The article skates over one important aspect of local ownership. Part of the argument about small-business owners is that "these kind of local elites are often the bulwark of conservative politics." But that is a very cramped view of the role that the local business owners can play in their local communities.
The life of a community and its social organizations often depends upon the sustained engagement of people with the means and the motivation to provide meaningful support. When small businesses close and ownership is transferred out of the community, the organizations that hold the community together (libraries, sports leagues, gyms, parks) will suffer, and the community as a whole may move rapidly from vibrant to not. Yes, residents may be able to buy cheaper groceries, but the social costs might be quite high.
When I grew up in Poughkeepsie, New York, in the 1970s, we shopped on Main St. at the local farm store, the local shoe store, the local furniture store, the local bookstore, the two local department stores. The owners of those stores were on the boards of many of the local non-profits. The city had a flourishing library, a large YMCA and a YWCA (both with pools that were available to local schools), a philharmonic orchestra, arts organizations, and other groups that were essential to the life of the community per se. By the end of the 1980s, almost all of that was gone. There were plenty of forces undermining the life of Poughkeepsie (and of so many similar cities across the country), but it is important to see that the local business owners are a core component of the local ecosystems.
One year ago I would have been very supportive of this view. I live in a small rural town where local businesses struggle with competition from regional retail centers 60 miles distant. I vowed to shop locally to help out. Fast forward - in the last year these local small businesses have been very militant against mask wearing and other forms of tyrany by the state designed to protect health. Wal Mart, Costco, Home Depot, ... all adhere to strict protections. I understand the challenges of small businesses in the pandemic, but I now vow to no longer shop at the local businesses. I am not sure how, or if, this fits with the current discussion, but it changes the narrative as small business as benefitting the town.
Hmmm...the other thing Poughkeepsie had going for it is IBM. :-)
I bring it up because I wonder how much "local ownership" helps the community in a vacuum vs what I think you were seeing, which was a mix of local ownership of localized businesses and a sort of pseudo-export economy - dollars from IBM were flowing into the local community, giving people spending money for those local businesses. I can see how those two things in together provide critical mass for a positive feedback loop in a community.
This is almost certainly correct. The local businesses are part of an ecosystem, and the most it might be safe to argue is that the vibrancy of the local business community might be a necessary but not sufficient condition for the overall health of that ecosystem. I think the relevant point in the context of the discussion here is that the ecosystem-supporting role of local businesses should be a factor in the political discussion of smallness vs. bigness. (And, with the caveat, as suggested in Hoffy's contribution, that the evidence for the role of local business is largely anecdotal.)
But do we really want to rely on the generosity of local notables for maintenance of libraries or swimming pools or parks? I recognize that currently we don't fund these otherwise, but WalMart pays taxes just as much as a corner store, and "places that have generous elites get good amenities" seems like a bad way to distribute benefits in society.
It may be fair to ask if we want to rely on the generosity of notables for local amenities. But, as you acknowledge, we do rely on the generosity of notables for local amenities. What this has meant is that even relatively poor cities can have decent amenities, while those same cities are likely to have very poor school systems (which don't usually receive funding from the local notables).
And back to Poughkeepsie: To the extent that Walmart pays local taxes -- and the big box stores are often able to negotiate favorable tax deals as they make their siting decisions -- it pays those taxes to the Town of Fishkill. The stores it has displaced paid taxes to the City of Poughkeepsie. This may be good news for Fishkill (pop. 2,171) but it is bad news for Poughkeepsie (pop. 30,515).
The solution to the sweetheart tax deals is simply to have the state outlaw them. (Also, rationalize local government areas to a size where people aren't crossing borders just to go shopping.)
Yeah, I don't know why people get upset at *corporations* who negotiate tax deals. People need to hold their local politicians accountable for stuff like that.
First, it seems like the question in this post is "should the public policy regime prefer small business", and I think the answer is "yes but then we need to support local symphonies with taxes".
Second, "good for local art museums but bad for local schools" seems like a terrible tradeoff.
What I was trying to suggest is that the realistic alternative to private funding for social amenities is not public funding for those amenities, but no funding.
Clearly the community did not really value those local businesses. Bemoaning the loss of local businesses versus how people actually behave is what economists call "stated preferences" versus "revealed preferences."
Oh, and I see that even the middle school now has its own pool:
"Certainly, with individual choice being offered by so many as the solution for so many problems, we need to become more familiar with how it works. It is time for a guide to individual choice and its consequences.
Most public discussions about individual choice see one of two possibilities. Either we make good choices and are happy with the outcome, or we make bad choices and are unhappy with the outcome. But there is a third possibility, which is that we make good choices and yet are still unhappy with the outcome: that is, individual choice can lead us into traps.
Much of this book is devoted to cataloguing circumstances in which individual choice goes wrong, and to exposing the mechanisms that lead to disappointment. It provides a taxonomy of these circumstances: situations in which good choices lead to bad results for everyone; winner-take-all situations in which good choices lead to inequality with good results for only a few and bad outcome for most; situations in which "the devil you know" is better than the devil you don't, and predictability trumps quality."
I agree with Slee's basic point here, which is why in this post I am trying to make a stronger argument — Walmart is actually better than the alternative, so we ought to collectively opt for the policy framework that allows Walmart to drive Mom & Pop out of business.
I recognize that you're making that argument -- and, as I understand it, that it's not a full-throated. "this is obviously better" but a slightly more modest, "liberals tend to give too little weight to the arguments in favor of Wall-Mart and should pay more attention and value them more highly."
I think it's good to make that argument, I'm not totally convinced, but I don't feel like I have a firm position.
I remember when Amazon put B. Dalton books out of business seeing various people write some version of, "B. Dalton was mocked for being a soulless bookstore but, in a lot of small towns, it really did offer a better selection than what it displaced."
If you live in a city that has a good supply of whatever (books, food, restaurants, etc . . . ) it's easy to minimize the value of having a basically competent (but unexceptional) store in that category.
On the other hand, I've spent my entire working life in small businesses. I recognize the trade-offs; I've definitely had fewer benefits than I would have gotten in a large business, and I believe I've worked harder, but there have been real advantages in terms of having a strong sense of ownership over my work.
I'm not sure how to translate that into policy, but I know you've made the argument in the past that national health care, for example, is good for indie rock bands (I think you were comparing Canada and the US). Similarly, one way to look at the disparities between small and large businesses is to recognize the advantages of scale (true) and another is to wonder if there are ways to close some of those gaps (like a more robust safety net).
I'd like to think that recognizing the truth of the former doesn't have to compete with the latter.
That's a separate argument. You can argue that the choices we have made are correct, as a policy goal, I was just trying to respond to your comment (as I read it), saying, "whether these outcomes look good to us, or not, they clearly reflect the desires of the people making choices in the community."
That's a good general starting point, but I find the Slee book convincing that the assumption breaks down in various ways.
At that point it is appropriate to have the conversation about, "what are our policy goals in this situation."
I'm glad to see so much attention paid to Poughkeepsie. It is recovering. That pool just reopened after having been embarrassingly unusable for many years.
You're conflating general economic malaise with "smallness can't compete with bigness." Employees of tech firms and banks and medical centers can be every bit as engaged in communities as shopkeepers.
Many prosperous suburbs in America have a very different retail base than they did in 1960. and are probably home to a lot fewer small retailers. But that's ok -- they're prosperous!
The incentives for a high-income but obscure tech employee may be different from those for a prominent local business owner. That is, whether the tech employee donates and volunteers their time to run community organizations depends on their personal preferences. For a local business owner, it seems more like it comes with the job.
The dynamic of business consolidation weakening community institutions and the local economy in small towns is a major theme in George Packer's "The Unwinding" (2013). I wonder what the academic literature says.
I think Matt's argument that larger businesses are better for economic growth has a lot of force. But I would have liked to see some discussion of this dynamic in the article, even if he concludes that in the end the social costs are outweighed by the economic benefits. I assume the costs will be part of Hawley's pitch.
I worked for a nonprofit, wore many hats, and often went to businesses in town to gather resources. In all seriousness, the larger businesses were more responsive. Wal-Mart had a clear specific program to help, the chain liquor store just threw product at me for events. Overall, the bigger businesses gave more and more often. I would often hear from small businesses that someone else beat me there and there was no way to predict so I lost a lot of time driving around town talking to people and hearing no.
That kind of "chamber of commerce pillar of the community" role can be (and often is!) fulfilled by franchise owners. IIRC there was a book out recently, whose author was interviewed on The Ezra Klein show, about the relationship of the Black community to McDonalds, and how in particular, black McD's franchise owners were often big community boosters.
The decline of small manufacturing centers is a different phenomenon than what Matt's talking about. If they hadn't declined, they'd likely still be home to solid -- maybe even thriving -- downtowns.
You may be partly right here -- the decline of the local social infrastructures might be an unavoidable consequence of broader economic shifts -- but you are also partly wrong. Local businesses can play a role in the community that is irreplaceable.
I now live in a prosperous suburb. We have one local grocery in town. Any resident who wants to save a lot of money on toilet paper can drive 10 minutes out of town to the nearest Costco. But when our local grocery was closed for almost two years (because its roof had collapsed), the community was devastated. The random social life of the town was hampered because people didn't have a place to run into their neighbors; the PTA and Friends of the Library and other local organizations lost some financial support; and, most importantly, it became much more difficult for some of the older residents of town to do their grocery shopping.
