Sunday, February 23, 2014

My rapidly fading love affair with Wal-Mart

The first time I ever saw a Wal-Mart I was a grad student getting my MBA down in Tallahassee, FL. One opened up down the road from my apartment and I was immediately taken by the big bright stores with lots of stuff and what seemed to be pretty low prices. In class I learned the secrets to Wal-Mart’s success in its niche of “Always low prices”.   It demanded efficiencies from its suppliers. It became fanatical about using information technology to optimize its sourcing and distribution channels. It paid its employees the community average or sometimes slightly more, but never significantly so. And of course the company benefited tremendously from scale. At the end of the day Wal-Mart became a spectacular success because it provided the goods people wanted at the lowest prices possible.

Thus began a two decade long love affair with Wal-Mart. For most of the last twenty years I’ve spent most of my shopping dollars, particularly food, but other items as well, at Wal-Mart. It helped that, as I hate to shop, I could go there and get pretty much everything I needed in one place, from apple juice to socks to those little trees you put in your car to make it smell good.

I remember around 2003 when a friend of mine got married in Key West. I went to Wal-Mart and purchased a pair of those mesh shoes with the rubber sole that you could wear in the ocean. They cost about $7.95. I remember how amazed I was that they could manufacture that pair of shoes in China, label them, ship them across the ocean, transport them to my store where people would receive them, inventory them, display them and eventually charge me for them, and do so at a profit! Even if they paid their workers in China a penny a day I still didn’t see how they could do all of those things and still make a profit.

When my love affair with Wal-Mart began the company had 1,500 stores mostly serving rural communities across the country and generated about $25 billion a year in sales. Today they have 10,000 stores around the world and generate half a trillion dollars in revenue annually.

Like it or not, Wal-Mart has changed the face of American retail. By using the best of the free market the company has saved Americans hundreds of billions of dollars over its lifetime, savings that they might have used to can use to provide more food to their children, to give to charity to buy their kid a computer for college, or just buy another flat screen TV. By any definition Wal-Mart is an American success story.

Unfortunately however, my love affair with Wal-Mart is fading… and fast. The first injury to the relationship was when the company supported ObamaCare in an effort to increase pressure on its smaller competitors. The second was when they supported the taxing of online sales. Since those two events I’ve reduced the money I spend in Wal-Mart by well over 50%. Now I’m beginning to wonder if I need to redirect most of what’s left. According to Bloomberg, the company is considering supporting the Obama administration’s move to raise the minimum wage. While Wal-Mart knows that it would incur higher wage costs, it also knows that because of its size and efficiency it can better weather the increase than most of its competitors.

And that’s the problem. If Wal-Mart wants to raise the wages of its employees, it has every right to do so and most people would applaud it in the process. Indeed that is the route the Gap and Costco have chosen. But alas, that is not the route Wal-Mart seems to be taking. (They supported an increase back in 2007 as well.) Instead the company is seeking to use to use the power of government to tilt the marketplace in its favor. It wants to use the government to force higher costs on its smaller, less efficient competitors. Essentially it wants the government to put its competitors at a competitive disadvantage.

This is the worst of capitalism – crony capitalism – when businesses use government to harm competitors or keep them at bay. Whether it’s Obamacare or a minimum wage increase or restaurants seeking to keep food trucks off the streets, it’s not only the competitors who lose, it’s the consumers and the market itself. Had Sears or K-Mart used the power of government to strangle baby Wal-Mart in its crib the company would not today be the largest retailer in the world. If AT&T had succeed in defending its government sanctioned monopoly and keeping MCI and other startup telephone companies at bay for another 100 years do you think we’d have iPhones, Netflix, or fixed price wireless plans? No. Of course not. The marketplace survives and thrives the less government intervenes. Wal-Mart of all companies should understand this.

By getting into bed with government Wal-Mart is repudiating the very thing that allowed it to prosper in the first place – the free market. Now that the company has used that free market to become the 800 lb gorilla in the retail marketplace it has repeatedly sought to harness the power of government to keep potential rivals from enjoying the same opportunity. Crony capitalism is the most despicable form of capitalism because it hides behind the mask of free markets.  Thankfully however crony capitalism usually fails because the propped up company often becomes fat and lazy and forgets how to compete. If Wal-Mart wants to betray free markets, so be it, I just hope it’s not too long before the markets decide to strike back.

