Here is a recent installment in the “Santanomics” series from Derek Thompson in The Atlantic. Some fun reading here as academics try to make sense of Christmas.
Category Archives: Business and Economy
Sociologist Richard Sennett: Wall Street offices lack cooperation
After talking with a number of workers involved in the Wall Street troubles of 2008, sociologist Richard Sennett argues that Wall Street offices lack cooperation:
The financial industry is a high-stress business that requires people to work extremely long hours, sacrificing time for children, spouses and social pleasures. But after 2008, many of my subjects were no longer willing to make those sacrifices. Looking back, they realized how little respect they had for the executives who’d worked above them, how superficial was the trust they had for fellow workers and, most of all, how weak cooperation proved in the wake of financial disaster.
The fragility of this social triangle is disturbing. When informal channels of communication wither, people keep to themselves ideas about how the organization is really doing, or guard their own territory. Weak social ties erode loyalty, which businesses need in good times as well as bad. Many of the employees I’ve been talking with have come to feel embittered by the thin, superficial quality of social ties in places where they spend most of their waking hours…
Even for those workers who have recovered quickly, the crash isn’t something they are likely to forget. The front office may want to get back as quickly as possible to the old regime, to business as usual, but lower down the institutional ladder, people seem to feel that during the long boom something was missing in their lives: the connections and bonds forged at work.
This is an example of how sociology can help inform economics and/or social policy. In order for offices or any social group to work well, there has to be trust, solidarity, and cooperation. These traits cannot simply be dictated or ordered. Rather, relationships and social ties need to be started, developed, and maintained over time. These relationships may seem silly or unnecessary to some but it will be difficult to accomplish great things without them.
I expect an analysis like this is just the beginning of a flood of academic work and commentary about the recent economy crisis. And I would guess that a lot of research will show that people were not acting “rationally” but rather were working off of different emotions that led to “irrational exuberance.” Cultural and social factors played a role but it will up to scholars to determine how much.
The rise of dollar stores and the questions that should follow
In recent years dollar stores have had a lot of growth:
Surveys have shown that today’s shoppers are more likely to make purchases in dollar stores lately, and chains such as Dollar Tree, Dollar General, and Family Dollar have experienced outstanding sales growth as a result…
Now, according to a study by retail research firm Colliers International, dollar store locations outnumber drugstore locations in the U.S. Specifically, Colliers added up the number of locations for four national dollar store chains (Dollar General, Dollar Tree, Family Dollar, 99 Cents Only), and compared that figure to the total number of locations for the country’s three biggest drugstore chains (CVS, Rite Aid, Walgreens).
The tally, as of mid-2001, stood at 21,500 dollar stores vs. 19,700 drugstores…
Also, the dollar store chains have all experienced remarkably strong sales in recent years, and have been expanding like crazy as a result. Dollar General, for example, has nearly doubled its location total over the past decade, 5,000 to more than 9,500 stores today. And counting.
I’ve wondered recently why Walmart gets a lot of attention while drug stores, particularly Walgreens in this area, and dollar stores have been expanding. Whenever I walk into a Walgreens, I can’t help but think they are mini-Walmarts. Walgreens sells everything from prescriptions to ice cream to photos to cosmetics and so on. Dollar stores are similar but cheaper, selling everything from food to detergent to household supplies.
After noting the growth in dollar stores, we could ask some questions about the effects these stores have. Clearly, they offer cheap goods. But: Are dollar stores good for the local economy? Do they provide good jobs? Do they tend to be found in areas of sprawl or strip malls and are dependent on automobile traffic? Are the goods primarily made in the US or overseas? Is the food for sale healthy? Perhaps these questions aren’t asked since it is assume dollar stores will recede in popularity when the economy improves. But since this likely won’t be for a while, shouldn’t we think about what it means to have a lot of dollar stores?
Forecast: US homeownership rate to hit low of 62% in 2015
One forecast suggests that homeownership rates in the United States will drop to a low in 2015 before rising by 2025:
All this could push home ownership down to levels not seen at least since before the Census began tracking this data in 1963. Home ownership soared to 70 percent in 2005, but it could fall to 62 percent by 2015, according to the number crunchers at John Burns Real Estate Consulting. They suggest that the effect of foreclosures drops home ownership 5.6 percent, and cyclical trends, like poor consumer confidence, tightening mortgage credit and the weak economy drop it 3 percent. Positive demographic trends would only offset that by 0.7 percent…
Burns believes home ownership will return by 2025 to around 67 percent, as previously foreclosed borrowers return to the housing market, cyclical trends improve and positive demographics start to carry more weight.
