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Another Day, Another Dollar, Part III

Will the real Amazon please stand up?
Michael McTague, Ph.D., Executive Vice President, Able Global Partners in New York, serves clients in a variety of industries that seek capital for expansion, acquisition, consolidation or re-financing.
Michael McTague, Ph.D., Executive Vice President, Able Global Partners in New York, serves clients in a variety of industries that seek capital for expansion, acquisition, consolidation or re-financing.

Image source:, Inc.

December 2019 — Myth Buster

Parts I and II of this series looked at the pervasive nature of sweatshops inside the US and Europe, the world’s wealthiest regions. Part III uncovers a curious and unexpected entrant into the overwork/underpay culture. How about a new twist: a major high tech sweatshop addict? The Myth Buster has previously tackled the fight for delivery leadership between Walmart [WMT] and Amazon [AMZN], a battle that rages on. But, Amazon also ranks as a major purveyor of low wages.

Will the Real Amazon Please Stand Up?

A high-tech darling, Amazon flirts with a trillion dollar market capitalization, hoping to edge out Google and other giants for first place. And yet, Amazon stands on feet of clay. It builds warehouses rapidly in a brick and mortar blitzkrieg to the surprise of those who see the architect of Amazon Prime as pure high-tech. At its core, Amazon remains a retailer that hires a host of low-paid employees.

Investors think of sweatshops as an unpleasant feature of manufacturing, as shown in Parts I and II of this series. Amazon manufactures very little, but it warehouses and ships, employing more than 600,000 worldwide. Shelf stockers at Amazon closely resemble supermarket employees.

Investors will note the peculiar nature of this tech darling. Microsoft [MSFT], Google [GOOGL] and Facebook [FB] do not require much manufacturing or many low-tech workers the way Ford [F] and General Motors [GM] do, for example. High-tech giant Apple [AAPL] produces an array of products. Even so, its property, plant and equipment—a category where the big manufacturers show their production facilities—include a huge amount of real estate as well as software. Nor do the high-tech giants rely on a huge array of service providers the way banks, hospitals and schools do. Wells Fargo [WFC] employs 258,000. Imagine a blue-collar manufacturing employee at Microsoft. What would he or she do each day? Roll out a bunch of Windows disks? OK, this is intentional humor. Amazon, however, cannot survive without a massive crew of busy-bee shelf stockers.

Amazon also bucks the trend in many labor-intensive industries. Automation is everywhere. For example, the US military has shrunk massively over the decades from about 3.3 million in 1954 to 1.3 million in 2014 according to historian and author David Coleman. The shift is explained in part by the end of the cold war and a distaste for individual combat following Vietnam. But part of the shrinkage derives from the high tech nature of modern war-making capability. World Wars I and II required huge armies and navies with millions making individual efforts in deadly combat. Today’s focus on high-tech weapons calls for people to fire at an enemy half way around the world. Similarly, many manufacturing jobs that have not left the US and Europe disappeared because of massive automation. Overall, manufacturing jobs in the US have fallen from 15 million in 1960 to 13 million in 2019. Keep in mind that manufacturing jobs rose recently and the population of the country has risen significantly over the last sixty years.

Amazon, in contrast, relies on low-paid, non-technical employees to provide its services—even more so than the military. Like sweatshops, Amazon’s warehouses are not visited by the public. Salaries are low and conditions are so-so. Despite the technology shift to leaner staffs, grueling individual labor persists.

Clothing manufacturers that purchase from sweatshops are closely watched because the conditions have been going on for decades. Government agencies are onto them. Amazon remains a new phenomenon: a hidden sweatshop on steroids. Top executives are revered, exuding high tech. Cadabra’s (nickname) corporate headquarters – both of them – are beautiful college-like campuses. Out of sight lie miles of shelves in warehouses. At first, people are exhilarated to work for the market-cap leader. But, that changes over time.

In the previous entries in this series, we noted sweatshop clichés: They only exist in other countries and the government should and probably will stop them. The facts show it is not that simple. They flourish in the US and Western Europe in major cities and centers of wealth. If all of these caregivers to the elderly or people who sew twelve hours a day, or those who cut hedges in West Palm Beach quit, a host of others would step in the next day.

Safety Nets Give Sweatshops Life Support

Beyond the common wisdom, sweatshops are not entirely a creation of greedy corporations. Available workers willing to accept the going rate ensure their continuation. Here is another reason why these unpleasant venues are destined for a long future: sub-minimum wage workers supplement their income by various “safety nets,” at least in the US and Western Europe. Food, shelter, healthcare and education for the workers themselves and their children are a sure thing.

Low wages in wealthy countries no longer prevent someone from obtaining basic needs. Of course, skimpy pay is more likely to cut people off from anchoring themselves in the middle class with its related comforts. Any thoughts of having the government cover the cost to better sweatshop workers or force employers to raise salaries would create a peculiar outcome: The next generation would be saddled first with college debt and then by elder care debt.

This myth opened stark realities about sweatshops and leads to the conclusion that this unpleasant form of employment will enjoy a long life, longer than the patients they care for and the clothing they labor to roll off the line.

Next month, we shall look back at the year and see how the Myth Buster fared.


Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.


Equities Contributor: Michael McTague, PhD

Source: Equities News

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