The Glorious Failure of a Big Business
By Anthony Gregory | Monday July 18, 2011 at 1:38 PM PDT
Of capitalism’s condemned features, perhaps leftists complain most of all about the profits, seemingly growing without relent, accumulated in the hands of an established corporate elite. The rich get rich and the poor get poorer. Putting aside the second part of the last sentence, the concept of the rich getting richer is especially striking. Let us assume, for the sake of argument, that this is a bad thing. It is still no small matter that those who are vastly rich today may be replaced tomorrow by those who are not so rich as of now. Indeed, this is a commonplace in capitalism, and in particular when it is unmolested by state interference.
Several years ago book stores like Borders were the subject of leftist animus. How dare they crush the smaller competition. Little book stores of all sorts were being pushed aside as these gigantic buildings that featured all sorts of titles, new and old, were being introduced into the strip-mall landscape, town by town, neighborhood by neighborhood. Surely these corporate giants, undercutting the competition from mom and pop shops, would dominate the sector forever, having consolidated their share of the market and defeated the poor small stores forever.
But today Borders is on the verge of collapse. It seems the business model is losing out, especially to online sales at Amazon.com.
At this point a note is necessary. Was Borders’ success a free market phenomenon to begin with? My guess is that the answer is yes, but not purely so. Of course customers love the novelty of being able to buy all their books in once place. There is much enjoyment to be had in perusing a location like this. I have spent many hours at these stores, but my failure to buy much might have something to do with their ultimate failure.
There were ways in which government may have initially exaggerated the success of these stores. First there are the indirect subsidies that come with government planning, eminent domain, the quasi-socialized nature of strip-mall production, and so forth. More important, such establishments seemed to thrive in the real-estate and dotcom-related booms of the late 1990s and Bush era. The underlying cause of these booms, in my opinion, was credit expansion, directed by the Federal Reserve in large part with the deliberate goal of bringing about heightened economic activity, in the second case especially in real estate.
Yet whether or not the government had a role in pumping up Borders, it was the market that began signaling to the world that the company’s days were probably numbered. It is the force of the market that is bringing the business to its knees.
This will not be addressed much by the left, except perhaps lamentably. Amazon.com doesn’t play by the same rules. It is beyond the grasp of the same sales tax burden inflicting places like Borders. So it is the new target of anti-capitalist hatred.
Although it is great that Amazon.com can avoid the state encumbrances that hurt brick and mortar places, the bigger reason for Amazon’s triumph, I believe, is its overall brilliance as a business model. You can buy most of what you’d want with a click. The prices are great. The goods are brought to your door. There are a thousand times as many products as there are in a Borders, except the shopping experience fits not in a store the size of a warehouse but on your desk.
In any event, many left-liberals have condemned Amazon for undercutting stores like Borders. The corporate artifact that ten years ago was condemned for out-competing smaller bookstores is today being eulogized for itself failing the market test.
Yet for the consumers, the downfall of Borders is glorious, much as was its climb to success. In the rearrangement of resources to serve customers we see the beautiful actions of the market economy reconfiguring the world to provide the goods and services that are most wanted and needed in the most effective way. To ignore the upside to Borders’ downfall is as fallacious as to focus only on the downside of its upswing, as did most of the anti-corporate left in the last decade. But today we see that it was not government, nor socialist agitation, that brought the axe down on this big company. It was the matrix of demand provided by customers. It was the consumer base, acting in a manner much more democratic in the good sense of the word, and much more peaceful and socially productive, than anything we see in the political process. Thank goodness there is no doctrine of “too big to fail” in the book store industries. If the government bailed out Borders as it has so many financial institutions, surely the customers would suffer.
Whereas socialists of all parties cheer on the peaceful transfer of power following the election season, they ignore the violent nature of that power and the inherent conflict in the process. With economic “power,” however, the situation is different: Borders losing out to other alternatives truly is a peaceful process, one to be celebrated for all its compatibility with a socially harmonious world.
The failure of Borders is a beautiful thing, coming as it does from the market process. If voluntary competition should one day bring Amazon.com down, in the midst of a competing commercial success today unimaginable but even more friendly to consumers than that wonderful online store, we will again have reason to celebrate.
Tags: Austrian School of economics, Corporatism, Free Market 
Surely there’s no such thing as a product or service that’s “most wanted and needed”, and surely there are no distribution methods currently in force that represent “most effective way” to do anything. It doesn’t even make sense. This post is like Candide, except you don’t seem to be in on the joke. It boils down to “I like Amazon better than Borders, so it’s great that Borders is gone.”
Guest | Jul 18, 2011 | Reply
Author overlooks Wall Street greed for as much profit as possible. Takeover artists take most of the profit and borrow max on the business assets then sells to another or closes it.
Many bankrupties are the result of that action not consumer demand.
I learned much in the largest firm in its product line as we purchased firms. We did not strip assets but built them. In each takeover where I was involved One Man mad bad decisons.One. In each, his staff told him he was wrong but were ignored.
Many Ceo are eulogized but they grew by Debt Acquisitions. Did they build or just buy.
Harold Geneen of IT&T a great example.
clarence swinney | Jul 18, 2011 | Reply
Wow, Clarence (the poster above me) is a complete and utter idiot. Seriously must not have read the article at all. What exactly is a “takeover artist?” How does it relate to the subject matter at hand in the article? Why does it matter that a man you worked for “mad” bad decisions? Wouldn’t that also be why you have no job and are living off of my generosity right now?
