Anti-monopoly and pro-local advocate Stacy Mitchell joins the show to talk about small business, big business, and decentralizing economic power.
Stacy Mitchell is the co-director of the Institute for Local Self-Reliance. She directs ILSR’s Independent Business Initiative, which produces research and analysis and partners with a broad range of allies to design and implement policies to reverse corporate concentration and strengthen local enterprise.
Twitter: @stacyfmitchell
Further reading:
Small Business Rising: https://www.smallbusinessrising.net/
Institute for Local Self-Reliance: https://ilsr.org/
Senate Testimony: Concentration is at the Root of Rural Distress: https://ilsr.org/stacy-mitchells-senate-testimony-on-state-of-rural-economy/
As Amazon rises, so does the opposition: https://www.nytimes.com/2020/04/18/technology/athena-mitchell-amazon.html
Why the left should ally with small business: https://www.thenation.com/article/society/democrats-labor-business-monopoly/
Report: Amazon’s stranglehold: How the company’s tightening grip on the economy is stifling competition, eroding jobs, and threatening communities: https://ilsr.org/amazon-stranglehold/
Don’t let Amazon get any bigger: https://www.nytimes.com/2020/10/08/opinion/amazon-antitrust.html
Amazon doesn’t just want to dominate the market – it wants to become the market: https://www.thenation.com/article/archive/amazon-doesnt-just-want-to-dominate-the-market-it-wants-to-become-the-market/
The rise and fall of the word ‘monopoly’ in American life: https://www.theatlantic.com/business/archive/2017/06/word-monopoly-antitrust/530169/
Big box swindle: https://stacymitchell.com/front-page/
Voters want to curb the influence of big tech companies: https://www.wsj.com/articles/voters-want-to-curb-the-influence-of-big-tech-companies-new-poll-shows-11632405601
Website: https://pitchforkeconomics.com/
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
David Goldstein:
Big-box companies are really the cause of a lot of the economic distress in rural America.
Stacy Mitchell:
It’s not that small businesses can’t compete, they are encountering various forms of monopoly power, various ways in which big companies can muscle them out of the market. What we really need to do is to level the playing field.
Speaker 3:
From the home offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the best place to get the truth about who gets what and why.
David Goldstein:
I’m David Goldstein, Senior Fellow at Civic Ventures. We’ve spent a lot of time thinking about the economic decline of rural America, and if there’s one thing we’ve become convinced of, it’s that it wasn’t inevitable. Over the past 40 years, we made policy choices that resulted in unprecedented levels of market concentration, and it is this outsized market power, particularly in retail, that has played a huge role in driving down wages and in destroying local businesses. Recently, I have the opportunity to talk with Stacy Mitchell, the Co-Director of the Institute for Self-Reliance, about how monopoly power is undermining rural economies and about the policies we need to revive them.
Stacy Mitchell:
I’m Stacy Mitchell. I am the Co-Director of the Institute for Local Self-Reliance. We’re an organization that does research and develops policies and strategies to reverse corporate concentration and build thriving local economies and communities, and I do a lot of research and analysis and writing about monopoly power, independent businesses, local economies, and Amazon.
David Goldstein:
Well, thanks for joining us. It’s especially fun to have you here on two counts. One is, we’ve been thinking a lot about regional economic issues, local issues recently and how to address them, and also, it’s fun for us to speak to somebody who’s been described as the “Strategist of the demise of Amazon as we know it.” How’d you get that title?
Stacy Mitchell:
I have been watching Amazon for a very long time, and originally got really concerned about how its ability to dodge, having to collect sales tax, was really powering its growth over lots of local independent retailers, and over time, just looked at more and more of the company and became increasingly concerned about how Amazon was reordering our economy and the consequences of it, and also the fact that for a lot of years, people weren’t really paying attention or weren’t really seeing kind of underneath the facade what Amazon was really doing, so I started writing a lot about the company, really beginning around 2015, 2016. We published a huge report in 2016 called Amazon’s Stranglehold, which laid out a kind of case about the company’s monopoly power, and then looked at the consequences for independent businesses, workers and communities, and since then, have been able to talk to a lot of journalists, lawmakers and others, as well as other folks working, other advocacy organizations worker, racial justice, small business groups, and have helped build a movement of people who want to take on Amazon’s power.
