The Greatness of America: “Ashes of Doomed Factories, Pink-Slipped Workers, and Towns Laid to Waste”

I’m utterly delighted with this paragraph:

But as is so often the case, the reality is more complicated. Almost every successful business career is built on the ashes of doomed factories, pink-slipped workers, and towns laid to waste.

Not because it’s true–it’s not! But because I’m so amused that someone (in this case, Matt Yglesias, presumably drawing on his long career as a business tycoon) claiming to complicate a purportedly simplified issue–whether Mitt Romney and other corporate raiders are the same as “the good kind of businessman, the one who launches and grows firms, creating new products and jobs and opportunities”–would make such a claim.

“Almost every successful business career.” Wow. Almost every one, huh? That’s a lot of towns laid to waste. I wonder … is this a one-to-one relationship? One successful business career for every town laid to waste? Does each “successful business career” entail doomed factories, pink-slipped workers, and towns laid to waste–all three–as the “and” logically suggests? Or is, um, “the reality … more complicated”?

And what counts as a “successful business career,” according to Yglesias, anyway? Just those titan-driven technology companies and industries he invokes–Apple, Google, broadcast, cable, Internet–or also the local business owner who succeeds at business by providing goods her customers want with excellent service? It seems laying to waste entire towns implies a scale that doesn’t include many–perhaps most–successful business careers.

Even more telling, though, is the causality. Yglasias admits that Sam Zell’s Tribune takeover of a newspaper was a failure.

A poorly executed leveraged buyout, such as the Sam Zell takeover of Tribune that led to huge cuts and bankruptcy, helps no one.

The article Yglesias links to attributes Zell’s failure, in part, to his cost-cutting and compromises on the integrity of the news.

Behind the collapse of the Tribune deal and the bankruptcy is a classic example of financial hubris. Mr. Zell, a hard-charging real estate mogul with virtually no experience in the newspaper business, decided that a deal financed with heavy borrowing and followed with aggressive cost-cutting could succeed where the longtime Tribune executives he derided as bureaucrats had failed.

And while many media companies tried cost-cutting and new tactics in the last few years, Tribune was particularly aggressive in planning publicity stunts and in mixing advertising with editorial material. Those efforts alienated longtime employees and audiences in the communities its newspapers served.

“They threw out what Tribune had stood for, quality journalism and a real brand integrity, and in just a year, pushed it down into mud and bankruptcy,” said Ken Doctor, a newspaper analyst with Outsell Inc., a consulting firm. “And it’s been wallowing there for the last 20 months with no end in sight.”

But in an article citing what is an extreme example, but no way unusual in type, of why newspapers have failed–aggressive cost cutting and failing to deliver the quality customers wanted–Yglesias gives the Internet and other media advances credit for killing newspapers in general.

Radio, broadcast television, cable, and the Internet all count as technological advances that have helped the economy and improved America’s quality of life. But they’ve harmed newspapers and led to endless rounds of publishing-industry layoffs.

It was the Internet’s creative destruction that killed newspapers, not the greedy owners making big cuts because they demanded unreasonable profits. Capitalism is all about creative destruction, you see, so we must celebrate that creative destruction!

And that’s what seems to be missing from Yglesias’ “more complicated” understanding of how businesses succeed. Nowhere does he consider the possibility that a troubled company would, rather than firing employees wildly, figure out what customers want–perhaps in a new market segment if your old one has become unprofitable–and deliver it.

For an underperforming company, painful restructuring now is generally the alternative to even more painful restructuring down the road.

Serving customers well may involve restructuring, sure, but it doesn’t necessarily have to involve the painful firings that Yglesias calls “a legitimate and even useful element of a dynamic modern economy.”

And while I won’t defend Mitt’s Bain career at all–it is part of the kind of financialization that has doomed our economy generally–what Mitt was talking about when he described “firing” his health insurance company is about that other kind of capitalism, the kind that believes capitalism is about delivering products that customers like. There are a whole host of other reasons why Mitt’s comment deserves criticism. And Mitt did reap unnecessary destruction while pursuing his personal and corporate profit.

