From Phlebas to IKEA

The millennial survival and dominance of patrimonial firms.

amphora label vindolandaThe photo (source) shows a painted inscription on the neck of an olive oil amphora found at Vindolanda, a small Roman garrison town on Hadrian’s Wall. The most visible part reads Aemiliorum et / Cassiorum, referring to the shippers of the olive oil, the firm or firms of the Aemilii and Cassii.

The only business firms at the time were family ones. Shipping posh olive oil from Provence (1600 km by cart and barge) or Andalusia (ca 2500 km by ship) to an officers’ mess at the cold northern edge of the Roman Empire was a risky business, absent banks, insurance, or bills of exchange. [Update 4/12: I badly underestimated Roman trade finance; see comments.] To spread the risk, it made sense for the Aemilii and Cassii to join forces.

Family firms are popular with the writers of soap operas, in Brazil as much as the USA. (The best British example, the mordant Steptoe and Son about anachronistic rag-and-bone men with a horse-drawn cart, was satire with no pretence at economic realism.) The familiar emotional conflicts within a family are heightened and given wider repercussions by the less familiar but comprehensible context of lots of money. It’s only recently that soaps have ventured into the technically much more difficult environment of the modern bureaucratic corporation (Mad Men, The Office).

Art draws loosely on life, but doesn’t reflect it statistically. It’s said that Victorian novels frequently used both adultery and quicksands as exciting plot devices. From independent evidence, we know that adultery is very common and quicksands are very rare; but you would not learn this from the novels.

In this case the soaps get it more right than the economics textbooks. The vast majority of the world’s capitalist firms are family ones, even leaving out family farms. In the US, 80% of all firms are family-controlled; and “in about 65% of firms with 1993 revenues of over $5 million, at least 50% of the ownership was concentrated in a single family”. And not just small ones: “about 35% of the Fortune 500 firms are largely controlled by family interests”. (Gomez-Meija et al, pdf page 3, paywall; h/t Nadia Tronchoni in El Pais; thanks to Mike O’Hare for forwarding me the paper.)

My daughter Sarah works in one of the many family businesses in the Lille area. The grandest of these are the Mulliez dynasty: the 550 descendants and inlaws of a fertile 1920s patriarch between them control a retail empire guesstimated to be worth €30 bn. It includes 3,051 Auchan supermarkets and hypermarkets (now in Russia and China), hundreds of Leroy-Merlin DIY superstores, and half of the Decathlon sportsgear shops.

You would suppose that family control makes a difference. You would be right. The CW is that family controlled businesses are risk-averse. The paper by Gomez et al has shown that this is only half true. Continue reading “From Phlebas to IKEA”

How low can we go?

Let’s just check the scoreboard here:

Cal football and men’s basketball have the lowest graduation rates of any FBS school.  Not PAC12, FBS: that’s national, baby!  The football team is 1-10 and a 31-1/2 pt underdog for Saturday’s Big Game; MBB is not ranked in either poll for this year.  The campus is on the hook for a third-of-a-billion dollar loan for a coaching office palace/booster party venue/conditioning center: losing programs don’t sell tickets.  The program is supposed to break even, but loses $7 to $10m per year, year after year.  One of the football players sent a teammate to the hospital a couple of weeks ago in a locker-room fight.

You might think our Intercollegiate Athletics Program, who get to sell the Cal logo for chotchkes and sweatshirts, has some kind of pervasive management problem, but you might be surprised to learn that they seem to have an even more serious morality problem. This billboard is glowing above our local freeway only a few miles from campus.  The pic is fuzzy, taken with a cell phone; if you can’t read the text, it says “we will sell drugs to our students, and everyone else, if there’s money in it for sports.” Mark says “Alcohol is not just a drug, but the archetypal drug: the drug most widely used and the drug that causes the most addiction, disease, and violence.” We have a real student drinking problem at Cal, and it seems to be getting worse.

Cal and Coors BillboardThe Associate Vice Chancellor, to whom an inquiry from one of our profs was bucked by the Chancellor, assures us

The Intercollegiate Athletics program has a master agreement to sell advertising and promotional space using Cal assets with a number of vendors.  Part of the overarching agreement includes a contract with Coors/Miller.

I understand your concerns, and will be talking with the vice chancellor of administration to discuss the alcohol ads and to explore ways to ensure that future promotions are aligned with the core values of Berkeley and our brand.

Discuss?  Explore ways to insure?  Am I missing something here; can this discussion take more than thirty seconds?

Which cigarette brand do we think will win the bidding to put a Cal logo on their packs?

