AMERICAN RETAIL CAPITALISM THE ORIGINS OF THE AMAZON ECONOMY

AMERICAN RETAIL CAPITALISM THE ORIGINS OF THE AMAZON ECONOMY

PREFACE

The United States stands out among the rich democracies as a shopper's paradise and the quintessential consumer society. Alongside Walmart, Amazon stands astride a retailing landscape dominated by huge lean retailers whose business model is premised on squeezing suppliers and workers to deliver goods to American consumers at lightning speed and for "everyday low prices."

What accounts for the spectacular success of these companies? Economists view the rise of these mega-retailers in much the same way as they did mass producers, as the natural culmination of technological and organizational innovations that could grow to maturity in the country's large domestic market. Legal scholars attribute the rise of companies like Amazon to a resurgence in monopoly power made possible by changes in American antitrust jurisprudence since the nineteen seventies and nineteen eighties that privilege "consumer welfare," defined in terms of efficiency and price. Political scientists, focused mostly on the politics of production, have not had much at all to say about retailing-though a large literature on the emergence of America's consumption-driven growth regime places heavy emphasis on the expansion of consumption and consumer credit set in motion by government policies in the nineteen thirties in response to the Great Depression.

By contrast, I trace the origins of the Amazon economy to the late nineteenth century, as large, low-cost retailers capitalized on the uniquely permissive regulatory landscape of the American political economy to outgrow the capacity of the government to regulate them. While their counterparts in Europe faced strong countervailing forces and a far less congenial regulatory landscape, large-scale retailers in the United States enjoyed judicial forbearance and often active government support as they grew in scale and scope. Their initial successes allowed them to assemble an ever-growing political support coalition that could then be weaponized to head off subsequent regulatory efforts.

This book tracks these processes through three broad phases that build toward the ascendance of the Amazon economy we know today: (one) the construction of a mass market and the rise of retail capitalism in the late nineteenth and early twentieth centuries, (two) the politicization of consumption and the backlash against chain stores in the nineteen twenties and nineteen thirties, and (three) retail's resurgence and the triumph of low-cost, low-wage discount retailers in the post-World War Two period. Analyzing the American case in comparative perspective and over a long time-frame, this book uncovers the roots of a bitter equilibrium in the United States, one in which large low-cost retailers have come to dominate the retail landscape and in which vast numbers of low-income families have come to depend on them to make ends meet.

Writing this book took me on a journey that was at once deeply familiar and entirely new. Almost all of my previous work explored industries in which I have never worked, and countries in which I have lived only as a foreigner. What made this project so familiar is that, as it turns out, tracing the evolution of American retail capitalism involved recovering a part of my own history. At the same time, and because it was so different from everything I had written before, this project also took me far outside my comfort zone. It required deep dives into literatures that I had not previously engaged with much: the rich literature on American political development, the vast legal scholarship on antitrust, and areas of European economic history and politics that were wholly new to me.

All this newness meant that I would surely have lost my way had it not been for the guidance, support, and encouragement that I received throughout the journey. I owe an enormous debt of gratitude to the many colleagues who have generously shared their time and expertise at various stages in the evolution of this book: Nick Allen, Melike Arslan, Lucio Baccaro, Jens Beckert, German Bender, Gerry Berk, Giovanni Capoccia, Dan Carpenter, Bruce Carruthers, Colleen Dunlavy, Willy Forbath, Chase Foster, David Grewal, Rod Hick, Martin Höpner, Anna Ilsøe, Torben Iversen, Bill Kovacic, Jim Mahoney, Cathie Martin, Lisa Miller, Ive Marx, Renate Mayntz, Darius Ornsten, Mary O'Sullivan, Sanjukta Paul, Erik Peinert, Paul Pierson, Amy Pond, Jonas Pontusson, Monica Prasad, Ben Preis, Andreas Reisenbichler, Brishen Rogers, Fritz Scharpf, Daniel Schlozman, Fredrik Söderqvist, Chloe Thurston, Carolyn Touhy, Gunnar Trumbull, and Andreas Wiedemann. A number of economic historians-including Hartmut Berghoff, Lendol Calder, Louis Hyman, Jan Logemann, Laura Phillips Sawyer, and Sebastian

