“Back off Bezos”: Amazon Money Fails to Flip Seattle City Council

Amazon spent $1.6 million to make the Seattle City Council more business-friendly, but the failed foray into local politics may cost the company far more in the long run.

In 2015, Amazon and its employees donated about $130,000 to Seattle City Council candidates. In 2019, that total increased tenfold, with $1 million donated just weeks before election day. The money flowed to a local business advocacy organization that spent funds to support pro-business—and therefore pro-Amazon—candidates. The advocacy group spent the most to defeat Kshama Sawant, a fierce critic of Amazon. And while early results indicate that the efforts successfully ousted Sawant, there is no sign that Amazon will come away with a landslide victory. On the contrary, the donations have landed Amazon’s feud with Seattle in the national spotlight and may prove to heighten discomfort with big tech.

Though Amazon takes pride in its Seattle roots, tensions have grown between the company and its hometown in recent years. In 2018, the City Council proposed a per-employee tax designed to make the largest corporations contribute to funding affordable housing and homeless services in the city. Locally based giants, including Amazon, Starbucks, and Microsoft, joined together to fund a campaign against the “Tax on Jobs.” Amazon threatened to freeze its planned construction and halt its growth in the city if the tax were imposed. The backlash was so significant that the City Council repealed the tax just a month after passing it. The fear of a revived “Amazon tax” likely drove Amazon to spend big in 2019 to reshape the Council in its favor.

However, that plan may have drastically backfired. The local election spending has landed Amazon in the national spotlight and may prove to be a flashpoint in the big tech and income inequality debate. Amazon and its supporters argue that the company has brought jobs and infrastructure to Seattle, making it a global tech center. Others, however, point to Amazon as the root of Seattle’s problems: the more than 50,000 employees at the company’s home base exacerbate the city’s soaring housing costs and homelessness crisis. Amazon’s effort to tilt the City Council so as to avoid a tax that would fund solutions to these problems undermines the company’s commitment to its community. The Seattle election saga will likely heighten skepticism of big tech in politics and may galvanize supporters of the policies that Amazon sought to defeat.

“Back off Bezos”- Amazon Money Fails to Flip Seattle City Council

Cybersurveillance – WhatsApp Sues Israeli Firm for Spying on Users

WhatsApp, a popular cross-platform messaging service, sued the Israeli cybersurveillance firm NSO Group in federal court in San Francisco on October 26, 2019. WhatsApp, which is owned by Facebook, claimed that NSO’s technology was used to spy on more than 1,400 WhatsApp users across twenty countries.

Further, WhatsApp investigated the attacks, from April to May 2019, and found that the groups NSO targeted included one hundred journalists, prominent leaders, people who had faced unsuccessful assassination attempts, and various other members of civil society. NSO was using malicious voice calls designed to infect targeted phones with malware and steal messages from WhatsApp users in the United Arab Emirates, the kingdom of Bahrain, and Mexico.

NSO manufactures, distributes, and operates surveillance technology for governmental intelligence and law enforcement agencies all over the world. NSO was using WhatsApp servers to send the spyware to smartphones and other devices. The lawsuit was filed by WhatsApp in the United States District Court in the Northern District of California.

In WhatsApp’s complaint, it accused NSO of violating the Computer Fraud and Abuse Act (CFAA), a federal law, and raised state breach of contract and tortious interference claims. NSO said in a statement that it “will vigorously fight [those claims]” in the “strongest possible [way].” WhatsApp will be seeking damages and injunctive relief against NSO, to bar the company and anyone affiliated with it from using WhatsApp or Facebook.

WhatsApp’s legal team will aim to leverage the CFAA in an unorthodox way – to penalize hackers for both breaching WhatsApp servers and exploiting WhatsApp’s software to breach the devices of its users. This is a tricky legal argument because WhatsApp will have to show that it, as the plaintiff, was the victim in the hackers’ use of WhatsApp software to access users’ information, rather than the adversely affected users.

Riana Pfefferkorn, Associate Director of Surveillance and Cybersecurity at Stanford Law School noted that “part of [WhatsApp’s strategy] is a publicity exercise calling out NSO” and that “[WhatsApp] is trying to up the embarrassment factor for NSO and other…hackers for hire.” The WhatsApp-NSO conflict serves as a good wake-up call and cautionary tale for technology companies and their users. The possibility of sophisticated hackers gaining access to one’s user data is not remote and could affect anyone. Even prominent companies like WhatsApp may not have defenses sufficient to protect their users.

