Category: Entrepreneurship

The legacy of George Washington’s Postal Service Act of February 20, 1792

127304 600 End of Saturday Mail Delivery cartoons

WASHINGTON — Faced with billions of dollars in losses, the Postal Service announced on Wednesday (Feb. 06 2013) that it would seek to stop Saturday delivery of letters, a sweeping change in mail delivery that immediately drew criticism from postal unions, some businesses and lawmakers.

What went wrong I wonder?  Would it had been better if George Washington had never passed the Postal Service Act of 1792? How many billions would taxpayers have saved since then?  Would private companies like the  American Letter Mail Company of Lysander Spooner have served better the market? Or would the system have collapsed without government intervention?

In February 20, 1792 the Postal Service Act, establishing the United States Post Office Department was signed by President George Washington.  An interesting date to remember in these days in which the Postal Service made it to the news with their Losses and their controversial solution by ending Saturday Letter Delivery.

We know for certain that in a free market no company would survive if they had kept losses as huge as the one USPS has had over all these years. They had losses of   $15.9 billion only last year.  A principle of free market transactions is that in competing  there appears a beneficial rivalry among sellers trying to achieve goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, distribution, and promotion.  Thus, enabling for those companies which succeed in growing larger and for those companies which fail to disappear.  With the existence of monopolistic services (like the Postal Service in the US) industries and business sponsored by government disrupted market transactions (bureaucratically made) and thus enabled for failing companies to continue existing even though they were not beneficial for society in the long-term.

126863 600 going postal cartoons

This reminds me to the company founded Lysander Spooner whom “being an advocate of self-employment and opponent of government regulation of business, Spooner started his own business called American Letter Mail Company which competed with the U.S. Post Office. Postal rates were notoriously high in the 1840s,[7] and in 1844, Spooner founded the American Letter Mail Company, which had offices in various cities, including Baltimore, Philadelphia, and New York.[8] Stamps could be purchased and then attached to letters which could be sent to any of its offices. From here agents were dispatched who traveled on railroads and steamboats, and carried the letters in hand bags. Letters were transferred to messengers in the cities along the routes who then delivered the letters to the addressees. This was a challenge to the United States Post Office’s monopoly.[7][9] As he had done when challenging the rules of the Massachusetts bar, he published a pamphlet titled “The Unconstitutionality of the Laws of Congress Prohibiting Private Mails.” Although Spooner had finally found commercial success with his mail company, legal challenges by the government eventually exhausted his financial resources. He closed up shop without ever having had the opportunity to fully litigate his constitutional claims. The lasting legacy of Spooner’s challenge to the postal service was the 3-cent stamp, adopted in response to the competition his company provided.[10]“

Lets have this as food for thought…

I don’t want a cheaper and weaker iPhone!

I read today’s article”A Low-Priced iPhone Awaits” in the Wall Street Journal with disappointment.  For some reason, it has become widespread for people to think that “successful products = low price” and that “happy costumers = low price“.

While those affirmations are truth I consider them to be only partially truth.

I want to bring into consideration the fact that it is not only “low-price” products what makes customers happy.  As a owner of stores that sell electronic accessories and as a user of cellphones I can tell you this:

  • No matter how expensive a telephone is, the owner of those products is going to be willing to take care of it without caring much for the original price paid for their phone. So, no matter if the phone is a $500 iPhone or a $50 Samsung S 1st Generation.  Both of the owners would consider paying from as little as $10.00 to as much as $75.00 in extra accessories to PROTECT and personalize their phones.
  • The owners of more expensive phones are always willing to invest a little bit extra to protect their phones.  However, the owners of cheaper phones are also going to be willing to pay a little bit extra to “improve” their phones quality and DURABILITY by adding other electronic accessories or gadgets.

That being said, while companies may continue offering lower-price products the overall quality of these items continues decreasing.  It is IMPRESSIVE the amount of customers I used to received in my store with broken screens in their iPhone’s, Samsung’s, and other Smartphone devices.  Those companies are REALLY making a profit by selling products that can be damaged very easily while forcing costumers to buy new ones.

  • When did design became more important than functionality and durability?
  • Why do big screens are so easily to get broken and they are not made with better products?
  • The best example for this is the iPhone that has also what seems to be some type of glass cover in the back! It was impressive to see many of those covers broken and hearing the stories of sad costumers who want to replace it! The behind glass has no functional use rather than just making the product being overall weaker and less resistant…

While the Wall Street Journal article says that “Apple is working on a lower-end iPhone” the only thing I read is “Apple is working on an EVEN LESS DURABLE, WORSE QUALITY and lower-end iPhone”.  This is unfortunate… specially because I still have many of the old generation “black bean” phones that I used to own 10 years ago that are in perfect shape and resistant very hard falls from my pockets when I was younger.

Lets fight this wave of “lower-end products”!  As consumers we should receive the best we can get for our money! Not the worse we can get for it!

Article recommendation: Twentieth Century Flick: Business History in the Age of Extremes

I apologize for posting much these last weeks.  I have been quite busy reading journals on Global Value Chains, Deviant Capitalism, Black Market Trade and theories on Global Political Economy.  While this has driven me nuts… it has also made me pay attention to the field of Business History.

Business history is not the history of Capitalism and it is also not the history of entrepreneurship.  The research in this field is mostly controlled by an European institutionalist approach.  And in the latest decades, it has gained more insights from economic and business studies that are highly afflicted by neo-marxist approaches of the 20th Century.  So, if you are interested in learning about this particular area of research here is the info for a good article on the topic that may get you also interested, and provide you with further bibliography.

