What does Amazon want from us? For consumers, Amazon can be a frictionless gateway to find everything from bed frames to dog food, baby clothes to award winning original TV series. There’s nothing quite like it — a position they’re in not by accident but by design. Amazon became the behemoth we know it to be by targeting and absorbing any competition, leveraging favorable government treatment, and picking winners and losers in the marketplace.
But there’s much more they’re doing behind the scenes, including deals they’ve made with the CIA, the Pentagon, and more. Stacy Mitchell joins us to tell us what's on the other side of the bargain we’ve made in exchange for convenience.
STACY MITCHELL: The spectacle of like Gary, Indiana writing this letter to Amazon that's just this plaintive plea for an injection of help. Amazon was never going to locate in Gary, Indiana.
CHRIS HAYES: It's like a dominance play that Bezos is Lord Commander and he sits upon the throne and he watches all these sort of supplicants come. And these supplicants are major American cities that represent millions of people who have been elected by their citizens to represent the public trust to come as if before the king, or before the emperor, like shower their gifts upon his feet and say pick me, pick me. And he'll like deign to pick one. It's just offensive to every last democratic fiber of my being.
Hello and welcome to "Why Is This Happening," with me, your host, Chris Hayes.
Well, you probably know this I guess, but I live in New York City. Which is where we do the show every night. I'm actually from New York City. I'm a city kid, born and raised in the Bronx. I've always been a city denizen, which means my entire adult life I've lived in cities. Post-college, that’s Chicago, Washington D.C. and New York.
One thing about city life, particularly in New York, and I'm saying this in a room with other New Yorkers, who I think will agree with me: the basics of life are hard, just doing basic stuff. Grocery shopping in New York is harder than it is in other places. Other places in America, you come out of the house, you get in your car, then you drive to the grocery store which is maybe 10 minutes away. There's a big parking lot and then you park, fill your car up, and then you come home. That's how you grocery shop.
In New York, it's not that easy. A lot of times you don't have a car. If you do have a car, you might go to a place that does or does not have parking. It might be really far away, then you come back and you have to look for parking. You may live in a four-story walk-up and you've got groceries you've got to schlep up there.
Now, you maybe go to the local bodega to get some extremely over-priced Tropicana or some tuna. But that is not fully provisioning your house. And this challenge is a perennial challenge of New York City life, and big city life. And for us, in our life, one way that we square the circle on this is a little company, a little secret I'm going to let you in on, called Amazon.
Amazon has created this frictionless customer experience that means that all of the ways you get stuff into a house, less I would say groceries, honestly, we use Instacart for that. That's another story. So Amazon has created this amazing experience to acquire things and get them into your house. That is, particularly if you live in New York, really makes life easier. It's cheaper than the towel paper at the local bodega, it comes the next day. You don't have to mess with taking stuff on a subway or lugging it up steps. It gets delivered right to your door. And, when I sit and take a look at my life, it's unnerving the degree to which Amazon is embedded in it.
I come downstairs in the morning, tell Alexa to play WNYC and I listen to that as I make my kids their breakfast. I use the paper towels to wipe up after my daughter that were ordered on Amazon Prime. And then on Friday night movie night, maybe they watch a movie on Amazon, because Amazon does that, too. Most of the websites that I'm visiting are hosted on Amazon these days. I don't know most, but a huge amount.
The amount of things Amazon is doing, from producing original television to selling every fricking thing in the world to hosting a massive portion of the entire internet, to contracting with governments, including our own, on stuff like facial recognition technology to sell to the Department of Defense, is kind of shocking. And also a little, more than a little, unnerving.
And I think people have a strange feeling about Amazon because because the first-person user experience can be so simple, and so seamless and so smooth, polling shows that people generally have a good feeling about the company, and I think that's partly a credit to the fact that they have put a lot of investment into customer service and their front-end interaction.
But that front-end interaction is hiding a massively large and powerful company that is up to a lot of stuff that should really give you pause.
So our guest today is an expert in this. She's an expert in big companies, generally and specifically Amazon. Her name is Stacy Mitchell, she's co-director of the Institute for Local Self-Reliance. She wrote a Nation article called "Amazon doesn't just want to dominate the market, it wants to become the market." Which is a really important point that she makes in the course of our conversation.
And Stacy has been working at this small, kind of think tank non-profit for years, studying the effects of concentration among large corporate enterprises and the affect that has on small businesses: local hardware stores, local pharmacies. You'll hear her talk about that. Local bookstores, which is how she got into Amazon. She makes, I think, an incredibly persuasive case, that the policy environment under which we have created Amazon, a) is not some state of nature level playing field, where they just sprang up because they had the best mousetrap.
It's not. They are beneficiaries of all kinds of policy advantages, starting from the very beginning, having to do with sales tax and all the way up through their big new HQ, which is going to be built here in New York with a ton of government subsidy.
Who's rallying against Amazon's new HQ2?Jan. 4, 201905:44
And number two, that the policy environment itself determines the kinds of corporate structures and business structures we have. And that the world can be different, and American capitalism can look different than the one that we have created.
So, if you're a person who uses Amazon or doesn't use Amazon. If you're a person who participates in any way, shape or form as a modern American consumer, which is basically everyone. If you buy stuff from big corporations or you buy stuff from mom and pop shops. If you buy stuff from mom and pop shops you love, or mom and pop shops you used to love that went out of business. If you're thinking about what the future of being a consumer and being a worker looks like in this brave new world we are entering into with an economy that is increasingly concentrated, you need to listen to what Stacy Mitchell has to say about just how big Amazon's ambitions are.
You work at something called the Institute for Local Self-Reliance. What is that?
STACY MITCHELL: We're a national think tank that focuses on de-centralizing economic power and helping communities implement policies that strengthen their local economies, that give them more say over their future.
CHRIS HAYES: So, pro mom and pop stores, and anti-big chains?
STACY MITCHELL: Well, we're concerned about concentration. Yeah. We definitely know the economy has gotten a lot more concentrated and that there are a lot of problems with that. It doesn't mean that there isn't room for large companies. We think we need a mix of large and mid-size and small companies, but-
CHRIS HAYES: You're not going to have like a mom and pop car manufacturers.
