06 December 2013

The Ethics of Amazon UK

One of my friends posed an ethical question last week regarding the online retailer Amazon UK. Should we boycott them because of what's been in the news. This is the (very) long version of my answer.

Most people know the story of the world's largest online retailer. Amazon.com went line in 1995 selling books, and was able to undercut the prices of traditional bricks and mortar stores precisely because it did not have to pay rent, salaries etc associated with physical stores. All they needed was a warehouse and a bunch of minimum wage drones to fill orders. Part of the reason Amazon succeeded what excellent customer service. Amazon became the success story of online retailing. In fact it took a longish while for the company to start making profits, but it was obvious from the outset that they had a "killer app" and they went from strength to strength. 

I'm a long time customer of Amazon in several countries and have sent books to friends and family around the world using Amazon. On very few occasions have I had any trouble with items arriving and then I've had excellent customer service from them. I'd have no trouble recommending buying from them on that basis. But in recent times Amazon in the UK have been in the news for other reasons.

Bad News from Amazon

Earlier this year (May 16) the BBC reported that "Amazon's UK subsidiary paid £2.4m in corporate taxes last year, the online retailer's accounts show, despite making sales of £4.3bn." Now there's a big difference between sales and profits. And one of the major deficiencies of financial reporting throughout the UK media is making precisely this distinction between turnover and profit. The question we need to know the answer to is what was Amazon's profit margin. Figures on this are a bit confusing, but what I found was this.

In April this year Amazon worldwide  reported a 37% drop in profits. Amazon made a loss of $39m, for the year 2012, even as it had sales totalling $61bn. On paper Amazon UK is simply not very profitable despite turning over tens of billions of pounds. How can a company with such high turn-over, with low overheads built into the structure of the business model (i.e. no shops or shop staff) make such dismal profits?

The reduction in profits is put down to "aggressive expansion plans and investment in new products." Profit ploughed back into expanding the company is not taxable. However they are also losing a lot from selling at a loss. By cutting prices they gain market share and in tough economic times their competitors may well go to the wall, like Borders did in 2011 (2009 in the UK) and has many independent book retailers have done. I'm not sure about Amazon as such but we know that generally speaking senior managers of corporations are receiving salaries and benefits in the millions, with well above inflation rises right through the recession years.

We also know that these big companies use management accounting strategies to hide profits. Starbucks UK for example pays royalties on the brand to a Starbucks company based in Holland where they gets huge tax breaks from the Dutch government. Starbucks also buys all it's coffee from a subsidiary in Switzerland which adds a mark up of 20% on the wholesale price and pays much lower taxes than it would in the UK. Thus the amount of taxable profit in the UK, which has relatively high rates of corporation tax, is diminished by bogus overheads, but the amount of profit available to pay to Starbucks shareholders is augmented by avoiding UK taxes. And of course those shareholders no doubt also avoid taxes in a variety of ways.

In the case of Amazon they pretend to operate from Luxembourg to avoid paying UK taxes. They also used a base in the Channel Islands to distribute CDs and DVDs to avoid paying VAT on them. though this loophole was recently closed. Clearly Amazon's sales here are enormous, billions of pounds, but the tax laws of various countries allow them to funnel profits through tax havens in such a way as to avoid paying tax in the UK.

Keep in mind also that Amazon received £2.5m in government grants to help them do business in the UK, which is £100k more than they paid in corporation tax. And this is a twist of the knife for the public who see themselves are subsidising Amazon shareholders. 

However it gets worse. As one would expect from a company with squeezed profit margins Amazon are trying to minimise costs - the highest cost in any business is always labour. As I write the BBC are running with this headline: Amazon workers face 'increased risk of mental illness'. The story is based on observations by an undercover reporter and commentary provided by Prof Michael Marmot a "stress expert". The reporter worked for just over the minimum wage and his performance was closely monitored using electronic surveillance - his movements between picking jobs was timed for example. Statistics are collected and can be used as the basis of disciplinary action. Every moment is monitored and there is no time to relax. As with every unskilled job, there people lining up to replace you. To be fair Amazon have responded that: "official safety inspections had not raised any concerns and that an independent expert appointed by the company advised that the picking job is 'similar to jobs in many other industries and does not increase the risk of mental and physical illness'." This was followed up by another undercover reporter from the Guardian which covers a broad range of topics similar to this essay. One wonders just how many journalists are moonlighting as Amazon employees at present? (And if they keep the money they'd paid, and if they pay the proper tax on it?) If you search for news on Amazon and employee pay and conditions you'll see that this kind of thing is not just a UK problem. There are widespread complaints about the way Amazon treat their lower level staff.

