Jeff Bezos and Other Billionaires Could Use a Lesson in Classical Capitalism

Recently, Business Insider stated that Jeff Bezos increased his wealth by over 200 Billion dollars, in addition, billionaires combined added an astonishing 1.8 trillion dollars in 2020. This of course comes in a year that will go down as one of the direst economic years for the general public since 2008 with crippling job loss due to coronavirus measures and a tumultuous political climate. Jeff Bezos deserves extra attention at this time mainly due to reports on his ethical actions during the 2020 corporate season such as issues with working conditions inside Amazon fulfilment centers and forceful union busting. To say that Jeff Bezos is a capitalist is an understatement; however, what type of capitalist is Jeff Bezos?

It would seem that he is the ‘over-and-above’ winner of the Keynesian or ‘new deal’ capitalist model that emerged out of the 1930’s Wall Street collapse and ushered in a new-era of post war consumerism. As Nicki Lisa Cole of ThoughtCo. suggests, the Keynesian model brought forth the advertising revolution of selling a lifestyle instead of a mere product. Amazon is the consumerist dream company of selling a lifestyle, have it be the affluent lifestyle of Peleton Bikes which seem to be only for rich and good-looking people or the acquisition of Whole Foods where a filet mignon steak is almost double in price compared to Walmart, this perhaps due to its branding the wholesome food source with the goal of nourishing people and the planet (from their website). This is why Bezos and Amazon win in our current form of capitalist economics of lifestyle consumerism. He tapped into not just providing people to shop at Whole Foods, but for people to share their status with other people that they shop at Whole Foods.

Well, this is fine for Jeff Bezos, but even me – someone who supports a classical liberal ideology and free markets – there may need to be some changes to the current economic model after seeing these numbers this year (note: a year when thousands upon thousands of small businesses closed and Americans had to claw to get stimulus checks). I provide a proposition to Bezos, a re-thinking of his business model. I would suggest that he could use a lesson in classical capitalism.

In his 1776 work The Wealth of Nations, Adam Smith described the role that taxation has on a nation or commonwealth in order to make a whole society function. He outlines this in his introduction to Book IV on the Political Economy and in Book V; Part II Of Taxes:

“Political Economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects; first, to provide a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and, secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign” (p. 328)

“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state” (p. 639)

During this time in 1776, this is what we now refer to as Classical Capitalism, or as Cole would describe it as a shift away from mercantile economics outside of the trade and barter system towards a technological society producing goods for the public and to compete in a marketplace free from government intervention. A critique can be made about the unfettered reign of markets without government control; however, the most salient topic refers to competition. Smith wanted the competition between markets to be both fruitful for the owners and general society; ergo, if nations produce national goods the businesses make money through a quasi-mercantile system and the public (i.e. the workers) gain benefit from a proportion of the taxation.

Fast-forward to our current era where over-zealous consumerism and uncontrolled globalized trade has caused issues both domestically and abroad for many people of the world and has been a contributor to the wealth gap. Using Bezos and Amazon as an example, here are some potential ways a classical capitalist model can work within a national system – at the same time – limit socio-economic inequality in terms of funds.

A Nationalized Base for Industry

This is not to promote an interventionalist model of economics as it is trade with other political economies that produce benefits. However, a primary focus of corporate and manufacturing business has to be done on national soil in this model in order to produce benefits. For example, Amazon headquarters are based in the United States with software development centers, fulfillment centers, and call centers all across the globe. It is safe to say the fractioning of Amazon currently would look something like this:

• 30% in North America,
• 20% Europe,
• 20% Asia,
• 18% Oceania,
• and 12% South America.

A nationalized base for industry would move a sliding scale towards a more homegrown national base, somewhere along the lines of

• 40% North America,
• 17% Europe,
• 17% Asia,
• 16% Oceania,
• and 10% South America.

The common issue here is that it is taking jobs out of countries resulting in job losses. However, Amazon is an American company – and through a classical model – Amazon’s capital is done through America’s political economy. Therefore, to bring back 10% of a company’s global assets to your national economy is massive. Preliminary outlook on numbers reflect 10% of Amazon returning home would be roughly:

• 18 fulfillment centers hiring 1000 people equaling 18000 local jobs ranging from general labor to management.
• 2 big call centers creating another 1000 local jobs.
• 4 software development centers can create anywhere between another 1000 jobs with 300 to 500 for highly skilled labor (i.e., salaried 85k-150k).

Now in our current climate 20,000 new jobs may not seem like a lot, but that is for one multinational company, if numerous companies adhered to this standard – say 200 of the multinational corporations in the United States, that would be an influx of close to 4 million new jobs available on top of previous employment. Further implications can be discussed such as the pushing out of small businesses if these jobs return, that will be discussed further in a later section.

The 5-3 Rule of Taxation on Assets

This is more of a focus on the corporate finances rather than job stimulation. It may be heresy to say this as a proclaimed free-market thinker, but Bernie Sanders was on to something when he was discussing taxation for Wall Street speculation. Although Bernie’s plan is micro the 5-3 rule takes a macro approach to taxation based on assets including stocks. First, what is the 5-3 rule? The 5-3 rule consists of a one-time 5% tax on already previously acquired assets and investments with a subsequent 3% tax on gross asset earnings year over year. If we use Amazon as an example with 220 Billion in assets, how would this look:

• Previous Assets: 220 Billion x .05 = 11 Billion
• Prediction of Gross Asset Earnings
  • 2021: 140 Billion x .03 = 4.2 Billion
  • 2022: 146 Billion x .03 = 4.3 Billion
  • 2023: 148 Billion x .03 = 4.4 Billion
  • 2024: 152 Billion x .03 = 4.6 Billion
  • 2025: 155 Billion x .03 = 4.7 Billion