STACY MITCHELL: Right. But, you know, when you have communities that don't have any of their economic capacity owned locally and in their control, that's really ... There's something that is fundamentally un-democratic about that.
CHRIS HAYES: Well, you've been working in this space on precisely this issue of concentration, bigness and sort of the extinguishing of a lot of local economic activity, right? Small firms, small businesses. Before we talk about Amazon, which I think is probably one of the biggest drivers of this, what have you watched happen over the 20 years that you've been doing this work?
STACY MITCHELL: We've lost tens of thousands of independent businesses of all kinds. We've lost local retailers, small manufacturers, farms, food production. I mean, really all across the economy and if you look, just about every industry has become highly concentrated. It's not just that the firms are bigger, it's that there are very few firms that control most of it.
That's true in agri-business, it's true in retail, it's true in airlines, I mean, on down the line. For a long time, I think we looked at this and said, people tend to assume that the reason this trend is happening is that the big guys are more competitive. They're more efficient, they're better in every way. You know, maybe we miss the neighborhood drug store, but you know, nostalgia is not okay and you know, that's just the nature of progress.
CHRIS HAYES: Yeah, that's the argument. The sort of argument from the people that think what you're doing is some weird kinda luddite, you know, wishing for the days of the horse and buggy. As that, look, these are the economies of scale, this is the modern supply chain, this delivers lower prices to consumers. They vote with the feet by going and buying it.
They go and buy the hammer at Home Depot or Wal-Mart, rather than the old local hardware store because it's cheaper, there's less mark-up. And all these economies in scale and efficiency in the end are good. They're ringing out inefficiencies, why do we need these local businesses?
STACY MITCHELL: That's right. And what we've shown in a lot of the sectors of the economy is that smaller-scale businesses deliver distinct benefits and are often more competitive, at least in certain ways than big businesses. What is really happening is that policy has structured the economy to favor the big guys.
One of the most striking examples, I think where this is really clear cut is in pharmacies. We've lost a lot of independent pharmacies, you've got these big chains like CVS that now dominate. North Dakota, back in the 1960s, passed a law that said you can't operate a pharmacy in the state unless you're a pharmacist.
So, as result, there's no chain pharmacies. There's no Walgreen's, there's no pharmacies in Wal-Mart stores or supermarkets. They're all locally-owned, independent pharmacies-
CHRIS HAYES: Wow.
STACY MITCHELL: -in North Dakota. And we discovered this a few years ago. We thought well, that's a great case study. How do people fare in North Dakota given that it's all local and small.
CHRIS HAYES: Then you've got great ... So, are drugs more expensive in North Dakota than South Dakota?
STACY MITCHELL: They're among the cheapest prescription costs anywhere in the nation. They're one of the lowest-cost states for prescription.
CHRIS HAYES: Wow.
STACY MITCHELL: They have more pharmacies per capita than any other state by a significant margin. They beat South Dakota and all of their neighbors on these measures, and what's interesting is-
CHRIS HAYES: That is fascinating.
STACY MITCHELL: ... that they provide better health care. They're are better outcomes because they're actually engaged in pharmacy. They're health care providers, they're not chains. And if you live in the most small, like the most rural kind of community in North Dakota, you're twice as likely to have a local pharmacy in your town than if you live in a rural community in South Dakota.
CHRIS HAYES: And it's just this one law that does that? That just structures the market in this way.
STACY MITCHELL: That's right, and it leads you to this question. Which is like okay, if independent pharmacies are super-competitive in North Dakota, if they're better at doing their job than the chains are, why are they losing ground in Nebraska and New York and all these other places?
CHRIS HAYES: Let me ... can I just? I need to stop here to go on a little bit of a rant slash sermon about pharmacies. My favorite thing about the neighborhood I live in, in Brooklyn, is we have a locally owned, independent pharmacy. I know the pharmacists. If I forget a prescription, I can call him. He can handle things. When I walk in the door, if I'm picking up a prescription, he sees me and knows, like literally knows who I am, and knows what my prescription is.
There is a constant foot traffic of, particularly, the senior citizens that live in the neighborhood that are going through there. He knows every single senior citizen by like face and name. He has their prescription ready in minutes. He's like the sweetest dude, it's a great place.
Whereas the large chain pharmacies make me want to run my head through a concrete wall every time I make a mistake of going into one. And it's not the people who work there fault, because they are just massively understaffed. It, literally, every time I'm sitting in a chain pharmacy, I'm like this is what people say is true about the DMV that is not true about the DMV.
Like when I go to the DMV, I've actually had good experiences. A big chain pharmacy has every single aspect of the horrible customer experience that people say about big government and DMVs. That is my experience of every chain pharmacy I've ever set foot in.
STACY MITCHELL: That's exactly right. That's totally right.
CHRIS HAYES: I'm not going to argue that. I'm just like, seriously, it's so dumb to say that this neighborhood pharmacy has been a revelation, 'cause usually in the last 10 or 15 years, I've mostly lived in neighborhoods that have a big chain pharmacy. It's been a revelation. Like this local pharmacy is just a great little part of the neighborhood, a delight. If we lost it, I would be crushed.
STACY MITCHELL: Yeah. I think there's so many neighborhood businesses that are like that. It's a good example of where, you know the value that's provided in that, in terms of the health care, the time that it saves you. Like the relationships in the neighborhood, there's a civic component to like knowing this pharmacist and the people that you bump into in that kind of context.
Sociologists have looked at this and found that people have more conversations with people in local businesses, in the farmer's market, than they do in these big chains. And that's part of the social glue that holds us together, makes us care about our neighbors. Creates a sense of community, and ultimately, political engagement. There's a direct connection between having a local economy and being engaged in civic issues in your town.
CHRIS HAYES: So you asked this question before I went on my rant sermon about why is it the case that in Nebraska and New York the big chains are sort of out-competing the small, independent ones when that's not the case in North Dakota? What's the answer to that question?
STACY MITCHELL: So the answer has something to do with these companies called pharmacy benefit management companies. PBMs. These are like a super-powerful part of the healthcare system that no one's ever heard of. There are two dominant ones, CVS-Health and Express Scripts. They have about 70 or 80 percent of the whole market.
