Merge: Rights, Property

Political Philosophy
21

I would be cautious about buying property that is restricted by covenant, or buying property on the assumption that some other property was restricted by covenant.

I don’t disagree and your points are well taken. But I think in a free market covenants in the form of home or development associations would play a major role. Most people cant afford to buy not only their lot (or house) but the 40 acre forest across the street. So people would seek out development communites where they knew in advance what the layout of the area would be like and would continue to be like.

I think a system of real estate covnenants would be a form of private zoning, all done on the basis of persuasion.

22

I don’t disagree and your points are well taken. But I think in a free market covenants in the form of home or development associations would play a major role. Most people cant afford to buy not only their lot (or house) but the 40 acre forest across the street. So people would seek out development communites where they knew in advance what the layout of the area would be like and would continue to be like.

I think a system of real estate covnenants would be a form of private zoning, all done on the basis of persuasion.

The thing I would be concerned with is the revocability of the covenant sometime down the line. I’ve never looked at one of these things up close, except for one that was declared illegal (based on racial exclusion). Something that looks like a good idea today might be a bad idea 20 years later. Ultimately, I suppose my objection to those things is that they amount to only conditionally owning your property, subject to the whims of the people in your association. But I agree that they are the free market way to accomplish zoning.

23

I see how these covenants are the capitalist alternative to zoning. However, what is the real difference between a person with more wealth building a huge house next to your smaller one and a company like Walmart opening a huge store right next to a ‘ma and pa’ store?

24

However, what is the real difference between a person with more wealth building a huge house next to your smaller one and a company like Walmart opening a huge store right next to a ‘ma and pa’ store?

Ma and Pa could stay abreast of economic trends, exercise some forethought, buy up the property next door, eventually sell it to WalMart at a huge profit, and retire in style. :yarr:

25

However, what is the real difference between a person with more wealth building a huge house next to your smaller one and a company like Walmart opening a huge store right next to a ‘ma and pa’ store?

The creation of the huge house wont result in me no longer being able to afford my own house and having to instead rent a room within the bigger house in which to live.

I understand the point youre getting at here but this is a really terrible analogy.

26

Are you asserting that a small business can’t compete with a much larger organisation? Because if you are, that is wrong.

27

The creation of the huge house wont result in me no longer being able to afford my own house and having to instead rent a room within the bigger house in which to live.

Not per se but like we experienced in Austin when people started paying obscene rates for houses. An example, a neighbor sold for 135k a 1/2 lot with a 750 sq foot house with asbestos, roof, and slab problems and no kitchen; they only had a small plug in dinette. That got torn down and this monster of a “new urbanist” house got put in that took up almost the whole lot. Since the house wasn’t homesteaded our property taxes quite literally exploded since the value did.

Mind you, our $100k house was now worth $250k a few years after we bought it but we did end up selling it and moving the heck out of dodge. Though, the problem was created by the state and it’s unlimited power of taxation, not by the people that moved in next door. Though, since they just moved from San Fransico, they thought they received the bargain of a lifetime.So it was a fair exchange of value. Both parties were happy. Especially me.

28

Are you asserting that a small business can’t compete with a much larger organisation? Because if you are, that is wrong.

In very general terms, yes. A small business will normally be unable to fight a price war with a large corporation, due to the extra resources it is going to have. Obviously specialist shops and places where customer service is all-important will be different.

29

In very general terms, yes. A small business will normally be unable to fight a price war with a large corporation, due to the extra resources it is going to have. Obviously specialist shops and places where customer service is all-important will be different.

So basically what you mean is that actual Wal-Mart and an exact scaled-down version of Wal-Mart differ in their overhead (to the disadvantage of Small-Mart), and therefore the latter’s costs are higher, thus either their prices must be higher or their profitability must be lower. Now there are a few other factors to include. First, the administrative overhead of Small-Mart may be lower (the boss also works the register and does accounting, etc and the boss of Small-Mart requires much less money to be a happy guy because he enjoys the work). Second, there is the irrationality factor – very few people reject Small-Mart because it is a large store, and many people patronise Small-Mart because they went to high school with the owner, or because it is a “small, local” business. Third, I picked up 500 9x12 mailing envelopes at the local office supply at a fraction of the price, because they got a deal on a stray couple of boxes of about a thousand from a salvage place – OfficeMax doesn’t deal in such spontaneous tiny bargins. And fourth, the “specialty” aspect can be really important. In fact, I think the failure to recognise this last fact is the main failing of (some) modern small business. You cannot run a Ma and Pa drug store the same way your grandparents did. You need something that distinguishes you from the competitors, big or small, and cannot just rely on tradition to carry you through. When you understand what it is that gives you the competitive edge, then the fact that you’re a fraction the size of Wal-Mart is irrelevant.

