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Thursday, October 13, 2005

Response to An Anonymous Craigslist Post

A received a thoughtful yet misleading response to my anti-Home Depot post. I received the response outside the blog, so here's my response on my turf.

The Anonymous Poster attacks my entire argument by quoting just two paragraphs and making all sorts of assumptions. 1) He correctly points out that I was a bit loose with my use of the term "free market" and 2) he knows more about the hardware/home repair market and he's eager to make that count for something. The Anonymous Poster quotes from my first section, so here it is again, verbatim:

Squelching Competition, Injuring the Free Market

The Home Depot is the prototypical big box store. By proving every kind of product relating to "Hardware and Home Repair" under one roof, and doing so on a massive scale across America, no other business could possibly hope to compete. At this point in time, it would be functionally impossible for any new business to compete with the Home Depot unless they were of a similar massive size.

Is this capitalism? Is this the free market? No. The amount of wealth required to compete with the Home Depot is impossible for any competitor to attain, so for all practical purposes, The Home Depot has a monopoly on the home repair market. The only reason any other hardware stores are ever frequented is when a trip to The Home Depot is too far. No one can compete with their prices due to the scale of The Home Depot's operation.

Michael Alexander v. The Anonymous Poster

The Anonymous Poster's argument will be in italics. Let's begin.

You obviously have no understanding of capitalism or free markets. You are right in pointing out that San Francisco does not have open markets.

San Francisco's Board of Supervisors stilts the laws in favor of minority-owned enterprises, women-owned enterprises and single store operators. They tax businesses up the wazoo so thay can pay homeless advocate organizations to lobby for their re-election campaigns and pad their personal expense/recreation accounts. Aside from these inconsistencies, the San Francisco retail home repair supplies market is a open, free and fair.

Home Depot has, through diligent efforts of its managers and utilization of resources, achieved enormous scales of economy.

That's a mouthful. First, my argument in that particular section centered on the fact that The Home Depot is an anti-competitive business. Personally, though I speak of a free market, I am not in favor of what conservatives consider a pure free market. We need government regulation of the market to ensure fairness. Antitrust law, for example, arguably infringes upon a pure "free market". The free market I speak of is the exact same on found in the Wikipedia link that the Anonymous Poster included in his response: A free market is an idealised market where all transfers of money, goods, and services are devoid of coercion and theft. Monopolies, as yet another Wikipedia link shows, defy the principles of the free market. And true capitalism, as another Wikipedia link can point out, involves the use of a free market. Ergo, under my use of the term "free market" (which is indeed a debated term), anti-competitve businesses harm the free market. My point is clear regardless of terminology.

Second, as far as my research shows, the Anonymous Poster is misusing the term "open market". Wikipedia defines it as the market in which bonds are sold. Open market operations also refer to a government's monetary policy. I believe he's really just saying the market's unfair because of the alleged bias the Anonymous Poster perceives.

I could write six or seven blogs worth of info about how ignorant the Anonymous Poster's next comment is, but I'll keep it short. The creation and enforcement of laws to address discrimination is an important enterprise. Social revolutions occurred after Brown v. Board of Education, desegregation laws, the Civil Rights Acts of the 1960s, and affirmative action. Women and minorities began to be able to compete somewhat more fairly with white males. The playing field is not balanced. White people make far more money than any other race, by the numbers. Men make more money than women by any empirical measure. Overt racism isn't the problem anymore, although it exists. Institutional racism keeps those without power in their place. If you are black, poor and live in the ghetto, your chances of success in life are diminished greatly. The schools aren't as good, you don't have those rich uncles, you get passed up for jobs in favor of whites and your role models are musicians and athletes, not judges and doctors.

We have a choice: either use affirmative action to remedy these undeniable problems or accept the status quo. Will there be isolated incidences of so-called "reverse racism"? Yes. Will there be a whole lot more widespread incidences of actual racism without affirmative action? Undeniably yes. It's a choice we have to make as a society. Whites, particuarly white males, have had all the benefits for 200 years and we now are creatures of entrenched privilege. To create a more just society, we need to start fixing these problems and giving women and minorities a chance to compete. Especially in business, where money can be made which can help create future generations of success stories. The Anonymous Poster is obviously a white male with little outside perspective.