What these companies do, is that your health insurance company contracts with them to manage the pharmacy benefits. They decide which drugs go on the formulary, how much the pharmacy gets reimbursed when you get your prescription-
CHRIS HAYES: This is why you need this extra card? Like for a long time ... I sound like such an incompetent adult when I talk about this. For a long time I kept going to the pharmacy and they're like where's your drug prescription card. It's like, don't you have my health insurance? Like why's there's another thing? Why's there got to be another thing? You've got my info. And it's like, no, that's what they need, right?
STACY MITCHELL: Right.
CHRIS HAYES: It's the PBMs membership card, essentially.
STACY MITCHELL: Right. They manage your benefits, and that includes deciding what the pharmacy gets reimbursed. They negotiate with drug companies, they get these hidden kick-backs from the drug companies and they decide what your local pharmacy gets reimbursed when you go to fill that prescription.
The problem is that the PBMs own their own pharmacies. One is CVS-Health which owns the nation's largest chain of pharmacies. And they both own these huge mail-order operations. So they rig the rules.
CHRIS HAYES: So they're the middle man and also the retail?
STACY MITCHELL: Right. Huge conflict of interest.
CHRIS HAYES: They're running the middle of the business, which is the interface between the drug companies and the retail consumer who's got the pharmacy, but they're also owning a huge part of the retail pharmacies.
STACY MITCHELL: Yeah.
CHRIS HAYES: So they can just set the prices to favor their own CVSs, for instance.
STACY MITCHELL: Yeah, so what happened in Ohio this year, for example, is that they drastically cut the reimbursement rate to the independents. They're losing money every time someone fills a prescription. Then the independent gets a letter in the mail from CVS saying, you know, would you like to sell your pharmacy to us?
Yeah. So in North Dakota-
CHRIS HAYES: Wow.
STACY MITCHELL: ... they still have to deal with the PBMs, but because there are no chain pharmacies, because CVS isn't there, the independents have negotiating power. The PBMs have to deal with them fairly because they're the only game in town. So effectively, it levels the playing field.
We could redress this in any state in the country by actually using anti-trust policies and state policies to check the power of these PBMs and say, sorry, you can't manage prescription benefits and have this huge conflict of interest in that you're funneling business to your own pharmacy.
CHRIS HAYES: One of the things I'm hearing from you on this sort of case study, the pharmacies is like market structure matters a lot, right? It's not enough to just say economies of scale and some sort of introduction to micro-economic sense. Like, actually the regulatory environment and the market structure, like what players are doing what in the structure matter a lot in terms of what kinds of efficiencies or value is actually provided by different kinds of sized firms.
STACY MITCHELL: That's right. A lot of companies are able to use their size to knock out their competitors, as opposed to being better at what they do.
CHRIS HAYES: Right.
STACY MITCHELL: That's a function of not policing competition properly to make sure that it's a fair fight. Then there are, of course, all these ways in which, you know, the regulatory environment favors the big guys. We have complicated banking regulations that make it hard for small banks to navigate all those rules, but the big guys have floors full of lawyers and they write those regulations anyway, so they know exactly how to get through them.
The subsidies, you know, local governments give out $70 billion a year in giveaways in the name of economic development. Studies show that 90 percent of those dollars go to the biggest firms. That's a direct government injection of cash into big companies to help them grown their market share, and you've got local businesses in those communities, they're not getting those dollars. They're seeing their tax dollars used to subsidize their competitor.
CHRIS HAYES: So the biggest example of this, right, at this moment it seems to be Amazon. Everything you just talked about. I, weirdly, can totally imagine a world where Amazon is the only store. Aside from local stores. I can imagine a world in which there's basically two options to purchase things: Amazon and then like maybe you still have things like local, you get bodegas and hardware stores, and you know, comic book stores and things like that.
But, I'm going to sort of play devil's advocate. The story of Amazon does seem to me, at least partly an efficiency story, or at least partly an ease story. As a first-person user of Amazon, it is so easy of an experience compared to going to a store.
Like, the idea of just being like, I'm going to knock this stuff off my to-do list. These things we need for my home in the five minutes after I get home with my laptop at 10 o'clock. Rather than I'm going to make a Target run. Just like, that's an easy choice.
STACY MITCHELL: Yeah. Absolutely. They've made it so effortless that it's not even like you're doing anything. And you're not even making a choice. Like when you say choice, that's not really what's going on. It's just so effortless, it's an unthinking kind of habit. As we all get Alexa in our homes, pretty soon it will be an almost unthinking habit where you vaguely mention something over dinner about the party you're having on the weekend, and then stuff shows up at your door for that party. Right?
CHRIS HAYES: But I like, I guess on some level which that's dystopic, but also like the more frictionless the consumer experience ... Like, my ideal world is a world in which the amount of time I spend buying stuff is absolutely minimal. That's a thing that I don't love doing with my time and I would like to make that as efficient as possible. So, like the frictionlessness that you're talking about, which to me is like the killer app of Amazon, does seem appealing.
STACY MITCHELL: Well, I think there's two things there. On the one hand, we have to remember and separate in our mind the fact that having online shopping and the ease of delivery to your door, and all of those technological advantages, that's all great. We can have those things without having Amazon's market power.
CHRIS HAYES: That's a good point.
STACY MITCHELL: We do need to separate those things.
CHRIS HAYES: But is it not the case that they have been pioneers in a lot of that stuff? Partly because they for a very long time have run the company in this very bizarre way in which they posted no profits.
They have done this thing where they've just been growing and expanding, and doing new stuff and getting better, really getting better at the frictionlessness of that sort of consumer-facing interface, in a way that no one else has.
STACY MITCHELL: Oh, it's totally true. They're genius in a lot of ways, but we should remember in that story that they were aided in a couple of really critical ways. They got a cash line from Wall Street that was available to no one else, I mean no one else, in terms of the…
CHRIS HAYES: They didn't make profits for years. It's the craziest story.
STACY MITCHELL: They lost, in their first six years in business, they lost $3 billion, mostly losing money on books, which you talk to a local bookstore, they can't lose money on books. They were not allowed to do that by the financial system. Why is it that Wall Street was willing to do that? A lot of it is because they saw this emergent monopoly.
CHRIS HAYES: Right.
STACY MITCHELL: They saw monopoly profits in the future. We should recognize that as a form of predatory pricing that would have been illegal under our anti-trust laws as they were enforced before the 1980s. That would not have been allowed to have happen. It would've been a more level playing field. Who knows where we would be today? We should remember that, too.
