Capitalist Stumbles

It’s quite possible to admire a company’s products while, at the same time, disliking its management. In such cases, the company used to have a great management—the reason why we like its products. But while the products are still great, the company is evidently changing for the worse. My favorite example is Hewlett-Packard. I write this on an HP computer; next to it stand two HP printers. A story in the Wall Street Journal today, disemboweling a turgid HP acquisition and its troubling consequences for HP’s stock performance, reminded me of my love-hate attitude. The WSJ looks at stocks—but HP’s capitalist stumbles endanger a genuine value, the technology now retired managements at HP created to win a huge following. HP is still the leading personal computer and printer producer.

Back in August of 2011 I registered my dislike on this blog (link) when the company announced its plans to sell its personal computer group. I knew then that a capitalist management group had taken the reins from earlier groups inspired by engineering and customer services.

Herewith some details which are backed by HP’s own 10-K SEC filing, available from HP’s website. Here is a company that, in 2011, had revenues of $127 billion of which $38.4 billion were personal computers (30.2% of revenues). The company had a pretax profit of 6.1 percent on its PC revenues, which also represented 16.9 percent of its total pretax profits. Why would a company want to dump a business—indeed a core business—that is both significant in size and profitable? The answer? Because a capitalist mentality came to be in charge.

Looking now at three years of data, 2010 through 2012, HP had seven revenue-producing segments. The three largest were PCs, Printers, and Services. The others were Servers/Networks, Software, Financial Services, and Corporate Investments. In the 2010-2012 period, the first three, while profitable, exhibited declining sales. They moved from representing 80.2 to 77.5 percent of total HP revenues. The growing segments were the next three. Revenues from Corporate Investments were not only declining, they were also losing money.

In the capitalist universe, a company is nothing other than a machine for harvesting profits from something, never mind what. And the profits must be growing. Companies do not exist to serve the public. Product doesn’t matter. Therefore HP set about in 2011 to become mighty in Software and in Financial Services, the first growing at an annual 20.2, the other at an annual 11.6 percent (2010 to 2012). HP therefore undertook the acquisition of the British Autonomy Corp. and announced plans of dumping its personal computers. Soon after acquiring Autonomy, HP had to write off $8 billion because Autonomy had been a bad purchase. And thus far the PC Group is still within HP. But I can well imagine the morale in that group since August 2011. And the mood within the Printer Group must also be ecstatic.

Now we’ve been made to think that some kind of law of nature is at work in business—and that it is right and proper for corporate entities to operate without any concern whatever for the customer base on which they rest. Never mind the product, the society, the communities—even when plentiful profits are flowing from providing the latter with services. What matters is growth and the stockholder. But such behavior is not a law of nature. It is the consequence of human nature—where self-centered greed must be resisted and transcended—and public protection of corporations through laws of incorporation must be earned by service to the public.

Ecologies and Monocultures

I came across a fascinating quote in the September 2012 issue of Independent Dealer (the official publication of the National Office Products Alliance). Hat tip here goes to Monique. The story, titled “Wall Street Analysts Slap Office Products Big Boxes,” says, among other things:

The big boxes’ overall total return over the past five years has been dismal at best, accordingly to Planes, with Staples posting a -46% return, OfficeMax posting -84% and Office Depot generating a -93% return for its investors.

That scatter of negative returns turned me nostalgic. It did. I remember our arrival here in Michigan in 1989. After every move, one of the things I always did was to scout out the nearest and most pleasing office supply stores. Here on the eastern edge of Detroit I found three such, each with merits in one or another direction. And I began to visit them as needs arose. They were all owned by small proprietors and, depending on location, also featured additional products entirely unrelated to office supplies: household items, knick-knacks, furniture, carpets, pet supplies, children’s toys, gardening goods, and so on. In all of them about a third of the space was office supplies. I got to know the owners, lingered to chat sometimes. They got to know me. One store began to purchase a product I wanted regularly. You get the picture.

A decade later office supplies disappeared from two of the three. The third one changed owners and, two years later, closed its doors. The appearance of a single Staples is the most reliable explanation. It got put down roughly in the center of the triangle my earlier suppliers formed on a map. Looking for a caring owner at that Staples is like trying to make conversation with a statue.

We’ve come to worship something called the Market; we call that worship Capitalism. But the real market is an ecosystem while capitalism is a kind of agriculture based on vast exploitations of a single crop. Healthy ecosystems feature great diversity, many, many small participants; here and there one will fail, but the ecosystem still keeps thriving. Huge networks supply them, not least wholesalers. The dealers are small, independent, and adaptive. Huge bargains? Never. The right products? Always. If not here then five blocks away. Interaction. Knowing the customer—and not by faceless computer displays of inventory change. Capitalism is, by contrast, destructive—and ultimately vulnerable. As is monoculture. It is therefore perfectly logical to be pro-market and violently opposed to capitalism. The market is just an aspect of community life. Capitalism? Edgar Allan Poe formed the image of it that I use: “While from a proud tower in the town, Death looks gigantically down.” With that you have another name for it.

In that same issue of Independent Dealer is some worry, more mutedly put than probably felt, that Amazon.com is massively moving into the office products category. Independent dealer? For how long yet? Unless those negatives pile up and form the proud ruin. But in that case, where will I buy my toner?

Growing Pains

Here is a quote which illustrates the capitalist mentality. It is, to be sure, by a journalist for CNet, Roger Cheng, who is presumably not a capitalist himself (else he would be wheelin-n-dealin rather than surfin-n-writin). But Mr. Cheng probably has his fingers on the pulse. The quote comes from an article reviewing Facebook’s lackluster performance yesterday (link) and ends by saying:

But with its business model still in flux and CEO Mark Zuckerberg's promise that the user will come first, perhaps it's a better bet to stay on the sidelines for now.

Zuckerberg’s grave sin, putting the users first, comes from his remark the morning FB went public when he said: “Our mission isn’t to be a public company. Our mission is to make the world more open and connected.” Zuckerberg is still young, isn’t he. He hasn’t drunk deep enough at the fountain of real wealth. The mission, Mark, is to make the stockholders happy. The public is just a means to that end. Write that down with a good ballpoint pen—right on your palm. 

There Goes HP

Hewlett-Packard, the largest producer of PCs (17.5% share), plans to spin off its PC business. The company sold 14.9 million PCs last quarter, but evidently that’s not good enough. The PC sector has seen declining sales as tablets are attracting the consumer. With faltering growth, the PC business is suddenly worthless in the eyes of mega-corporations that only look at growth as a meaningful economic measure. Amusingly, HP has also given up on tablets. It introduced the TouchPad in July—and had already killed it off in August.

What do we call this sort of behavior? Having been tutored by that great historian of economic life Fernand Braudel (Civilization and Capitalism), we call it capitalism around here. Capitalism, far from the source of our collective well-being, is an organized form of indifferent selfishness and hard-eyed exploitation; its tendency is evil.

HP has a full-page ad in the NYT this morning, no doubt elsewhere too. In an almost insulting way (insulting to the ordinary intelligence), it attempts to present its proposed spin-off of PCs as an entrepreneurial move (rather than the shedding of a low-growth but huge business) and tries to spin this move into the suggestion that “now, more than ever, we are committed to the future of personal computing.” How can you be committed to a business by putting it on the block? I divorce you. I divorce you. I divorce you. Now, more than ever, I love you. Baloney, HP.

They’re supposed to be so sophisticated, all these mega-mega-wealthy useless exploiters. But the rest of the world isn’t crazy. It is just quiet as it gradually takes over.