The corporate world generally resembles Soviet culture a lot to me.
The problems of Soviet culture are really the problems of bureaucracy.
The way this is intended to be addressed in free markets is through competition. If your employer sucks, go work somewhere else. If their product sucks, buy it from someone else. This works pretty damn well as long as the company doesn't find a way to insulate itself from competition. But if that happens, it stops working, and then you're back to an unaccountable bureaucracy and all that entails.
This has been happening increasingly in the US because corporations capture the government, and then they do two things: Weaken antitrust laws/enforcement, and "strengthen" other laws that raise market barriers to entry which are then sold to the public under the subterfuge of some kind of safety/security/labor protection/etc., because the public rightly wouldn't accept their true motivation as a valid justification.
This also tends to feed on itself. Some industry captures the government, constrains competition, becomes abusive so people start demanding something be done about it. Instead of addressing the root of the problem (regulatory capture and insufficient competition), the incumbents propose a rule to reduce competition even more. So you get housing construction constrained by zoning, but instead of addressing that, the proposal is something like rent control, which disincentivizes construction even more and then long-term rents get even higher.
"Free market competition" is an ideological construct. Collectively (and sometimes even personally), we can't "go work somewhere else" - and we certainly can't not-work at all. Moreover, if an "employer sucks", it may suck in multiple ways - environmental impact, social impacting where it operates, impact of its products and services on society etc. None of that changes even if you do go "work something else". What's necessary is improving things, not finding another 'stall' in the 'market'.
> This has been happening increasingly in the US because corporations capture the government,
The government exists to serve the interests of property owners, and more so, the larger ones - enforcing the social order and protecting their minority control of economic forces, the means of producing and distributing goods and services, from the rest of surrounding society.
Capture by certain corporation is an attempt to tug at that common blanket to favor them specifically rather than keep the system somewhat stable and functional.
If Company A sucks and there are many other companies that don't, every single employee at Company A could quit and go work somewhere else, and then Company A can go out of business. That's a completely reasonable outcome for a company that sucks, and is what happens when there is actually competition.
> and we certainly can't not-work at all.
No known system satisfies the criterion that we all collectively don't have to work.
> Moreover, if an "employer sucks", it may suck in multiple ways - environmental impact, social impacting where it operates, impact of its products and services on society etc. None of that changes even if you do go "work something else". What's necessary is improving things, not finding another 'stall' in the 'market'.
These are not the "Soviet Shoe Factory" issue, they're externalities. If the company tries to make only baby shoes to save material but people want adult shoes and competition exists then people buy adult shoes from somewhere else and the shoe factory making unnecessary baby shoes goes out of business or doesn't have the perverse incentive to do that to begin with.
If the company is dumping toxins in the river, that isn't one of the problems that competition is expected to fix, in the same way that it isn't expected to prevent thefts or murders. And it's also not a problem the Soviets fixed either.
The current system nearly satisfies that criterion. We'd just have to accept 1700s average living standards.
Turns out in practice if you give people a day of free time they spend it bettering their lives by working instead of being happy with nothing.
Like if company A is on NY but 20 competitors are better and all but only have the work available in L.A.
You are not going to just quit and move.
Hence efficient market might be so on scale that is not available for that employee.
1) You have a very specific skillset which has such a high market value that you're not willing to change roles, but is esoteric enough that there are no other local employers for that skillset even though there are plenty of local employers in general. This is obviously not the common case, and is generally not a huge problem, because the "victim" is someone who can still command high wages and extract concessions from the monopolist because they still have the ability to switch roles and get a job doing something else for someone else.
2) There are not plenty of local employers in general. This is the aforementioned problem case where the incumbents capture the government and use it to inhibit competition, which must be prevented.
Sure, but is competition an ideological construct? Even the Soviet Union had competition between companies and institutions – without any free market.
There weren't a lot of different brands, but there were some, and they were in direct competition with eachother. The bigger issue was overall low productivity and high logistics friction, which leads to shortages (and a MIC that sucked up half the country's productive output didn't help matters).
The general problem, which is not limited to capitalism, is that organizations try to consolidate power. So you need something to inhibit that. What this is supposed to look like is a limited government that can enforce antitrust laws against other organizations, but is constrained from itself becoming an organization that consolidates power. This requires strong checks and balances, and they clearly need to be more robust than the ones currently in place. Not least because several of the ones originally in place under the US constitution have been removed through amendments (e.g. 17th) or creative interpretation (e.g. Wickard).