30

In very general terms, yes. A small business will normally be unable to fight a price war with a large corporation, due to the extra resources it is going to have. Obviously specialist shops and places where customer service is all-important will be different.

If price is the absolutely only thing important to you, then yes Wal-Mart will win each time. _ However _, and this is a very big however, price is relatively unimportant to most people when it comes to loyalty. That may be a shocker to most people but customer service really does win the day out most times.

Check out JD Powers. Most of the companies that have the highest loyalty and repeat customers are ones that provide the best customer experience. I know in my industry (discount stock brokers) that there are guys that are much cheaper but the fact that we provide little things like local phone numbers, genuine cusotmer oriencted service, etc, we’ve managed to grow every single 1/4 unlike every single one of our competitors.

The local Red’s Ace Hardware near my mom is a good example. 1st a Furrows moved around the corner from them. Everyone said their goodbyes. Then Builders Square moved in about 2 years later. They were less than 100 yards away. Then Home Depot moved in across the street.

Instead of wasting time worrying about matching price, they seriously amped up their customer service and became the most genuinely helpful people in existance. Pretty soon Builders Square and Furrows, two companies who relied on price to draw in customers closed shop and Loews moved in.

Red finally closed down. Not becuase he went out of business but because he had managed to grow so darned much he couldn’t expand on his land anymore. Sure alot of people would look for the cheapest water heater would go to Loew’s but if you need to talk to someone who will let you know about all the parts and tools you’ll need to install that thing would go to Red’s.

Trust me that if you can get a single cusotmer to rave to their friends about the wonderful expeience they had doing business with you, that will beat the $500k the other guys spent buying a majority sponsorship in that nationally televised golf tourney. Really.

The old saul is that 1 unhappy cusotmer will tell 7 friends that they are unhappy but it takes 100 happy customers to have someone tell their friends how happy they are. But really, think about the last time a friend absolutely raved about a mechanic or plumber or whatever? You’d be much more inclined to go with them than that guy that paid money to take out that ad in the newspaper’s sports section or all the ads in the paper or tv money can buy.

31

Hmm, where to begin.

It is absolutely certain that Small-Mart cannot match, much less beat, Wal-Mart on price. The argument that the boss of Small-Mart can take over the job of a cashier (who Wal-Mart pays about $7/hr) doesn’t hold water–WM’s scale means that the cashier’s wage is covered many many times over by sales run through his register. Neither does the argument that he’s willing to work for cheap or free–companies in a free market *create* value; the profit of the owner is not an unearned or inefficient thing. Nor the argument that he can find small sales–he can’t do this consistently or sustainably.

It is equally certain that a Small-Mart cannot compete on service with any large company who also focuses on service (Wal-Mart is not such a company).

If you want to be a successful Small-Mart, there are a few things you must consider:

  1. You have to find a niche in which you can be the winner

  2. Markets evolve, and over time tend to become winner-take-all

  3. 1+2 means if your niche is profitable, the big players will invade it

  4. 3 means you better get big before the big players invade

The above rules apply to service companies and commodities vendors. Intellectual property companies (to some extent) face a different dynamic–it’s still damned hard, or impossible, for a small software company to take Microsoft head-on. Such companies typically try to find a niche, or create a new market in which Microsoft is not already dominant.

This last point is the key. Why would you want to enter the hardware-store market against established players like Home Depot and Lowe’s, when you could create and dominate a new market? It’s hard to come up with an idea for such a business, but not nearly so hard as the alternative.

32

I’m not sure what your point is. But if your point is that it can’t be done, then how do you explain how Microsoft and WalMart managed to achieve it?

Fred Weiss

33

It is absolutely certain that Small-Mart cannot match, much less beat, Wal-Mart on price.  The argument that the boss of Small-Mart can take over the job of a cashier (who Wal-Mart pays about $7/hr) doesn’t hold water–WM’s scale means that the cashier’s wage is covered many many times over by sales run through his register.

