Image credit: VectorVictor / Shutterstock.com
Last month, UNI Global Union and my organization Good Jobs First released a report detailing the subsidies Amazon.com, Inc. has gotten around the world. I was the lead author of the study. Months of research by our multi-lingual team found that the company has received at least $4.7 billion.
Unfortunately, this figure is a huge underestimate. Over $4.1 billion of that amount is in the United States, where Good Jobs First, a Washington, DC nonprofit resource center focused on the use of economic development incentives, has long kept tabs with our Amazon Tracker. But the company has hundreds of sites elsewhere in the world — warehouses, data centers, research offices, call centers, and more. It quickly became clear that if there was a tax break or other subsidy possibility, Amazon would extract it. But, as we learned scouring the globe, tax-break transparency in many countries where these are located is close to non-existent.
Why is this a big deal? On top of my concern with the usual potential problems of investment incentives, i.e., their economic inefficiency (a problem with subsidies in general) and their exacerbation of inequality (transferring wealth up the economic pyramid), Amazon, in particular, represents a unique threat to competition in the global marketplace. In its quest for global dominance of retail, Amazon drives out its competitors, its workplaces have higher-than-normal injury rates, and its operations pollute low-income neighborhoods. Undermining local retail economies, it strips communities of badly needed revenue to pay for their schools, health care, and infrastructure.
Governments worldwide are helping Amazon do this. First, as it grew in the U.S., state governments reacted slowly to Amazon’s initial ploy of avoiding sales taxes to give it a leg up on its bookstore competitors. Second, they directly subsidize Amazon Web Services data centers, server farms that generate the biggest share of the company’s profits. Using its dominant volume of website traffic, it extracts 30% of each sale from independent sellers forced to use its platform, according to the Institute for Local Self-Reliance).
Third, governments have underwritten the build-out of Amazon Prime, its rapid delivery system that has necessitated building hundreds of warehouses across the country to hit it one- and two-day delivery promises. The company must open them, yet governments continue to subsidize them: even in its pandemic-fueled growth year of 2021, Amazon managed to pry nearly $700 million from residents in U.S. communities big and small.
Starting in 1999, when Amazon opened three warehouses in Europe, this story began to play out on a global scale. We thought transparency was pretty bad in the United States, where our Amazon Tracker has tallied $4.1 billion in subsidies, also a significant undercount (you’ll see “value undisclosed” in many entries). However, the lack of subsidy transparency in most of the rest of the world is far worse, and prevented us from getting anywhere near Amazon’s take from overseas governments. A few examples will make help make clear the scope of missing information.
As described in my book, Investment Incentives and the Global Competition for Capital, China, India, and Brazil all have long histories of subnational governments using subsidies to compete for investments, in some cases a competition that companies exploit to command even more subsidies than developed countries have had to give for similar projects.
Our research into Amazon in China turned up nothing in English-language media; however, the Chinese press reported that Amazon’s data centers in Ningxia and Beijing, and a warehouse in Chengdu, received government support. Unfortunately, none of the articles found by my colleague Christine Wen reported the amounts.
The situation in India is similar. While it is easy enough to find out what incentives are available for investors, both in the press and on state government websites, we were unable to determine the actual packages given to specific projects. To complicate things further, there were 268 operational special economic zones in India as of late 2021. Amazon has one data center in Mumbai and another under construction in Hyderabad (due to open this year), and about 12.5 million square feet of distribution centers of many sizes. How much in government subsidies did they receive? Undoubtedly a lot, but there is no way to accurately estimate it.
Brazilians have a name for their economic war among the states, the guerra fiscal, or fiscal war. It is a never-ending battle among states for tax revenue. While information on Amazon facilities was scant, our friends at the International Budget Project believe that the Sao Paulo data center received a 100% ICMS (a type of Value Added Tax, or VAT) tax break. Applying Sao Paulo’s 18% ICMS rate to the $1 billion investment gives us a first-cut estimate of roughly $180 million for just one facility (and data centers typically employ only a few dozen workers).
Mexican states are just as eager for investment as U.S. states are. My colleague Arlene Martinez, a former journalist, reached out to her journalistic contacts in Mexico, who were unanimous that investments like Amazon’s would be subsidized by state governments (press releases stated as much). Unfortunately, freedom of information requests and follow-ups to the states of Mexico, Jalisco, and Nuevo Laredo, where Amazon fulfillment centers are located, did not produce any information. The Mexican press reported on such deals, but subsidy totals were not included in the articles we found.
In Europe, European Union rules provide some transparency for subsidies, but less than I would have guessed based on my prior research. We were able to identify two instances of state aid in the United Kingdom and Germany through EU sources, and learned of two more from a confidential source, but those turned out to be too small to require EU notification. On the other hand, press reports turned up aid in Ireland for two Amazon projects, including its Dublin data center, but the stories both noted that IDA Ireland, the country’s foreign investment attraction agency, had refused to specify the public costs.
Poland has nine Amazon warehouses averaging over 800,000 square feet each (i.e., quite large), but there is no record anywhere of their receiving state aid, despite the fact that every region in Poland is eligible to award regional state aid, and despite the fact that at least two of the warehouses are located within special economic zones, as my colleague Kasia Tarczynska was able to determine. My best guess for why no state aid shows up is that they were built before the General Block Exemption Regulation was amended to sharply lower the notification threshold (to aid totaling 500,000 euros; it had been an investment of 50 million euros). It is also possible that aid was notified using the name of a subsidiary one wouldn’t connect with Amazon, as Facebook has done in Sweden (“Pinnacle Sweden A.B.”).
These examples show that in places where we would expect large investment subsidies to be given, the lack of transparency makes it all but impossible to put hard numbers on them. Currently, there’s an international effort calling on the notorious tax dodger to get more transparent about its tax practices. Amazon, with the support of governments leaders, should do the same with its subsidies. Better yet, Amazon should stop seeking subsidies altogether. Governments should use their limited resources to help build a base of thriving small businesses and deliver community-wide amenities that will attract workers and companies.
Dr. Kenneth Thomas is professor emeritus of political science at the University of Missouri-St. Louis and the author of two books on incentives: Competing for Capital: Europe and North America in a Global Era (Georgetown University Press, 2000) and Investment Incentives and the Global Competition for Capital (Palgrave, 2011). He blogs at Middle Class Political Economist.
One thought on “Amazon Extracts Billions from Communities Globally”