Amazon Is a Private Government. Congress Needs to Step Up.
At a hearing of the House’s antitrust subcommittee recently, Amazon founder Jeff Bezos seemed rattled to discover that his appearance was not a public-relations exercise but a deposition.
Bezos, who devoted much of his five-minute opening statement to talking about his childhood, appeared unprepared to field questions about his sprawling empire, which dominates online retail in the United States, controls the backbone for much of the web through its cloud-computing division, and has lately built a parcel-delivery operation that rivals UPS and the U.S. Postal Service. Remarkably, Bezos had never before testified in front of Congress. As pointed questions came at him from both sides of the aisle, he hesitated and stammered through many of his answers, and said—implausibly—that he didn’t know or couldn’t recall the details behind several of Amazon’s strategic decisions and core functions. On occasions when he did venture more of a response, he made incriminating admissions about specific tactics his company uses to snuff out competitors.
The hearing was one of the final steps in the subcommittee’s bipartisan, yearlong probe into whether Amazon and three other tech companies—Apple, Facebook, and Google—are abusing their market power to thwart competition and entrench their own dominance, and if so, what Congress should do about it. The committee is expected to release its report in early September, and it could well be damning. The report may call for regulating the tech giants’ behavior, splitting them up into smaller companies, or both.
Despite all of this, Amazon’s share price barely budged after the hearing, suggesting that Wall Street harbors little fear that anything will come of the investigation. The very next day, Amazon announced record profits. During a quarter in which the overall economy shrank by a staggering 32 percent amid a cascade of business failures, Amazon’s blockbuster earnings provided still more evidence that its grip on e-commerce is tightening. Seeing no end to the monopoly gravy train, investors sent Amazon’s share price soaring. By the end of the week, the discussion in tech-policy circles had moved on to whether President Donald Trump had the power to ban the Chinese-owned app TikTok.
These developments illustrate the challenges facing lawmakers who want to rein in the U.S.-based tech titans. Even if they can put forward a convincing case that, for instance, Amazon is unfairly crushing small companies, most Americans can hardly imagine that the government will act, or even that it can. The problem isn’t just that Amazon employs more lobbyists than the U.S. Senate has members. It’s that the machinery of government has been dysfunctional for so long that Americans forget it even exists. This is especially true when it comes to questions of how the economy is structured. Both political parties long ago abdicated their responsibility to be a check on the accumulation and the abuse of private power. Americans who believe this deference to big business is unwise have been conditioned to see ourselves as helpless.
I encounter this every day in my work. As a researcher and the head of a nonprofit organization that seeks remedies for rising inequality and the decline of small local businesses, I’m worried about monopolies in general and Amazon in particular. (Last year, I testified before the committee as an expert witness in its investigation.) Amazon is a gatekeeper. By some estimates, more than 60 percent of Americans start their search on that site when buying goods online. The retailers and the manufacturers who do not sell there are at a deep disadvantage—which gives Amazon enormous power to dictate terms. If my inbox is any indication, many people share my view that Amazon has too much power. And yet the only response most can envision is a campaign calling on people to cancel their Prime memberships. Americans have somehow forgotten that we’re citizens of a democracy that possesses formidable tools for restoring balance and fairness to our economy.
[Franklin Foer: The tech giants are dangerous, and Congress knows it]
For that reason, what happens next in the investigation is crucial. The committee’s work is that of a democracy rediscovering its capacity to determine how the economy should operate—and how to hold the powerful accountable to the law. Its ultimate outcome will speak to two of the most consequential economic questions Americans face. One is whether a handful of tech giants will continue to wield outsize power over our commerce and communications. The other is whether we’re still capable of governing ourselves.
Much of the subcommittee’s work has been happening quietly out of view. Over the past year, its staff of attorneys has sifted through more than 1 million documents that the four corporations were ordered to hand over, reviewed submissions from more than 100 of their suppliers and competitors, and conducted hundreds of hours of interviews with witnesses. Seeking testimony from the CEOs was the final step in the investigation. It gave the executives a chance to address the evidence against them before the committee issues its findings.
The burden is on the subcommittee to show Americans that what Amazon and the other tech giants are doing is both wrong and harmful. Armed with witness statements and internal company documents, the subcommittee and its staff are framing an argument: Although these companies may still produce the occasional innovative product, they’re not nearly as inventive as they would have us believe. Rather, they have achieved their extraordinary reach through raw power. The tech giants have become gatekeepers, and they exploit that control to advance their own interests. At the hearing, the subcommittee members translated the sometimes-arcane language of antitrust law into words everyone understands. They talked of spying, stealing, and bullying.