David Goldstein:
You testified earlier this year that the root of rural America’s distress is the concentration of economic and financial power, and power is something we’ve talked a lot about on this podcast. Explain why this is so important, particularly in rural communities.
Stacy Mitchell:
We have seen this just incredible consolidation across most sectors of the economy. It began around 40 years ago, but it’s really accelerated in the last 10 years or so, whether it’s the retail sector, whether it’s food and farming, I mean, all across the banking sector, all across the economy. There are fewer and fewer companies that control more and more of our industries, and one of the consequences of that is that those companies are putting their sort of higher-wage jobs and their facilities in relatively few places, and as those companies have come to dominate, lots of smaller and mid-size companies have simply disappeared, and what that’s meant is that the advertising company that was a regional company in St. Louis, Missouri is now gone. The mid-size manufacturer that had its base of operations in rural North Carolina is now been swallowed up and that facility has been closed. All across the economy, we’ve seen this.
We’ve seen independent small businesses disappear, fewer and fewer places where there are decent jobs, and then what the consequence of that is that there are lots of places that are being left behind, that includes large swaths of rural America, but it also includes some sort of cities, like second-tier cities that have been bypassed, particularly in the Midwest and Northeast as part of this economic consolidation, so we have a lot of regions that are really hurting and being left behind where people can’t find good jobs. They can’t succeed in starting businesses. There’s no way to get into the middle-class.
David Goldstein:
Yeah. For us, big city folk, we tend to think of rural America is nothing but farmland, but historically, that wasn’t really the source of most of the jobs.
Stacy Mitchell:
Mm-hmm (affirmative).
David Goldstein:
Yeah, you get this hollowing out of local economies. It’s very different from the way it was 40, 50 years ago. This didn’t start with Amazon, though, did it?
Stacy Mitchell:
No. I mean, it really started with a series of policy decisions, a series of policy decisions that undermined our antitrust laws, that helped consolidate the banking system. These are decisions that were embraced by both Republicans and Democrats, and the result of that is that we’ve got this incredibly consolidated economy and have lost tens of thousands of, as I said, small businesses, and as those companies have consolidated, they’ve also been able to use their power to hold down wages. There’s always competition for labor.
David Goldstein:
Mm-hmm (affirmative).
Stacy Mitchell:
These big companies have a lot of political power, so as they’ve gained economic power, they’ve had more power in Congress and in statehouses to rewrite the rules, rewrite regulation to favor their own interests, and so this is really ultimately the result not of something that’s happened in markets per se, but really, something that has happened in terms of the public policies that underlie how our markets are structured.
David Goldstein:
Really, Walmart was the pioneer of this, going into rural communities and becoming not just a dominant retailer, but a dominant employer, kind of paved the way for Walmart in this sense. Could you talk a little bit about the harm that Walmart has done to communities?
Stacy Mitchell:
Yeah, absolutely. I mean, in the 1980’s, federal policymakers just effectively turned antitrust policies on their head.
David Goldstein:
Right.
Stacy Mitchell:
Prior to that, antitrust was driven by this broad set of ideas about dispersing power, that we should have markets where there are lots of competitors where power isn’t concentrated in one single entity. Those were the animating concerns of antitrust. They were broad. In the 1980’s, a kind of ideological strain of thinking came along that I know you’ve talked about on this show before, but this idea that the only thing that really should matter is efficiency, and the idea baked into that was that big companies were more efficient, and therefore, we should stop considering anything but efficiency and ultimately low prices. Can they deliver low prices?