So Amazon are pushing the boundaries of tax and employment law, possibly at the expense of the country and their employees, though they are not breaking it. Is there a moral issue here that would, for example, make us stop giving Amazon our business, like MP Margaret Hodge? (Leaving aside the issue of grandstanding MPs). As Frankie Boyle recently discovered. He was trying to recommend an ethical online retailer for the book he's flogging at the moment to his Twitter followers, and they kept coming up with objections to the alternatives. It seemed to boil down to this: big business is owned and run by big business and ethics are well down their agenda.

Not An Isolated Case

This problem of large, often multi-national, companies exploiting loopholes to dupe the UK out of the taxes they owe is not a small or localised problem. Most developed countries face something similar. It's partly a side-effect of the new Libertarian ideology, sometimes called Neoliberalism, though it seems highly illiberal to me. This ideology can be traced back to the late 1960s and early 1970s (see for example the Lewis Powell Memo), but has much deeper roots in British philosophers such as Jeremy Bentham and John Stuart Mill. Recently Andrew Simms, writing in the Guardian, placed the beginning of this movement in April 1947, at a conference in Mont-Pèlerin where:
"Philosophers, academics and historians gathered at the Hotel du Lac to discuss how to halt the spread of ideas that emphasised common purpose and governments acting directly in the public interest." 
Neolibertarianism, as it ought to be called, argued for no controls on the movement of capital in and out of nation states and for the reduction of all kinds of trade and financial restrictions. Within Europe we also have the free movement of "labour" (which means people). The rationale was that impersonal markets would function better (that is allow businesses free reign to make profits) when allowed to operate on a global scale without regulatory interventions by governments. The rhetoric was that free markets would deliver fair prices to consumers and more profit to shareholders. And part of the theory was that by allowing the rich and powerful to prosper it would, by so-called "trickle down effects" benefit the whole economy.

Of course the promise of a free market utopia has turned out to be a lie. Since the early 1970s a series of recessions in the developed world has been paralleled by a series of outright economic crises in Africa, then South America, then South East Asia and Japan, and now in Europe. Things came to a head in the developed world in 2007 with the collapse of so-called subprime mortgages. Not only had mortgages been sold to people who could not afford them, but such non-viable loans had been packaged as investment opportunities (rated as gilt by rating agencies when they ought to have been junk) and sold on by financial institutions across the globe. Some particularly malfeasant companies also hedged against the failure of the loans meaning they would make a profit either way - since the failure of gilt rated investments is very rare, betting against failure was very profitable when they did fail. And so the financial system itself began to topple, starting with Lehman Brothers' Bank. With the finance system in trouble the sheer scale of private sector debt (reaching 500% of GDP in the UK) became and remains a serious hindrance to economic activity. Though debt is largely ignored by mainstream economists. We're still in a situation of low investment, high (and rising) private debt which is likely to affect us the way it affected Japan from 1990 onwards - with overall stagnation for decades.

The pursuit of free market economics has enriched the 1% at the expense of everyone else. Free market ideology has left disaster in its wake across the globe. But because the 1% and government overlap considerably the possibility of getting substantial change - even in the face of a global economic crisis - is minimal. Even now UK politicians are claiming credit for having saved the day when they have simply plastered over the cracks and pretend that it's business as usual. The fact that almost no politician or economist saw the worse economic crisis in history coming has not given most of them pause to consider that they might be going about things the wrong way. A few heterodox economists now have a slightly higher profile: Steve Keen, Nouriel Roubini, Ann Pettifor and Ha-Joon Chang for example. A group of economics students in Manchester has demanded that their syllabus reflect the post-crash reality. But law makers rarely target their own activities, so any change is minimal and slow. 

Trickle down also turned out to be a lie. When workers are receiving pay increases less than inflation and senior bankers receive bonuses of four time their salary and pay increases of 1000% above inflation (in 2012) then we know that the Neolibertarian doctrines are not just operating at the national level. It is individuals with wealth and power who are changing the business environment in this way, and it is individuals who are willing participants in the implementation of such doctrines. In recent times the Occupy Movement coined the distinction between the 1% who are benefiting from free market economic and libertarian social policies and the 99% who are paying for it. Not only does wealth not trickle down, but it tends to flow upwards, enriching the wealthy at the expense of the middle and poor. And the policy result of hardship is to crack down on the needy and allow continuing free reign for the greedy.

