RoR: Forum

Post 0

Wednesday, December 19, 2007 - 5:58pm

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You should know how many times I've been tempted to remind some folks here that you are, indeed, Professor Mechan, or Dr. Mechan, if you prefer. A little respect for the man, please!

Anyway, just to quibble for the sake of quibbling, depending on the industry involved, layoffs and firings aren't always consumer motivated, but sometimes employer motivated. It isn't all that rare, either. Take too much time off? See ya! Can't get along with co-workers? Bub-Bye! I was fired twice in my life. Once when I was 18 years old, for calling a couple of unattended little kids "dummies," (which they were, by the way), and once in 1992 by a manager tired of me calling him out on ever single error he made, which were many. Broner Hat and Glove, if any one is interested. Terrible experience (shiver!)

No one has to be miserable at work. Every job is replaceable.

Post 1

Thursday, December 20, 2007 - 6:41pm

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Even when lay offs are the result of too many coffee breaks or such, the ultimate reason is that consumers want efficient producers, etc.

Post 2

Thursday, December 20, 2007 - 6:42pm

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I'm satisfied if the discussion is civil; no need for "Professor" or "Dr."

Post 3

Saturday, December 22, 2007 - 10:02am

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Teresa wrote,

You should know how many times I've been tempted to remind some folks here that you are, indeed, Professor Mechan, or Dr. Mechan, if you prefer. A little respect for the man, please!

Yes, and it might also help to spell his name right, Teresa! ;-)

But Tibor's -- or Professor Machan's -- point is an insightful one that too few people in today's hate-the-businessman climate are aware of -- especially the labor unions who seem not to recognize that their employers do not have inexhaustible funds with which to grant them pay raises or to keep them employed regardless of the demand for their companies' products.

A fall in the demand for a company's product can occur for any number of reasons: a shift in tastes or preferences; a fall in the price of a substitute good or service (i.e., competition); a rise in the price of a complementary good or service -- for example, the demand for golf balls will fall if there is a rise in the price of golf clubs -- a rise in the expected future price of the product, or an increase in sales taxes.

Employers are constrained not only by consumer demand and the various factors affecting it, but also by the costs of the resources used in producing their products. If there is a rise in the price of steel, it can have an impact on the price of automobiles; if there is a rise in the price of gold, it can affect the price of dental services. As the prices of the affected goods and services rise, the quantity demanded of these services will fall and the same number of workers will no longer be needed to produce them.

The quantity of labor that employers can afford to hire or to keep employed depends on factors over which they have no direct control. They are not in the position of economic benefactors who have the power to grant or withhold favors at their arbitrary discretion, a view which many in our society seem to have. They are part of the larger economic system and are just as dependent on it as consumers and employees are.

- Bill

Post 4

Saturday, December 22, 2007 - 1:45pm

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"In fact, however, the responsibility lies with customers, consumers, and a host of other economic agents, rarely if ever with one’s employers."

The Chinese-American company I have worked at for 16 years would certainly be a challenge to that. Although they have only a dozen or so employees here at their California branch, they have had over two-hundred employees over that span.

However, only two of those many who left were fired, so far as I know. It takes doing something truly extraordinarily, stupendously inept or destructive to force their hand, as the company president HATES paying unemployment insurance and apparently the premiums go up if someone is able to claim it.

What did happen is that whenever labor was cheap, as in the early '90's recession, the company president would spend every morning poring over the hundreds of resumes that had come in that day. (They ran continuous ads for employees, even though their total employment was tiny.) He would cherry-pick people to interview who had unusual talents or who would have a recent Masters degree from a major university in engineering or programming or anything he thought might be useful.

Each prospective employee would be forced to wait in an extremely hot or extremely cold lobby for an hour or so past their appointment time, even though the general manager had plenty of time to see them, and this was made clear to them in the circumstances. Then the prospective employee would be given a test - the same test still given today, BTW - which consisted of three mathematical, logic, geometric problems. These problems would have absolutely nothing to do with their prospective job.

A few people would realize what was happening and understand precisely what to expect from that point on and would leave without completing the interview. One stunningly beautiful woman from the recently freed Eastern Europe stormed out in a rage, announcing to all and sundry, "I don't need this bullshit." (I clapped in appreciation.)

