Another Victim of Ayn Rand’s Corrosive Objectivism: Sears

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Thanks to a very interesting article by Denise Cummins in Evonomics I learned another great story to add to my growing set of case studies showing how the “greed is good” ideology destroys companies. In Ultrasociety I mainly talked about Enron, and Jeff Skilling’s role in its fall. But the story of Sears is equally interesting—and thought-provoking.

My sources are Mina Kimes in Bloomberg Business and Lynn Stuart Parramore at Salon.

The main protagonist is Eddie Lampert, who started out at Goldman Sachs, then founded a hedge fund, ESL investments, and became a billionaire at age 41. As I was reading about him, I was struck by how similar he is in many ways to Jeff Skilling. In particular, many who worked for Lampert call him brilliant. ““He’s razor-sharp smart.”

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Like Skilling and fictional Gordon Gekko, Lampert is a big believer in the “greed is good” philosophy. His patron saint is Ayn Rand, and like her he extols competition and disparages cooperation. When he got control of Sears, he implemented a system there that promoted cut-throat competition within the corporation, just like Skilling at Enron. Read about it in the Kimes and Parramore articles; the details they provide are quite amazing.

The result was predictable (that is, if you understand that it’s really cooperation that underlies the success of groups, firms, and whole nations). As Parramore writes in Ayn Rand Killed Sears,

It got crazy. Executives started undermining other units because they knew their bonuses were tied to individual unit performance. They began to focus solely on the economic performance of their unit at the expense of the overall Sears brand.  One unit, Kenmore, started selling the products of other companies and placed them more prominently that Sears’ own products. Units competed for ad space in Sears’ circulars, and since the unit with the most money got the most ad space, one Mother’s Day circular ended up being released featuring a mini bike for boys on its cover. Units were no longer incentivized to make sacrifices, like offering discounts, to get shoppers into the store.

Sears became a miserable place to work, rife with infighting and screaming matches. Employees focused solely on making money in their own unit ceased to have any loyalty the company or stake in its survival.

Again, there are eerie similarities to the last days of Enron. As I wrote in Ultrasociety,

Traders who needed to go to the bathroom shut down and locked their computers because they were afraid that a competitor, sitting at the next desk, would steal their ideas. “If I’m going to my boss’s office to talk about compensation, and if I step on some guy’s throat and that doubles it, then I’ll stomp on that guy’s throat,” said a former employee.

One other interesting detail. As I was reading on the background of the Fall of Sears, I was surprised to see a familiar name. Soon after Lampert got control of Sears Holding, he hired Steven Levitt as a consultant to help him figure out how to run it. Levitt is a Chicago economist well known to the general public as a co-author of Freakonomics, which sold several million copies.

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Levitt gained fame with his theory that explained the fall in homicide rates in the US during the 1990s. He claimed that the main reason was an increase in abortion rates for black women in the 1970s. This theory has been disproved by others and later on it turned out that much of the effect Levitt saw was due to a computer error in his and his coauthor analysis.

Levitt is a proponent of very traditional economics. The main tool that he sees that changes people’s behaviors is incentives. In Chapter 3 of SuperFreakonomics, the sequel to Freakonomics, he and his co-author Stephen Dubner argue that there is no unselfish altruism—people only appear to help others, but actually do it for self-serving reasons. Finally, consistent with his market fundamentalist views, Levitt has been a big proponent of privatizing prison labor.

All in all, it’s perhaps not so surprising that Eddie Lampert would look to economic advice from Steven Levitt.

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Ralph Haygood

“In particular, many who worked for Lampert call him brilliant. ‘He’s razor-sharp smart.'”: And these people are credible because … ? Would any of them recognize genuine intelligence if they saw it? All by itself, the fact that they worked for this predator strongly suggests they’re none too bright. After all, they’re among his victims, if only in that they spent some of their lives kowtowing to a person who would squash them like bugs if he saw a profit in it.

“True success is figuring out your life and career so that you never have to be around jerks.” (John Waters)

It’s ridiculous to describe such fools as “brilliant”. Cunning, surely, but mainly what they are is swaggeringly self-assertive and simplifyingly unconstrained by regard for anyone else’s welfare. Genuinely intelligent people don’t need to abuse other people in order to live in material comfort, and they don’t delude themselves that they’d be happy if all the other people in their lives were either sycophants or enemies.

