Category Archives: Economics Policy

Connecticut: Winning By Losing

Just four years ago, the Houston Astros of Major League Baseball was the worst team in the sport. But last week, the ‘Stros won the World Series. How did the organization progress from worst to first in merely four years?

By its own admission, the team won by losing. 2013 was the final year of a three year period when the organization leveraged its abysmal situation to clean house and reinvent itself. That clearance process set the stage for its subsequent success.

The State of Connecticut may be facing a similar opportunity today. Since 2016, two of the fifty largest business corporations in the nation moved their corporate headquarters out of state, with GE shifting to Boston and Aetna to New York City. And Alexion Pharmaceuticals, a firm that had received state funds to establish a New Haven headquarters, announced that it would follow Aetna to Boston.

Nevertheless, based on recent news about these corporations, Connecticut may not have been badly damaged by their departures after all. GE is now reacting to severe financial problems by implementing an immense operational retrenchment. Aetna is negotiating a potential merger into CVS, a much larger corporate entity. And Alexion is reported to have arranged its relocation to divert investor attention from a myriad of legal problems.

Meanwhile, earlier this year, Governor Malloy had been locked in battle with the Republicans and with his fellow Democrats in the Legislature over the state budget. Connecticut had been the only state in the nation to proceed into October without a fiscal blueprint.

But just last week, Republican and Democratic legislators finally resolved the situation by shutting out the Governor and working together to craft a budget. In other words, they simply placed the Governor’s proposals to the side, worked with each other, and passed legislation with a super-majority vote that was impervious to a gubernatorial veto.

So how far has Connecticut progressed this year? Not nearly as far as the Houston Astros have progressed since 2013, of course. No one in the Nutmeg State is declaring victory over its challenges just yet.

Nevertheless, just a few months ago, three ostensibly successful business corporations were preparing to depart the state, and the Governor was locked in a budget stalemate with the State legislators. And today? It appears that Connecticut’s economy may win by “losing” a trio of unstable employers, and its Legislature may likewise win by “losing” a stalemating gubernatorial negotiator.

So how long may the residents of Connecticut need to wait until they can truly celebrate? They may wish to take heart and recall that the Houston Astros merely needed four years to progress from cellar-dwelling losers to championship winners.

So perhaps, for Nutmeggers, 2021 may be a glorious year.

Grocer Convergence

Why do all new automobiles have rounded jelly-bean style edges? Even the mighty Toyota couldn’t make a success out of its boxy Scion models.

And why do all new mobile telephones feature finger-flip screens and electronic keyboards? Although BlackBerry continues to try marketing a traditional keyboard on its KEYone device, it has only managed to snare a tiny fraction of the market.

Once upon a time, automobiles, telephones, and many other products and services featured creative and unique designs. So why are we now seeing design convergence in so many different sectors of the economy?

Indeed, even supermarkets are not immune to this trend. A few weeks ago, for instance, Kroger launched a new web portal called We Are Local to develop its roster of local niche suppliers. The service is expected to help the traditional chain compete more effectively against Whole Foods.

But at the same time, the Wall Street Journal reported that Whole Foods’ new owner Amazon is busy eliminating local suppliers at all supermarket locations! The move is expected to help the relatively young grocery organization lower its cost structure to a level that is comparable to more established competitors like Kroger.

In other words, Kroger is becoming more of a niche product retailer that is evolving towards the Whole Foods model, while Whole Foods is becoming more of a standardized retailer that is evolving towards the Kroger model. But is either business strategy a wise one?

In the short term, the answer to this question is likely “yes.” After all, Kroger’s product selection could benefit from some local flavor. And Whole Foods’ selection is a bit expensive.

But in the long term, the commoditization of an industry tends to lead to its inevitable consolidation. After all, when all competitors sell identical products and services, it isn’t very difficult for the largest firms to acquire the smaller ones.

At the moment, there are more than 64,000 supermarket and grocery store organizations in the United States. It’s a delightfully large and diverse industry, operating within a sizable and healthy competitive market.

But what will happen if its market leaders continue on their path to convergence? As fans of classic Scions and BlackBerries have learned, consumers may find themselves bidding farewell to creative designs.

Ford: From Mexico to China

Ever since Donald Trump declared his intention to seek the Presidency of the United States, he has heavily criticized American firms that manufacture products in Mexico. One of those firms, for instance, has been the Ford Motor Company.

His criticism began in earnest more than a year ago, when Ford announced its intention to shift production of the subcompact Focus automobile from Wayne, Michigan to a new plant in San Luis Potosi, Mexico. But shortly after the Presidential election, Ford announced that it would reinvest in the Wayne production facility.

That produced celebrations in the American workforce, but astute observers noted that Ford didn’t actually announce that Focus automobile production would revert to Wayne. Instead, the firm declared that it would produce the subcompact at Hermosillio, a different location in Mexico, and would shift other vehicle production to Wayne.

And last week, less than six months later, Ford changed its plans again. Now it plans to shift the production of the Focus to China.

China? Whoa! The United States economy would undoubtedly be much better off with production of the Focus in Mexico, and not in China. After all, a Mexican final assembly factory would be sufficiently near the United States to purchase components from American suppliers.

And Mexican consumers, working in Mexican factories, are usually far more likely than Chinese consumers to purchase products that are manufactured in the United States. They’re also far more likely to use the online services of firms that are based in the U.S., considering that internet titans like Facebook and Google are banned from the Chinese mainland.

And what was President Trump’s response to Ford’s latest decision? Although he greeted Ford’s earlier decision by tweeting “Thank you to Ford for scrapping a new plant in Mexico …,” he hasn’t yet replied to the announcement of the shift to China.

Of course, it’s entirely possible that he might still comment on it. And it’s also quite possible that Ford will change its plans yet again.

But for the moment, it appears that Mexico’s loss is not the United States’ gain. It’s China’s gain, and thus the United States’ loss as well.