To some extent we're still dealing with the outcomes of late Victorian thinking. Victorian thinkers were partly concerned with justifying British domination of the world through military power. The Empire asset stripped the colonies and massive enriched Britain, though then as now most of the wealth concentrated in the hands of the 1%. But ideas such as "survival of the fittest" became the guiding light. Britain dominated because it was better, fitter, stronger, and thus had an "evolutionary" advantage.  As theology was undermined by science, this kind of thinking replaced the divine-right thinking to some extent. The upper class intellectuals in Britain characterised human beings as they saw themselves in the mirror - individualistic, selfish, and greedy. But also, with no hint of irony, human beings were supposed rational. In other words they rationalised their own emotional responses and called their arguments 'reason'. Other responses were then irrational and/or unreasonable. And various philosophers developed these ideas until we get to the present where humans are still seen in this distorted lens by politicians and economists. In fact science has disproved the Victorians and shown that humans are social, empathetic and altruistic as well as hierarchical and competitive. However libertarians won the argument back in the 1970s and began to re-engineer society away from liberal values.

Another aspect of the social change of recent decades was the de-horning of the labour unions. Unions had been very powerful in Britain up to the 1970s and that power had clearly gone to their head. Unions were frequently greedy and deeply conservative - and here is an irony. The so-called Conservative Party is actually a vehicle for Neolibertarian doctrines and has been seeking to radically alter the structure of society for decades, and the socialist (even at times outright communist) labour unions were conservative in the true sense of resisting such changes and preserving more traditional social and business structures. When Thatcher was voted in on the Neolibertarian wave (along with Reagan in USA and the Lange Government in my home country, New Zealand), one of the first tasks was to drastically reduce the power of the unions who were blocking much of the Neolibertarian reform program. Unions were divided and conquered and now play a much smaller role in life in the UK. And as a result of changing legislation, managers are now able to place pressure on workers to accept progressively poorer pay and conditions as they do in companies like Amazon. Real wages have fallen consistently for many years now, and the number of people tied into contracts (so-called "zero hours contracts") that offer no guaranteed hours of work and no "extras" like holiday and sick pay are on the rise. Amazon are by no means unique in using changes in labour laws to get more from their workers while offering much less. In fact it's the norm these days.

It might be argued that the new Libertarianism was a predictable response from business people, politicians and classes with hereditary privilege (in the UK the three often overlap considerably) whose interests were threatened by changes happening in our society in the post war years. Certainly the conditions that apply now are not specific or localised. Across the developed world the same conditions have been set up by business people who want to own everything, rather like the feudal lords of the past. Except in the past a feudal lord had duties to their dependants and these days there are no duties except to share-holders.

Amazon are simply one of many large companies exploiting the business and legal environment set up by libertarians (from both the left and the right of the political spectrum) in order to allow them to do just that. Amazon have broken no laws in any country so far as I know. The argument is that the way they exploit tax and labour laws is immoral, not illegal.. We can prosecute illegal behaviour by large companies, though it is very expensive to do so. We cannot prosecute for legal but immoral behaviour. We can only change the law. But the present representative are reluctant to change the law because they benefit personally from the status quo in most cases.

Tall Poppies And Scapegoats

Amazon are high profile and successful. Founder Jeff Bezos has a net worth in the 10's of billions and his own space program! Part of the reason the outcry focusses on companies like Amazon here is the UK's deep misgiving about people who are successful. If you inherit money and have no talent at all you can be prime minister (the present PM for example), but if you start from nothing and work your way up you have broken the unspoken rules of class that still lurk in the British unconscious. The term we used in New Zealand for our own version of this is "Tall Poppy Syndrome" - i.e. it's the tall poppy, sticking up above the wheat, that get's eaten or beheaded first. At it's best this can lead to genuine humility and at its worst to hateful media campaigns aimed at bringing stars down to earth (as I write the media are gorging on the salacious details of the private life of a celebrity chef, for example). I'm not sure how the British did not manage to come up with a word for Schadenfreude because they savour the failure of the successful like no other people I know. 

On the other hand because Amazon is successful and Bezos is now a billionaire with his own space-ship, that draws a certain amount of respect from the 1%. At the heart of the British conservative ideology is the notion that wealth equates roughly with morality. If, through business enterprise, one has become fabulously wealthy then one must ipso facto be morally worthy. Of course effortlessly inheriting wealth is an even stronger sign of one's inherent worth, but becoming a billionaire is also a positive sign. This is a relatively new accommodation by the upper classes to "new money".

