Monday, September 29, 2014

So you want to fire an employee for calling you an %@#*&! in front of customers? Barack Obama says not so fast...

A few weeks ago I wrote about the National Labor Relations Board seeking to destroy the very nature of America’s most successful business models… franchising. While on occasion the NLRB will stumble across a real issue of consequence, the frequency of that is about the same as real data supporting the man made global warming hoax. More often the agency is simply a shill for labor unions and disgruntled employees.

Speaking of the NLRB, I generally don’t like to revisit the same topic when the first piece might still be stuck in someone’s mental cache. The last thing in the world you want a reader to say is “Didn’t this guy just write about this?” In this case however I’ll make an exception and take my chances…

If you’ve ever actually owned a business or run a business you know how difficult it can be to make a success out of it. The challenges are everywhere. From navigating through the web of federal, state and local government regulations to finding and keeping customers to making sure that you can pay the bills and keep the lights on… just doing the basic things to stay in business can be difficult. Some of the things you need to do are pretty straight forward… like what company are you going to select for your electricity to where you get your supplies to figuring out what your hours of operation will be. Other things are more difficult, such as figuring out which permits you need to apply for to deciding on your marketing strategy to setting your prices appropriately so that you can make a profit… even if that’s somewhere down the road.

By far one of the most challenging parts of any business is personnel. When it comes to looking at the keys to success of a business, there are likely few aspects that are more important and difficult as personnel. These are the people who are going to be greeting the customers or manufacturing the products or providing the services that you engage in and for which customers willingly exchange their money. (Obviously there are some businesses where a high ratio of the work done by machines, but usually those too are maintained by people.) Because personnel, the people doing the work for you is so important, the effort involved in attracting, selecting, training and managing employees is often disproportionately high relative to other aspects of the business.

In some industries, like financial services or auto mechanic or computer programming, individual compensation can be high because there are relatively few people who can do those particular jobs. In others, like dishwasher, burger order taker or cashier, compensation is usually lower because there are relatively more people who are capable and willing to do those jobs. In virtually all cases however the owner or manager has to interview, select and train their people.

Once the staff is in place, that’s where the real headaches begin. Managing schedules, apportioning assignments, giving responsibilities, basic supervision and of course managing personalities – which sometimes conflict – are all parts of keeping the business running smoothly whether you’re making widgets or selling drywall. In the restaurant business all of these come into play but there’s the added element of the employees interacting extensively with customers… who themselves can be fickle, demanding, indecisive and sometimes rude. It’s in this mix of sometimes controlled chaos, sometimes stark boredom that restaurant managers must figure out how to properly engage, motivate, reward and punish their employees in the right combination that keeps customers wanting to come through the front door. In the highly competitive restaurant space, a failure to do so can easily turn today’s hottest restaurant into tomorrow’s ghost town.

And it’s into this mix that Barack Obama’s NLRB has decided it insert itself. You fire two Hooters’ waitresses for cursing at another waitress in front of customers… The NLRB says not so fast. You fire a car salesman for cussing at you, calling you an idiot in the middle of a company meeting… The NLRB says not so fast. You fire a Starbucks barista for cursing at you and telling you to do the job yourself… the NLRB says not so fast. In a string of recent decisions the NLRB has decided for employees against employers in cases that in any rational universe would be open and shut. Employees are generally employed to do particular jobs, and to the extent that they do so effectively and the business prospers, they usually keep those jobs. But it’s the businesses who are paying them and when those businesses find the employees doing things that harm that business, they are generally within their rights to fire those employees. Unless of course Barack Obama’s NLRB decides otherwise.

So, in addition to everything from Obamacare mandates to rising minimum wages, the Obama administration is now suggesting that employers must endure verbal abuse and insubordination from their employees. It makes you wonder why anyone would ever choose to risk their capital, their time and their energy to try and start a business when the government decides it gets to make more and more of the key decisions upon which your success rests. At some point it’s no longer worth the effort and would-be entrepreneurs simply give up and decide to find a job rather than trying to build something new. The reality is, entrepreneurs have been throwing in the towel for years. With this latest set of rulings from Obama’s NLRB you should expect the number of towels piling up in the middle of the ring to grow.

Monday, September 22, 2014

Secession, Revolution... are they the end game of a deck stacked against freedom?

I’ve argued for many years that the United States is the greatest nation in the history of the world. From driving prosperity to winning two world wars to putting a man on the moon to ensuring individual liberty the United States is unlike any other country in history. And it has nothing to do with DNA. Indeed, some of America’s greatest men came from elsewhere… Alexander Hamilton was born on St. Kitts. Andrew Carnegie was born in Scotland. Albert Einstein was born in Germany. Leo Baekeland – the man who brought us plastic – was from Hungary. Nikola Tesla – the man responsible for the current running in your house – was born in Croatia.

