Occupying Utopia?

Over lunch the other day, a friend and I were discussing the Occupy Movement and its primary concern, the equitable distribution of wealth. I wondered aloud which communities throughout history have successfully spread the wealth around instead of limiting its control to a privileged few. My friend immediately brought up the early Christian community. As a persecuted minority their very survival depended upon the cohesiveness of the group. That cohesiveness in no small part can be attributed to Jesus' words to the rich young man who wanted to know the key to eternal life. He told the man to sell all that he had and give the money to the poor.

Christ's early followers did just that, they pooled their resources, and gladly gave to those who had not, just as Jesus had suggested.

Collective communities have existed throughout history, generally as small groups of people with shared beliefs who by and large separated themselves from the body politic.

In his blog Life's Private Book, the author, David T. describes the most successful collective communities in history, monasteries. His post; The Occupy Movement, Sin and the Monastery, asks the question: "Why do attempts at creating progressive utopias always fail?" His answer is basically that human nature always gets in the way. We simply don't accept the idea that life is not fair. Instead of grasping justice the author suggests monks "embrace injustice", not for others but for themselves:

Rather than fairness, the monastery demands obedience, piety, chastity and humility. The modern world, of course, sees in this nothing but the purest form of oppression. It pursues fairness through the assertion of rights and demands, the louder and more uncompromising the better. The active embrace of meekness and submission can only be understood by it as an invitation to slavery.

Well, for those of us who are not cut out to be monks, this seems like a pretty grim prospect indeed. For hundreds of years, the values of our Western society, with a few exceptions have evolved in the direction of personal freedom and individual rights. We vehemently reject slavery and oppression of any kind. Yet the essential requirement of the collective is that the rights of the community usurp the rights of the individual. Clearly, in order for a collective to work, everyone in the group must be in accordance with the plan and agree to subordinate themselves to the community.

That's difficult enough in a small group. In the case of a typical family, there is at least one parental unit keeping things in line, who is more equal than the rest. In a small group, any member not willing to play by the rules either gets punished, or leaves, willingly or not. The larger the group, the more complicated the egalitarian goal. Extended over an entire nation, a collective society must impose rigid rules, usually handed down from a central (more equal) authority, to insure that everyone stays on track. The most dramatic example was East Germany who was forced to build a fortified wall around Berlin to keep its people from leaving to the West.

The fall of the Berlin Wall in 1989 is the indelible symbol of the failure of Communism.

So are the occupiers really seeking to turn our society into a utopian collective? Well the Movement is made up of a diverse lot and I'm sure a small minority sincerely believe in bringing a form of Communism to this country. Much fuss has been made since the movement began a few months ago about the 1 percent of the richest Americans controlling roughly 50 percent of the wealth in this country. But let's face it, how many would really care about that if the economy were robust and everyone was working? I think the 1% vs. 99% argument is merely a rhetorical bullet-point intended to rally people to the cause. Beyond that, there are plenty of meaningful issues that the movement has going for it.

For starters, our current economic situation is largely the result of wildly uncontrolled, unregulated markets. The Libertarian point of view to which I subscribe up to a point, suggests that markets should be self-regulating since their very success depends on control and restraint. Where the argument falls apart is the assumption that the players in the market are driven by long term success rather than mercenary short term greed.

Another issue is the trend in this country toward outrageous compensation for corporate executives combined with little if any accountability for mismanagement or malfeasance.

In government we have the partisan stalemate that has prevented Congress from taking any real steps to get this country moving in a positive direction. Then there is the regrettable Supreme Court decision that removed limits to campaign donations from corporations, citing them as a violation of free speech. From hereon it appears, those with the most money will have the most freedom of speech, at least as far as governmental representation goes.

The issue that we will be hearing about ad nauseum in the months leading up to the presidential election next year, will be taxes. No one likes to pay taxes, that is certain, Yet all of us reap the benefits of government in some way, even those who express disdain for it.. The money to pay for government has to come from somewhere and President Obama wants to raise the tax rate of people who make over one million dollars a year. One could argue that the people in the highest income tax bracket pay an unreasonably large chunk of the money they earn (35 percent) to the government. Well they used to pay a lot more. Couple that with the smorgasbord of tax breaks available to them and the fact that capital gains, which typically represent a significant proportion of income for the wealthy, are taxed at a lower rate than earned income, means that rich folks are often taxed at a lower rate than the middle class. The Republicans in Congress, not surprisingly are against raising the tax rate for the rich. The president would also like to extend the Bush era tax breaks for the middle class. Guess what? The Republicans are against that too.

