Killer Business Model

Excellent article in the Washington Post about how furniture rental companies gouge three times the value of the furniture from people who can't afford to buy. This is called the Genius of Capitalism.

Faced with a need or a shortage, do you set about filling that need, that shortage, or is your first question how to exploit the shortage to the fullest advantage?

Is human vulnerability something to take advantage of?

Is poverty a profit opportunity for your company, the deeper the poverty the greater the profit?

Is someone else's helplessness part of your business model? When you see helplessness do you feel sympathy or greed?

Is helpfulness a naïve and foolish custom? Is it unbusinesslike to include generosity or humane consideration in your business plan?

Let’s imagine you manufacture flotation devices, lifesavers they’re called. It costs money to make them, so you sell them for a price. Naturally.

But here’s a business model: you provide flotation devices to lifeguards. Call these lifeguards sales agents and pay them a small commission. Then when someone is drowning don’t have your agent throw them a buoy free of charge, let the market set a price. Dicker with the floundering. Or rent the device to the person fighting for his life, loan the use of the buoy at so much per second. They’re really eager to rent, so set that rate as high as you can. Plus interest, compounding every second.

This is what’s known as a killer business model.

The Fairy Tales of the Business Press

Brad Delong does a pretty thorough job of dissecting the inconsistencies in the so-called "conservative" economic line, the anti-Keynesian, austerity, drown-it-in-the-bathtub anti-government side of the economic argument we've been stuck in for three years. Why isn't the conservative side subjected to any logical analysis by the business press?

Is it just too complicated for business readers? Even for those "superheroes" who are supposed to know more than ordinary workers and citizens? Come on. Superheroes are capable of digesting this, even if they are busy. They ought to find time to think.

Or is it just too embarrassing for business readers? Businesspeople are worshipped as "job creators." Is it wrong to question their beliefs? Is it heresy to doubt the prevailing business thinking––which says that only private sector spending is holy?

Is it only heresy to doubt business orthodoxy if it endangers ad pages and TV air those businesspeople tend to buy as business owners?

How is it that conservatives, who seem to believe in an invisible hand of the market, who believe our economy is magically protected by fairies and elves (no government regulation required), are allowed to call Keynesian economics "a fairy tale" without being challenged about their own magical thinking?

Keynes, who was no liberal, had a fully rounded theory that was borne out by sustained prosperity and growth (and the absence of panics) during the best forty year period in the history of our country––and the planet.

The problem believers in unfettered capitalism had with Keynes was that he advised behaving more like ants than grasshoppers (to borrow from a cautionary fable. Keynesians prefer fables to fairy tales.) That we be prudent and save for rainy days, that we rein in our appetites during up times (with regulation and fair taxation) and support a flagging economy by spending and building during down times. Which is pretty middle-of-the-road stuff, economicswise. Or was Eisenhower a Communist?

The nagging suspicion that I keep having is that these so-called business conservatives, in order to help their Republican operatives, have been sitting on their capital for three years, not spending it, not hiring, not lending, blocking stimulus packages through their elected proxies, keeping the economy down, hoping to hang a bad economy around President Obama's neck like a burning tire. They hoped it might put a Republican regime back in the White House.

(It would be interesting to read the Republican emails with their corporate and banking clients, hoping and planning to foil Obama's recovery efforts. I don't doubt they exist. Airing them would be a good thing. It'd only be fair, considering the Republicans in Congress surreptitiously read the Democrats' emails for over a year in '03 and '04.)

The business sector wants Republicans back in full control. Oh how they want it. But we all know how clever the last Republican regime was. Taking a record surplus and making into a record deficit. Their energy policy resulted soaring fuel prices. Their laissez faire economic policy set up economic collapse. But that Republican president was a businessman. A failed businessman several times over, but a member of the club.

Hello Child Labor

Newt Gingrich said the other day that he would fire all school janitors and have children clean the schools themselves. (Story from the LA Times)

This is the new GOP. And he is their resident genius.

For those who might be nostalgic for those "wonderful days" when children died in machinery and up chimneys and never went to school, but were usefully and profitably employed at low wages undermining the pay scale of their parents, here's a bit of background on child labor. It wasn't very picturesque or charming, but children were a lot easier for employers to bully, exploit and abuse. "Suffer the little children" I guess. TR would be appalled at the modern version of his Republican Party.