A consequence of that is that we removed a lot of the controls that had been in place to prevent middleman, essentially retailers from kind of using their position in between buyers, shoppers, if you will, and producers from using that position that they had in the middle to really dominate the market, and so Walmart came along and took advantage of those changes in antitrust policy that engaged in rampant, predatory pricing, coming into towns, offering low prices, selling goods below cost, and then when competing businesses that were too small, didn’t have the financial resources to run losses like that, went out of business, Walmart would raise its prices. Walmart would also go to big suppliers and say, “You’re going to give us huge discounts above and beyond what, even the kind of volume would suggest. You’re going to give us big discounts and you’re going to raise prices on our retail competitors,” this kind of waterbed effect. That also was another example where Walmart won, not by being better necessarily or even being more efficient, but simply using its raw financial and market muscle to get its way at the expense of competing businesses, particularly independent retailers. This was the formula, and it’s no coincidence that Walmart’s massive growth began in the 1980’s, just as we were shifting antitrust law.
Those two things go hand in hand. Walmart marched across the country, opening these huge stores everywhere, and very rapidly took over a huge segment of the retail market, and in particular, took over a big part of our grocery industry. Walmart captures one out of every $4 that Americans spend and has used that power, really to reorganize how we produce food to undermine lots of independent grocers and other local retailers, and to change the basic shape of our communities in ways that have made those communities have a shrinking middle-class more … Jobs are increasingly low-paid and that you can’t get by, working at Walmart, and it really gutted the heart and soul of a lot of these places. I mean, there is a kind of spiritual and social consequence of Walmart’s takeover that I think has been really not well-acknowledged.
David Goldstein:
Yeah. Walmart used to have the slogan, “Always low prices,” and of course, the flip side to that is that it was always low wages. I know there were studies that showed that when a Walmart went into a county for the first time, wages dropped in the retail sector, but specifically and even more so in the grocery sector, just across the board, as existing local businesses, small businesses had to compete with Walmart. The same, it turns out, is true for Amazon. When Amazon opens a warehouse in the county, it turns out …
They keep advertising how they’re paying a $15 minimum wage, but when Amazon opens a warehouse in the county, wages for warehouse workers drop too, and I believe … Is this true that half of American households now subscribe to Prime?
Stacy Mitchell:
Yeah, it’s actually about 60% of American households subscribe to Prime, and Prime is really Amazon’s tool for monopolizing markets.
David Goldstein:
Oh my God.
Stacy Mitchell:
It’s very ingenious. Once someone signs onto Prime and they pay that $119, you sort of naturally want to get the most value from it, and the way you get the most value from that money that you’ve laid out is by ordering more from Amazon, getting more free shipping, and so that it’s a psychological tool. Prime is a money-loser for Amazon. They lose a lot of money on Prime, but getting customers to pay that money is a key to kind of locking people into Amazon’s ecosystem. Then, once you have 60% of consumers, what happens is most Americans now, because of Prime, when they want to buy something online, they’re not going to a search engine and saying, “Oh, I’m looking for running shoes,” and typing that in, and they’ll get results from Amazon, but they’ll get results from other retailers, including local retailers.
Instead of doing that, they’re just starting on Amazon, and so if you’re a company that makes or sells anything and you want to reach consumers online, you have to go through Amazon. For a long time, we mistook Amazon as a retailer. We thought Amazon was a retailer, and I think this is part of how for many, many years, 20 or more years, policymakers and the American public kind of didn’t recognize the threat that Amazon posed because we didn’t really recognize what it was that Jeff Bezos was building. What he was really building was essentially, his goal was to be the infrastructure for the economy to essentially create the online platform through which other businesses had to go if they wanted to reach the market, essentially a kind of railroad, if you will. You now have to sell on Amazon’s platform if you want to reach the market, and if you think about it, the retail piece is only one part of this infrastructure.
Amazon through AWS, its infrastructure is much of the infrastructure that runs the internet. All sorts of other companies, government agencies run all over their operations and their data on AWS. You look at voice, Alexa dominates the voice market, so this is increasingly the way that people are interacting with the web, and also interacting with various goods and services, interacting with their appliances, their smart homes. We’re seeing Alexa in offices. This is a new platform, and by controlling these critical pieces of infrastructure, what Amazon has gained, what Jeff Bezos has built is this ability to have a kind of god-like view of everything that is going on.
