Even Amazon must heed the basic laws of politics and economics | Larry Elliott | Tech Industry
Amazon is a trillion-dollar company run by the world’s richest man. It has come from nowhere to be an online behemoth in less than one-quarter of a century. Yet even the biggest company, this behemoth of behemoths, is vulnerable to concerted political pressure and has to live with the basic laws of demand and supply.
That, put simply, is the explanation for Amazon’s announcement of seriously big increases in minimum wages for its workers in the US and Britain. On the other side of the Atlantic, no worker will be earning less than $15 (£11.50) an hour – double the federal minimum. Here, the minimum has been raised by 28% for workers in London and 18% for those in the rest of the UK.
Forget the idea that this is an act of philanthropy from Amazon’s founder and chief executive, Jeff Bezos. To be sure, it could be said that a company boasting record profits can afford to pay its workers a decent wage – particularly when large numbers of them in the US can only make ends meet on government food stamps – but that is not the way businesses are run.
Nor does the move have anything to do with Philip Hammond’s threat to impose a unilateral digital sales tax on companies such as Amazon in the absence of a global deal to force them to pay more. That, as Amazon well knows, is unlikely to happen.
What’s really happened is that Amazon has been squeezed from two directions at once. On the one hand, it has been taking serious stick from some high-profile enemies. In the US, this has included an unlikely alliance of Donald Trump and Bernie Sanders. In the UK, the company has come under fire from the GMB union and the Archbishop of Canterbury.
On the other hand, Amazon is struggling to fill vacancies as the labour market tightens. In Britain and the US, unemployment is about 4%, meaning workers – even deunionised workers – have more freedom to change job if they are unhappy. And, to say the least, Amazon is not a model employer.
Bezos put it this way: “We listened to our critics, thought hard about what we wanted to do, and decided we want to lead.” That’s not quite the full story. Certainly, it is smart of Amazon to move early so it can recruit and retain staff ahead of the busy Christmas period.
But the decision also disproves the idea that multinational companies are now so powerful they can do pretty much as they wish. Workers will be getting higher wages because of strong campaigning, skilful PR and the channelling of populist anger.
Rome v Brussels? The Brexit talks just got tougher
A clash between Brussels and Rome was inevitable from the moment the Five Star Movement and the League formed a government in Italy in early June. It was only a question of time before populism in the shape of higher public spending and a rising budget deficit ran up against the EU’s fiscal conservatism, and so it has proved.
In the past few days, Italy has published a budget that was bound to infuriate Brussels, because it involved more borrowing in each of the next three years and a widening of the structural deficit – the bit that is unaffected by the ups and downs of the economy. Rising to the bait, the European commission president, Jean-Claude Juncker, said that unless Italy backed down, it threatened the future of the single currency. Matteo Salvini, Italy’s deputy prime minister, has told Juncker to get lost.
The EU has to be careful with Italy, which is not just the third biggest economy in the eurozone, but one with a fragile banking system. Matters are coming to a head just as negotiations between Britain and the EU enter a critical phase, but it would be a mistake to imagine the prospect of Italy becoming a new and bigger Greece would mean Theresa May will get an easier ride.
From the outset, the EU has been determined to avoid any other country following Britain’s example. That explains why its negotiator, Michel Barnier, has stuck firmly to his mandate. If Brussels now softened its approach simply because it feared another euro crisis then that would send out the wrong signals. Italy has been flirting with the prospect of leaving the euro and Brussels will want to make that option look as difficult and as scary as possible by hanging tough with the UK.