Once a victim had been selected for possible hire, he or she would be told that they had to "learn the company" before they would be of any real use, so during that period of 90 days, they would be paid $6.50 or $7.50 per hour, with a $0.50 raise if the company decided to keep them on at the end of the trial period. So, the company president talked up their great prospects and how they would be sent to learn every aspect of company procedures. This was entirely a lie.

Times were desperate. The defense industry locally was crashing. Any job was better than living on the streets.

Then, at the end of the 90 days, during which they were expected to come in on weekends and work for free as part of their training, which in fact largely consisted of entering data in customer data bases - not any actual training in their applied-for job, the company president would call them in and announce that their work had been "UNSATISFACTORY!!!"

Thus, the company would not be able to pay them their $.50/hour raise. If they wanted to stay on, then the company would allow that, out of charity, but they could not expect any more money. Within another three months they would invariably be gone and a new victim would replace them. Often they would deliberately sabotage major aspects of company operation in revenge for having been defrauded before leaving.

Of course, many people would ask around and realize what they were up against and quit well before the 3 months. However, if they quit after more than three days, they lost their unemployment insurance benefits, if they were receiving any. So, they often suffered a net financial loss for working there. In a couple of cases, new hires who spotted various strange aspects to the situation asked me what was up, and, when I told them, scrambled to quit inside the three days. Several employees lasted for less than one day, one for only one hour.

In a few cases, employees who were unusually well qualified did stay for a year or two, simply because they were inexperienced in the job market and didn't realize how badly they were being treated, or had developed some kind of victim's syndrome. When they left, it was almost invariably to jobs paying twice as much.

I suspect that the daily atmosphere of being maligned, treatied like children, bullied, and deliberately insulted in front of other employees, and a host of other similarly depressing behaviors by management that induced such a state of depression and a feeling of worthlessness, that they projected that feeling to new prospective employers, who reflected it back, perpetuating the cycle.

The many jobs that employees in a small company that engages in diverse product sales have to learn would seem to make it obvious that such policies were counterproductive. Only employees who had significant experience would be able to work efficiently, and the constant turnover made that impossible.

For example, my job, desktop publishing of hundreds of technical manuals, sales flyers, brochures, catalogs, etc, had, I believe, employed seven different employees in the prior two years. Because they always came on board with everything in disarray and jobs stacked up, each one had to start from scratch, as there was no time to try to organize the stacks of printouts and floppies from the previous several employees.

Thus, all expertise was lost and recreated on the fly, over and over again.

How could such an inefficient operation stay in business in a competitive market, and why did they behave in such an apparently irrational manner anyway??? Stay tuned...

Post 5

Sunday, December 23, 2007 - 7:10pm

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Ohmygawd!

Sorry Tibor.

Post 6

Sunday, December 23, 2007 - 9:18pm

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Bill

The quantity of labor that employers can afford to hire or to keep employed depends on factors over which they have no direct control. They are not in the position of economic benefactors who have the power to grant or withhold favors at their arbitrary discretion, a view which many in our society seem to have.

Good post, sanctioned!

And a view some of my employees seem to have as well.

Post 7

Monday, December 24, 2007 - 4:39pm

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The central fallacy here that I suspect that Tibor as well as many a free-market advocate has committed is the premise of an efficient market. Human beings are incredibly productive, and almost unbelievably wasteful.

Here on the West Coast, up in the Oregon/Washington area, the local natives would hold what were called "Potlatches," in which a chief or wannabe "big man," would stage a huge party and give away or burn virtually all their worldly possessions. This was to prove to all and sundry how capable they were, meaning more accesss to women for mating, among other things, and it worked apparently, as it was an ancient and well-established custom when the Europeans arrived.

A hunter gatherer in the good parts of the planet, which is where most humans in history spent their time for obvious reasons, spent an average of perhaps 4 hours per day doing actual work to survive.

Very few businesses operate at the margin, where a few points of dropping sales will destroy them or make them the market leader. Most businesses, like most people, maintain a hefty surplus capacity, so that they can weather the real shocks that occasionaly hit them. If they didn't, how many people would risk investing in them? And how many banks would underwrite them?

