Amazon Again

Stephen Boyd provides a thoughtful and sincere critique of my last post on Amazon and the Scottish Government. Even though I disagree with him I urge readers to read his post. The Easter break has prevented me from responding sooner.

Stephen's main point is that

the Scottish Government should not subsidise Amazon because it is a bad corporate citizen and one that has demonstrated little sign of changing its ways. Its business model undermines the kind of economy/society the Scottish Government tells us (explicitly through its target regime and National Performance Framework) it wishes to create. Amazon's business model (brazen avoidance of taxation, poor quality insecure employment, predatory pricing and squeezing of suppliers ..... undermines stable long-term growth. Far from an unmitigated boost to productive activity, the growth of Amazon may well exert a long-term extractive impact on the economy.

My point is that the attraction of inward investment is important to a small open economy such as Scotland. If the Scottish government sought to pick and choose according to whether the company has a business model that it likes or not, then it will make the attraction of inward investment that much more difficult. Once one company is rejected that will very likely lead to spillover effects on the willingness of other companies to come here. Companies whose business model and practice the government views more favourably may now not be willing to come here and the decision to reject the less favoured company will not have led to a change in its business model.

Providing the company observes existing Scottish and British laws on inter alia health and safety and employment practices, I don't think economic development policy can seek to apply further ethical standards if it wishes to compete for investments on the global stage. If it did so then the Scottish government would be applying a different standard to an inward investor such as Amazon than it would to any Scottish company investing in Scotland. By all means ensure that there are better employment practices, which might mean less inward investment than would otherwise be the case. But don't pick and choose between investments on some arbitrary notion of a good or bad employer because that will promote uncertainty and damage inward investment much more.

As I said in the original post from the standpoint of economic development policy,

whether Amazon should have invested in Scottish activities with Scottish Government support depends on the estimate of the net contribution of activities to the Scottish economy.

Stephen suggests that "Amazon may well exert a long-term extractive impact on the economy." I take it he is using the term "extractive" as applied in the research of Acemoglu, Johnson and Robinson (2001 AER) and as popularised in Acemoglu and Robinson's latest book Why Nations Fail. Here extractive institutions are those whose main purpose is to facilitate the extraction of resources and their transfer to (in the case of colonial governments) the imperial power. In other words he sees the long-run contribution to the Scottish economy of Amazon as negative as destroying actual and/or potential output. I don't think there is any evidence for that.

Finally, Stephen dismisses the jobs created by Amazon in Scotland too readily. In one of his tweets he states that that any reduction of unemployment from the job creation is "trivial". But people who seek to work for Amazon do so voluntarily. There must be a net financial benefit to them even if they were on state benefits so there will be secondary spending or multiplier effects, which Stephen seeks to deny. If Amazon is such a bad employer then when more jobs are created in the economy they will move to those jobs. But in the meantime if Amazon is, as Stephen says, one of "the world's worst employers" it would appear that working at Amazon is preferable to unemployment.

As Chris Dillow recently noted, research shows that unemployment is more conducive to long-term unhappiness than either divorce or bereavement. Moreover, this is not simply a result of idleness since well-being rises when the unemployed move into retirement, suggesting that it is the felt stigma of unemployment that is a key issue. Against that background, I for one am prepared to put up with the Amazon's of this world if they help mitigate the scourge of unemployment.

Comments

[Ian Jenkins]

Here is a 'Foreign Policy' interview this month that seems relevant to past comments, http://www.foreignpolicy.com/articles/2012/04/16/ed_luce_interview

Extracts:

Financial Times columnist Edward Luce has written a new book called 'Time to Start Thinking: America in the Age of Descent' that has received well-deserved acclaim and recognition. . .

The fact that that the 85 percent [of the world's population] is now catching up in this Great Convergence is something to be expected -- it's going to happen and it should be celebrated. It reduces poverty and expands markets. The question is at what speed it is happening and how we are responding to it.

[In the US] Casinos, sports arenas, and convention centers don't generate income for those who've lost their jobs. . . I think, as [GE CEO] Jeff Immelt said, if globalization were put to a referendum in America, it would lose -- which is troubling

One reviewer said my book should be renamed Time to Start Drinking. If I was asked to write one on Britain I might call it Time to Start Sniffing Glue.

Comment

What is striking is the little political appetite so far to prevent the G20's rules of globalisation leading to a race to the bottom. Then again, massive international defaulter and arch nationaliser Argentina is a member.

[Rat Xue]

I take issue with
"people who seek to work for Amazon do so voluntarily"
since either refusing to apply for a job with them or to accept a job offered by them may result in the loss of benefit for up to 3 years.

[Ian Jenkins]

Gone are the days when governments could afford to be picky about foreign investment. The trend now is for international investors to demand, and be granted, more and more rights.

Some nations are happier than others with the way things are going. Recent developments? Australia has benefitted hugely from the 'Asian Century'. Canada hopes to benefit, but public opinion there is very opposed at present to some foreign takeovers - Petronas Rebuffed: Politics Hinders Much Needed Investment in Canadian Oil @ http://www.insidermonkey.com/blog/petronas-rebuffed-politics-hinders-much-needed-investment-in-canadian-oil-27609/

In the UK, there are few restrictions. Should there be more? The Foreign Office, with responsibilities for international trade and investment, seems to be clashing now with the Treasury which prefers loose regulation of finance. Who will win?

Certainly Scotland has little chance trying to hold back the tide on its own. It would surely need the support of the EU or NATO.