Creative destruction is an essential element of market based competition. As we discover new ways of doing old things, outputs increase and costs decrease. Customers benefit and living standards are raised throughout society. That's productivity.
When improved ways of doing old things are introduced, the status quo is replaced. We then enjoy the benefits as part of a competitive free market system. Examples are from horse and buggy to car, pony express to personal computer, radio to TV, window fans to air conditioning and so forth.
People vote by choosing how to spend their money as entrepreneurs compete to introduce new products and services to the marketplace. Some entrepreneurs win and some lose. As a result, customers win. That's the way markets work.
When monopolies or government protected industries exist, however, productivity gains often don't result. Instead the old ways keep on keeping on as new ways are continuously deferred or otherwise held off.
As a result, citizens lose the opportunity for productivity gains and improved living standards as government favored segments are protected from market based competition. Monopolies, protected industries/companies and crony capitalism all go together to cause harmful results for customers, citizens and taxpayers.
Let's review a current case of market based creative destruction. Amazon has essentially destroyed traditional retail book stores (i.e., Borders). But it isn't content to stop there as it focuses on replacing many book publishers and agents as well.
In market based competition, what's innovative is often competition eliminating. That's simply the impact productivity and creative destruction have in a market based system. Sometimes the effect is both brutal and beneficial, depending on whether it's being viewed from the eyes of a losing competitor or a winning customer.
A few excerpts from Amazon Signs Up Authors, Writing Publishers Out of Deal tell the developing Amazon "Pac-Man" like story in brief:
"Amazon.com has taught readers that they do not need bookstores. Now it is encouraging writers to cast aside their publishers. . . . .
Publishers say Amazon is aggressively wooing some of their top authors. And the company is gnawing away at the services that publishers, critics and agents used to provide.
Several large publishers declined to speak on the record about Amazon’s efforts. “Publishers are terrified and don’t know what to do,” said Dennis Loy Johnson of Melville House, who is known for speaking his mind.
“Everyone’s afraid of Amazon,” said Richard Curtis, a longtime agent who is also an e-book publisher. “If you’re a bookstore, Amazon has been in competition with you for some time. If you’re a publisher, one day you wake up and Amazon is competing with you too. And if you’re an agent, Amazon may be stealing your lunch because it is offering authors the opportunity to publish directly and cut you out."
Now let's turn away from the private sector and to a much different post office story. Postal Union Turns to Wall Street for Advice on Its Future says this about the new strategic initiative being undertaken by the postal workers union:
"Can Ron Bloom, the restructuring expert who helped shore up the automobile and steel industries in the United States, save the ailing United States Postal Service?
The labor union representing more than 280,000 current and retired letter carriers is counting on him.
On Sunday, the National Association of Letter Carriers announced that it had hired Mr. Bloom and Lazard, the financial advisory and asset management firm, to develop a strategy to revitalize the deficit-laden postal service.
“We have retained Lazard and Ron Bloom to make sure we explore and expand the various range of solutions to address the postal service’s fiscal crisis as well as long-range business strategies not being pursued right now,” Fredric V. Rolando, the national president of the union, said in a phone interview."Mr. Rolando didn't mention that the postal service loses about $10 billion of taxpayer money each year and has lost money every year for a very long time. Now the union wants to address the "postal service's fiscal crisis," according to the union president. Why now?
The union's plan is to grow the 'business" as opposed to dramatically lowering costs. I wonder why. In any event, hiring Obama friend Bloom is apparently a key component of the union's growth strategy for the post office. Why Bloom? And why are they trying to interfere with management plans to cut costs dramatically?
Well, the cost cutting story probably doesn't sound too good to union officials. Thus, that's the real reason they are seeking help from the Obama administration's friend Mr. Bloom. If the union ploy works, the taxpayer will pay and pay and then pay some more.
Please listen to what disingenous union president Rolando says about the postal service's prospects for growth:
"“We believe there is a business here,” Mr. Rolando said. “We believe there is a way to grow the business.”
The union president came up with this "grow the business fairy tale" because he realizes that the postal service can't cut costs enough to get rid of the losses. Objectively, it's a dead man walking situation. Accordingly, the union wants to preserve the status quo, just as it's successfully done for many decades now. The taxpayer doesn't count at all.
The basic article describes the postal service's financial dilemma this way:
"It will not be easy (to eliminate losses) at a time when the postal service’s capacity far outstrips consumer demand.
The post office operates 32,000 retail outlets and delivers mail to some 150 million addresses, including businesses, residences and post office boxes. To deliver mail six days a week to those households and businesses, the agency employed about 584,000 people last year. Labor costs now account for 80 percent of the agency’s expenses while the United Parcel Service, for example, devotes only 53 percent of expenses to labor costs.
Meanwhile, over the last five years, mail volume has declined by more than 43 billion pieces, according to a recent press release from the postal service. In that time, the volume of first-class mail declined 25 percent, including a 36 percent decline in individual letters — the kind that use stamps rather than meters.
Last month, Patrick R. Donahoe, the postmaster general, proposed cost-saving measures aimed at saving the agency $3 billion annually. Measures under consideration include closing or consolidating 250 processing centers, sharply reducing the agency’s transportation network and cutting as many as 35,000 jobs.
But Mr. Rolando, the president of the letter carriers’ union, said it would make more sense to view the postal service’s vast network of retail outlets, letter carriers and vehicles as an asset — and one that might be used to do more than deliver mail.
“Our hope is to be able to come up with a strategy to maximize the network and take the business into the future,” he said.""
The union president's position on achieving growth to restore the business viability of the postal service is preposterous. He just wants another taxpayer bailout, so he hired Ron Bloom to get it.
For another view of the postal service story, see Union Seeks Role in Postal Revamp.
Here's my take on what's best for we the people. Let's just agree to sell the post office to the union, Mr.Bloom and Lazard, so they can make it into a growing and vibrant "business." But if they don't want to buy it as a private business for themselves, let's close it for the taxpayers.
In other words, if nobody wants to step forward and buy it, let's close it. We're losing ~$10 billion annually and there's simply no credible way forward. Let's stop playing games with taxpayer money. Haven't the taxpayers already paid enough?
The Amazon story clearly demonstrates that private sector creative destruction is alive and well.
Meanwhile, creative destruction is absent from the postal service case, and public employee unions are on the political move.
The postal union president has hired the exact same people who helped the Obama administration "save" the auto unions-er-companies. I'm sure their plan is to "save" the postal union-er-service as well.
But who will save the taxpayers? Not the public sector unions, that's for sure. And not President Obama either.
How should it work? Well, if government insists on offering services which compete with private sector offerings, those government services should be required to stand on their own. The taxpayer should insist that all public sector services are continuously cost and price competitive with private sector alternatives.
If the government services are not competitive, close them down or sell them to the highest private sector bidder, assuming one exists.
If postal union president Rolando and Obama crony Bloom bid to buy the postal service and take it private, taxpayers will happily sell it to them at a bargain price. Then if the postal "business" is worth lots of money, Rolando and Bloom can enjoy their just rewards. But should they lose, they can enjoy those just rewards, too. That's the way markets operate.
In any event, taxpayers will win. By closing or selling the postal service, we the people will save at least $100 billion over the next ten years. And then at least like amounts continuously thereafter.
See how simple this fiscal sanity stuff would be if the taxpayer counted. Maybe we need to form a taxpayers' union to protect us against the government and public sector unions.
I'd vote for that.
Thanks. Bob.
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