Ross Hartshorn

Hmmm…I’m not always a fan of Levitt’s work, but I think it’s not a very balanced claim to say that his theory was that it was due to a decrease in “abortion rates for black women”. I just dug out my old copy of “Freakonomics”, and I don’t see much discussion of race at all, it’s mostly about abortion rates. The example cited most often (other than the U.S.) is Romania, where presumably the abortion rate among black women would not have been much of a factor. Also, he’s trying to discredit the “crime went down because we imprisoned more people” theory, and cites its negative affects on black communities especially because of the appallingly high percentage of young black men who were imprisoned in the 90’s, and also the Giuliani “crime went down because of improved policing methods” theory, which most black leaders in New York City said was a cover for racial profiling.

None of which is to say that his theory is correct, of course, but just that I don’t see anything (in that chapter of Freakonomics, anyway) which points towards a summary of “crime went down because of an increase in abortions by black women”. His primary thesis seemed to be (quoting here from Freakonomics) “when the government gives a woman the opportunity to make her own decision about abortion, she generally does a good job of figuring out if she is in a position to raise the baby well”. Which isn’t necessarily true, but the summary in your column gives one the impression that it was based on race, which it doesn’t seem to me that it is.

Juan Alfonso

I remember that when I read “Freakonomics” I thought that the causal explanation offered there wasn´t satisfactory enough. Instead a sociobiological approach could be better; From an evolutionary point of view it is logical to expect that great numbers of young “baby-boomer” males would correlate with high crime rates, car accidents and other events associated with male display behaviors like risk taking activities, gangsterism and such.

Birth control methods are capable of reducing the numbers of young males in 15-20 years and therefore capable of reducing pressures to display male prowess. But birth control (not only abortion) might not be the ultimate cause but a proximal cause of decreasing crime rates.

Why women suddenly decided they wanted to cut down fertility? Why companies offered them effective birth control methods (including safe abortion) just in the right time?… The answer might be that birth control is the consequence of women massively joining the labor market, especially since the 70´s crisis, where US industrial economy transformed into a post-industrial service-oriented economy,

Abortion rates might be a proxy, not a cause. The ultimate causation might be a cultural evolutionary one; Firms need to grow. And they need to grow more than their competitors: they need more and more customers. In a service-oriented economy women can quickly join the population of producers-consumers almost doubling that population in just a few years. How long would it take to almost double the number of producers-consumers just through demographic growth? 40 years? 50?…

That achievement was made in only 15 years or less because women are as capable as men in service-oriented jobs. Having many children handicaps any woman that wants to develop a carreer, or simply have financial stability, so young women faced a dilemma: having children or having a carreer Firms have been fighting hard for making them choose the second alternative: there has been an arms races in order to attract young women as customers. “Sex and the city” is the typical media product that presents a succesful image of independent women that have chosen working and consuming instead of having many children.

Decreased crime rates is a good consequence of the fertility slump but now economies face a dire challenge. Demographic growth has stagnated: how are firms (and economies) supossed to keep growing?…

O.Voron

Juan Alfonso, “Demographic growth has stagnated: how are firms (and economies) supossed to keep growing?…”

EU solution: bringing in migrants by the millions. Ready-made producers-consumers, or so they think.

Juan Alfonso

Yeah, Voron… That is one of the quickest solutions specially for states (since states need producers-consumers-tax payers) but it will eventually bring unwanted consequences. Germany has been benefitting from this since the onset of the EU. I wonder if that´s the reason why they were so eager to accept (syrian) migrants by the millions as you say…

Other solution, for firms, is going multinational: taking their business wherever demographic (and economic) growth still exists: the so-called developìng countries. But eventually these countries will develop local economies of their own and they might even get in position for exporting their own multinational companies (lihe Alibaba) to western countries. We might end in the wrong side of globalization…

Richard

To anyone interested, I’m of the belief that less lead in the environment is the main reason why we have had less crime than in the ’70’s and ’80’s, though abortions may also have had an effect.

Levitt has pushed back hard against the lead theory (because it makes his research less accepted), but the data is convincing.

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