When Will We Ever Learn?

Volume 133, No. 46  - Friday, May 15, 2009

Little by little, signs are the economy has bottomed and is creeping slowly upward. Considering our great great grandchildren may still be paying back the bailout, it is hard to swallow that a relative handful of amoral, greedy little men and women have wrought such devastation on the world economy.

Big concepts, and dry numbers on the evening news do no justice to the personal suffering inflicted on so many people, in so many businesses, in so many industries around the world. And for those of us who know people affected in our own industry who have worked hard their whole lives to make our world a little more delicious, the personal connection brings home how callous the actions of those sociopathic few have been.

I don’t know anyone hurt as badly as the 92-year-old who had to get a job bagging groceries after Bernie Madoff took everything he had, but I do have friends who have had to abandon the companies they built from the ground up, collapsing under the weight of the crisis, with buyers afraid to buy, and consumers in fear of losing their jobs. The damage has been deep and will be long lasting and they didn’t deserve it.

As someone who coaches businesses to operate in balance, and survive long term, I am deeply worried about the effect of the bailout. I am willing to suspend judgement, given how much momentum it had, on whether it had to be done, but wonder why it took so long to confront, given for a number of years there had been a buzz in the news, and even in Congress.

I worry if we will learn the lessons this time, or simply let these inept, sociopathic high rollers use it to soften the blow, roll up their sleeves and start gambling with our common wealth again as they did after each bailout before. I fear we may not be learning the right lessons.Not including the collapse of Enron, Adelpia, and Worldcomm, there have been nine bailouts since 1970, and each has cost more the next:
• Penn Central Railroad, 1970: $3.2 bil
• Lockheed, 1971: $1.4 billion.
• Franklin National Bank, 1974: $7.8 bil
• New York City, 1975: $9.4 billion.
• Chrysler, 1980: $4.0 billion.
• Continental Illinois National Bank and Trust Company, 1984: $9.5 billion.
• Savings & Loans, 1989: $293.3 billion.
• Airline Industry, 2001: $18.6 billion.
• Current Crisis, 2008: $1,757 billion.

The difference between corporate rights and the rights that protect citizens could be argued is that with a citizen’s rights come responsibility, and accountability. We mess up and we pay heavy fines or go to jail.

Corporate rights seem to require few responsibilities, and no accountability: just fat bailouts when they blow up the farm. This time it is costing each living American man, woman, child counted in the census around 5700 dollars in principle, never mind interest; what will it be the next time? Is there a screen wide enough to contain all the zeros in a quadrillion?

Are we going to learn the lessons, or let it happen again? How long before the trumpet cry of “trust Wall Street, they know what’s best,” and “the economy is only going up up up and never coming down” starts again?

I read an article on the Internet that blamed the whole thing on too many MBAs. My son has one, and they did teach him that under corporate law, the ONLY responsibility a company has is to make the most short term profit it can for its investors no matter what the cost.

What balderdash! Any company that has earned the consent of we the people to have protected rights under corporate law does so under a trust given to it by we the people. This trust means that to be given rights is to be given responsibilities, not only to shareholders, but to customers, the community they live in, the public at large, and yes, the rest of the world.

If we can rid ourselves of the little illusions and petty larcenies perhaps we can gather the will to rid ourselves of the bigger ones. Competition is only good short term, cooperation long term, even among “competitors.” (If that hasn’t fried your cookies yet, dear reader, read on!)

There is such a thing as the “business cycle.” What goes up must come down! Even though they realize in the end it always kills them, farmers have told me they just can’t resist playing the ups and downs of hundredweight pricing.

When prices are up, they add cows and increase production, eventually driving the price below where they can make money. Then they cull, cutting numbers, and borrow money to get by until the price goes up, then the mad rush starts all again. The banks seem to make more than they do.

OPEC faced the same problem years ago, where greed got ahead of common sense and producers pumped more oil when prices went up, driving prices down. So they controlled production to stabilize profits and price. This kept prices steady for a long time, until war after war and speculators found a way to undermine it.

Now, I am not advocating that farmers get together and fix production to control pricing. This is illegal; it is a trust. In fact it was milk price fixing that led to the first antitrust laws in the US, though it was the bottlers using it to drive up the retail and down from the farm at the expense of everyone, rather than the producers simply trying to protect their profits.

Truth be known, I fear for the greed of any of us, even farmers; for some reason the lure of easy money is too much of a temptation, even when we know it is too good to be true. The only real success is long term success. Any idiot can make short term profit, but at what cost?

On straightforward business grounds speculation is NOT good for business. Accepting responsibility for the community at large, workers welfare, customers right to a fair price and good quality; watching out for the well being of each other, even our “competitors” as best we can afford, is a most American small town value, good business, and very good marketing.

And I know from my own experience and the experience of my clients that cleaning up your own backyard can yield profits, sometimes huge profits. Working with one of my current clients we were able to uncover a few hundred thousand dollars worth of hidden profits in just a few months, without having to fire anyone (in fairness, they did hire many fewer seasonal workers with the gains in productivity), without radically changing processes, without buying new machinery or computers, other than a faster printer and some pads of paper and pencils.

In fact, all that was done was done through small, incremental steps based on trying to find and eliminate the waste within. Money saved within goes directly to the bottom line, while profits from increased sales are only a percentage.

To accomplish the same increase in profits would have taken a few million dollars more in sales. Even with lower sales due to the recession and other causes, they are making more profit year to date than last year, and when the economy rolls back around they believe they will make many more net dollars on the increase in the volume of business.

This is remarkable, and real. It helps they had the insight to keep enough cash reserves on hand to survive six months of any crisis so they didn’t have to panic. (Now that is long term thinking!) Granted, not everyone will find that much money that quickly, but there are profits lurking within every company if we only know how to look for them.

So it is my hope that we the people can learn from this crisis not to “trust on faith,” but to embrace both our rights and our responsibilities, putting limits on ourselves, and peer pressure on each other before government has to. I agree with Thoreau, that government is best which governs least, but lord knows I wish they had governed sooner this time.

Boom and bust is bad business. Better than driving the peaks, is to work for less of a difference between the peaks and the valleys. Long term profit depends on predictability not speculation.
In the meantime, find those hidden profits! r


Dan Strongin is managing partner and owner of Edible Solutions, a consulting company focused on helping companies making great food make a profit. He will be writing a monthly column in Cheese Reporter. Strongin can be reached via phone at (510) 224-0493, or via e-mail at dan@danstrongin.com

 

Other Strongin Articles written for Cheese Reporter

dot Cheese Competitions In The Context Of Marketing
dot Economy
dot Even The Best Laid Plans Go Astray
dot Root Causes: Communication
dot Partners
dot Diamond Cutting:
dot
It's What You Don't Know That Can Hurt You
dot Integrity and Ethics
dot Pricing:  The Perceived Value
Designing the Effective Sell Sheet
Common Sense
It All Begins in The Mouth
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The Gathering Storm
As Our Industry Evolves, So Should Our Terminology:

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