Teupe-offered comments and input that was incredibly important as I made my way through decades of retail history in Europe and the United States. I am particularly grateful to Louis Hyman, whose support and input in the early stages of this study were especially formative, and to Jan Logemann, whose input and enthusiasm for the project gave me confidence in its overall direction. I am indebted as well to a group of legal scholars, including Kate Andrias, Willy Forbath, Brian Highsmith, Amy Kapczynski, Sanjukta Paul, Katharina Pistor, Brishen Rogers, and especially Sabeel Rahman, who have taught me so much about how to think about the interaction of law and politics in the American context.

Several colleagues contributed in ways that merit special mention. My former student and now colleague and collaborator Chase Foster has taught me almost everything I know about contemporary European competition law. Peter Hall has read and provided his legendarily copious and insightful comments on everything I have ever written, and I thank him for his intellectual leadership and personal generosity. I am grateful to my MIT colleague Devin Caughey for cheering me on as I transgressed into his subfield of American politics, and from whom I have learned a great deal about American political development (including as a student in his graduate seminar). Over the past five years, I have worked especially closely with an exceptional group of scholars-Jacob Hacker, Alex Hertel-Fernandez, and Paul Pierson (along with our fabulous postdocs Sam Trachtman, Sam Zacher, and Sophie Jacobson)-to launch the Consortium on the American Political Economy. The collaboration with my fellow CAPErs has profoundly shaped my thinking about the American political economy. It is a gift to work closely with dear friends whose own work so inspires me. Their influence will be obvious to anyone who reads this book.

Two book workshops-one with scholars of European political economy at the Max Planck Institute for the Study of Societies in Cologne and one with experts on American political development-were critical to whipping the manuscript into shape. My colleagues in Cologne vet pretty much everything I write, and this book benefited from input at the MPIfG workshop by Melike Arslan, Lucio Baccaro, Jens Beckert, Benjamin Braun, Timur Ergen, Chase Foster, Sinisa Hadziabdic, Anke Hassel, Martin Höpner, Alexander Hoppe, Sebastian Kohl, Fritz Scharpf, Saila Stausholm, and Lisa Suckert. I am particularly grateful to the institute's directors, Lucio Baccaro and Jens Beckert, for their support over many years now. The all-star cast of participants in the APD workshop on this book brought both insight and enthusiasm. Heartfelt thanks to Amel Ahmed, Andrea Campbell, Sara

Chatfield, Jonathan Obert, Emily Zackin, and especially Devin Caughey for organizing the event.

who provided me with materials, often discards from small rural public libraries, that provided many key insights that found their way into this book. What I wish for these third-party sellers is a way bigger cut of the profits that Amazon made off of me.

Friends and family sustained me in the process of writing this book, maybe even more than usual, since so much of it was written in a pandemic. Among the dear friends who helped me maintain my bearings, I thank Frank Dobbin and Michèle Lamont, Gisela Kühne-Groffebert and Hans Groffebert, Rajesh Gandhi and Bonnie Southworth, Kerry Scott, Cathie Martin, Jenny Mansbridge, David Soskice and Niki Lacey, Torben Iversen and Charla Rudisill. Zoom sessions with my sister Pat, brothers Mike and Erik, and sisters-in-law Nikki and Belle provided regular doses of much-needed levity, and I am especially grateful to have Pat and her family in my life. My Sherman Avenue friends-Jess and Jim Ticus, Sandy Waxman and Steve Bussolari, and Mike Pelletier and Arlene Levy-deserve a special shout-out for years and years of companionship and love. My own little family has been more involved in this project than any other in my career. My children Andy and Amelia (aka Emmy) buoyed me up with their interest, baiting me at dinner parties with leading questions on Amazon and antitrust. It has been a profound joy to watch them develop into such thoughtful, funny, empathic, and interesting adults; they amaze and inspire me. In the course of writing this book, Andy brought Liz Marsh first into our lives and then into our family, and we are all so much richer for the brightness and warmth she brings to everything she touches. Finally, and as always, my greatest debt is to my extraordinary husband Ben. How to thank him? I don't even know where to start.