Monday, February 17, 2014

A Lack of Identity politics...Exactly why the GOP can't seem to attract minorities and immigrants...

The GOP establishment has spent a great deal of effort over the last decade pushing for amnesty under the guise of “comprehensive immigration reform”. This is of course because they are scared of the fact that minorities are going to become a majority in the US over the next 40 years and they don’t want to be left out in the cold. They have what I call a “Fear of a Black Planet… or at least of a minority majority country…”. And according to some numbers cited recently by Phyllis Schlafly, they have good reason to fear.

Of course the establishments’ solution to the problem is to acquiesce to the demands of the left and essentially give amnesty to the 20 million people who came here illegally. Honestly though… who can blame Boehner, McConnell and their friends? It’s hard to compete with “No human is illegal” signs and heartbreaking stories of kids brought to America at the age of 5 and at 25 they have no legal status. They don’t want to be seen as “heartless” or get tagged as racists as the press is wont to label them, so they simply give in and make the same mistake Ronald Reagan did in 1986.

Frankly, the immigration debate is the GOP’s problem in a nutshell… The GOP has a communication problem - and an identity problem too. They have a hard time distilling their messages down to a bumper sticker. Every day they face a plethora of bumper sticker issues which they typically fail to properly address. Calls for an increase in the minimum wage are heralded by stickers proclaiming “A living wage is a moral value”. Each new school year is inaugurated with teachers striking in one city or another carrying signs broadcasting the false equivalency of opposition to education spending increases with a hatred of children. Then there are the Facebook shares of posters with quips like “Keep your laws off my body” or “Stop the War on Women”.

It’s often difficult to respond to these issues (and many more) because the rebuttals to these debates are typically too complex to fit on a bumper sticker or in a network sound bite. The GOP’s feckless attempts at responding to these issues often result in them being involved in a political version of a school yard skirmish where the response is “No I’m not!” rather than explaining a nuanced opposition to the particular issue at hand.

As an example, the argument against increasing the minimum wage is based on an understanding that doing so hurts far more people than it helps. This is particularly true in the case of teens and younger workers and those with little experience or skills. In order to hire an employee at a minimum wage of $10, an employee must provide an employer with work that brings at least $10 in value to the company. If they can’t the owner is not running a business but a charity. This is exactly why virtually every time the minimum wage is increased, unemployment among the young and unskilled (particularly minorities) increases. At the same time doing so always increases the potential for outsourcing and mechanization and we’re beginning to see that everywhere, even in the burger industry.

That kind of a rebuttal simply can’t be distilled down into a pithy sentence or sound bite. The result is that in the face of such a challenge, the GOP establishment more often than not simply chooses to go along to get along. The GOP is so worried about being painted as racists or as the party that hates the poor that they forget to talk about what they actually supposed to stand for. They get caught up in defending themselves against being women haters or immigrant haters that they forget to stand up for individual freedom or the rule of law.

The GOP’s problem isn’t immigrants don’t like what they are saying… which is true, the GOP’s problem is that they are saying the wrong things.  And this is where the identity problem comes in.  With “Compassionate Conservatism” and “comprehensive immigration reform” the GOP is simply remaking itself into the Democrat Lite party. It’s no wonder that immigrants and minorities choose not to support them. Who wants generic crackers or cola when they can have Ritz or Coke instead?

As Schlafly points out, immigrants and minorities don’t support the GOP on a range of issues from small government to gun rights and others in between. But it’s not because there’s something wrong in their DNA. It’s because there’s something wrong with the GOP. On a wide range of issues from immigration to education to government spending, the GOP has simply lost their identity and have become a party that stands for nothing extraordinary and has no message. In the last two presidential elections Americans actually chose a socialist over the milquetoast offerings of the GOP. On the biggest stage in the world in a bitter fight for the most powerful position on the planet the GOP was unable to convince 50% of Americans not to vote for the socialist! It’s not because the minorities and immigrants voted for the socialist… which they did. It’s because the GOP failed to give Americans of all stripes a reason to vote for them. When your bumper sticker could essentially say “Not quite as socialist as the other guy” it should come as no surprise that people don’t rally to your cause.