Obamacare Deception: Insurers (and maybe others) Need a Nice Letter from the FTC

Via Kevin Drum, Paul Waldman presents a truly epic post demonstrating that many insurers’ claims that rates are going up because of the Affordable Care Act are misleading and deceptive.  The press seems to have been duped into thinking that thousands of people are seeing their rates go up because insurers are telling them so.  But in fact, Waldman writes, many of the so-called Obamacare victims will actually benefit from the law.

What’s happening, according to Waldman, is a classic insurer bait-and-switch:

I want to talk about the thing that spawns some of these phony Obamacare victim stories: the letters that insurers are sending to people in the individual market….There’s something fishy going on here, not just from the reporters, but from the insurance companies. It’s time somebody did a detailed investigation of these letters to find out just what they’re telling their customers.

….If the woman I discussed from that NBC story is any indication, what the insurance company is offering is something much more expensive, even though they might have something cheaper available. They may be taking the opportunity to try to shunt people into higher-priced plans. It’s as though you get a letter from your car dealer saying, “That 2010 Toyota Corolla you’re leasing has been recalled. We can supply you with a Toyota Avalon for twice the price.” They’re not telling you that you can also get a 2013 Toyota Corolla for something like what you’re paying now.

I’m not sure that’s what’s happening, and it may be happening only with some insurers but not others. But with hundreds of thousands of these letters going out and frightening people into thinking they have no choice but to sign up for a much more expensive plan, it’s definitely something someone should look into. Like, say, giant news organizations with lots of money and resources.

If what Waldman says is true, that is indeed grotesque behavior, and one that the press should be investigating instead of getting their stories from the Republican National Committee.

But there is another thing.  It also violates century-old federal law.  The press isn’t the only institutioin that should be looking into this.

Section 5 of the Federal Trade Commission Act (15 USC 45) prohibits ‘‘unfair or deceptive acts or practices in or affecting commerce.’’  This is not an obscure law; it has been enforced for decades, despite conservative objections and more recent attempts by deceptive businesses to have it declared unconstitutional.  Any insurer claiming that a consumer must purchase a more expensive policy than what it also offered, and certainly claiming that a consumer must do so because of the Affordable Care Act, is violating the Federal Trade Commission Act.  This is not a close call.

When an insurer tells a consumer that his or her rates are going up because of the Affordable Care Act, and that is not the cause of the increase, it violates federal law.  This is also not a close call, although there is some ambiguity if the insurer can show that it had a reasonable belief that the ACA was the cause.  Insurers, however, know very well why their prices are going up.  Any insurer who says, “Gosh, we raised prices but we really didn’t know why, but we thought it was the ACA,” is essentially admitting that it doesn’t know what it is doing.  These claims should be treated with skepticism.

The trickier question is what happens when someone’s employer claims to its workers that their contributions to their insurance are going up because of the ACA.  Suppose Hobby Lobby (assuming it provides coverage) writes a letter to its employees telling them that they have to pay more because of Evil Kenyan Marxist Islamist Obama.  It knows that this is nonsense: it just wants to make its employees hate Obama as much as it does.  There are two questions here.  First, is this communication “in” or does it “affect commerce.”  If employees could change or alter their health plans because of it, then I would say yes.  If it is simple right-wing agitprop, I’m not so sure.  Second, at some point deception turns into a First Amendment issue.  If you couldn’t deceive people, then that would shut down the entire Republican media strategy over health care.  This is one reason why the connection with commerce is so important.

In any event, the Federal Trade Commission might want to send a letter to insurers participating in the exchange.  We are watching you.  Do not deceive people about this law.

What The Well-Off Would Pay for Wendy’s Coffee Doesn’t Matter

The fast food industry may not be able to pay higher wages because its customers are as poor as its employees

Labor protests were recently held in front of more than 1,000 fast food restaurants around the country. As a result of our job-killing recession and subsequent job-lite recovery, the fast food workforce is no longer composed mainly of teenagers. It now comprises many adults who are raising families, which is pretty hard to do on eight or nine bucks an hour and no health insurance benefits. Hence the protesters’ call for unionization and higher wages.

Many members of the San Francisco Bay Area Starbucks-going crowd (of which I am one) responded to the protests by lambasting Wendy’s, McDonald’s, Burger King et al., e.g., “Starbucks charges more for coffee so that it can give its staff good wages and benefits. Wendy’s is just too stupid or too cheap to do the same thing”. When I hear comments like this from my fellow well-intentioned members of the upper-middle class, they make surface sense to me for a few seconds. But then I remember my experience working in a fast food restaurant. Continue reading “What The Well-Off Would Pay for Wendy’s Coffee Doesn’t Matter”