Please, at least read the article so that you can correctly address the subject before you make such an ignorant mistake in the future.
Anonymous | Jul 19, 2011 | Reply
I think you’re right that the peacefulness of the process is worth celebrating. The outcome, however, will certainly make my experience as a consumer a lot less pleasant.
Gary Chartier | Jul 19, 2011 | Reply
Great post. For more on the business model/economics of retailers like Amazon.com, people should check out Chris Anderson’s The Long Tail. I’m also wondering how people who criticize Amazon for kicking the “little” guy of Borders (a company which, if they had delved into Web retailing with a better model, may have had a distinct advantage of both brick and mortar and Internet points-of-sale) feel about the Amazon Marketplace, in which independent retailers prices and products are shown alongside Amazon’s? The competition is amazing! And I believe it helps drive the business model.
TR | Jul 19, 2011 | Reply
The author is spot on. Though it may be hard to watch a once great company cease to exist it is a sign of a strong, free market that it happens. In the most democratic process possible consumers vote with their money on which business model they prefer. If people want small neighborhood shops all they have to do is shop there.
jim rogers | Jul 19, 2011 | Reply
Clarence Sweeney: Didn’t you work for a company that tried to make as much profit as possible? Every left-wing green company I have seen, for example, does–and should–though they love to add taxpayers’ money (subsidies). I am not a Wall Street guy. I have a long list of objections I could delineate there. If you think Borders and other large enterprises that tank, do so because of “greed” and decisions of “One Man”, your experience is misinforming you. Sorry if you think most CEO’s are “bad” or make bad decisions, but have good staffs. Your anti-capitalism is transparent. Consumers make choices when left free in a marketplace. I’m sure you love democracy–what? except in the case of us freely voting our own economic transactions? Mr. Gregory wrote a nice little piece, simply making the point that free markets work. Corporatism as practiced by most govts, with their favorites, make the consumer pay, and pay. The efficiencies of free markets happen because consumers rule. We’ll call YOU first, of course, if we change our mind and want a central planner.
As for Gary, I don’t live next door to a Borders, although I enjoyed browsing there on occasion. However, as Mr Gregory points out, I guess I’m not the only one who uses Amazon, Alibris, Mises.org mostly all very pleasant experiences.
Voice | Jul 19, 2011 | Reply
The author also overlooks that Amazon does not collect state sales tax, a state-enforced advantage over Borders and other bookstores that it vigorously defends.
So much for the triumph of the free market.
phein39 | Jul 20, 2011 | Reply
I’m one of those lefty liberals. I hang around with lots of other lefty liberals. I have never once heard a lefty liberal complain about Amazon. Perhaps I’m missing something, or perhaps you’ve settled on a meaningless generalization. But as a lefty liberal, I use Amazon all the time. So perhaps one’s politics is not a meaningful variable in this discussion.
Louisville Juice | Jul 21, 2011 | Reply
However, shopping on Amazon doesn’t replace the enjoyment of spending an hour or two roaming around inside a bookstore. I used to find and buy books at Borders that I never have purchased had I not found them perusing the shelves. That never happens for me at Amazon.
GregA | Jul 21, 2011 | Reply
So-o-o-o, sales taxes, minimum wages, other taxes, and regulations DO affect business decisions??? That IS what some of us think!
I suspect that Mr Gregory understands quite well. Are you, phein, attributing Borders’ problems to the sales tax issue? And do you think that public policy (planners) should, or shouldn’t pick winners and losers?
Voice | Jul 21, 2011 | Reply
It was not the government which toppled Borders, and raised up Amazon. The market is changing radically, and mostly for the better. Leftists should applaud this change – it is greener, is it not, to browse books and order content online, than to drive one’s gas-guzzling SUV (or even a Prius) to a brick-and-mortar store. Surely it is more efficient for one van to deliver many parcels, optimizing its route to reduce fuel expenditure ( and carbon footprint ) than for a thousand cars to drive to the store and back? Many of these books are even delivered in electronic format, which has an even smaller carbon footprint. What’s not to like?
terrymac | Jul 22, 2011 | Reply
I made a faux pas by not mentioning the Independent Institute as a place I go to buy books. Their offerings are terrific and their service is great! My recent purchase was Race And Liberty in America. Outstanding.
Voice | Jul 23, 2011 | Reply
I for one applaud the article. The free market working without interference from government is a great thing. While I am saddened that I will not be able to “browse” Borders when I go to the mall (which is rarely). I can honestly say I’ve rarely bought from them.
The AMAZON experience for me is much better. With books that I am interested in having reviews by other readers I get much more value than just looking at a book in the store. Sorry Borders.
Thanks for the article, very refreshing.
Michael
Michael Sparks | Jul 31, 2011 | Reply
Great article. I had some thoughts on Borders some months ago (I think) when they had only filed for chapter 11: http://darefamily.wordpress.com/2011/02/18/why-borders-went-bankrupt/
It truly is the free market at work. I heard that Borders did a poor job letting Amazon handle their web business. That Kmart put Borders on steroids and built it too fast and that Borders was unable to recover from coming out too late with a competitive e-reader. These are the things that crash your business. Not to mention their ridiculously high prices compared to the online market.
paul dare | Aug 2, 2011 | Reply