Cybersurveillance – WhatsApp Sues Israeli Firm for Spying on Users

Boeing: Ongoing Fallout Over the 737 Max Crisis

Dennis Muilenburg is having a tumultuous year. As Boeing’s president and Chief Executive Officer over the last give years, Mr. Muilenburg led Boeing through the two crashes and subsequent groundings of its 737 Max aircraft (“MAX”). As part of this ongoing saga, Boeing recently removed Mr. Muilenburg as Chairman of the Board after a multiagency task force released an investigative report as part of the re-certification process for the MAX. The report found that Boeing had not adequately informed regulators about the flight control software implicated in the two crashes, and that the Federal Aviation Administration lacked the ability to effectively vet Boeing’s assertions about the safety of the MAX. Mr. Muilenburg’s situation is reflective of wider executive scrutiny at Boeing as Kevin McAllister, the recently-removed head of Boeing’s commercial airlines division, can attest.

While Boeing shareholders fret over fraying airline relationships and an estimated $8 billion in losses stemming from the MAX groundings, U.S. lawmakers prepare for their chance to hold Boeing accountable. Mr. Muilenburg testified in front of Congress this week on the one-year anniversary of the Lion Air Flight 610 crash. House and Senate Committees are looking to Mr. Muilenburg for answers concerning the ongoing safety concerns and uncertain future of the large U.S. manufacturer.

Boeing’s recent Q3 earnings report provided a glimpse into Boeing’s financial outlook. Boeing reiterated confidence in the MAX recertification process, leaving its year-end timeline for MAX re-entry unchanged and continuing their current MAX production rate at 42 per month. Inventory build-up resulting from the MAX groundings continues to reduce cash flow, however, as approximately 275 completed planes are now awaiting shipment. Boeing also revealed that some customers have stopped making advance payments for completed planes.

Exemplifying Boeing’s customer concerns is Southwest Airlines’ (“Southwest”) CEO Gary Kelly, who recently announced that Southwest is reevaluating its policy of having Boeing as its sole supplier. Mr. Kelly’s statements are illustrious of both commercial airline and public sentiment surrounding Boeing’s recent MAX crisis. Moreover, the commercial airline duopoly between Boeing and Airbus suggests that Boeing will need to continue its publicity campaign to improve its image. Otherwise, Airbus may seize the opportunity to capture Boeing customers and gain market share against its largest competitor.

Boeing: Ongoing Fallout Over the 737 Max Crisis

PG&E’s Dwindling Resources – Preemptive Blackouts Suggest Critical Deficits

This past week, residents of Northern California prepared for the third major power outage in the last month as PG&E struggled to prevent its powerlines from causing hazardous fires. Extremely dry and windy conditions, combined with PG&E’s antiquated infrastructure, led the company to cut power to potentially millions of residents in an effort to prevent sparking wildfires.

Earlier this October, PG&E’s initial round of preemptive blackouts to hundreds-of-thousands of residents faced widespread disapproval. Politicians and customers alike were quick to criticize PG&E’s lack of preparation, as it largely failed to give advance notice of outages and its website crashed during the event. Governor Newsom weighed in on the matter by articulating the blackout’s threat to public safety and negative economic impact. Newsom ultimately proposed that PG&E compensate those that lost power.

However, while PG&E’s President and CEO, Bill Johnson, acknowledged the missteps, he insisted that the intentional outages achieved the goal of preventing fires and protecting human life. That being said, Johnson also recognized that failing infrastructure presents a significant challenge for PG&E moving forward, suggesting that Californians may be forced to deal with these outages for a decade as the company struggles to modernize and maintain basic operations.

Amidst the public backlash and widespread outages, PG&E proceeds with its bankruptcy filings, citing an impending multibillion-dollar lawsuit holding it accountable for last years’ Camp Fire that decimated Paradise, California. However, this is not the only trouble PG&E is facing. As power becomes less reliable, PG&E simultaneously increased rates, further aggravating customers. Accordingly, it is uncertain whether PG&E will overcome the latest allegations of its role in the recent Kincade fire, as its share price has reached a record low.

These financial woes, coupled with increased public scrutiny, have led some to question PG&E’s future. Governor Newsom recently indicated that it may be time to consider breaking up PG&E. Similarly, federal bankruptcy proceedings may result in PG&E surrendering restructuring power to bondholders. While the future of PG&E is uncertain, in the short term it appears that the preemptive power outages may be here to stay.

