Yves here. This article describes the considerable advantages of a public “Amazon,” including using existing postal system infrastructure and providing Covid-related support . And if Argentina has the tech chops to pull this off, it says that the barriers to entry aren’t that high. The real obstacle to creating an also-ran here to make Amazon less dishonest isn’t so much network effects or first-mover advantage (the way Amazon abuses its merchants creates opportunities), it’s that DC is too in awe of (and paid for by) tech ever to challenge a big incumbent in a serious way.
By Cecilia Rikap, who holds a PhD in economics and is currently tenure researcher at the CONICET, Argentina’s national research council, and associate researcher at the Centre de Population et Développement (CEPED), IRD/Université de Paris and at the COSTECH lab, Université de Technologie de Compiègne. Originally published at openDemocracy
In October, a historic US Congressional investigation into big tech published a report which proposed a raft of new regulations to rein in the power of tech giants like Amazon. But what if instead of relying on regulations, the US introduced a new online marketplace that delivered low prices to consumers, lower costs for merchants and living wages for workers in e-commerce?
Last October, Argentina announced the creation of an online marketplace called “Correo Compras”. The platform is to be run by a state-owned company, Correo Argentino, which is also the country’s official postal service.
Argentina has been severely hit by the Covid-19 pandemic, and its lockdown has been among the longest. Even before the pandemic internet penetration in Argentina was already high (74%), and since the lockdown e-commerce and other digital services thrived in the country. Through its publicly owned option, the government aims to offer an alternative to Latin America’s current e-commerce private octopus.
Latin America’s Amazon
Though you may never have heard of it, the Amazon of the Amazonian continent is not Amazon.com – the global behemoth whose market capitalization grew 75% this year. Rather, Latin America’s amazonian e-commerce honors go to MercadoLibre, or ‘FreeMarket’ in English. Born in 1999, the company quickly adopted the business models first of eBay and then of Amazon and China’s Alibaba.
The absence of foreign platforms in the region allowed MercadoLibre to develop a profitable business. The company now has the largest e-commerce platform in Latin America, operating in eighteen countries, with 51.5 million active users.
Far from the image of a ‘national champion’ that contributes to other businesses’ catching-up and, eventually, the region’s development, MercadoLibre simply copied Amazon’s business model. It is an e-commerce marketplace that squeezes value from third-party sellers.
Just like Bezos’s giant, MercadoLibre imposes transaction conditions: from fees to be listed higher when people search for goods, to advertising campaigns inside the marketplace. MercadoLibre also forces sellers to offer free shipping when the purchase is above USD25.
Once again copying Amazon, MercadoLibre’s delivery network mobilizes an Uber-like army of drivers seeking out a living through the sharing economy, and its fulfillment centers are beset by low pay and stressful working conditions. Though MercadoLibre technically is a union shop, it has implemented a new flexible employment contract that basically optimizes profits and minimizes pay.
In comparison, the government’s “Correo Compras” will not outsource shipping (which is in fact its core business) and promises to create quality jobs with a living wage for its employees.
The need to regulate tech giants has become all the more urgent with the pandemic. As well as the recent US Congress investigation report, this was also made clear by the recent Justice Department lawsuit against Google, which may be followed by similar actions against the other US tech giants.
According to UNCTAD, before the pandemic Amazon concentrated over a third of the world’s online retail activity. In Argentina, MercadoLibre concentrates around half of that market and has been the clear winner of the pandemic. While the IMF forecasts the global economy to shrink by 4.4% and (and 8.1% in Latin America’s – the worst among the world’s major regions), MercadoLibre celebrated a 45% increase in gross profits for the first half of 2020.
Argentina, Between Tech Unicorns and a Long-Term Economic Crisis
Argentina is a worldwide supplier of cheap agrarian and mining commodities, leading to economic, ecological, and health consequences.