One has to remember that no fortune, great or small, comes out of thin air, it is society that provides the means by which fortunes are made. Philanthropists believe it is their duty to give back at least part of their treasure to the society that made it all possible. For them, great wealth means great responsibility. Andrew Carnagie stated that a man who dies with his fortune intact, dies disgraced. For the great Chicago philanthropist Julius Rosenwald, it went deeper. Unlike Carnagie, Rosenwald was an active philanthropist for most of his working life, not just during his retirement. For him, giving his wealth back to the community was a moral imperative.

Since the opposition of taxing the rich has been taken on by many groups who claim to espouse Christian values, I think it's perfectly justifiable to bring up morality in the context of public policy. Christian “Fundamentalists" have a penchant for using biblical quotes to support their agenda opposed to big government, taxes, rights for gays and immigrants, universal health care, and the rest of the litany of right wing values.

Yet you seldom hear right wing Christianists quote the pasage I alluded to about selling everything and giving the proceeds to the poor. Nor do you hear what follows in that story found in the Gospel of Matthew. After the rich young man dejectedly leaves, Jesus tells his followers that it's easier for a camel to pass through the eye of a needle than it is for a rich man to enter the Kingdom of heaven.

Listening to the Christian Right, you'd think that Jesus was a gun-toting, white bread, all-American capitalist. Now I'm not in any position to tell anyone what they should believe, in my faith I'm taught not to judge others, lest I be judged. But it seems to me that the Christian faith is about community ("For where two or three come together in my name, there am I with them"), more than it is about individualism. It was Christ afterall who said:“Whatever you do to the least of my brothers, that you do unto me.” To the best of my knowldge he never said: "Show me the money."

Julius Rosenwald who was not a Christian, got it. So does Warren Buffet who is leading the call to raise the taxes on the very rich, himself included.

Higher taxes for the rich certainly won't solve all our economic woes. But I think that a willingness to contribute more to the public pot, along with a spirited movement of new philanthropy from the well off, would go a long way to help bring this country back together and move in the right direction.

Like I said, the Occupy Movement is a diverse group with many different agendas, some of them silly and irrelevant, others with tremendous merit. By and large they see this country, and the world as headed in the wrong direction and they are simply trying to right the ship. In that vein I liken their movement to mariners guided not by GPS, but a rusty old sextant on a cloudy evening. However as the movement grows, more and more people are there grabbing at the ship's tiller, slowly coaxing the old boat on a new course.

You won't see me camped outside the NYSE or the Chicago Board of Trade anytime soon. I'm a little like Groucho Marx who would never join a club who would have someone like me as a member.

But I'll be there on the sidelines cheering them on just the same.

Funny money

My contrarian nature makes me suspicious of movements, grass roots and otherwise. The current Occupy Wall Street movement is no exception, my feeling is this; throughout history, the few that are rich have always controlled most of the wealth, our time is no different. As the wise Mr. Bernstein said in Citizen Kane: "It's not a trick to make a lot of money if all you want, is to make a lot of money." Since I haven't devoted my life to the pursuit of personal fortune, I don't have a problem with other people having more money than I do.

On the other hand, there's always been a part of me that believes that people who have more money than they know what to do with, ("stupid money" as a friend calls it), could do a little better sharing it with those who have little or none. I also make a distinction between people who earn a lot of money, justly being compensated for building, creating and doing things that benefit society, (including those who invest responsibly), from those who make a great deal of money in any way they see fit, regardless of the consequences. It's an age old battle, but the following is just one case where the hard work and struggle of generations of Americans, rich and otherwise is being undermined by a few who may be about to bring down a couple of national institutions, along with thousands of livelihoods.

An article in the October issue of Esquire explores the sorry state of retail giants Sears and Kmart. The sub title of the piece;  The End, Old Friend, by investment writer Ken Kurson spells it out:

The only value left at Sears and Kmart is the bet against them.