PG&E’s Dwindling Resources – Preemptive Blackouts Suggest Critical Deficits

China’s Economic Growth Slows to a 26-Year Low Amid Tariff and Other Woes

China has been a world economic leader for many decades. Well known for its rapid growth, China comes in at number two on the list of top economies in the world. Americans spend a lot of money on Chinese goods because of their intriguing low prices. Two factors leading to these low prices are the low standard of living in China and their exchange rate, which is fixed to the dollar. Computers, electronics, and clothing usually arrive in American homes with a “Made in China” label and many people are hoping for a cordial relationship between the two leading economic powers of the world. Companies like Apple have been in the media headlines extensively because they rely on China as a manufacturing base. Forbes magazine said, “an escalation of the trade war could impact the company’s revenues while inflating costs.

Recently, the United States and China haven’t agreed on trade. President Trump has been quoted saying that the goal of forcing China to abide by different rules is to ensure “unfair trade practices” do not continue. The President has also been stern in accusing China of stealing intellectual property from America. CNBC said, “[j]ust under one-third of CFOs of North America-based companies on the CNBC Global CFO Council say Chinese firms have stolen from them at some point during the past decade.” These actions have resulted in over $600 billion in annual loss to the United States economy. Trade secret theft has become a growing problem and President Trump is eager to put a stop to it.

Their disagreements have led to the Trump administration imposing tariffs of over $30 billion on Chinese goods. China responded by imposing tariffs of its own on over $100 billion worth of products from America. When Chinese products are more expensive for consumers and businesses in other countries, their economy is greatly affected. China has slowed to a twenty-six-year low because of these tariffs and it is ultimately not good for their businesses and reputation as being one of the world’s leading manufacturing hubs. There was a consensus forecast of 6.1% for China’s gross domestic product growth, but this third quarter span came in even lower at 6%. The country’s factory, retail sales, and investment forecast are all coming in at similar numbers, between five and seven percent. China’s government has an economic growth target of 6.5% to end the year, but according to Bloomberg, “deflationary pressures are hitting company profits and falling imports indicate that domestic demand is weak.”

Li Wei, a senior economist at Standard Chartered in Shanghai, China, said recently “[t]he growing trade tension between the United States and China is creating an industrial weakness and moderating consumer demand.” As a result, Chinese companies have had to transship products through other countries like Vietnam and Malaysia. To remain at the top of the world’s economic rankings, China and the United States must find solutions to the growing tensions.

China’s Economic Growth Slows to a 26-Year Low Amid Tariff and Other Woes

Johnson & Johnson Recalls 33,000 Bottles of Signature Product

Recent discovery of the carcinogen asbestos in a bottle of baby powder has led Johnson & Johnson (J&J) to issue a massive recall of 33,000 bottles of its signature product.  Of the 100,000 lawsuits currently being brought against J&J, over 15,000 involve plaintiffs claiming that the baby powder and other talc-based products have caused them to develop cancer.

The allegedly contaminated bottle was discovered after a Food and Drug Administration (FDA) test showed trace amounts of chrysotile asbestos in a bottle purchased from an online retailer.  J&J maintains that the subsequent recall was only cautionary and that the results of the FDA test do not align with the results of the “thousands of tests over the past 40 years” that the company has continuously performed internally to ensure consumer safety.  The company went so far as to question the validity of the FDA test which, of course, the FDA countered by affirming the adequacy of its testing processes and the accuracy of the results.  Further, J&J attempted to underscore the test by claiming that the amount of asbestos detected was “very low.” But isn’t the concern not how much of the lethal carcinogen was present but the fact that it was present at all?

This is not a new battle for J&J, but this finding has the potential to severely weaken the company’s defensive position in current lawsuits about the alleged harm caused by its talc-based products. While it is not outrageous for the company to question the validity of expert testimony and testing procedures that have been brought forth by plaintiffs over the course these ongoing lawsuits, it is going to be far more difficult for J&J to push back against or effectively contest the findings of a federal regulatory body.

J&J’s stance remains that the mines it sources talc from exceed industry standards for safety. Further, the company has not been able to confirm that the contaminated sample came from a non-counterfeit product or that the seal was properly in-tact.

Talc and asbestos form under the same conditions in underground deposits, leaving talc vulnerable to contamination when extracted. Maybe it is tempting to sympathize with J&J’s argument that it has taken all of the possible steps to protect customers and that this one sample is not representative of the safety of its products. However, the detrimental effects of asbestos on the human body are well-known and even trace amounts should be unacceptable to consumers. Trust is the foundation of the consumer-product relationship. People purchasing these products to use on their bodies and the bodies of their children trust that Johnson & Johnson is providing a safe product, not one that’s linked to cancer. An incident like this one is a prime opportunity to raise questions about the adequacy of current testing procedures and the possible need for increased regulation of manufacturing for talc-based products.

Johnson & Johnson Recalls 33,000 Bottles of Signature Product

 

Why Amazon Wants Its Own Web of Delivery Contractors

If you order now, by this time tomorrow, your Amazon Prime package will likely be on your doorstep.

