Productivity in Your Personal Purchasing

Since at least the 1700s, it's been recognized that the way to personal and national wealth lies via increased productivity.  No goods can be consumed unless they're first produced.  The more goods each individual is able to produce, the more goods are available to be consumed.

Adam Smith famously illustrated this concept with a discussion of pin manufacturing: one individual can only make a few pins from scratch in a day, whereas a roomful of workers each performing just one task can, at the end of the day, generate many times the number of pins because of their increased efficiency from focusing on one and only one task.  In a sense, each worker is an expert at their single task, and everyone benefits from everyone else's improved efficiency - right down to today's e-commerce giants.

This insight has been applied across our economy for the past several hundred years.  Henry Ford's assembly lines, staffed by workers who each tightened one bolt, brought affordable motorcars to ordinary people.  Since the dawn of the industrial revolution, every other manufactured good has come down in price and gone up in quality in the same way.

With each new machine, our lives become more productive, because the machines help us do our work quicker, better, or more easily.  Consider the laundry: in Adam Smith's day, each housewife had to dedicate one day a week to manually scrubbing the family's clothes in the nearest creek or boiling them in a big soapy cauldron.  Today, we throw them in a machine and press a button.

Of course, there is an investment in acquiring the machine: workers in China spent a certain number of hours manufacturing it and the homeowner has to spend some number of hours earning the money to pay for it.  By any calculations, though, the value invested in obtaining a washing machine is paid for many times over by the time-savings of not having to wash the clothes by hand.

In a sense, the history of modernity is one of "labor-saving devices" - machines that quickly and easily to work that once was done by hand by the person needing them done, or their close family.  Just as a factory becomes more productive, efficient, and wealth-producing by increasing levels of automation, so do our lives.

The Invisible Servant Dependency

But there's a hidden cost to this efficiency.  Consider a 19th-century shoemaker who is trained in the art of making quality shoes for people.  He sits all day in his cobbler shop, making shoes to order.

He has an interest in machinery and new technology, however, and it occurs to him that some of the tasks involved in making a shoe could be automated.  So he invests his savings in a small factory, hiring a few dozen semi-skilled workers to operate his new machines.  He is now manufacturing hundreds of times as many shoes as when it was just him in his storefront.

The overall cost per shoe is much less, so he can lower the price and sell more.  More people can buy more shoes, because they're cheaper; workers have factory jobs which pay better than the farm laborers they were before; and the cobbler is now a capitalist, earning more money than any single cobbler ever could dream of earning on his own.

To all appearances, everyone is better off, and as long as things continue in this way, everyone is.  What happens, though, if something upsets the efficient operations?  Suppose the factory burns down, or the workers all get sick, or there's a strike?

Yes, in theory, the cobbler could go back to making shoes by hand.  Having tasted the power and wealth of running a manufacturing business, though, is there any chance he'd be satisfied with that life?

No, he now needs his factory and needs his workers.  Similarly, they need their jobs - they aren't going to be eager to go back to the farm either.

The last half of the 19th century and first half of the 20th saw a struggle between factory owners and workers to see who would hold the most power.  Long and bitter strikes sometimes led to violence, other times to bankruptcy and starvation.

Today, we rarely see strikes, and most workers aren't unionized.  That's because most of the traditional union demands have become laws enforced for everyone.  Worker's compensation, overtime, minimum wages, and safety standards are required of all employers, without the need of a union.

On Strike At Home?

We don't tend to think of our own homes as factories or as industrial relations as being relevant to our daily lives - but maybe that's changed without our noticing.  Consider Christmas shopping.

When your humble correspondent was young, Christmas shopping was a highlight of the year.  It entailed a very rare trip to the city where the big stores and new malls were to be found.  These places were decorated to the nines with Christmas lights, stuffed to bursting with all sorts of things not available near home and often not previously known about, and of course jammed to the gills with other shoppers.  It was an adventure to be remembered.

What are the malls like this year? Half the stores are closed; the other half seem abandoned and sad.  There's no adventure of finding something new, because everything new is instantly visible on the Internet.  One's Christmas shopping can be completed in a few minutes of frenzied clicks; then, in a couple of days, the entire supply of presents shows up on your doorstep.

Like making shoes or pins in a factory, this is enormously efficient: ten minutes at a computer vs half a day of slogging through parking lots and lines.  An Amazon warehouse is also in a cheaper neighborhood than your mall; the costs to them are lower, so their sales price to you is also lower.  Amazon stocks basically everything in the entire world, at your command: your life has become demonstrably better, richer, and cheaper by ordering online vs shopping in the time-consuming old-fashioned way.

Except...

Amazon now holds commanding control over American retail in a way no single company ever has before.  The underlying mortal combat is invisible to you the customer, but beneath the website's glossy sheen lies an entire ecosystem of tiny companies battling each other, by fair means or foul, for the top spot on Amazon's search listing.  More than half of what's sold on Amazon isn't sold by Amazon itself, but by one of their "partners" who depend on Amazon to display their products, tell them where to ship the product, and collect the customer's money - minus the hefty "Amazon tax" that drives Jeff Bezos' billions.

Every single thing that occurs to one of these businesses, is entirely at the discretion - the whim, really - of Amazon.  A decade's worth of painstaking work can be destroyed in an instant due to an algorithm change, or a misunderstanding, or simple random chance.