It can see what goods are selling, which businesses are selling, what products online. It can see what’s happening across the cloud, everything that’s connected to voice, and it can use that power to both identify strategic advantages and give its own products superior placement on that infrastructure, pick off the best ideas of other companies and copy them, and also, it can levy essentially a kind of tax on all of this other economic activity through the fees that it charges. Amazon generates a lot of its revenue now, comes from the tolls essentially, that a business is selling on its marketplace pay, that a company’s using AWS pay. I mean, it’s a massive machine for consolidating power across the economy and generating extraordinary revenue by basically muscling other companies and being able to take a cut of everything that they sell.
David Goldstein:
This raises the issue of antitrust again. You mentioned before how the way we … It’s not really the antitrust laws that changed, just the way we interpreted them. They used to be interpreted in a way that the focus was on preventing outsized market power and concentration, and at some point, it got reinterpreted too. Well, always low prices, that if it was good for consumers, it was good for the economy, but you mentioned just now the idea of comparing Amazon to a railroad, and the railroads were regulated as common carriers.
That is another big part of our antitrust law. In your opinion, is the solution to break up Amazon, is it to regulate it as a common carrier, as a kind of utility, or is it some combination of the two?
Stacy Mitchell:
Yeah, it’s really both. We need both. I think that we need to split Amazon up into several companies. We need to split up its marketplace, its online shopping platform as a separate company from Amazon as a retailer, because right now, you have a situation where Amazon is operating the marketplace, and then also selling its own goods on that marketplace, and of course, that’s a huge conflict of interest. I think we also need to separate AWS because AWS, in part, it’s one of the cash cows that Amazon uses to cross-subsidize strategic losses and other parts of its company in order to maintain its monopoly power, and we also need to cleave off Amazon’s logistics.
Amazon has now built up a shipping operation that rivals UPS and the postal service, so I think we need to split up Amazon into at least five companies. Those would be fairly large companies, but they would be broken up along business line, and that’s really crucial because when you look at how Amazon leverages its market power to strong-arm companies and small businesses, what you see is that it’s often leveraging power in one division to gain an upper hand in another, that the power comes from that integration across business lines, so if you break Amazon up, you force each of those companies to have to compete on their own merits, so you’ve got a shipping operation that has to really compete with UPS, and the postal service can’t just say to its third-party sellers, “You have to use our shipping service,” which is what’s happening right now. Instead, they got to compete. They got to compete on price and service. Similarly, you get a retail operation that would be something like a new Target, and again, would really have to compete, couldn’t just use its control over our marketplace to advantage its own products.
There’s a lot of benefits to breaking Amazon up and I think is a really essential part of solving it, but then within that, we do have to look at pieces of it that, as you noted, rise to this level of being kind of critical infrastructure for other companies, and certainly the online platform, the shopping platform, the marketplace falls into that category. Because of that 60-plus percent of Americans who are starting their shopping there, it is essential infrastructure if you want to get to market, and that requires … We’ve long known, as you mentioned, with the railroads and with other kinds of services that are similar infrastructure services, you need a higher standard. You need a public oversight and regulation, and so often, what we have done is required those types of companies to not discriminate, to offer service at fair rates for all of the companies that want to use their infrastructure, and we need to do that as well with Amazon.
David Goldstein:
Let’s talk a bit more about how communities and small businesses are starting to fight back.
Stacy Mitchell:
It’s a really great question. One of the consequences for local communities of Amazon’s really outsized power is that we have lost over the last 10 years tens of thousands of independent small businesses, not only retailers, but we’ve lost a lot of small manufacturers and producers who’ve really been squeezed and driven out of the market by Amazon’s practices. We conducted a National Survey in 2019 and found that Amazon is basically the top threat facing independent businesses, according to small businesses across the country. For many communities, what this means is that there are disappearing local businesses, disappearing local jobs. It’s harder and harder now to start a small business and succeed.
If you’re somebody looking for a job in a local economy, you have fewer and fewer opportunities of where to work, and those wages are really falling because of Amazon’s market power, its ability to set low wages not only in the warehousing sector, but across lots of other parts of the economy, so a lot of the kind of economic despair and hardship that we’re seeing in many places, Amazon is a central part of that story. I would also say, I think more and more, and this is true of Amazon, but just general of kind of corporate power, of monopoly power in our economy, there’s a sense among many Americans that we no longer control our own destiny, that our government is overrun by these big companies, that our ability to operate as sort of free citizens in the world is really compromised by the economic power that these companies have, and the political power that they have, and so there’s a way in which this really goes straight to the heart of the fraying of our democracy and the consequences that that has for how we relate to one another and the well-being of our local communities and our families.