CHRIS HAYES: Yeah.
STACY MITCHELL: There could've been other companies that came along and maybe forced Amazon to be more competitive and more innovative, or we would at least have choices in the marketplace.
Then, the other thing that I think gets lost in the story of Amazon is how much from the very beginning Jeff Bezos made securing government favors that were not available to his competitors part of his strategy.
That goes back to why they're located in Washington state, which was to dodge having to collect sales tax in California, a big populist state. They dodged sales tax for a lot of years. That drove, there are studies showing this, that drove business to their site that would've gone to other retailers.
CHRIS HAYES: Just to be clear, they basically are running a tax avoidance arbitrage game for years, where they basically were like, "You can buy our stuff sales tax-free," until that loophole was ultimately closed.
STACY MITCHELL: That's right. They would locate in states that either didn't have a sales tax or that were small population, or that gave them a deal, like you still don't have to collect sales tax even though you're physically here.
CHRIS HAYES: Which they would negotiate for.
STACY MITCHELL: Which they would negotiate for. Then, when that started to run out ... That really started to run out because Amazon knew that they had to had warehouses everywhere in order to do next day delivery, so, then they started to have a physical presence, they became liable to collect sales tax.
That's the moment when they shifted to another strategy, which was let's go to economic development departments in all these cities and get them to give us tax incentives and subsidies when we build these warehouses. More than half of their warehouses have been subsidized.
CHRIS HAYES: Really?
STACY MITCHELL: Public dollars have funded the construction of most Amazon warehouses.
CHRIS HAYES: To be clear, these Amazon warehouses feature very low-paying jobs in absolutely grueling, horrifying, often-terrible conditions.
STACY MITCHELL: Yeah. Peeing in bottles seems to be ... That's the thing that you hear from Amazon workers. They're exhausted. They can't even make it for a restroom break. They are really terrible jobs, and they're rapidly being automated.
As Amazon grows it's effectively eliminating far more jobs in the economy than it's creating. The idea that, yeah, your tax dollars went to subsidize its warehouse construction is really appalling.
CHRIS HAYES: Talk about how what they did with books was kind of the canary in the coal mine for what they're now doing with every conceivable consumer good or service you can purchase.
STACY MITCHELL: Yeah. They started out as a book retailer. There are a number of reasons for that, but they lost a lot of money. They sold books at a loss. Of course, people flocked to them to buy books. Initially the publishing industry was like, "Oh, this is great. We've got this brand new partner. We're going to increase sales. We're excited."
The publishing industry very much sort of turned over all its knowledge, if you will, to Amazon. Once Amazon learned that business and became a dominant seller of books then they started to tighten the screws, demand more and more discounts, more and more hidden fees coming back to them from publishers.
As other retailers disappeared the publishers had less and less option about getting their books to market and more and more and more dependent on Amazon, which gave Amazon a lot of leverage. Then, Amazon started publishing its own books. It's now a major publisher, so a direct competitor to them.
CHRIS HAYES: There was a huge legal fight between the publishers and Amazon because essentially Amazon got so big they just started squeezing the publishers. The publishers had a business model in which a new hardcover would come out and it would be $20. Maybe there'd be a discount for some big chain, but Amazon's like, "We're going to sell it for $9.99, and you're going to let us do that."
STACY MITCHELL: Right.
CHRIS HAYES: And the publishers are like, "Well ... But, then we're going to lose money." Amazon, "We don't care if you're going to lose money. We're going to lose money, too, but in the end we'll be still standing."
STACY MITCHELL: That's right. According to the Author's Guild, author incomes have collapsed. The other thing that's happened in the book industry is that the books that are selling tend to be the bestsellers, the well-known names. Sort of the top-tier books are selling more and the mid-list is selling less.
That's because Amazon is good for search if you know exactly what it is that you want to get, you can find it there, but it's not great for discovery. There's some data that shows that if you're in a physical bookstore, you're in a local bookstore in particular, you're about three times as likely to discover some book that you didn't know about that you'd like to read than if you're shopping on Amazon.
That's one of the consumer impacts of Amazon is that there's this narrowing of the products that we see, and thus a narrowing of that we might find. There's a supply chain history. Part of that, too, in the sense that manufacturers have less and less money to innovate because they're all being squeezed.
CHRIS HAYES: You got to remember also, like the thing that you're saying before, they lost $3 billion. It was just an insane thing they did when you take a step back, which was they lost money on every book. It's like the joke about losing money in every sale and making it up in volume. They kind of did that until they kicked everyone else's ass, and then it's like you have unique pricing power.
STACY MITCHELL: That's right, and they continued to do that throughout their history. They've done that strategically in one industry after another, and they still do it today.
They'll lose money in a sector, and of course they're going up against companies who just focus on that sector. They can't make it up because they don't have an AWS or Amazon Web Services or some other part of their business that they can make up those loses in, or they don't have Wall Street willing to allow essentially no profits.
It's a very good strategy for knocking your competitors out of the market, and then you own the industry. They've done it in all kinds of places. They've certainly done it when they've had upstart rivals come along, like Zappos, the shoe retailer.
CHRIS HAYES: Which they just bought, right? Didn't they?
STACY MITCHELL: Yeah. Zappos, in the mid-2000s, they started to become really popular. People loved them.
CHRIS HAYES: I remember the Zappos moment.
STACY MITCHELL: Yeah.
CHRIS HAYES: Really, it was like a cultural thing. It was like, oh, you can buy ... Because at first you're like, "I’m gonna buy shoes online?" but it was like, yeah, we'll make it easy. You can send them back very easily, they did the whole thing.
STACY MITCHELL: Yeah. You could order 12 pairs and send 11 back for free.
CHRIS HAYES: Yeah. Right.
STACY MITCHELL: It was a great customer service company, so they started to give Amazon a real run for their money in fashion. Amazon went to them and said, "We'd like to buy you." The founders said, "No, we're not interested in selling."
Amazon proceeded to sell shoes at a steep loss and Zappos started ... Felt they had to match those prices in order to keep their customers. They started just bleeding red, and eventually sold to Amazon.