This is quite an extended process that first requires foreclosed and underwater loans to get off the books before the homebuyers turn the numbers again. It is interesting that there is little political discussion about the length of this process – does it benefit any current politician to be forthright about how long it might take to turn the housing market around? Do people care that much about homeownership while issues like jobs and debt are also concerns?
If the process does take this much time, it could also lead to a long-term reassessment of real estate. I doubt that people will no longer value owning a home or that homeownership will disappear from the cultural image of the American Dream as some have hinted. However, there is less of a chance it will be considered an investment and people will be more careful with their purchases, particularly paying attention to being able to pay for it even in rough patches.
The growing sales share of big box stores
In recent years, big box stores have increased their share of overall retail sales:
In the past two decades, the share of sales going to the top general merchandise stores has soared from 47 percent annually to 73 percent, according to an analysis of census data by University of Oregon sociologist John Bellamy Foster and University of Illinois at Urbana-Champaign communications professor Robert McChesney…
“In pretty much every category, you’ll see that the biggest guys are a lot bigger today than they were 10 years or 20 years ago,” said Lawrence Ring, business professor at the College of William & Mary in Virginia.
The implications of retail consolidation are varied: lower prices for consumers, but also less energetic hiring of workers and a more streamlined economy overall…
Whatever the big stores are doing has been working: Walmart’s U.S. sales last year were $308 billion. Target’s were $78 billion; Costco’s, $59 billion; Sears, $35 billion; Macy’s, $25 billion; Kohl’s, $18 billion; and J.C. Penney, $18 billion.
More points of evidence in a long-running discussion about the value of big box stores in the United States.
Another way you can tell how powerful these stores are: how many communities will turn them down if a big box store wants to open in the community and provide jobs plus tax revenues?
Occupy Wall Street to occupy Black Friday?
There is a report that some Occupy Wall Street protesters want to take the movement to national retailers on Black Friday:
Some demonstrators are planning to occupy retailers on Black Friday to protest “the business that are in the pockets of Wall Street.”
Organizers are encouraging consumers to either occupy or boycott retailers that are publicly traded, according to the Stop Black Friday website…
“The idea is simple, hit the corporations that corrupt and control American politics where it hurts, their profits, ” states the Occupy Black Friday Facebook page.
A few of the retailers the protesters plan on targeting include Neiman Marcus, Amazon and Wal-Mart.
Besides wondering how many people will do this, it raises other questions:
1. Would most or even a sizable minority of shoppers welcome the protesters? I would guess not. People might think that the income and power situation in the United States is unequal but that shouldn’t get in the way of good sales.
2. Why are certain corporations singled out in this list (though they do suggest going after the top 100 retailers)? Why not Target? Walgreens? Kroger’s? Costco? If it is all big corporations that are the targets, will the protesters be evenly distributed or will they go for the typical targets like Walmart and McDonald’s that are often tied to sprawl and excessive consumption?
3. How exactly does one have a visible protest at Amazon.com? I guess the group could take over the comment boards. If Deadspin can prompt so many responses that ESPN can’t keep up, maybe Occupy Wall Street can do the same.
4. If protesters show up en masse, what will the response of stores be? Is the parking lot of Walmart a public space? (I assume not.)
The Main Streetification of shopping malls
Perhaps you have seen the advertisements for Small Business Saturday – it will be fascinating to see if this campaign works. While the national retail market is not good overall, this piece suggests that “Main Street [is] making a comeback at the expense of the shopping mall.”
In short, the most successful malls usurped the role of Main Street as the commercial and even cultural center of the communities they served.
Now, however, many shoppers want Main Street back.
Development of new malls has almost completely stopped, with only two being erected in the country since the beginning of 2009, according to the International Council of Shopping Centers.
Outdoor town center concepts, featuring brick sidewalks, streetlights and even public clocks evoking the Main Street of yore, are climbing to a degree that many owners of enclosed malls are considering dramatic makeovers, some including plans to tear off the roof of, or “de-mall” enclosed shopping centers.