David Goldstein:
A lot of the stuff you’re talking about isn’t just theoretical. You talk about businesses disappearing. The rate of new business formation has been dropping for the past 20 years, and this is particularly true in rural businesses, where the concentration of large employers is counterintuitively larger than it is in big cities. Let’s talk a little bit about the solutions. We love to ask the benevolent dictator question. If you were the benevolent dictator, what would be your response?
Stacy Mitchell:
The good news is that there is a growing anti-monopoly movement, and in particular, small business groups through a coalition that we helped found, Small Business Rising, are now working really hard to help members of Congress really understand the consequences of monopoly power for local economies and what to do about it. I think part of the answer is that we need to take specific steps to address the power of tech companies. There’s a set of legislation in Congress that would do this, the Big Tech bills that passed out of the House Judiciary Committee earlier this year. We hope to see those bills brought to the floor soon. Those bills would break up Big Tech, including Amazon, would impose a number of regulations and limits on how they operate, that I think are really important, but then, we also need to resurrect and reinvigorate our antitrust policies more broadly.
We need to bring back a sense that antitrust’s role is to create healthy, vibrant markets, and that we need much more aggressive policies, not only to stop mergers that don’t make any sense, but also to look at places like Walmart, for example, where you’ve got this outsized behemoth that is really having a real effect on farmers, the food system, and lots of other sectors of our economy, so we need to bring back antitrust. We need to look at our tax policy. There are lots of ways in which we have these huge loopholes, that big companies, Amazon, for example, pays … The last few years, they’ve paid effectively no federal income tax. Meanwhile, the local business down the street from you is paying an effective rate of around 25% of their income in taxes.
That’s just grossly unfair and explains part of the imbalance in our economy, but lastly, I would say, and a big part of what my organization does is we develop local policies that cities can do to build local businesses, to build their local economy, and there’s a lot of tools at that local level. We are indeed seeing lots of towns thinking about, “What do we do to help support people in getting financing to start businesses? What do we do to help create the kind of built environment where those businesses can be successful?” There are a lot of tools at that level as well.
David Goldstein:
I’m going to channel Nick here since he’s not in on this conversation. I’m sure he would raise this policy idea if he were here. One of the things we’ve talked about is the idea of holding larger employers to higher standards, that an Amazon or a Walmart, because they’re a super large company, would pay a higher minimum wage and be required to provide more expensive benefits to their employees than would, say a small local business. Do you think there’s a role for that in revitalizing rural economies?
Stacy Mitchell:
Yeah. I’ve actually read Nick’s writing on this, and I disagree with him. What we hear from independent businesses and what we see in our research is it’s not that they can’t compete. Small businesses are highly competitive and they often outperform big businesses. I mean, there are a lot of sectors of the economy where our research has demonstrated this.
Independent pharmacies have lower prices and better service, according to Consumer Reports and lots of other research that’s been done, and yet, independent pharmacies are losing ground to CVS and Walmart. We see this in broadband. I mean, the highest speed, lowest cost broadband providers in the country are, for the most part, all small. They are not the big companies. We see this in lots and lots of sectors of the economy.
It’s actually kind of a myth. When we see small businesses disappear, the ideology that has kind of crept into all of our thinking over the last few decades is this notion that bigger is always better, and so we see small businesses close and we think, “Oh, well, they just couldn’t compete. They couldn’t keep up. They’re not as efficient,” and that’s not true at all. You go looking, and as we have done in our work, and one sector after the other, you see that it’s not that small businesses can’t compete, and as I said, often actually outperform on really key metrics, but that they are encountering various forms of monopoly power, various ways in which big companies can just muscle them out of the market or cut off their access to key supplies or arbitrarily raise their prices that they have to pay for goods, and it is those issues that are really the problem.