In a natural world, "collectively" is easier than "personally". You might have some reason that you absolutely can't quit, but there will be other employees who don't have that handicap. Their pressure will be enough to keep the employer reasonable for you too, since there are probably more of them than there are people who can't leave like you. But even if no one can realistically go get another job, that's not the true pressure... the true pressure is that they're so awful you'd all just quit despite how awful that will be for you, despite your inability to get a new job.
In a natural world with well-cultivated libertarian tendencies, the threshold for "fuck you I'd rather starve than put up with your bullshit" is pretty low. This is why companies (and government) are so eager to do everything they can to undermine libertarian tendencies... it makes everyone more vulnerable. Not that anyone understands this. The modern impulse when abuse takes place is to try to goad mommy government into coming to the rescue, which further erodes libertarian attitudes. They need you vulnerable, they need it to be such that if you have problems only they can solve them. If they can contrive that to be the case, they get to decide whether or not they want the problems solved at all.
There is another issue: collusion. If every company requires binding arbitration in their contracts (of adhesion), do I just opt out of having a cell phone, internet service, etc.?
See also: RealPage's rent-fixing.
There is going ro be a sociological rule that this thing always leads to similar dysfunctions.
Hayek said that the reason Communist economies failed was that the center could not get accurate information on what the leaves needed/wanted, so there was always a supply/demand problem. Market economies use prices to automatically convey this information. It seems like as companies get towards nation-state sizes they tend to have a similar problem: management is completely out of touch with what the people doing the work need (and/or out of touch with the customer base, market situation, etc.).
Fortunately, leaving companies is a lot easier than Communist countries. Also disagreement is a lot less dangerous, and the consequences of being on the receiving end of political backstabbing are a lot more tolerable. Maybe most importantly, corporations don't tend to be founded on a lie like Communist governments (see the Charter 77 essay [1]).
[1] https://hac.bard.edu/amor-mundi/the-power-of-the-powerless-v...
Compared with the Soviet system, that makes it vastly superior.
Compared to an imagined perfect system, it has many flaws, but that's how the real world is.
Some metrics I care about are income equality, homelessness, school shootings, level of education. What are the metrics you care about that you see improving?
> Compared with the Soviet system, that makes it vastly superior.
I'm sure it's also superior to the feudal system and hunter-gatherer systems. The Soviet system has been gone for three decades, I don't see why we would care to compare the current system to the effects of a system operating in a vastly different economic and political reality, more than 30 years ago.
> Compared to an imagined perfect system, it has many flaws, but that's how the real world is.
Well sure, that's a truism. That doesn't preclude the existence of realistic more effective or healthy systems.
> The corporate world generally resembles Soviet culture a lot to me.
The last decade has increased US GDP per person by more than 50% (yes, adjusted for inflation), and launched many innovations making live better and safer.
I think what you're referring to is the calculation of US GDP per capita, which is an average. However, this doesn't mean that the typical individual has experienced a 50% improvement in their income or well-being. The distribution of economic gains matters, and GDP per capita doesn't capture that. This is a significant difference.
Basic facts: GDP is how much value a country produces. It is also close to how much it consumes, aside from some marginal adjustments, which I doubt have changed much over this decade.
If income distribution had changed drastically, it could still be true that average people didn't see any of that 50% increase, but I don't see any signs of change on such dramatic scale.
So yes, I do think the typical individual has experienced a 50% improvement in their income.
For "well being", the change is probably much smaller. Happiness doesn't come from money...
It turns out it hasn't, it's only gone up by 25%. Which is clearly better than zero, but definitely not the expected amount.
But I'd add one more item, housing costs have skyrocketed during that time. And while overall inflation has gone up notably, I believe housing costs have gone up more - and I wouldn't be surprised if most of those gains in income have been eaten up by having to pay higher housing costs. So all in all possibly no net gain.
But I would strongly argue that the failure of Sears is an example of free market success.
How is that a success of the free market? 2 old companies destroyed because someone got enough money to run them into the ground and make a killing doing it?
Are MLMs also a free market success story?
Sears had one big problem when Eddie took over: it was out of step with the then-current retail format (big box stores). Its stores were heavily situated in enclosed malls that were out of fashion. The solution was straightforward if expensive: reformat the business (Sears had already done this twice before).
