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peristaltorSome time ago, I posted about Chevron's strategic acquisition and how that affected the future of electric vehicles to this day. There is nothing new about their strategy, not at all. John D. Rockefeller, probably prompted by Henry Ford's decision to make the original Model T a flex-fuel vehicle designed to run either on gasoline or alcohol, spread his wealth and influence into the USDA and the prohibition movement, moves that precipitated the Prohibition and thus ended home-grown competition for his emerging dominance in petroleum fuels. Likewise, William Randolph Hearst protected his vast forest and paper mill holdings by joining others in the movement to criminalize hemp.
For years I've been angry about this type of strategy, where the leaders of established companies use their wealth and influence to quash competition from tangental areas. I'm not the only one angry, of course. Many are. How many have died so that inferior products and business practices continue essential monopolies? How can society in general make any progress toward greater efficiencies without eliminated or at least marginalizing technologies that have reached their nadir and need to be retired completely?
Just the other day I realized how whiny and bitchy I sounded. My righteous anger had blinded me to the obvious necessity of those dickish business moves.
The problem is not with some ethereal concept like "justice" or (even worse) "right," but with what constitutes illegal. Mind you, I am not noting the illegality of Rockefeller's actions, but rather the completely legal and perhaps necessary nature of (at least those) actions. That's the problem. Had Rockefeller not interfered with the Washington State Grange or supported Carrie Nation's ilk, had he not stopped the spread of small distilleries competing with his growing petroleum interests, he may have opened the door to future legal consequences such as those faced by Henry Ford himself.
In 1919, Ford tried to divert dividends from his shareholders in order to expand his business. Specifically, he planned to build more factories with his earnings, factories which would have produced parts for his successful Model T. Unfortunately for Ford, a minority group of shareholders sued Ford over this plan, a group headed by the Dodge brothers . . . who also happened to build parts for Ford cars. This led to the Dodge v. Ford decision in the Michigan Supreme Court, a decision that forced Ford to pay the dividends and, after the suit soured the Ford/Dodge business relationship, further buy out the brothers' holdings in Ford Motors.
The court's ruling focused not on the fact that the Dodge brothers would have lost business to Ford's new factories, but to quotes Ford made in support of his decision:
This turned Ford's profit diversion into a philanthropic venture, not a decision that worked to maximize shareholder value. Though it seems obvious in hindsight -- that extending benefits to the greatest possible number seldom if ever enriches shareholders -- this may have been the first time in US legal history the courts had so discovered.
So let's say, just for argument, that you were the guiding force in a large company, and that someone had just invented something that could theoretically render much of your entire business model obsolete, if not the entire thing. You could jump on the innovation bandwagon and compete directly with the newcomers. . . and risk being accused of monopolistic practices. You are the large company, remember. When you exercise the financial might your industrial juggernaut has at its disposal, you run the risk of being seen squashing competition. That's what happened to Rockefeller, after all, when he bullied, cajoled and outmaneuvered other petroleum explorers, extractors, refiners and distributors. His Standard Oil Company was found a trust, a monopoly, and broken into smaller companies that theoretically had to compete against each other to survive the marketplace. Rockafeller was trust-busted.
The other move against ethanol production I mentioned earlier, though, was never disputed. No one ever accused him at the time of acting as a monopoly simply because he never did. Gasoline is not alcohol. Kerosene is not alcohol. Technically, none of Standard Oil's products are alcohol. So when John D. spreads a bit of his wealth to the hatchet-wielding tavern smashers, he (a tee-totaler himself) can perhaps claim the donations (totaling over a million a century ago) originated from a personal desire to improve the moral fabric of the nation, not from some selfish business motive involving automotive and lamp fuels. When he continues to spread his green influence in the halls of Congress specifically on behalf of the United States Department of Agriculture, that too might be viewed as philanthropic, not manipulative, and especially not vindictive. The fact that Rockefeller opened his company's first gas station here in Seattle, the heart of the Grange fuel alcohol movement, must have been just a silly coincidence.
Let's say someone from the Grange took Standard Oil to court. (Let's further table the fact that our country's rich history of graft and corruption meant the little guy at the turn of the century had not a chance in hell at winning such a battle.) The Grange would argue evidence of Rockefeller's involvement in the USDA and the Temperance Movement. The defense lawyers would counter with the philanthropy argument and the fact that alcohol is a beverage destroying America. Defense would close with the ultimate observation: comparing gas and kerosene to alcohol was like comparing apples to oranges, thus there could be no monopoly.
And they would be right.
