Under (or behind) Pressure

Forget “Trickle-Down Economics” – it’s time for something new. Something I like to call “Backpressure Economics”.

Think of the way in which Wal-Mart operates, and the way in which you are able to pay about a buck and a quarter less for a box of cereal there than any other grocery store. Wal-Mart approaches a company, vendor, etc., and says “We’re willing to pay this much. That’s it. You want in, make it work.”

Now, I’m not a huge fan of Wal-Mart necessarily, but I will say that this model is exactly what the healthcare industry in this country needs, and why the public option is needed.

We need someone who can push back and start a “backpressure” effect on the cost of everything. Of course MRI machines are expensive. Of course medication is expensive. Etc, etc.

But…if there was someone saying to GE, “We’ll give you this much, not a penny more – make it work”, then GE would have to make it work.

And what that means is that they would, in turn, have to place pressure on their suppliers, saying “here’s what we will pay. That’s it.”

Which in turn places pressure on that company’s suppliers…and so on.

Right back down the line.

It’s not about artificial cost control – it’s about real-world cost control. Real market cost control.

If Chevrolet priced a Cobalt at $39k, do you think they’d sell any? Of course not. The market tells GM what it’s worth, solely by virtue of what the consumer is willing to pay for it.

And so it should be with health care. Why pay $3000 when you could pay $1500?

We bargain shop for everything else in this country, particularly when we’re in the midst of an economic crisis. So why shouldn’t people have the option to “shop around” for a deal on health care, instead of dangerously foregoing preventative or necessary treatment?

Like an engine, the current system needs a bit of backpressure in order to operate properly.

What’s Good for the Goose, Anyway?

Voters be damned – Unless you brought your wallet.

Health care is not the only legislative item on the agenda these days, to be sure, but it does have something in common with many of the other subjects up for procrastination in this Congressional session – Money.

Specifically, there are a number of legislative initiatives that seem to be losing steam, or are being actively stalled, because some organization somewhere (with a lot of money) doesn’t want to see it happen. In spite of the fact that so many voters do want to see these things happen.

But votes won’t pay the rent, evidently. Nor will they pay for the 30-second targeted ad buys in hotly contested voting districts, and the lawn signs and bumper stickers and banners that apparently are required purchases for the upcoming midterm elections.

Like many of my fellow lowly voters, I think I’ve been operating under a foolish assumption for far too long; I’ve assumed that our elected officials were elected to vote/act/speak on behalf of the majority of their constituents (a.k.a. – you and me).

This is, as I’m sure we all realize now, not the case. In fact, it was a rather childish view to hold of the political process, and I feel a bit silly for having thought so.

I present exhibit A

In the above story, big livestock interests (read: corporate farms) and Great Lakes shipping interests (read: massive shipping companies/corporations) managed to hamstring some important legislation that would have allowed the EPA to actually do their job and enforce companies to comply with environmental protection standards and guidelines.

I’m fairly certain that the voters, like myself, would have preferred clean air and water that we could all benefit from. The problem is that I don’t know any voters who can pony up $25k to toss to one Congressional candidate. But companies can.

It’s as simple as following the money. And it’s every bit as infuriating (if you care, that is) as having your money taken from you.

The health care debate suffers from the same potential fate. According to polling data, 54% of those polled agree that major changes are needed to the health care system in this country, and 61% say that it is important for Congress to pass health care legislation this year.

But then again, where is the money? The real money, as we know, comes from insurance providers and large health conglomerates, who have little to no interest in seeing any significant change to the status quo.

So, then, what is a congressman (or woman) to do?

If you’re like me, you foolishly believe at one point or another that elected officials were supposed to be voting along the lines of those who elected them. And you would assume, once again foolishly, that the people (like you and me) who punched the card in the ballot would be the ones who elected them.

I would add an additional layer to this question: Certainly you should vote in line with those who voted for you, but what about the national level? If you’ve been elected to the House or Senate, you’ve been placed in a position that now has two concerns – your local constituents, and the good of the entire country.

Never an easy balance to strike, of course, but when voting for or proposing legislation, you now have to be concerned with two categories – what’s good for the voters in my district/state/hometown, and what’s good the country at this time?

Then, add a third wrinkle – what do my major campaign contributors want me to do?

This third category seems to be where the largest problems come from.

I don’t have an answer for you, though I certainly wish I did. It’s painfully obvious that when you follow the money, you can pretty quickly tell where a candidate will fall on particular issues. What I have yet to figure out, however, is the solution. Limiting campaign contributions to $5 is not practical, so what is the answer?