Except the costs that you don’t see including the cost of all those layers of management. Small organizations can benefit by not having that many layers. That is the real reason why Wal-Mart toppled Sears (who btw was 1 or 2% of the US’s GDP. that’s a LOT of sales) Sears grew top heavy and the market place decided the rest. They rely on volume. Volume tends to be like heroin; the more you have the more you want/need. It’s fun while you have alot of it but when it disappears, it gets really ugly.

Plus you must consider the value that working in a smaller store presents to an employee and their morale. When organizations go from lightweight to top heavy (Sears, Charles Schwab, IBM) employees ability to “move up” generally takes longer. That is due to the kindgom building etc that you have to do in order to get recognized in those places. It becomes about managing the process and not inovating. Wal-Mart, Microsoft, etc. all managed to encourage inovation from their employees. Note, with these two examples as with IBM much of that culture has changed for worse or better as it were.

It is equally certain that a Small-Mart cannot compete on service with any large company who also focuses on service (Wal-Mart is not such a company).

If you want to be a successful Small-Mart, there are a few things you must consider:

  1. You have to find a niche in which you can be the winner

  2. Markets evolve, and over time tend to become winner-take-all

  3. 1+2 means if your niche is profitable, the big players will invade it

  4. 3 means you better get big before the big players invade

I disagree with 4. Big in and of itself does nothing. Sure, some of the cost advatages you get from scale help but then some of that is offset by extending and building the infrastructe to support increased distribution/sales/support chains. Check the % of sales GSA expenses that Wal-Mart has compared to say Nordstrom’s. Then compare that % to their profit margins before EBITA. They tend to follow one another.

Big companies by their nature are much slower to react. Example: It was the small privately owned brokerages that 1st thought enough of their customers to let them place trades and make decisions on their own. Charles Schwab did it well. He was tiny compared to the old established firms like American Express and BankAmerica. Well, every big firm and bank started their own brokerages and spent lots and losts of money. Almost all of them failed. So they bought their competitors who understood the marketplace. They ALL felt that by adding a discount house would allow them to cross-market their high profit serivces like insurance and traditional bank products. Schwab was so horribly mismanaged BofA sold it back to him at a loss. Schwab built his company to the biggest in his industry and then changed his mind what industry he was in and tried to compete head to head against the large full serivce firms. It is rumored to be for sale to a big bank or brokerage agian. Almost every large brokerage has undergone multiple reorganizations and mergers whereas some of the indies and regional firms have stayed indie but still manage to make gobs of money.

The above rules apply to service companies and commodities vendors.  Intellectual property companies (to some extent) face a different dynamic–it’s still damned hard, or impossible, for a small software company to take Microsoft head-on.  Such companies typically try to find a niche, or create a new market in which Microsoft is not already dominant.

Service companies are even more able to compete on price if they are smaller. Service is mostly value added work. If I’m willing to take less for the same or better service, I can make alot of money. Big organizations, for the most part, can’t manage costs. Smaller firms are much better able to manage the flow of dollars out in since each dollar is that much more important. This allows companies like Scottrade to undercut competitors because they manage costs very well. Lower costs to deliver services means that you can take less for your services and still have a higher profit margin than the big competitor.

This last point is the key.  Why would you want to enter the hardware-store market against established players like Home Depot and Lowe’s, when you could create and dominate a new market?  It’s hard to come up with an idea for such a business, but not nearly so hard as the alternative.

Tell that to Fed-Ex and Lowes. There were already well established companies that did what they did. They just do it somewhat better than the others. Many competitors came and went but they are the two current marketplace leaders. I give you that it is hard to imagine establishing a giant box retail store chain but since there is a reward: if you do it just right, you will make a great deal of profit.

34

The socialist theory of corporation is that capitalists take home “rents” (unearned money). Their moral code drives them to the idea of non-for-profit companies, but their economics reinforces the notion. If people get rich by “rents”, then a more efficient system is one devoid of profit.

This theory should not need to be debunked again in an Objectivist forum, so I will address it further.

If this theory is false, then one can see that the idea that a company could lower prices simply because its owners are willing to work for less (or no) money. Aside from the fact that very few people want to work, much less own a business, for little or no money, this is a simpel corollary of the idea that “rents” cause high prices.