What they very conveniently forgot to note, the obvious flaw in the argument, is (I don't believe) covered under the law simply because the law fails to cover emergent and disruptive technologies. The law can only cover precedent, that which has already happened at least once. The law cannot anticipate. Emergent and disruptive technologies are happening now, not in the past. Until someone crafts a law covering what they are they must still work out what that is.
Let's then get back to you as a company mover and shaker. Let's say you grow oranges. As an orange grower, you depend upon the country's appetite for the fruit for your business. Let's further say some upstart apple growers have become more cost effective at a time when orange crops didn't do so well, meaning the price difference between apples and oranges has expanded and more people are thus choosing to get their fruit fix from the apple. You have to get folks back to your citrus delights or they might just keep eating those darned apples. After all, just as folks need to choose what kind of fuel to use in their vehicles (or whether to use a liquid fuel at all) folks only eat so many fruits in a lifetime. What to do?
Under this hypothetical example, there are actually quite a few options available. You see, you aren't directly competing against the apple. Yes, both are fruit, both can be pressed into tasty breakfast juices and treats of all sorts. But one is an apple and the other is an orange. So get creative.
Start a whispering campaign. Let's say the FDA determined a chemical used with apples was found to be a possible carcinogen, but the issue was shelved. You heard about it from the, er, orange-vine. Why not call your friend Meryl and that guy from 60 Minutes you met at a party and put a bug in their ears? What follows might be the Alar scare, something that affects only apples. Hey, you're just repeating what others told you. You're just talking to friends. Should that whispering campaign grow into an all-out Alar ban, directly affecting apple productivity, you would be hitting the orchard owners where they live. Go further. Wait for an E. coli outbreak to pressure for greater sanitary controls of both apple harvesters and juicers. Get draconian, and insist on hospital clean standards for seasonal juice presses, even those run only by local co-ops. That will pull most apple juice right off the shelves, never to be replaced. Argue that oranges need not apply because the peels protect the fruit from contamination. Now you've stifled those nasty competitors!
Let's say you are now an apple grower, and a bit pissed about what you as an orange grower did. Why not start with the orange spokespeople, those celebrities that lend their fame caché to the product? Call up the good folks at ACT UP! and mention that Anita Bryant doesn't like the gays. That should be good for a pie in the face . . . for both her and (by association) her pimps at the Citrus Growers Commission.
This wouldn't have nearly the same effect, though, not at all. After Anita was dumped they paid Bing Crosby to push citrus. The gay rights backlash never permanently hurt oranges like my theoretical fueled overreactions to Alar and E. coli would kill, kill, kill the big apple industry. That's what makes my limited example of Apples v. Oranges an exploration into competition destruction: Actual criminalization proves rare. As long as you attack business rivals who:
Attack away! John D. did it, and his trust-busted spawn Chevron followed suit later. Hearst did it. It's legal, and it helps you fulfill your duties as a company officer. (Note: Above section with hypothetical examples edited 7-16-2008 to keep the examples on topic.)
I've always wondered if legislation following the Hindenburg disaster was in any way funded by the airlines. After all, at one point a dirigible could travel for a week on the fuel a jet needed to taxi to the runway, making dirigibles a highly viable competitor in an age of scarce fuels. No, Graf Zeppelin's decision to coat their airship with cotton doped with chemicals similar to solid rocket fuel did the public relations damage United and Pan Am didn't need to do. Here's a funny-ish example: Before they joined the mailing frenzy, could you imagine what Blockbuster would have paid for a Netflix-mailed DVD explosion that killed children? That could lead to a prohibition against mailed media, securing the Blockbuster business model for years!
I didn't mean for the last word to be so cynical, but that's just the way it is. What we need to change this loophole in our business climate is some carefully phrased law allowing those attacked or sidelined by lateral moves to sue. Toyota kind of did this, but only because they had a licensing agreement from Ovonics prior to ECD's purchase by Chevron (there's that Rockefeller connection again!). Had this license not existed, the post-Chevron Ovonics decision to discontinue the auto-sized Nickle Metal Hydride batteries because "the market conditions did not warrant production" would never have been open to challenge. Yes, gas powers cars. Yes, these batteries power cars as well. That doesn't mean the two are related. In the eyes of the law they are apples and oranges.
The new law should allow a company whose business model has been sidelined tangentally to show that the company doing the sidelining directly or indirectly benefited from a future competition that did not yet exist. Call it a common sense law, allowing those with simple common sense to be shown a connection between the actions and the results without the misdirectional PR hype claimed by the pseudo-monopolists. I'll leave the actual verbiage of this new utopian law in the hands of those that can actually write.
