Amazon Soars on the Wings of Cronyism

In recent weeks, Amazon.com stock jumped in value, making the company the second (after Apple) to achieve a market cap of $1 trillion. Analysts barely took a breath before declaring the company could be the first to top $2 trillion.

“Amazon has increased its profitability as cloud computing, advertising and its marketplace for third-party retailers have powered growth,” TheStreet.com reported. But those aren’t the only factors pushing Amazon to new heights. Cronyism and cozy deals with government entities help as well.

For example, Bloomberg Businessweek magazine recently reported that in some places, Amazon isn’t paying for all the electricity it uses to run its web servers. Instead, it cuts deals to pass the costs on to neighboring consumers.

“In at least two states, [Amazon] also negotiated with utilities and politicians to stick other people with the bills, piling untold millions of dollars on top of the estimated $1.2 billion in state and municipal tax incentives the company has received over the past decade,” Mya Frazier writes. “Amazon stands out for its success in offloading its power costs and also because it dominates America’s cloud business, which has gone from nonexistent to using 2 percent of U.S. electricity in about a decade.”

All right, so Amazon is practicing cronyism to advance its cloud computing empire at the local and state levels. How about at the federal level? Well, yes, Amazon works to nab special deals there as well. Consider JEDI.

It stands for Joint Enterprise Defense Infrastructure, and it’s a $10 billion, winner-take-all contract to handle all of the Pentagon’s cloud computing needs. The initial contract could be extended to 10 years, and let’s face it: once one company has all the Pentagon’s data (classified and unclassified), that company will never lose the contract. JEDI could be a huge moneymaker if it’s awarded to just one tech firm.

That’s the problem: why make it winner-take-all? Cloud computing is a fast-maturing field. Many companies are having success using more than one cloud provider; playing them off against each other, if you will. The Pentagon should do the same thing. That could get it better service at better prices as time goes on.

Instead, it looks as if Amazon has fixed the bidding. “Much of the language of JEDI, in fact, seems specifically tailored for [Amazon owner] Jeff Bezos,” May Jeong writes in Vanity Fair. “To even make a bid, a provider must maintain a distance of at least 150 miles between its data centers and provide ‘32 GB of RAM’—specifications that few providers other than Amazon can meet.” Jeong adds that one rival bidder told her that: “Everybody immediately knew that it was for Amazon.”

Amazon CEO Jeff Bezos isn’t taking chances. “Amazon now has an army of nearly 100 lobbyists at more than a dozen lobbying firms working on a list of issues,” the Wall Street Journal reported this year. The company spends some $13 million each year lobbying. Even his charity may have another purpose. Bezos and his wife will donate $10 million to the Super PAC “With Honor Fund,” an organization dedicated to electing military veterans to public office. That single gift is $3 million more than the PAC had raised on its own up until then. “A donation like the one Bezos just made could be the nudge the military community is looking for to feel it is safe in Amazon’s cloud-computing hands,” Business Insider writes.

Bezos is making himself at home in Washington, too. He bought the local newspaper a few years ago, which should ensure positive coverage. He’s bought a local mansion and plans to play the genial host. He understands the game of how things get done in the swamp. But that doesn’t mean the rest of us should play along.

It’s not too late to demand the Pentagon open up the bidding on its JEDI contract. If Amazon still wins, that’s fine. But it should win fairly, not by fixing the process through Washington-style cronyism.

Photo Credit: Saul Loeb/AFP/Getty Images

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About Michael Busler

Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in New Jersey, where he teaches undergraduate and graduate courses in finance and economics.