When such a business has nasty people running it, then they can get away with quite a lot in indulging their sociopathic impulses, tapping into that reserve as needed.

The company where I work is something of an extreme case of this point. The real operation - theoretically - is in Taiwan, where all the profits are taken. The theoretically independent Taiwan operation sells a product to itself (the U.S. operation) for, say, $50 per unit. It cost them $12 per unit to design, manufacture, package, handle and ship, so they just made a 300% profit.

The U.S. operation then sells the product at a price set to just undercut any local U.S. competition, at perhaps $79 to a distributor and $99 to a dealer. They also make sure that their wages, and other expenses are set to cancel out any profits here in the U.S.

Thus, they pay a minimal tax in Taiwan, and no taxes here in the U.S., where they get a free ride on the infrastructure paid for by their competition, until it is put out of business, anyway. The Taiwanese do not really understand the U.S. market or the other foreign markets that the U.S. branch exports to, so they leave the management up to the local flunkies, who have virtually carte blanc to indulge their whims. So long as a hefty profit is made in Taiwan, they really don't care how much is wasted here.

Under an efficient market model, the Taiwanese company would have long ago been put out of business by local competition who could do the job just a little bit better - or run their U.S. operation more efficiently. NOT. The inertia imposed by transaction costs, reputation, patents and a large dose of backsheesh to guarantee their market position and freedom from political harrassment, both here - in terms of campaign contributions to U.S. legislators - and in Taiwan, ensures that unless they truly screw things up massively over time, they will remain a major market player.

The local mangement does not have much in the way of market signals by which to micro-evaluate their procedures. I could go on for days - literally - describing absurd situations that they have gotten themselves into over the years, often costing tens of thousands of dollars - right down the drain. And in virtually every case, ANY normal person could have told them what was going to happen. However, the central maxim of Chinese culture is "If you have power, you can get anything. If you lack power, then you will lose everything."

Thus, it is the fact that the U.S. management obeys orders that is the central and most important thing for their Taiwanese bosses. So long as they demonstrate that they understand the power structure, they are free to do as they please otherwise, and they do.

While this is a special case (or, more precisely, one of tens of thousands of similar special cases involving Chinese manufacturers), it is only the extreme end of a spectrum. Consider the central theme of the Fountainhead. It was private businesses who were the bad guys. Where does Peter Keating, Guy Francon or Gail Wynand fit into the efficient business model?

The little test that every prospective hire has to take, as well as the mandatory wait in a super-heated or ultra-cold lobby, are tests for the central virtue that the company wants in employees - subservience. A further examination of things like our unemployment insurance system, the minimum wage and its impact, and the workman's compensation systems might shed light upon the fact that we are not really talking about a free market here, but rather a market in which an "employee" has been stuck into a special legal class, deprived of basic rights by law, while "employers" have - via the political influence possible to concentrated interests (see Bastiat's "The Seen and the Unseen.") acquired a set of legal privileges.

But that's another thread...

Post 8

Monday, December 24, 2007 - 8:27pm

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I see no fallacy here at all, none. And I made it abundantly clear that because markets are distorted by regulations and laws, by the interfering state, my point is of limited applicability. But essentially it holds--when people are laid off in a bona fide free market, it is customers who do this!

Post 9

Monday, December 24, 2007 - 9:23pm

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No disagreement here.

Post 10

Monday, December 24, 2007 - 10:04pm

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Phil Osborn wrote,

The central fallacy here that I suspect that Tibor as well as many a free-market advocate has committed is the premise of an efficient market. Human beings are incredibly productive, and almost unbelievably wasteful.

Nonsense! Tibor's point was perfectly valid. If enough consumers's don't want the product or don't want it at the asking price, then the producer cannot justify employing workers to produce it. That was his point. The customer is king.

Very few businesses operate at the margin, where a few points of dropping sales will destroy them or make them the market leader. Most businesses, like most people, maintain a hefty surplus capacity, so that they can weather the real shocks that occasionaly hit them. If they didn't, how many people would risk investing in them? And how many banks would underwrite them?