If I find it, I’ll be sure to let you know. In the meantime, if you’re unhappy with how your particular Senator/Congressman is voting or speaking, feel free to extend them a healthy dose of unemployment and vote for someone else.

Go Go Gadget Economy! (or “Change Precedes the Dollars”)

It’s been quite a while since I’ve written here, though not for lack of wanting to. In actuality, it’s more a matter of feeling like I’m not as fully connected to what’s going on as I used to be. I’ve also been sitting on this particular post idea for over a month now, and every time it seemed I’d get the opportunity to work on it, something else arose and stole the time away.

But I digress…On to the proceedings.

There was a time, lo these many decades ago, when products were designed, made, manufactured, advertised, sold and purchased all right here within the good old U.S. of A. But, as we’re all too aware, the only constant is change.

And so, in the midst of this recession (or “economic clusterf&#k, if you prefer), it’s perhaps wise to take a moment and fully absorb the current state of affairs.

The days of stable manufacturing jobs in the United States, the days of “Made in the USA”, the days of buying automotive parts and accessories made just down the road from your house…those days are gone. It should come as no revelation that throughout the last several decades we’ve been undergoing (if not witnessing and acknowledging) a fundamental shift in the basis of the American Economy. We’re no longer the manufacturing center of the world.

And that’s actually a good thing.

The present economic crisis is the culmination of these decades of change – a delayed shift from physical capital and production to a new position within the global economy.

And that position is this – The United States has moved from the central producer of physical goods to the central repository for ideas.

We are now, predominantly, a nation of ideas. We have the greatest designers, engineers, scientists, managers, political thinkers, creative professionals, etc., in the entire world. Some of the best concepts, ideas and inventions were thought up right here in the US. And with the shift to a global economy, and the outsourcing of manual jobs to other countries that desperately needed employment opportunity of their own, the focus here should be on developing that economy of ideas.

One of the wonderful aspects of this shift is that, in an economy of ideas, the potential and the possibilities are limited only by what we can think of. That’s it. We have the technology at this point that, if we can think it up, we can probably make it happen. Solutions to many of the world’s problems could be within our grasp, so long as we are willing to expend our mental capital, and so long as we can learn to be comfortable with change.

The old way simply isn’t cutting anymore. I think the majority of people will agree with that.

Where is the roadblock, then, on our path to enlightened economic recovery?

It should stand to reason that, in order to position ourselves as the new center for innovation in the global economy, and in order to equip ourselves with the ability to maintain that position, we will need one thing – a well-educated nation.

And this is where the difficulty stems from. The decline of our economy will continue and remain in lockstep with the status of our educational system – a status that remains globally lower than it should be. An educational system that is in dire need of an overhaul.

How can we ever expect current and future American workers to realize their full potential in the marketplace of ideas if they aren’t equipped with the knowledge and critical thinking skills needed to present, provide or conceptualize solutions to old and new problems?

The only way to do that, and to provide for opportunity in a new type of economy, is to ensure that everyone has an adequate, basic educational foundation to build on.

We must, first and foremost, address the educational deficiencies that are holding us back from fully capitalizing on the opportunity that lies before us – the opportunity to once again become a global leader, just in a new category.

The President’s call for more training and education is not only justified, but makes complete sense when understood in the context of this economic shift. But the education system needs a major update as well in order for us to make use of it and come out the other side prepared for the challenges ahead.

Both the economy and the education system are big problems. And they require big fixes. They desperately need an influx of new ideas and new ways of addressing their deficiencies.

But that’s what we do here. We think of stuff. We come up with solutions, and then we make them happen.

The phrase “put on your thinking caps” has never been more necessary or appropriate.

(Note: Thanks to author Richard Florida, whose piece “How the Crash Will Reshape America” in the March, 2009 issue of The Atlantic provided not only great reading material on my flight to Portland, but also the inspiration for this post. And perhaps more to come.)

The Outlaw Governor

Stepping in to a hailstorm of fire, fallen compatriots all around, nowhere to go but straight into the open arms of a battle that can’t be won…

No, this isn’t the climax of a serial western novel, nor is it the final panel in a comic book whose story is “to be continued.”

Instead, it’s the tale of one “Quasi-Governor”, Pat Quinn*. Or, at the very least, that’s the impression I’m beginning to get from his actions and statements.

As the State of Illinois, like so many others, struggles to get anything even approaching a serviceable budget passed, Quinn stands steadfastly opposed to each and every half-assed (pardon the language) budget that the state legislature throws back his way.

Most recently, Quinn reaffirmed his position that the State needed to make massive budget cuts and fiscal sacrifice, by vetoing the already overdue makeshift budget that was presented to him.

