Monday, June 18, 2012

Symbiotic versus parasitic businesses

The life style westerners have enjoyed these last few decades is unique in human history.  Never before has every fruit and vegetable been available in our stores throughout the year. In no previous age have the merchants catered to the whims of the populace rather than to the whims of just a select few.  We have shared in the riches of a century of cheap, portable energy. It’s been great.  But I fear the party may be coming to a close.  With supply at a plateau and demand from developing nations climbing, soon we are going to be in an international bidding war for oil.

The energy supply is going to get vastly more expensive as supply fails to keep up with demand.  That will put an upward pressure on transportation costs, making distance from supplier to seller to consumer a far more significant factor.  The big internet retailers are dependent on that cheap energy to get their goods from centralized depots to consumer’s front doors.  Costs also depend on volume, which will decline as spending falls, and result in more and more jobs lost in the inevitable demand destruction.

As the cost of transport gets more expensive, the traditional model of local retailers serving the community will come back to the fore.  When it costs the consumer more to ship from out of state, despite the tax advantages internet retailers enjoy, expect to see more people searching for what they want back on the Main street.

Communities are defined by how far you can travel in a reasonable time. Not that long ago, it took as long to travel from village to village as it does today to travel continents –all because of cheap energy.  As long-distance travel becomes less of an everyday activity, our interests will, for the most part, become more localized. Localization is both a symptom and a solution to the predicament of declining energy supplies.

Now before I extol the virtues of adopting the ‘buy local’ lifestyle, I’d first like to talk about those internet retailers. When I buy from a local business, a reasonable portion of that money continues to circulate around my community.  Even the big box retailers contribute some money back to the community though the wages spent locally by their employees.

The business community has always shared a symbiotic relationship with the consumer.  The health of our community is dependent on the ‘velocity of money’ –the transactions from person to person that earns us our daily bread.  Our employees live and work in the community that supports our businesses, and the lives of our employees are intertwined with our customers.  We enjoy a symbiosis that goes back to the earliest days of barter and the marketplace.

The large, internet-only retailers, in an ecological sense, are parasites.  They contribute little or nothing back to the local communities beyond the wages of the occasional delivery driver. They suck money out of local economies into the stock market. In a world of digital money, we may not see that green river flowing out of our communities and into those nebulous ‘markets’.  If I could believe in the paradigm of infinite growth, I would not find this a bad thing.  Our pensions, our 401K funds, and our other investments rely on the markets.

But in a world constrained by energy limits, where the impact of oil shocks threatens economic security, there is competition between the needs of Main Street and the desires of the giant conglomerates who are able to take advantage of energy to grow to a size that can push smaller, local retailers out of the marketplace.

In many ways it is a private sector reflection of the political decisions of the last few years to protect ‘Wall Street’ rather than ‘Main Street’. The concentration of wealth in giant corporations like Amazon, the growth of giant multinational corporations, all reflect the growth of big government. 

Power often concentrates in an individual, politically, that may be in the form of a President or a King. In business, it may take the form of the legal fiction of a corporate person.  It represents the oldest form of social order, monarchy. Today, we see the scale that is possible when there is an almost unlimited amount of energy available.

When we talk about our communities being drained of money, how can we define community?  At a city level? At a county level? How about at a state level?

How about you, the consumer, deciding what constitutes your community?

Actually, you already have.  You, and everyone in your community for the last century or more, have defined what community is by your shopping patterns.  It’s how far you are willing to travel to purchase the goods and services you need.  That model has existed for centuries, people shopping where they live and work.  We almost lost that model of local people spending money in local shops, the drive for lowest possible price before any cost threw a lot of small businesses under the bus.  Again, this is a result of cheap energy that subsidizes the cost of doing business for companies with no investment locally.

Luckily, we still have a legacy of the older shopping patterns before the parasites came along.  It’s called a telephone directory. Businesses buy advertising in directories that serve their customers. The majority of businesses in your local directory only advertise in that one directory – you, not the million on the internet, are their market. The Yellow Pages have been in a symbiotic relationship with you since your parents started shopping for your nursery.

The changing energy costs will affect our industry as much as every other. As transportation costs rise, I expect directories to fragment; a rural directory today that may have three medium-sized communities within its pages, may in the future, be replaced by three smaller directories.  If the consumer travels less frequently to shop, then the value of advertising over a wider area will drop.

The Yellow Pages is all about competition. They show businesses competing for the money moving through their local community.  Yellow Pages shows merchants side by side, letting the consumer choose with whom they wish to speak..  At the same time, we advise businesses on how best to convey their strengths through their advertising. As such, local directories are a reflection of the health of the community; a strong, vibrant business community is a healthy customer base for Yellow Pages companies. We only succeed when our local communities succeed.

In the aftermath of the Great Recession, it is far too easy to open the Better Book and blame our woes on our competitor down the street.  Yet if that were so, what explains the blight in our communities?  If we lost our revenue to our local competitors, the money would still be circulating between paycheck and till receipts.  We’d tighten our belts as our customers did likewise, and adjust to the ever-evolving marketplace. Some uncompetitive businesses would not survive, and a new equilibrium would be achieved.  Businesses have gone through this cycle a myriad of times.

Shoppers are not tightening their belts.  Instead they are changing their shopping habits. The online retailers have the advantage of not having to support the local community. They employ no one locally.  They often avoid taxes by incorporating elsewhere. They appear to provide great value to the consumer who feels the pressure in his or her pocket because there is less money flowing though the community. Yes, it’s the same argument used against big-box stores; except even if those stores were to become the only game in town, it would reach some equilibrium within the community it served.  Not so with the internet corporations.

The relationship between consumer and merchant, on a local scale, is always symbiotic. Not so for the internet parasites. They survive by feeding off local communities and profit by giving nothing back.

Next post, I will suggest ideas on how local companies can survive until the inevitable increase of energy costs levels the playing field and brings the focus back where it belongs, in our communities.