Today, Zappos is Amazon. This is how this company plays. Losing money is a key part of its strategy. We used to call that predatory pricing, but we don't police that anymore.
CHRIS HAYES: You're saying the way that anti-trust laws are enforced, before the kind of jurisprudential revolution in the 1980s that kind of upended old models of anti-trust, that that would be enforced. That would be illegal. You couldn't do that.
STACY MITCHELL: That's right. All of our great anti-trust laws are still on the books. We passed all of these laws during the earlier Gilded Age from the 1890s through the 1930s, and actually 40s and early 50s as well. We passed these important anti-trust laws.
Those laws, when they were vigorously enforced in the middle part of the 20th century, were part of the story why we had a growing middle class and why we had this expanding opportunity, lots of new business creation. They weren't the only reason for that period of prosperity, but they were an important part of it.
Then, in the 1980s there was essentially a kind of coup. The laws were not changed. The laws are still on the books, but the way that they're interpreted by the enforcement agencies changed in such a way that effectively things like predatory pricing are no longer policed. This sort of revolution in thinking came along and they said, "The only thing that matters is efficiency."
Big companies they argued are naturally more efficient, and that that will generate lower prices. That is the only ... That's the north star of anti-trust. In a case like predatory pricing, it's like, well, Amazon's lowering prices, so what's the problem? And that doesn’t look ahead.
CHRIS HAYES: Right, because-
STACY MITCHELL: What does that really mean?
CHRIS HAYES: Although, part of the argument on the other side is it's not like Amazon has ever really jacked up prices in those areas. Books and shoes are still super cheap on Amazon. They've used the predatory pricing power to drive other competitors out, but what they have not done is then jacked those prices up after they're out of the market.
STACY MITCHELL: Yeah. It's hard probably to see I think some of the ways they're affecting maybe innovation and the choice of products that we have because they are squeezing companies in that way. There have been some indications of price increases, like on books, for example, like the small publisher books and the university books. Those are not nearly as cheap as they used to be on Amazon, so we've already started to see some of that kind of trend.
They exercise their power against consumers in some ways. They've started to make certain products off limits unless you become a Prime member, so it's small scale.
CHRIS HAYES: It's still small scale, though.
STACY MITCHELL: Yeah.
CHRIS HAYES: I guess my point is that the ripping of the mask off of true monstrous monopoly power has not happened yet in the sense that they continue to price at a rate that is as if they were in more competition than they are, if that makes sense. Wouldn't you say that's true?
STACY MITCHELL: Yeah. I think that that's true. We've made this pact with Amazon that we'll allow them to take over everything.
CHRIS HAYES: If it's cheap.
STACY MITCHELL: As long as they serve our consumer needs with a certain level of perfection.
CHRIS HAYES: What's crazy to me about the power they have now ... They've got the Amazon Sellers thing, which ... The marketplace, which is they become a sort of intermediary for other people selling stuff. I don't even understand this because I bought stuff before that comes through the Amazon portal, but it's not actually made by them, or even sold by them. I guess their ... How does that work?
STACY MITCHELL: Yeah. This is the most important part of understanding what Amazon really is. We talk about Amazon a lot as though it were a retailer, and certainly it sells a lot of stuff, it sells half of everything Americans buy online, it's the largest seller of books, consumer electronics, clothing, and toys of any retailer.
CHRIS HAYES: Really?
STACY MITCHELL: Oh, yeah.
CHRIS HAYES: Wow.
STACY MITCHELL: They sell a ton of stuff, but to think of Amazon as a retailer is really to miss the nature of Jeff Bezos' ambitions and what this company is really about. Amazon is interested in controlling the underlying infrastructure of the economy.
One big piece of that is the online platform. What has happened now is that most people when they go to buy something online, they don't start at a search engine like they used to. They don't go to Google and put in a product and come up all sorts of different retailers, including Amazon. They just start at Amazon.
What that has meant is that every other company in the economy that manufactures or sells something, if they want to reach more than half the online market they have to become a seller on Amazon's platform.
CHRIS HAYES: Right.
STACY MITCHELL: About half the goods that are sold on Amazon come through various third party sellers, and it's everybody. It's huge manufacturers, it's independent retailers.
Then, Amazon uses that power. It's like a gatekeeper. Essentially you've got to ride their rails to market. They can decide what the terms are, they can use the data they gather on what you're doing to out compete you and to undermine you as a competitor. They can levy a kind of tax on your trade.
Essentially what Jeff Bezos has set up by owning the pipelines ... It's not just the platform, there are other pieces of the infrastructure, but the platform is the most important piece, by owning the pipelines, what Amazon can do is it can decide, okay, here are the most lucrative streams of consumer spending.
CHRIS HAYES: Right.
STACY MITCHELL: In those areas we're going to preference our own products. We're going to give them top-
CHRIS HAYES: Which they've started making.
STACY MITCHELL: They've started making. They manufacture hundreds of things now, thousand of things.
CHRIS HAYES: I see. They can take the data. You're selling knives, and you start selling knives through Amazon. Then, they're like, "Wow, these knives are super profitable. They make a lot of money. We're going to make our own knives now, because we learned this from your knife sales that you did on our platform, so now we're going to make our own knives. Then, we'll just out price you."
STACY MITCHELL: Right.
CHRIS HAYES: Or, and I've noticed this, when you search for something on Amazon, there's the little Amazon's choice now.
STACY MITCHELL: Right.
CHRIS HAYES: Which is so powerful because if I'm like, "I need an oven mitt," so I search and it's like, oven mitts. It's like here are 100 oven mitts. It's like, "I don't fucking know what I want in an oven mitt. Just give me an oven mitt."
It's like Amazon's choice oven mitt. Like, sure. Boom, click. I don't want to think that much about ... I'm not going to compare shop about oven mitts. Just sell me an oven mitt. They're like, "Here, here's our oven mitt. Here's our knife, here's our plates."
STACY MITCHELL: Right.
CHRIS HAYES: I'm just there just like, "Yeah, buddy. Just do it. Don't give me ... I don't want options."
STACY MITCHELL: Yeah.
CHRIS HAYES: Just send it to me. It's cheap, it's fast.
STACY MITCHELL: For the things that they feel like, oh, this is lucrative we want to be in it we can just ... We'll just put our products at the top of the search results.
