Business Discovers Less is More

We frugalites have known it for years, but business has been playing catch-up to the wisdom of “less is more.” In more ways than one, business is putting it to work:

• Smaller payrolls through layoffs, plant closings, off-shoring, outsourcing, and using software, robots, and machinery to replace workers.

• Smaller corporate footprint through off-shoring, spinning off, or downsizing their buildings and office parks. Some companies are even renting out space to new tenants, making that unused space pay for itself.

• Slimming down the product line, service line, and the ingredients that go into products and services.

• Going to where it’s cheapest to operate in terms of the cheapest raw materials, labor, regulatory hurdles, and taxes.

• Merging with or buying out other companies, instead of spending the money to invent, create, and maintain their own new product or service lines.

• Taking the company private so it doesn’t have to compete in the new world of transparency and Sarbanes-Oxley regulations.

• Making smaller numbers of the slimmed down product line products, thereby gaining per-unit pricing power through demand and scarcity, rather than maintaining the old format of market share and volume sales profits.

• Fewer and less tempting incentive discounts, especially in the way of coupons and rebates.

In short, business is pulling out nearly all the stops just to stay in business. The consumer has tapped himself out with stupid homeowner “refi” tricks, and the Home ATM is now empty. Competition is quite cutthroat, and some businesses never learned how to swim, i.e., never operated in a downturn, so they don’t know how to survive bad times. The ones who know they don’t have a chance have already sought (or are seeking) the shelter of a merger or private equity firm.

The more these business events happen, the worse the future profits forecasts for those sectors. Big (or what we think of as big) businesses are clamoring for regulation so they no longer have to compete for our dollar—regulation sets a base price for a set number of services, and it’s usually higher than what was offered out in the free market. Even the once monolithic Ma Bell is slowly and slyly reassembling the bits that deregulation tore asunder and flung to the four corners of this country. This alone ought to be a sign to you: land line-based telephone service is so cheap that the Baby Bells aren’t profiting from it, but are instead making money in cell phone service and internet connectivity through broadband and wireless services.

Cable television is another example: once Sprint criss-crossed this country (and parts of overseas markets) with fiber optic cable, all kinds of cable service providers cropped up, and all kinds of choices were suddenly available to the consumer. Slowly, companies were buying out other companies, and now we have Baby Bells offering “bundles” of cable/internet/phone services, as well as bigger cable companies offering phone and internet service.

Back when I lived in Texas, we had CP&L for our electricity (Central Power and Light). Today, it’s AEP (American Electric Power), and part of a much larger service area—the old CP&L got bought out. GTE used to be the phone company, and then it became Verizon. The local internet service provider became part of Roadrunner Networks. My how times changed in one small rural Texas town!

The more this merger-and-acquisition happens, the more it’s a sign that the consumer is starving the business beast. By withholding our dollars in search of better buys, we are helping to weed out the weak, and making the survivors face reality in the fierce competition of commerce. If they can go to the bottom and stay there, they may make it—that is, until they pile up so much cash that they outgrow their position.

Then, in a few years, the great grand business cycle will start anew like spring: new fledgling shops will open up with clever, inventive, and cheap offerings to tempt us, we may or may not buy, and the strong will survive—over and over again it will happen, usually in time to the interest rate cycle. All we can do is vote with our dollars and hope “our guy” wins in the perpetual race to the bottom.

Have you lost your job lately, or know someone who has? Blame the consumer for not doing his or her part in supporting the company’s profit margins. The customer will ALWAYS have the last say in business, and this is why companies are moving offshore in droves, especially to India and China—the customer base is surely bound to be larger, insuring more profits. Sweetening this pot is the overload of cheap workers, both skilled and educated (especially in the case of India—and they speak English, too!). This is the only way to compete in a global economy where imported goods are cheaper than home grown ones, and costs of doing business are cheaper elsewhere—American companies are now the “new” imports.

The wool is coming off everyone’s eyes, and they don’t like what they’re seeing. Even the little man behind the curtain, Greenspan, has departed for greener pastures. But don’t worry—all is not lost yet, as another round of fledgling startups in the “alternative energy” arena will likely spur a new round of technology and manufacture, but not nearly to the extent that we saw after WWII. We won’t be needing it, though, as the Boomers are aging and on the way out of the economy and workforce--only to be replaced with a much-reduced generation of American workers, along with a woefully under-skilled and under-educated immigrant class.

The old boom times are gone (not to be resurrected for some time to come), and both businesses and consumers need to adjust to this new realty. The next boom wll be in the area of alternative energy, and it won't be nearly as big as the last boom--it won't need to be.