I view the higher prices of the local grocery store as a form of voluntary local taxation. The residents of the town are willing to pay those prices because they know how much worse our life would be if the store had to close. I don't see how this is irrelevant to the initial post. And I don't quite see how the observation that, 'la-di-da, many suburbs are prosperous' is altogether relevant.
I think this is a very valid point - meaning the "community support benefit" received from the local small businesses. One of the challenges is thatit is very hard to measure this benefit. Some aspects you can (e.g. donation $ to the types of orgs thc5 mentioned), but some aspects would be very hard to measure. How do you measure "sense of community"? Probably can't, but it just might be more valuable to quality of life than the $ given to the local YMCA, youth sports club, or park system.
The mom & pops that were affected by Wal-Mart were often located downtown, and Wal-Mart and other big box stores are almost always on the outskirts of town or near newer expansions of town. So what seems like straight up competition contributed to downtowns emptying out. Wal-Mart isn’t the only reason, but they played a role.
Lots of towns have resurrected or are trying to resurrect their downtowns, but ironically they now have a new problem - what do they do about the loss of tax revenue as people stop buying from big box retailers in town and only buy from online stores.
I've been asking myself while reading Matt's article: what's the positive externality being lost? Sometimes when a business becomes more efficient, something it was doing that was perhaps socially useful goes away - the efficiency math doesn't count the externality, so on paper it's "better".
Does the big box model depend on the _car_ to function? I think there's some kind of impact on how towns are designed for pedestrians (or not). Maybe in the us that ship has already saled; maybe it's worth it in the balance.
The big box model does seem to depend on the car - it introduces efficiencies that only materialize when you can carry a lot of objects on a single trip, and have a free place to store your vehicle while you are making the purchase. (The supermarket grocery store also probably does to some extent, though Trader Joe's is an interesting case study of how to squeeze it into a small parking lot.)
But I think one thing that's interesting is that the big box model was ascendant in the 1990s and 2000s, but is now losing out to online commerce (which beats it on selection and price, and doesn't require you to drive the vehicle to bring the object home). The future of retail (post-pandemic) is likely experiential places like yoga studios, nail salons, escape rooms, bars, and other things that actually make use of the physical presence of the person. Big box can't compete with that.
This is true. The mall and or big box did kill downtowns. I wonder as well about losses that are less obvious. For instance in the neighborhood I grew up in all the mom and pop grocers were owned by folks who lived locally- most within walking distance of their businesses. Same was true for a couple independent gas stations- and the barbers and the cobbler...pharmacy etc. those owners made decisions that were inextricably linked to local concerns and local people. They hired and fired neighbors. The invested, often, locally.
Decisions made by Walmart Et al are entirely removed from all of that. I believe to the detriment of locations they serve.
Am I right? Not sure if it’s possible to quantify or prove. But I believe there’s truth to it.
True. No argument here. I would say the opening of the malls in my town were pretty clearly related though. The national chains that were down town immediately opened in the mall. Some kept the two locations others did not. Eventually all the downtown locations closed. And initially many local businesses- seeing the foot traffic dry up also moved to the mall. For whatever reason those businesses eventually failed at the mall. Downtown did see a resurgence when a large number of ethnic businesses eventually took up residence- and rezoning allowed many still vacant properties to be raised and rebuilt as apartments. That took 30 or 40 years to occur though.
A related issue is the support of local charities or activities. Good luck in getting the Walmart out on the interstate (or, even less likely, Jeff Bezos) to sponsor your softball team or contribute to the new library building.
This is surely an exaggeration. In my experience, Walmart and Target and most of the other big box retailers make a big deal about supporting local civil society organizations. Look at all the bulletin board thank you’s from little league teams etc. that you see in the front of most stores.
Small business owners are behind the labyrinth of regulations that stifle competition. Many (most?) jobs and markets -- hairdressers, real estate agents, nail salons, accountants, taxicabs, auto dealers -- have captured the state's regulatory authority to raise artificial barriers to competition. Auto dealers are probably the strongest and worst of all. These barriers are not erected for quality or safety, but to reduce competition. It is corrupt and endemic across our states, liberal and conservative alike.
This is why I laugh my ass off when I hear so called "small business capitalists" talk about deregulation. I've never met more of a pro-regulation (that helps me... not them) crowd than most of those kinds of businesses you talk about.
Maybe I'm missing it, but I really don't see any acknowledgement either in the post or comments regarding how important simple availability is when discussing small communities and small businesses. Having recently moved in retirement from a Phoenix suburb to rural Cochise County where the only thing with more offerings than Dollar General is more than 20 minutes away 'in town', I'm acutely aware that the nearest Costco is an hour and a half away in Tucson, that the Covid crisis has hit our local restaurants and businesses so very hard, and that I really, really want my local hardware store, a locally-owned Ace, to still be open next time I come to town. These businesses had been losing out very gradually to the majors & Amazon bleeding off business a few percent at a time. Now with Covid it's apocalypse. The big guys just don't have a lot of interest in these small markets. A lot of the MAGA crowd comes from this reality.
I think this is a real problem. But I reckon it flows more from the city/countryside divide, and rural depopulation, than big box competition as such. In other words, if there's a sufficient population base in the location you describe, it outta be feasible for small retailers to survive by offering good service and (critically) proximity. A lot of folks will pay a premium to drive 4 miles instead of 30. You see evidence of this when looking at small towns/suburbs that maintain thriving retail districts. Most big metro areas in American have lots of such places. Most towns near where I grew up in suburban Boston have a fair amount of small, non-chain retail. (Some of -- like McDonald's or Walgreen's -- IS chain, to be sure, but this is arguably an advantage of bigness when it's "distributed": it brings efficient, useful retail to small settings).
I think a discussion of rural depopulation certainly has a place when discussing both why small business is floundering in these areas as well as some of the cultural drivers of MAGA culture there. I looked up the population stats for the small (very Trumpy) town I grew up in, and it peaked in the 1960 census! I’m certainly not trying to defend the position, but I think the sentiment of make America (our small rural town) great again, they are referring to a time 60 years ago now when the county was growing, and before supply chain logistics created modern retail behemoths.
As someone from a small-ish town, I can say that many people enjoy the weekend one-hour drive to a nearby city with more stores and make a day out of it. They hit up Lowe's, Target, and then eat at their favorite (chain) restaurant. They will use the local stores when they need something small/quick, but otherwise they don't find them competitive on price.
I'm basically in agreement with the article, but one critique that's not addressed here is the "keeping money in the community" angle that I've heard some make. It's a bit mercantilist, but intuitive: when your residents shop at Dollar General the profits are leaving the area... If you shop with locally owned merchants, and they in turn shop with other local merchants, your community is wealthier. (I've also heard this structure applied to black owned businesses, BTW.)
Maybe for exurbs this is not a big deal, as those people are often working for "export" firms, but in small towns that don't produce things sold outside the town, it kind of puts them in a bad position, right?
**If you shop with locally owned merchants, and they in turn shop with other local merchants, your community is wealthier.**
Not how it works. If I buy from my local furniture store (instead of Wayfair) the owner is still going to source many of her inputs from the best possible national suppliers (or else she'll be out of business). And, the bulk of where she sends her income (mortgage, retirement account, health insurance etc) is either mediated through the (national, global) financial sector OR (say, in the case of a visit to a local dentist) is no different than if she were a manager working for a large company. And meanwhile, this non-existent "money stay in community advantage" is purchased (as Matt points out) at the price of lower wages and exemptions from important business regulations.
That said, like most people I love the quirkiness, character and variety of a nice, bustling downtown that has some great local options. But as I've written elsewhere on this thread, that's overwhelmingly due to to existence of an overall, healthy local economy with plenty of stable, high-paying jobs (or else due to lots of tourists). It's not because Walmart or CVS have been prevented from operating.
For my money the SF Bay Area has the most impressive, bustling downtown business districts in the country. Lots of hip little restaurants and shops -- plenty of them non-chains -- and lots of interesting places to spend money. And all of them are a short drive to malls and big box stores and fast food franchises (moreover, the local population probably spends more online than anywhere else in the country). It's that way because the local economy is strong.
Ummm... Well of course I agree we're not talking about all the money. Car & equipment sales being obvious ones where the bulk of the cost of goods is "export" spending.
But there is some money at the margin that's variable, right? A burrito from a chain restaurant kicks a bit of that money up to cover corporate salaries etc, whereas a burrito from a local stand will have a lower "export" quantity because those profits are staying with that local owner. That's definitely how most people see it (which is what matters politically) and I also have trouble seeing any reason it's not true...
(As a slight tangent, though "trickle down" is a popular phrase, I've come to view a lot of the economy as "trickle-up"... If I'm working a nice white collar job at corporate HQ, I'm living off tiny fractions of pennies trickling up from each little transaction. But you scale that up and the math works. And by using the company scale to push "efficiencies" - well those are squeezing money from other people, and then I'm picking it up myself in teensy tiny increments throughout the system. Particularly in service industries where "efficiencies" are reduced labor costs not like manufacturing improvements that reduce cost of materials.)
background: I grew up in a rural community where it seems like the only "inbound" money was from government checks, payments to the hospital system, and city folks coming to hunt & fish on weekends... Some of the money circulated (bakery, restaurants, cops, teachers, etc) but a lot of it had to pay for "imports" of manufactured goods made outside the community.
It's stuck in that rural decay that correlates with Trump support. Inasmuch as people there have a theory of how the local economy works, it's that chain stores are taking money out of the community. So I'm not surprised to see the Trumpers having complaints with big business.
