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Trump Is Wrong about Amazon Being Too Powerful

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President Trump continued his war on Amazon last week, tweeting the following:

“I have stated my concerns with Amazon long before the election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!”

Trump’s concerns almost entirely stem from the fact that he is a real estate mogul and as such, see’s Amazon as a threat to brick and mortar establishments. And to be sure, Amazon is a threat to these outdated establishments. But that has everything to do with Amazon’s innovative business practices and nothing to do with the company having an unfair advantage in the marketplace. The internet age has made physical retail spaces less desirable. But with the passing of the old comes robust opportunities for the new. This is precisely what is meant by creative destruction. And Amazon is creative destruction at its finest. 

But this hatred for Amazon has united Trump with an unlikely ally: Bernie Sanders. While the two do not usually agree on much, the U.S. Senator from Vermont also declared that Amazon was getting too powerful, saying:

“And I think this is, look, this is an issue that has got to be looked at. What we are seeing all over this country is the decline in retail. We’re seeing this incredibly large company getting involved in almost every area of commerce. And I think it is important to take a look at the power and influence that Amazon has.”

Bernie Sanders has been a voice for modern-day socialists who really do not understand much about the nature of power, or socialism for that matter. It should come as no surprise, then, that like Trump, Sanders does not understand how the market actually works. This is probably why he has claimed that Amazon has grown too large and is now a harm to consumers. 

Sure, Amazon’s founder Jeff Bezos may be one of the richest men in the world, but wealth does not make you an enemy of the American consumer. On the contrary, it is precisely because Amazon has made life so convenient for the American consumer, that Bezos has been able to acquire so much wealth.

Amazon Makes Life More Convenient

I had less than 24 hours left before my flight was scheduled to leave and as luck would have it, I had just broken another pair of headphones. This seems like a simple enough problem to solve, but as I was without a vehicle and pressed for time, I was not sure what I was going to do.

Sure, I could buy headphones in the airport, but I would end up paying a great deal for that convenience of doing so, as everything tends to be more expensive in an airport. Then I remembered that certain products are available within hours through Amazon prime. Logging into my account at 11:30 PM at night, I ordered a pair of Beats Studio Headphones and paid a few dollars for overnight delivery.

When I awoke the next morning, I received a notification from my apartment’s management office that I had received a package. I looked at my clock, it was still before 10 AM. Needless to say, I was shocked. In less than twelve hours, Amazon had prepared my order and delivered it to me, saving me from having to endure a 12-hour flight without being able to listen to music or an audiobook.

This is just one story of how Amazon has made my own life more convenient. In fact, just in my own life, I could provide multiple examples of Amazon coming through for me, just as I am sure many of you could do the same.

This is what Amazon has done for so many of us and it is why Amazon is so widely used. Amazon is good at what it does. Sure, that doesn’t mean they don’t have their own fair share of errors. But when Amazon fails, it has to deal with the consumer. When the government fails, on the other hand, it is the taxpayer who must pay.

And because Amazon has such a great reputation among American consumers it has been able to expand into areas that other companies have not. For example, because Amazon has never let me down on a package delivery, I felt more comfortable trying their grocery service, Amazon Fresh. I am now a devote user and even pay an additionally monthly fee for unlimited deliveries. And because Amazon Fresh has been so convenient for me, I also felt more comfortable trying out Amazon’s meal delivery service.

It is precisely because consumers trust its services so much that they feel comfortable supporting Amazon as it expands into new territories. Amazon is not becoming too powerful, it is responding to consumer demand. And consumers love Amazon.

Government Monopolies 

While Trump and Sanders would claim that Amazon is growing into some kind of monopoly, the only true monopoly is government. Whereas Amazon and others must respond to consumer demand in order to stay afloat in the business world, the government relies solely on force. And through this force, the government is able to seize the funds it needs to continue all of its federal programs, regardless of whether or not consumers are satisfied with what is being offered.

One prime example of this is the postal service, which Trump has listed as one of Amazon’s victims.

There is almost no reason for the post office to exist anymore. And yet, in the digital age where paper is being used less and less, taxpayers are still on the hook. But unlike other services, where consumers can choose which company to patronize based on their own market preferences, when sending mail you have one choice: The United State Postal Service.

And because of this forced patronage, consumers must endure long lines and inefficient government employees every time they need to send off an important parcel. And while private parcel services exist, like UPS and FedEX, there are certain laws that bar these establishments from transporting specific parcels that are a responsibility of the USPS.

If you want to talk about an establishment that is too powerful, I would say the USPS fits that description far more than the Amazon does. And yet, Trump’s war on the company continues. But no matter how angry his tweets are it won’t stop consumers from utilizing Amazon’s services. At the end of the day, Amazon performs all of its tasks better than its competitors and at a decent price. Its delivery apparatus has made our lives infinitely more convenient than at any other time in history. It is for these reasons that unless it is a result of federal force, it is not likely that Amazon is going anywhere anytime soon. Sorry Trump.

