Revolted Colonies

U.S. Politics and Culture

Category: Business

We’ve Got a Rising Tide, But It’s Not Lifting All Boats

Friday’s business news: The U.S. gross domestic product (GDP) topped 4% in the second quarter of 2018. Together with stout investment markets, robust consumer spending and low unemployment, most of the economy is humming along. After eighteen months of the Trump administration, the future ex-president has proclaimed our economy to be “the envy of the entire world.”

Indeed, there is a segment of the economy, the property class, that is doing well. It is euphoric over the quarterly report. CEO pay has skyrocketed. The sun may be shining on the hill but the valley is still under cloud cover. Wages rose 2.6% last year, a major gain. Real wages only grew .2% for a comparable period. Even gross wages have been stagnant this year, and unemployment ticked up in June. The numbers get worse when broken down demographically; no surprises there.Another story explained that in France and Germany, the land of our future ex-allies, finally wages have begun to rise. They’ve risen slowly, considering that those countries have been at full employment for a while. Full employment usually results in higher wages, but that’s not how it’s been working out in Western Europe, at least not as rapidly as it has done historically.

European economists ask why wages have not moved up along with growth and employment, a question we Yanks need to think about, too. The European Union dispatched a team of prominent economists to tackle the question. The European economists didn’t agree because first, they’re European and second, they’re economists.

In Europe and America, collective bargaining has lost much of its starch. Unionism is out of political favor, due only in part to corrupt union leadership. Employees without organization cannot match their boss’ negotiating power. Last month, the U.S. Supreme Court ruled that a non-union public employee can’t be required to pay union dues. The upshot is that public employment unions will have less money to work with on business matters. As a result, public employment unions will become a lot quieter and not just on political issues. The ruling affects the union’s bargaining power.
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The European economists also considered freelancers who’ve gone off to work for the,m (Uber and AirBnB). In the US, freelancers have become a distinct segment of the economy and should create upward pressure on pay. Freelancing has grown rapidly in Europe. Still, wage hikes remain slack.

Another theory is that increasing inequality between management and labor suppresses wage hikes. If workers are needed, that demand should push wages up. However, the concentration of wealth continues to increase at Mr. Moneybags’ end of the pond, while real wages are stuck in shallower water. Yes, we have a record flood-tide but only particular boats are rising with it. Inequality may not be the cause; clearly it is an effect. It may be both.

The story is the same all over the developed world. Ownership is not multinational; it’s global: hoarders without borders. At some point workers will stop spending money they don’t have and will run out of plastic power. They will buy fewer homes, see doctors and dentists less often, eat at home more, and hold off buying the new car. The consumer economy will contract, kickstarting a new cycle of boom and bust. It doesn’t have to be that way. As long as the workers are fat and happy, the boss will continue to be fat and happy, but slightly less so.

Amazon’s Right on Target

In his effort to become the only merchant left in the world, Jeff Bezos is now planning to acquire Target. What a surprise.  Bezos not so quietly has assembled pieces that enlarge Amazon’s sales and distribution system.  Assembling is not the right word, though.  More like the Anaconda indigenous to the namesake river – I say, River – Amazon is swallowing companies whole.  If you think it’s an accident that in 1994 he named his startup after the world’s longest river, think again.  Bezos has created the biggest stream of commerce ever assembled, and he is not done. It will make the Silk Road look like a two-lane blacktop.

Investors might have been surprised when Amazon picked off Whole Foods in June. Afterwards, the acquisition made sense.  Whole Foods had assembled a blue-ribbon inventory of store locations; for which it was paying top rents and charging the top prices needed to pay said rent.  Amazon is perhaps the only company whose supply deals, distribution and marketing could create the efficiencies and volumes to make good on Whole Foods’ costs.

Just the other day, some friends were sounding the death knell for Target.  The Minnesota-based retail giant had effectively pulled down premium department stores on clothes and grocery chains with competitive food prices. But Target is in trouble now; has been for a couple of years. Target’s first big problem was that it outgrew its supply chain, hampering sales growth.  The shelves, once expelling goods at customers like projectiles , were merely groaning and bursting at the seams. 

After Target got back on its feet, it felt Amazon’s breath on its neck and Wal-Mart squeezing in from the side.  Target began to falter. Its e-commerce division, rebounding from the 2013 credit card breach, was being dwarfed by Amazon. Wal-Mart, a head to head competitor, is viewed as a cheaper alternative to Target, even if that is not the case across all product categories.  However, Wal-Mart pulled ahead decisively in its online business. In fact, Wal-Mart supposedly was clogging up Amazon’s rear view mirror.  

Once the limping Target became separated from the herd, it was time for Amazon to pounce.  In October Target was a rival; in November it was prey.  Target will be Amazon’s brick-and-mortar general retail arm to go with the Whole Foods grocery appendage.  Home Depot, anyone?  You can almost feel the stock accelerating and pulling away from Wal-Mart till they are out of sight.

So. Another Johnny Rocco moment. More, Bezos?  You want more? Will you ever have enough?  No, I don’t suppose he will.  However, this market consolidation doesn’t create jobs.  At best it’s job-neutral. At worst, there will be redundancies in the management system.  Prices?  Consolidation doesn’t help prices; efficiencies should. But if Amazon pulls down Wal-Mart too, it will have no effective competition.  Once there is no competition, there is no pressure on prices.

The net net of this deal is that jobs don’t increase on higher sales volume and the consumer dollar, shrinking through inflation predicted in several core sectors for 2018, won’t stretch as far with the new behemoth.  In the current environment, only media companies are vulnerable to antitrust claims by the government.  Amazon’s acquisition might not even pass muster as anti-competitive for purposes of the the antitrust law.  It sure feels like Amazon will be the General Store on Main Street in Everyplace, USA.

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