To the extent that consumers recognize a better deal for the same price or the same deal for a lower price, they'll choose it over the alternatives. Obviously, a company is not likely to go out of business or lose its position among competitors simply because a few customers, for whatever reason, stop buying its product. Nor is it always the case that any discrepancy in price or quality will automatically and instanteously be eliminated by a process of entrepreneurial arbitrage. But under capitalism, there is a tendency for competition to eliminate significant disparities in price or quality, because there is a profit incentive in doing so.

When such a business has nasty people running it, then they can get away with quite a lot in indulging their sociopathic impulses, tapping into that reserve as needed.

Not if there is a profit to be made treating workers respectfully. The only way that a company can get away with treating its workers badly is if there is a glut of workers seeking employment at the company, but (a) those workers won't stay if there are better opportunities elsewhere, and (b) the resulting high turnover will be detrimental to the efficiency of the company.

Under an efficient market model, the Taiwanese company would have long ago been put out of business by local competition who could do the job just a little bit better - or run their U.S. operation more efficiently. NOT. The inertia imposed by transaction costs, reputation, patents and a large dose of backsheesh to guarantee their market position and freedom from political harrassment, both here - in terms of campaign contributions to U.S. legislators - and in Taiwan, ensures that unless they truly screw things up massively over time, they will remain a major market player.

I don't know what you mean by an "efficient market model"? Such a model, as I understand it, simply says that the free market is more efficient than production that is controlled by the government. Obviously, transaction costs are part of the cost of doing business. To say that they impede the efficiency of the market is not to understand the process of production. Ditto for "reputation." The acquisition of knowledge is itself a transaction cost and does not occur automatically or immediately. A certain amount of time is required for a deteriorating reputation to take hold among the buying public. If by "patents" you simply mean the right of a producer not to have his ideas stolen, than far from being an impediment to productivity, patents encourage productivity by ensuring that a producer's invention or discovery will be protected from thieves.

The local mangement does not have much in the way of market signals by which to micro-evaluate their procedures. I could go on for days - literally - describing absurd situations that they have gotten themselves into over the years, often costing tens of thousands of dollars - right down the drain. And in virtually every case, ANY normal person could have told them what was going to happen. However, the central maxim of Chinese culture is "If you have power, you can get anything. If you lack power, then you will lose everything."

If the company is ahead despite its screwups, then that simply means that its productive efficiency is that much greatr relative to competitors. In any case, the incentives are against these screwups, and the company pays a price for its inefficiency in terms of lost revenue and profits.

Thus, it is the fact that the U.S. management obeys orders that is the central and most important thing for their Taiwanese bosses. So long as they demonstrate that they understand the power structure, they are free to do as they please otherwise, and they do.

While this is a special case (or, more precisely, one of tens of thousands of similar special cases involving Chinese manufacturers), it is only the extreme end of a spectrum. Consider the central theme of the Fountainhead. It was private businesses who were the bad guys. Where does Peter Keating, Guy Francon or Gail Wynand fit into the efficient business model?

The fact that Peter Keating and Guy Francon were second-handers, and Gail Wynand, an unscruplous journalist doesn't mean that they didn't give their customers what they wanted. It just means that they weren't virtuous men. Again, the issue is the efficiency of capitalism relative to statism, not the integrity or independence of individual capitalists.

The little test that every prospective hire has to take, as well as the mandatory wait in a super-heated or ultra-cold lobby, are tests for the central virtue that the company wants in employees - subservience. A further examination of things like our unemployment insurance system, the minimum wage and its impact, and the workman's compensation systems might shed light upon the fact that we are not really talking about a free market here, but rather a market in which an "employee" has been stuck into a special legal class, deprived of basic rights by law, while "employers" have - via the political influence possible to concentrated interests (see Bastiat's "The Seen and the Unseen.") acquired a set of legal privileges.

If you're not talking about a free market, one without minimum-wage laws or unemployment insurance, then you're conceding that it is the government through these market impediments that is responsible for unemployment. Nor is it the case that these laws leave employers in a better position than workers. Minimum-wage laws adversely affect employers as well as employees.