Addendum September 9, 2008: I just realized I've kind of written about this before. By killing competitors to its other services that use its internet service as a delivery vehicle, Comcast is totally pulling a Rockefeller. They must be punished. But how?
For years I've been angry about this type of strategy, where the leaders of established companies use their wealth and influence to quash competition from tangental areas. I'm not the only one angry, of course. Many are. How many have died so that inferior products and business practices continue essential monopolies? How can society in general make any progress toward greater efficiencies without eliminated or at least marginalizing technologies that have reached their nadir and need to be retired completely?
Just the other day I realized how whiny and bitchy I sounded. My righteous anger had blinded me to the obvious necessity of those dickish business moves.
The problem is not with some ethereal concept like "justice" or (even worse) "right," but with what constitutes illegal. Mind you, I am not noting the illegality of Rockefeller's actions, but rather the completely legal and perhaps necessary nature of (at least those) actions. That's the problem. Had Rockefeller not interfered with the Washington State Grange or supported Carrie Nation's ilk, had he not stopped the spread of small distilleries competing with his growing petroleum interests, he may have opened the door to future legal consequences such as those faced by Henry Ford himself.
In 1919, Ford tried to divert dividends from his shareholders in order to expand his business. Specifically, he planned to build more factories with his earnings, factories which would have produced parts for his successful Model T. Unfortunately for Ford, a minority group of shareholders sued Ford over this plan, a group headed by the Dodge brothers . . . who also happened to build parts for Ford cars. This led to the Dodge v. Ford decision in the Michigan Supreme Court, a decision that forced Ford to pay the dividends and, after the suit soured the Ford/Dodge business relationship, further buy out the brothers' holdings in Ford Motors.
The court's ruling focused not on the fact that the Dodge brothers would have lost business to Ford's new factories, but to quotes Ford made in support of his decision:
"My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business."
-- Henry Ford
This turned Ford's profit diversion into a philanthropic venture, not a decision that worked to maximize shareholder value. Though it seems obvious in hindsight -- that extending benefits to the greatest possible number seldom if ever enriches shareholders -- this may have been the first time in US legal history the courts had so discovered.
So let's say, just for argument, that you were the guiding force in a large company, and that someone had just invented something that could theoretically render much of your entire business model obsolete, if not the entire thing. You could jump on the innovation bandwagon and compete directly with the newcomers. . . and risk being accused of monopolistic practices. You are the large company, remember. When you exercise the financial might your industrial juggernaut has at its disposal, you run the risk of being seen squashing competition. That's what happened to Rockefeller, after all, when he bullied, cajoled and outmaneuvered other petroleum explorers, extractors, refiners and distributors. His Standard Oil Company was found a trust, a monopoly, and broken into smaller companies that theoretically had to compete against each other to survive the marketplace. Rockafeller was trust-busted.
The other move against ethanol production I mentioned earlier, though, was never disputed. No one ever accused him at the time of acting as a monopoly simply because he never did. Gasoline is not alcohol. Kerosene is not alcohol. Technically, none of Standard Oil's products are alcohol. So when John D. spreads a bit of his wealth to the hatchet-wielding tavern smashers, he (a tee-totaler himself) can perhaps claim the donations (totaling over a million a century ago) originated from a personal desire to improve the moral fabric of the nation, not from some selfish business motive involving automotive and lamp fuels. When he continues to spread his green influence in the halls of Congress specifically on behalf of the United States Department of Agriculture, that too might be viewed as philanthropic, not manipulative, and especially not vindictive. The fact that Rockefeller opened his company's first gas station here in Seattle, the heart of the Grange fuel alcohol movement, must have been just a silly coincidence.
Let's say someone from the Grange took Standard Oil to court. (Let's further table the fact that our country's rich history of graft and corruption meant the little guy at the turn of the century had not a chance in hell at winning such a battle.) The Grange would argue evidence of Rockefeller's involvement in the USDA and the Temperance Movement. The defense lawyers would counter with the philanthropy argument and the fact that alcohol is a beverage destroying America. Defense would close with the ultimate observation: comparing gas and kerosene to alcohol was like comparing apples to oranges, thus there could be no monopoly.
And they would be right.
What they very conveniently forgot to note, the obvious flaw in the argument, is (I don't believe) covered under the law simply because the law fails to cover emergent and disruptive technologies. The law can only cover precedent, that which has already happened at least once. The law cannot anticipate. Emergent and disruptive technologies are happening now, not in the past. Until someone crafts a law covering what they are they must still work out what that is.
