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
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.