I think there _is_ some value in having a community own some of its own businesses, even though Matt does set us up emotionally to pile onto them in this article.
But naively it seems that this wouldn't overcome the import/export gradient? If your town is sending money out for food, for cars, for building materials for homes, for most consumer goods and there's no cash industry that you can export, that's a big imbalance.
Did your community have an export industry that used to function, e.g. farming, mining, a mill, a factory?
I do think it's good to have people willing and able to take risks and create new things. Most growth comes from productivity improvements and innovation, and that can come from small, large, and everything in between.
But that positive externality won't be specific to that community - it will accrue to the broader community for whom that product is a useful trade of money for product.
farming was mostly small scale... retired & disabled people got their checks, and the hospital + health system employed a decent chunk of people via Medicaid/Medicare money, and the number of people coming for hunting & fishing was not irrelevant. (Fishing opener was a big day for the local stores!)
When I was a teenager a casino opened on the nearby reservation, but that story opens a big can of worms as suddenly the Native Americans had a lot more money and some Whites did not take that well... But it did help bring more tourist revenue to the area.
1. Retail is a tough business. Walmart's net profit margin is about 2%. Over-paying by 10% to keep that 2% profit locally is a bad deal for everyone.
2. I've got no problem if people *want* to shop locally, which clearly a lot of people do. They shouldn't force that choice on others by banning non local competitors.
And then *politically* I'm not thinking most voters are diving in to this depth, so it does not surprise me that politicians are turning on the chain stores.
I think he's wildly underestimating a couple of things.
First, the staggering array of tiny subsidies big boxes get, for the direct ("come here and you'll pay half-taxes for 20 years!", "your store is protected from re-use by a similar store for half a century") to the hidden - interchanges, frontage roads, stop lights, and miles and miles of underground infrastructure that otherwise would never need to be built, leaving these stores with a terrible amount of tax contribution per acre, and per public investment.
Second, he brushes off the local monopolies many of these stores have because he also 'has a Circle K'. That's not always true! Often these stores demolished an entire ecosystem of smaller stores, who were not trying to 'protect their monopoly' because they didn't have one - there were *many of them!*.
To a large extent, these smaller stores don't need 'special protection', but the opposite - the big boxes need to not get special dispensation.
I agree with a lot of what you're saying. But I suspect the issue here isn't so much the bigness of the business as the bigness of the location. Big box stores are the significant problem here, whether they are local one-offs (do those even exist?) or national chains; urban storefronts in walkable neighborhoods are the relevant answer, again, whether they are local one-offs or national chains.
I think there's probably a huge competitive dynamics difference between e.g. the populated metro suburbs of a city, where there's going to be a ton of competition (because the total retail economy can support multiple big box stores going after each other) and small rural towns where a single general big box retailer might be the only store.
This reminds me of a bad idea some of SYRIZA's people were promoting in Greece a few years ago: they wanted to protect the restaurant industry (and hobble the country's biggest export sector) by outlawing "all-inclusive" beach resorts where food is provided on site.
Maybe Matt could also write something about state laws that ban direct consumer sales by automakers? The entire dealership sector is mostly unnecessary and owners of car dealerships are a huge source of funding for the Republican Party.
Car dealerships provide one of the most reliable examples of Republican hypocrisy. We constantly hear Republicans screaming about the government meddling in free markets, then they overwhelmingly support bills like this:
The bill includes a bunch of "essential" protections for those poor, vulnerable, downtrodden, abused car dealers, including this one:
"A key provision of the bill is that it limits mandatory facility upgrades to every 15 years. New Hampshire dealers have complained that as it stands now, manufacturers can require them to pay for renovations without any limit on time or cost."
Tesla has been having a food fight with auto dealers for a while now - some states have rules that stop Tesla from selling cars directly to consumers (their only sales mode) without a dealership. The "reasons" for these laws are always pretty bananas.
But the politics works as expected - the guy who owns a set of dealerships is probably one of the richest business owners in the state whose business is fully within the state.
It's a case of something that I think is quite typical (complex and/or weird regulations benefit incumbents who have expertise in navigating them or whose business model conforms to the contortions) but in favor of a group we can all agree to vilify (auto dealers).
Elon Musk is a terrible human being in a lot of ways but if Tesla manages to break the dealership cartels before their inevitable hilarious bankruptcy he'll have done the world a solid.
I think they've also done a huge service in just advancing electric cars - it's head spinning that Musk can be such a piece of work and yet they've really moved us forward a ton.
When Elon Musk destroys the Earth with some kind of death ray, we'll be like "yeah, I guess there were warning signs...the flamethrowers, the tunneling under cities, the shooting cars into space on rockets....but the 3 was really a great car!"
Tesla's been profitable for 5 quarters in a row? I'm not prepared to argue that their stock price is sane, but they seem not to be in any danger of bankruptcy in the near future. I mean, who knows what happens in 10 years, but the days of them burning investment money and hoping seem to be over.
The real question regarding their viability is whether they can continue to be profitable when other car makers are offering similarly compelling electric offerings. So far Telsa's goal has mostly been lowering prices to expand their addressable market. They've never really had to compete on price or quality - every car they've made since the model S has had more than 1 willing buyer.
I mean, sure. And maybe at some point that will be the worry. But it doesn't feel to me like similarly-compelling electric vehicles are imminently on the scene, and that demand continues to outstrip supply for the number of electric cars that are there. And I think Tesla has an unparalleled brand in electrics.
I mean, who knows. Google is operating a fully-autonomous car service in, admittedly, one tiny corner of one city. But 10 years from now, the entire car industry could be upended. Or not. Right now, though, Tesla's not in danger of bankruptcy.
It's worth noting that Tesla service and warranty support is terrible because of this model. I was on a call with the co-founder of Current Automotive this week. He was previously the GM of Tesla's CPO and remarketing program and started Current because Tesla is just not positioned to properly support their aging fleet. Their Model 3 fleet is now > 500k vehicles in the US and maintenance work is going to be a headwind.
For what it's worth, as a Model 3 owner, I have not experienced problems with their service or support, and at no point have I gone "I wish I had a Tesla dealership". Since I'm in the Boston Metro area it's possible the company is better provisioned here than in other parts of the company. Surprisingly, their replacement prices (e.g. need a new tire) are competitive with third party, which is absolutely never true for a traditional dealer. The car isn't that old though so who knows what the future holds.
I kinda wonder how much of this is just the availability of qualified techs - how many people were repairing electric cars 10 years ago? Wouldn't surprise me if a lot of their service locations are just the blind leading the blind.
Planet Money did a very good podcast on car dealerships and the laws that protect them a few years back (if I remember correctly Tesla was the main impetus for the episode). I was listening in the car with my teenage son and he was completely flabbergasted when they brought up all the restrictions (i.e. laws) that protect dealerships. He had a hard time believing that it was true.
Yes. Same for restaurant owners who collude to not allow food trucks in many cities. One of the reasons car dealers are terrified of electric cars is that they require far less maintenance, which takes out one of their largest profit centers, the auto shop.
This is something that probably needs to be fixed at the federal level. Can Mayor Pete override the relevant state laws by regulation or would it need an act of Congress?
I had high hopes for Tesla making inroads on this issue, but Musk hasn't been making many democratic friends lately and I doubt either the Biden administration or the Democratic congress will be super eager to help him.
(Also, note that at the local level, car dealership cronyism is a bipartisan affair. Democrats are just as supportive of these anti-consumer dealer welfare bills as Republicans.)
This topic is spicier than the Thai food you get when you say, "no, really, I want it spicy". Glad we can discuss it on a forum called "slow boring".
Here is my unpopular take... many small businesses are really just employees with a shitty risk/reward equation. Imagine you are a McDonalds franchisee. Your job is barely different than a regional manager of a bank. Your innovation was a one time thing of selecting a location + ability to hire and manage employees in a system almost completely designed before you paid the franchise fee.
You didn't invent anything, and you didn't add value beyond some management skill that any regional manager of a larger company would have.
Most mom+pops have worse management skills than the McDonalds. Many have almost no ability to engage a workforce, which is why they are terrified of people getting a better deal from unemployment (though to be fair, many are great - I worked at a DQ for 3 years in HS for a guy I learned a lot from).
Part of this rage from the small business owners is that they have been, basically, worshiped from the left and right as job creators and saints of the community for their entire lives. They've answered to virtually nobody - including in a lot of cases their customers or employees. Any world where they have consequences for their actions, rules to follow, or god forbid, any kind of loss of status.. yeah, they are going to be mad.
This is only going to get worse, as tech companies are making these companies obsolete. And not just Amazon - what happens when batteries will take an electric car 1000 miles on a charge, and chargers exist in most homes. No more gas stations, each of which is a small business, often run by one of those lauded "job creators".
I love entrepreneurs. Inventors. People who make a new product that does something new, a new kind of experience, a better mousetrap? Those are the job creators. Bubba who inherited a truck stop? Sure, more risk than a typical employee, but much less risk than your average commissioned salesperson who has to create her own sales funnel.
I think part of the rage from small business owners is that a bunch of things in the economy reward bigness. "You make airliners that fall out of the sky and no one is using your products right now? Your products have never been worse? Have access to the bond market? Take all the money you need!"
I'm not saying that's particularly good or bad - airliner development is kinda half-nationalized due to the scale, and that might be structurally necessary - but you can see how a small business owner sees that and feels like there are powerful forces helping a different class of business and gets grumpy.