The Looting of American Creativity

From Forbes, an important piece about how the captains of our biggest industrial corporations have been looting our creative capacity and pocketing whatever they can take.

You should call it looting. It's the sort of thing we used to read about when mobsters bought a company and hollowed it out before dumping it, but now it's the model used by big capital management companies. (It sounds a lot like how Mitt Romney got rich: by selling off parts of companies he acquired, laying off masses of employees, and pocketing the cash.)

Such single-minded (you might say narrow-minded or short-sighted) pursuit of profits is a loser's game. It's not sustainable, not responsible. (Remember when American business used to be responsible?) In the cases cited here, where capacity is sold off overseas, it's certainly not very patriotic, even if the tycoons involved do wear a flag lapel pin. What's the word I'm looking for? What's the opposite of creative? Sure: destructive. That's the preferred model of the last thirty years in American businessthink. You could write a vampire movie using this business model.

Creative assets have been invented and developed in the U.S. often with large taxpayer investment, collective genius harnessed and supported by universities and government scientific grants. But in many cases the things Americans helped create are no longer American; they've been offshored to evade societal obligations. Obligations that responsible Americans used to be proud to shoulder. And the infrastructure and educational system that nurtured the creativity is left to rot because the profiteers refuse to pay back into the creative cycle. They've looted the creative infrastructure, offshoring our American genius to evade taxes. As if the American genius was theirs to take. What happens to the inventors once their creativity has been mined and sold away? The huge dividends from this process have been pocketed by a very narrow class.

We are taught by the media to distrust migrants, but the multinational corporate model is a migrant too, a much less helpful version, a more dangerous version, without nationality, without any sense of responsibility or loyalty or conscience. Without any wish to be American unless it profits them and doesn't tax them. Here's an interesting 2007 article from investigative journalist Lucy Komisar about how Merck and other companies do their offshore shuffle.

First they came for the blue collar jobs, and I said nothing. Then they came for the white collar jobs... What mid-century cautionary tale am I reminded of here? This warning article was published six years ago by the Economic Policy Institute. Did we listen?

But (and are we surprised?) offshoring doesn't fulfill the promises it makes, as this 2007 article from CIO magazine demonstrates.

"Sixty percent of companies that send their operations offshore fail to meet their operation performance expectations, and more than a third (34 percent) fail to mee their savings expectations, according to a new study from global management consulting firm A. T. Kearney."

A Narrowing Sense of Loyalty

David Carr has a pertinent column today. Maybe it explains why the news media has been dismissive of the Occupy Wall Street movement. It also raises, again, a key element in the current crisis. It's a matter of loyalty.

When a business ceases to be concerned with what it delivers to its customers and only interested in delivering cash to its owners, we have a problem. When this is the model everyone is copying our society is in trouble. When our news is crafted in a way that supports this model we have a hard time resisting it, but that is the picture we get from most of our reporting class––most uniformly on FoxNews and on radio. That, in the words of the recent Bush White House, is "our new reality."

Pay cuts for workers are seen as a revenue source by those further up the food chain. It's unattractive, antisocial, predatory, but it's described admiringly in the business press. American business used to have three key loyalties: to customers, employees and owners. (I've written about this before.) But there's been a dramatic shift in the past forty years; the first two have been degraded to feed the last loyalty. We are loyal to our companies but our companies have ceased to be loyal to us.

All obligations to employees and customers are set on the debit side and seen as negative to the only true value, profit, and profit feeds the bonus machine. So employees and customers are, in a very fundamental sense, seen as the enemy in many or possibly most executive suites and also by the economists and accountants who equip business plans with their rationale. Look at our present economy: 99% of Americans are in financial difficulties and afraid, but very eager to work for whatever they can get. This is a very pleasant picture for the lucky few.

Look at the Austerity model being pushed by Republicans today. Is it telling us that we never deserved the broad prosperity of the recent past? Was the postwar boom an illusion or an aberration or a problem that it took the executive class forty years to eliminate?

Does prosperity belong only at the top of the pyramid? We get to build that pyramid and admire it from a distance, but in the economy built by Reagan and Milton Friedman and Grover Norquist and the U.S. Chamber of Commerce, the pyramid is purely for the glorification and enjoyment of the small class whose names are engraved at the top. And this circles back to something I wrote in 2002 and posted to this blog's first entry in 2004. Who are we working for? What are we creating with our labor? What is this vast efficient machinery meant to do? Who is it meant to serve?