It is the unlevel playing field of having to pay a 25% federal income tax when Amazon, your biggest competitor, gets off paying nothing. That’s the issue for them. Independent businesses in many sectors actually pay higher wages. This is certainly true in retail, the area that I’ve studied the most. Small retailers on average pay higher wages than big companies like Walmart does.
They’re perfectly capable, and I think should absolutely treat their employees well, treat their communities well, follow high standards in terms of workplace issues, in terms of environmental policies. What we really need to do is to level the playing field and let them naturally outcompete while being good community citizens, because that’s what they’re capable of doing.
David Goldstein:
Yeah. I think too often, we get locked into this vision of the old economy. It used to be true that large corporations, there was a wage premium working for large corporations, but that was true in white-collar and manufacturing work. It’s never really been true in retail.
Stacy Mitchell:
I actually wrote a piece about this a few years ago. If you really start to actually break down that data about that notion that big companies pay more than small companies, what you find is that there’s a lot of wrinkles that totally changed the story. One example of that is that when we see that, it’s often the average wage for a big company that we’re looking at, and it’s averaging in those really high salaries for the folks at the very top, the CEOs, the other executives, the top management. If you look, the median employee in that company, and particularly, the lower tiers of wages in that company, those folks, there’s no difference or small businesses actually pay more, so once you take off those really high-paid executives that are tilting the average, what you find is that small businesses are on par, even in some sectors, pay more than big companies do. The other thing that’s interesting is that I think it’s really notable when you look at the history over the last, say 100 years or so, that the period of time in which working Americans were doing well in terms of median wages being relatively high and unionization rates going up, so that period of time from the late 1930’s through the ’40s, ’50s and ’60s is also a period when small businesses are booming and have a growing market share in many sectors.
Then, you hit the 1970’s, and we see both union rates and wages decline, as well as small businesses, and so I think that there’s a different relationship between small businesses and the well-being of working people than the one that we currently imagine, that is an economy in which big corporations are sort of held in check and independent small businesses are able to succeed is also an economy in which workers have relatively more power and are able to secure higher wages, and also have the political power to get higher minimum wage legislation and other kinds of workplace legislation passed, so I think we really need to rethink this kind of misunderstanding, in my view, around small business and its relationship to the well-being of labor and working people.
David Goldstein:
If our listeners wanted to help you in your effort, how do they get involved?
Stacy Mitchell:
Yeah. I’m a big fan of e-commerce. We’re not looking to change the fact that you can get stuff delivered to your front door. Everyone loves that. I just think that we need to move towards an economy in which we have access for all kinds of businesses to do that successfully and not a market that’s totally cornered by a single company.
The way to get in touch with us is we’re the Institute for Local Self-Reliance, so you can go to ilsr.org, our website. I encourage people, in particular, to sign up for our Independent Business newsletter. That’s the best place to keep track of some of the work we’re doing on Amazon, and monopoly power in general. Then, I also want to say if you’re a business or you know folks who own or work at small businesses, please consider joining Small Business Rising. This is a growing coalition that’s pushing for Congress to make changes to our antitrust policy and to really rein in the power of Amazon and other big companies.
David Goldstein:
Of course, there will be links in the show notes if listeners want to click through. Now, we’re down to our final question, Stacy. Why do you do this work?
Stacy Mitchell:
I grew up in a place that was very much kind of marginalized. I grew up in Portland, Maine in the 1980’s and ’90s, and it was a place that was really struggling, that had lots of people struggling to get by. Most of the storefronts downtown were empty, and I just had a sort of, for sure, very much valued the idea of living in places that were vibrant and healthy where people knew their neighbors, where your community felt democratic, felt like it controlled its own future, had sort of the ability to direct where things were going for your local place, and there were a lot of ways in which the … When I was growing up, Portland was very much at the kind of losing end of a lot of external power, and that led me to study history. I was interested in how things change, and I was interested … I studied labor history, the history of social change movements, and then was fortunate enough to find work, helping to kind of advocate for shifting how we do policy and how the economy works.
Speaker 3:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer, follow our writing on Medium, @civicskunkworks, and peek behind the podcast scenes on Instagram, @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.