Sears played an integral role in Chicago's history. Richard Sears moved his watch business to Chicago where he met his future partner Alvah C. Roebuck who would help diversify the operation. Together they created the mail order business that would bring a whole new world to Americans, especially rural Americans, via the catalog. Sears was a man with vision but little practical sense. It was his penchant for example, to advertise impossibly attractive deals in his catalog regardless of whether or not he was able to deliver them. He had to rely on his suppliers several times to save his skin. The stress of the business made Roebuck resign in 1895.

Sears needed an infusion of capital to keep the business going and he got it from one of those suppliers who came to his rescue. Julius Rosenwald from the discount clothing trade, as was his nature, seized upon a good opportunity and bought into the company in 1895. As vice president, Rosenwald organized and further diversified the business, turning a successful operation into a national icon. Rosenwald was instrumental in taking Sears Roebuck public in 1906, which resulted in a windfall for both him and the company. He assumed the presidency of the company in 1908 upon Richard Sears' retirement.

Julius Rosenwald was a remarkable man who today is more remembered for his philanthropic work than his formidable business acumen. Feeling personally uncomfortable with the inequity of his immense wealth compared to those who were in his employ, Mr. Rosenwald sought and received ethical direction from the teachings of Judaism. He was deeply moved by these words of a rabbi from a Yom Kippur address:

As long as the weakest in humanity has not his own, civilization is only a sham and a pretender, and as long as civilization is a pretender, Judaism must stand alone as a historic protest against injustice. 

Rosenwald took those words to heart and put his business skill, progressive ideals, much of his personal treasure, and most important of all, his time, to support initiatives that helped disadvantaged people learn the skills that would enable them to help themselves. He became associated with Booker T. Washington and his Tuskegee Institute in Alabama, as well as many efforts to establish schools for African American children in the South. He became a staunch supporter of racial justice and was equally swayed by Washington's ideological adversary, W.E.B. DuBois, who eulogized Rosenwald this way:

He was a great man. But he was no mere philanthropist. He was, rather, the subtle stinging critic of our racial democracy.

Rosenwald disliked perpetual foundations, seeing them as an attempt for their benefactors to achieve a kind of immortality. Instead he believed in giving his money away while he was alive. The foundation that bore his name was established in 1917 and lasted until its funds were purposely exhausted in 1948. In the words of Mr. Rosenwald:

I am opposed to the principle of storing up large sums of money for philanthropic uses centuries hence…. The generation which has contributed to the making of a millionaire should also be the one to profit by his generosity. 

Not only is his foundation a memory, but you won't find Rosenwald's name on the company he helped build, or many of the institutions he founded such as the Museum of Science and Industry in Chicago, simply because he wanted it that way. 

Kmart is another American institution whose company's origins date back almost as far as Sears'. Sebastian S. Kresge developed his business philosophy of hard work, thrift, and a disdain for credit, early in his career. As a clerk in a hardware store in Scranton, PA. he noticed that the store was falling behind on its bills because the customers were falling behind on their credit payments. He was diligent in keeping the place tidy, choosing to clean and polish up the store during his idle moments rather than just stand around. This attitude did not go unnoticed and his employer promoted him to the position of traveling salesman, where he remained for several years. One of his customers was Frank Woolworth of dime store fame. With $8,000 that he saved up while in that position, Kresge with a partner opened up his own five and ten cent store, first in Memphis, then another, later in Detroit. All transactions were cash only. In 1899 Kresge bought out his partner and by 1912, Kresge owned 85 dime stores under his name across the U.S. He took a close personal interest in his stores that extended to knowing all his managers by name, and hanging a picture of his mother in each store.

Kresge was notoriously stingy in providing for himself and his family. Despite being a millionaire many times over, he wore threadbare suits and refused to play golf because he lost too many balls. The penny-pinching did not however extend to his employees who were some of the first in his industry to receive paid sick leave and holidays, profit-sharing bonuses, and pensions. Nor did his parsimoniousness extend to charity. In 1924, Kresge with an initial gift of 1.6 million, established the Kresge Foundation; “to help  human progress through benefactions of whatever name or nature.” Unlike Julius Rosenwald's foundation, the Kresge Foundation is alive and well today. It ranks as the 28th richest charitable organization in the world with an endowment of 3.3 billion dollars. Kresge lived to see much of the work of his charity as he died in 1966 at the ripe old age of 99.

