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The US government is the world’s largest purchaser of consumer goods. Amazon wants a piece.

State, local, and federal agencies spend billions on office supplies and other consumer goods.

In 2017, Amazon signed a deal with the cooperative purchasing group US Communities, which serves more than 55,000 city and state agencies across the country.
Helen H. Richardson/MediaNews Group/The Denver Post via Getty Images

The United States government is the single largest purchaser of consumer goods in the world. Think about all the things it takes to make a large bureaucracy with more than 21 million employees run smoothly — pens, paper, computers and software, toilet paper and cleaning supplies — it all has to come from somewhere.

And Amazon wants to take a cut on all of it.

According to the Governing Institute, a Washington, DC-based think tank that studies government spending, city and state agencies spend close to $3.25 trillion annually, making local government the second largest US industry behind manufacturing. Two years ago, the Seattle-based tech giant signed a deal with the cooperative purchasing group US Communities, which serves more than 55,000 of these agencies across the country. This marked the company’s first large-scale foray into the government procurement market, and the contract is estimated to be worth some $5.5 billion over its potential 11-year life span.

With that deal serving as a proof of concept, Amazon is now pushing to become the vendor of choice for the federal government as well, which would allow the company to collect fees on a large chunk of the more than $500 billion spent annually on federal procurement.

This shift in government purchasing is having devastating effects on small-business owners like Gayle Shanks, who runs an independent bookstore in Tempe, Arizona, called Changing Hands. The city, and the school district in particular, had been a reliable customer, buying thousands of dollars in library books, toys, and other items every year. Now that lifeline is drying up.

“Because of Amazon entire industries are dissolving,” said Shanks, who successfully pushed her local government last year to stop buying from the company. “At a certain point, we have to ask ourselves, how big are we going to let Amazon get?”

Amazon is already working with city and state governments

For the past several decades, government procurement spending was one of the final few pieces of the American economy that Amazon seemed unable to devour. Strict rules, sometimes unwritten, meant that agencies prioritized spending through local businesses, especially at the state and municipal level. As small-business advocates are quick to point out, a large percentage of those agencies’ budgets comes from income, property, and sales taxes on businesses that have physical office and retail space, meaning cities and states have a vested interest in the success of their local economy.

But in recent years this paradigm has begun to shift, starting with Amazon’s 2017 deal with US Communities. Two years later, more than 1,500 local agencies are signed on to the contract, according to Amazon, including 40 of the country’s 100 largest cities.

This cooperative purchasing group exists to help these city and state governments pool their purchasing power in order to negotiate bulk discounts and other concessions from suppliers who wish to tap into the vast but disparate market for local government. During the negotiations with Amazon, however, those bulk discounts disappeared. In their place was the company’s business-to-business marketplace, Amazon Business, and its “dynamic pricing model.”

According to a report released last year by the Institute for Local Self-Reliance, a DC-based nonprofit that advocates for small businesses and stronger local governance, this means agencies are likely paying more for supplies — up to 10 percent for some of the agencies it studied — than they would have under the terms of previous US Communities contracts.

Transparency also took a hit during these negotiations with Amazon. Under the new language written by Amazon and adopted by US Communities, originally obtained by the ILSR via Freedom of Information Act request, the company mandated that it would be notified of all public records requests and reserves “the right to request exemption or redaction based on assertions of confidentiality or proprietary information to the extent permitted by applicable law.”

Though there’s been little research done on the effects of online purchasing on government budgets, an Amazon spokesperson said the deal would help agencies significantly increase their efficiency — and, by extension, save taxpayer money — over a current system mired in decades-old, paper-based purchasing practices. In a statement to Vox, Amazon promised features like “workflow and purchase approvals; single unit and quantity discounts on millions of eligible items; transparency … and assistance in identifying new, small and/or diverse suppliers.”

In addition, the company says city and state government agencies can continue to make purchases with their trusted local businesses through the Amazon Business portal, though critics warn that in taking a 15 percent cut of every purchase, Amazon may instead squash competition and erode local tax bases along the way.

The decision of how to spend taxpayer dollars in a rapidly changing economy, then, becomes a balancing act between saving money and promoting local businesses. It’s also a decision that oversight agencies — typically only concerned with whether the process is legal — are woefully unprepared to handle, according to researcher Dugan Petty of the Governing Institute.