Wal-Mart operates on margins so thin, that a mere razor is a poor analogy. You can’t beat them on margin, you can’t beat them by reducing or eliminating “rents”, so how can you beat them?

You can’t. Not if you want to fight them head-on.

As I understand the Wal-Mart story (and I haven’t really studied it), for a long time, Wal-Mart avoided towns that had a K-Mart, Aimes, etc. They found a niche, and in this comparative shelter, developed the organization, process, supply chain, know-how, merchandising principles … etc … to be a world-class retailer. Today, Wards is done and K-Mart is close–no company can compete against Wal-Mart head-on.

I know a lot more about the Microsoft story. They simply did not take IBM, Control Data, Honeywell, or the others head-on. They found a completely new space in which there was no dominant player, and aggressively pursued it. They obviously had brilliance, skill, hard work, etc. They also had a rarified opportunity. Most opportunities are not as big as the PC software business.

Today, a company like mine does not seek to fight Microsoft directly. Developing an operating system, word process, web browser, or compiler would be financial suicide. What are we doing? You can read a little about it at www.dw.com. :slight_smile:

Fred, your company isn’t taking Borders or Amazon.com on directly, is it? Aren’t you specializing in a niche that those companies can’t or won’t address?

So long as we have freedom, there will always be opportunities. But those opportunities are not only different in size, but they are scattered unevenly and in areas that most people don’t see until the opportunity is gone. That is part of what makes it an opportunity. Microsoft had an opportunity to win in the operating system business around 1981 with the IBM PC (and they’ve since been carrying this ball without significant fumble). DiamondWare, or Paper Tiger, or anyone does not have the operating system opportunity.

35

Wal-Mart operates on margins so thin, that a mere razor is a poor analogy.  You can’t beat them on margin, you can’t beat them by reducing or eliminating “rents”, so how can you beat them?

You can’t.  Not if you want to fight them head-on.

Unless you can somehow figure out how to do it cheaper. I seriously doubt that anyone can pare costs back like Wal-Mart does. It’d be pretty close to impossible. Though a sign it is possible to outdo them on costs is Costco. On a per square foot basis, Costco mops the floor with them. Somehow, and I still can’t figure out why, they do it cheaper and more profitable in the exact same marketspace. Quite a few other factors mean that the Walton family isn’t losing much sleep over it I bet.

Socialists confuse when it comes to Wal-Mart is that they think it’s some wildly fat margined operation as you point out. Not that having fat margins is a bad thing either. Wal-Mart has to maintain some insane volumes to make a buck due to their thin margins. If they don’t meet the consumers needs NOW then they have problems. Something in theory socialists should love but since they make a profit at it, they must be evil.

That thin margin that makes them succesful also leaves them vulnerable. If they start misforcasting trends or quit responding fast enough, then they would have problems. That is what killed Sears. Again, I doubt that will happen soon but companies tend to change after the 2nd and 3rd generations.

36

Socialists are so thoroughly confused these days and so ignorant (really, indifferent) to economics these days, that I don’t think they would deny that WalMart operates on razor thin margins. In fact, indirectly, that’s what they oppose. :slight_smile: Since by so doing WalMart is then able to put less efficient stores out of business, which supposedly is just awful, awful, awful.

Their real objection to WalMart is that it is non-union - and that they still have very high employee satisfaction ratings (or at least they use to under old man Sam whom they adored). This defies the Marxist “exploitation theory”.

As to the general point, yes, I agree it’s foolish and probably doomed to failure to take on a market dominator head-on. You need some kind of edge. But the relevant point is that many, many companies have found such edges and done serious damage to these dominators, in some cases even eventually putting them out of business. Market dominators have a tendency to get lazy and complacent which opens them up to clever, nimble, and fast moving smaller competitors. Possibly the most famous historic example was the GM assault on Ford Motor in the 1920’s. The edge GM pursued was offering cars in different styles and colors. You might have heard of Henry Ford’s famous slogan, “You can have any color car you want so long as it is black.” It was key to his early fabulous success…but then almost doomed his company.

Fred Weiss

37

Say someone owns a piece of land on which he has built a single story house. Next to this block of land is a vacant block. Someone else purchases this vacant block of land and builds a massive three story house on it. Consequently, the owner of the single story house is unhappy because the three story house blocks off much of the natural light that he used to get in the house. Because of this, the value of his property decreases. The owner of the three story house basically argues that since he rightfully owns the block of land, he is entitled to do whatever he likes on it.

