flwyd: (intense aztec drummer DNC 2008)
This TED talk by Rodrigo Canales draws parallels between prominent Mexican drug cartels and more ordinary businesses. Brand, markets, and social involvement all play a key role. Canales describes Los Zetas as a franchise business for ex-military members and local gangs. They're credited with many of the most gruesome killings in the drug war, and part of that is their brand. There are parallels here with Al Qaeda, which is also a franchise organization with an interest in tooting their own horn about how destructive they are.

Los Caballeros Templarios Guardia Michoacana (Knights Templar Cartel, successor to La Familia Michoacana) control some very important transit territory. They operate on a very local basis with social programs, and are loved by many in the communities. They portray many of their killings as community defense (petty criminals, local drug dealers, outside organized crime) and have played a significant role in local politics. This sounds to me a lot like Hezbollah, which operates schools, hospitals, and other social capital-building enterprises along side their long-running battles with Israel and arab governments. Other paramilitary organizations have had similar success with social programs and local support including the IRA and loyalists in Ireland and the Basque ETA. It's very hard to destroy an organization like this; they have the benefits of guerrilla warriors plus the financial resources of a major corporation.

The Sinaloa Federation operates a lot like a multinational corporation, including an executive on the Forbes billionaires list. They innovate in product delivery technology, they have executives (aka family members) supervise new ventures, they outsource tasks that would damage their brand, and so forth. In addition to parallels with legal corporations like oil companies I think they also bear a striking resemblance to historic organized crime groups like the Mafia and Yakuza. The salient feature is the organized part moreso than the crime. The latter is only present because the business's products happen to be illegal.

I think it's helpful to think of these groups as companies with violence as one of their business methods rather than a grand version of random street violence. It also suggests that tourist fears about travel in Mexico may be unnecessarily elevated: would killing you further the business interests of the cartels?

A TED blog post about this video links to a few others on similar topics, including a suggestion that the best way to fight these organizations is to devalue their brands.

One interesting twist in the Mexican drug war is that the Americans are funding both sides. The cartels make most of their money by selling drugs to the U.S. distribution network, not to mention side businesses like smuggling migrants for the labor market. Meanwhile, the U.S. government subsidizes the Mexican government's anti-cartel activities, with gun manufacturers from the States profiting from sales to both sides. Not to mention the money spent on border enforcement and anti-drug efforts north of the border, a chunk of which also goes to American arms dealers.
flwyd: (currency symbols)
Eric Garland has a collection of articles about Guitar Center, the company which set out to do for musical instruments what Circuit City did for consumer electronics. The first was a short post about how their business model is failing and their bonds were degraded to junk status. A few months later, he wrote a little longer article with a great title Guitar Center's real problem: their customers are broke, pivoting from the store to the disappearing middle class and the country's significant unemployment problem despite a nominal recovery from recession. His latest piece focuses on the byzantine financial structure Guitar Center's set up with private equity firms Bain Capital and Ares Capital Management and the parasitic effect these financial shenanigans have on the economy.
When I recognized how much the financial markets have become like 2006, I finally figured out why some other financier could shell out $50 or $100 or $300 million for Guitar Center junk bonds. For the customers of private equity, a few million isn't that much money. These investors actually need some higher-risk assets in their portfolio, rather than let their money sit around in a zero-interest rate environment. They might be like Warren Buffett and already have huge stakes in sensible things like Too-Big-To-Fail banks, railroads or Coca-Cola. This just rounds out their overall position. Make 6-9% with the chance that the company could finally go tits-up? Why not! If it pays out, then great, and if it doesn't – tax write off!

In the business reporting during the financial crisis of 2008, you might have heard the phrase "appetite for risk;" this is what they were talking about. When an investment is risky (which basically means the thing you're investing in is more likely to fail), you can charge higher interest rates (which basically means you get more money until it fails). So that's why a few big financial companies can spend the better part of a billion dollars on a company that's likely to have a fire sale and go bankrupt: they've got a budget spreadsheet that says "Spend $XX billion on investments at 6+%."

Imagine an alternate world where the same financiers took the same $3 million per Guitar Center retail store and invested, say, $1 million in each of 940 community music centers. A community music center could be something like a coffee shop of sound, with instruments for sale, music lessons, rehearsal space, and an "intimate" concert venue. This would help foster a local music economy and boost both supply and demand for music.

But now that it's run by equity firms, approximately nobody in the Guitar Center management or financing chain is involved because of a deep desire to increase the amount of music being played, expand musical literacy, build a community of musicians, or even necessarily because they really enjoy selling guitars. They're in it because they think they've got reasonable odds of making a significant return on investment and the pieces of paper making up Guitar Center's corporate structure and debt obligations are an available vehicle for the financial joy ride they want to take. The folks running the show would be just as interested if they'd bought a national chain of soup canneries.