It’s not the blood that makes the United States great, it is the Constitution. The US Constitution was the first document in history to form a government based on the principals of individual freedom, private property, limited / representative government and the rule of law. None of the things in the Constitution were completely unique. The Greeks had representative government and the Magna Carta put limitations on the Crown after all. What made the Constitution unique was the combination of those factors and the fact that the power resided in the hands of common citizens.

That could, frankly, have only occurred in the United States… because it was a new and free nation. Because of that youth, the colonies did not have vested interests sufficiently powerful to mold the formation of the government to benefit themselves. And as a result, the power resided in the hands of common men, the citizens. Not in the hands of an aristocracy. Not in the hands of the church. Not in the hands of some bourgeoisie merchants. No, in the United States the power to govern was put in the hands of regular citizens. There were power centers of course, but none – such as the northern states who still had debts to be paid from the Revolutionary War and the southern states who wanted low or no import tariffs – had the power to dictate the language of the Constitution. (To the degree that there was one vested interest powerful enough to make such a demand it was the slave states and the result was the most anti-freedom part of a document built on freedom.)

But why Philadelphia and not London or Paris? Both the British and the French had access to the same writings our Founding Fathers did – from Plato to the Old Testament to the Magna Carta to John Locke and Adam Smith and William Blackstone and Edmond Burke – but they did not create anything like US Constitution. Indeed, France, whose revolution followed the American revolution by a mere decade, spiraled into bloody chaos and brought about a dictatorship. The reason is because both France and England had strong vested interests loathe to give up their power and privileges, and as a result, neither laid the foundations for lasting prosperity that the US Constitution did.

And that prosperity was enormous and far reaching. By 1950 the United States economy was more dominant on the world stage than any economy in history. The US commanded fully 40% of the world’s GDP with less than 5% of its population. While both China and India had achieved that same 40% mark centuries before, they accomplished it with 35% & 30% of the world’s population respectively.

And that economic prosperity ushers in many benefits that are not measured in dollars like life expectancy increases, leisure time growth and dramatically safer employment conditions. Another measure of the impact of that prosperity is the Nobel Prize. Since the American economic heyday of the 1950’s, Americans have won over 50% of the Nobel Prizes in Physics, Chemistry, Medicine and Economics. Interestingly, 1/3 of those winners were immigrants who chose to come to the United States in pursuit of success, often because they didn’t feel they could do so at home. America is increasingly the epicenter of research of all sorts. Unfortunately however, it is not research that drives prosperity, it is economics and increasingly the United States is falling behind.

The freedom that drove the United States to become the most influential economic juggernaut in history no longer exists.  Today American GDP is 23% of the world's.  While we are still experiencing advances in technology and medicine, increasingly the United States is becoming an economic morass. Although we see companies like Apple, Facebook and Google creating millionaires and billionaires by giving citizens great products, the chasm between the ultra rich and the middle class and poor is growing. An example is that can be seen in the data since the recession of 2007 & 2008. According to the Wall Street Journal:
“All told, average inflation-adjusted income per family climbed 6% between 2009 and 2012, the first years of the economic recovery. During that period, the top 1% saw their incomes climb 31.4% — or, 95% of the total gain — while the bottom 99% saw growth of 0.4%.”
But it’s broader than that. American incomes have been declining for over a decade, from a high of $56,080 in 1999 (inflation adjusted) to $51,017 in 2012, a drop of almost 10%, a decline unprecedented since the Great Depression – another government induced disaster. But it didn’t need to be this way. Had our economy had been as productive over the last twenty years as it was in the 1950’s and 60’s the average American family would today have an income in excess of $120,000 per year. At the same time, and not coincidentally, the rate of employment in the United States has plummeted, with the labor force participation rate at its lowest level since 1978 and disability claims skyrocketing.

All of this, and much more, are the consequence of the United States abandoning the very things that caused it to be great in the first place: limited government and individual liberty. Just as the British and the French were straight jacketed by their vested interests the United States is straight jacketed today. And that vested interest is government.

Entrepreneurship has been the life’s blood of American prosperity and today it’s on the ropes. While Silicon Valley venture capitalists throw money at high tech startups the rest of the country has seen regulation strangle entrepreneurs in their cribs. Government regulations, particularly federal regulations, have strangled small businesses in America. For the last 40 years the gap between the rate of companies starting to rate of those failing has been getting smaller. The bigger the gap (Companies started – companies failed) the better for the economy because it means more companies are surviving and creating jobs and value. In 2009 the lines crossed and today there are more companies failing than are started annually. The result less prosperity as small businesses are the golden goose of the American economy, generating 65% of all new jobs.