With the move to guarantee one-day delivery for Prime Members, Amazon has faced increasing pressure to streamline and improve its supply chain operations continually. According to 2019 Q3 earnings, sales have grown 24% from last year as a result – notwithstanding a significant drop in operating income due to the increased investment in infrastructure. Prime Day is past, but with peak holiday shopping still to come, they need that infrastructure more than ever. Significant numbers of brick-and-mortar retailers closing means that there is more e-commerce market share to be had and taken.

Amazon recently let contracts with existing DSPs (delivery service providers) expire, resulting in thousands of layoffs. In place of the DSPs, there’s Amazon Logistics – the no-experience-needed, small logistics business that anyone can start. Through Amazon Logistics, area locals can manage a team of 40-100 people and provide last-mile delivery from the nearest Amazon warehouse to the doorstep, usually the most expensive part of the delivery process.

With smaller, newer DSPs for last-mile delivery, Amazon can build out a centralized, data-driven network of contractors without having to integrate pre-existing third-party systems. From the warehouse to the final destination, all package information can live in one place. An in-house logistics network is not a band-aid; it’s a whole new limb. It also doesn’t hurt that this way, Amazon gets to maintain its bargaining power versus being reliant on a giant like FedEx or UPS.

It’s not just about limiting accident liability, either. Amazon has come under fire for causing well-publicized traffic accidents and deaths, but it also wants to minimize the financial risk of last-mile delivery. When demand inevitably fluctuates, the risk is on contractors and Amazon can stay nimble. One-day shipping is already a major investment, and even more so would be incurring the startup costs of hundreds of local DSPs.

The investment thus far seems warranted. A rapidly growing percentage of Amazon deliveries are being fulfilled “in-house” versus by a third party. Amazon can maintain control over delivery, an integral piece of the famous Amazon Flywheel. They have the demand for vertical integration and in a few quarters, will have the infrastructure.

Meanwhile, Amazon’s main competitor, Walmart, also touts free one-day shipping for qualifying orders and without a $119 membership fee. Walmart has over 4,700 stores that can act as small distribution centers and a world-renowned logistics network. They have a 57-year history versus Amazon’s 25 years. Yet, Amazon boasts a market cap that is twice Walmart’s, and its growth and expansion into new areas isn’t anywhere near over.

Whether it was created for cost savings, bargaining power, data integration, efficiency, or general market take-over, Amazon Logistics can only grow.

Why Amazon Wants Its Own Web of Delivery Contractors

Vision Fund Woes Signal Changing Environment of Tech Start-Ups and Venture Capital

Haphazardly investing billions into scores of tech startups may be falling out of fashion. The struggles of SoftBank’s Vision Fund—a true titan of the venture capital world—provide a striking example. The market has not been kind to SoftBank CEO Masayoshi Son’s brain child: WeWork has failed to go public and the performance of other key SoftBank investments, such as Uber and Slack, has been lackluster. Furthermore, given that Vision Fund and related investments constitute over 10.5% of global venture capital volume, the fund’s woes may signal a wider retraction in the venture capital environment.

Since its October 2016 announcement, Vision Fund’s $100 billion entrance into the tech market has transformed the venture capital market. While start-ups raising $100 million in a single funding round were once a rarity in Silicon Valley, giant funds like the Vision Fund—which has a minimum investment of $100 million—have made money plentiful. Meanwhile, the Vision Fund has rapidly invested in scores of tech companies. Investments in Uber, the We Company, and Didi Chuxing currently account for nearly 30% of the Vision Fund portfolio by value. Other large investments, out of its 81 total, include Coupang, a South Korean e-commerce platform, Sprint, a wireless services provider, and Grab, a southeast Asian taxi-hailing company.

WeWork’s IPO debacle has been the harshest condemnation of the Vision Fund thus far. SoftBank valued the workspace provider at $47 billion this January, but it is now expected that WeWork is worth less than a third of that valuation. Further, of the six public companies that comprise the Fund’s portfolio, only two—Guardant Health and 10x Genomics—are trading above their IPO prices. Particularly damning are Uber and Slack’s performances, trading at 25% and 36% lower than their IPO prices, respectively.

Mr. Son, for his part, is nevertheless moving forward undaunted and launching a second iteration of the Vision Fund. However, CNBC reported that SoftBank may change the new fund’s investment strategy, perhaps in response to investors’ concern. The pace of investment will be slower—at least slower than the $80 billion spent in less than three years by the original Vision Fund. Further, the Fund will target companies closer to being profitable.

