administration, an average of 2929 murders took place a year prior to that the yearly average had been 1337. And it was happening in every sector, from finance to manufacturing. In the 1990s, though, a new concept would emerge that would create an industry that seemed limitless.

Internet is that massive computer network, the one that's becoming really big now?

What do you mean, that's probably the hardest one, you know, what do you write to it like mail? Now,

a lot of people use it and communicate it. I guess they can communicate with NBC writers and producers. Allison, can you explain what internet is?

Yes, internet. The very thing you're listening to this podcast over right now was once seen as the new frontier in for a handful of engineers and venture capitalists, a brand new market to Congress, and in 1994, a former hedge fund employee would start selling books over.

This is the first office of amazon.com Inc. Oh, here, this is my desk here.

Jeff Bezos. Today, one of the world's richest men began his empire in a rundown office near San now 30 years later, Bezos and Amazon like Rockefeller and Standard Oil would become a literal personification of a monopoly.

He wants to win that sometimes there's almost a really cruel streak to he's really calculated. And one thing that stuck with me is this conversation he had early on, you know, the early employees were a bit of idealistic, and, you know, he's sitting down with a few of them and kind of looks at them and derision and says, you know, the problem with you guys is that you don't have this pillar mentality. And I think he wanted to make this pillar of a company where people embody that culture and I think

after the break, the ruthless rise out Jeff Bezos created an empire that stretches from military systems.

Now, if you've never seen Jeff Bezos picture a sleek bald man of medium height, who wear shirts tight enough to accentuate the muscle he's added in the last decade, he actually kind of bears an eerie resemblance to Superman's arch enemy Lex Luthor, the billionaire who is constantly trying to kill Superman stocks may rise and

fall, utilities and transportation systems may collapse. People are no damn good. But they will always need land and they'll pay through the nose to get it.

Now, if you listen to Bezos today, he'll say that Amazon's book business was a monumental success.

I was shocked at how many books we sold. We were ill prepared. You know, I had we had all the read only 10 people in the company at that time, and most of them were software engineers. And so everybody, including me, and the sufferers were all like packing boxes. We didn't even have packing tape.

So one would think that Amazon was making profit, right?

No, they didn't make money for quite some time. But it gave them an edge on all of retail, Dana

Mattioli covers Amazon for The Wall Street Journal. And she's the author of the new book, The everything war, Amazon's ruthless quest to rule the world and remake corporate power.

Amazon didn't turn a profit for years. And that allowed them to grow unfettered, and steal share from the rest of retail at a very important time for them, because they could just invest in growth, and they could invest without worrying about investors thought. And that really set them up for the success they've come to have.

It sounds weird, but the reason Amazon was able to stay afloat was in big thanks to Wall Street, who let them run it losses.

This is the advent of the tech boom, where software companies started to change the way that Wall Street evaluated companies, they weren't given a value based on their profits, but on their potential growth. And Amazon sort of positioned itself as this growth company. It gave them this massive advantage, right, the rest of retail had very demanding shareholders, they had to show profits quarter after quarter steady profits. Or they'd get skewered,

the number one thing that has made us successful by far is obsessive compulsive focus on the customer, as opposed to obsession over the competitor. And I talked

to one of the biggest talking points from Bezos and Amazon is that they are customer obsessed that they do not care about competition. What I would say from five years of covering this company and investigating their business practices is that's not true at all. They very much care about competition, and they track it very closely. And I think that's driven some of the more predatory behaviors that have come out of the company. Its its use predatory pricing, or threaten to use predatory pricing to bring rivals to its knees at times

predatory pricing is a violation of antitrust law. But it's not as simple as just making prices low. Even if they're so low, you're actually losing money. What is illegal is doing it with the intent to crush your competition. In doing the research for her new book, though, Dana may have unsurfaced several examples of how Amazon does that today,

I found a number of egregious business practices. At the company, its retail team on the private brand side, regularly copied sellers on Amazon's marketplace, looked at data that it's forbidden to look at in order to undercut its own sellers and launch rival products and really undercut them. There's also like a bit of a data free for all at Amazon where they're not the best stewards of proprietary data. And I found that the culture is one that incentivizes employees to maybe use data in ways that don't pass. Ethics tests

are at the heart of Amazon's success and a venue for many of their anti competitive behavior is their marketplace. The marketplace, which is what you see when you open the Amazon homepage isn't just a simple place to buy goods. It's constantly gathering data about customers retailers, and who is buying what Amazon also happens to sell its own products on the marketplace right alongside other retailers. 40%

of all online shopping in the US happens on amazon.com. So if you decide to take your business off of there, you're leaving a lot of money on the table. Amazon knows it has that power. And over the last few years, the fees that it levies on the sellers have become really, really large. So for every dollar, the seller makes an amazon.com Amazon's taking 50 cents. And that just creates for some sellers an untenable position to be in.

In my conversation with Dana, one thing was apparent. ruthlessness is a core component of how Bezos runs Amazon. Today, it's nearly impossible not to use an Amazon product, especially if you rely on the internet. That's because Amazon Web Services, its cloud computing arm powers a significant amount of the internet, and Bezos himself has tried to entrench himself in pretty much every facet of life from food to entertainment, and even healthcare. Those combined factors have given Bezos an outsize influence on society all over the world.

But in 2023, things started to change. Here's Stacey Mitchell. Again,

the case alleges that Amazon has used a set of interlocking strategies to monopolize e commerce,

Lena Kahn, the chair of the Federal Trade Commission, in 17, States Attorney General filed an antitrust lawsuit against Amazon,

one of those strategies involves blocking sellers from offering lower prices on other platforms. The other main component of the case involves the FTC says that Amazon is using its huge logistics operation to keep sellers locked into its platform and to block their ability to successfully grow their sales on on other sites. And that that's another way in which Amazon has maintained control over over E commerce.

To me one big question remains, though, will this actually work? Can the chair of the FTC really take on one of the most powerful companies in the world and when

the antitrust laws that are on the books are very strong, and they anticipate and really cover all of the monopolistic tactics that we've seen Amazon use? You know, Amazon, in some ways, is, you know, like, the other tech companies are kind of novel type of enterprise. But in fact, the kinds of things that are doing very much have these antecedents, you know, the railroads, other other parts of our history, that the laws were designed, you know, exactly to tackle those kinds of problems, Amazon's ability to take control of, you know, e commerce was really driven by a lack of willpower on the part of elected officials to actually use and enforce those laws as they should, and by a kind of ideological blindness. It's a long road, it's going to take a while to reactivate these laws. But what we have seen over the last couple of years is is extraordinarily encouraging, and represents really just a sea change in government policy.

Thanks for listening to another episode of leisure time. This episode was produced by me Arjun sang with editing support from David Sirota, Lucy Dean Stockton and Joel Warner. Our theme music was composed by Nick Campbell.

If you liked what you heard, consider becoming a subscriber. Our work is reader supported and you'll get access to reporting you won't find anywhere else. We'll be back next week with another episode of leisure time.