Saturday, August 25, 2018

Silly Season is Upon Us

The election is almost here, and politicians are all trying to outdo each other in desperate attempts to garner press time and the hoped-for votes that such exposure is supposed to bring.  Several of the potential bills being tossed around have no real chance of being passed, but are intended just to shock the voters.

Politicians talk about closing agencies, balancing budgets, providing new jobs, and lowering expenditures constantly.  During campaigns, these problems are made to sound like dire emergencies, but after the election, the two-year snooze button is hit and discussion of those crucial problems all but vanishes—at least until the next election. 

Both parties are guilty of this charade, and there are no indications that it will ever change.  Voters obviously have extremely short attention spans and no long-term memory.

Occasionally, the politicians' claims rise to the level of such absurdity that the ideas are worth a little attention, if only for the sake of amusement.  This is precisely why I spent a little time this week listening to speeches by Senator Elizabeth Warren as she proposed what she calls “Accountable Capitalism”.  This is not actually a totally new idea:  what Warren has done is take “Conscious-Capitalism” (the idea that consumers will favor businesses that are socially conscious in their operations) and inject it with socialist steroids.

One provision in particular struck me:  Senator Warren wants laws forcing all corporations with annual revenues of over $1 billion to have at least 40% of their boards of directors elected from the employees.  Calling them "stakeholders" (as opposed to current-day "shareholders", who actually own shares of company stock), Warren believes that the corporations 'owe' their employees….something. 

This policy is actually something that was frequently accomplished by collective bargaining, but as the power of the unions is waning, Warren wants to pass legislation to accomplish the same thing.

This contradicts just about everything that Milton Friedman wrote, including that the chief goal of directors should be to guide the company into making profit, and that a successful company—and this implies that a company also should be responsive to the political and social desires of its customers—will in the long run be doing the best for its employees by remaining competitive and by continuing to provide stable jobs for its employees.

There seems to be a common belief that "heartless businessmen" do not care about the welfare of their employees.  (Certainly, Senator Warren seems to believe this).  This is a complete mischaracterization of every businessman I have ever known.  My brother and I used to have telephone conversations about this very subject, as we agonized over decisions that would set the path for our respective companies.  'What if this decision works out wrong, and I have to lay off employees?'  I not only knew the names of my employees, I knew the names of their children.

The most common problem among businessmen that I have known is the recruiting, training, and retention of good employees.  Anyone who says differently—and this certainly includes the senator from Massachusetts—has never run a business.  Anyone who has ever signed the front of a paycheck knows it's impossible to keep good employees working for you if you are a bad boss.

Nor is Warren's plan in any way practical.  Imagine the business that currently has $900 million in revenue.  What incentive does the company have to expand and grow larger?  The potential devaluation of its voting stock?  A larger and more fractious board?  It would be far more likely for the company to either move offshore or break up into small divisions—spinning off companies with a shared ownership.  This would raise the overhead, resulting inevitably in the hiring of fewer employees. 

For the thousands of companies in America whose revenues already top $1 billion annually, this change in management and the restructuring of preferred stock would mean an immediate drop in the stock price, hurting all of the shareholders and making the companies less competitive in a global market.  It is hard to see how anyone would benefit from such an arrangement. 

Senator Warren argues that over half of America own no stock.  True, but almost every American is financially involved with a pension fund, a bank, or an insurance company—all of which do own stock and would be seriously harmed by this legislation.  How would your city and state meet current pension obligations if their investment accounts were wiped out?  How much would your taxes have to be raised to cover the deficit?

If current stockholders thought that Warren’s bill had any chance of being passed, there would be unprecedented capital flight out of US-backed stocks, triggering a massive bear market.  I can’t help but wonder if there would be any surviving corporations large enough to come under the new legislation. 

Nor is there any evidence that corporations with employee participation in the boardroom are more profitable, competitive, or even capable of hiring more employees.  There is a long list of corporations that have experimented with such employee stakeholder plans—and failed.  Ben and Jerry stopped making ice cream long enough to announce just such a plan, promising to pay its top executives no more than five times the average worker salary.  After sales slumped, the company quietly hired a head-hunting firm that eventually secured the services of a highly-paid executive who had formerly been employed in the firearms industry.  Ultimately, the corporation sold to Unilever. 