Also, airlines are good because they have employee profit sharing and the country’s largest union contracts. They’re also poison to investors and keep going bankrupt, so socialists should love them. Okay, maybe not $LUV.
"They've answered to virtually nobody - including in a lot of cases their customers or employees. Any world where they have consequences for their actions, rules to follow, or god forbid, any kind of loss of status.. yeah, they are going to be mad."
I'm would like to understand more about this because it seems very wrong. 20% of small businesses fail in their first year and a majority of small businesses fail within 5 years. I'm not sure what you consequences you would have them face, but if you've invested that much time, effort, and savings into a business, watching it fail would seem to be incredibly consequential.
I think a lot of people think small business failure is some sort of life ruining event. Maybe it is, but most good entrepreneurs seem to be able to open new businesses when one fails. In fact, the better ones learn from the failure and come back better next time.
I think there is a good question in there about access to capital. In silicon valley, business failure is almost a way of life, but we also seem to have ready access to funding, and no stigma if you've failed a few times.
If we take them at the rugged individualist capitalists at their word, which goes something like "business owners deserve outsized rewards for taking more risk", then you have to accept the downside of that risk, not socialize the losses when your idea fails.
Nobody in my industry was demanding a bailout for the .com companies when they failed. We retrenched, learned, and built better, more profitable companies.
Feels like there is a lot of survivor bias in that perspective - "most good entrepreneurs seem to be able to open new businesses when one fails."
A business failing seems similar to losing a job but with the greater downside (if it succeeds there is more upside too). Losses are always socialized to some extent, but would agree that we should limit the extent.
I have a friend who works with very advanced AI; he has told me repeatedly that AI will probably be able to program better than most if not all humans within 20 years. If true, I'm curious as to whether truck stop owners or the tech workers who lose their jobs adapt better. Will the legions of programmers in become entrepreneurs or will they agitate for government intervention to protect themselves?
re: AI, I can see that + low code platforms really making a lot of that work obsolete. But then again, 25+ years in this business, I've seen the predictions come and go about the "death of the American programmer" every year. First our jobs were going to India. Then "nobody wants to buy pet food online". And so on. Generally, the pattern is that the abstraction level goes up, but the scope of the problem increases.
There is a portion of culture in tech that is pretty left-libertarian leaning, especially among the startup entrepreneur class. As a group, we also tend to be pretty principled, so I doubt that tech people would ever go protectionist. Sure, a few big tech employees at lower levels may form a union here and there, but so far, nothing like that has gained any significant traction, nor do I expect it to.
It would be a strange turnabout indeed to have spent our entire careers making jobs redundant, then turn around and complain about losing our jobs.
Here's a not so quick story that perhaps can provide some insight. Several years back I was watching the local news and they had a short segment on a local shop that was going out of business. The segment was not part of the "hard news" but more of the local human interest variety. The business was a small drug store/soda shop - the kind that just doesn't exist anymore. It was family owned and operated for X generations, etc. The general tenor of the story was one of "what a shame/sad to see them go" In the course of detailing all this, they share that you could still buy an ice cream sundae there for $1.50 and that it was just recently that the owner did the math and realized it cost them $2.00 to make the sundae. So how was this reported??? "Lack of business skills finally does in business owner"??? Of course not. This fact was more or less celebrated. Presented with a chuckle and a smile. Just another cute anecdote that shows how special these Mom and Pop places are.
I think the point I took away was that society has a special place in its heart for the Mom and Pop store (or small business owner) and that place isn't as a business. We find them charming, endearing - whatever your choice of adjective - but they are a totally different animal than the "Factory" down the street or the "Big Bank" or multi-national corporation most of us work for. We want them to fill that spot in our heart and we don't care about the bottom line.
Yeah, that makes sense. Though I wonder if the saddest part of this is that they could have sold the sundae for 3 bucks and people still would have bought it, and thus the business could have survived.
The parallel to agriculture (Big Ag vs family farms) here is interesting. Environmental and food safety regulators in both the US and Europe have told me consistently and unequivocally that big corporate farms produce less pollution and have fewer food safety hazards than small operations, counter to my initial Loraxian expectations. But it's a similar dynamic as Google's server farm efficiency, the amount of revenue the big farms/slaughterhouses lose from any regulatory shutdown is enormous, and they have the resources to invest in better safeguards to prevent costly shutdowns.
A big difference here is the regulatory capture dynamic, which seems absent from Walmart vs Mom and Pop (fewer regulatory carveouts for small ag, especially if you want to sell in USDA shops). The perceived "badness" from the regulators I've talked to is a function of the regulatory benchmarks they use, and Big Ag definitely has more of a hand in defining those benchmarks than small-scale farmers.
In any case, for both cases I think "bigness = bad" is probably the wrong perspective.
I grew up in rural East Texas and the first Walmart outside of Arkansas was in the next town over from where I lived at the time. I have seen a pattern over the years of Walmart extracting low tax or subsidy deals from a local municipality to get Walmart to move there, and then when the deals expire Walmart leaves and sets up in the next town over that offered them a better deal. This leaves vacant a big box retail building that can only be filled by another big box retail store. There's just not a lot of those to go around in rural America so you have have these empty buildings that give the impression of rural blight. This playing off different rural towns against each other is somewhat tangential to Matt's post but I think it leaves a bad taste in the mouths of several rural residents that makes Walmart an easier target than other Big Box retailers.
The negative externality is that Walmart has scale relative to the towns (in a way Mom and Pop did not) and can extract these tax breaks. Mom and pop aren't mobile enough and don't have the size. See also Foxconn and the entire state of Wisconsin.
Correct, that's the point I was trying to make. But there's also a collective action problem. All the small towns would benefit if none of them gave tax breaks, but each individual town is incentivized to provide a larger tax break than its neighbors.
Right - and as a matter of policy we might say "the bigness is going to be a problem always, because if it's not the tax loopholes it'll be a lack of competition", or maybe we says "this tax loophole problem is specifically bad, as a matter of policy let's solve the collective action problem at a higher level of govt."
Is it wrong that one of the reasons I like Matt's new venture is that his writing often confirms my prior biases? I mean that in the best possible sense: I had a vague notion that the war on corporate bigness* (qua bigness) was BS, but hadn't really bothered to flesh out my reasoning as two why this might be the case. His arguments here are pretty difficult to refute.
*I'd be tempted to depart from this thesis when it comes to financial firms, though.
Belated comment; big v. small is not about antitrust or competition; it is part of an overall desire to return to am imaginary status quo ante prior to the "modern" period where "Small Town America values" reigned. Big corporations are being lumped in with all the bad modernist forces that have eroded those (white Christian male) values. In this sense, big box stores, "feminism," technology, BLM, et. al. are all part of a series of attacks felt on something Hawley is trying to protect. Hawley dresses up the emotional response of being attacked as a philosophy, but it isn't, which is why "eroding the free market by forcing wage controls" (how he would perceive minimum wage laws) is not an acceptable policy response. He just knows that if things were "Small Town America" again wages would magically be fixed because those (white Christian male) small business owners would do the "just and moral" thing. He is a philosopher like Paul Ryan is an economist -- with a superficial layer of ideas which once pierced reveal a soup of feelings, assumptions and givens.
What I'm hearing here is Matt's intern should form a union.
The article skates over one important aspect of local ownership. Part of the argument about small-business owners is that "these kind of local elites are often the bulwark of conservative politics." But that is a very cramped view of the role that the local business owners can play in their local communities.
The life of a community and its social organizations often depends upon the sustained engagement of people with the means and the motivation to provide meaningful support. When small businesses close and ownership is transferred out of the community, the organizations that hold the community together (libraries, sports leagues, gyms, parks) will suffer, and the community as a whole may move rapidly from vibrant to not. Yes, residents may be able to buy cheaper groceries, but the social costs might be quite high.
When I grew up in Poughkeepsie, New York, in the 1970s, we shopped on Main St. at the local farm store, the local shoe store, the local furniture store, the local bookstore, the two local department stores. The owners of those stores were on the boards of many of the local non-profits. The city had a flourishing library, a large YMCA and a YWCA (both with pools that were available to local schools), a philharmonic orchestra, arts organizations, and other groups that were essential to the life of the community per se. By the end of the 1980s, almost all of that was gone. There were plenty of forces undermining the life of Poughkeepsie (and of so many similar cities across the country), but it is important to see that the local business owners are a core component of the local ecosystems.
One year ago I would have been very supportive of this view. I live in a small rural town where local businesses struggle with competition from regional retail centers 60 miles distant. I vowed to shop locally to help out. Fast forward - in the last year these local small businesses have been very militant against mask wearing and other forms of tyrany by the state designed to protect health. Wal Mart, Costco, Home Depot, ... all adhere to strict protections. I understand the challenges of small businesses in the pandemic, but I now vow to no longer shop at the local businesses. I am not sure how, or if, this fits with the current discussion, but it changes the narrative as small business as benefitting the town.
From the point of view of anti-masking people they are clearly benefiting the town
Hmmm...the other thing Poughkeepsie had going for it is IBM. :-)
I bring it up because I wonder how much "local ownership" helps the community in a vacuum vs what I think you were seeing, which was a mix of local ownership of localized businesses and a sort of pseudo-export economy - dollars from IBM were flowing into the local community, giving people spending money for those local businesses. I can see how those two things in together provide critical mass for a positive feedback loop in a community.
