Amazon looms, but NZ’s not powerless
New Zealand has been relatively sheltered from the harshest excesses of Amazon’s market disruption, but that's all about to change, writes Thomas Coughlan
The Queen Mother was watching television one day when she decided to change the channel. Finding that the dial on her television no longer worked, she telephoned her butler who, upon confirming it was broken, raced out to find a replacement. Later that day, after he’d installed a cutting-edge new television in the Queen Mother’s apartment, he handed her a funny looking piece of plastic with some buttons on it.
"Ma’am," he said, "I’ve got you a new television that comes with this, a remote control. Next time you want to change channel, you don’t need to use the dials, just use the remote control".
"Thank you", she replied, "but I prefer the telephone".
All very funny of course, if not quite P. G. Wodehouse material — he’d never let the Queen Mum have the last laugh.
I was thinking about this story a few weeks ago, when a few miles from Buckingham Palace, a friend of mine was giving me a light-hearted pitch for Amazon Prime Now, a premium subscription service offered by the internet delivery giant.
For £6.99/NZ$13 (on top of an annual subscription of £79/NZ$139) my friend could have any one of over a million products delivered to his door in just two hours. Products ranged from last minute essentials like fruit, vegetables, and toilet paper to the sort of things one can hardly imagine impulse buying: Xboxes and yes, televisions.
I told my friend this joke, but it no longer seemed that funny. The Queen Mum would still get her television, but her poor butler would be out of a job. I doubt even Jeeves himself could get a television to Buckingham palace in just two hours.
New Zealand has been relatively sheltered from the harshest excesses of Amazon’s market disruption. The network of fulfilment centres and relationships with shops that enable it to offer quick delivery services like Prime Now is so dense and complex that there has been little incentive to open in the tiny, geographically-dispersed New Zealand market.
That’s all about to change. Amazon is opening an Australian store and building the fulfilment infrastructure there that will allow it to offer rapid delivery on an enormous selection of heavily discounted items.
The logical next move for Amazon would be a hop across the ditch to New Zealand. A recent report by Forsyth Barr estimates Amazon could build a business with annual sales of $915 million in New Zealand in only five years, becoming roughly a third of the of the Warehouse Group, its main competitor.
People are worried – and fair enough. In the United States, the internet giant has devoured its rivals and now accounts for 43 percent of all online sales. It has decimated the high street; analysis from the Institute for Local Self-Reliance has found that Amazon has destroyed 149,000 more jobs than it has created in the US. The company is also notorious for its aggressive ‘profit shifting’ program that it uses to minimise its tax bill. Just last week Amazon revealed that it had paid just €16.5/NZ$26.6 million in tax on €21.6/NZ$34.8 billion of revenue in Europe last year.
Regulating tech companies needn’t be about denying the future, but rather allowing people and governments to choose the future that seems brightest to them.
With a track record like this, it’s easy to see why so many aren’t exactly jumping for joy at the prospect of Amazon setting up shop, but we shouldn’t allow ourselves to worry excessively. Fortunately, the American model isn’t the only one when it comes to Amazon.
Around the same time the company was laying out its plans to dominate Australia, the tiny Belgian province of Wallonia was staging a revolt against large discount stores.
The Walloons (I promise this isn’t another P.G. Wodehouse joke) are on the verge of legislating for fixed book pricing, forcing Amazon and other retailers to sell books at a fixed price set by the publisher and removing its ability to use its immense size and wealth to offer unfair, loss-leading discounts to crowd out competitors.
Though it may sound excessively protectionist, it’s not that outlandish — many countries, including New Zealand, offer fixed or minimum prices for things like alcohol already.
Wallonia is following the example of France, where in 1981 a group of small booksellers successfully lobbied for what is now known as the Lang Law, a piece of legislation that stipulated that booksellers could not offer a discount of more than 5 percent below the price set by the publisher.
This was a huge boon for independent booksellers against the French equivalents of stores like The Warehouse, which sold a small number of aggressively discounted books.
Books are still relatively cheap in France. The Lang Law manages to preserve competition by placing the onus on publishers to price books affordably. Similar laws exist in much of Europe (though not the UK) and as a result, many of these countries have thriving independent bookshops.
The challenge to discount retailers didn’t stop there. In 2004, France’s bookstores took Amazon to court over its free shipping, which they argued was an illegal discount. The court sided with the booksellers and ordered Amazon to charge for shipping or face a €1000/NZ$1610 fine for each day the company didn’t comply with the ruling. Demonstrating the depth of its pockets (and the lengths to which it will go to achieve market dominance), Amazon chose the latter option.
Of course, the French aren’t liable to take such an insult to their legal system lying down and a law was soon passed that made it illegal for companies to offer free shipping with the sanction that any company found to be doing so would be banned from France completely. Amazon, unsurprisingly, chose to comply
Tell this to a British person and they will say that it is just another example of the weaponised uncompetitiveness that blights the French economy. As someone who has worked in France, I must attest that there is some truth to this, but things aren’t as bad as they outwardly appear.
One of the strengths of the French economy is its very high employment (excluding youth). Nobel Prize-winning economist Paul Krugman even pointed out that France’s unemployment rate during people’s prime working years (25-54) is lower than that of the United States — the French are doing something right when it comes to protecting jobs.
Forcing big retailers to play by rules that benefit everyone, not just one large company, is what our economy is built on. Regulation that levels the playing field for thousands of businesses to the small detriment of one large business shouldn’t necessarily be bad regulation, especially when, in Amazon’s case, much of its competitiveness comes from exploiting poorly-regulated areas of the economy, without itself bringing anything innovative to the table.
There’s a pernicious idea that regulating tech companies is a luddite activity, perpetuated by those fearful of the future. Regulating tech companies needn’t be about denying the future, but rather allowing people and governments to choose the future that seems brightest to them. I for one, would choose a future with jobs.