Third, he correctly acknowledges that Home Depot works on economies of scale. Economies of scale occur when a business can increase the quantity of all input factors and costs increase proportionately. Under these conditions, a business can grow as large as their bank account allows. Economies of scale, at some point, get too large and start to threaten smaller businesses who don't have as large of a bank account. Why it's happened is irrelevant -- good business practices may have made The Home Depot what it is, but what it is today is the #2 retailer in the world who has gotten far too big for its own good.

Ok, back to The Anonymous Poster's argument.:

Its cost of sales for a garden hose or table saw is significantly lower than a typical hardware store that buys through a distributor. However, everybody that goes to Home Depot is shopping for a particular experience and it is primarily based on factors such as price, the reliability of products being in inventory and the cleanliness of the store. Home Depot is NOT the only successful business model in hardware/home repair. While the businesses that had shoddy service, marginal products and inconvenient locations have gone out of business, others have thrived in a Home Depot era. In San Rafael, Jackson's Hardware continues to thrive because it focuses on two segments:
Wealthy/time-constrained/home repair unsavvy retail customers who are looking for personalized service that Home Depot personnel are unable to provide;
Professional contractors who need custom-orders prepared for pickup or delivery at a specified time to meet project deadlines.

The retail group may be include individuals who occasionally shop at Home Depot, but also shop at Jackson's because Jackson's provides tools that are unavailable at any other store. For example, Jacksons provides tools for purchase or rental that Home Depot doesn't even carry, or that would be uneconomical to carry. Who needs to buy an industrial strength 25lb, 6 foot long steel weed wrench for $200 (unavailable at Home Depot) when you can rent it for $14/day? Without it, it is impossible to remove the invassive species plants like French Broom that grow on Marin County hillsides in areas like GGNRA, China Camp State Park, etc.

The Contractor group is often less price sensitive than most retail consumers. That is because the contractor often bills the customer for supplies... sometimes for tools as well as supplies. Consumers don't insist that the contractor go out and price-shop, because the price of the contractor is $50/hour. Contractors buy heaps of supplies on every job they undertake.

In this section, the Anonymous Poster just wants to show me he knows more than I do about Home Repair. Fair enough. But nothing he says changes any of my points. Here's his point: The Home Depot is not anti-competitive because there are other kinds of hardware/home repair businesses that stress service over price. The problem with this is that The Home Depot, as a corporation, has a duty to its shareholders. They must continue to increase profits. If The Home Depot realizes they are losing money to Jackson's because of their services, the Home Depot will adapt. I admit to not understanding the finer points of this particular market, but only a small percentage of businesses will survive the Home Depot's wrath solely due to their superior serivce. Many people who used to frequent small hardware stores in San Francisco will switch to Home Depot. It's moronic to say that no one will. Obviously some won't. But just as obviously, some will.

Second, the Anonymous Poster also mentions that occassional shoppers profit from the Home Depot because of their low prices on six foot steel weed wrenches, something I'm sure you've had to buy at some point. This assumes that anything that saves money makes it good. The problem is that there are costs associated with low, low prices. These costs go to society everytime we save $5 shopping at Walmart or Home Depot. They include lost wages from underpaid workers, lost profits from ruined small businesses and promotion of environmentally unsafe products.

Back to the AP for his final point:

If Home Depot consolidates some of the work currently being done by businesses in San Francisco, then maybe the industrial shit between the Mission district and Hunter's point will be turned into usefull commercial space that residents of the city will venture into. Instead, it is a maze of eyesore mafia businesses.

Well the mafia charge sounds juicy, but I don't know anything about that. What I do know is that the area near the proposed Home Depot site is indeed mess of "industrial shit." Most of the area is heavily polluted from industry and the military. In a horrible moment of city planning, the city placed large housing projects in this mostly industrial area. The projects, while well intentioned, largely were underfunded and didn't provide for a neighborhood in the way that affordable homes would have. As a result, the area is a mess. It needs to be cleaned up and turned into housing, if possible to create actual neighborhoods that promote community. If not, it needs to be left industrial and the city needs to make it as clean as possible. Business is fine, I have no problem with that, but any business needs to be socially responsible. The Home Depot is not.

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