This is almost certainly correct. The local businesses are part of an ecosystem, and the most it might be safe to argue is that the vibrancy of the local business community might be a necessary but not sufficient condition for the overall health of that ecosystem. I think the relevant point in the context of the discussion here is that the ecosystem-supporting role of local businesses should be a factor in the political discussion of smallness vs. bigness. (And, with the caveat, as suggested in Hoffy's contribution, that the evidence for the role of local business is largely anecdotal.)
But do we really want to rely on the generosity of local notables for maintenance of libraries or swimming pools or parks? I recognize that currently we don't fund these otherwise, but WalMart pays taxes just as much as a corner store, and "places that have generous elites get good amenities" seems like a bad way to distribute benefits in society.
It may be fair to ask if we want to rely on the generosity of notables for local amenities. But, as you acknowledge, we do rely on the generosity of notables for local amenities. What this has meant is that even relatively poor cities can have decent amenities, while those same cities are likely to have very poor school systems (which don't usually receive funding from the local notables).
And back to Poughkeepsie: To the extent that Walmart pays local taxes -- and the big box stores are often able to negotiate favorable tax deals as they make their siting decisions -- it pays those taxes to the Town of Fishkill. The stores it has displaced paid taxes to the City of Poughkeepsie. This may be good news for Fishkill (pop. 2,171) but it is bad news for Poughkeepsie (pop. 30,515).
The solution to the sweetheart tax deals is simply to have the state outlaw them. (Also, rationalize local government areas to a size where people aren't crossing borders just to go shopping.)
Yeah, I don't know why people get upset at *corporations* who negotiate tax deals. People need to hold their local politicians accountable for stuff like that.
First, it seems like the question in this post is "should the public policy regime prefer small business", and I think the answer is "yes but then we need to support local symphonies with taxes".
Second, "good for local art museums but bad for local schools" seems like a terrible tradeoff.
What I was trying to suggest is that the realistic alternative to private funding for social amenities is not public funding for those amenities, but no funding.
Clearly the community did not really value those local businesses. Bemoaning the loss of local businesses versus how people actually behave is what economists call "stated preferences" versus "revealed preferences."
Oh, and I see that even the middle school now has its own pool:
https://www.poughkeepsieschools.org/domain/233
They don't seem to be doing too badly.
As a note on the "stated preferences" vs "revealed preferences", that is the topic of Tom Slee's _No One Makes You Shop At WalMart_: https://delong.typepad.com/sdj/2013/02/to-slee-no-one-makes-you-shop-at-wal-mart-chapter-1.html
"Certainly, with individual choice being offered by so many as the solution for so many problems, we need to become more familiar with how it works. It is time for a guide to individual choice and its consequences.
Most public discussions about individual choice see one of two possibilities. Either we make good choices and are happy with the outcome, or we make bad choices and are unhappy with the outcome. But there is a third possibility, which is that we make good choices and yet are still unhappy with the outcome: that is, individual choice can lead us into traps.
Much of this book is devoted to cataloguing circumstances in which individual choice goes wrong, and to exposing the mechanisms that lead to disappointment. It provides a taxonomy of these circumstances: situations in which good choices lead to bad results for everyone; winner-take-all situations in which good choices lead to inequality with good results for only a few and bad outcome for most; situations in which "the devil you know" is better than the devil you don't, and predictability trumps quality."
I agree with Slee's basic point here, which is why in this post I am trying to make a stronger argument — Walmart is actually better than the alternative, so we ought to collectively opt for the policy framework that allows Walmart to drive Mom & Pop out of business.
I recognize that you're making that argument -- and, as I understand it, that it's not a full-throated. "this is obviously better" but a slightly more modest, "liberals tend to give too little weight to the arguments in favor of Wall-Mart and should pay more attention and value them more highly."
I think it's good to make that argument, I'm not totally convinced, but I don't feel like I have a firm position.
I remember when Amazon put B. Dalton books out of business seeing various people write some version of, "B. Dalton was mocked for being a soulless bookstore but, in a lot of small towns, it really did offer a better selection than what it displaced."
If you live in a city that has a good supply of whatever (books, food, restaurants, etc . . . ) it's easy to minimize the value of having a basically competent (but unexceptional) store in that category.
On the other hand, I've spent my entire working life in small businesses. I recognize the trade-offs; I've definitely had fewer benefits than I would have gotten in a large business, and I believe I've worked harder, but there have been real advantages in terms of having a strong sense of ownership over my work.
I'm not sure how to translate that into policy, but I know you've made the argument in the past that national health care, for example, is good for indie rock bands (I think you were comparing Canada and the US). Similarly, one way to look at the disparities between small and large businesses is to recognize the advantages of scale (true) and another is to wonder if there are ways to close some of those gaps (like a more robust safety net).
I'd like to think that recognizing the truth of the former doesn't have to compete with the latter.
“As a subtext, this book is a call for the reinstatement of collective action into politics.”
But of course it does. No discussion about how much wealthier we have all gotten while downtown Whimsley withered.
That's a separate argument. You can argue that the choices we have made are correct, as a policy goal, I was just trying to respond to your comment (as I read it), saying, "whether these outcomes look good to us, or not, they clearly reflect the desires of the people making choices in the community."
That's a good general starting point, but I find the Slee book convincing that the assumption breaks down in various ways.
At that point it is appropriate to have the conversation about, "what are our policy goals in this situation."
"Collective action" = "No one is buying what I am selling, so I'll get the government to force them to buy."
My policy goal is to avoid that sort of thing.
I feel like that's a rhetorical dodge rather than a policy goal. What counts as "forcing them to buy"? Does that describe the coal industry?
"Collective action" = "No one is buying what I am selling, so I'll get the government to force them to buy."
My policy goal is to avoid that sort of thing.
I'm glad to see so much attention paid to Poughkeepsie. It is recovering. That pool just reopened after having been embarrassingly unusable for many years.
What, then, is relevant?
And you don’t think that individual choices in aggregate provide an answer?
You're conflating general economic malaise with "smallness can't compete with bigness." Employees of tech firms and banks and medical centers can be every bit as engaged in communities as shopkeepers.
Many prosperous suburbs in America have a very different retail base than they did in 1960. and are probably home to a lot fewer small retailers. But that's ok -- they're prosperous!
The incentives for a high-income but obscure tech employee may be different from those for a prominent local business owner. That is, whether the tech employee donates and volunteers their time to run community organizations depends on their personal preferences. For a local business owner, it seems more like it comes with the job.
The dynamic of business consolidation weakening community institutions and the local economy in small towns is a major theme in George Packer's "The Unwinding" (2013). I wonder what the academic literature says.
I think Matt's argument that larger businesses are better for economic growth has a lot of force. But I would have liked to see some discussion of this dynamic in the article, even if he concludes that in the end the social costs are outweighed by the economic benefits. I assume the costs will be part of Hawley's pitch.
I worked for a nonprofit, wore many hats, and often went to businesses in town to gather resources. In all seriousness, the larger businesses were more responsive. Wal-Mart had a clear specific program to help, the chain liquor store just threw product at me for events. Overall, the bigger businesses gave more and more often. I would often hear from small businesses that someone else beat me there and there was no way to predict so I lost a lot of time driving around town talking to people and hearing no.
That kind of "chamber of commerce pillar of the community" role can be (and often is!) fulfilled by franchise owners. IIRC there was a book out recently, whose author was interviewed on The Ezra Klein show, about the relationship of the Black community to McDonalds, and how in particular, black McD's franchise owners were often big community boosters.
Matt seems utterly blind to this.
The decline of small manufacturing centers is a different phenomenon than what Matt's talking about. If they hadn't declined, they'd likely still be home to solid -- maybe even thriving -- downtowns.
You may be partly right here -- the decline of the local social infrastructures might be an unavoidable consequence of broader economic shifts -- but you are also partly wrong. Local businesses can play a role in the community that is irreplaceable.
I now live in a prosperous suburb. We have one local grocery in town. Any resident who wants to save a lot of money on toilet paper can drive 10 minutes out of town to the nearest Costco. But when our local grocery was closed for almost two years (because its roof had collapsed), the community was devastated. The random social life of the town was hampered because people didn't have a place to run into their neighbors; the PTA and Friends of the Library and other local organizations lost some financial support; and, most importantly, it became much more difficult for some of the older residents of town to do their grocery shopping.
I view the higher prices of the local grocery store as a form of voluntary local taxation. The residents of the town are willing to pay those prices because they know how much worse our life would be if the store had to close. I don't see how this is irrelevant to the initial post. And I don't quite see how the observation that, 'la-di-da, many suburbs are prosperous' is altogether relevant.
I think this is a very valid point - meaning the "community support benefit" received from the local small businesses. One of the challenges is thatit is very hard to measure this benefit. Some aspects you can (e.g. donation $ to the types of orgs thc5 mentioned), but some aspects would be very hard to measure. How do you measure "sense of community"? Probably can't, but it just might be more valuable to quality of life than the $ given to the local YMCA, youth sports club, or park system.
Re: mom & pops vs Wal-Mart:
The mom & pops that were affected by Wal-Mart were often located downtown, and Wal-Mart and other big box stores are almost always on the outskirts of town or near newer expansions of town. So what seems like straight up competition contributed to downtowns emptying out. Wal-Mart isn’t the only reason, but they played a role.
Lots of towns have resurrected or are trying to resurrect their downtowns, but ironically they now have a new problem - what do they do about the loss of tax revenue as people stop buying from big box retailers in town and only buy from online stores.