The Kresge Foundation casts a wide net to provide grant money to a wide variety of causes, but one specific area that is near and dear to the heart of the Foundation is the city of Detroit which was the home of the Kresge Corporation and continues to be the home of the Foundation. From its mission statement:

We aspire to change the city of Detroit’s trajectory to one of long-term economic opportunity that advances social equity, promotes cultural expression, and re-establishes our hometown as the center of a vibrant region.

The corporation no longer resides in the Motor City but Kresge's name continues to be prominently displayed in Downtown Detroit at the top of the building that was at one time its corporate headquarters. Built in 1914 the Kales Building was designed by Detroit's preeminent architect Albert Kahn. Like Cass Gilbert's Woolworth Building in New York City, the Kales Building continues to be one of the most prominent buildings in its city's distinguished skyline. To think, both magnificent buildings were built out of nickels and dimes, lots and lots of them.

Times changed and nickels and dimes didn't go as far as they once did. Dime stores eventually became known as "variety stores" and they would hang around urban commercial districts for most of the twentieth century. It was not uncommon for Woolworth and Kresge stores to coexist next to one another in downtowns throughout much of America. By mid-century the Kresge company began to change direction recognizing that the future of retail meant following the customers and their automobiles, to the suburbs. The old fashioned urban Kresge variety stores became suburban Kmart discount centers. Kmart may not have been the first "big box" store but it was the quintessential one that set the tone for what was to follow. It was the paradigm for competitors such as Shopper's World, Community, Zayre, Venture, Walmart and Target. It survived all but the last two.

Here is a blog devoted entirely to Kmart.

Unlike K(resge)mart, Sears transformed itself many times over in the twentieth century. In 1906, the year the company went public, Richard Sears wrote: "We do comparatively very little business in cities, and we assume the cities are not at all our field - maybe they are not - but I think it is our duty to prove they are not ." Shortly after that, retail stores began to open up in small towns all over the country, cutting into the mail order business and the company knew it had to adapt. In 1925, Sears opened up its first retail store located on the campus of its enormous headquarters on the west side of Chicago. Their "brick and mortar" stores quickly became successful, during one period in the twenties, a new Sears store opened somewhere in America on an average of one every other day. New stores kept opening despite the Depression and only the outbreak of World War II could stop the growth, temporarily. Sears pioneered the concept of one stop shopping, you could drive to Sears, get your car serviced, have your eyes checked, purchase insurance, get some investment advice, and put your house on the market, while your family browsed through the store which sold pretty much anything they needed. Sears also was the first company to feature in house brands such as Kenmore appliances, Die Hard car batteries, and Craftsman tools, all of whom were renowned for their quality and reliability.

Sears came the closest of any retailer in the United States to being all things to all people. In small towns they had catalog stores, limited retail establishments where you could order what they couldn't stock. In the suburbs, Sears stores were the anchors of shopping malls, and in urban centers, they coexisted comfortably along with their competitors, the other great department stores. For half of my life, the Sears department store on State Street between Congress and Van Buren was the largest and most comprehensive of all the great stores on that street.

Then there was the catalog which itself was an institution. Quoting myself; at one time all across America the arrival of the Sears catalog was anticipated with as much gusto as birthdays and Christmas. For many years the company's slogan was; "Where America shops." That was not hyperbole, Sears was so strong and powerful in the early seventies, it built as its corporate headquarters what would be at the time, and for many years to come, the world's tallest building. If any other retailer could legitimately claim to be the icon of Middle America, I certainly can't think if it.

Things began to change in the late seventies and that old bugaboo reared its ugly head, Sears and especially Kmart, didn't go along with the times. Kmart during the last part of the last century was pleagued with extremely incompetent management. The company found itself caught in between its two chief rivals. On one side was Walmart with its efficient technologically driven distribution system, and its aggressively low overhead, high discount strategy. On the other side was Target which emphasized design while maintaining low prices. Kmart did not stray from its original template and as a result, could not compete with Walmart's prices, or Target's sense of style. Consequently it became irrelevant. 

Sears also was beginning to show its age as well, its image as the store your parents and grandparents shopped at probably didn't help. The company let its stores become tired looking and run down. Here is a picture of the great Sears store at the Six Corners shopping district of Chicago as it looks today:

Sears department store at Cicero and Irving Park Avenues, Chicago, 2011

The building was built during the Great Depression at a cost of one million dollars. 100,000 people attended its opening in 1938. From the photo above you can just barely detect hints of the building's beautiful Art Deco facade. Compare it the photograph below of the same building from around the time of its opening. Amazingly, they covered up the building's most distinctive feature, its great display window, the largest in Chicago. Long ago they removed the stunning neon sign, replacing it with pedestrian illuminated plastic signs featuring the corporate logo du jour.