CHRIS HAYES: Right.
STACY MITCHELL: We can knock everybody else out because we have the power.
CHRIS HAYES: Yeah.
STACY MITCHELL: Then, for all the other stuff in the economy that they don't really want to deal with or that isn't that profitable, we'll let other sellers do that. We'll just levy a tax on their trade. Every transaction they do we're going to get a cut. As our power grows, we're going to get a bigger and bigger cut.
CHRIS HAYES: It's funny that you say ride the rails, right? Because that's an explicit comparison to the sort of iconic anti-trust case, which is the railroads, right? The idea of a common carrier or the idea of a key part of infrastructure that keeps all markets working, and the railroads abuse that power famously to set prices, to extract tolls, do all these things, because no one could get their goods to market back in the day without the railroads.
You're sort of saying that Amazon is kind of occupying a kind of digital railroad space for the modern infrastructure of retail.
STACY MITCHELL: That's right. Yeah. I think we're facing a future where every company that wants to sell something has to go through their platform, has to ship using their growing shipping service. If they need to host data and manage their digital stuff in the cloud they'll use Amazon's cloud service. If they need to have voice operation in the device that they make they'll use Alexa.
Amazon becomes this intermediary for everything that goes on in the economy. That means they can charge a toll no matter what the transaction is. They have complete power to do that.
It's an incredible machine for concentrating wealth and having power over what happens. The implications are really profound because we're moving from a situation in which traditional markets are open, they're governed by public rules. That's the nature of it. We decide who can participate in that market, there's ... At least there should be a level of equality and access. Amazon's moving us to a situation in which the exchange of goods occurs in a private arena that it controls, it sets the rules for.
In essence, it's taking on a kind of governing power. It's beginning to rival what a democratic government should do in terms of setting the rules. The analogy of the railroad is a really important one because that history. Our first anti-trust laws were passed in response to the railroad monopolies, our first big anti-trust case to break up a monopoly was about the railroads.
It's worth notice. Everyone's been talking about Jeff Bezos as the richest man in the world. I think he's worth, like, $160 billion now. The last time that an American became that wealthy was John D. Rockefeller.
We always think about him in terms of Standard Oil, but he was one of the people who rolled up the railroads, and then he used that power not to let his rival oil companies ... They couldn't ship on his rail lines and he could extort money from all these small businesses that had to get their goods to market.
CHRIS HAYES: Yeah. You could basically only ... What you're saying is you only get that rich if you're sitting on top a monopoly and you're extracting monopoly rents. Before Bezos, it was Bill Gates who essentially had a functional ... For a very long time, Windows was a sort of functional monopoly, and extracted monopoly rents and he was the richest guy.
Now, Jeff Bezos, sitting atop ... I don't know. There's a whole complicated anti-trust analysis. I'm sure that there are antitrust lawyers and other people who are yelling at the podcast about it's technically not a monopoly because it's market share and no single entity is above the yadda, yadda, which I get. Okay, stipulated, but market power is a key part.
Could You Spend All Jeff Bezos' Money on Amazon.com?July 28, 201700:56
I think one of the things you just mentioned is the infrastructure part. I think people don't realize the degree to which actually from a revenue standpoint my understanding is Amazon is primarily a web server back end cloud company. Isn't that right?
STACY MITCHELL: Yeah. They make most of their profit from Amazon Web Services. They control about a third of the world's cloud computing capacity. They provide-
CHRIS HAYES: Think about that.
STACY MITCHELL: Yeah.
CHRIS HAYES: A third of the world's ... A third of the world's cloud computing capacity.
STACY MITCHELL: Yeah. They manage data for all kinds of companies. Netflix, Comcast. They manage the data of the CIA.
CHRIS HAYES: Really?
STACY MITCHELL: Yeah. They power a lot of the internet. They have big contracts to manage, yeah, intelligence agencies' data.
CHRIS HAYES: They've got big government contracts, and that is a space where there's no rival to them.
STACY MITCHELL: Yeah. There are these companies like Oracle that have been in that space before, but there's this thing that's coming down now. It's called the Jedi contract. Amazon ... I know. It's ridiculous. I don't know who names these things, but Amazon seems to have an inside track because the way the RFP was written.
CHRIS HAYES: Wait. What's the Jedi contract? For whom?
STACY MITCHELL: Oh, I'm sorry. It's for the Defense Department. Amazon's been doing CIA's data service, and now there's this huge Defense Department contract to manage their data, it’s much bigger.
CHRIS HAYES: For all of the Pentagon?
STACY MITCHELL: Yeah.
CHRIS HAYES: To manage all the Pentagon's data?
STACY MITCHELL: Mm-hmm (affirmative).
CHRIS HAYES: That's the contract?
STACY MITCHELL: Yeah. It's huge. It's a huge contract and normally, you would have…
CHRIS HAYES: I don't think I'm going to bid on that one. I don't think I'm going to get that one.
STACY MITCHELL: Normally, you'd get a bunch of providers. You'd mitigate the possibility of like one going down, by using multiple companies. But the way this RFP is written, it's going to be one company and it practically says, "It should have like a smiley face arrow logo, in order to bid." I mean, that's how much it was written by Amazon.
CHRIS HAYES: The CEO's last name must rhyme with “Dezos.”
STACY MITCHELL: Yeah. So there's a reason that they're moving to Washington and that Jeff Bezos just bought the biggest house in Washington, DC.
CHRIS HAYES: So because you think, essentially, the fix is in for that RFP, for that big Jedi contact to manage all the Pentagon's data?
STACY MITCHELL: Yeah, I mean they really want to envelop government. They want to be the interface for all of government purchasing. They're doing this at the local level, so they're taking over purchasing for local school districts, cities, counties, and states.
CHRIS HAYES: How so? What do you mean?
STACY MITCHELL: In 2017, they quietly negotiated this national contract to supply local governments with office supplies, classroom supplies, all the sort of goods that local governments buy. And about 1,500 jurisdictions nationally have signed onto this contract. We did a public information request and pulled all the documents. And it is so sordid, I couldn't believe it. I mean, the RFP was completely designed for Amazon. No other company even came.
