Amazon and the New American Infrastructure

Amazon is an economic revolutionary force as consequential as the transcontinental railroad was 150 years ago. Like the interstate highway system or municipal utility grids, its presence in our daily lives is so ubiquitous that it fades into the background.

Yet Amazon has proven to be one of the largest multipliers of human productivity in the third millennium. It has not merely increased the size of the U.S. economy (by employing over 1.5 million workers and generating over $700 billion in annual revenue). It has done something much more significant: it has been a catalyst for transforming the American economy.  

The United States has had the world’s largest domestic market since the late 1880s. Is it merely a coincidence that America’s first transcontinental railroad was completed in 1869, becoming the stimulus for vast economic efficiencies between America’s two distant coasts? Buying skyrocketed when Americans gained frictionless access to a continental market with limited taxes and no internal tariffs. Combined with the nation’s democratic government, large population, and abundant natural resources, this fueled America’s economic explosion.  

With the transcontinental railroad, travel time from New York City to San Francisco plummeted from five months to seven days. This ushered in an era of unprecedented logistical efficiency. 

Is this starting to sound familiar?

Amazon has repeated in the digital age what the railroad network accomplished early in the industrial age. It has become a central pillar of American economic infrastructure. With a few computer clicks, almost anyone in the world can now access the American consumer market. American businesses and entrepreneurs, both large and small, can more easily sell throughout the U.S. and much of the world. There are also numerous other e-commerce companies that are doing what Amazon pioneered. This has not meant the demise of Amazon, but a more efficient and growing e-marketplace, including expanded competition and better prices for consumers. Even that classic brick-and-mortar shop Walmart is now rolling in e-commerce. 

Prior to Amazon’s founding in 1994, ordering from a catalog could take roughly a month from purchase to delivery, and catalog inventory typically topped out at around 100,000 items. Today, Amazon offers over 300 million products to over 300 million Americans. My eight-year-old grandson recently announced that he intended to sue Amazon because the watch he ordered was delivered 10 minutes late. The barrier to purchase is essentially nonexistent.

The barriers to launching and scaling new companies have also been significantly reduced. For example, until recently, authors and publishers had to assume significant financial risk when printing and publishing books. Amazon features, such as Kindle Direct Publishing, which enables self-publishing and print-on-demand, allow books to be launched with almost no upfront cost. Publishers and manufacturers no longer have to gamble on large production runs in order to bring products to market. They can launch with little to no risk.

Capital is often the most restrictive bottleneck for startups, and Amazon helps address that challenge. To help new products gain traction, sellers observe that Amazon will algorithmically boost new listings for 30 days, sometimes even placing items on sale if they show signs of momentum while Amazon covers the cost of the discount. What is this, a benevolent marketplace? Compare that with many incumbent competitors that wage price wars to try to crush challengers in the crib. Amazon enables thousands of additional American entrepreneurs to get a foot in the door each year. And it allows retailers to work from where they want and in the circumstances they find themselves in. That could be a stay-at-home mom, or someone not living near a big city, or someone unable to travel. Likewise on the consumer side, the shopping experience has dramatically improved for the elderly, disabled, and lower-income folks who can save money on gas or bus fares. 

The speed and agility with which products can launch and scale through Amazon ensure that this market asymmetry is visible and obvious to other nations. America’s unambiguous trump card in any trade dispute is that foreign exporters want continued access to our enormous consumer market and dynamic entrepreneurial ecosystem. Like the railroad before it, Amazon and its e-commerce ecosystem give the American economy an extraordinary competitive advantage over the rest of the world.

No analogy is perfect, and the railroad-Amazon comparison falls short when it comes to how the two enterprises began. The astonishing success of the railroad was facilitated by one of the most extensive government subsidy programs in history. More than 200 million acres of land were granted to railroad companies—a gift larger than the state of Texas. The American economy benefited enormously from the railroad boom, but it paid dearly to create it.

Amazon, by contrast, was bootstrapped. Prior to its initial public offering, Amazon raised only about $20 million, all of it in private capital. Jeff Bezos’ parents famously invested $245,000 to become 6% owners. Mr. Bezos has recalled buying kneepads for workers to facilitate packing on the floor before realizing that setting up simple packing tables would be far more efficient.

And now Amazon helps fund America’s private space race. According to Bezos, he sells roughly $1 billion of his Amazon stock annually to fund the space launch company Blue Origin, and Amazon itself is competing with SpaceX’s Starlink through its LEO constellation of communication satellites. 

Compare that with Tesla, which received an almost $500 million loan from the U.S. government in the early 2010s at extraordinarily favorable interest rates, including rates below 1%. It also benefited from billions of dollars in federal and state electric vehicle (EV) subsidies and tax breaks. 

Other nations would gladly trade their second-largest state for an economic engine of Amazon’s magnitude. It makes you wonder if a government has ever done so little to gain so much. It also makes you wonder why government agencies like the Federal Trade Commission (FTC) relentlessly pursue and punish successful companies like Amazon, as if a handful of Washington-based bureaucrats and economists know what is good and right for the American economy, while millions of suppliers and customers in the largest market in the history of the world must be wrong.