I feel this headline is a bit misleading: we’re not talking about a return to traditional downtowns. Rather, it is taking older shopping malls and adding “older” elements, creating a 21st century facsimile of what retailers and Disney want you to think old downtowns were like (but with modern amenities). This isn’t that different than the strategies a lot of older downtowns have pursued in order to become a little more mall-like. Perhaps the real story here is that we are moving toward an amalgamation of shopping mall and downtown where people want to purchase the latest and greatest but really feel like they are in a community setting. Perhaps we could call these new facilities “Main Street malls.” (Though I wonder how these are different from some of the new “lifestyle centers,” particularly the New Urbanist ones.)
I am a little miffed that the article provides little evidence that shoppers really want “Main Street malls.” Are developers not building malls because they are not needed or have the tastes of shoppers changed?
Sociologist predicts shift in American unskilled, immigrant laborers: they will come from China rather than Mexico
While the economic downturn has reduced the interest in immigration reform, a sociologist suggests a new trend in the immigrant unskilled labor force in America: in the future, such laborers will come from China rather than Mexico.
Q: Why might Chinese immigrants overtake Mexican immigrants in low-wage, unskilled jobs here?
A: Mexico for decades has supplied our country with low-wage laborers, legal and illegal, but that’s grinding to a halt. Increased border surveillance and high unemployment are keeping people away from the United States. Other things are holding people in Mexico. They have a lower unemployment rate than we do. And what a lot of people don’t realize is that their fertility is dropping to 2.2 children per woman. It used to be six or seven children a few decades ago. There are fewer young people available (to take jobs), and fewer mouths to feed. There are about 4 million or 5 million undocumented Mexican immigrants in our country (and about 11 million illegal immigrants total). They pick up garbage, work construction, agriculture – all the things in big cities that the local people don’t want to do. Who’s going to do that work? There’s already a network of migration from China to our country; probably 200,000 to 300,000 undocumented Chinese are here. They’re mainly on the East Coast, in Houston and Los Angeles. They’re mainly doing restaurant work. Undocumented Mexicans are much more visible.
Q: Why would they leave China for the United States?
A: You have all of these rural-to-urban migrants inside China who are essentially driving the Chinese economy, doing all the work in the big cities, doing all the construction, the nanny work, the low-level jobs. They’re not going to do that forever. The economy is starting to slow down in China. The first people to lose their jobs will be these rural-to-urban migrants. In China, to move from one place to another, you have to get permission at both ends. That never happens, so people move unofficially. There are already 10 million unemployed rural-to-urban migrants. There’s already a China-to-U.S. network of undocumented migrants.
Several pieces of this argument strikes me:
1. The Chinese economy slows down. This would be a big issue for the global economy. Would there even be much of a flow of people round the globe if this happens?
2. The urbanization process in China may only be picking up steam. Here is a 2009 report from the McKinsey Global Institute on the topic. Is China prepared for this?
3. Mexican laborers are finding it harder to come to the United States and have more reasons for staying in Mexico. Does this mean that the debate over immigration from Mexico is essentially over?
4. If this shift does happen, would the immigration debate simply turn to China and away from Mexico? If so, what might be the implications of this for the US-China relationship?
Measuring how much the Internet is worth: $8 trillion?
A recent report by McKinsey puts the value of the Internet at $8 trillion. Here are a few other fun facts:
There is a lot of Internet to measure, with two billion global consumers and $8 trillion in total revenue. So McKinsey’s report limited its scope to the online economy in the G-8 countries plus five more: Brazil, China, India, South Korea and Brazil. It defined Internet activities as private consumption (electronic equipment, e-commerce, broadband subscriptions, mobile Internet, and hardware and software consumption); private investment (from the telecommunications industry and the maintenance of extranet, intranet, and Web sites); public expenditure (spending and buying by government in software hardware and services); and trade (which accounts for exports of Internet equipment plus business-to-business services with overseas companies)…
As an industry, the Internet contributes more to the typical developed economy than mining, utilities, agriculture, or education. In Sweden, fully one-third of economic growth in the five years leading up to the recession came from Internet activities. For the entire G-8, the average was 21 percent. In an analysis of France since the mid-1990s, McKinsey found that the Internet created more than twice the number of jobs it destroyed.