I've been asking myself while reading Matt's article: what's the positive externality being lost? Sometimes when a business becomes more efficient, something it was doing that was perhaps socially useful goes away - the efficiency math doesn't count the externality, so on paper it's "better".
Does the big box model depend on the _car_ to function? I think there's some kind of impact on how towns are designed for pedestrians (or not). Maybe in the us that ship has already saled; maybe it's worth it in the balance.
The big box model does seem to depend on the car - it introduces efficiencies that only materialize when you can carry a lot of objects on a single trip, and have a free place to store your vehicle while you are making the purchase. (The supermarket grocery store also probably does to some extent, though Trader Joe's is an interesting case study of how to squeeze it into a small parking lot.)
But I think one thing that's interesting is that the big box model was ascendant in the 1990s and 2000s, but is now losing out to online commerce (which beats it on selection and price, and doesn't require you to drive the vehicle to bring the object home). The future of retail (post-pandemic) is likely experiential places like yoga studios, nail salons, escape rooms, bars, and other things that actually make use of the physical presence of the person. Big box can't compete with that.
Right. If there is ever a technological innovation in last-mile delivery, I'd expect to see a pretty huge disurption.
This is true. The mall and or big box did kill downtowns. I wonder as well about losses that are less obvious. For instance in the neighborhood I grew up in all the mom and pop grocers were owned by folks who lived locally- most within walking distance of their businesses. Same was true for a couple independent gas stations- and the barbers and the cobbler...pharmacy etc. those owners made decisions that were inextricably linked to local concerns and local people. They hired and fired neighbors. The invested, often, locally.
Decisions made by Walmart Et al are entirely removed from all of that. I believe to the detriment of locations they serve.
Am I right? Not sure if it’s possible to quantify or prove. But I believe there’s truth to it.
***The mall and or big box did kill downtowns***
They killed some downtowns. But many are thriving.
True. No argument here. I would say the opening of the malls in my town were pretty clearly related though. The national chains that were down town immediately opened in the mall. Some kept the two locations others did not. Eventually all the downtown locations closed. And initially many local businesses- seeing the foot traffic dry up also moved to the mall. For whatever reason those businesses eventually failed at the mall. Downtown did see a resurgence when a large number of ethnic businesses eventually took up residence- and rezoning allowed many still vacant properties to be raised and rebuilt as apartments. That took 30 or 40 years to occur though.
Sounds like Framingham, MA.
A related issue is the support of local charities or activities. Good luck in getting the Walmart out on the interstate (or, even less likely, Jeff Bezos) to sponsor your softball team or contribute to the new library building.
This is surely an exaggeration. In my experience, Walmart and Target and most of the other big box retailers make a big deal about supporting local civil society organizations. Look at all the bulletin board thank you’s from little league teams etc. that you see in the front of most stores.
In my area it's all Dow, Exxon, and Oxychem who pay for Little League billboards. What happens is that your employees son is on a team and your corporation has a program that allows franchises or stores some expenditures towards community projects, etc...and it's up to people who work at those stores to decide where it goes. https://corporate.walmart.com/newsroom/2019/06/06/walmart-deepens-commitment-to-community-engagement-and-giving-through-new-walmart-rise-initiative
Small business owners are behind the labyrinth of regulations that stifle competition. Many (most?) jobs and markets -- hairdressers, real estate agents, nail salons, accountants, taxicabs, auto dealers -- have captured the state's regulatory authority to raise artificial barriers to competition. Auto dealers are probably the strongest and worst of all. These barriers are not erected for quality or safety, but to reduce competition. It is corrupt and endemic across our states, liberal and conservative alike.
https://ij.org/report/license-work-2/
This is why I laugh my ass off when I hear so called "small business capitalists" talk about deregulation. I've never met more of a pro-regulation (that helps me... not them) crowd than most of those kinds of businesses you talk about.
Maybe I'm missing it, but I really don't see any acknowledgement either in the post or comments regarding how important simple availability is when discussing small communities and small businesses. Having recently moved in retirement from a Phoenix suburb to rural Cochise County where the only thing with more offerings than Dollar General is more than 20 minutes away 'in town', I'm acutely aware that the nearest Costco is an hour and a half away in Tucson, that the Covid crisis has hit our local restaurants and businesses so very hard, and that I really, really want my local hardware store, a locally-owned Ace, to still be open next time I come to town. These businesses had been losing out very gradually to the majors & Amazon bleeding off business a few percent at a time. Now with Covid it's apocalypse. The big guys just don't have a lot of interest in these small markets. A lot of the MAGA crowd comes from this reality.
I think this is a real problem. But I reckon it flows more from the city/countryside divide, and rural depopulation, than big box competition as such. In other words, if there's a sufficient population base in the location you describe, it outta be feasible for small retailers to survive by offering good service and (critically) proximity. A lot of folks will pay a premium to drive 4 miles instead of 30. You see evidence of this when looking at small towns/suburbs that maintain thriving retail districts. Most big metro areas in American have lots of such places. Most towns near where I grew up in suburban Boston have a fair amount of small, non-chain retail. (Some of -- like McDonald's or Walgreen's -- IS chain, to be sure, but this is arguably an advantage of bigness when it's "distributed": it brings efficient, useful retail to small settings).
I think a discussion of rural depopulation certainly has a place when discussing both why small business is floundering in these areas as well as some of the cultural drivers of MAGA culture there. I looked up the population stats for the small (very Trumpy) town I grew up in, and it peaked in the 1960 census! I’m certainly not trying to defend the position, but I think the sentiment of make America (our small rural town) great again, they are referring to a time 60 years ago now when the county was growing, and before supply chain logistics created modern retail behemoths.
As someone from a small-ish town, I can say that many people enjoy the weekend one-hour drive to a nearby city with more stores and make a day out of it. They hit up Lowe's, Target, and then eat at their favorite (chain) restaurant. They will use the local stores when they need something small/quick, but otherwise they don't find them competitive on price.
I'm basically in agreement with the article, but one critique that's not addressed here is the "keeping money in the community" angle that I've heard some make. It's a bit mercantilist, but intuitive: when your residents shop at Dollar General the profits are leaving the area... If you shop with locally owned merchants, and they in turn shop with other local merchants, your community is wealthier. (I've also heard this structure applied to black owned businesses, BTW.)
Maybe for exurbs this is not a big deal, as those people are often working for "export" firms, but in small towns that don't produce things sold outside the town, it kind of puts them in a bad position, right?
**If you shop with locally owned merchants, and they in turn shop with other local merchants, your community is wealthier.**
Not how it works. If I buy from my local furniture store (instead of Wayfair) the owner is still going to source many of her inputs from the best possible national suppliers (or else she'll be out of business). And, the bulk of where she sends her income (mortgage, retirement account, health insurance etc) is either mediated through the (national, global) financial sector OR (say, in the case of a visit to a local dentist) is no different than if she were a manager working for a large company. And meanwhile, this non-existent "money stay in community advantage" is purchased (as Matt points out) at the price of lower wages and exemptions from important business regulations.
That said, like most people I love the quirkiness, character and variety of a nice, bustling downtown that has some great local options. But as I've written elsewhere on this thread, that's overwhelmingly due to to existence of an overall, healthy local economy with plenty of stable, high-paying jobs (or else due to lots of tourists). It's not because Walmart or CVS have been prevented from operating.
For my money the SF Bay Area has the most impressive, bustling downtown business districts in the country. Lots of hip little restaurants and shops -- plenty of them non-chains -- and lots of interesting places to spend money. And all of them are a short drive to malls and big box stores and fast food franchises (moreover, the local population probably spends more online than anywhere else in the country). It's that way because the local economy is strong.
Ummm... Well of course I agree we're not talking about all the money. Car & equipment sales being obvious ones where the bulk of the cost of goods is "export" spending.
But there is some money at the margin that's variable, right? A burrito from a chain restaurant kicks a bit of that money up to cover corporate salaries etc, whereas a burrito from a local stand will have a lower "export" quantity because those profits are staying with that local owner. That's definitely how most people see it (which is what matters politically) and I also have trouble seeing any reason it's not true...
(As a slight tangent, though "trickle down" is a popular phrase, I've come to view a lot of the economy as "trickle-up"... If I'm working a nice white collar job at corporate HQ, I'm living off tiny fractions of pennies trickling up from each little transaction. But you scale that up and the math works. And by using the company scale to push "efficiencies" - well those are squeezing money from other people, and then I'm picking it up myself in teensy tiny increments throughout the system. Particularly in service industries where "efficiencies" are reduced labor costs not like manufacturing improvements that reduce cost of materials.)
background: I grew up in a rural community where it seems like the only "inbound" money was from government checks, payments to the hospital system, and city folks coming to hunt & fish on weekends... Some of the money circulated (bakery, restaurants, cops, teachers, etc) but a lot of it had to pay for "imports" of manufactured goods made outside the community.
It's stuck in that rural decay that correlates with Trump support. Inasmuch as people there have a theory of how the local economy works, it's that chain stores are taking money out of the community. So I'm not surprised to see the Trumpers having complaints with big business.
I think there _is_ some value in having a community own some of its own businesses, even though Matt does set us up emotionally to pile onto them in this article.
But naively it seems that this wouldn't overcome the import/export gradient? If your town is sending money out for food, for cars, for building materials for homes, for most consumer goods and there's no cash industry that you can export, that's a big imbalance.
