Trouble at the mill threatens Jeff Bezos and Amazon's reputation

Jeff Bezos with fans

A company’s reputation is precious.

Once lost, it is mightily hard to recover. Think Gerald Ratner, who once famously described the jewellery he was selling as “crap”. Think BP after the Deepwater Horizon spill in the Gulf of Mexico. Or G4S, which seemed to have trouble preventing prisoners from escaping and bungled the Olympics security contract.

As a result, it is easy to see why Jeff Bezos, the Amazon chief executive, thought it necessary to respond speedily to a piece in the New York Times that claimed the company he founded was guilty of cruel employment practices. This was no ordinary exposé: the NYT piece ran to more than 5,000 words and was based on more than 100 interviews. It claimed one woman returning to work after treatment for thyroid cancer was given a poor staff review, and told the company was more productive without her.

“I don’t recognise this Amazon,” said Bezos in an email to staff, “and I hope you don’t either.” This is not saying that the NYT is wrong, merely that Bezos has no personal knowledge of such cases. It is the sort of language politicians use when they want to give the impression that something is untrue when they suspect or know full well it isn’t.

Amazon is a retailing phenomenon with revenues of almost $90bn (£58bn) last year. Its soaring share price has made Bezos a wealthy man, even though massive investment in new capacity means it struggles to make a profit. The NYT allegations pose two distinct threats to that continued success. One is that consumers decide the company is tainted and take their business elsewhere, even if it costs them extra to do so. The second is that Amazon finds it hard to recruit and hold on to staff. Modern management theory suggests that happy workers are more productive workers. In his email, Bezos invited staff to quit if they were unhappy. “I strongly believe that anyone working in a company that really is like the one described in the NYT would be crazy to stay. I know I would leave such a company.”

Former White House press secretary Jay Carney defends the competitive work environment of his new employer Amazon

What he should be doing is inviting them to form a trade union. Rarely can the case for organised labour have been made more powerfully than in the claims of bad management practice catalogued by the NYT. Private sector unions are an endangered species in the US but it is worth remembering that they were originally formed as a response to exploitation by 19th century mill owners. In the stories of Amazon keeping a cowed workforce under the lash with non-stop pressure, bullying and psychological warfare, Bezos is the 21st century equivalent.

Europe must learn lessons from Japan

It is the Asian powerhouse that has become the workshop of the world. It is the country that has moved the world’s centre of economic gravity to the east. It is the nation that the US sees as its biggest rival and threat. China in 2015? No, Japan in the late 1980s, when its stock market was booming. It was a time when the real estate value of the Imperial Palace in Tokyo was said to be greater than the whole of California, and a quarter of a century of stagnation and on-off deflation was still in the future.

Japan’s latest growth figures were poor. The economy contracted by 0.4% in the second quarter and Abenomics – the three-arrow policy named after prime minister Shinzo Abe – is failing. Attempts to boost exports through a cheaper yen are being blunted by currency depreciations elsewhere. Consumer spending is held back by fears of VAT increases to come. Further quantitative easing by the Bank of Japan in an attempt to boost activity looks highly likely this autumn.

There are lessons for both China and the west in Japan’s quarter century in the economic doldrums. The lesson for China is that the good times can end quickly. In the second half of the 1980s, Japan was growing at an average rate of 5%. The model was based on building up industrial capacity and exports. An overabundance of debt fuelled a stock market and property boom that generated juicy returns for an ageing population. Sound familiar? It should. China’s growth is slowing. It has far too many unprofitable factories. It is struggling to prevent share prices from collapsing. It is ripe for a crash.

The lesson for the west is that economic torpor can be prolonged by overhasty policy tightening and by a failure to clean up the banking system. At various times after Japan’s economy hit the wall in 1990, policymakers in Tokyo used tentative evidence that things were improving to raise interest rates and push up taxes. On every occasion, the result was to halt recovery and push the economy back into deflation.

So far, the US has avoided going Japanese. Washington has not been saddled with zombie banks that are alive but incapable of lending, and it has given growth a higher priority than deficit reduction. Europe has been slower to learn the lessons and has suffered as a consequence.

Powered by Guardian.co.ukThis article was written by Larry Elliott Economics editor, for The Guardian on Monday 17th August 2015 20.17 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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