But then Eddie rolled into town with his genius consultants and a galaxy brained idea: Kmart has stand-alone stores that kinda look like big box if you squint. So let's just merge the brands together! Then Sears ends up in big boxes without expensive reformatting!
The fact that the brands were completely incompatible was pointed out by everyone who knew anything, but those weren't people in Eddie's inner circle so their opinions meant nothing.
By the way I don't think ESL Investments ended up making money on Sears. They stripped the company of assets yes, but most of those assets were distressed by the collapse of Sears. Like a lot of real estate was in struggling malls that had Sears as the anchor tenant. ISTR some of ESL's LPs suing Eddie.
Eddie made money the way all PE fund managers make money even when everyone else involved loses their shirt: by charging fees.
Sears was dead dead. Too ossified, too big, too out of touch. Just like Kmart. And Radio Shack. And Circuit City. JC Penney. The stores were dead, the products were marginal or worse, the prices were out of line. Retail staff was sparse and generally not great. The house brands were eroded. The national brands were overpriced. Sears had no reason to live. And it died, whatever the corporate machinations were to attempt to extract every last bit of residual/perceived value beforehand.
The PE machinations were not a success, but the ultimate death was the correct and expected result for a free market.
It was sad to lose a brand and a community fixture like that. But it was gone for so long before it finally went away that there was zero surprise, except the duration of the death throes. IMHO of course!
Sears could easily have been Target or Wal-Mart. The company was full of people who knew retail and knew how to execute on retail. It was destroyed by absolutely horrible management by up-their-own-asshole finance bros who knew nothing about how to run a retailer and who refused to listen to anyone who did.
My current employer is also being destroyed by PE. This time the chief idiot is Paul Singer but otherwise the script is the same: the company had one issue that was depressing the stock. The PE firm and their McKinsey children went about doing everything possible except fixing that problem. Now the company is in a death spiral.
I don't believe this at all.
Wal-Mart was already Wal-Mart, and while I have no love for them as a retail outlet, their execution is meticulous and aggressive. Sears was never, in my lifetime, that intense.
Target had, and mostly continues to have, something that Sears could not touch: taste. Sears was busy being a default option for everyone, but never an exciting choice for anyone. No way could Sears have become Target. They'd need a new brand.
Now of course, if you take $X billion dollars of assets, dump the backward-looking real estate and locations, go through massive layoffs and an amazing rebrand, reorient toward online, unwind decades of dilution in house brands, open new smaller stores in the new correct locations, and masterfully pivot the entire corporate culture to be something new by hiring the buyers and marketing people from, say, Target. Then yeah, you might be able to pull something off. But that'd be easier to do with just the $X billion from some other source.
But Sears was what it was, and it's an open question whether the market would have supported a whole new Target, or if the existing Target (etc) would have been able to quickly shift into whatever small gaps the amazing team at NeoSears had identified for them.
...
Total agreement and sympathy for you on the PE cannibalization process and the inevitable negative result for everyone except the private investors.
Their failures are free market successes, because the free market is all about vendors serving customers. Vendors that fail to do so, are expected to die. Sears grossly failed to do so, for a decade or two before being financially zeroed.
If there's any argument for market failure in the Sears case, it is that the death took soo long to be finalized.
The fewer the players on the market, the more likely collusion and monopolistic behaviors start to form.
But I also do not buy your premise that both companies were "dead companies lurching forward." Both companies had GOBS of assets that they could have liquidated and used to restructure into success. Those gobs of assets WERE liquidated but instead of being used to serve vendors or customers, they were used to enrich the shareholders.
The failure here is that this behavior of pillaging a company to it's detriment is something that could happen to any business. It wasn't done out of stupidity or ignorance, it was a malicious act of greed.
The problem I have with the free market hypothesis is it works only when there are many players on the market. However, entry into the market is by it's nature expensive and the economies of scale practically guarantee monopolistic end-states.
Consider, for example, the current state of the semiconductor industry. If Intel fails, would that be a free market success story? I would argue no because the market, particularly around fabrication, is already hugely concentrated into very few key players. We are not going to see a new cutting edge fab company (barring trust busting).
This consolidation action is happening up and down the market in everything from food to healthcare. We are actively seeing the death of small time farmers because of consolidation in meatpacking, groceries, and milling. Because a big mill doesn't want to deal with some 100acre farmer, they are actively locking them out of participation. And because a company like Nestle doesn't want to deal with 100 mills, smaller mills are being locked out of the market. These actions are all free market.