Same Sears store, c. 1938

Of course the last forty years have been challenging for all retailers, many of whom have closed up shop entirely. In a way it's a small miracle that Sears and Kmart exist at all today. In 2002, Kmart filed for bankruptcy protection.

Enter hedge fund manager Edward Lampert. Lampert's strategy is to buy up old school, struggling retailers, shake up the management, then use their cash flow to buy up other retailers. In 2003, Lampert bought Kmart along with all its debt. Struggling as it was, Kmart was still taking in $30 billion per year in sales. In addition, Kmart also had plenty of real estate. Lampert closed several stores and sold off the property, further improving his cash flow.

In what seemed to the general public a case of the blind leading the blind, the Kmart Corporation under Lampert, bought Sears Roebuck. From an investors' standpoint, it was a brilliant move as Sears was even more real estate rich than Kmart, and as long as they could keep selling off property, the price of the stock kept going up. Lampert's group promised to revitalize both Sears and Kmart and did make a few token moves attempting to improve sales at Sears and Kmart, but little of the money earned from the sale of assets was reinvested into either store. Sales remained flat while stock in the combined companies gained in value. Given this it shouldn't come as a surprise to anyone that the corporation that controls Sears and Kmart today is known as "Sears Holdings."

All was well with this arrangement, at least as far as stock value went, until the collapse of the real estate market six years ago. According to Ken Kurson's Esquire piece, since then the income of the company has decreased 84 percent. Sears for the first time has dropped to the tenth largest retailer and unlike every other retailer in its class, its profits have dropped consistently in that time. Kmart has dropped to a very distant fourth place among its big box competitors, Walmart, Target and Costco. Yet for the past six years, the price of the stock of Sears Holdings has remained fairly constant, quite an accomplishment for the current climate.

That is until now.

Kurson closes his Esquire piece with this: "The smart money didn't care if the retailers recovered. They liked the real estate."

This is not in any way illegal, it's business as usual in corporate America. But I think a good argument could be made about the lack of ethics in Lampert's actions.  He acquired two companies, pledging in good faith to the employees, the general public and the shareholders to do everything in his power to return them to profitability. It's clear I think to everyone like me who has visited a Sears or Kmart lately to find two businesses that appear to only be going through the motions. 

Then there's the issue of morality. Lampert's chief responsibility in his mind is to his clients, the stockholders, whose interest is the bottom line. As for Sears and Kmart, and the people who work there, well they're expendable in the eyes of the "smart money." Lampert's clients, who probably don't shop at Sears Holdings stores and definitely don't work in them, will just move on to other investment opportunities. Moving on will not be so easy for the folks whose livelihood depends on the stores.

One of the options to investors, as Kurson suggests, would be to short sell Sears Holdings stock, thereby profiting off the company's collapse. 

Eddie Lampert may not be a bad guy. In the end he may like his mentor Warren Buffet, decide to donate all of his billions to charity upon his death. He's still a relatively young man so it's not at all fair to compare his legacy in terms of charity and good works to that of Kresge's or Rosenwald's.

But he does have a substantial track record in business, so I do think it's fair to compare Lampert's business legacy up to this point, with the men who created Kmart and Sears. Richard Sears, Alvah Roebuck, Sebastian Kresge and Julius Rosenwald, at great financial risk to themselves, built companies out of nothing but their own hard work and inspiration. Their companies which have been around for well over 100 years, have provided gainful employment to countless people over that time and both Kresge and Rosenwald at least, expressed deep concern for the well being of their workers. The companies in their own right served as engines that helped drive the U.S. economy for many years, as well as provided a very good return to their investors. 

By buying and selling off the assets of Kmart and Sears, Lampert may very well have sealed the fate of the companies built by Sears, Roebuck, Kresge and Rosenwald. If that happens, he will be responsible for tens of thousands of workers losing their jobs, the loss of two American institutions, and the vacuum in the economy that their loss would entail. On the upside, he made himself and his clients richer.

As far as legacy goes, you can judge for yourself but in my book, it's not much of a contest.