Which, combined with his rather strong statements to the press lately about the State of the State, and his pressure on the State legislature to get on board, brings me to one inevitable conclusion – He knows he can’t win.

I’m speaking not only of the current budget battle, but more importantly, and perhaps more seriously, the upcoming 2010 Illinois Gubernatorial election.

I believe, judging by his demeanor, his actions and his inflammatory statements as of late, that Pat Quinn knows, or at least strongly believes, that his chances of winning reelection are on the Kate Moss side of slim, and perhaps none at all.

The field of potential Democratic contenders who will be challenging current Governor Quinn for their shot at the chief executive’s desk is not short on genuine threats, including Illinois Attorney General Lisa Madigan*.

Earlier this year Quinn said that he would be running and would seek reelection, after much speculation to the contrary. And of course, at this point, any name tossing and ballot building is all hypothetical.

That being said, there are certainly more than a handful of challengers, and that’s just within Quinn’s own party. Additionally, judging by his recent actions and statements, Quinn may be prepared for the loss, so long as he leaves office with his scruples intact (a feat which has now eluded the last two governors of our illustrious state).

It is also possible, however, that Quinn is banking all of his reelection hopes (or at least his nomination hopes) on the passage of a budget that makes some sort of headway towards pulling the State out of its precarious budgetary position.

If, in fact, Gov. Quinn manages to get a budget passed that reduces the deficit and “keeps the lights on”, so to speak, he’s automatically got a leg up on potential contenders, hanging his hat on the fact that he was able to achieve something that other governors and politicians in Illinois were unable to do.

In a state as politically fickle as Illinois, though, it may not be enough. After all, this is the same state that put Blagojevich in office due, in large part, to the fact that his opponent’s last name was the same as the corrupt, outgoing Governor (Ryan). Never mind that there was virtually no connection between the two – The people of Illinois were not going to put another guy named “Ryan” in office after the last one turned out to be fully corrupt. Or maybe everybody was voting for the hair. It’s tough to say.

At any rate, either scenario could be true. Either Quinn knows he can’t win next November and is putting up one hell of a 12^th round effort, or he’s banking all his potential reelection hopes on the passage of a fiscally responsible budget that moves Illinois out of the financial doghouse.

The coming months on the Illinois political landscape should prove to be interesting. Though probably not for the same reasons as California, South Carolina, New York, Michigan, New Jersey, Arizona, or Nevada.

*Note – I use the term “Quasi-governor” for Mr. Quinn simply because he isn’t the one that was elected to hold that office, technically speaking. One can make the argument that his name was on the ballot, but it certainly wasn’t his platform that the people were likely voting for, it was the head honcho. Or, in this case, the “Hair Honcho”.

*Note #2 – It is unfortunate that Madigan isn’t going to get the chance to run against Blagojevich, affording her the opportunity to use the perfect campaign slogan that I crafted for her months back – “Spare the Rod.”

Addendum – Sometimes, I actually know what I’m talking about. http://www.politico.com/news/stories/0709/24543.html

Too Much of a Mediocre Thing

Though I haven’t seen this mentioned anywhere as of yet, it occurred to me the other day that with the state of the economy and the recent developments in the automotive industry, there are several parallels to be drawn between the Auto industry and the Radio Industry. But first, let’s get up to speed (no pun intended) on the current state of the American Auto Industry.

At present, and for the last few years, as sales have slumped and costs have increased, the Big 3 have begun selling off pieces of their operations in the hopes of raising cash. For instance, Ford cashed in their chips on Aston Martin in 2007, they let go of Jaguar and Land Rover just last year, and as recently as last November they parted with their controlling stake in Mazda.

Similarly, Chrysler finds itself portioning out control of the company to a triumvirate of investors, including Fiat and the UAW .

And, finally, the big daddy of them all, General Motors. The General had been acquiring/creating brands the way some people collect baseball cards for decades. As such, their corporate operation has become entirely too massive to maintain. And so the sell-off began. While they attempted mightily to hold out longer than their Big 3 comrades, GM has had to find all sorts of ways to raise cash in recent years. First up, GM parted ways with their partial claim to Subaru all the way back in 2005, when the need for cash became more urgent. Then, last November, GM sold their 3% stake in Suzuki in order to hopefully free up some additional funds to maintain stock price.