I call the death a Sears a failure in the market because it kills off competition. The only time it could be a market success story is if we had an actively competitive market with a large number of players.
But I maintain that the failure of Sears, Roebuck & Co. was the free market doing exactly what it's supposed to do.
Market distortions due to consolidation are a huge problem. But Sears was not fit for survival and there's no reason to believe that cash-for-assets could have been turned into a new viable business of any kind.
There was nothing to salvage out of the business model, vendor relationships, retail locations, consumer brand equity. Nothing. They abused their brand (and their Craftsman etc house brands!) for years. Some macro events and shifts were clearly out of their control and might have been insurmountable anyway, but the brand damage was entirely self-inflicted, and ultimately the only thing that might have saved the rest.
There was nothing left except lease obligations, slow-moving inventory, and nostalgia.
But enough about Sears. Your point, IIMBSB, is that the free market doesn't necessarily produce the most viable ecosystem. No argument there -- the natural end state of a free market appears to be 85+% monopoly or duopoly, and this is harmful to consumers and the economy!
I have to somewhat disagree here.
Amazon purchased wholefoods in 2017 to bootstrap their own distribution system. One year after sears went under.
My point is that sears had room and time for years to pivot their business model into something more profitable. They had the land, warehouses, and distribution system bigger than what amazon paid $13 billion to acquire. Heck, for fairly little money, sears could have entered or expanded into the shipping industry to compete with FedEx and UPS. They could have partnered with Amazon to handle their shipping.
The free market failure here is that the management team did nothing wrong by shareholders which in turn killed the company. They didn't die because they were being out competed, they died because management valued the next quarters profits over the long term success of the business.
The fact that the free market doesn't really care if a business does that is where it fails. The negative social impacts of large companies failing is tremendous and another problem with the free market. While business failing is value neutral for the free market, it's economically and socially a disaster.
Whole Foods was a standalone viable business with high-quality retail locations. Sears was neither.
But I'll certainly grant you that with the resources, a fantastic new model, and lots of luck, there were better outcomes possible. Not sure about likely.
As for the free market failure, I do think Sears was out competed, by a wide margin. By Target, Best Buy, Amazon, Home Depot, etc. New (ish), smarter, more nimble retail without the lethargy that had been inside Sears since the 1990s at least.
I agree that there's something wrong with the fact that management can do right by shareholders but simultaneously wrong by consumers. I don't know if I'd call that a free market failure though. Some kind of corporate governance discontinuity perhaps?
But the "market" as I think of it is strictly the retail consumer market, so when Sears failed the consumers, they were removing themselves from the retail gene pool. It would not be healthy for the market for them to continue operating.
How could this corporate governance discontinuity be resolved?
The reason I call it a failure of the free market is because the corporate governance model is something born from free market fundamentals, not from any sort of government regulation.
IMO, the fix to such problems is government intervention. In the case of consumer retail, I think governments should be MUCH more aggressive using anti-trust to break up large companies to actually start competition.
Unbridled capitalism, especially on the scale possible today, is anti-competitive and consumer-hostile. And economically and socially destructive in the medium-to-long term.
But still, given what it was, Sears had to die. Or be reborn. Death is more common! So the death was not the market failure. That was proper and expected. The state of the world left behind might well highlight a weakness/failure of the free market model. We may be in full agreement, just semantically misaligned.
I am not confident I have a good solution. All models impose some arbitrary metrics that are probably wrong (even if they are an improvement!).
But I agree that some form of anti-trust regulation and enforcement is the only possible structure for it.
My deepest relevant experience is in broadcast media, and I strongly believe that relaxed ownership restrictions and the outright repeal of the Fairness Doctrine were economic and social mistakes that we are paying for dramatically today. The issues are complicated, but the results are bad.
When I'm saying something is a free market failure I'm talking about the model of the free market.
And I think that by free market success you are saying "this what is supposed to happen under the free market and a good thing from the view of the free market".
And I agree that the free market model does say that failure like this is a necessity and a good thing.
Things can get much uglier and be much more protracted for governments.
that is the Marx's law from Das Kapital which in modern language can be stated as "the larger the entropy of the ownership distribution - the more socialism inside". The smallest entropy - one owner, classic capitalism, the largest - everything belongs to everybody, ie. government property, the socialist state, etc. The large publicly owned corporations are more toward the large entropy values, thus a lot of socialism inside.