Twentieth Century Flick: Business History in the Age of Extremes
Priemel, Kim Christian (2012)
Journal of Contemporary History vol. 47 (4) p. 754-772

.Full Text (PDF)

The 55th Anniversary of Atlas Shrugged

“My morality, the morality of reason, is contained in a single axiom: existence exists—and in a single choice: to live. The rest proceeds from these. To live, man must hold three things as the ruling values of his life: Reason—Purpose—Self-esteem. Reason, as his only tool of knowledge—Purpose, as his choice of the happiness which that tool must proceed to achieve—Self-esteem, as his inviolate certainty that his mind is competent to think and his person is worthy of happiness, which means: worthy of living. These three values imply and require all of man’s virtues…” Ayn Rand in Atlas Shrugged

55 years ago was published the book Atlas Shrugged written by Ayn Rand.  I love this book because it tells wonderfully Ayn Rand’s philosophy of life in the form of a psychological thriller. As many of my usual readers know, I have been a student of Objectivist Philosohpy for many years and I apply her ideas in the understanding of Global History.

At the core of Objectivism is the morality of reason.  It is because of this approach to morality, that the book Atlas Shrugged is more than amazing fiction for me. I consider the book one of the most valuable instruments I have to guide my life, my writings and my decisitions.  If you have not read Atlas Shrugged today would be a great day to begin the journey.  If you have already read it, I want to congratulate you for having found out Who was John Galt?

A GPE perspective: World’s richest woman makes case for $2-a-day pay

The top 10 most competitive economies in the world. By: The World Economic Forum’s Global Competitiveness Report 2012-2013

Reaction to article: Lazarus, David. 2012. She’s back: World’s richest woman makes case for $2-a-day pay. Los Angeles Times, 5. September, sec. Money.

A month ago the world’s richest woman made a comment that got everyone’s attention.  Major sensationalist papers in the globe elaborated different arguments on Gina Rinehart case for a $2-a-day pay.  But putting emotions aside, what was she really talking about?  Well, she was explaining in very rough terms what globalization is about and what is the role of competition in the global political economy.

In order to understand what Ms. Rinehart referred to, it is necessary first to briefly evaluate the history of the word competitiveness. The term is historically rooted in the writings of classical economics. Its core is the theory of comparative advantage expressed by David Ricardo in 1819, in which he underlined how countries should/do compete.  Later on, the term was used by Marxist economists starting with Marx’s “Capital: A Critique of Political Economy” where he emphasized the impact of the sociopolitical environment on economic development in a global perspective, and therefore the communist idea that changing the political context should precede economic performance. Later, in 1942 the term was integrated to the role played by capitalists and entrepreneurs in the writings of Joseph Schumpeter, who stressed their creative and economic (“economic” here refers to capital as a mean of production) role as a factor of competitiveness by underlining that progress is the result of disequilibrium, which favors innovation and technological improvement.  Further, Israel Kirzner’s emphasis on the redefinition of entrepreneurship by highlighting how global competitiveness is more about the capitalist’s innovative abilities rather than just the capital accumulated and how he/she invests it.

Ms. Rinehart’s comment reflects both the impact she plays as an actor in the global sociopolitical environment and her role as a capitalist and entrepreneur capable of generating innovation and of inciting creative destruction.

A $2-a-day pay in Africa means that many capitalists and entrepreneurs as Gina Rinehart are considering the possibility of moving their investments from less competitive continents to places in which competitiveness allow them to produce at lower costs.

Unfortunately, the region Ms. Rinehart was referring to has disincentives to competitiveness and innovation.  Competitiveness is more than just lower wages and a cheap offer of labor.  By following Ricardo, Marx, Schumpeter and Kirzner in order for Africa to become competitive in global terms the regions will require also to achieve what Stéphane Garelli in the “IMD World Competitiveness Yearbook 2012” explains as the need to also A.) Create a stable and predictable legislative and administrative environment. B.) Ensure speed, transparency and accountability in the administration, as well as the ease of doing business. C.) Invest continually in developing and maintaining infrastructure both economic (road, air, telecom, etc.) and social (health, education, pension, etc.). And finally, D.) Strengthen the middle class: a key source of prosperity and long-term stability.

Ms. Rinehart’s comments were not a call for Australians to lower their wages to a $2-a-day pay since they have already achieved other of Garelli’s requirements for competitiveness. Her comments are a very clear example on how global economy works.  If African governments manage to improve the rule of law in their territories, develop infrastructure and allow for a stronger middle class then the chances that investment will move to Africa are going to be higher.  As such, economies as Australia’s should continue producing at the same efficiency rates or improve and innovate in order to avoid losing investors. Ms. Rinehart’s comment on how “her country’s mining industry couldn’t compete with nations that are willing to pay workers less than $2 a day for their sweat and labor” is as such partially truth. Australia’s economy has many other competitive assets to offer and as such do not require to compete by offering lower wages.  The country has many other competitive assets to offer for investors.  However, as time has passed since Australia’s boom in the last decades many other countries are also trying to spur competitiveness.

There is much more to be said about this topic and on how global competitiveness allows for rising standards of life and prosperity. Also there is much more to be said on how competitiveness in other regions of the world can destroy (remember Schumpeter’s work) the not-so efficient economies of other countries that have not managed to cope with a changing global economy.