The lesson for the GOP is not how to play a better game of bumper sticker politics, but rather to begin articulating fundamental ideas that will inspire people to join their crusade. Ronald Reagan promised to eliminate the Departments of Energy and Education. Unfortunately he failed to do so, but everyone knew where he stood on big government. Contrast that with the GOP of 2014, which has just signed off on a $1 trillion farm bill that sends 80% of the dollars to food stamps, subsidizes Big Agriculture and taxes such things as home heating oil and Christmas trees. Does that make you think of a party wedded to the idea of limited government, market economics and low taxes? Probably not. And the GOP is confused why they can’t attract minorities and immigrants? Maybe they need to stop worrying about the demographic makeup of the voters and start looking in the mirror for their identity.

Sunday, February 9, 2014

Barack Obama... A man of our time

Writer John Naisbitt once said “Leadership involves finding a parade and getting in front of it.” I’m not sure that’s quite the right definition of leadership, but it certainly applies to Barack Obama. Just before his election in 2008 he said “We are five days away from fundamentally transforming the United States of America.” What he might have more accurately said was “America is fundamentally changing and I’m here to speed up the process…”

America is indeed changing, and not in a good way. How far has it changed? One need only look to the President’s response to last week’s CBO report about ObamaCare eliminating 2.5 million jobs, most of them being those of low skilled and low wage workers.  White House Press Secretary Jay Carney said: “Individuals will be empowered to make choices about their own lives and livelihoods,” and that they “would have the opportunity to pursue their dreams.”

Fantastic! So now, according to the President, because of Obamacare Americans are now free to follow their dreams without having to worry about the minor issue of financial consequences. Get ready for lots more rock bands and philosophers and actors and artists. Of course this is not exactly new. American college students have been moving away from STEM (Science, Technology, Engineering & Math) courses and into soft categories such as humanities, liberal arts and education for years. In those core areas, where American companies have tens of thousands of high paying jobs they cannot fill because American are simply not qualified, half the students receiving graduate degrees are international students. Add to that the 1/4 of the American students in STEM classes who are foreign born and you can see that Americans have been “pursuing their dreams” for decades. While following your dreams has its benefits – such as more time for partying and fewer late nights of studying – it has downsides too such as higher unemployment and or lower salaries that often come with humanities and social science degrees.

There is of course much more below the surface of the President’s new appreciation for pursuing dreams. Destroying another 2.5 million jobs (or full time equivalents) is exactly what the country needs with a Workforce Participation Rate that is at its lowest point since 1976, and which has been in a precipitous decline since he took office. Then there is the number of people who are claiming disability. It has skyrocketed in recent years – including under Obama. Since 1972 the number of Americans working has increased by 82% but the number of people claiming disability has increased by almost 500%. What’s worse is that America’s service economy of 2014 is a far safer place to work than our manufacturing economy was 40 years ago. And of course one can’t ignore the intersecting paths of food stamps and income tax. Today there are a record 47 Million Americans on food stamps while 47% of Americans pay no income taxes at all.

The parade Barack Obama has decided to jump in front of and lead is the shift from a society where the vast majority of people worked hard and supported themselves and their families to one where a significant number of Americans, if not quite yet a majority, are simply interested in what the government can take from others to give to them. At what point does the system become unsustainable? One doesn’t need a STEM degree to recognize that eventually the number of taxpayers paying into the system can’t support the rapidly growing number of people taking from it. An upside down pyramid can’t stand for long.

So Barack Obama hasn’t really transformed America. He’s simply made it chic to be a socialist. He's made redistribution cool. He's made paying taxes a fool’s errand. Like schools that award medals for participation or little leagues that ban keeping score, Barack Obama has sought to make Americans forget that success and prosperity are forged in the crucibles of hard work, investment and ingenuity and not in the halls of government. He has sought to make being on the dole just another form of pursuing one’s passion. He has sought to replace individual responsibility with government largesse as the symbol that defines our nation. Unfortunately Barack Obama is very much a man of our time. We can only hope that by the time he leaves office Americans will have recognized him for the pied piper he is, seeking to lead the nation over a cliff.