Before the pandemic, while MercadoLibre was thriving Argentina was already in a severe economic crisis partly triggered by a trade deficit due to low commodity prices. Coupled with more than a decade of inflation, wages kept losing their purchasing power despite increasing in nominal terms. In addition, an international debt spiral led to the IMF’s largest ever loan in 2018, which was not used to recover the economy but to pay previous debt which ultimately ended up financing capital flight.
Regardless of this long-standing crisis and its structural underdevelopment, Argentina hosts its own tech giants. In addition to MercadoLibre, the software development company Globant and travel platform Despegar were all unicorns before their US listings. They are leading companies in Latin America, and Globant also operates in the US and Europe. Other tech companies that have gained the unicorn label in the country include OLX and Auth0.
They were all aided by a software promotion regime created in 2004 and by the country’s cheap skilled workforce. According to the World Bank, Argentina has a 90% gross enrollment ratio in tertiary education. The same figure is 88% for the United States, however the average IT salary in the US is around USD 200,000 while in Argentina it is less than USD 10,000.
The Public Digital Economy
It is in this context that the new Argentinean administration launched Correo Compras, offering over 2,000 products. It is a high-risk, high-gain initiative with the potential to tilt the scale in favour of consumers and small and medium enterprises that cannot cope with the costs of offering in MercadoLibre’s private marketplace.
Public platforms are not an entirely new phenomenon. In Indonesia, a state-owned enterprise already manages the digital payment service LinkAja. Brazil has seen the emergence of several public platforms since the pandemic, like the delivery platform FiqueNoLar that operates in the northern part of the country, where the most popular private delivery apps did not have a service.
Moreover, in the midst of the Covid-19 pandemic some advocated that the US government should nationalize Amazon and use its logistics network to assure the delivery of essential goods to all US citizens.
In Argentina, Correo Compras promises to have the lowest prices by being cheaper for sellers, who will only have to pay a platform maintenance fee. This public e-commerce platform is part of the Argentinean government’s broader attempt to regulate the digital economy and offer public alternatives to existing private businesses.
Argentina’s national bank, Banco Nación, has launched BNA+ – an e-wallet to compete with MercadoLibre’s e-payment business, MercadoPagos. MercadoPagos was also favored by the lockdown – its total payment transactions jumped 122.9% year on year, totaling 404.8 million transactions in the second quarter of 2020.
Correo Compras also aims to stimulate consumer demand. The platform offers government subsidized installment purchase plans that allow payment over three, six, and twelve months.
As with every platform, the success of public platforms depends on their capacity to trigger direct and indirect network effects – meaning they gain additional value as more people use them. Can Correo Compras succeed, and thereby become a role model for other countries?
Unlike private platforms, in public platforms political motives could be decisive network effect drivers. Buying at Correo Compras could be seen as a way to reduce the power of tech companies, support the state’s active participation in the economy, express support for the current administration or support the company’s workers. In any case, it could become the first political grassroots action to engender platform network effects.
Data, Planning, and Surveillance
Finally, could the state use direct access to market data differently than private tech giants? Correo Compras offers the Argentinean state an unprecedented opportunity: the chance to access continuous market data flows in real-time.
With the necessary algorithms and computing power, the state could significantly enhance its political action within and beyond e-commerce. It could anticipate productive and market opportunities and evaluate the impact of related policies in real-time.
Data could be used for democratic planning, minimizing waste and respecting the ecological capacities of the planet. We could envision a sustainable scenario where data is used to identify and fulfill the needs of the population instead of further concentrating wealth and income.
How the government will guarantee digital security and overcome surveillance capitalism are unavoidable matters that remain unclear. Besides Correo Compras, Argentina has also witnessed the emergence of cooperative marketplaces, which are another alternative to tech giants. Could they all be part of an opportunity to use data for the public good and not to control, modify, and ultimately induce behaviors that favor the concentration of knowledge and wealth?
Besides this open question, Argentina’s experience opens a window of opportunity to go beyond regulation. Other governments, not only the United States but also the United Kingdom and the European Union that depend centrally on Amazon, should keep a close eye on public platform initiatives when thinking about alternatives for their own countries.