…from the folks who gave us W

Two long articles in the NYT about the Harvard Business School’s attempt to be less of a misogynistic hell for women , and the curdled elitism that seems to have enveloped the place recently , seriously tickled not only my social justice gland but also my barf reflex.  If the reporting is anything close to fair, it presents a culture so deeply sick, self-absorbed, and malign that the place’s non-profit status needs to be reviewed.  Do we really want federal tax dollars channelled to actively destroying social capital?
What a uniformly awful bunch of people these students are, and proudly see each other as!  What does the admissions committee think it’s doing, admitting the, idle, wastrel scions of the richest people in the most unequal societies of the world so they can pile up even bigger fortunes – is HBS now teaching that the purpose of enterprise is to make Gini coefficients bigger?  Are they trying to beat the alumni fail record set by George W. Bush – is there an even worse president partying there as we speak, slouching towards someone’s plutocrat yacht party to be unleashed on us?
Part of the problem, I think, is that their business model is a dysfunctional (for everyone but them) treadmill.  As all schools try to do, they convince their students to believe, as alums, that  their positional $ucce$$, the fundamental indicator of m€rit, is due to HBS, and the alums both accumulate a lot of wealth (distinctively compared to other professional schools, even law schools) and like to give some back.  At the same time, their production process is very cheap (no wet labs! big classes!) despite the expensive profs, and a very large fraction of students (those spoiled rich scions) don’t care how much tuition they pay. As a result  they accumulate money they simply have no idea what to do with, leading to truly wretched excesses: faculty offices that are suites with real wood paneling, a faculty dining room with a buffet an upscale restaurant would be proud to lay out, subsidized to McDonald prices, and a private gymnasium, for Pete’s sake. I suppose the latter provides those specialized exercises appropriate to the very rich (cranking yacht winches, maybe, or riding a mechanical dressage horse – who knows?), suitably obsequious trainers and towel-bearers, and secure isolation from the kind of coarse hoi polloi you have to encounter in all the rest of Harvard’s athletic facilities.
The HBS endowment is about $2 billion: how much would be enough so they can start using it for something besides transferring everyone’s wealth into a financial sector populated with unspeakably selfish, shallow, jerks?

Radix malorum est cupiditas

It seems I’ve been channeling the Bursar this evening.

Are you looking for a prestigious internship for your teenage child? Are you worried that, despite your best efforts to make Junior respectable in public, the interview skills aren’t quite where they need to be? Do you think s/he would benefit during a college admissions interview by referring to “that time [I] interned at an energy consultancy”?

You’re in luck!

My high school, Westminster School, is offering internships at auction as a means to raise funds for its capital building projects and its Bursary Programme. On offer are internships in retail, finance, law, energy, and consultancy, among others. Fabergé? No problem. Coutts Bank? Roll up! We can serve all your needs here.

Ok, you’re interested? Great! All I’ll need is for you to 1) cough up hundreds of Her Majesty’s Pounds Sterling (I know, I know, can you really put a price on your child’s future? It’s priceless, after all. But then again, in addition to being a self-evidently valuable life experience, why not show people how valuable these internships are by making them prohibitively expensive?), 2) be a “member of the Westminster Community, aged 18 or over, unless previously notified otherwise. This includes Parents, Former Parents, Old Westminsters, Staff and Former Staff.” After all, if you aren’t somehow attached to the School, your money clearly doesn’t have the same pretty lustre to it. Marvellous, I’m glad you understand.

What’s that, you say? There might be a problem of nepotism? Some people who might otherwise be qualified might not be able to participate in the auction?  And some pupils who are attending the School on the Bursary Programme (designed as similar to a need-based stipend) for which the auction is intended as a fundraiser might themselves struggle to afford the internships?

Nonsense!

The School has already issued a clear statement that such apprehensions are unwarranted:

The option of including work placements was raised early on by our donors, and in the end it was felt that as this had for some years been a common practice by other organisations and as the places offered would be in addition to, and not in place of, existing positions, we would go ahead.  Each work placement donor was asked if they would be willing to provide 2 places – one to be auctioned and one for the School to pass along to a pupil at one of our partner state schools – and some have chosen to do so. While these places have been created solely for the auction, we are hopeful that the businesses will be inspired to maintain these new positions and will openly recruit for candidates going forward.

Fine, fine, I suppose that statement wasn’t entirely convincing for all involved. I suppose that the fact that one high-profile bank has withdrawn its internship offer in response to the bad publicity (Exhibits A, B, and C) means that we can’t please everyone. But look, at least the School has had a dedicated commitment to social mobility in the past, yes? Surely this doesn’t set back all the positive gains that have been made thus far? I really don’t think Nick Clegg’s vocal opposition to internship culture in the past has anything to do with it. Nor does it matter that he went to Westminster. Or that he acquired an internship through nepotism himself.

[Calls off, stage right]

Junior, remind me: what is it you said you wanted to be when you grow up? A lawyer, eh? Yes, yes, don’t worry. Daddy will take care of it.

