Sunday, April 9, 2017

Nostalgia for Main Street is misplaced and costly

See The Myth of Main Street by LOUIS HYMAN. Louis Hyman, an economic historian, is the director of the Institute for Workplace Studies at the ILR School at Cornell. Excerpts:
"From the beginning of our country’s history, rural and small-town Americans have been on the losing side of a rising market economy. You can draw a straight line from the Jeffersonians in the late 18th century to the agrarian populists in the late 19th century to Mr. Trump’s voters, all of whom have felt that the city hornswoggled the country. The rage that arose in the 1880s, as rural incomes fell and farm mortgages defaulted while city bankers got rich, does not feel so distant today.

But nostalgia for Main Street is misplaced — and costly. Small stores are inefficient. Local manufacturers, lacking access to economies of scale, usually are inefficient as well. To live in that kind of world is expensive.
This nostalgia, like the frustration that underlies it, has a long and instructive history. Years before deindustrialization, years before Nafta, Americans were yearning for a Main Street that never quite existed.
For a few decades in the 19th century, Main Street store owners were a viable engine of American economic growth, selling to local residents and people in surrounding rural areas. But that hasn’t been the case ever since. In the 1920s, a new and more efficient kind of retail emerged, the chain store, which sealed Main Street’s decline. Main Street retailers had been under assault for decades from national mail-order catalogs like Sears, Roebuck, but it was the chain store, typified by A. & P. and Woolworth’s, that vanquished small-town commerce. These stores, buying in volume, could offer low prices that local shops couldn’t match. National manufacturers, through chain stores, delivered goods that were cheaper than ever before. Small-town manufacturing and retail looked like a thing of the past.
A political uproar ensued. The fight to save Main Street, then as now, was less about the price of goods gained than the cost of autonomy lost. Perhaps the most passionate defender of Main Street was William K. Henderson, the owner and operator of the radio station KWKH in Shreveport, La., and a forerunner of political personalities like Rush Limbaugh. He inveighed against the “ruinous and devastating effect of sending the profits out of our local communities to a common center, Wall Street.” Chain stores, he warned parents, closed the “door of opportunity” for their children, who might otherwise grow up to become “prosperous business leaders.”

To save Main Street, state lawmakers in the 1930s passed “fair trade” legislation that set floors for retail prices, protecting small-town manufacturers and retailers from big business’s economies of scale. These laws permitted manufacturers to dictate prices for their products in a state (which is where that now-meaningless phrase “manufacturer’s suggested retail price” comes from); if a manufacturer had a price agreement with even one retailer in a state, other stores in the state could not discount that product. As a result, chain stores could no longer demand a lower price from manufacturers, despite buying in higher volumes.
These laws allowed Main Street shops to somewhat compete with chain stores, and kept prices (and profits) higher than a truly free market would have allowed. At the same time, workers, empowered by the National Labor Relations Act of 1935, organized the A. & P. and other chain stores, as well as these buttressed Main Street manufacturers, so that they also got a share of the profits. Main Street — its owners and its workers — was kept afloat, but at a cost to consumers, for whom prices remained high.
But this world was unsustainable. It unraveled in the 1960s and 1970s, as fair trade laws were repealed, manufacturers discovered overseas suppliers and unions came undone. On Main Street, prices came down for shoppers, but at the same time, so did wage growth. Main Street was officially dead."

"Main Street requires shoppers who don’t really care about low prices. The dream of Main Street may be populist, but the reality is elitist. “Keep it local” campaigns are possible only when people are willing and able to pay to do so."

"there is no going back to an economic arrangement whose foundations were so shaky. In the long run, American capitalism cannot remain isolated from the global economy. To do so would be not only stultifying for Americans, but also perilous for the rest of the world’s economic growth"

"Today, for the first time, thanks to the internet, small-town America can pull back money from Wall Street (and big cities more generally). Through global freelancing platforms like Upwork, for example, rural and small-town Americans can find jobs anywhere in world, using abilities and talents they already have. A receptionist can welcome office visitors in San Francisco from her home in New York’s Finger Lakes."

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