Tuesday, December 09, 2008

Who benefits most economically from state centralization?

The conversation surrounding Roderick Long's recent article at Cato Unbound, "Corporations versus the Market; or, Whip Conflation Now," has been pretty remarkable, starting with the fact that it began at Cato. There's been some sloppy, even, shabby stuff along the way, including some weird speculative stuff about Kevin Carson's work, and its ability to stand academic criticism. As a recovering academic, I would just like to remind folks that loose talk about whose father's theory can whip whose theory is the stuff of Wikipedia talk pages and chat rooms: scholars have to bring it if they've got it.

Anyway, one element of the conversation has revolved around the question of whether businesses in a freed market would be smaller and/or "flatter." And very early in the conversation, on the Reason Hit & Run blog, R C Dean suggested that a fine argument against Roderick's position was embodied by a subject near and dear to my own heart: bookstores.
Just to take one example of a market that is pretty free of overt government intervention of the kind listed above: Bookstores. Most "smaller, less hierarchical" local bookstores are now history, replaced by Big Box Bookstores and on-line booksellers that have huge inventories and lower prices.
I've been selling books off and on for about thirty years, and have worked in new and used bookstores, thrift stores, big and small chain stores. I currently work for one of those Big Box Bookstores. Now, I think the business about "overt government intervention" is a little off the mark, given that changes in inventory taxation laws in the '70s wrought some pretty significant changes in the way books were published and sold, increasing the cost of maintaining backlist, reducing the average size of print runs, creating a deep-discount remainder market which is still a factor in the book market, etc. But even if we waved away these historical concerns, I think there is a good case to be made that Big Box Bookstores benefit more from the intervention of the state than small independents.

We could start by talking about the relative visibility and perceived importance of small shops. There was a critical period in the last years of my own independent bookstore when access to my business, parking, utilities, etc., were in a state of constant interruption by a landlord-driven redevelopment project, while, on the outskirts of town the city was working hard to provide all the same services for a couple of big boxes. We do all drive the same streets, and we all receive the same incentives when the unobstructed streets lead to one sort of business instead of another. But let's set those concerns aside as well, as the sort of prioritizations that might take place in a freed society.

Let's ask who suffers more if the state, and public infrastructure, disappears, or becomes subject to new decentralized development and control. At my used bookstore, I had an inventory of roughly 150,000 used books, of which perhaps a third were sorted and displayed on shelves, another third were warehoused in a manner that made them easily accessible, and another third consisted on new acquisitions, old backlog, etc., that was for all intents and purposes an undiscovered country, and which gradually came into more active play as time allowed. One trained bookseller, working diligent 75-80 hours work-weeks, could handle all the retail business, maintain the inventory, and even make some fairly steady headway on the backlogged inventory (which was mostly inherited from a previous owner's era.) If you've never been self-employed, well, and 80-hour work week sounds worse than it is, but it's a lot of work. On the other hand, the paperwork burden associated with taking on employees makes the long hours preferable in many ways. (Eliminate government paperwork, and one of the big impediments to hiring help in small business evaporates.) Break my example down into a partnership, with two committed booksellers, and factor in a couple of accounts with the major book distributors, and you have a pretty efficient operation. My experience with special orders for new books was that I could almost always provide them as quickly as the Big Box Stores and that I could frequently provide them at a slight discount, and, of course, I could provide low-cost used books in many instances. And when something wasn't on the shelf, I frequently had a pretty good idea of when I had picked up a copy at a flea market in Michigan, and where that stack of bags was, and "check back with me in a couple of days..."

Now, how do the Big Box Bookstores work? Ordering is done centrally, based to some extent on past sales patterns, but booksellers have no way to input customer feedback into the system. Inventory management, sales assistance, merchandising and cashiering are separate tasks, and booksellers' knowledge of new stock is essentially accidental, with the exception of featured titles. They learn the stock as they search through it for customer requests, or as they reshelve books. Constant changes in merchandising and discounting strategies essentially pits one group of employers against another, in a battle to arrange books, with the merchandising team emphasizing table displays and the booksellers' electronic cues suggesting placement "in section," all too often the last place where books are actually found. Weird in-section merchandising theories sabotage important things like clear alphabetical order. And the folks who shelve books, or pull returns, have different basic concerns than customers or booksellers or marchandising crews. The Big Box Stores have high rents, and need to turn over large numbers of books fairly predictably, which means they tied tightly to the demand-drivers who are happy to cooperate with them. Local schools seldom give us warning about class books, but Oprah's book club titles get their own endcap. Lots of factors, including those tax concerns I mentioned earlier, have led to a marketing and stocking strategy based on bringing in enormous numbers of copies of a relatively small number of titles, for a period determined by cooperative media saturation by the publishers, bookstore chains, and media corporations. Of all the books published, a relatively minute number form the core of the Big Box Bookstores' inventory at any given time. Single titles, or series, can make or break a sales period. Currently, a handful of series (Twilight, etc) account for enormous percentages of new book sales. Now, Big Box Bookstores deliver those books extremely well, assuming the supply remains steady, though they frequently have to do so at a discount, to keep up with the competition from Costco, etc. But there's a knife edge to be walked, since it is important to maintain the appearance of having more titles on hand than the independent competition. Lose that, and the general discount stores take the bestseller business. Given that those general discount stores seem to get away with breaking street dates, the odds are sometimes stacked a bit against even the Big Box Bookstores.