What we have today as a result are fewer, bigger companies that are increasingly turning to the government to hinder competition. From Wal-Mart supporting Obamacare to steel companies seeking import tariffs to General Electric pursuing Export / Import Bank subsidies to Wall Street banks lobbying for low interest rates to the Chamber of Commerce advocating for open borders, big companies are increasingly looking for government to protect them from the vagaries and verities of the competitive markets that helped create American prosperity in the first place. They are willing to trade higher taxes and endure more regulation for a playing field that is tilted in their favor… that is of course until when the taxes become too high and the regulation becomes too onerous, then they simply relocate outside the country.

In America in 2014 we have the opposite of the recipe for prosperity. We have a ruling class that has no desire to give up its power and privileges and a business class willing bend to that power and fund those privileges in the name of fattening their bottom lines. In this case the ruling class is the federal government. The power is demonstrated by the fact that the federal government has its claws in virtually every aspect of American life… from what you can do with your land to what your kids can bake for a bake sale at school to the healthcare you have to the kinds of light bulbs you can buy. At the same time they are writing thousand page laws – which generate tens of thousands of pages of regulations – the government is taking ever greater amounts of money from taxpayers for its redistribution schemes. From a sixth of the population on food stamps to taxing the lunch your boss provides, the ruling class of government seeks to control virtually every aspect of American life.

And being in power has its privileges. Federal workers have achieved for themselves that $120,000 average income (including benefits) while the average private sector employee gets by with less than half that. Seven out of the country’s ten richest counties – out of over 3,000 – surround Washington, D.C. And of course government employees enjoy almost guaranteed lifetime employment. And those at the upper echelons enjoy even better privileges, taking advantage of the revolving door of power. When their party is out of power the revolving door turns and the regulators simply join the regulated class or their lobbyists, at even higher salaries, until their party returns to power and the cycle starts over again.

Perhaps the perfect example of how America used to be a place where things could get done, where private enterprise could achieve great things was the Empire State Building. Started in 1929, it took 14 months – four months ahead of schedule – to complete what would be the tallest building in the world for the next 40 years. Today, 13 years after the destruction of the towers that took that tallest designation from it, the World Trade Center complex is still not complete. Only within the last year did the first of the towers open that would replace the destroyed complex and pieces of it are not expected to be completed before 2020… 19 years after the complex was destroyed. And it may well be the most expensive building project in American history. Was it technical capabilities that kept the complex from being replaced? Had Americans suddenly become too stupid to understand how to build buildings? No. It was bureaucracy. It was regulations. It was lawsuits and political interference. In other words it was government and government empowered chaos.

Which brings us back to the beginning. The United States was at one time the single greatest economic power in human history. As a result of that prosperity it has had more of a positive impact on the condition of man than any force in history. But that was an America where citizens had big ideas and big dreams, and the freedom to build on the first to achieve the second. Today that America doesn’t exist and a tyranny of the vested interests has replaced it. From government bureaucracy to crony capitalists to politicians who use the government purse as a vote buying scheme, America is no longer the bastion of freedom and prosperity that it once was. It is no longer the shining city on a hill. It is no longer the place where anyone can pull themselves up by their bootstraps by sheer will and hard work. And as guilty as the Democrats are in this, there are many big government Republicans who are just as much to blame.

Is it any wonder that 25% of Americans would consider secession? No. I count myself among them.  What about a revolution? Yes, I’d consider that too, but not the violent kind in either case. When faced with the same kind of vested interests that kept the British or the French from doing what our Founding Fathers did, what can be done? The real question isn’t whether the gift that James Madison, George Mason, John Hancock and Sam Adams gave us can be saved? The answer to that is yes. The real question is, how…

Monday, September 15, 2014

The Strong Horse, Barack Obama and the Collapse of American Influence

Robert Kagan had an excellent piece in the Wall Street Journal a couple of weeks ago. Titled “Power Failure” it discussed the parallels between the aftermath of WW I and today. In it he talks about the feeling in the US and the UK after WWI that war itself had seemingly become impossible.

Then as now, Americans and Britons solipsistically believed that everyone shared their disillusionment with war. They imagined that because war was horrible and irrational, as the Great War had surely demonstrated, no sane people would choose it.