PART ONE Introduction

ONE American Retail Capitalism and the Origins of the Amazon Economy

An upstart retail platform, led by a ferociously ambitious entrepreneur, is on the march. The company has been engaged in an aggressive strategy of relentless expansion, offering convenient at-home shopping for an ever-widening selection of goods while also maintaining low prices by generating huge sales volumes. Unsurprisingly, the company's success has provoked enormous antipathy among the small independent merchants who cannot possibly match its superior inventory and low cost. Critics complain that the company's profits are being underwritten by taxpayers because of the central role the United States Postal Service plays in delivering goods to customers. The firm's nonunionized employees bear the brunt of the monotonous but frantically paced work, in state-of-the-art warehouses deploying the latest technologies, on which the business model rests. The companies that supply many of the goods offered on the platform feel squeezed and trapped in a relationship of unequal dependence. Consumers, however, are smitten. They now have the luxury of shopping from home, choosing from a wide selection of every imaginable product, all available at unbeatable prices, with a money-back guarantee and special perks for preferred customers-and with everything delivered right to their door. What's not to love?

It is the turn of the previous century, and the company is Sears & Roebuck. Its hard-driving founder, Richard Warren Sears, had presided over the firm's spectacular growth with manic energy and flamboyant salesmanship. Mail order retail was an American innovation, and though the company was not the first in this space, within a decade of its launch it had come to dominate it. Originally offering only watches advertised on a one-page flyer, the company grew to become the original "everything store"-with catalogs of thousands of pages crammed with a breathtakingly wide array of products-everything from stump pullers to silk stockings. A marketing genius, Sears pioneered or, more often, perfected a host of consumer-facing innovations, including "send no money" purchasing to allow customers to inspect products before paying, generous money-back guarantees, and customer loyalty rewards programs. Like Amazon today, Sears made shopping cheap and easy-in the process satisfying but also generating seemingly insatiable demand on the part of American consumers.

Consumers occupy a central place in the political economies of all the advanced capitalist economies, but among its rich peers, the United States stands out as a shopper's paradise and the quintessential consumer society. Consumption, and with it, shopping and retailing, are deeply baked into the American political economy and widely recognized as occupying center stage in the country's demand-driven growth model. American consumers were watching TV and enjoying household conveniences such as washing machines and vacuum cleaners decades before their European counterparts. Today, no peer democracy depends as heavily as the United States does on domestic consumption to fuel economic growth.

Europe, of course, now has its own vibrant retail culture, one that also reflects the deep influence of American retailing actors and practices. Nonetheless, striking differences remain. Credit plays a far less prominent role in supporting consumption in most European countries. Excluding housing and other loans, consumer credit in the United States is over three times the European Union average as a percentage of GDP, and more than twice that in Europe as a share of disposable income. The average number of credit cards per person (aged twenty-three and over) in the United States (four) is over twice the average in Europe (one point nine per person).

There are also notable differences in the retail landscape. For starters, and as figure one point two shows, the United States features far more retail space per capita than peer democracies. This difference is partly a function of the large enclosed malls that one finds in most American suburbs. But it also reflects the ubiquity of big-box discount centers across the United States. Walmart, for example, has over five thousand three hundred stores in operation across all fifty states; Forbes reports that ninety percent of Americans live within ten miles of a Walmart outlet. In Europe, by contrast, such shopping meccas-while not absent-are far less prevalent, and downtown shopping areas in most countries have remained more vibrant.