But the last few months have seen a flurry of activity from the General, first parting with the predominantly testosterone-fueled, genital-compensating brand that is Hummer to a Chinese industrial manufacturer. Next to slide into the hands of investors was the auto group’s Allison Transmission unit, primarily handling commercial and military transmission manufacturing . And finally, in the last couple of weeks, news has come of pending sales for both Saab and Saturn brands – Saab to a Swedish supercar manufacturer, and Saturn to former race car driver and dealership group owner Roger Penske. And this, of course, is all in addition to the cancellation of Oldsmobile a few years back, and the end of Pontiac coming in 2010.

What’s initially most striking about this list of developments is the staggering number of brands being sold. Without knowing any better, you might assume that a sell-off this large would in essence mean there was nothing left of General Motors.

But General Motors is, or at least was, an enormous operation.

The point of all the above information is to demonstrate how deregulation, subsidies and other financial maneuvers (along with decades of do-nothingness from American legislators in terms of forcing progress or change) allowed US auto manufacturers to grow well beyond their reasonable capacity for management and profitability. And while the auto industry’s size, scale and speed of growth are all significantly different from the Radio industry, the end result is approximately the same.

Beginning in the 1990s, the FCC reduced or eliminated restrictions on media ownership, opening the door for what would become the great consolidation boom in all media, and in radio in particular. One needs only look back 10-15 years to see the birth or explosive growth of large radio corporations including Clear Channel, Emmis, Entercom, Cumulus, Infinity (now CBS Radio Inc.), Citadel, Saga, etc. (Clear Channel serves as the clear example of the effect of consolidation courtesy of deregulation, as they, at least as of 2006, were in control of 1160 radio stations across the country. Thusly, they are usually the first and largest target of scorn and disdain.)

But, in recent months and years, as the economy has tanked and radio listenership has gradually slipped lower, even behemoths like Clear Channel have decided to sell. Unexpectedly, at least to me, Clear Channel’s given up the ghost and sold everything, as mentioned in the link above. And this comes after they decided, in 2006, to sell off over 400 stations in smaller (outside the top 100) markets .

Other ownership groups, though smaller, will likely be following suit soon as the strained economy puts a serious damper on potential advertising revenue, the lifeblood of any radio operation.

But what are the parallels, other than the fact that there are examples in both industries of operations that have grown “too big for their britches”?

The most poignant correlation between the two is this – consolidation has led to homogenization, or the death of individuality/uniqueness, which has decreased the value of all products/pieces.

Consider the auto industry first. Through the consolidation of brands under one umbrella corporation, auto manufacturers like GM were able to create one basic chassis (constructed on the cheap, I might add) and clothe it in virtually identical sheet metal, then slap a different badge on it depending on the brand it would be sold under. Thus, you have cars like the Chevy Malibu/Oldsmobile Cutlass, which were identical for many years (particularly those awful “fleet vehicle” years towards the end of Oldsmobile).

Now, this “blandification” and blurring of brands/products is not unique to GM. In fact, my Pontiac Vibe GT is a combination of parts, with the chassis and suspension coming from the Toyota Corrolla/Matrix, while the engine and transmission are pulled from the Toyota Celica GT-S/Corolla XRS/Matrix XRS. And this process of sharing basic chassis designs or components has gone on in the Auto Industry since the demise of the great Coachbuilders (and even they only designed the body, fit and finish, not the underpinnings of the automobiles).

The problem comes in when the bean counters get a stranglehold on the process, and all uniqueness and style are lost. Just a few years ago Ford was criticized for their use of Taurus bits and pieces (with their accompanying low-quality, low-rent appearance) in the cabin of the Jaguar Sedan.

This kind of “parts bin” approach to completing an automobile, thereby sacrificing design quality, is exactly what kills consumer interest. If this car looks and feels every bit as cheap or mediocre as that car, why would I pay $7k more for this one? If two cars share essentially the same nuts and bolts, literally from the ground up, why would you bother to purchase the more expensive one?

Sure, there are those who still have the disposable income available to purchase a Lincoln, in spite of the fact that it’s just a rebadged Ford Fusion or Five Hundred. But the numbers of consumers willing to do that are dwindling, while the number of consumers willing to investigate the cost-benefit on their auto purchase is rising. (Thank you, Internet.)

So what you have is a homogenized collection of brands offering essentially the same car with slight variation.

In radio, consolidation has led to exactly the same problem. With a handful of companies in charge of so many stations, and operating those stations based on the same corporate philosophy/mandate/directive, everything begins to sound alike, from coast to coast.

Flip on a Hot AC station in Austin, Texas, and it will sound almost exactly like a Hot AC station in Tulsa, Oklahoma, or Fargo, North Dakota, etc. Same songs, same music news, and, if you’re unlucky, the same dearth of local content that is in any way relevant to your life.