That the US and Europe would pare back their military spending after a cataclysmic war is understandable. That the peace of the Roaring Twenties led them to believe that war was sufficiently passé it need no longer be prepared for is not. War has been a hallmark of human history since recorded time. Those few times when War seemed to be absent from large swaths of land it was often because peace was imposed at the tip of a sword, not because everyone just wanted to get along. While the Roman citizens who lived during Pax Romana enjoyed a relative peace, that peace was guaranteed by tens of thousands of soldiers dispersed throughout the Empire and along its borders.

The logical outcome of the winnowing of the American and British military muscle and resolve post WW I was of course WW II. From ignoring the Japanese invasion of Manchuria in 1931 to allowing Hitler to rearm in 1935 to abandoning the Czechs in 1938, it became increasingly clear to the Axis powers that they could act with impunity. It was only a matter of time before such appeasements led to a second world at war. As Kagan points out, we see a similar pattern today. Weakness begets belligerency. And that is the key takeaway from his piece, and from history in general.

The post WW II period has been one of the most peaceful in human history, primarily because of American – and to a lesser extent NATO – military strength. While hotspots cropped up from time to time in places like Korea, Vietnam, Afghanistan, Cuba and various other Latin American nations, there was a distinct absence of the world wide conflicts that highlighted the first half of the 20th century, and a dearth of wars between European states such as those that characterized much of the 18th and 19th centuries. A more recent example is the fact that after George Bush decided to go after the Al Qaeda in Afghanistan and Saddam Hussein in Iraq, suddenly Muammar Gaddafi decided that he wanted to give up his terrorist ways. Conversely, as the west has appeased both Iran and North Korea, both nations have continued to develop nuclear weapons.

Osama Bin Laden may have been wrong on many things, but one thing he was right about was this: “When people see a strong horse and a weak horse, by nature, they will like the strong horse”. Today the strong horse is Vladimir Putin as he seeks to reassemble the Soviet empire. Today the strong horse is Communist China as it bullies its neighbors from Japan to Vietnam to the Philippines and thumbs its nose at Britain as it ignores the democracy agreement it signed on Hong Kong. Today the strong horse is ISIS as it shows its enthusiasm for raining down terror across Mesopotamia and showcasing the murder of innocents of children, civilians and foreign journalists.

Sadly, with Barack Obama holding the reins, America is no longer seen as the Strong Horse. Domestically as his major military initiatives involve eliminating the ban on homosexuality, shifting military spending to social programs and saddling American troops with dangerous Rules of Engagement, Americans are left wondering if the military is supposed to be a fighting force or a social experiment masquerading as a traveling vaudeville act. Internationally, with Obama’s not so red red lines, his abandoning of various allies, his feckless leadership in the face of uprisings in Iran, Libya and Syria, his tepid response to Russian and Chinese aggression and his explicitly taking “boots on the ground” off of the table in his response to ISIS, America looks like a papier-mâché tiger.

Whether it’s the “Peace Dividend” that came after the collapse of the Soviet Union or the relative peace in post Surge Iraq, liberals are like the man who was born on third base and thought he hit a triple. They seek to bask in the glory of peace but denigrate how it was achieved in the first place. The Soviet Union did not collapse because Gorbachev was a nice guy who wanted to attend the then nascent Burning Man festival. It collapsed because it couldn’t compete with American military and economic might. Post Surge Iraq was not relatively peaceful because the insurgents suddenly decided to become BFFs with the Americans. It was because American troops went in and killed significant numbers of their fighters and leaders.

Today, after six years of Barack Obama’s leadership Americans may finally be waking up to the folly of the liberal notion that the world could be a peaceful place if America just stopped trying to impose its will on everyone else. The folly of that notion is twofold. The first is that while the United States – like most nations – does seek to influence events in various places around the world, the nation has rarely used its might to impose its will on other nations. Second, and more importantly, it misses the lesson to be had from Bin Laden’s quote. The world is not made up of leaders and people who seek to sit around holding hands and singing Kumbaya. Nations that believe in freedom, individual liberty and democratic government are greatly outnumbered by those where citizens enjoy none of those things. If the United States does not provide leadership in the world, make the case for freedom and individual liberty and make it clear that it will not only defend itself and its allies, but will stand up for others who share its values, who will?

Like a bully on the playground, if no one stands up to him he will continue to wreak havoc until recess becomes little more than a veritable “Lord of the Flies”. The United States cannot and should not try to be the policeman of the world. But if we do not make it perfectly clear that we will do whatever is necessary to defend our national interests and work to advance our values, then it won’t be a policeman the world has to worry about, but rather dictators who have little love for freedom of any kind and even less for individual life and liberty.

Monday, September 8, 2014

McDonald's and the NLRB - those who can do, those who can't regulate...