The Container Store started in Dallas, growing quickly by opening new stores across the country.   After taking the company public, the stock rose to just over $40 a share.  After announcing its new policy of sharing management, the company lost 87% of its value and its expansion of new stores stalled.

There are undoubtedly success stories of companies in which management decisions are voted on by the employees.  I’m sure there must be—I just don’t know of any.  (But, I also know that the decisions of what to do with a company should be left solely to the owners of that company).  Taking that right from them even by legislation, Senator Warren, is theft of property. 

The largest corporation in the world as I write this, is the Apple Corporation.  Apple's competitive business is highly complex, requiring massive amounts of capital to achieve its remarkable innovations and sales.  Currently, investors have loaned the company a staggering $1,044,000,000,000.  That’s a trillion dollars.  The profit that Apple made last year is just as staggering, but by the time you divide it among the investors, the yield is only a return of 1.36%.  That isn’t much for the risk those investors are taking. 

I have a suggestion, let’s test the theory.  We’ll let Senator Warren start a company where all the management decisions are shared equally.  We can wait a while and see how it works out.  She should start small, perhaps a bus company where every passenger on the bus gets his own steering wheel.  Just don’t let it run on the streets where I live.

Saturday, August 18, 2018

Ollie's Target

The force seemed enormous:  6000 North Korean soldiers, supported by thirty-six tanks streamed south out of the newly captured city of Seoul.  The only force barring its way was the American Task Force Smith, made up of 400 infantrymen supported by a small artillery unit.

Not only were the men hopelessly outnumbered, but the task force had not been issued effective anti-tank weaponry to fight the Russian-made T-34-85 medium tanks they were facing, that were sturdy, battle-tested vehicles. 

This was the first real engagement of the Korean War and as the defending American and South Korean forces fled south, Task Force Smith was ordered to fight a rear-guard action to buy time for troops to prepare a defense until reinforcements arrived.  They hoped to stop the tidal wave of North Korean troops that was still pouring across the 38th parallel.

Task Force Smith was positioned just south of the capital, Seoul (a city that both sides would take—and retake—several times during the protracted war), but on June 30, 1950, the outnumbered defending forces were retreating so rapidly, that many units abandoned their heavy weaponry to the enemy in a mad scramble to withdraw to safety.  The main objective of Task Force Smith was to buy the precious time those units needed to regroup.

The biggest problem for the American Army was adequate transport.  While there were troops stationed in Japan, there were not nearly enough C-54 transport planes to move the necessary units into place fast enough.  The decision was made to send over as large a force as the few available planes could handle, in order to fight a delaying action while more transport was made available. 

The task force was made up of 406 infantrymen, the vast majority of whom were far too young to have any combat experience.  Each man carried 200 rounds of rifle ammunition, a two-day supply of C-rations, a few small mortars and six M9 rocket launchers—the venerable bazooka of World War II.  What the men did not take—despite the fact that they knew they were going to engage the enemy—were their tanks, medical support, forward air controllers, combat engineers, or air defense.  While anti-tank mines were available in Japan, inexplicably none were issued to Task Force Smith.

The M1 rocket launcher had been given its nickname in 1942 by Major General Gladeon Barnes.  After test firing a prototype, he remarked that the weapon looked like the musical instrument of comedian Bob Barnes.  Bob Barnes was a popular radio performer who had invented a strange sliding kazoo fashioned from two pipes and a funnel off of his uncle’s still.  The name, "bazooka", stuck, and is now irreverently used to describe almost any shoulder-fired anti-tank weapon.

The original M1 bazooka was an amazing weapon for its time, firing a 2.36” rocket from a light metal tube supported on the shoulder.  Weighing fourteen pounds, it could hit and seriously damage an enemy tank at an effective range of roughly 150 yards.  The weapon proved effective in combat and captured units were reverse engineered by both the Germans and the Japanese, both of whom designed their weapons to use larger and more lethal rockets.

