Sometimes Higher Prices
Isaac and I made a brief visit to Wal*Mart yesterday, in search of something we hadn't been able to locate but were told they had. We went despite feeling that shopping at Wal*Mart is never really a peak shopping experience. As we shopped I thought about a number of the other shoppers, and thought about Wal*Mart's "always lower prices", and wondered whether everyone might prosper a little bit if, instead, Wal*Mart went for a few somewhat higher prices and then paid their workers enough to afford those items with perhaps a bit left over for, say, health insurance. Wouldn't Wal*Mart, then, be growing customers from whom it might expect a growing profit margin in the long run. (Oops! Strategic thinking.)
And now, here's Barbara Ehrenreich with the same analysis in different words, and a reminder of how perceptive Henry Ford could be at times about business:
When, for example, the largest private employer in America, which is Wal-Mart, starts experiencing a shortage of customers, it needs to take a long, hard look in the mirror. About a century ago, Henry Ford realized that his company would only prosper if his own workers earned enough to buy Fords. Wal-Mart, on the other hand, never seemed to figure out that its cruelly low wages would eventually curtail its own growth, even at the company's famously discounted prices.
[Barbara Ehrenreich, "Smashing Capitalism", Huffington Post, 20 August 2007.]
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on Monday, 20 August 2007 at 19.09
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There's clearly an entrenched psychology among business decision makers — whose elite ranks increasingly include big-time operators in the financial/investments industry — that labor is of marginal value, if any, and should be dispensed with altogether whenever possible.
More than a little credit for this goes to the late Dr. Milton Friedman and his fellow economic Darwinists of the Chicago School of Economics. They didn't pioneer the notion the free market is the ultimate and only acceptable accompaniment to American democracy. They did do everything they could to promote it as a de facto religion and as the only legitimate basis for governmental economic policy.
So, as the dogma of this faith is apparently taught in MBA mills across the country now, laissez-faire is the only alternative to abject communist mediocrity, and the Golden Age of Robber barons was the natural and desirable result of a well-functioning free-market economy — and should be restored as quickly as possible.
The high-tech industries, which do love their imported coders and technicians, have more than done their part. But things haven't always worked as planned.
Twenty-some years ago, IBM located a new production plant deep in the heart of low-wage, cheap real estate and y'all-come tax incentives Texas. This was the size of two or three football fields and designed from the ground up to do one thing: build PC Jr.s The product, IBM was sure, would become an instant cult classic and be to personal computing what the VW beetle had been to cheap transportation.
Unfortunately for Texas, IBM filled the plant with robots, employing barely more than 30 humans, only 18 or so of those full time.
Unfortunately for IBM, the public quickly caught on to the fact that the PC Jr. was a ridiculously underpowered, overpriced and foolishly proprietary design. Consumers stayed away in droves. One football-field-size wing of the Texas plant spent years, I've read, crammed wall to wall, floor to ceiling with decaying PC Jr.s.
Big Blue got more comeuppance when rival Compaq stole its lunch in the laptop market, and Microsoft rolled over its OS/2 like a semi flattening an armadillo along Route 66.
So, if Wal-Mart persists in cutting off its growth nose to spite its own maximized-profits face, I won't be the least bit surprised.
Bad thinking, bad policy and bad results. Any more, tragically, that's the American way.
on Monday, 20 August 2007 at 19.19
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Going along with my ridiculously long comment above, I'll attempt to do justice in words to a cartoon seen some years back.
A young executive type in three-piece suit is handing papers to a short, pudgy, balding man sitting behind a desk the size of a small aircraft carrier.
The young executive type says, "Mr. Renwick, I noticed you have a "G.B." degree. Is that general business?"
Looking deadpan over his half-rims, the CEO replies, "No. Greedy Bastard."
on Sunday, 26 August 2007 at 18.34
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Higher wages do not always mean more prosperity. Just ask any company with UAW wages, such as GM, or International Harvester (oops, they went bankrupt. I guess their wages are really low now.)
on Friday, 31 August 2007 at 02.25
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Right, RSF. I'm sure if wages at GM had only been lower, domestic demand would've been much greater for less-fuel-efficient cars with more needless overhang and often poorer fit and finish than those turned out by the Japanese and Germans. Plus, U.S. consumers are well known for aiming their purchasing decisions where they'll be most helpful to rewarding already obscenely overpaid CEO's and top executives.
As for International Harvester, it certainly is all UAW members' fault that so many Americans have given up farming over the past 75 years. Those greedy union workers spent nights and weekends traveling the countryside, discouraging young men and women from keeping the family farm going. Those evil UAW workers wanted nothing more than to shrink the base of potential customers for IH products, and they succeeded.