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Curbing the New Corporate Power

Sabeel Rahman raises many important issues in his discussion of Internet-based companies such as Amazon, Uber, and Airbnb. Unfortunately, he looks in the wrong direction for answers.

His basic point is that these companies are developing substantial market power and using it to put downward pressure on the incomes of producers in the relevant sectors. Rahman’s proposed solution is to apply utility-type regulation to these companies, which would presumably mean government regulatory boards setting prices and standards.

While these companies provide considerable grounds for complaint, as I have frequently written, declaring them monopolies in need of government regulation is misguided on both economic and political grounds.

First, it should be recognized that these companies do not necessarily belong in the same basket. Uber and Airbnb both appear to be highly profitable upstarts that have made a great deal of money in their very short lifetimes. By contrast, Amazon is a marginally profitable company that has made more from avoiding state sales taxes than from the services it provides to consumers.

This point is central to any claim about Amazon’s market power. A company that doesn’t cover the sales tax that its mom-and-pop competitors must pay hardly sounds like a market behemoth. It is true that the company has a huge market capitalization, but so did AOL. Amazon is far from an overwhelming presence in most of the retail markets in which it competes. Arguably it is dominant in the book market, but is Rahman confident that it would retain this dominance if it raised its prices by 10 to 15 percent to make a normal profit? Is it that hard for book buyers to go to a different Website?

I also don’t have much sympathy for the publishers and authors who fear declining incomes due to Amazon’s pressure. They have been more or less idle while millions of small businesses went under in the last three decades because they couldn’t compete with bigger, more efficient companies. Tens of millions of factory workers lost their jobs or saw big pay cuts because the government deliberately placed them in direct competition with low-paid workers in the developing world. Now it is a profound crisis that a tiny group of intellectuals feels similar market pressure? Sorry, I have more sympathy for the family farmers and textile workers.

Playing hardball with publishers does not get Amazon on my shit list. Avoiding sales tax and engaging in illegal labor practices does. To my mind, the best place to start with Amazon is to apply the existing laws. Level the playing field. There is no economic argument for Amazon’s preferential treatment, so make the company responsible for collecting the same sales tax its smaller competitors everywhere it operates.

This same logic should apply to other companies Rahman cites. Uber drivers should be protected by the same minimum wage and hour regulations as other workers. They should also be covered by workers’ compensation. And the company should be required to provide insurance for its drivers and ensure passengers’ safety in the same way as incumbent taxi companies. They should bear the same responsibility for serving the handicapped and elderly that existing cab companies do.

Ditto for Airbnb. Ordering over the Internet should not be a basis for evading fire safety laws, apartment or condo building rules, nondiscrimination statutes, and rent-control ordinances, where they exist.

I also hesitate to embrace Rahman’s solution because the history of utility regulation has hardly been exemplary. The problem of industry capture is real. Comcast is interested in what the Federal Communications Commission does, the general public much less so. We can’t just wish this problem away.

Pressing for utility regulation also makes little sense in the current political climate. If progressives lack the political influence to make Amazon liable for the same sales tax as a mom-and-pop grocery store, how can they induce the government to set Amazon’s prices?

Leveling the playing field seems the best first approach, coupled with some innovation. Is there any reason city governments can’t cut out the middleman by establishing their own taxi fleets or setting up their own bed and breakfast services, which could be linked nationally?

The reforms of the Progressive Era led to many beneficial changes, but we might try thinking forward for once instead of looking back a hundred years.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

This piece originally appeared in the Boston Review.

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

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