Franchising has been nothing short of a spectacular success for America. From restaurants to hotels to auto shops to plumbers, franchising generates hundreds of billions of dollars in revenue each year and employs millions of people across the country.

Modern franchising as we know it was created a century and a half ago by Isaac Singer, an inventor, innovator and the founder of the Singer Sewing Machine Co. He had figured out how to manufacture and sell his sewing machines in enormous quantities but he couldn’t service them across the vast country. So he created a franchising operation… whereby he would license the sale and repair of his machines to local merchants for a fee. They in turn could harness his name and brand to help market their business. It was a win-win situation for everyone involved, including the customer.

At its most basic level, franchising is a vehicle that allows for the replication of a successful business model. Let’s say you live in Richmond and you pour all of your money into opening a restaurant. Thankfully you become an immediate success. Seeking to build on your success you explore opening a second location. Borrowing the necessary money is unpalatable so you consider franchising. In franchising you let another person put up the money to start a store just like yours, but they own it. Typically they will pay you an upfront fee and a small (usually 3-5%) percentage of your revenue, and in return you give them the secrets to your success, rules about things like logos, signage, buildings, how the food must be cooked, the kinds products offered and various other product and marketing elements. And you handle much of the regional or national marketing. You have then become a franchisor and the person who opened and owns your brand's new unit is a franchisee.

Franchising is popular for a number of reasons. From a franchisee’s perspective they don’t have to invest the time and money that often goes into the hit or miss journey of finding what will work in the market. Someone else has already found the secret sauce. Not every franchisee is successful, but they have a greater chance of finding success than someone who is starting from scratch.

Franchisors like franchising because it gives them an opportunity to expand their brands and revenue without having to take up the management of or the capital expenses necessary to open a new unit. In addition, the success of any franchise is heavily dependent on local conditions such as real estate value, demographics, household incomes, traffic patterns to name just a few. Franchising gives companies a local partner who knows the local market far better than they probably could from across the country.

From the success of companies like McDonald's to Hilton Hotels to Jiffy Lube and thousands of others, franchising has been a spectacular success in the United States. Which makes one wonder why Barack Obama wants to destroy the model.

While the president hasn’t said that specifically, his leftists on the National Labor Relations Board have let it be known that that is their plan. At the end of June the general counsel of the NLRB announced that it plans to treat franchisors as “joint employers” as it relates to the unionizing rights for and wages paid to franchisee employees.

The goal of this announcement is to allow employees of franchisees to sue franchisors for the right to unionize and eventually negotiate on wages and benefits paid by their franchisees. This, despite the fact that “franchise contracts explicitly state that franchisees are independent and have complete authority over their own employees”. Labor costs are inherently local, and the familiarity of local partners with local conditions are a key to a restaurant company's success. That is one of the key foundations of franchising.

And so it goes. Just as the Community Organizer in Chief used to fund and train ACORN members to intimidate banks into making sub-prime loans in Illinois, his NLRB has decided that it will kneecap one of the most successful business structures in human history to advance the unionizing goals of the Communist leaning SEIU. The reality is, most franchisees are small businesses sweating to eke out profit margins of 10%. Those franchisees, with their tight margins and fierce competition can little afford the inefficiencies unions invariably introduce or the wage hikes that usually follow. By seeking to use the profitability of McDonald's the franchisor to drive the pay scales of it's 13,000 restaurants makes little sense. Should the franchisee in Live Oak, Florida be forced to pay the same wages paid by a franchisee in New York City where the cost of living is three times as high? If McDonald's is going to be forced to pay the wages for local franchisees shouldn't they then be entitled to a share of each unit's profits? Doesn't that defeat the whole purpose of franchising in the first place?

Not surprisingly, if this move by the progressives in the Obama administration survives the outcome will not be good for workers. While some may indeed earn a higher salary, it’s likely that many of them will lose their jobs as franchisees turn to computers and mechanization to reduce labor costs. Already there are machines in the market that can make hundreds of hamburgers per hour… and they do it without picketing, without taking cigarette breaks and without clamoring for higher wages.  So just as the know nothings who passed Obamacare cost employees jobs and others their health insurance, they will be doubling down on "joint employers" and it will be the workers themselves who are harmed.  

This move by the NLRB is simply more proof that the Obama administration is filled with people who have no idea how the world actually works. They hide behind the advice of left wing ivory tower academics and try to apply that advice to places where people have to actually produce to succeed. At a time when more businesses are failing than are starting and a record number of Americans are out of work, the last thing America or American workers need is for small businesses to take another body blow from the people in Washington who wouldn’t know how to run an actual business if their lives depended on it.