Breaking character: No, I won’t be giving them money — for an auction or as part of alumni giving — until I’m convinced they have their act together.

EDIT: On reflection, the title of the post is rather OTT. But it was ringing in my ears, in the voice of my English teacher from Westminster, when I read about the auction.

Beer

Keith’s post reminds me that I love almost everything about beer except drinking it (on the latter, I like it with spicy food or on hot summer afternoons, but as often as not I’d be equally happy with a nice cold glass of milk or lemonade).  As a beer is any fermented grain [fermented fruit is wine; I don’t know whether the precursor of rum – fermented cane juice – is technically a beer or a wine or what], it can be steered to a lot of different futures, including distillation into whiskey or vehicle fuel, or  all the interesting craft brew variations between American mass-market lager and opaque stout.

What I love about beer is its commercial history and marketing.  Ever wonder why so many tropical countries with distinctive cuisines have domestic beers that all taste pretty much the same? The revolution of 1848 sent German refugees all over the world, including a lot of brewers who got off the boat in places like Rio and said “what this country really needs is some good beer…I think I’ll write home to cousin Fritz; if he can send me a boatload of hops, I could make a bunch of it.”

Continue reading “Beer”

The Motives of Upscale Rolling Rock Drinkers

In a post about marijuana markets, I mentioned the disorienting experience of seeing affluent San Francisco hipsters who could afford much better brew nonetheless drinking Rolling Rock (a so-so working class beer produced about 70 miles from my hometown). I speculated that such consumption was a form of signalling, as if such an “authentic” Western Pennsylvania beverage could give upscale consumers some working class cred.

Not so, says Jay Livingston, who went to the source and learned about the marketing of the beer. Here’s the view of his industry expert:

far from expressing solidarity with the working class, urban drinkers far afield regarded [Rolling Rock] as an upscale icon in much the way that Stella Artois has claimed today – a triumph of pure marketing.

Jay’s post also features some arresting visuals in addition to his argumentation and research. Read it here.

RIP Aaron Swartz

An enormous system of legal and commercial machinery (i) makes it possible for you to read this, or to read anything, or to listen to music or see a show, and (ii) makes it worthwhile for anyone to provide it for you.  This machinery was created by some of the most brilliant minds in the law, government, and business, but they made it for a world that no longer exists.

When industrial machinery breaks, it produces less, or worse, stuff, and sometimes it maims or kills workers.  The machinery of intellectual property worked more or less well until about thirty years ago, despite wrenches like mindless and venal copyright extension to make Disney heirs even richer being thrown into it.  That machinery has not, however, survived being tasked to process digital content, which has broken teeth off its gears, garbled its control system, and clogged its conveyor network.   Stuff is falling out of the system to be swept up as trash, lost in transit, delivered broken or with parts missing, sent to the wrong recipients, and it’s piling up in warehouses where no-one can use it.  Half-finished goods sit, sometimes forever, waiting for essential parts.  The waste of the most precious stuff in the world is bad enough, and the prices my students are paying for textbooks (and for my services) are bad enough, but today we learned that the malfunctioning machinery has killed a worker, and not just any worker but a genius engineer, and philanthropist in the best sense of the word, who had only begun to design priceless parts of it.

Aaron Swartz’s death isn’t just  overreach or judgment error by a Boston judge and prosecutor, though if either of them ever again  dines with anyone whose cultural competence is higher than a Big Mac it will be an outrage.  It was an industrial accident caused by ongoing, feckless, reckless failure to maintain the intellectual property machinery, a core piece of social infrastructure being run into the ground for greed (no, not for efficient price signals) by the ignorant, the frightened, and the incompetent.  The reasoning of the captains of this industry, as their sales fall, bookstores close, newspapers shrink and close, and our best musicians wait on tables,  goes as follows: “It’s our property, shut up!”  It is a failure of the law to accommodate reality.

Aaron isn’t the only casualty of this system, either: people are dying all over the world for want of drugs trapped in the patent system.  Maybe we should think of him as channeling Mario Savio: “There’s a time when the operation of the machine becomes so odious, makes you so sick at heart, that you can’t take part! ….you’ve got to put your bodies upon the gears and upon the wheels…upon the levers, upon all the apparatus, and …make it stop!”

Joe Hill would say, “Don’t mourn for Aaron, organize!”  We need Aaron’s Law, a reform of intellectual property law that recognizes the world the way it is, more than we need anything except climate stabilization; indeed, if we don’t get Aaron’s Law we will not be able to do the politics (or the science) that could save the planet, or whatever your favorite piece of collective work may be. If you read, write, sing, listen, or think, you will be talking about this with your other friends who do those things and watch for a chance to get engaged.  I’m looking, too, and when I find some, I’ll post them here. [minor edits 9:16PM PST 12/I/13]