If such a change does materialize, Vision Fund 2’s more conservative strategy might herald a new era of venture capital. In the future, venture capital may find its way only to start-ups that are close to an IPO. Investors may no longer be willing to invest in a company that expects to burn through multiple rounds of funding with no clear goal of going public in sight. Thus, with the current bull market seemingly losing its vigor, Silicon Valley and other tech start-up hotbeds may have to come to terms with increased investor skepticism and a decreased appetite for risky bets.

Vision Fund Woes Signal Changing Environment of Tech Start-Ups and Venture Capital

Wealth Tax: A Noble Idea Fraught with Practical Difficulties

As part of their election campaign, Democratic presidential candidates, Elizabeth Warren and Bernie Sanders, have proposed the introduction of wealth taxes that threaten the economic stronghold of the richest Americans. The proposal attempts to address the alarming concentration of wealth among rich Americans along with the threat it has posed to the nation’s democracy.

Warren’s tax is aimed at households worth above $50 million. In contrast, Sanders has suggested a lower threshold covering households with a net worth of over $32 million. Professors Emmanuel Saez and Gabriel Zucman from University of California, Berkeley, whom the candidates consulted in shaping their proposals, estimate that this tax would hit at least 75,000 families and raise over $2.75 trillion over a 10-year period.  Warren and Sanders both aim to use these proceeds to fund social programs such as tuition free college, universal child care and “Medicare for all.” Although the idea of wealth taxation has generated popular support from across the political spectrum, many academics and politicians have expressed concerns over its implementation and doubt whether this will ever see the light of day.

For starters, skeptics believe that taxing individuals on the basis of wealth appears punitive and is likely to undermine business confidence which would undoubtedly stunt economic growth. The proposal also ignores “trickle down” benefits of having a wealthy class in that it disregards the positive effects of having a high number of job-creating businesses.

Experts have also highlighted practical challenges associated with administering wealth tax. Given that wealth taxes would apply to accumulated assets of individuals, there are questions as to how illiquid assets such as vacation homes, art collections, and jewelry would be identified. Valuating these assets could increase administrative costs making the plan difficult to execute.  Individuals who are yet to realize gains from their assets could be forced to liquidate their belongings solely for the purpose of meeting tax obligations.

It is equally optimistic to hope that this proposal will garner considerable support in Congress and fructify into law. It also remains to be seen whether imposing direct wealth taxes, that aren’t equally distributed by state population, would pass constitutional muster. In the event it does, the wealth tax would need to be vigorously enforced to prevent the super-rich, with their armies of lawyers and accountants, from gaming the system (as they have with estate tax).

All complications aside, the arguments in favor of taxing the rich are definitely compelling. Warren and Sanders, however, have one too many hurdles to overcome in order to resolve wealth inequality and change the economic landscape of the country.

Wealth Tax- A Noble Idea Fraught with Practical Difficulties

Striking Out: Workers Demand More as Economy Booms

Although corporate profits have climbed to their pre-recession peak, thousands of workers across the nation are striking for higher pay and better working conditions. In 2018, nearly 500,000 workers participated in significant strikes – the highest number since the 1980s. The picket lines show no signs of slowing in 2019. Twenty major strikes have already occurred this year, while only seven occurred in 2017. The walkouts have spanned several industries, from teachers, to auto workers, to hotel staff. The disputes largely focus on stagnant wages and meager benefits. However, the new wave of work stoppages may also be fueled by a deeper sense of inequality.

Employers claim that globalization and rapid technological advances have pressured the business to keep wages low. Employees, on the other hand, assert that the companies are hiding behind excuses to hoard profits. Workers who agreed to austerity plans during the economic crisis argue that as the economy rides a 10-year high and corporate profits soar, it is high time to reverse budget cuts. In addition, some are demanding that employers address pressing social issues such as affordable housing, protections for immigrants and refugees, and job security.

In some respects, the strikes are not surprising. Years of strong economic growth and low unemployment have emboldened workers to demand more from their employers. The movement may also be backlash to the Supreme Court’s 2018 ruling in Janus v. Afscme. The Court held that government employees who do not want to join a union cannot be forced to contribute money to the organization. Although many predicted that the decision would be a major blow to unions, labor leaders have responded with more work stoppages and expanded union recruitment efforts.

However, the demands for changes beyond just wages and benefits suggest that striking workers are also motivated by rising inequality and social and economic policies that do not align with their interests. It is possible that the recent spate of high-profile work stoppages will put workers across the country in a better bargaining position to demand more from their employers. At the very least, it is certain that this issue will be at the forefront of the 2020 Presidential election.

Striking Out- Workers Demand More as Economy Booms