Category: Crony Capitalism

Useful Idiot Crony Capitalist

Well, that was quick.  Here comes the crony capitalist again!  Or, is he a useful idiot?  A mere two weeks after Amazon’s self-imposed $15/hour minimum wage took effect, Bernie Sanders co-sponsored a bill which, along with new rules on executive pay and stock buybacks, would force the same $15/hour standard on all companies with over 500 employees.  The marquee target is in fact Walmart, on which the bill’s torturous acronym is based: Stop Welfare for Any Large Monopoly Amassing Revenue from Taxpayers (Stop WALMART).

As reported by The Washington Post, the cost impact to Walmart would be $3.8 billion, according to Ken Jacobs, chair of the University of California at Berkeley Labor Center.  Mr. Jacobs characterized $3.8 billion as “a tiny, tiny fraction of their revenues.”  He is mathematically correct.  Walmart’s 2017 revenue was about $500 billion.  But he is highlighting the wrong metric.  The $3.8 billion cost increase comes with no associated revenue increase, and so every nickel of that would cut into profits. Walmart’s margins are quite thin – with only four cents of profit squeezed from every dollar of revenue.  In 2017, this came to $20 billion, meaning that a $3.8 billion cost increase would wipe out nearly one-fifth of Walmart’s profits.

This probably still sounds like dismissible stakes to someone like Ken Jacobs. But that is $3.8 billion, which Walmart cannot invest in hiring more people, improving existing store conditions, building new stores, lowering merchandise prices for consumers, or any other tactic which would further enable them to best serve customers and…more effectively compete against other retailers.

Which brings us back to the October 28 BOL post.  Any across-the-board increase in wages will be more costly to Walmart than to Amazon.  Amazon’s decision to raise minimum-wage voluntarily to $15 an hour looks very shrewd exactly because it appears to have emboldened Sanders to propose this bill.  With a Republican Senate, Stop WALMART is unlikely to become law in the short term, and the 77 year old Sanders knows this.  But introducing the bill now is a short term maneuver in a longer term game.  It keeps the minimum wage conversation alive even if nothing can happen in Washington for the moment.

Walmart must now be distracted with defending against the legislation or preparing for the eventual 3.8 billion cost increase.  And that is just Walmart. Dozens of other Amazon competitors face the same dilemma.  It’s good to be Amazon.  They can keep focusing on their core business while this power-to-the-people, 1930s style Vermont socialist threatens to inflict more damage on their competitors than any Prime Day sale ever could.

Minimum Wage Gamesmanship and a Useful Idiot

On November 1st, Amazon’s voluntary $15 an hour minimum wage takes effect. A $15/hour minimum wage actually can help them. They can more easily afford it than their competition. By voluntarily adopting a $15/hour minimum wage, Amazon CEO, Jeff Bezos increases pressure on competitors to do the same, and further emboldens the likes of Senator Bernie Sanders to mandate the higher minimum wage through legislation – potentially forcing other retailers to take on extra costs before they are ready.

So who is Amazon’s competition? Walmart. Like Amazon, Walmart has the financial strength to absorb an increase in labor costs, better than most. (In fact they just increased their own self-imposed minimum wage to $11/hour in January.) But not better than Amazon. Hourly wage labor is a bigger expense for Walmart than for Amazon. Walmart as of 2018, has almost 4 times the number of employees as Amazon (2.1 million to .56 million, although, of course, not all are hourly.)

Amazon’s comparative advantage in hourly wage labor cost is likely to grow stronger despite the voluntary wage increase. As they continue to automate processes, from robotic fulfillment and sorting to driverless delivery trucks to drones, their reliance on low skilled hourly labor, as a percentage of overall costs will fall. Walmart meanwhile will also certainly leverage technology to reduce reliance on such labor, but they will not beat Amazon at this game.

It is possible, but seems unlikely, that Amazon’s self inflicted wage increase is not, at least in part, a swipe at Walmart. Why not do it? Even if the move does not ultimately force Walmart to raise wages, or if it does, and Walmart handles it, the tactic is worth a try. There is virtually no downside. And there is upside – in the form of good press, and political favoritism – no matter what. And Walmart, at the very minimum, now must deal with this to some degree, in some manner – whether paying lobbyists to fight back against the useful idiot, Bernie Sanders, or paying more money to their employees. Maybe this is just a distraction, maybe it’s a significant, unplanned cost. Either way, it’s an obvious, easy play by Amazon.

Meantime, whether Bernie Sanders is a co-conspirator or a indeed useful idiot, he is carrying water for exactly the type of behemoth corporation he says is the problem.