by Doctor Science
Yesterday was Amazon "Prime Day", and workers for Amazon in Spain and other European countries were on strike (I don't know if this had anything to do with the site's technical problems). Amazon is a notoriously terrible employer, but when I look at how CEO Jeff Bezos is running the company and what his business model seems to be, the bad working conditions and low pay aren't there for the usual spreadsheet reasons. Amazon isn't a scam, exactly, but it's not a business in the traditional sense: it's a performance.
There are two factors that make Amazon distinctive:
1. Jeff Bezos gets essentially no income from Amazon.
2. Amazon deliberately does not run a profit.
Bezos is not unique in not getting direct income from his company. His official salary is $80K, plus $1.6M for security. Mark Zuckerberg gets $8.8M for security from Facebook, on top of a salary of ... $1. Larry Page and Sergei Brin also get only $1/year from Alphabet (Google).
In all these cases, the company founders are taking no salary, but getting all their benefit from the value of their stock. They sell some of their stock (in 2016 Bezos sold 2 million shares for a total of $1.4B, for instance) and presumably invest that in something that actually returns an income. The important thing is that (they claim) this makes their interests align with those of stockholders, and also ensures that most of their income is taxed at the lower rate for capital gains.
American corporations are supposedly run for the benefit of the stockholders. They say they're also working for the benefit of their customers or of the world in general, but that's just so much advertising piffle. It's long seemed to me that they're actually run for the personal benefit and enrichment of the C-level execs, while the stockholders try to keep the execs' interests aligned with theirs--with varying degrees of success.
The other tech companies show profit margins on the order of 20-30% per year, but it's very rare for them to pay dividends. They plow their profits back into the company, in R&D or acquisitions or new projects. Though they don't pay out, their price/earnings ratios are not unlike those of non-tech stocks.
In contrast, it's clearly Bezos' policy for Amazon to make no significant profit, and to have a P/E ratio that is way out of line with traditional investment goals.
So why are Amazon workers underpaid? This really hit me when I was helping Sprog #2 look for a job this past spring. She was about to graduate from college with a degree in linguistics, so I urged her to look at working for Alexa in the Boston area. Alexa hires a lot of linguists, but with starting salaries in the low $40s, and frankly terrible reviews on glassdoor.com. Sprog ended up being hired at another firm, starting at over $60k. I am not surprised that people have found that Amazon tends to lower salaries in its region, using its monopsony power.
Pay at Amazon can't be low for the sake of profits, because there are no profits. Why have low salaries (and the high turnover and employee dissatisfaction that goes with them) when there's no fiscal need to? Why not treat and pay people decently, and continue to not-show a profit?
The traditional reason to do something like this is that you keep prices so low others can't compete (which is one of the reasons for Amazon's success), and then when you've driven them out you give the villain laugh Bwa-Ha-Ha-Ha! and raise prices to the ceiling.
I don't see any indication that this is actually Bezos' plan, though a lot of investors seem to assume that it is. Remember what I said about companies being run for the personal benefit of the CEO? Bezos' wealth is not based directly on what Amazon *does*, it's based on what "the Market" perceives the stock to be worth now and in the future. Amazon stock isn't an investment in the traditional stock-market sense, it's a speculation, like buying fine art. Stockholders (and Bezos) don't expect to be paid by Amazon itself now or in the future, they'll get money from third parties to whom they may sell their stock.
Bezos and Amazon are engaged in a performance, not a directly profitable business. Bezos acts like a hard-nosed businessman, focused on the bottom line, because that's what "Wall Street" likes to see. He keeps pay low and working conditions poor because Wall Street sees that as showing Seriousness--and because it's a promise, that should he decide to let Amazon be profitable, the rewards won't go the workers, they'll go to his fellow stockholders.
How do I know that Wall Street likes low pay and poor working conditions? Because of the experience of Costco, a company well-known for insisting on paying a living wage. (You can tell by going into one of their stores, and observing that the staff includes few immigrants or very young workers. Costco jobs are taken by American workers with job experience.)
Costco went public in 1985, and over the years, Wall Street repeatedly asked it to reduce wages and health benefits. [Founder] Sinegal instead boosted them every three years.This is from Bloomberg, echoing something I've heard many times. I don't know how Wall Street "asks" these things: smoke signals? a quiet word over brandy in the club? interpretive dance?
In any event, Bezos is much better at understanding Wall Street than the other tech billionaires, because before he started Amazon he was a hedge fund manager. So when he says
It’s the absolute dollar free cash flow per share that you want to maximize, and if you can do that by lowering margins, we would do that. So if you could take the free cash flow, that’s something that investors can spend. Investors can’t spend percentage margins.This is bullshit: he doesn't intend for Amazon to give investors anything they can spend, because dividends (aka spending money) are not in his plans. But it sounds good, it's reassuring to investors who are expecting a conventional company, and it serves his overriding purpose: increasing the perceived value of Amazon stock.
Amazon is not a scam: the people in the company do a great deal of useful work providing goods and services. But the fact that there's no tight connection between Amazon's work and Amazon's market value gives it an unstable, scam-like aura. The disconnect makes it feel almost like Amazon is a bubble, despite the real work it does. It's a failure of the capitalistic ideal that money corresponds to effort.
I'm pretty sure that Bezos' strategy (not unlike Warren Buffett's similar approach) is largely driven by the way the tax code favors capital gains over the money earned by mere work. If the tax code is changed to put capital gains and salaries on an even keel, then Bezos and his ilk might change their strategies to come closer to the capitalistic ideal of value for money. As it is, though, Bezos' staggering wealth keeps growing because he's acting out the ideal of many capitalists: enormous wealth for those at the top, while workers are just an expense that needs to be tightly controlled.
In sum: workers need unions, the ratio of CEO pay to worker pay can be meaningless, the tax code needs to be overhauled, and no-one needs a billion dollars.