It would be worth going into a full rant about the book industries degeneration into a media-driven monoculture, but here it is probably just worth noting that Big Box Bookstores can really only work effectively with big books with big discounts, so that small press titles and university press books have a tendency to fall off the map more or less. And, without disparaging my fellow Big Box Booksellers unnecessarily, let me just say that if some of us are indeed real booksellers, of the sort that might well manage a large inventory, we aren't getting paid to do that, and what we are getting paid ain't much. The system is, in any event, set up so that a "bookseller" need not be particularly well-read, and so that the division of labor necessary for a bookstore which has employees working something like 17 hours each day to keep it in a semblance of order isn't too great a problem.

The big box formula is centralized promotion of a relatively uniform product, shipped out (and often back, or destroyed, in the case of mass market paperbacks) in massive amounts, handled by cheap labor and sold at deeply discounted prices--with a big enough general inventory wrapped around this core so that people can generally find something to read, and a system of regular shipments to service the special-order trade. Everything comes through channels, generally from far away. Local publications are actually more difficult to incorporate in the supply chain. Small press titles are almost impossible to accomodate. Used and out of print books come from independent booksellers, though that is largely masked by the ordering interface, and, of course, those books are actually more expensive than they would be from the independents.

The independent model is primarily based on knowledge, either of books in general or of local taste. It generally has to depend to a much greater extent on the special order trade, or on alternate supply chains such as the buying and selling of used books. Independents have more difficulty establishing accounts with certain kinds of academic and trade publishers, but in those areas their competition is university bookstores and non-bookstores, rather than the Big Box Bookstores, who aren't great shakes in the textbook field either.

Now, if we were to take away, or even just complicate, the interstate highway system and the internet, who would be most seriously disadvantaged? At the Big Box Bookstore there is a trip to a centrally networked computer in the midst of almost every response to a customer question. And when the networks are down even good booksellers have a hard time telling you where to find a book they have never happened to shelve. (Curiously, the Big Box philosophy is to depend only on their own network's data, so that booksellers there do not under any circumstances have access to the sort of data that anyone could get by just firing up the Google.) If it was necessary to rely on local supplies of books, to mix new and used books, etc., it is unlikely that the division of labor in the big boxes could result in a workable arrangement. Something else might emerge, but it would not be the centralized model we presently have, and it would depend for success on a new blossoming of suppliers. It would probably also depend on a very different sort of division of labor and structure of cooperation between workers. I doubt that the particular culture of the Big Box Bookstores would be rational for any other sort of bookstore, assuming for the moment that it is rational at all.

So... There is nothing here conclusive. I'm just speaking about what I know of a single industry. But that industry has become increasingly centralized and the result has been a kind of retail monoculture. I experience on a daily basis the brittleness of that culture, when computers go down, when corporate allocates too few hours for the mandated tasks, or when centrally-mandated policies clash, as you might expect them to, with one another and with customer expectations, etc. States are good at centralizing, good at cutting across the barriers of individual rights and private property when it suits them, just as they are good at denying access or mobility to individuals when it suits them. Neoliberalism has been characterized by its facilitation of the flows of capital and its new barriers to the movements of individuals. If that is an accurate characterization, then it is merely an intensification of long-running processes. If we were to lose this particular centralizing force, and the particular impediments it erects, other sorts of centralization might well arise. Indeed, this was Proudhon's prediction, that complete "insolidarity" would lead to a centralization even more intense than that of the state and capital, but, explicitly, one in which no one would rule or be ruled, where no one model would be or could be imposed.

There's much more that could be said, but not tonight...

Note: Overnight, this post has blown up a bit, at least by my humble standards, thanks to a mention by Roderick at his blog (and some action in the comments section) and some Stumbleupon action. If anyone had told me I would set traffic records on this blog as a result of a comment relating to the Cato Institute I certainly would not have believed them.

4 comments:

scumble said...