Did your community have an export industry that used to function, e.g. farming, mining, a mill, a factory?
"I think there _is_ some value in having a community own some of its own businesses..."
There isn't necessarily economic value to this.
I do think it's good to have people willing and able to take risks and create new things. Most growth comes from productivity improvements and innovation, and that can come from small, large, and everything in between.
But that positive externality won't be specific to that community - it will accrue to the broader community for whom that product is a useful trade of money for product.
farming was mostly small scale... retired & disabled people got their checks, and the hospital + health system employed a decent chunk of people via Medicaid/Medicare money, and the number of people coming for hunting & fishing was not irrelevant. (Fishing opener was a big day for the local stores!)
When I was a teenager a casino opened on the nearby reservation, but that story opens a big can of worms as suddenly the Native Americans had a lot more money and some Whites did not take that well... But it did help bring more tourist revenue to the area.
Couple of reactions:
1. Retail is a tough business. Walmart's net profit margin is about 2%. Over-paying by 10% to keep that 2% profit locally is a bad deal for everyone.
2. I've got no problem if people *want* to shop locally, which clearly a lot of people do. They shouldn't force that choice on others by banning non local competitors.
I agree on your second point, personally.
On the first. I'm not sure "net" is the right number to use, as that's the profits after paying all the corporate folks down in Bentonville. Locally it should be something between that and ~24% gross margins https://www.statista.com/statistics/269414/gross-profit-margin-of-walmart-worldwide-since-2006/
And then *politically* I'm not thinking most voters are diving in to this depth, so it does not surprise me that politicians are turning on the chain stores.
I've been enjoying Matt's work on this blog but this strikes me as his biggest miss so far - and I wish the topic had come up in his podcast conversation with Chuck Marohn of Strong Towns (https://www.strongtowns.org/journal/2021/1/3/matthew-yglesias-the-case-for-one-billion-americans).
I think he's wildly underestimating a couple of things.
First, the staggering array of tiny subsidies big boxes get, for the direct ("come here and you'll pay half-taxes for 20 years!", "your store is protected from re-use by a similar store for half a century") to the hidden - interchanges, frontage roads, stop lights, and miles and miles of underground infrastructure that otherwise would never need to be built, leaving these stores with a terrible amount of tax contribution per acre, and per public investment.
Second, he brushes off the local monopolies many of these stores have because he also 'has a Circle K'. That's not always true! Often these stores demolished an entire ecosystem of smaller stores, who were not trying to 'protect their monopoly' because they didn't have one - there were *many of them!*.
To a large extent, these smaller stores don't need 'special protection', but the opposite - the big boxes need to not get special dispensation.
Really excellent book on this is Stacy Mitchell's The Big Box Swindle (https://stacymitchell.com/front-page/).
I agree with a lot of what you're saying. But I suspect the issue here isn't so much the bigness of the business as the bigness of the location. Big box stores are the significant problem here, whether they are local one-offs (do those even exist?) or national chains; urban storefronts in walkable neighborhoods are the relevant answer, again, whether they are local one-offs or national chains.
This is a fantastic point.
I think there's probably a huge competitive dynamics difference between e.g. the populated metro suburbs of a city, where there's going to be a ton of competition (because the total retail economy can support multiple big box stores going after each other) and small rural towns where a single general big box retailer might be the only store.
"Mom & Pop are not only running a low-productivity business (this I don’t think applies to me but you be the judge)..."
I judge you to be highly productive. But you should not seek productivity gains by following the UPS model:
"UPS figured out... avoid left turns at all costs...."
btw I see UPS drivers turning left in Brooklyn all the time, so I feel like this UPS legend has gotten a bit out of control...
I judge that you’re highly productive as measured by Thoughts Provoked / Article. Keep up the great work thanks for pushing.
Easily the best $8/mo subscription I have (and I have too many).
This reminds me of a bad idea some of SYRIZA's people were promoting in Greece a few years ago: they wanted to protect the restaurant industry (and hobble the country's biggest export sector) by outlawing "all-inclusive" beach resorts where food is provided on site.
Maybe Matt could also write something about state laws that ban direct consumer sales by automakers? The entire dealership sector is mostly unnecessary and owners of car dealerships are a huge source of funding for the Republican Party.
Car dealerships provide one of the most reliable examples of Republican hypocrisy. We constantly hear Republicans screaming about the government meddling in free markets, then they overwhelmingly support bills like this:
https://www.nhbr.com/one-sided-n-h-house-vote-backs-auto-dealer-bill-of-rights/
The bill includes a bunch of "essential" protections for those poor, vulnerable, downtrodden, abused car dealers, including this one:
"A key provision of the bill is that it limits mandatory facility upgrades to every 15 years. New Hampshire dealers have complained that as it stands now, manufacturers can require them to pay for renovations without any limit on time or cost."
Tesla has been having a food fight with auto dealers for a while now - some states have rules that stop Tesla from selling cars directly to consumers (their only sales mode) without a dealership. The "reasons" for these laws are always pretty bananas.
https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474838844
But the politics works as expected - the guy who owns a set of dealerships is probably one of the richest business owners in the state whose business is fully within the state.
It's a case of something that I think is quite typical (complex and/or weird regulations benefit incumbents who have expertise in navigating them or whose business model conforms to the contortions) but in favor of a group we can all agree to vilify (auto dealers).
Elon Musk is a terrible human being in a lot of ways but if Tesla manages to break the dealership cartels before their inevitable hilarious bankruptcy he'll have done the world a solid.
I think they've also done a huge service in just advancing electric cars - it's head spinning that Musk can be such a piece of work and yet they've really moved us forward a ton.
When Elon Musk destroys the Earth with some kind of death ray, we'll be like "yeah, I guess there were warning signs...the flamethrowers, the tunneling under cities, the shooting cars into space on rockets....but the 3 was really a great car!"
Tesla's been profitable for 5 quarters in a row? I'm not prepared to argue that their stock price is sane, but they seem not to be in any danger of bankruptcy in the near future. I mean, who knows what happens in 10 years, but the days of them burning investment money and hoping seem to be over.
The real question regarding their viability is whether they can continue to be profitable when other car makers are offering similarly compelling electric offerings. So far Telsa's goal has mostly been lowering prices to expand their addressable market. They've never really had to compete on price or quality - every car they've made since the model S has had more than 1 willing buyer.
I mean, sure. And maybe at some point that will be the worry. But it doesn't feel to me like similarly-compelling electric vehicles are imminently on the scene, and that demand continues to outstrip supply for the number of electric cars that are there. And I think Tesla has an unparalleled brand in electrics.
I mean, who knows. Google is operating a fully-autonomous car service in, admittedly, one tiny corner of one city. But 10 years from now, the entire car industry could be upended. Or not. Right now, though, Tesla's not in danger of bankruptcy.
It's worth noting that Tesla service and warranty support is terrible because of this model. I was on a call with the co-founder of Current Automotive this week. He was previously the GM of Tesla's CPO and remarketing program and started Current because Tesla is just not positioned to properly support their aging fleet. Their Model 3 fleet is now > 500k vehicles in the US and maintenance work is going to be a headwind.
https://www.forbes.com/sites/siladityaray/2020/06/25/tesla-cars-rank-lowest-among-major-automakers-in-influential-customer-survey/?sh=36bca5864eef
https://www.currentautomotive.com/about-us/
For what it's worth, as a Model 3 owner, I have not experienced problems with their service or support, and at no point have I gone "I wish I had a Tesla dealership". Since I'm in the Boston Metro area it's possible the company is better provisioned here than in other parts of the company. Surprisingly, their replacement prices (e.g. need a new tire) are competitive with third party, which is absolutely never true for a traditional dealer. The car isn't that old though so who knows what the future holds.
I kinda wonder how much of this is just the availability of qualified techs - how many people were repairing electric cars 10 years ago? Wouldn't surprise me if a lot of their service locations are just the blind leading the blind.
Planet Money did a very good podcast on car dealerships and the laws that protect them a few years back (if I remember correctly Tesla was the main impetus for the episode). I was listening in the car with my teenage son and he was completely flabbergasted when they brought up all the restrictions (i.e. laws) that protect dealerships. He had a hard time believing that it was true.
It was a VERY good episode.
Yes. Same for restaurant owners who collude to not allow food trucks in many cities. One of the reasons car dealers are terrified of electric cars is that they require far less maintenance, which takes out one of their largest profit centers, the auto shop.
This is something that probably needs to be fixed at the federal level. Can Mayor Pete override the relevant state laws by regulation or would it need an act of Congress?
I had high hopes for Tesla making inroads on this issue, but Musk hasn't been making many democratic friends lately and I doubt either the Biden administration or the Democratic congress will be super eager to help him.
(Also, note that at the local level, car dealership cronyism is a bipartisan affair. Democrats are just as supportive of these anti-consumer dealer welfare bills as Republicans.)
This topic is spicier than the Thai food you get when you say, "no, really, I want it spicy". Glad we can discuss it on a forum called "slow boring".
Here is my unpopular take... many small businesses are really just employees with a shitty risk/reward equation. Imagine you are a McDonalds franchisee. Your job is barely different than a regional manager of a bank. Your innovation was a one time thing of selecting a location + ability to hire and manage employees in a system almost completely designed before you paid the franchise fee.
You didn't invent anything, and you didn't add value beyond some management skill that any regional manager of a larger company would have.