There are only five companies bid on it, and four of them got very low scores. I mean, usually if you're a government, you put out an RFP, you go into a contract, one of the things that you're doing is you're getting a fixed price. You're saying, "I'm going to offer you all my purchasing for five years, you're going to give me a good deal on the stuff I buy." This has no fixed pricing. It's dynamic pricing, meaning-
CHRIS HAYES: The contract doesn't have fixed pricing?
STACY MITCHELL: No.
CHRIS HAYES: So you have a, you sign a contract, and they retain all dynamic pricing power?
STACY MITCHELL: Yes.
CHRIS HAYES: So what do you get? You get the interface, you get the ease of use.
STACY MITCHELL: You get the use of use, you get the sort of way that Amazon reports out the data on what your people are purchasing. But it really is a scandal, and I think part of what's happened, is that cities have signed onto this without necessarily looking at it. A lot of them have just sort of blindly gone along, "Oh, it's Amazon."
I mean, it has all the sort of name brand, warm and fuzzy feeling that people have about Amazon. And they have a very good sales pitch about how this dynamic pricing, and because they're Amazon, they're going to save you money. So a lot of people buy into that, but it isn't true. We actually did a pricing analysis as part of it, and found that they are charging more.
CHRIS HAYES: So I mean, they sell everything. Basically, every consumer good, you could buy on Amazon. Then they're also controlling a third of the world's cloud computing. They're contracting with the government to sort of provide digital infrastructure. They're like, they got 1,500 jurisdictions that are buying, that are like Scotch Tape and clipboards. What is the endgame here? I mean, your description like is kind of chilling my blood a little bit about Jeff Bezos. Like what is the endgame here?
STACY MITCHELL: There's so many things around. I mean, they own the largest streaming game service, Twitch. They're manufacturing all of these products. They just bought a big online pharmacy. They're making these big moves into healthcare.
CHRIS HAYES: They own Whole Foods.
STACY MITCHELL: They own Whole Foods. They plan to unroll about 3,000 Amazon Go stores, the little grocery convenience stores. They want to build 3,000 of those in the next few years. They're experimenting with other kinds of physical retail, they're dabbling in different kinds of financial products.
CHRIS HAYES: They're making cable news hosts now. A really handsome, well-spoken, and cheap, get them off the shelf.
STACY MITCHELL: Voiced by Alexa, right.
CHRIS HAYES: Yeah, exactly.
STACY MITCHELL: Bezos thinks big. He's not afraid of big markets and they operate by being really experimental. And then once they figure out something works, they scale in a huge way. And I think because they have this structural power, because they are this platform, and their amount of data that they have gathered about every corner of the economy, and the way that they're able to mine that data for patterns and information, they have this built-in advantage whenever they move into a new sector. And they, as you've noted, they can also use all of the financial resources to go in at a loss. And so there's no end to what they think they can do.
I think Bezos really thinks about the world from a Wall Street point of view. He comes from Wall Street. I don't even think he thinks about any of these things like, "Oh, I want to be the biggest manufacturer of clothing," although he's on his way to doing that. I don't think he really, it's not about clothing, or books, or streaming video, or anything else. I think he sees the world as streams of cash, and his goal is to be able to siphon off from as many of those streams as he can.
CHRIS HAYES: And the key to that, one key that I'm hearing from you that I think is an obvious one, but I hadn't really grappled with is data. Like in some ways, that's their superpower. They probably have eyes on a bigger part of the American economy than almost anyone, right, at any given moment.
STACY MITCHELL: Yeah, they employ thousands of people who work in their AI division, their Artificial Intelligence division, and they're mining all of that data in ways that I think it's hard, as mere humans, to really understand the ways that machine learning can identify patterns, and then exploit those patterns.
So I mean, just to take like a really simplistic example, you think about like your farmers market, right. Everyone there is on sort of an equal playing field, and access to information is fairly equitable. I mean, you can stand there and watch and see who's selling tomatoes, or what prices people have, and so on, right. And that's roughly true of most traditional markets.
But in the Amazon quote "Marketplace," where it sets the rules, it has like a God-like view of everything that's going on. It has God-like information. And then everybody else sits on that platform is in the dark. They can't see anything at all.
CHRIS HAYES: Right, I mean, the simplest example is like in the Amazon world of a farmers market, right. So in the farmers market, it's like stall A has tomatoes that are two bucks a pound, and stall B has tomatoes that are 2.50 a pound. You look at them like, "Oh, maybe those are nicer tomatoes that are more expensive," you make a choice.
In the Amazon world, it's like they can do a whole bunch of stuff, right. They can be like, "We're going to sell tomatoes for cheaper than the cheapest price." Or, they can just be like, "That person is more competitive than us on price. We're going to put them on page two of the search results." It's just, you can't win that competition. If you're like competing with Amazon tomatoes.
STACY MITCHELL: Right, and they have all this information on what people are searching for, what they're browsing, how long their mouse is hovering in a different place, how far down the page they scroll, what did they search for next after that searched for that first thing, and that data is very rich for figuring out, "Where do we go into new markets?" Like, where are there areas that we now have information about what consumers are looking for that we can exploit, that none of our competitors have because we're the only ones who have it?
CHRIS HAYES: I mean, many people have remarked on this, to the point where it's almost like a standup routine. But just like the creepiness of ad sales online are weird. You search for something, it follows you around everywhere, like I'm half expecting to like come home and Alexa be like, "Would you like a sweater? You looked at that sweater before, would you like it?"
Does that seem ... And that's like half joke and half totally plausible, that Alexa just apropos of nothing will be like, "By the way, there's a deal right now in the next 20 minutes." Like just tell me to buy it and I say, "Buy it, Alexa," and then like it shows up.
STACY MITCHELL: Yeah, totally, and it's like a structural advantage over competitors, and one of the things that it means, is we still sort of think that we live in this world, that the internet is this big open place. Any upstart out of their garage, can come along and like have a new idea, and disrupt everything, and take over. We sort of live as though that's true, but that hasn't happened in a long time.
And in the case of Amazon, its data advantage, in addition to all of its other advantages, that serves as this incredible moat that makes it very hard for it to ever be challenged, and gives it all this advantage, as it moves into new markets that other companies don't have.