What would be the solution to this problem?

The aggrieved owner would sue the other owner and settle the issue in court.

38

In reality, the problem as described does not exist.

Before you can build anything, construction/design drawings by a licensed architect, complying with all the local zoning issues (such as height restrictions), building codes, engineering issues etc…, must be submitted to the Town for a Building Construction Permit.

Exceeding the bldg. heights requirements within a zone would require obtaining a Variance before getting the Building Permit. Seeking for a Variance involves the Board of Adjustment and notices to all the adjacent neighbors within 200 ft. of the property in question. Conflicts between property’s owners are fought out here using the town ordinances and state codes as a guide. The ultimate decision is then made by the Board members, who are the citizens of the town and often are lawyers, architects and real-estate agents…

Depending on the type or scale of the proposed project, it can involve the whole town dealing with a whole host of issues: economic impacts, traffic patterns…or even style and color; such as a Walmart proposal on a Main Street.

The property owner also have access to a process of appeals with the County, and on rare occasions to the State Supreme court, but it’s mainly a local issue.

Kien

39

Let’s be clear here on what a “right” is, and what it is not.

One might argue that one’s property right includes sunlight, and that if other property owners built tall buildings that left you at the bottom of a pit, sunwise, that this deprives you of a part of your property.

I am not sure if I entirely agree with this (still thinking), but if so, then clearly the adjacent owners can’t build over a certain height without purchasing the first owner’s sunlight rights. This gets hairy, which is why I am not sure if this whole doctrine is correct.

But there is *not* a right to property *values*, i.e. to have someone come along and be willing to pay a particular price. If, in Fred’s example, GM offers red, green, blue, and white cars, and this decreases the amount of money that would-be buyers would offer Mr. Ford for his company, oh well.

Any lawsuits filed on this doctrine are specious.

40

I have some additional thoughts on business models.

First, to clarify, I thought the original context of the question was that a small business owner could outcompete Wal-Mart on the basis of either being willing to take home less money, or on the basis that he can find odd lots cheaply. I believe I debunked both of those theories.

I think the focus of the discussion switched to how such mega-successful companies got started. The premise was that they “obviously” started small. While I think this may have been true for Wal-Mart, I think it’s less true for Microsoft, and not true at all for a number of household names today, such as Google.

Today, especially in technology industries, there is venture capital available. If the nature of one’s business plan requires that one’s company begin with national scale, then one simply seeks out a sufficient equity investment to enable this. One may fail, of course, but not due to the economics of scale, or lack thereof.

Another thread in the conversation addresses large, inefficient companies. My favorite, of course, are the operators of the telephone network. I agree that size does not grant one immunity to competition, even from startups. Nevertheless, while there are few companies that are both so large and so inefficient as the Bells, I think that a startup would have a very very hard time trying to take them on directly. In fact, several years ago in the bubble years, a number of companies (yes, with venture funding) tried. The CLECs (as they were called “competitive local exchange carriers” and opposed to ILECs “incumbent local exchange carriers”) all failed. I do not know of one who succeeded.

Today, “Voice Over IP” is a hot sector. The dynamics of the industry are different, and the play is different. These companies are mostly trying to offer a hosted IP service that connects to the telephone system just enough to have a phone number which is callable from regular old phones.

They have a sustainable economic advantage over the ILECs, unlike the CLECs of the late 1990’s. (They also have a sunset business, which they don’t realize yet–but this is a topic for another day).

I agree that there are many cases where old companies become fat and lazy and dumb. In such cases, a more able competitor can beat them directly.

But I would hesitate to make this the first or primary point in a generalized business discussion that young entrepeneurs may take to heart. The sort of opportunity to take down a Ward’s or Ford or IBM is for a team composed of seasoned industry veterans.

The take-home for a young, aggressive, smart would-be entrepeneur is to look for a new niche that he can win. Find a place where the existing companies can’t go. This may be because it’s too small for them (Paper Tiger?), too radical for them (DiamondWare?) or because they just aren’t structured to get into the new business. An example of the latter could be based on most companies’ desires not to eat their own lunch, such as the railroads not wanting to offer airline service.

Don’t go and start a word processing company because Microsoft is much fatter and slower than it was 10 years ago. That’s true, they are, but you still won’t beat Word.