Insightful description of two types of corporate America

This reddit best-of neatly summarises the two different economic business models or cultures of the US and perhaps other national economies too.

This was all prompted by an article from vice magazine describing walmart.

User api explains it as follows:

Corporate in the context of the article refers to a specific subset of business culture. Obviously loads of things are corporations.

Wal Mart is really a product of the mid-American conservative business culture from which it came -- and is still headquartered. That business culture is all about... well... thrift. You make everything as cheap as you can: wages, supplies, operations, and so on, and you do volume. You go for areas like commodity retail and you dominate them and do lots and lots of volume.

It's the complete opposite of the bicoastal business culture of places like New York, Massachusetts, and California. That business culture is about leverage and growth. You pay high salaries, spend a lot on technology, and you do margin. You go for areas like high tech or finance where the margins are high, do equity plays, etc. Think Silicon Valley and Manhattan-- "profit, not thrift, is the engine of business" as John Maynard Keynes said.

I've lived both places: currently California, have lived in Massachusetts, raised in Kentucky and Ohio.

The origin of these mentalities goes back to the original historical industries of these regions: farming for the interior, shipping (mercantile) for the coasts. Farming is a commodity business. Shipping is really about finance, leverage, and margin.

I'm not making a value judgement per se. They are different ways of doing business that work best in different markets, and the global economy needs both.

Vice [magazine website] is making a value judgement because they're coastal media.

The problem though is this:

The thrifty and deflationary way of doing things means you have to squeeze all your costs, including wages.

Historically this was "okay" because this model operated in places with a correspondingly low cost of living. That cost of living is held low in various ways: low taxes, lack of building restrictions to keep housing supply high and prices low, rural or light urban settings with a greater abundance of land, etc. The thing is it actually can work if everything deflates. If my wages fall but my costs also fall, I'm okay, right?

For the thrifty way of doing business to work, everything must be able to deflate. All costs must fall. This is no longer working. The primary reason is probably... well... this is /r/energy, right? Keeping costs low depends on cheap energy, and cheap energy is drying up.

You know... in writing this I think I just realized why the margin-seeking inflationary coastal way of doing business has dominated so completely in the last 20 years. Wal-Mart is really an anomaly -- most companies that do things their way are struggling. The coastal-style companies that are dominating are called things like Google, Apple, Microsoft, Intel, Goldman Sachs, Tesla Motors, etc. What do they all have in common? They go to the edge (at great cost), do things nobody else can do, and earn high margins. They also pay very well compared to interior thrift-driven conservative outfits. This in turn keeps their employees relatively happy, since.. well... everything else is inflating too.

When you run high-margin and high-cost, a small increase in a minor cost is not significant. Energy could double or triple in price and I doubt Apple would even notice. This is also why higher-tax "liberal" policies get more of a shrug on the coasts. "Who cares... now back to figuring out what new industry we can earn 1000% returns in..." Profit, not thrift. Thrift is actively seen as backward thinking-- a sign that you don't think you can earn adequate profit.

But back to the Wal-Mart economy and middle-America. As energy prices rise so is everything else: food, fuel, and real estate. (Real estate BC you can no longer sprawl.) This is squeezing the interior middle class, which means that the lean thrifty companies that do business by squeezing them look more and more like villains.

... and by the way why then is Wal-Mart against solar? Because they want more coal. Solar is a lower-EROEI higher-cost (for now) source of energy that they associate with "rich coastal elites" and their way of doing things. (Google and Apple's buildings are covered with solar panels.) Fossil fuels have historically been the workhorse of the low-cost high-volume industries of the interior, and that's deeply embedded in the mentality as conventional wisdom. Subsidizing solar in places like Arkansas (where Wal-Mart lives) would drive energy prices and/or taxes up in the short term, and they're already feeling the squeeze badly.

... and this is also why the interior by and large rejects the anthropogenic climate change theory. Any response to it will raise costs, which is the kiss of death to their entire way of doing business.


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