Trevor's Rule for Running a Great Company

Use profit as a tool to grow the business. Don't use business growth as a tool to obtain profit.

One of the things I really love about Google is how it's run, from top to bottom, by people who care about what we're doing. We structure efforts to be profitable so that we can easily invest in improving their quality and bringing them to more people–if YouTube makes more money than it costs, we can keep making YouTube better and serve more of the world's visual stories. Yet not every effort must be profitable on its own; many projects are done because they're good for the Internet or good for the world, with the foresight that a better Internet and a more informed world will be a better world for Google to be in for the rest of this century.

By contrast, a business run by people who don't really care about what the business produces or the people it serves (which is basically the point of private equity firms) has no reason to foster the long-term ecosystem its customers live in. When profit is the product, anything that doesn't put money in investors pockets–no matter how relevant it is to the company's ostensible mission–is likely to be slashed and burned. The private equity firm doesn't care if it clear-cuts the spending power of its customer base or strip mines the market for its colonial products as long as it extracts the monetary resources it needs to fuel its endless quest of profit for profit's sake.

RIP Barts CD Cellar

Wednesday, December 16th, 2009 09:32 pm
flwyd: (pentacle disc)
I'm very sad to learn that Barts CD Cellar is closing. This leaves Albums on the Hill, which doesn't have much space, as the only recorded music store in Boulder. The Denver area still has the fine Twist and Shout and Black and Read which both sell non-music items ranging from T-shirts and novelty gifts to RPGs and used porn. Now that I work in Boulder, I'll have to concoct more convoluted excuses for why I just happened to be driving by Black and Read with eighty bucks I absolutely had to spend right then. Denver's also got some smaller music stores, some local and some chain, of varying quality.

Aside from travel, I've probably done more discretionary spending on used CDs than anything else. There were semesters in college where after I paid my university bill (covering tuition, housing, and food), I spent more money on used CDs than everything else combined. I haven't bought any CDs since March because I don't have a good place to put them, but I'd better head to Barts this week to get good deals on stuff that won't be there if I procrastinated.

I don't know which hurt Barts more: Internet music sales or recession economy. For all that's great about the Internet, I love buying used CDs in funky local establishments a lot more than on my computer. The fact that selection is limited means I won't spend too much money buying everything I can think of. The search process means I find something interesting and get really excited, a much bigger "I'm Feeling Lucky!" experience than typing a few words into iTunes. Plus, CDs are a more robust storage mechanism. I'd have been really bummed if I'd lost thousands of dollars when I dropped my hard drive on the floor, but if I drop one of my boxes while moving stuff out of storage, I'll probably just crack a few jewel cases. Sure, CDs can get scratched and otherwise damaged, but that's only losing eight bucks at a time.

Update 9/28/2010: Apparently Bart is back in business on a small scale. Bart's Music Shack is at 236 Pearl St. And the focus is people like me who love finding an interesting used CD that they wouldn't have thought to download.

Gotcha Capitalism

Monday, January 7th, 2008 08:55 pm
flwyd: (Om Chomsky)
Today's Fresh Air program featured an interview with Bob Sullivan, author of Gotcha Capitalism: How Hidden Fees Rip You Off Every Day -- And What You Can Do About It. He talked about arbitrary fees charged by banks, cell phone companies, cable companies, and others that can make up a major percentage of their profits. It sounds like a very informative book, especially for people who don't like to read the fine print. I do read fine print (though I don't usually enjoy it), and I will probably add this book to my "get around to reading it" list.

I think there's significant value in a lot of libertarian ideas, but their "get rid of government and the market will take care of it" philosophy doesn't win me over. I dislike dealing with government bureaucracy and oppose government control over private activities as much as the next hippie pagan techie. But I dislike corporate bureaucracy even more and oppose corporate disregard for privacy and personal freedom as well. "A free market would resolve this by selecting for companies with transparent processes and strong privacy policies" is the stock libertarian response, but Sullivan doesn't think it's true. He said that one hotel chain tried to be up front about their prices and it was a disaster because customers selected their competitors whose prices looked lower but packed a lot of hidden fees.

One reason I don't own a cell phone is that I choose not to participate in the rigged market of cancellation fees, incoming text message fees, convenience charges, and "you spent too long talking to your friend with a crisis" overage charges. My monthly local phone service + DSL bill is the same regular $44 every month; the only time I've had to call Qwest because of billing confusion was when I didn't understand the wording of "we've just started charging monthly for allowing long distance calls." But I'm sure that if I had mobile service through the same company, I'd be caught off-guard on a regular basis. One difference is that there are more government regulations of what and how companies can charge for local phone service.

At least with the government I know that all prices and fees are clearly published, the requirements are stated up front, and that caprice is against the rules. I'd rather be at work tomorrow morning than at the passport office, but at least I don't expect any surprises. Driving there in the snow, on the other hand...)
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