Or a vendor can even be destroyed by Amazon on purpose: Amazon is well known for identifying successful items sold by their "partners," and then offering an own-branded knockoff at a lower price.  The lower price, of course, ranks Amazon's product higher higher in the search ranking, there's no favoritism for Amazon's own products, perish the thought!  Nor would Amazon for a moment consider the fact that they have everyone's order history so that they know who ordered the product they've just undercut...

What's worse, Amazon's ratings system gives unscrupulous competitors a way to knock out a rival.  "Prime and Punishment: Dirty Dealings in the $175 Billion Amazon Marketplace" explains how a seller notified Amazon that his product had received some suspicious reviews.  Amazon deleted the reviews, but soon after, took down the seller's entire product line, froze the account, and launched him into an Alice in Wonderland quest to get his store back online.  It seems to be as hard to get Amazon to explain why a store was taken down as to get Twitter or Facebook to explain why an account was suspended.

In the end, it turned out that a competitor had paid someone overseas to post favorable reviews on his site.  This was effective because fake reviews are a capital crime to Amazon.  Unlike a real capital crime, there's no court, no evidence, and no opportunity to cross-examine - just Amazon deciding one day to terminate your business and throw you into bankruptcy, with no recourse because their user agreement allows them to do whatever they please, full stop.

Behind each "Amazon seller" lies a person or several people, not all of whom are in China, who are attempting to make a living in a poorly-understood competitive landscape heavily controlled by random chance or the whims of an autocrat.  These uncertainties and difficulties have led to an ecosystem of consultants who claim to be able to help Amazon "partners" grind their way through the appeals process and get their stores working again, but there's no regulation, competition, or transparency.  It's all basically high-tech witch-doctoring, trying to find a shaman who's more effective at praying to the remote and invisible gods of Seattle.

Who are these longsuffering vendors?  In former decades, they might have owned a corner stationery shop or hardware store in your local town.  Today, these small brick-and-mortar stores are gone, replaced by - that's right, by Walmart and Amazon.

Now, those golden days of yore aren't entirely a loss.  Your humble correspondent remembers the friendly stationery-store and owner and knowledgeable hardware shop staff.  He also recalls the extremely limited selection and rather high prices, even without accounting for inflation.  Competition has wrought wonders both in price, variety, and quality.

But if effective competition with Amazon is impossible, and competition inside Amazon is subject to opaque random hazards that don't necessarily reward sound business practices which actually benefit consumers, eventually Amazon will be an effective monopoly if it isn't already.

And what if Amazon decides they don't like you?  Apparently, Amazon has taken to heart the modern Harvard Business School doctrine of firing your worst customers:

The e-commerce giant bans shoppers from the site for infractions such as returning too many items, sometimes without telling them what they did wrong...

Nir Nissim received an email in March notifying him that his account had been closed because he violated the company’s conditions of use agreement. “You cannot open a new account or use another account to place orders on our site,” Amazon wrote.

Mr. Nissim's sin was apparently too many returns even though there's no published metric of how many is "too many."  After making a stink that rose all the way to billionaire Amazon owner Jeff Bezos - such as being mentioned in the Wall Street Journal article quoted above - his account was magically reinstated.  Good for him, but that solution probably won't work for everyone.

There is nothing the least bit illegal about a company deciding it does not want to do business with a particular person as long as it's not for a racist or other illegal reason - how many stores have you seen which post signs saying "We have the right to refuse to provide service to anyone"?  It's not as if people will die due to being banned from Amazon: it is perfectly possible to live by shopping entirely at Walmart.

Would you want to do that, though?  At what cost?  Many moderns would be hard pressed to find the time to do traditional shopping even if they were forced to.

Unseen Hazards

There's another systemic risk: currently, many Amazon deliveries arrive via the USPS.  This works well for Amazon, since by law, the U.S. Postal Service must deliver to every address in America at pretty much the same price no matter how inconvenient or costly.

It's not all bad for the USPS either, as package deliveries must by law make a profit - overall.  However, as letter-writing becomes a lost art, the USPS is having a harder time supporting rural post offices and RFD deliveries.

Amazon is happy to provide delivery service to remote high-cost locations as long as Amazon doesn't have to provide the service itself.  If the USPS won't or can't, Amazon has no intention of picking up the slack, and there will be another group of "worst customers" that get fired.

It's not Amazon's job to subsidize the lifestyles of those who choose to live way off the beaten path.  But then, it's also not Amazon's job to help those who aren't physically capable of going shopping either.

Once upon a time, neighbors or relatives would have stepped up. Today, we've gotten used to filling the gap with government, technology, or Amazon.  What will happen when those resources won't or can't?

As the saying goes, no man is an island; we're all dependent on others.  The problem is when we aren't clearly aware of just who we're dependent on or for what.  This especially problematic when so much of our lives revolve around a tiny handful of giant, enormously wealthy, and very opaque companies.  At least with government, you have the theoretical ability to vote the bums out, but how do we get rid of Jeff Bezos or Mark Zuckerberg when their offenses become too great?

If our politicians get furious enough with Facebook or Twitter, we might just find out.  Maybe the elected Powers That Be, once on a rampage, will kill off the Everything Store, and we'll have to learn to live without it all together.