Some interesting thoughts. It does seem that it is quite tricky to demonstrate that the state promotes larger businesses, or enables them to get bigger than they might.

I suppose we are put in a difficult position of trying to vindicate "leftists" who object to bigness in itself. I suppose what a lot of libertarians object to in this sort of anecdotal "story" is the absence of easy principles to get hold of. I suppose that's why they stick to the economic fundamentals and wave off objections to the organisation of larger companies as fluff, because no-one "forced" the companies to be that way.

The trouble is that people have a sort of intuition about their options being restricted, maybe not with blatant force, but because alternatives are tricky to find in the work environment, or just trying to find the book you want in a store.

Is there a way to improve the "quality" of evidence for state subsidisation of centralisation and firm size?

Shawn P. Wilbur said...

Well, I don't think that it's all that tricky to show that the media and transportantion infrastructure that "we all use" makes possible business models that would be impossible otherwise. Amazon is the obvious example of how massive advertising + drop-shipping arrangements + an internet catalog that makes it *look* like you have everything can frequently beat out even the big boxers. The "genius" of the Amazon system is to put the customers to work for the company, writing reviews, providing data for automatic "suggestions." Of course, you get just what you pay for in that regard.

It's the emphasis on government force, rather than government enabling, which is necessarily going to blind folks who simply assume that there must be more stuff at cheaper prices in a Borders or Barnes & Noble, and that that must be the result of some inherent virtue of those companies. But we know that those companies have mixed the usual sorts of favors from local government with a very aggressive campaign targeting independent competitors with unsustainable business practices. If you get the big box coupons via email, you know that they are coming fast and furious. If it takes two or three major sales each week to keep people coming into a bookstore, then there is something wrong in the selection or quality of service department.

My little store was enormously efficient, in the sense that it could weather long periods of low sales, and still generally provide new special order books in the same amount of time as a Big Book Bookstore. Lose the internet, and go back to searching print catalogs and microfiche, and personal expertise is going to mean something again. And if one of our standards of success is providing booksellers with a comparable wage, well that bar is set right about at the minimum right now...

Kevin Carson said...

Very thought-provoking, Shawn. A couple of things jumped out at me:

"On the other hand, the paperwork burden associated with taking on employees makes the long hours preferable in many ways. (Eliminate government paperwork, and one of the big impediments to hiring help in small business evaporates.)"

And from the comments:
"My little store was enormously efficient, in the sense that it could weather long periods of low sales, and still generally provide new special order books in the same amount of time as a Big Book Bookstore."

A great deal of production in the informal sector is like that, insofar as it has almost non-existent overhead as a result of using spare capacity of capital goods people own anyway. The business model Roderick described (operating an unlicensed cab service with just a car and a phone, a bakery with one's oven, etc.) would be virtually zero overhead, and all income would be free and clear above operating expenses (gasoline, flour and eggs, etc.). An economy in which a major portion of business was carried on by people with unencumbered ownership of their home and capital goods, would mean that the people employed in that portion of the economy could weather economic storms in exactly the way you describe. On the other hand, the paperwork you describe has the same effect as local licensing and "safety" regulations in general: it raises the minimum overhead of doing business, mandates large-scale "push" marketing to maximize utilization of capacity and minimize unit costs, and makes it impossible to weather a storm (especially when zoning regs outlaw a walkup apartment above your shop).

I love the brew pub where I drink, but the manager there once complained of the street vendors who were allowed to sell hot dogs and suchlike from carts on Dickson St. (the old Fayetteville business district) during assorted street festivals. He demanded to know how he could compete with such low overhead. Exactly. I'd much prefer to eliminate the liquor licensing and the codes that mandate industrial-capacity ovens, dishwashers, etc., so that a lot more people could open brewpubs with no more capital outlay than buying a brewing vat, a couple of fermenters, and a few tables in the front room. In a society where most people could engage in such informal and household production, and do business directly with each other, there'd be a hell of a lot fewer people desperate to hold onto their jobs at any cost.

scumble said...

Kevin - it seems that's what a lot of libertarians on the "right" tend to miss out on. The old "office cubicles are better than coal mines" argument that comes up is daft because it assumes that's what the alternatives are. There are so many things people can do to make a living if only they are allowed to do it.

It surprises me that so many Libertarians get so attached to a particular aspect of the economy, ignoring so many free-market alternatives as the crazy imaginations of Marxists. I suppose this is just part of being conservative - the free market will be what exists now, except people will have better wages and more stuff.

It's odd though, because on both sides of the discussion we say employees will have more power to say no due to more alternatives, it just that some of us think people are more likely to shun wage labour in favour of self-employment and participation in co-operative ventures, say.