Most mom+pops have worse management skills than the McDonalds. Many have almost no ability to engage a workforce, which is why they are terrified of people getting a better deal from unemployment (though to be fair, many are great - I worked at a DQ for 3 years in HS for a guy I learned a lot from).
Part of this rage from the small business owners is that they have been, basically, worshiped from the left and right as job creators and saints of the community for their entire lives. They've answered to virtually nobody - including in a lot of cases their customers or employees. Any world where they have consequences for their actions, rules to follow, or god forbid, any kind of loss of status.. yeah, they are going to be mad.
This is only going to get worse, as tech companies are making these companies obsolete. And not just Amazon - what happens when batteries will take an electric car 1000 miles on a charge, and chargers exist in most homes. No more gas stations, each of which is a small business, often run by one of those lauded "job creators".
I love entrepreneurs. Inventors. People who make a new product that does something new, a new kind of experience, a better mousetrap? Those are the job creators. Bubba who inherited a truck stop? Sure, more risk than a typical employee, but much less risk than your average commissioned salesperson who has to create her own sales funnel.
I think part of the rage from small business owners is that a bunch of things in the economy reward bigness. "You make airliners that fall out of the sky and no one is using your products right now? Your products have never been worse? Have access to the bond market? Take all the money you need!"
I'm not saying that's particularly good or bad - airliner development is kinda half-nationalized due to the scale, and that might be structurally necessary - but you can see how a small business owner sees that and feels like there are powerful forces helping a different class of business and gets grumpy.
FWIW, I suspect part of the reason the airlines get so much attention is just because lawmakers fly a lot.
Also, airlines are good because they have employee profit sharing and the country’s largest union contracts. They’re also poison to investors and keep going bankrupt, so socialists should love them. Okay, maybe not $LUV.
Yep - if there's a slow-down at Reagan^H^H^H^H^H^HWashington National it gets attention.
"They've answered to virtually nobody - including in a lot of cases their customers or employees. Any world where they have consequences for their actions, rules to follow, or god forbid, any kind of loss of status.. yeah, they are going to be mad."
I'm would like to understand more about this because it seems very wrong. 20% of small businesses fail in their first year and a majority of small businesses fail within 5 years. I'm not sure what you consequences you would have them face, but if you've invested that much time, effort, and savings into a business, watching it fail would seem to be incredibly consequential.
I think a lot of people think small business failure is some sort of life ruining event. Maybe it is, but most good entrepreneurs seem to be able to open new businesses when one fails. In fact, the better ones learn from the failure and come back better next time.
I think there is a good question in there about access to capital. In silicon valley, business failure is almost a way of life, but we also seem to have ready access to funding, and no stigma if you've failed a few times.
If we take them at the rugged individualist capitalists at their word, which goes something like "business owners deserve outsized rewards for taking more risk", then you have to accept the downside of that risk, not socialize the losses when your idea fails.
Nobody in my industry was demanding a bailout for the .com companies when they failed. We retrenched, learned, and built better, more profitable companies.
Feels like there is a lot of survivor bias in that perspective - "most good entrepreneurs seem to be able to open new businesses when one fails."
A business failing seems similar to losing a job but with the greater downside (if it succeeds there is more upside too). Losses are always socialized to some extent, but would agree that we should limit the extent.
I have a friend who works with very advanced AI; he has told me repeatedly that AI will probably be able to program better than most if not all humans within 20 years. If true, I'm curious as to whether truck stop owners or the tech workers who lose their jobs adapt better. Will the legions of programmers in become entrepreneurs or will they agitate for government intervention to protect themselves?
re: AI, I can see that + low code platforms really making a lot of that work obsolete. But then again, 25+ years in this business, I've seen the predictions come and go about the "death of the American programmer" every year. First our jobs were going to India. Then "nobody wants to buy pet food online". And so on. Generally, the pattern is that the abstraction level goes up, but the scope of the problem increases.
There is a portion of culture in tech that is pretty left-libertarian leaning, especially among the startup entrepreneur class. As a group, we also tend to be pretty principled, so I doubt that tech people would ever go protectionist. Sure, a few big tech employees at lower levels may form a union here and there, but so far, nothing like that has gained any significant traction, nor do I expect it to.
It would be a strange turnabout indeed to have spent our entire careers making jobs redundant, then turn around and complain about losing our jobs.
Here's a not so quick story that perhaps can provide some insight. Several years back I was watching the local news and they had a short segment on a local shop that was going out of business. The segment was not part of the "hard news" but more of the local human interest variety. The business was a small drug store/soda shop - the kind that just doesn't exist anymore. It was family owned and operated for X generations, etc. The general tenor of the story was one of "what a shame/sad to see them go" In the course of detailing all this, they share that you could still buy an ice cream sundae there for $1.50 and that it was just recently that the owner did the math and realized it cost them $2.00 to make the sundae. So how was this reported??? "Lack of business skills finally does in business owner"??? Of course not. This fact was more or less celebrated. Presented with a chuckle and a smile. Just another cute anecdote that shows how special these Mom and Pop places are.
I think the point I took away was that society has a special place in its heart for the Mom and Pop store (or small business owner) and that place isn't as a business. We find them charming, endearing - whatever your choice of adjective - but they are a totally different animal than the "Factory" down the street or the "Big Bank" or multi-national corporation most of us work for. We want them to fill that spot in our heart and we don't care about the bottom line.
But wait, that’s not necessarily a business killer. It’s a loss leader! Up sell them on the toppings.
Yeah, that makes sense. Though I wonder if the saddest part of this is that they could have sold the sundae for 3 bucks and people still would have bought it, and thus the business could have survived.
The parallel to agriculture (Big Ag vs family farms) here is interesting. Environmental and food safety regulators in both the US and Europe have told me consistently and unequivocally that big corporate farms produce less pollution and have fewer food safety hazards than small operations, counter to my initial Loraxian expectations. But it's a similar dynamic as Google's server farm efficiency, the amount of revenue the big farms/slaughterhouses lose from any regulatory shutdown is enormous, and they have the resources to invest in better safeguards to prevent costly shutdowns.
A big difference here is the regulatory capture dynamic, which seems absent from Walmart vs Mom and Pop (fewer regulatory carveouts for small ag, especially if you want to sell in USDA shops). The perceived "badness" from the regulators I've talked to is a function of the regulatory benchmarks they use, and Big Ag definitely has more of a hand in defining those benchmarks than small-scale farmers.
In any case, for both cases I think "bigness = bad" is probably the wrong perspective.
I grew up in rural East Texas and the first Walmart outside of Arkansas was in the next town over from where I lived at the time. I have seen a pattern over the years of Walmart extracting low tax or subsidy deals from a local municipality to get Walmart to move there, and then when the deals expire Walmart leaves and sets up in the next town over that offered them a better deal. This leaves vacant a big box retail building that can only be filled by another big box retail store. There's just not a lot of those to go around in rural America so you have have these empty buildings that give the impression of rural blight. This playing off different rural towns against each other is somewhat tangential to Matt's post but I think it leaves a bad taste in the mouths of several rural residents that makes Walmart an easier target than other Big Box retailers.
The negative externality is that Walmart has scale relative to the towns (in a way Mom and Pop did not) and can extract these tax breaks. Mom and pop aren't mobile enough and don't have the size. See also Foxconn and the entire state of Wisconsin.
Correct, that's the point I was trying to make. But there's also a collective action problem. All the small towns would benefit if none of them gave tax breaks, but each individual town is incentivized to provide a larger tax break than its neighbors.
Right - and as a matter of policy we might say "the bigness is going to be a problem always, because if it's not the tax loopholes it'll be a lack of competition", or maybe we says "this tax loophole problem is specifically bad, as a matter of policy let's solve the collective action problem at a higher level of govt."
Is it wrong that one of the reasons I like Matt's new venture is that his writing often confirms my prior biases? I mean that in the best possible sense: I had a vague notion that the war on corporate bigness* (qua bigness) was BS, but hadn't really bothered to flesh out my reasoning as two why this might be the case. His arguments here are pretty difficult to refute.
*I'd be tempted to depart from this thesis when it comes to financial firms, though.
It's like outsourcing the research for your (or my!) half-baked ideas.
Belated comment; big v. small is not about antitrust or competition; it is part of an overall desire to return to am imaginary status quo ante prior to the "modern" period where "Small Town America values" reigned. Big corporations are being lumped in with all the bad modernist forces that have eroded those (white Christian male) values. In this sense, big box stores, "feminism," technology, BLM, et. al. are all part of a series of attacks felt on something Hawley is trying to protect. Hawley dresses up the emotional response of being attacked as a philosophy, but it isn't, which is why "eroding the free market by forcing wage controls" (how he would perceive minimum wage laws) is not an acceptable policy response. He just knows that if things were "Small Town America" again wages would magically be fixed because those (white Christian male) small business owners would do the "just and moral" thing. He is a philosopher like Paul Ryan is an economist -- with a superficial layer of ideas which once pierced reveal a soup of feelings, assumptions and givens.
You will be highly interested in this piece - "As ‘Woke Capital’ Turns on Trump, the GOP Turns On ‘Small Government’" - if you haven't read it already: https://nymag.com/intelligencer/2021/01/trump-twitter-apple-amazon-parler-gop-woke-capital.html
A fun workaround that the Japanese have stumbled upon to ensure that family businesses are effectively run is for the owners to legally adopt adult executives so that they can ultimately run the business whilst keeping it within the family. https://www.economist.com/the-economist-explains/2013/04/16/why-are-so-many-adults-adopted-in-japan