Representative Pramila Jayapal of Washington, a Democrat whose district encompasses Amazon’s Seattle headquarters, pressed Bezos on evidence that Amazon routinely mines the pricing and sales data of the independent sellers on its site and uses this information to develop its own competing versions of their most lucrative products. “Do you think that’s fair to the mom-and-pop third-party businesses who are trying to sell on your platform?” she asked. When Bezos asserted that these sellers are Amazon’s “partners,” Representative David Cicilline of Rhode Island, who chairs the subcommittee, quoted from company documents in which Amazon instead calls them “internal competitors.”
That Amazon exploits its power in one part of its operations to further its interests in another was a theme the subcommittee returned to repeatedly. One example of this was the questioning by Democratic Representative Mary Gay Scanlon of Pennsylvania about Amazon’s logistics division. During a moment that will undoubtedly haunt the company’s lawyers, Bezos confessed that Amazon’s algorithms deliberately steer shoppers to sellers who use its shipping services. This helps to explain how Amazon has, in just a few years, built a package-delivery operation that’s on track to overtake UPS and FedEx by 2022. It accomplished this feat not by competing with these carriers on price and service, but by leveraging its control over the many businesses that depend on its website.
[David Dayen: America’s monopoly problem goes way beyond the tech giants]
Ken Buck, a Republican representative who is a member of the conservative Freedom Caucus, continued the theme, grilling Bezos about evidence that Amazon had deliberately allowed counterfeits to proliferate on its site in order to extract protection money from suppliers. He cited the experience of PopSockets, a start-up in his home state of Colorado that makes popular phone accessories. The company’s founder told the subcommittee that Amazon declined to rid its website of fake versions of his products until he agreed to spend $2 million to advertise on the site.
The subcommittee also has evidence that Bezos had leveraged his exceptional backing from Wall Street to block upstart competitors from gaining a foothold; that Amazon lost $200 million in a single month selling diapers below cost in a bid to force the parent company of a popular rival, Diapers.com, to agree to be acquired; that Amazon sold Echo speakers below cost and bought up potential rivals such as Ring so that its Alexa voice assistant could dominate the “smart home” market. Lawmakers have also documented the consequences of these practices—the small businesses, the software developers, and the product inventors who live in fear of being crushed at Amazon’s whim.
Amazon, of course, is just one of the tech giants under the antitrust subcommittee’s scrutiny. The panel is building a case that these companies have created a form of private government—autocratic regimes that are tightening their control over our main arteries of commerce and information. As such, they threaten Americans’ liberties. “Our founders would not bow before a king,” Cicilline said at the hearing. “Nor should we bow before the emperors of the online economy.”
Congress has not conducted so detailed an investigation of monopoly power in the lifetimes of most Americans, so it’s hard to conceptualize where it might lead. But if the past is any guide, it could precipitate both new laws and antitrust prosecutions. In 1938, for example, Congress set up a commission to examine concentration across multiple industries. Its findings led the federal government to file a major antitrust case, change the patent laws, and, in 1950, pass sweeping legislation to restrict mergers. Congress conducted other investigations of monopoly in the 1950s and 1960s, and the results shaped antitrust enforcement. But then, beginning in the 1970s, monopoly was sidelined as a concern by both political parties.
The House’s antitrust subcommittee is resurrecting this tradition, and there are signs its work is already having an effect. State attorneys general in New York and California have reportedly opened antitrust investigations into Amazon.
But a multiyear court fight is not the only way to restructure Amazon and the other tech giants. The subcommittee may recommend a more straightforward approach. Congress could approach digital platforms the same way it did the railroads, another pivotal technology that governed market access. In the late 19th century, a handful of railroad barons used their control of the rails to monopolize other industries. They captured the market for coal, for example, by blocking rival producers from using the rail lines to get their coal to market. They also charged farmers exorbitant rates to ship their crops. Congress responded by setting up a commission to oversee rates and ensure that the railroad companies did not discriminate against some customers by imposing higher prices or different terms of access. Then, in 1906, Congress enacted a law barring the railroads from maintaining an ownership stake in firms that produced goods requiring rail transportation, thereby dissolving their ability to self-deal.
By passing a similar law today, Congress could compel Amazon to spin off its core parts, making each of its major divisions—its online marketplace, retail division, cloud services, and logistics operation—a stand-alone company. Doing so wouldn’t eliminate what people like about Amazon. But it would prevent Amazon from leveraging the interplay between its parts to sidestep competition, exploit smaller companies, and expand its dominance into adjacent markets. It would, in the words of the NYU business professor Scott Galloway, “oxygenate the economy,” opening the way for new businesses, new innovations, and new jobs.
Amazon’s investors clearly aren’t worried that this will happen. The antitrust subcommittee’s work may not lead to legal changes for years, if at all. But in the middle of a pandemic that has spawned so much rethinking of how American society has come to operate, the panel is offering a reminder that tech monopolists, too, are subject to democratic rule. By limiting their ability to expand their power, Congress could also reestablish America as a democracy that can actually solve problems and govern itself.