Through this method from now to 2025 Amazon can provide slightly over 33 Billion dollars in taxation. If we use the 200 multinational companies – although they do not make as much as Amazon – let us say they contribute an average of 15 Billion over five years that is an influx of 3 trillion dollars (15% of American GDP) into a nationalized system. Again, criticisms from a sliding scale theory such as if more comes out of taxation, more comes out of employee wages and this causes issues with an influx of 4 million jobs from step 1. An argument against that could be that with more taxation to be used as funds sufficient for public service of the commonwealth. For example, the United States takes in roughly 3.4 trillion in taxes a year, this would produce an influx of almost 600 billion in taxation year over year. For example, the Federal Reserve dumped 600 billion through bond lending and printing (i.e. concern for inflation) to stimulate the economy during an emergency situation. This could be provided consistently and yearly – not in an emergency situation – causing a massive upward stimulus to the economy. Not to mention with more jobs and more people willing to spend.

Of course, a country like the United States has more issues regarding policy such as its national debt and health care costing over 3 trillion a year. With that said, 420 Billon is spent in the United States on prescription costs. An influx of 600 Billion yearly from 200 large multinational corporations could pay prescription charges for Americans for a healthier society meaning more workers available and more activity in the economy.

Diversification Limitation

What is meant by a diversification limitation? Well, this focuses on the diversity of a company’s portfolio and limiting the sectors that it enters. I can feel the look of ire from capitalist camps as this is a control mechanism sounding socialistically authoritarian. Give me a chance, hear me out, and I assure you no mass collectivization of product is being discussed. All this focuses on is a small-scale limitation the sectors that multinational corporations can enter. For example, Amazon can still be the leader in cloud computing, e-commerce, and digital distribution, but limiting their automobile sector or their food processing. Walmart for example can still focus on retail, but perhaps limiting their retail in areas such as groceries and electronics.

This is a hard concept as one might ask how do you make this happen? And what are the benefits of this method? In 1890, the United States Congress passed the Sherman Anti-Trust Act which essentially ensures the rule of free competition and the limiting or removal of monopolization – or attempted monopolization and collusion to enhance trade between competitors. An example of this would be the oil companies owning their oil fields, the refineries, the train system, the docks, the real estate in the oil town, the hotels, the restaurants, and the corner store. Not only did the oil company have control over your daily work in the field, but they also had control over rent pricing, prices on goods and services, and prices on travel. For example, a town full of derrick workers could propose a strike over working conditions and not show up, a company would then raise the prices on groceries at the corner store so that the strikers could not afford food for their families or raise the rent making it impossible to pay without working, all situations that are morally corrupt. Using a rational approach to capitalism the Sherman Anti-Trust Act was a form of limiting diversification in the ethos of enhancing competition and the same applies for this iteration.

For example, with Walmart and Amazon out of the grocery sector, this provides new opportunity for competition inside this sector with small chain grocers competing with ‘mom and pop’ grocers through price, product, and service. Essentially having a choice between some good apples imported from the next state over for 2.59/lb at a small chain or Fred and Wilma’s apples for 3.75/lb from the tree you can see with your own two eyes. This presents a classical liberal, competitive, and free-market system that is beneficial to the economic commonwealth. In addition, more money flowing from taxation in step 2 with more people working in step 1 the need for product will be in demand at a higher rate with more influx of exchange in the economy.

Now I see a contradiction here – most importantly with step 1 and 2. If these companies exit sectors that means their year-over-year (YOY) assets will be lower and employees will be furloughed in these sectors. As for the employees, the simplest solution is that they would transition to another sector in the company or find work in a similar vocation at one of the new companies filling the gap. When discussing YOY assets, this presents a different story. Various reports show that Whole Foods accounted for up to 20 Billion of asset earnings in 2018, therefore removing Whole Foods reflects a loss of anywhere between 9 and 13% of Amazon’s total asset portfolio. The common issue that is not discussed by more – let’s say – economists with a collectivized and communal mindset is that best interests need to be weighed. In this situation and I would be doing myself a disservice to say a cost-benefit analysis would need to be made for the commonwealth on decisions of diversification. In this framework, less asset management from multinational corporations could lead to less taxation into the nationalized economy.

“The annual labor of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes” (p. 4)

Questions constantly arise with this method of classical capitalism being relevant or even practical in a modern economic landscape. Perhaps it more rests on the willingness of corporations to self-assess their own concept of business and ask if this can be done. From the numbers I presented, it still seems that YOY, Amazon would be earning more assets all while paying a consistent flat-rate tax. I feel the benefit would come from the certainty of a set percentage YOY is better for businesses when managing risk. One advantage from the one-time 5% tax covers not only that years 3% but a 2% ‘slush fund’ that can be used in certain emergencies such as a pandemic or during war time, it can also be used for investment in trade to enhance national or international commerce. As another estimation, let us say the year 2021 is when these corporations pay their 5%, if Amazon contributes 11 Billion with the lowest contributing 2 Billion, we can say an average of 5 Billion is paid across 200 companies adding an extra 1 trillion to the tax revenue. How would this look year over year with subsequent average of 600 Billion in following years?

Moving forward, I do think there can be a rational discussion on how a classical capitalist model can work in society for the benefit of business owners and the public who all take part in the commonwealth (as Smith would call it). A foreign policy acknowledgement on the benefits of bringing jobs back through process of nationalized economies; a comfortable, reasonable, and manageable tax on assets based of the Sanders Speculation Model; and limiting diversification to enhance competition and free-market trade within society all for the benefit of the members of the commonwealth. One can look at 2020 as an example and say that capitalism can work, it just needs to work better and for the right reasons.

References

Smith, A. (2007). An inquiry into the nature and causes of the wealth of nations. S. M. Soares (Ed.). MetaLibri. (Original work published 1776).