Amazon’s “Dark Side” Is a Bright Spot for Workers and Consumers

Jim Hightower is an old-fashioned Texas progressive, who, if memory serves, once ran unsuccessfully for the governorship of that state. He may be a great polemicist – see “The Dark Side of Amazon” – but he does not know the first thing about how markets work and how Amazon.com, like Wal-Mart, is a benefactor of consumers nationwide and worldwide.

Before the advent of Wal-Mart, rural America was a retail desert. Small shops, limited product availability and, yes, “hometown service”. But the prices of most items were high because the only alternative to shopping locally was to drive to the nearest city or order through the Sears or JC Penney catalog and depend on timely delivery by the US mail in, it was to be hoped, an undamaged package. The downside of local retail shops (limited options and high prices) fell most heavily on low-income households, which may not have had an automobile or could not afford to take time off work to shop at larger urban retailers or even at local merchants, which typically closed at 5 p.m. Wal-Mart solved both problems in one fell swoop.

Sure, local retailers suffered losses of business and some were forced into bankruptcy, but consumers (the only group whose welfare matters in a free market economy) won big-time. Amazon has generated benefits for consumers many times larger than Sam Walton ever dreamt of.

But what about the jobs that disappeared in local retail outlets as Amazon and Wal-Mart drove costs (and prices) down by inventing markedly more efficient distribution networks and negotiating lower prices with manufacturers and other suppliers on behalf of millions of consumers with little bargaining power of their own? An economic system’s chief purpose is to create prosperity (wealth), not jobs. Creating jobs – at the point of a gun, as Josef Stalin proved, or as FDR did by drafting millions of men to shoulder arms against the Axis powers – is easy; creating wealth is not. Prosperity materializes only if existing resources (land, labor and capital) can be utilized more efficiently, squeezing out “waste” and redundancy so that resources can be released from current employments and redirected by alert entrepreneurs to the production of new products that consumers may not even know they want (an iPhone ten years ago, for example) until they become available.

Hightower bemoans the working conditions in Amazon’s warehouses, a few of which literally become sweatshops during hot summer months. I am willing to bet, however, that if the people employed in one of Amazon’s “dehumanizing hives” (his phrase) were asked whether they wanted to quit their jobs, not one hand would be raised, especially so in an economy with an unemployment rate still hovering around six percent and a rate of underemployment twice that figure.

Hightower, like many before him, claims that Amazon’s ability to avoid collecting sales taxes on orders shipped out of state from the company’s Washington state headquarters or from its warehouses located around the United States gives Amazon a tax subsidy ranging “from about 4 to more than 10 percent.” That subsidy, which actually ranges from zero to more than 10 percent (four U.S. states – Delaware, New Hampshire, Montana and Oregon – impose no local or state sales taxes at all), supposedly confers a significant competitive disadvantage on brick-and-mortar retailers, who must remit sales tax receipts to the appropriate state tax authority.

But in making that claim, Hightower ignores taxes paid by FedEx and UPS, which deliver Amazon’s packages to customers’ doorsteps. Those delivery services pay, among others, state and local gasoline taxes and corporate income taxes; their employees pay state and local personal income taxes and spend some of their disposable incomes at local grocery stores and other retail outlets, purchases on which sales taxes are due. So, too, do the owners and employees of Amazon’s warehouses.

Amazon relies increasingly on the U.S. Postal Service to deliver packages to customers’ homes or places of business, especially in rural areas, a relationship that must have been seen by the beleaguered USPS as something like a lifeline thrown to someone going underwater for the third time.

It is true that, like Wal-Mart, Amazon has benefited from tax breaks (“incentives”) offered by local and state governments to lure companies to one particular geographic location rather than another. Handed out to encourage local economic development and the jobs and tax receipts associated with it, such corporate “incentives” are a national scandal, squandering taxpayers’ hard-earned money for dubious benefits. But neither Wal-Mart nor Amazon should be blamed for accepting such incentives, which are offered by politicians who want to claim credit at reelection time for attracting high-profile corporations to their home districts or states. Consumers, by and large, don’t care about the points of origin of their orders, as long as they are delivered when expected, whether from Toledo or Timbuktu.

It is someone ironic, but understandable, that Wal-Mart has joined the chorus demanding that Congress put an end to the sales-tax-free Internet retail environment. Wal-Mart has a physical presence in virtually every state and thus is obliged to collect sales taxes on almost everything it sells. Wal-Mart, of course, would benefit itself by erasing one of Amazon’s competitive advantages. But consumers would be harmed, not only by seeing prices rise by the amount of sales tax Amazon collects and then remits to the treasuries of its customers’ places of residence. Even more seriously, expunging the virtual border between the more than 3,000 separate taxing jurisdictions throughout the United States would mute the interjurisdictional tax-rate competition that makes it politically costly for any one of them to jack up its sales tax rate.

Competition can seem to be ruthless to someone who loses a small business or gets fired from a retail job, but the benefits to consumers swamp the harm done to producers. Already, Amazon is facing threats from Uber and other web-based delivery services that will pick up and deliver orders from local retailers in hours, not one or two days. Amazon could respond by getting permission from government regulators to deliver packages via drones. No one knows what the next new thing will be, but the answer cannot be found by hamstringing Amazon or any other large retailer, but by allowing free and open competition to flourish.

But a mercantilist, anti-market mindset is exactly what one would expect from a progressive defender of the Empire against Sam Walton, Jeff Bezos, and innovative rebels like them.

William F. Shughart II is a Senior Fellow at the Independent Institute, the J. Fish Smith Professor in Public Choice at Utah State University, past President of the Southern Economic Association, and editor of the Independent book, Taxing Choice.
Posts by William F. Shughart II | Full Biography and Publications
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