But it’s a step even further to try to normalize firings as part of the purportedly inevitable creative destruction of capitalism.

Update: Yglesias, a Harvard grad, claims to be unable to see an argument here. So let me simplify it for him.

First, note what Yglesias claims to be doing: making something that has been simplified–a discussion about what Bain does–more complicated (with all the disdain that suggests about those who have purportedly simplified this issue). But then in the very next sentence, he engages in wild hyperbole, claiming that “most” successful business careers involve a great deal of destruction. Rather than making the issue more complicated, that is, Yglesias engages in a great deal of simplification, simplification which ends up being critical to his attempts to rehabilitate Mitt’s career of firing people.

The only way his hyperbolic comment could be true is if the definition of “successful business careers” includes only those who restructure entire industries. That may, in fact, be what he means–as I noted, he mentioned technologically driven industries, ones that have most often been kicked off by titans, people like Steve Jobs or David Sarnoff, and he later shifts his discussion to innovation, not business generally. That, itself, is telling: a whole lot of successful businesspeople–perhaps most–actually engage in a fairly mundane process of providing customers products they want at a competitive price. That can certainly be destructive, but isn’t necessarily. But that’s also what a lot of people mean when they invoke that “good kind of businessman.” So if Yglesias is leaving these capitalists out of his definition of successful businesspeople, then it’s not a very useful claim, because then his argument becomes, “Bain does only as much damage as the titans who restructure entire industries, so it’s okay.” He’s no longer doing what he claims to be doing, which is showing that Bain is like those good kind of businessmen, because he has defined success to exclude many of them.

As a related issue, the question of how to measure success also raises the role of money and structure in that definition. Is a successful businessperson’s company publicly traded? Does it have to achieve certain levels of profitability? Because if that’s baked into the definition of success, then it obviously might entail more “creative destruction” than other kinds of businesses. That is, a business measured for how well it serves its customers may engage in different behaviors than a business measured for how rich it makes its founders or owners, which is often how Bain is measured. The “good kind of businessman” is usually being measured for something else entirely, and frankly, maybe that’s how we ought to measure businesses.

The other problem with Yglesias’ argument is, even assuming his definition of successful business career makes his comment only a logical oversimplification rather than gross hyperbole, he imagines just one way to deal with such innovation and he imagines that all the destruction wrought by innovation is attributed to the innovator and not those who fail to compete. That’s why his example of newspapers was so odd. Not just because he attributed the challenges to newspapers to technological advance and not changes in advertising practices or, as is the case with Sam Zell that Yglesias himself brought up, greed and a failure to deliver a good product. Newspapers are in trouble, in part, because they no longer deliver the quality product they used to, which is in part because their owners want them to be more profitable than newspapers used to be.

But Yglesias also seemed to imagine that the only way businesses respond to innovations in their field is by laying people off. True, that’s often the case, particularly in this globalized world and with public companies. True, if businesses delay responding, that’s likely to be the case. But other successful businesspeople respond to technological change by changing their own businesses. Yglesias describes all the photo developing shops that have gone out business in his neighborhood. Where I live, a lot of these have not gone out of business, but have instead shifted their business, perhaps into mailing services or general business services shops. Those, too, are admirable, successful businesspeople, perhaps more so, because they continue to deliver customers something they need.

So in fact, the reality is more complicated–more complicated than Yglesias describes. Rather than treating business as it really exists, he instead simplifies it, calls most of it creative destructive, and thereby argues that what Bain does–successful creative destruction, surely, but for what and whose benefit–is not so bad.

16 replies
  1. Tom Allen says:

    Why, it’s almost as though Matt Yglesias is a neoliberal, corporate hack. But nobody could have predicted….