Moreover, despite some convergence on American practices, there are still significant differences in retail operations. One of the most noticeable is that shopping hours are more restricted across most of Europe. Americans living or traveling abroad are often aggravated to find that in many European countries stores are closed on holidays and Sundays. Beyond shopping hours, European countries often impose further (less visible) restrictions on retailing operations, and sometimes on large retailers specifically, in an effort to protect small merchants or preserve central city shopping districts. Figure one point three presents comparative data on various restrictions on retail operations. It provides a cumulative measure of three types of regulation-restrictions on shopping hours, restrictions on promotions and discounts, and regulations pertaining specifically to large retailers. It shows that different countries impose a mix of different regulations, but the United States stands out (alongside Sweden and recently liberalized Australia) for the unusually light regulations governing retail operations.

And finally, shopping features far less prominently as a leisure activity than it does in the United States. Indeed, the gargantuan Mall of America in suburban Minneapolis-with its twenty thousand parking spots and five-hundred-plus retail stores-beats out the Statue of Liberty among the top tourist attractions in the United States.

Europe pioneered some significant advances in retailing (e.g., the department store), but it was American retailers who were responsible for many of the innovations that made shopping more accessible, and cheaper, especially for the masses. The list is impressive, and it includes not just mail order retail, but also installment purchasing, sales finance corporations, consumer credit ratings, the shopping mall, customer loyalty programs, the credit card, UPC (bar) codes, "Black Friday" and "Cyber Monday" promotions, and, of course, e-commerce. Innovations pioneered by American retailers are now ubiquitous across the globe, but the American model of mass distribution and the cultivation of consumers has a far longer history in the United States than in most of its peers.

This book provides an account of the origins of what I call "the Amazon economy." The Amazon economy is one in which consumption-and with that, retailing-plays a central role in driving economic growth. But it is also one that features a particular model of retailing-namely, ultra-lean retailing based on extremely narrow margins, dominated by players (such as Walmart and now Amazon) that enjoy enormous power over both workers and suppliers. It is an economy in which the low cost of distribution is partly underwritten by a precariously employed workforce whose low pay and unstable work hours are what allow for goods to be delivered to consumers at low cost and at almost any time of day. It is, in other words, a model that valorizes low prices and consumer convenience, and one that appears willing to accept, or ignore, the social costs that this model of retailing entails.

American lean retailing practices have diffused to other countries, and, indeed, a few foreign-based retailers have outdone their American counterparts in certain regards. Yet the model originated in the United States and is still far more dominant there. Five of the ten largest private employers are all big discounters, and the labor market as a whole features higher levels of labor market precarity than in peer democracies. As I have elaborated elsewhere, the United States stands out among the rich democracies both for its large low-pay sector (defined as employees earning less than two-thirds of the median wage) and for high levels of in-work poverty. The most recent figures for the size of the low-pay sector show a significant gap between the United States (at twenty-two point six percent) and the OECD average (thirteen point nine percent). Levels of in-work poverty are similarly striking, with the United States coming in at nearly fifteen percent in twenty nineteen against an OECD average of nine point three percent.

Retail workers in the United States themselves make up a large share of this American precariat: over three-quarters of them fall into the low-wage category. As a group they account for eight point four percent of all low-wage workers in the United States. According to a United States Census Bureau report, over fifteen percent of retail workers qualified for Medicaid in twenty eighteen, and over ten percent fell below the poverty line. The United States is thus characterized by a particularly bitter equilibrium, one in which large low-cost retailers have come to dominate the retail landscape and in which vast numbers of low-income workers now rely on them to make ends meet.

If we want to understand how we arrived at this place, we need to understand the way in which American retail capitalism has evolved. Analyzing the American case in comparative perspective and over a long time-frame-that evolution is what this book seeks to explain.