In radio, the equivalent of digging in to the “parts bin” to outfit a car’s interior is to have multiple radio stations in multiple markets “voicetracked” by a handful of radio personalities operating out of one central studio somewhere. This is not to be confused with a syndicated radio show, which is often aired in as many markets as possible because of listener demand (think Stern before satellite, Rush, Air America, etc.). (NPR operates more closely to a syndicated series of shows, since it consists of syndicated content, which is broadcast by local affiliate stations, and the gaps are filled with local content/shows/public interest programming.)

The difference is that with 3-4 people voicetracking shifts for stations across the country, there is no local content, and oftentimes no content to speak of at all. You’ll get a little bit of music/pop culture news, a smidgen of artist info (“so and so is on tour this summer, blah blah blah”), etc. But that’s about it. And it will be the same on dozens of stations across the country, from the personality (or lack thereof) to the playlist.

With radio, like the automotive industry, the homogenization started years back. In the case of radio, the birth of the format, and the strict guidelines (all self-imposed and arbitrary, of course) that govern them, led to a severe restriction over time on playlist flexibility. I won’t go into great detail about how the music labels and industry encouraged and influenced this creation of a nationwide range of vanilla radio stations, but there’s plenty of reading to be done on the subject both in print and on the internet. Suffice it to say, by restricting playlists to a finite number and type of songs, radio programmers and owners began the slow murder of the industry as a whole.

Like the auto industry, music fans nowadays are significantly more savvy, and have access to more choices and more information than ever before. Additionally, music lovers have more methods by which to conveniently enjoy their music, which only serves to make radio that much more irrelevant. That is, unless there is something other than music to interest them.

Going back to our parallel between the two industries, just as automakers are selling off brands to investment groups and private firms, and just as that may lead to new ideas and unique automobiles that can once again compete on the global market for consumer interest, the sale of radio stations back to smaller local and regional owners could potentially be exactly what the industry needs. Local ownership and management (in theory, anyway) would have a much better grasp on what matters to their listeners, since the listener base will be comprised of their neighbors, friends, coworkers and colleagues. And if that’s the case, and management actually listens to their friends and family, they may make the necessary adjustments to keep the community listening.

Also, local ownership makes it easier to sell to local advertisers, since the business owners can actually have a relationship with radio owners and managers, and may even get to speak to an actual human being about their goals and needs for their business, making it more likely that they will continue to spend money on advertising.

In both cases, what appears to some to be the end of an industry may in fact be just the type of readjustment and refocus that was has been so desperately needed for many years now.

And, in both cases, I’m probably stepping out on a limb here with the optimism. If there’s one thing that both industries have in common, it’s short-sighted management that lacks willingness to make hard choices, and that would much rather maintain the status quo than launch a new idea.

The Big 3 have had the opportunity for years to revamp their operations and work on the next generation of cars and trucks for consumers. Better fuel economy, better safety and new forms of fuel were all within reach as far back as 1996, and perhaps even further depending on which development you want to look at/investigate. The Clinton Administration even had an initiative underway with several federal agencies and automakers, working in collaboration to bring fuel economy to the 80 mpg range. Not shockingly, that project/program was eighty-sixed by none other than President George W. Bush.

Look back to the oil crisis of 1973 and you see that the auto industry received a major wake-up call – One that they too refused to heed. Frankly, to be 36 years later touting a pickup truck that gets 20 miles per gallon as an “advancement” is a notion so absurd it is difficult to contain the rage.

Similarly, the radio industry has seen the storm on the horizon for years, and certainly since I last attended a radio conference in 2000-2001. Nearly a decade ago it was obvious that change was coming in the way that people got their music (at the time it was internet radio as the potential grim reaper of terrestrial radio, being pre-iPod), and that radio would need to undergo a significant sea change in the way that it operated as an industry. Now, with the advent of mp3 players, digital distribution and more, it is painfully obvious that a change has come, but no one seems to be doing anything about it.

Whether neatly or not, the evolution of two industries, both long overdue for change, continues to roll on. As for what the result of that evolution will be, no one can say. The optimists will no doubt welcome this time of change as an opportunity to revitalize each industry, to regain interest in their respective products and services, and to put the economy back on track. The cynics, however, will likely look at the government involvement (at least in the automakers’ case) as tacit approval of returning to “business as usual”, without the swift and significant change that is needed. And the realists among us will look upon this as an opportunity that, being fragile in this violent economic climate, could easily be squandered and sunk.

In all cases, time will tell. Keep your fingers crossed for now, and keep your money out of media and domestic auto stocks too. At least until the dust settles.