CHRIS HAYES: So I want to talk about the HQ2 competition, which was the Amazon contest to see where they would put a second headquarters, and which was recently announced, it will be a second and third headquarters, sort of split in two between the DC metro area, and Northern Virginia, and Long Island City in Queens, across the river from Manhattan. I think that it was a rare movement of unity among huge different parts of the ideological spectrum. Like there's even a Wall Street Journal editorial praising Alexandria Ocasio-Cortez's outrage at the whole thing.
I saw a lot of conservatives, who I think have a weird thing about Amazon now because the president has targeted them because they own The Washington Post, and so there's like this weird kind of like MAGA anti-Amazon thing. And then I think liberals and people on the left, who sort are worried about concentration, and government subsidy, and all these things, and gentrification in the case of Queens. Talk about, you had this great thread about the competition that kind of got around, about how you saw the competition, what the goal of it was from Amazon's perspective.
STACY MITCHELL: Everyone's pointed to the fact that they were able to bid up the subsidies. That was very valuable. They got a lot of publicity out of this, they had all these city officials standing up and saying, "They're great and we want them to grow," at the very moment that there is starting to be more scrutiny about their power, but I don't think those were the most valuable things that they got out of this. They had 238 cities, who turned over a trove of information and data. Demographic information, land use patterns, future infrastructure, and a lot of it, we can imagine a lot of this is not publicly available.
It's not available to Amazon's competitors, and we can imagine that there's a lot of soft information that was traded, too. I mean, you think about the way that local officials know about likely developments, likely changes in the city, it's valuable to know. Amazon is now going to take that huge cache of data, a lot of it not available to its competitors, and it's going to exploit it.
It's going to grow, it's going to look for opportunities to buy real estate, to open stores, to create warehouses, to site all kinds of other facilities in the right places, and it's going to have this huge advantage that local governments just handed to it, and that are not available to other competitors.
CHRIS HAYES: There was so much about it that was so gross to me. So there's the auctioning off benefits to subsidize one of the wealthiest, largest, best capitalized companies in the world, I think it's fair to say, right. But second of all, what I found really disgusting about it was, there was something kind of cool, I thought, and the idea of a city like Cleveland, right, that is a great American city that has gone through a lot of different phases in its life, and has experienced, has sort of taken de-industrialization on the nose.
That like putting an Amazon headquarters in that kind of place would be a very cool thing to do for a lot of reasons. It could really alter the trajectory of Cleveland's economic development, it would bring a lot of new people there, and probably new knock-on effects in businesses. It's still gross that they were having this subsidy competition. But like that idea wasn't odious to me, but the idea of doing this whole thing, and then being like, "DC and New York” is just disgusting.
Like if they want to open up a business in New York, or DC, or Northern Virginia, go do it. You don't need to have some competition. You're Amazon, like go buy some office space. Like just go, you just hire a realtor, and buy some office space, and open a new headquarters.
STACY MITCHELL: Well, it's hard to believe, I mean, they're reasoning that they said publicly when they announced this decision, was that they couldn't find enough tech talent anywhere else. That they had to go in DC and New York to find that talent. Well, I mean, it's hard to believe they didn't know that more than a year ago before they started down this path, right. And so the whole rouse, and the fact that they had all these cities, who in some cases, kept land off of being developed, in order to hold it in case Amazon wanted to take it. Meaning, they forego other opportunities to grow.
It's just gross. It's an incredible misuse of the public trust. And just the spectacle of like Gary, Indiana, writing this letter to Amazon, that's just this plaintiff plea for an injection of help, when Amazon was never going to locate in Gary, Indiana.
CHRIS HAYES: It's like a dominance play, that Bezos is lord commander, and he sits upon the throne, and he watches all these sort of supplicants come, and the supplicants are major American cities, who represent millions of people who have been elected by their citizens to represent the public trust, to come as if before the king or before the emperor. Like shower their gifts upon his feet, and say, "Pick me, pick me." And then he'll like deign to pick one. And it's just offensive to every last democratic fiber of my being.
STACY MITCHELL: Franklin Roosevelt used to refer to monopolies as a form of dictatorship. I think that's what we have to confront, is that these companies have assumed a level of power over our lives. Amazon has the ability to pick winners and losers, which products are going to win, which companies are going to win, which places are going to win. I mean, so much of the country has just been left behind, the geographic disparity that is being created by Amazon's consolidation of power and by concentration, in general, we have a handful of metro areas that are doing well, and prospering, and getting tech jobs, and Amazon Go stores, and all the other stuff.
And then we have all of these like second tier cities, and neighborhoods within those prospering metros, and all these small towns in rural areas, who've just had like their economic base removed. And the threat that poses politically, I don't think can be understated. I mean, when you live in a community and you no longer feel like you have any control over your future, and that you're at the mercy of these outside forces that essentially dictate your fate.
I mean, that's poisonous to a democracy. And I think we've really got to wrestle with that, and I think it gets us back to what was the purpose of our anti-monopoly laws, our anti-trust laws, and why the concentrated power is essentially a political issue, it's a threat to democracy, and we have to face that and confront that.
CHRIS HAYES: Stacy Mitchell is the Co-Director of the Institute for Local Self-Reliance. Her research focuses on economic concentration and the health of local economies. That was really, really, really edifying. Thank you very much.
STACY MITCHELL: Thank you. It's been great to be here.
CHRIS HAYES: Once again, my thanks to Stacy Mitchell, Co-Director of the Institute for Local Self-Reliance. We have a link to her article in the Nation about Amazon's ambitions and the scope of them, that you can read over at our website NBCNews.com/whyisthishappneing.
Also, if you liked this episode, you might want to listen to an episode we did way back in the beginning of the show, in May of 2018, with Tim Wu, called “Who Broke the Internet?” And the reason I think it relates is, first of all, Amazon is increasingly an internet company. That's where a lot of their revenue comes from, I think the lion's share of their revenue.
But also, I think, that's a real similarity between what Amazon is doing and the kind of flattening effects of a certain kind of 21st century monopoly capitalism, and the flattening effects of say, of Facebook, and the way that they shape markets, and the power they accrue, and so if you think this is an interesting conversation, you might find that conversation interesting, as well.
As always, we love to hear feedback from you. Tweet us #withpod. Email us email@example.com.
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Stacy Mitchell's author archives
Amazon Doesn’t Just Want to Dominate the Market—It Wants to Become the Market
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