02 July 2008

World's Most Shocking Economic News!

Starbucks plans to close up to 600 stores. Starbucks, the coffee shop everyone loves to hate (see here, here, and here, for example), but which seemingly could do nothing wrong from the business end of things.

The main reasons for hating Starbucks seem to bethat (a) it is corporate, and we all know corporations are evil, (b) it is homogenizing American culture, and (c) it's a fucking monopoly!

Well, (a) is silly. Starbucks used to be beloved by counterculturalists because it was the little hippie coffee company from Seattle that treated its employees well. But then, I guess, it sold out. Selling out, of course, is a form of betrayal, so I suspect that in consequence certain folks hate Starbucks more than they would if it had just been created by a corporate giant from the beginning. And (b) is a bit pointless after a half century of television and a century of movies.

Which brings us to (c), an issue I have looked at closely in the past, as I believe free market monopolies are rare. I remember vividly a grad school friend of mine grumbling that Starbucks was a monopoly, and there was no other place close to the University of Oregon campus to get coffee. As we walked down 13th Street, I pointed out the bookstore, the bar, the bagel shop, and two other coffee shops, all of which we had to pass to get to Starbucks at the end of the block. Somehow, he still wasn't convinced there was any other place to get coffee.

Another friend of mine, a Foucaltian Marxist, or some such inscrutable academic combination, preferred the coffee shop just a few doors down from Starbucks. It served coffee boiling hot in handleless glasses, had rickety folding chairs to sit on, and wobbly tables that were too small to put your laptop on to get some work done. Anyway, if you had tried they would have started asking you if you were going to buy another coffee--the message was clear, buy another cup or get out.

Starbucks, on the other hand, had couches, solid tables big enough to work on a laptop, and a policy of mostly ignoring you if you didn't come up to the counter to order another cup. Occasionally, someone wiping down tables would ask if you wanted anything else, but not in a way that made you feel uncomfortable. I often spent hours in Starbucks, working on my dissertation, and buying only two or three cups of coffee. But my friend didn't like them because they were "corporate," and no matter how much I pointed out that they'd become successful by making the experience pleasant, he preferred the shop where he had to suffer. I was never sure whether it was guilt at being a rich American, benefiting so much from free markets, or whether he didn't want to accept that markets could work so well, or whether he just thought that true Marxism required suffering for your cup of java.

As to its monopoly status, Starbucks was sued in 2006 by another Seattle coffee shop owner, who charged that Starbucks was using anti-competitive tactics, including signing exclusive leases with downtown office building owners at above market prices, and offering free drink samples. The woman had to close down her coffee shop because she couldn't compete. That's life in America, where we think free markets mean every business can succeed. Signing exclusive leases and offering free samples are just good business practices, not nefarious and anticompetitive schemes. Likewise, my good friend Phil complains that when Starbucks moved into his neighborhood, all 5 previously existing coffee shops went out of business. OK, I understand that he missed his favorite coffee shop, but really, if not one of the five can manage to stay in business, they couldn't have had that much going for them.

So I've always admired Starbucks, despite not caring for the type of music they choose to play and sell, and resenting them for starting the trend of fancy names for "small, medium, and large." But I found that if I refused to play along, and ordered a large coffee, the baristas never blinked, and gave me exactly what I asked for.

So it's surprising to see them having such a large reverse, but proof yet again that being a large corporation is no guarantee of continued success. And that's what the anti-free market, anti-corporation folks don't get--businesses only grow large and remain large because they're doing something right, and that something is meeting human needs and wants. But if they stop doing so, or if they try to rest on their laurels and stop being innovative, even the Starbucks of the world will have to close up shop(s).


Scott Hanley said...

F*** Starbucks. I went into the downtown store in A2 last night, ordered a drink, and then discovered you can't get wireless access unless you're purchasing a T-Mobile account. Meanwhile, at any number of places on the same street, I can get access for free. That's no way to compete for my precious beverage dollar.

James K said...

One of the funniest things I have read in economics was a list of companies Kenneth J Galbraith composed in the 70s that he considered to be so powerful that they had broken the power of competitive forces to check.

Half the companies no longer exist, the funniest additions were the Big Three auto manufacturers, because there's no way they could ever end up in financial distress.

Shumpeter: 1
Galbraith: 0

James Hanley said...

I have to look up that list! It's exactly the kind of thing I need for my political economy class--there's no argument I can make to students that is as convincing as that kind of historical evidence.

Re: F*** Starbucks. I went to my town's brand new Starbucks for the first time yesterday, and felt the same way about having to purchase T-Mobile minutes to get online. $9 bucks for the day, or $6 for the first hour pissed me off quite a bit.

On the plus side, I actually got more work done because I couldn't surf the web or correct everyone making inaccurate statements on Ed Brayton's blog.