Throughout World War II, the Americans continued to improve the weapon.  The batteries necessary to fire the weapon were discarded, replaced by a more reliable magneto system, the sights were improved, and the weapon could be disassembled into two pieces for easier carrying.  The weapon was now labeled the M9 Rocket Launcher and was very reliable—but totally inadequate to penetrate the armor being used on the newer German tanks.  The army knew this, and designed a new “Super Bazooka”, which fired a 3.5” rocket that had a longer range and was far more lethal, but the war ended while it was still in production, so it was never used in combat.

Following the war, the new weapon was issued to US forces stationed in post-war Europe, but various desk-bound bureaucrats in Washington decided that forces stationed in the Pacific would continue to use the venerable M9 bazooka until all of the warehoused 2.36” ammunition had been exhausted.  (After all, the replacement rounds for the new M20 cost less than $2.50 each).

When Lt. Colonel Smith positioned his 406 men, they were reinforced with remnants of a mountain howitzer battalion, bringing the total force up to 540 men.  The new reinforcements brought a few howitzers so inaccurate that they had previously been condemned and had been labeled "Not To Be Fired Over Friendly Troops".  It didn’t make much difference, since the unit had only six rounds of anti-tank ammunition.  Still, Smith positioned his men brilliantly, telling his outnumbered force that they only had to maintain their position for twenty-four hours before they were to be relieved.

Note.  This might be a good time to point out that the men of Task Force Smith were well trained, fought hard, and were brilliantly led by courageous and competent officers.  The army later blamed damn near everyone for the failure to contain the North Koreans, but it was not the fault of the men ordered to attempt the impossible.

When the enemy forces finally arrived, the T34 tanks rolled right through the unit.  While the recoilless rifle mortars scored direct hits, the rounds simply bounced off the tanks.  All six anti-tank rounds for the howitzer were fired and amazingly, four North Korean tanks were damaged and stopped, one of which was destroyed.  The other two and a half dozen rolled right through the American position.

And the bazooka?  Second Lieutenant Ollie Connor found the perfect opportunity to use the weapon.  American soldiers strongly believed that the only weak point of the T-34 armor plating was at the rear of the tank.  (Actually, that was a myth coming out of World War II, when some German tanks did have weak rear armor.)  Ignoring enemy fire, the lieutenant managed to crawl into a ditch behind a T-34 tank while it traveled down the road.  At a distance of fifteen yards, he fired the M9 bazooka, solidly hitting the Russian-made tank squarely in the ass....With no results whatsoever.

Actually, Second Lieutenant Connor fired that silly bazooka and hit the enemy tank 22 times, before it got out of range and continued south.  I have always wondered if some accountant in the Pentagon later complained that he had foolishly wasted $60 worth of ammunition.

After Lieutenant Connor was awarded the Silver Star, the press interviewed him and he related that as far as he could determine, the bazooka rounds had not damaged the tank’s paint.  Task Force Smith was saved only because the North Korean forces had been ordered not to stop until they reached Pyeongtaek, miles to the South.  Had the North Korean forces elected to ignore their orders and pursue the Americans as those were forced to pull out and retreat, the task force could have been completely destroyed.  As it was, casualties were high, with a quarter of the unit killed, wounded, or captured.

The plight of Lieutenant Ollie Connor came to mind today as I read about the ongoing debate in Washington about whether to find a suitable replacement for the Javelin, the U.S. Army’s current shoulder-fired anti-tank weapon.  The thirty year-old Javelin is fragile, weighs fifty pounds, and the $120,000 weapon fires an $80,000 rocket.  The unit will not fire until an internal refrigeration unit reaches the proper temperature—a serious drawback in desert warfare.  Understandably, the Army wants a replacement and the desk-bound bean counters don’t want to come up with the necessary funds.  (And the current contractors; Lockheed Martin and Raytheon have excellent lobbyists.)

The current rocket launcher will probably not be replaced.  At least not until all the ammunition currently inventoried is used up.