What all of the wealthy seem to have in common is a desire to protect their wealth from taxation. The narrative of taxation is that it is the government getting something for nothing (undeserving) and spending it unwisely. That the private sector has caused a global financial crisis on more than one occasion in living history does nothing to dent this view that the government can't be trusted with money. Government, the libertarians believe, is inefficient. Thus they sell off national assets and companies to the private sector (and often to foreign owners). The upshot is that the wealthy, who make up the majority of the cabinet as well as sitting on the boards of large companies, are not in a hurry to force tax avoiders into compliance. Ironically arch Tory, Boris Johnson, has recently said we ought to be thankful to the rich for contributing so much of the tax take. It is true, but it's also true that they only pay a fraction of the tax owed. And if they paid what was owed we'd have no problem affording our health system for example. Poor people end up paying a much larger share of their income because they have fewer ways of hiding it in tax havens. 

Thus government is not in a hurry to punish tax avoiders and companies like Amazon are free to exploit the many loopholes that tax legislation leaves them. In the case of Amazon this includes the on-paper fiction that in fact they don't do business in the UK, but from Luxembourg and the Channel Islands (both well known tax havens). This does not affect their ability to attract subsidies for doing business in the UK mind you - and this is how we know the government is complicit. 

So in many ways Amazon are just a convenient target for a whole range of misgivings about the wages of Neoliberalism and the crossing of class boundaries. Like hundreds of other companies they exploit the letter of the law to avoid paying companies tax, to erode wages and working conditions, and generally to funnel money away from the government and the public and into the pockets of shareholders who apparently live in the Cayman Islands (for tax purposes). Unable to strike at the system we make a scapegoat to bear the weight of our anger and frustration. And the Neolibertarians will happily let us scapegoat Amazon because it distracts people from the system. If crippling Amazon is the cost of business as usual, then their attitude will be "so be it", as long as the system itself survives. There is no "honour amongst thieves".

Manufactured Consent

There is no doubt that the whole system is corrupt. Politicians and business people have colluded over decades to set up the world's economies in this way. Conspiracy is too strong a word I think, though there has been a collective vision and will, and collusion in implementing it. I see this as the true legacy of the baby boomers. Some people have no doubt set out to make the world a better place, sincerely believing that the economic lies of Neoliberalism would achieve this. They believe because their school teachers and university professors taught them economics and politics with this slant and because our public schools are designed, as much as anything, to encourage obedience to the will of authority. 

There has always been a quid pro quo for the masses. The Romans used to call it bread and circuses. We now get exquisite forms of entertainment that tickle and caress our senses. As the Buddha said, we are intoxicated with the pleasures of the senses. Only now the stimulants are like a refined form of Crack. In the Buddha's day pleasures must have been fairly basic: food, clothes, gold, booze, gambling and sex. Maybe some bhang or opium. Back then opium probably was the opium of the people. Nowadays we have 100s of media channels catering to every taste. We can shop till we drop on cheap imported goods produced by children and slaves and never leave the comfort of our homes. Even the poor can participate in undreamt of ways in this circus. We're all eating so much high calorie food that fatness is an "epidemic". But it's especially the poor who are fat in the Neolibertarian world because cheap food is laden with sugar and fat (and salt). Never before in history has fatness been a disease of the poor. And this fact alone separates us from any other time in history.

For most people life is perhaps less meaningful than at any time in history. Many of us are more focussed on parasocial relationships with fictional characters portrayed by actors than we are on friends and family. Sexual relations are wildly skewed by ubiquitous consumption of pornography and the encroachment of porn inspired imagery into everyday life. We eat more for pleasure and comfort than for nutrition. We seldom spend any time in nature. Religion has, partly through its own inept stupidity, become a source of fear and loathing rather than "tidings of comfort and joy" (as the Christmas carol would have it). The very things that might give us a sense of meaning and purpose have been turned into demons.

Amazon provides us with cheap and easy consumer goods and entertainment. At the click of a mouse. In return we're expected to look the other way when they avoid taxes and exploit workers. That's the Faustian pact. And most people have long ago tacitly signed up to this deal. I'm as much a part of that as anyone. The unspoken threat is that if we start complaining about all the cheap stuff and the ease of acquisition, then the supply of entertainment and consumer goods will dry up. We'll have to face out lives without any distraction.

Amazon are not special except they were the first to succeed in a big way online. Targeting Amazon becomes part of the circus. It feeds the media demon that sets out to over-stimulate the basic emotions of fear, hatred, disgust and lust. These are the emotions that are controlled by the parts of the brain that even reptiles have. The emotions we share even with reptiles. The lowest common denominator and the most powerful motivations for action. And yet we're helpless to act on these media stimulated emotions because it's all virtual. The media companies, who all act in just the same way, are happy to scapegoat Amazon because it takes the heat off them. The BBC as a publicly funded organisation need not participate in this economy of reptilian stimulation, but keeping up with the neighbours is fundamental to the British middle classes, so they do.