“It’s ultimately a political question: ‘What is the goal of local government?’” Petty said. “Should the government be as small as possible and cost as little as possible, or should it exist to promote community well-being?”

The answer, of course, lies somewhere in the middle. And as elected officials and procurement experts debate how to bring their practices into the 21st century, these policies will increasingly shape the look and feel of communities from Maine to California and everywhere in between.

Amazon eyes federal procurement spending — a $500 billion market

Amazon, meanwhile, isn’t stopping at local governance either. An amendment tucked into an otherwise routine defense appropriations bill, signed in December 2017, instructs the General Services Administration to develop a system via which the federal government can legally make its purchases through one or more private companies that operate online portals.

“[This] embodies the most consequential procurement policy changes in a generation,” the Coalition for Government Procurement, a group representing more than 100 of the largest and most influential companies that do business with the US government, wrote in a strongly worded 2017 memo. But “only one or two providers would possess the capability and potential regulatory compliance necessary to participate. Thus, the proposal could result in monopoly or duopoly control over access to the Federal market for commercial items.”

This could potentially lead to higher prices, the organization said, and create barriers to entry for other companies. Amazon, perhaps unsurprisingly, is the runaway favorite to gain the contract — though the exact form it will take is still unclear. The General Services Administration said it hopes to roll out a “proof of concept” by the end of this year or early 2020.

Amazon has hired Anne Rung, the former chief procurement officer for the Obama administration, to head up Amazon Business.
Swen Pförtner/picture alliance via Getty Images

In the meantime, emails between officials in the General Services Administration and Anne Rung, currently the head of Amazon Business’s public sector division and former chief procurement officer for the Obama administration, show the oftentimes cozy relationship between the many former government officials now working for Amazon and their counterparts back in Washington. The correspondence, obtained by the Guardian in December, outlines a meeting in October 2017 between Rung and Mary Davie, who first pitched the meeting and is now serving a top GSA official.

It’s unclear if this meeting violates Rung’s one-year “cooling off” period, a federal policy that forbids officials to engage in lobbying activities on projects they contributed to for at least 12 months after leaving their position. This is because many of Rung’s activities before leaving the government are classified, and an exact timeline of her activities is unclear — though an Amazon spokesperson tells Vox the company “confirmed that Anne Rung has been compliant with White House rules.”

“Even if she is outside that one-year window, there’s still something unsavory about a former government official using their access and relationships to shift policy in a certain company’s favor,” said Lisa Gilbert, the vice president of legislative affairs at Public Citizen, a consumer watchdog group. “It’s absolutely a larger strategy on the part of Amazon to hire insiders in order to utilize every lever of power they can.”

Worries over a potential federal procurement monopoly have pushed agencies like the ILSR to mount an increasingly aggressive counteroffensive. This effort has been aided by businesses of all sizes that currently rely on the federal government for sales, many of which are already operating on thin profit margins and are unlikely to survive if forced to sell through Amazon.

“It’s kind of like climate change; that’s how I think about it,” Shanks said. “I’m thrilled that my city has opened its eyes to what it was doing, and all I can hope is that this will open other cities’ eyes.”

In the wake of her successful drive to push Tempe toward ending its contract with Amazon, Shanks helped the Institute for Local Self-Reliance put together an information packet that outlines several strategies people can use to push cities away from spending with Amazon:

Strategy 1: Contact local reporters and news media

Strategy 2: Ask your local officials to reject the Amazon contract.

Strategy 3: Start a broader conversation about Amazon’s power

More than anything else, Shanks said, it was heartening to watch the recent groundswell of opposition to Amazon after it announced plans to put a second headquarters in the Queens neighborhood of Long Island City, New York. The deal, which included more than $3 billion in tax incentives, was widely criticized by both local and national progressive leaders. To their delight, Amazon decided the deal wasn’t worth the negative press and later pulled out of the agreement.

Despite this, Shanks says the work to revitalize American small business is only beginning.

“Sometimes it’s just a few concerned citizens who are willing to write 10 letters, meet with council people, and just do their job as a good citizen,” she said. “It can really have an impact.”

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