Much of the Internet’s contribution to our lives is nearly impossible to measure. For example, I use email. How much is that worth to me? I can’t even begin to say. I read hundreds of news sources a day. What is that worth to me, or to the news organizations? Pricing this kind of thing is exhausting to think about. But since analyzing what the rest of us find “exhausting to think about” is McKinsey’s job, their researchers looked at the “consumer surplus” of the Internet, concluding that the total annual benefit to the United States comes out to $64 billion…
The United States is the world leader in the online industry, grabbing 30 percent of global Internet revenues. But the UK is the world leader in online retail. The British spent $2,535 on e-stuff in 2009, more than twice the average of the world’s largest countries and still 1.4 times the amount of the typical U.S. shopper. Sweden leads the world in Internet’s contribution to GDP. Fully 6.3 of the country’s economy is online — twice Germany, France or India. In Russia, the Internet contributes not even one percent of GDP.
Some interesting stuff here:
1. I appreciate the emphasis on the difficulty of measuring this topic. In addition to simply thinking about the economic benefits, we could spend a lot of time discussing how it has altered social interaction, private practices, and democracy. I wonder what the margin of error is on the estimates.
2. There is some indication of the splits between the Internet haves and have-nots. If the Internet is so valuable, should this be a leading component of aid to poorer countries? It does require a decent investment in infrastructure but it would allow people to easily connect to first-world countries and industries. For example, what is the impact of the less than $100 laptop that was touted for years?
3. With all of this money (and value floating around), it is a reminder why so many states want to get their hands on sales tax revenues from Internet sales. Do European countries like Britain have a similar system? I have bought a few things from Amazon.co.uk in the past and I don’t recall the experience being much different.
4. I would be interested to know the future prospects for the Internet’s growth: how quickly will it grow? How much will it expand? Is most of the growth within developed countries or in opening or expanding newer markets (China and India plus others)?
Why many products are always “on sale” – and why buyers fall for it
My wife and I had a running joke going for a while with the Kohl’s circular that would come in the Sunday newspaper: every week was “the biggest sale of the year!” This is a common strategy for many retailers and consumers continue to fall for it:
“People don’t have a gut sense of absolute value. It’s just that they’re sensitive to contrast. So if you say I’m getting 40 percent off, I’m interested, no matter what the actual cost is.”
“The whole concept of a sale or a discount has become really perverted,” said Shell, a co-director of Boston University’s Center for Science & Medical Journalism and a contributing editor to Atlantic Monthly. “So what is the price? We think of price as a number, something that’s coolly objective, but it’s not. It’s a highly emotional construct. Price is manipulated to attract the consumer.
“If people see a sweater on a table for $50, they don’t buy it. If they see the same sweater was once $100, they will. We’re highly swayed by reference price. … There are some things that are almost perennially on sale, like mattresses and jewelry. We buy almost all our clothing on sale.”
“Retailers are now outfoxing consumers,” said Kit Yarrow, chair of the psychology department at Golden Gate University, where she is a jointly appointed professor of both psychology and marketing. “They’ve figured out how to offer a bargain in a way that the consumer doesn’t even know what they’re buying anymore.”
So how could consumers fight back? Some common strategies:
1. In certain areas, like credit card offers and statements or the calories in restaurant meals, having sellers display more information so that the consumer can theoretically make more rational decisions based on more information. Do all consumers use this information? Does the extra information “wear off” over time, particularly in light of enticing promotions or marketing? You can hear the same argument about health care from some people – if everyone knew, doctors and patients, how much every test or treatment was going to cost, different choices would be made.
2. Use an envelope system (or a debit card) for spending money so that one has a better idea of the total spending limit. This may help overspending but does it help eliminate all “impulse buys” or the deals one purchases?
3. Aren’t consumer education classes in high schools supposed to help talk about finances and such? And do they help much? Do such classes typically talk about how marketing works and different ways to think about deals?
4. There are companies that claim to not offer deals and have “no-haggle prices” or something like that. Think of CarMax or Saturn. Since most other retailers do offer deals, some companies can take an opposite tack.
The conclusion: prices are a social construction and taps into basic human impulses to avoid losses (paying the higher price)
Legally Sociable 