Another aspect of the media which Noam Chomsky has highlighted throughout his career as a political commentator is the manipulation of the information presented via news media in order to, in his words, "manufacture consent". In his documentary of the same name he shows how the media manipulated public opinion on various issues but particularly America's various wars in South East Asia in order to bolster nationalism and public support for foreign wars. Arguably they did the same for more recent wars in the Middle East.

I've already commented on the way that government has put almost no effort into pursuing the avoidance of tax as an issue, and yet since day one in office they have systematically attacked people who benefit from or rely on social welfare payments. A 35% pay rise for bankers does not bother them, but that someone might receive £1 extra in welfare is a cause for grave concern. A government run by privately educated, hereditary millionaires, spends millions of pounds each year on PR departments which pour out propaganda against the poor. And the poor are criticised for getting something for nothing and a culture of entitlement - which is a stroke of genius in a way, because the message comes from people who inherited millions, titles in some cases (Osborne is fittingly a Baron), and used their family connections to get into positions of power.


Amazon's modus operandi is merely symptomatic. They're a successful company selling people stuff they want at the best price, but accompanied by good customer service, and a lot of added value in the form of reviews and suggestions for other stuff you might like. They're a pleasure to do business with and while they exploit the tax and labour laws to the fullest extent (in these difficult times) they don't seem to break the laws as they stand. They are keeping to their side of the Faustian pact. Targeting Amazon won't change the legal framework in which they operate. Perhaps we ought to join with others in organisations like 38Degrees to campaign for them to be more straightforward in their business dealings with the UK (i.e. to admit that they do sell stuff here and to drop the fiction that they're not based where all their massive warehouses are). We can hope that in making an example of larger companies we make a point to all the others. However there is no guarantee that his helps, as the case of Starbucks seems to show (there has been no change in the tax laws for example). We ought also to ask pointed questions of our politicians on how they personally benefit from laws they pass (very many stand to benefit from privatising healthcare for example) and why they have not acted to close loopholes that only benefit the rich. The present government have enacted radical changes in welfare and education, but not in tax or finance. It's pretty obvious why that is. But since the advent of Neolibertarianism this is the norm from governments left and right.

All of us are complicit to some extent. Being a member of this society means participating in the circus to some extent. We all rely on money for example which ties us into systems of production and consumption that embody greed and hatred. Even making conscious ethical choices doesn't extricate us from the circus. In fact the idea of "outside the circus" might be purely theoretical. I can't write this without being plugged into the system in a number of ways - physically and metaphorically.

If there is a Buddhist angle on this then it is the injunction to look at and work on the conditions. One may feel that not doing business with Amazon is the right thing under the circumstances. But given that the vast majority of the population are part of the Faustian pact I doubt it will make much difference. Collective actions have had some success in individual cases, but they have yet to make any inroads into the system. The problem is systemic.

Do we opt for disengagement and withdraw from the system as much as possible? This certainly has merit, but again the vast majority are plugged into the Matrix and don't want to be unplugged. Dropping out certainly did not help in the 1960s and 1970s, it just cleared the field and made it easier for the Neolibertarians. As such it seems that making common cause with those who critique and attack the system would make more sense. How far to take it though? Do we join Al Qaeda? I don't think the Great Satan will be brought down by acts of brutality and murder - empires tend to be much better at brutality and murder in any case and we've shown that we can out compete Al Qaeda on that front because we can mount all out wars on a national scale as we did in Afghanistan and Iraq (against the public will!).  Who might we make common cause with? In ones and twos we make no difference. Even 10 or 20 thousand wouldn't make much difference. We need hundreds of thousands of people willing to take action, to march, to argue, to propose credible alternatives, and to donate money to fund it all. I don't see any such grouping. I see isolated individuals and small, ineffectual groups. If you join a political party all you get are constant invitations to fund raising events and requests for money, which is frankly depressing.

We're Doomed

In fact I believe that the outlook is bleak. If the global economic crisis did not rock the world of politics and economics off its axis, and it seems not to have, then what will it take to change things? A year or two back James Lovelock published another iteration of the Gaia theory in which he said he thought we were beyond the point of no return on the environment. I believe we're also over a tipping point economically and politically. The signs are already showing of another economic crisis down the road. Some were predicting it this year, but this has shown to be overly pessimistic. Now, however, we're far more aware of the causes of recessions and collapses: asset and commodity price bubbles for example, and yet we are deliberately building a house price bubble; or too much private sector debt, and yet today it was announced that household debt had reached an all time high. And so on. It cannot end well. And frankly, in this context, Amazon are the least of our worries.

Of course everyone must follow their own conscience.


Related Posts with Thumbnails