For most of my adult life, I've worked in restaurants. There are two strategies restaurateurs employ in order to turn a profit. 1) Reliance on high volume/popularity. 2) Systematic yet disguised price gouging. Strategy #1 is best exemplified by your local diner. They don't have loss-leaders, they don't price competitively and their chief concern is getting you in and out as quickly as possible. They probably only make a few cents of profit on every transaction, so their business strategy is to conduct as many transactions as possible. Strategy #2 is best exemplified by your local mid-market chain restaurant (think Applebee's/Outback, etc.), where you get a steak for perhaps a dollar or two less than you would at a joint with one outlet rather than several hundred. The quality of the food is in all likelihood lower but more consistent than any independent place, and this is because the chains are making purchase arrangements with large-scale distributors who supply them with product at a much lower price than any independent can negotiate. But because the price is set by the surrounding market, the chain is able to charge a price comparable to the independent and pocket the difference as profit. Think of it this way: were I to charge $18 for a steak, you would wonder about the quality of the beef, because you are used to paying more for your meat; so I charge $24 to meet your expectations, despite the fact that I only needed to charge $18 to make a profit. The reason I am able to charge $18 and still make a profit is that not only my restaurant but my whole chain buys in bulk and gets substantial price breaks from the slaughterhouses contracted to supply all that red meat.
Americans are used to the benefits of large economies of scale. Our goods were less expensive than the rest of the world even before we started contracting our labor to other countries because our market was both enormous and integrated. Every town had a Macy's, every Macy's had the same lines of clothes, and because of the scale of these operations, Americans were able to have better shoes at lower prices than other, smaller countries. Moreover, because nearly all Americans speak English at least passably and the national infrastructure is continuous and functional, there is less of a risk of disagreement in cultural taste and less time lost moving goods around.
Slowly, finally, the citizens of the United States have begun to grasp the limitations of these large-scale enterprises. When Robert Rudin and Larry Summers conceived the expansion of individual banks' scope of operations, the intent was a reduction in borrowing costs that would allow for reduced risk and a corresponding increase in the supply of loans for Americans with limited capital. By granting Citibank access to insurance and investment equity, the Clinton administration hoped to make the bank less reliant on the repayment of each loan, less reliant on the interest paid on the loans being repaid, less reliant on the down payment to secure a loan and therefore more willing to lend to the lower and lower-middle classes, who could then secure property that would allow them a higher standard of living. What no one in either the Clinton or Bush II administrations ever seemed to consider was a problem in one of the enormous, multi-sector banks that rose out of the repeal of Glass-Steagall and other banking regulations. When the bankers fucked up, the consequences were no longer limited to their depositors or even just other banks with which they did business, but spread out in to all the large-scale economies to which they had been allowed access. Insurance, investment banking, commercial and residential real estate, municipal bonds, retirement and pension funds all suffered.
Here's another (hypothetical) example: imagine what would happen if Wal-Mart went out of business. Wal-Mart's enormous economies of scale have allowed it to demand lower prices from its suppliers and undercut its competitors' price for all goods sold. Wal-Mart now dominates the markets for electronics, clothes, groceries, gardening, home improvement and even books in much of the United States. More than a few towns and small cities are beholden to Wal-Mart for access to many of the necessities of life, as the superstore has used its capacity to increase profit by lowering price to put all local competitors (who do not have Wal-Mart's leverage over manufacturers) out of business. Were Wal-Mart to falter, millions of people would suddenly be without basic daily needs, including, of course, employment. When a small business fails, that sucks for the community in which it is located and the handful, or even hundreds, of employees. When a steel mill shutters, that sucks for a whole town. When a national enterprise goes under, the repercussions are so severe that the impact generally outweighs any positive benefits that the scale of the operation was able to impart. The economic boom that came about with the easy credit terms offered by the balloon banks won't be remembered half so well as the simultaneous collapse of several national economies when those balloons burst.
William James' quote above continues with a screed against national enterprise, whether the results are good or ill. He believed that lasting triumphs were small, limited to individuals. Certainly he felt that other individuals could sway one of their fellows, and would have been somewhere between skeptical and amused by Randian notions of individual primacy. He was the sort of person who listened when his friends spoke, thought about what they had said, and either rebutted or agreed based on his experience and the dictates of his conscience.
Kel's brother Kramer has been down documenting the Occupy Wall Street movement, which got me thinking about the root cause of those protests and on to the whole economies of scale thoughtline, but I chose my favorite photo from Kramer's collection 'Til Human Voices Wake Us. The photographs are of swimmers at New York City beaches, men and women borne by mammoth amalgamations of salt and water that break, as in the photo above, into billions of constituent parts. Most of the time the person rides the mass back to shore, but every now and again the tidal force is overwhelming, and that very last line of Eliot's "The Love Song of J. Alfred Prufrock" really resonates.
No comments:
Post a Comment