Let's then get back to you as a company mover and shaker. Let's say you grow oranges. As an orange grower, you depend upon the country's appetite for the fruit for your business. Let's further say some upstart apple growers have become more cost effective at a time when orange crops didn't do so well, meaning the price difference between apples and oranges has expanded and more people are thus choosing to get their fruit fix from the apple. You have to get folks back to your citrus delights or they might just keep eating those darned apples. After all, just as folks need to choose what kind of fuel to use in their vehicles (or whether to use a liquid fuel at all) folks only eat so many fruits in a lifetime. What to do?
Under this hypothetical example, there are actually quite a few options available. You see, you aren't directly competing against the apple. Yes, both are fruit, both can be pressed into tasty breakfast juices and treats of all sorts. But one is an apple and the other is an orange. So get creative.
Start a whispering campaign. Let's say the FDA determined a chemical used with apples was found to be a possible carcinogen, but the issue was shelved. You heard about it from the, er, orange-vine. Why not call your friend Meryl and that guy from 60 Minutes you met at a party and put a bug in their ears? What follows might be the Alar scare, something that affects only apples. Hey, you're just repeating what others told you. You're just talking to friends. Should that whispering campaign grow into an all-out Alar ban, directly affecting apple productivity, you would be hitting the orchard owners where they live. Go further. Wait for an E. coli outbreak to pressure for greater sanitary controls of both apple harvesters and juicers. Get draconian, and insist on hospital clean standards for seasonal juice presses, even those run only by local co-ops. That will pull most apple juice right off the shelves, never to be replaced. Argue that oranges need not apply because the peels protect the fruit from contamination. Now you've stifled those nasty competitors!
Let's say you are now an apple grower, and a bit pissed about what you as an orange grower did. Why not start with the orange spokespeople, those celebrities that lend their fame caché to the product? Call up the good folks at ACT UP! and mention that Anita Bryant doesn't like the gays. That should be good for a pie in the face . . . for both her and (by association) her pimps at the Citrus Growers Commission.
This wouldn't have nearly the same effect, though, not at all. After Anita was dumped they paid Bing Crosby to push citrus. The gay rights backlash never permanently hurt oranges like my theoretical fueled overreactions to Alar and E. coli would kill, kill, kill the big apple industry. That's what makes my limited example of Apples v. Oranges an exploration into competition destruction: Actual criminalization proves rare. As long as you attack business rivals who:
Are not technically competing with your business directly; and Attack not the business itself but the technology or necessary element thereof, and in ways that can be explained as tangental to business;
Attack away! John D. did it, and his trust-busted spawn Chevron followed suit later. Hearst did it. It's legal, and it helps you fulfill your duties as a company officer. (Note: Above section with hypothetical examples edited 7-16-2008 to keep the examples on topic.)
I've always wondered if legislation following the Hindenburg disaster was in any way funded by the airlines. After all, at one point a dirigible could travel for a week on the fuel a jet needed to taxi to the runway, making dirigibles a highly viable competitor in an age of scarce fuels. No, Graf Zeppelin's decision to coat their airship with cotton doped with chemicals similar to solid rocket fuel did the public relations damage United and Pan Am didn't need to do. Here's a funny-ish example: Before they joined the mailing frenzy, could you imagine what Blockbuster would have paid for a Netflix-mailed DVD explosion that killed children? That could lead to a prohibition against mailed media, securing the Blockbuster business model for years!
I didn't mean for the last word to be so cynical, but that's just the way it is. What we need to change this loophole in our business climate is some carefully phrased law allowing those attacked or sidelined by lateral moves to sue. Toyota kind of did this, but only because they had a licensing agreement from Ovonics prior to ECD's purchase by Chevron (there's that Rockefeller connection again!). Had this license not existed, the post-Chevron Ovonics decision to discontinue the auto-sized Nickle Metal Hydride batteries because "the market conditions did not warrant production" would never have been open to challenge. Yes, gas powers cars. Yes, these batteries power cars as well. That doesn't mean the two are related. In the eyes of the law they are apples and oranges.
The new law should allow a company whose business model has been sidelined tangentally to show that the company doing the sidelining directly or indirectly benefited from a future competition that did not yet exist. Call it a common sense law, allowing those with simple common sense to be shown a connection between the actions and the results without the misdirectional PR hype claimed by the pseudo-monopolists. I'll leave the actual verbiage of this new utopian law in the hands of those that can actually write.
Addendum September 9, 2008: I just realized I've kind of written about this before. By killing competitors to its other services that use its internet service as a delivery vehicle, Comcast is totally pulling a Rockefeller. They must be punished. But how?