Twenty-first century industrial policy cannot be detached from the digital economy. In this respect, Correo Compras could become an important turning point.
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Its not anywhere near as ambitious, but the Irish state owned public system has been quite successful at playing Amazon and other retail giants at their own game. Among other things, they operate ‘AddressPal‘, which allows Irish based consumers to order from smaller vendors around the world, bypassing the restrictions that Amazon and others put in place to keep prices higher (they will often, for example, refuse to ship a product from the US to Europe, or even from the UK to Ireland). The practical result is that there can be significant savings here for a consumer to order something direct from an online shop than rely on Amazon – in other words, it allows consumers to play their own arbitrage game. There are private sector alternatives, but the State system has used its overall delivery network to compete successfully with them. I think this is one reason among others that Amazon hasn’t anywhere near the market domination as in the US or the UK.
Incidentally, I think its often forgotten that super fast Amazon type deliveries are nothing now. I was reading a local history about a small town in Ireland from the 1950’s. The Main Street shops had put together a co-operative delivery system whereby a local housewife could ring up any shop during the day and put in an order not just from the shop, but for any others along the street. So she could call the bakery, but ask for some meat from the butchers and some 6 inch screws from the hardware along with her daily bread. The shops shared their delivery boys, and she would have her delivery within 2-3 hours. She would settle up the bill the next time she was in the town. I don’t know exactly why the system broke down, but I assume it was the rise of the supermarkets in the 1960’s and widespread car ownership. This was also a time (and this went back to the 1880’s), when anything put in the post, including fresh meat and very large parcels, ordered from London, could be guaranteed to arrive the next morning (there were two deliveries a day!) in any town or city in Ireland. It really was that fast and efficient. You tell kids that these days and they refuse to believe you…
There are a few time in the Conan Doyle stories where Holmes would get a letter in the morning with an invite for that evening, and he could RSVP by letter delivered by the second delivery service on the same day. Ok, likely London only, but impressive.
That was quite common. I’ve heard of men writing a letter to their wives in the morning in the office, telling them they’d be late home for dinner. And they’d get it in the afternoon mail.
A la CJ Hopkins, the battle is to overturn global capitalism’s efforts to undermine national sovereignty and replace it with a globally privatized empire. China’s recent slapdown of billionaire Jack Ma is an early volley in that battle.
I think Salary.com claims this, but it does not compute
https://www1.salary.com/Information-Technology-Salary.html
I guess the Silicon Valley folks are making millions, because the average salary in the Midwest seems much lower
Amid the shambolic crapification we are usually discussing here, this is a very hopeful post. A functional, existing, pro-people, anti-market praxis delivering widespread equity. And to think that the IMF reduced the Argentines to barter only a few years ago. Maybe the secret sauce is serial bankruptcies. My guess is that they were an education tool if nothing else.
The Argentine Peso was worth 1 US Dollar 20 years ago, now it’s worth about 1 Cent.
Most everything you could buy there online would be an import, how are the people able to afford such luxuries, one wonders?
They’ll pay for it out of the money saved on Jeff Pesos.
Yes, in the past I worked with several Argentinians in Buenos Aires, doing basically offshored work the same way we send work to India, but they were in the same time zone. (I’m a Silicon Valley-ite.)
Very good, very professional folks. I’m not surprised that Argentina has developed homegrown software giants.
Beating Amazon in retail is probably impossible, especially when you play ethically as a government owned company should.
Amazon preys on its marketplace vendors by undercutting them when they hit on something that starts to sell well. Even with that and the huge volumes, and therefore discounts when importing, Amazon can sell, their retail part supposedly doesn’t really make any money. The money they do make is via AWS.
Just like Facebook is not in the business of letting people socialize, Google is not in the business of running a search engine or giving away a mobile operating system, Amazon is not a retailer but a computing services company. Maybe the Argentinians can run it as a reason to keep the postal service profitable, like SpaceX became an ISP to have enough rocket launch demand.