Sunday, September 30, 2012

We did it to ourselves, Part II.

You can't really have a conversation these days about publishing, newspapers, advertising and a host of other industries without hearing that those industries are dead.

Let's start with a quotation from Mitt Romney from back in 1985. A quotation that will provide a bit of context: "Bain Capital’s mission was to 'invest in start-up companies and ongoing companies, then to take an active hand in managing them and, hopefully, five to eight years later, to harvest them at a significant profit.'”

That's a fancy way of saying, we'll come in, cut costs, take huge fees, have the company ship huge amounts of cash to headquarters, and then when they are skeletal, we'll sell them again or let them go belly up. In the meantime, the money people (private equity, holding companies) have gotten huge amounts of money out of the muscle and sinew of the company they own. They are not about long-term value. They are about taking cash out of a cash cow--picking at it until it's nothing more than a dessicated carcass.

This, in a nutshell, is how our economy (indeed, our financial system) finds itself in $1.6 trillion of debt. Giant, politically-connected companies--Halliburton, General Electric, Raytheon--take trillions out. The carcass is picked clean.

I'm not convinced there's anything wrong with the advertising industry--fundamentally wrong. The money it makes is still there. It's just made by people not from the industry.

If you think about the great fortunes made by the wealthy since the beginning of time, they are almost always made from "extractive" industries. Mining and drilling, primarily. Their technique is take everything out at the lowest cost possible and when nothing is left, move on.

It's happening to us.

7 comments:

Urban Viking said...

Aw, c'mon. Companies that get sold, gutted, and either flipped or scrapped all have one thing in common. Sellers that were not in it for the long haul. Or maybe the whole firm had one good idea/asset, and apart from that not a lot of sand in the bucket. How can you just blame the corporate head-count cutters without looking at the other side of the deal? I would say the start-ups and managers of other sold companies have culpability in failing to make the company into something worth keeping.

elias said...

Great post, once again. And to address UVs criticism: the companies often get taken over in a non-friendly way, meaning there's ways to push a company to the brink of having to sell. That's what happens. It is indeed strange if the biggest piece of the whole economy is the money management business.
It reeks foul.

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