The following article is part of an ongoing conversation we'll be having this week about Amazon and what its place is within a strong town:
- Kea Wilson wrote an article today arguing that Amazon is harmful to towns hoping to be strong. Below is Chuck's rebuttal.
- On Thursday, April 27, we'll release a podcast in which Chuck Marohn and Kea Wilson debate the merits of and problems with Amazon.
- On Friday, April 28, at 11:30am CT, we'll host a live conversation on our Slack discussion forum to consider Chuck's and Kea's arguments and hear your perspectives on this issue. Everyone is welcome to participate. Join our Slack here, then visit the #_scheduled-slack-chat channel at 11am CT on Friday to chat.
My colleague, Kea Wilson, felt compelled to write a piece about Amazon. I respect her thoughts and think they are worthy of your consideration. There is more than one path to building a Strong Town and I think it is important that we be open to them all. A humble approach that embraces the wisdom of the chaotic but smart insists on it.
Even though I respect her thoughts, I’m not in agreement. I have the unfair luxury of going second in this “debate” and so I have her arguments there to refute, but I’m going to start with a related observation of my own: I don’t dislike Walmart. In fact, I don’t dislike any of the big box stores, including their business practices.
I look at the big box phenomenon – which I do find to be really destructive – as the inevitable byproduct of the economy we have created. Walmart has simply responded to the environment we have set up. They have positioned themselves to perfectly exploit the system that we have created.
It’s like clearing a forest, tilling a field and then standing back and watching what grows. You hate the weeds that come up? You wish a forest would grow? That’s not on the weeds; you did that! The weeds simply respond to the environment that was created. If you don’t like the weeds, you need to change the conditions that gave them primacy.
This has always been – and I say this to make a point, not to inject partisan politics into this conversation – this has always been my problem with the political arguments of the Democratic party. Is income inequality a problem? Absolutely. Is the best way to address it to keep the centralized economic system we have, with all it’s unfair advantages and distortions, and then have our politicians redistribute the spoils once that brutality has had its way? I find that a cynically convenient proposition for a ruling class to put forth. It offends me, quite frankly. (And, for the record, Republican silence on income inequality offends me as well.)
We have created an economic system full of brutal advantages and distortions that empower a style of development – top down, centralized, hyper-efficient – that I believe is bankrupting America city by city, neighborhood by neighborhood, family by family. We’ve robbed the wealth of generations for short term gain.
As this system fails – which I think we’re seeing all around us with not just failing infrastructure but an anemic economy, a jobless recovery and a volatile political dialog – and as we experience the decline that comes with that, I see Amazon as a bridge to something sane. It is, if you will, the methadone to our crack economy.
Let me say that I do not own any Amazon stock. I think Amazon stock is insanely overvalued. As I write this, AMZN has a price to earnings ratio of 185. That’s insane. We’ve been here before – twice in my life – and that will regress to normal.
Understand what it means to “regress to normal”. It means that the savings of Baby Boomers, the pension and foundation dollars in a mad rush for appreciation, the gamblings of Millenials and the Wall Street laundered subsidies of the Federal Reserve will cease to subsidize your Amazon.com order. Then Amazon will need to function like a normal company. It will need to make money. It will need to show how it can do that over the long term. As currently constructed, it will struggle in that endeavor.
The Amazon ”benefit” that will go away – the one hardest to sustain – is the free two day shipping. Long time Amazon Prime subscribers have seen the company hedging on it already. Note that current gas prices are low while infrastructure delays remain minimal; wait until that changes. When this happens, for most of America, Amazon 2020 will become essentially Sears Roebuck catalog 1890. We’ll be happy to have them.
I’m not motivated by the argument that Business A doesn’t pay the requisite property and sales tax that Business B is subjected to. That assumes that our tax system is correct and perhaps even moral. I find it to be neither. It’s also simplistic in the underlying assumption that, in an economy as top/down and centralized as ours, that we, the people, can actually compel large corporations to pay taxes (see Apple, only without the corresponding outrage).
I’ve long argued that government taxing authority and regulatory complexity is inverted. Local governments should have the most authority and the most complexity – they are closest to the nuance and grasp the fine-grained subtleties – and the federal government should have the least. Instead, for example, here in Minnesota we have a statewide property tax system. This means that Minneapolis has the same tax structure and incentives as a logging community on the edge of the Boundary Waters Canoe Area Wilderness. That type of “efficiency” benefits those that are big enough and close to power to take advantage of it.
So, again, we create a bad game with bad rules and then complain when players in the game follow those rules. If you don’t like the game, change the rules. Sales and property taxes collected at the state level and redistributed back to cities is a policy with consequences. Amazon is one of them.
This same logic must be applied to job creation. As we say at Strong Towns, job creation and economic growth are the results of a healthy local economy, not substitutes for one. I’ve long argued that we need to slow down the velocity of our local economies – less efficiency and more resiliency – if we want them to successfully create meaningful jobs. Amazon operates in a high velocity world. This is great between cities – roads and other connections between places must be high velocity – but within our city the emphasis needs to be on building enduring wealth. We build enduring wealth by emphasizing antifragility, not efficiency.
So, yes, the big box stores are failing because they are a fragile business model and we see Amazon helping to push them off the cliff. It’s hard to argue that, in 2017, this is going to be bad for Main Street businesses. Replacing Walmart with Amazon is a radical shift that, if it does nothing else, allows people an opportunity to stay out of their car when consuming. This is why I call Amazon the big box methadone; ultimately it’s going to help us transition to a more localized economy, one less dependent on consumption, one where we (gulp) actually grow and manufacture more of what we consume near where we consume it.
There is an attempt to ignite a certain amount of indignation when my colleague asserts the following in her closing:
The more I learn about it, the more it seems the only way for Amazon to win is for them to take the whole pie. They need to sell everything, to everyone, at every stage of production and consumption.
We could write the same thing about Google, Apple, Wells Fargo or the U.S. federal government. This is the nature of large, centralized systems. Don’t be distracted by an argument that cherry picks a single villain amongst a cast of evil characters. If you’re intellectually consistent in opposing Amazon, you must also be against a system that gives it overwhelming competitive advantage. Stop supporting the centralization of our economy – political, social and financial – and you’ll get closer to the outcomes you want.
Amazon is a bridge to a hopefully better future. I appreciate that they have allowed me – a guy living in a small town in a rural area – to avoid visiting our big box cluster, stick to my bike instead of my car and spend more time and money in my core downtown. They provide the same opportunity in our major cities. As our fragile economy continues to strain, let’s put our energy into changing the rules of the game instead of wasting time lamenting the outcomes of the current game and, even worse, villainizing the people -- consumers and investors a like -- who play it.
(Top image source: Carl Malamud)