- Bill

(Edited by William Dwyer on 12/25, 1:29pm)

Post 11

Monday, December 24, 2007 - 11:10pm

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It sounds like Phil Osborn has never owned a business. For him to say nonsense like the following:

The little test that every prospective hire has to take, as well as the mandatory wait in a super-heated or ultra-cold lobby, are tests for the central virtue that the company wants in employees - subservience. A further examination of things like our unemployment insurance system, the minimum wage and its impact, and the workman's compensation systems might shed light upon the fact that we are not really talking about a free market here, but rather a market in which an "employee" has been stuck into a special legal class, deprived of basic rights by law, while "employers" have- via the political influence possible to concentrated interests (see Bastiat's "The Seen and the Unseen.") acquired a set of legal privileges.

Labor laws that favor the employer? Are you kidding me?

Open a business in Connecticut then tell me the laws are in my favor. Businesses are not given special legal privileges. First of all employers at least in CT pay unemployment insurance into a collective pot that all businesses pay into as required by state law, not employees, and the higher number of unemployment claims a business gets (which is very easy for an employee to get unemployment for any reason) the higher the insurance rate is for the business. Employees don't pay a cent of those unemployment pay-outs. Worker's compensation is exactly the same. The employee pays none of that and the employer must carry insurance coverage. Which again, is very easy for an employee to make a claim. Add to that any claims of wrongful termination made by an employee enjoys state funded legal help. Tell me that makes me a privileged class?

Phil you just sound like a disgruntled employee to me. Had a few bad job interviews or something?

Post 12

Tuesday, December 25, 2007 - 12:39am

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His incompetency must have let slip, maybe....

Post 13

Wednesday, December 26, 2007 - 7:12pm

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Tibor wrote: "But essentially it holds--when people are laid off in a bona fide free market, it is customers who do this!"

OK, so then The Fountainhead was just a fantasy, right?

In the late '70's and early '80's, I worked for the long defunct Kahan and Lessin Company, the largest health food distributor on the West Coast. I watched as the unbelievably incompetent management took a company with a clear and seemingly unbeatable market position right into bankruptcy. Among other idiocies, they ran up an astronomical workman's comp bill, as the rates are set based upon the record of claims.

Eg., they ran a cherry picker (a big electric pallet jack that can rise up ten or more feet in the air for those who have not had warehouse experience) for over a year with a defective pallet locking mechanism. Anyone who reported safety problems could expect to be punished, but several people still pointed out how inherently dangerous this was. Typically the operator would step back from the controls onto the pallet to load boxes of merchandise from a high rack. If he was distracted or in a hurry, he might forget to look first to assure himself that the pallet was actually on the forks.

One night, I was working on the other side of the racks, picking vitamins from the roll-down shelves to fill orders, when I heard this eery sound. It kept repeating and sounded like nothing human. I looked under the racks and saw the cherry picker operator with his head split open, lieing in a pool of blood.

Their failure to correct an obvious danger cost the company over $50,000 in medical expenses. Miraculously the man survived, although he was never quite the same. This was just one of hundreds of examples illustrating the incompetence of the management, and only the worst of dozens of major accidents that ate into their profits.

At most companies at which I have worked, the workers have only scorn and contempt for management, who are seen as being the brown-nosers who sucked their way up the ladder and could never do the actual jobs that they pretended to manage. High-level programmers working in the missile defense industry, among many, many others, have told me endless tales of how they had to slyly work around all the restrictions that ignorant management put on them, in order to get their jobs done.

I have also watched many major companies - Commodore, for example, or Atari, for that matter - crash and burn strictly because the people running the companies were either completely ignorant of the business that they were "managing" or were playing other games on the side at the expense of the shareholders, employees and customers.

The fact is that The Fountainhead was not a fantasy. "Management" is terra incognito, and all too many people are running things because they are seen as being "safe." After all, if you (the Board of Directors) appoint someone to CEO who is actually competent, he might do something unexpected, he might take calculated risks. On the other hand, if you appoint someone who is incompetent, but can put on a good show, then he will be sure to do what you want, as he knows why he has that job.