Hayek Was Right: Technological Progress Does Not Create Monopolies

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The fourth chapter of Hayek’s The Road to Serfdom deals with the issue of monopolies. Specifically, the myth “that technological changes have made competition impossible in a constantly increasing number of fields and that the only choice left to us is between control of production by private monopolies and direction by the government.”

Hayek explains how this fear that technology necessarily leads to monopolies played out in his own day. As labor saving machines were becoming the norm when it came to mass production, many smaller companies believed that technological innovation made them economically vulnerable. Technology created economies of scale, which favored big companies over small.

However, as Hayek pointed out, these fears neglect a host of circumstances regarding the very nature of monopolies altogether.  

Monopolies by Design

This belief that big companies always have the technological upper hand is simply untrue. As Hayek notes, even economies of scale reach an upper limit.  To be sure, large companies outcompeting the small do not inherently create monopolies. Instead, it is the policy crafted by the state that encourages the elevation of one company over another, as Hayek points out:

The conclusions that the advantage of large-scale production must lead inevitably to the abolition of competition cannot be accepted. It should be noted, moreover, that monopoly is frequently the product of factors other than lower costs….It is attained through collusive agreement and promoted by public policy.

Luckily for Hayek, time has proven his sentiment correct, as we are currently seeing today with the ridesharing economy and traditional taxicabs.

Before the advent of the sharing economy. Taxis enjoyed a near 80-year monopoly over the industry without having to deal with substantial competition. But this monopoly was not by coincidence, it was by design.

Medallion laws, as they have come to be known restrict entry into the traditional “cab” sector. Before a vehicle can be legally used as a taxicab service, it must seek the state’s permission and obtain a medallion.

In most major cities around the country, these laws exist primarily to restrict the number of cabs on the road and thus, control the competition. But what is more interesting about these medallion laws is who its biggest champions have always been: cab companies themselves.

By barring entry into this field, “taxi kings” have avoided any organic incentive to innovate because the need itself has been squashed by government policy. The state, with the help of cab company lobbyists, have crafted these policies so as to avoid any unwanted competition. If someone has a newer and better way to run the industry, they will have a hard time getting these ideas off the ground without paying sometimes as much as one million dollars just for one medallion.

However, this all changed when Uber came around.

Technology Levels the Playing Field

Taxi kings were seen to have the advantage over the cab market largely because they already owned fleets of cabs. These cabs were also already issued medallions by the state. While these factors would at least seemingly deter any new competitors from attempting to join the market, because it gave one industry a financial leg up over another, no one fathomed the rise of ridesharing.

Now, instead of access to technological progress causing large companies to squash their smaller competitors as was feared in Hayek’s day, technology and economies of scale are now actually working in the favor of upstarts.

Uber and Lyft, for example, have completely abolished the need for overhead costs when it comes to maintaining fleets of taxis. This is simply because the companies themselves do not own any physical cars. And since they do not actually own the cars, they have made the argument that the medallion laws do not apply to their model.

Since the sharing economy is based on individuals using property they already own in order to make a living, it negates any need for Uber or Lyft to make a costly investment towards owning a fleet of vehicles or permits in the form of medallions. Allowing them to compete with big cab companies who may have had the upper hand in an outdated market.

This has helped these smaller upstarts break into the market and break up the established taxi cartel. But this doesn’t mean their success has not been met with obstacles from the cab companies.

Technological advances, and especially smartphone technology, have completely restructured the way consumers even think about hailing a cab. Gone are the days when the only alternative to owning a car was standing on busy streets and hoping a cabby will notice you.

Without any real competition, there were no substantial reasons for the cab companies to alter their existing models. But once Uber, Lyft, and other ridesharing companies began rising in popularity, the cab companies got mad and demanded that the government take action. “We can’t compete with this new technology-reliant model,” some claimed, “This is unfair to our business.”

But just as in Hayek’s day, those who complained about technology putting their company’s at an unfair disadvantage only offered solutions that involved government intervention.

Last year, for example, a law was passed in Massachusetts that forced a tariff on the ridesharing industry. The purpose of this tax was to hold the ridesharing industry “accountable” for the cab industry’s inability to innovate and compete with their market competitors. In this case, it was the refusal to incorporate technological advances into their service models.

So instead of competing fairly, the cab companies got away with instituting a tax on their competitors that directly went towards funding the cab company’s apathetic quest to adopt new technology.

This is the reverse from Hayek’s day in that it is now lumbering incumbents scared of the technology savvy little guy instead of the reverse. But, in both cases, the fear-mongering capitalizes on the fear of technology. Both also reiterated the belief that the state should insert itself in the market to make competition more “just.”

And as Hayek has pointed out in every chapter of his book so far, state planning, whether in the form of new taxes or regulatory medallion laws, always serves to inhibit true competition. This is as true now as it was in the mid-1940s.

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