  2. Steve Dew says:

    I would need to do some digging to find this, but I remember reading at the time that Zell’s Tribune takeover was designed essentially to shelter his immense profits from the sale of Equity Office Properties to Blackstone. The Tribune also had a fairly large pension fund that Zell had his eye on. In other words, Zell wasn’t interested in the Tribune as a media company, he was interested in it as part of a larger and very complex financial transaction. Yglesias might want to look into this. He might discover that Zell’s Trib takeover was a smashing success, at least from Zell’s point of view.

  3. MadDog says:

    Matt Yglesias, poster boy for simpletons.

    He had a choice to write an authoritative piece on the process of creating a successful business, a subject that he clearly knows little about, or scam his readers with a rush simplistic puff piece that an entire university of subject matter experts would need years and years to describe.

    A minimalist approach to writing has its value, but its ofttimes fatal flaw is its tendency to make the writer appear really stupid. Like “The sun rose in the east. I have the hiccups. Ergo my hiccups are caused by the sun rising in the east.”

  4. bmaz says:

    Now now Marcy, our Harvard overlords (like Yglesias) know what is best. Resistance to the Harvard and Chicago schools is futile.

  5. ferd says:

    If, over the course of 20 years, a corporate raider pulls out a quarter $billion or more for himself, as Mitt has done, he has surely caused WAY more suffering than was necessary in order to restructure any troubled company he has “helped.”

    And not all the companies that raiders target are troubled to begin with; it’s just that the raider sees assets that could be stripped, by hook or crook, and the raider, unlike current management, is willing to strip them away no matter how destructive to real people.

  6. Linnaeus says:

    My question is, “what happens to those who get ‘painfully restructured’?” I’ll give Yglesias credit for at least mentioning that someone should keep that in mind.

  7. scribe says:

    Looks like Yglesias is another example of something Krugman pointed up in his column the other day: it’s a hell of a lot more common to find a stupid rich kid at Harvard than a smart poor one.

    That’s a symptom of the rampantly pervasive class structure which governs today’s America, the same kind of symptom as a millionaire son of a millionaire (and governor and cabinet secretary) finding all he had to do to make millions was lay off a bunch of proles and kill their towns, after stepping on the bottom rung of the ladder and letting it carry him upward of its own accord.

  8. Greg Brown says:

    “Capitalism is all about creative destruction, you see, so we must celebrate that creative destruction!”

    Sorry, I can’t tell if this was meant sarcastically?

  9. Raphael Cruz says:

    it’s fascinating to me to see the morphing of folks like yglesias from progressive to so-called progressive to establishment progressive, to what is becoming increasingly apparent, an establishment shill… i now put yglesias in the same category as andrew sullivan… both of them exemplify the old saying, “even a blind squirrel finds an acorn now and then,” although his slate story clearly ain’t that acorn…

    And, yes, I DO take it personally

  10. James Lee says:

    Here’s something from Karl Smith that Marcy Wheeler should take to heart:

    “One thing that can easily pass you by is the dearth of analytical ability in the world. When you talk to experts you can be confused into thinking that they are sharper than they are because they have been thinking and talking about the same things for a long time.”

    You sure have been talking a lot today, haven’t you?

  11. JohnLopresti says:

    ‘good’,’kind (of)’, ‘business’ (ethics); executive compensation ratio has quite a history in the US since the internet’s dawn. That is the comparison of the rate of pay and benefirts of the ceo to the average pay in the subtended company. Merely statistic legerdemain; but, still.

    Harvard has a good endowment, and a venerable history; and has had students of many stripes, as well as profs ranging the spectrum. never went there, myself, but the neighborhood had a lot of good bookstores in its day; and, reportedly, kids there liked folk music when that was popular.

  12. readerOfTeaLeaves says:

    Well, hey… FT reporting that 3 Carlyle founders shared $413,000,000 last year, so they must – like Romney – believe that there’s a whole lot of loot to be made from ‘destruction’.

    No doubt Yglesias will approve?

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