Ayn Rand Never Ran a Business

There have been several stories this week about what CEO Eddie Lampert is doing to Sears. As Paul Krugman says, its the story of how an “Ayn Rand-loving hedge fund guy is driving Sears into the ground.”

Lynn Stuart Parramore writes,

A bit of background: Lampert cut his teeth on Wall Street at the risk-arbitrage desk of Goldman Sachs under Robert Rubin, who later became U.S. Treasury Secretary and now serves as vice chairman at Citigroup. In 1988, Lampert founded ESL Investments and joined the billionaire’s club at age 41. He rose to fame in the early 2000s for seizing control of Kmart during bankruptcy and then using it to take over Sears. Along the way he was kidnapped and deposited on a motel toilet in handcuffs for nearly 40 hours, and lived to tell the tale. Lampert is known for his touchiness and odd habits, such as conducting meetings from a bare bones room to Sears executives forced to tune in by videoconference. He hates flying.

You might say that Lampert is the distillation of the fervent market worship and wrong-headed economic approaches that came to dominate the U.S. in the 1980s and have yet to run their fatal course. He adores Ayn Rand, and is reported to have given out copies of Atlas Shrugged during an ESL annual dinner. Lampert is also a fan of Friedrich von Hayek, the Austrian economist beloved by conservatives and libertarians. As a Robert Rubin protégé, he absorbed the lessons of a man whose discredited economic focus on budget deficits ended up starving the country’s infrastructure, education and alternative energy.

Looking at what Lampert has done to Sears, we can see what happens when the lessons of his mentors are actually applied in the real world. It isn’t pretty.

Long story short, instead of managing Sears in a way that allowed its many divisions to support and complement each other, he broke the company up into warring fiefdoms and told them they must compete with each other. Mine Kimes writes at Bloomberg Businessweek,

Since the takeover, Sears Holdings’ sales have dropped from $49.1 billion to $39.9 billion, and its stock has sunk 64 percent. Its cash recently fell to a 10-year low. Although it has plenty of assets to unload before bankruptcy looms, the odds of a turnaround grow longer every quarter. “The way it’s being managed, it doesn’t work,” says Mary Ross Gilbert, a managing director at investment bank Imperial Capital. “They’re going to continue to deteriorate.”

Joe Cahill at Crain’s puts it more starkly.

Mr. Lampert spent billions of dollars of the company’s once-prodigious cash flow in a vain effort to prop up the stock price through share buybacks. Between 2005 and 2011, Sears spent $6 billion on buybacks. Nevertheless, Sears stock has lost half its value over the last five years.

Part of the problem, according to Parramore, is that neither Lampert nor any of the top execs he brought with him had any experience with retail. And they didn’t think they needed any. Lampert seems to have believed he could make Sears and Kmart profitable again by applying Randian/objectivist principles. Cahill continues,

At least initially, Wall Street bought into the contradictory notions that he could use the company as a Berkshire Hathaway-style vehicle for other investments while restoring the two chains to their former glory. And if all else failed, we were assured, Mr. Lampert could simply harvest the vast value stored up in Sears’ real estate.

Mr. Lampert, for his part, insisted that his goal was to turn around the company’s retail operations. But he did little to discourage the Buffett analogy, misguided as it turned out to be.

Lampert is basically overseeing a slow-motion liquidation, Cahill says. And maybe that was his intention all along. But reading these articles, I get the impression that Cahill really believed he could run Sears better than it had been run in the past. Read the Bloomberg Businessweek article in particular on this point. Parramore concludes,

The lessons of Crazy Eddie seem so obvious that a bunch kids running a lemonade stand could understand them. You have to know something about the business you’re running, especially a big one. Success requires cooperation rather than constant competition. Greed is ultimately destructive.

The invisible hand of the market appears to have attempted to slap Lampert upside the head to teach him these things. But he remains committed to his nonsense, and the real losers are all the hard-working people who have lost their jobs, and the potential loss to the American economy of two revered brands.

It’s probably a good thing Ayn Rand never tried to run a business.

Somehow, this all makes me recall our old buddy and GOP presidential candidate Mittens, who believed he could run America like a vulture capitalist firm. We surely dodged a bullet when he lost.

14 thoughts on “Ayn Rand Never Ran a Business

    • Brien — yeah; and I don’t see how a shoe department is supposed to “compete” with a hardware department. It doesn’t make sense to me.

  1. Even if you want to talk about self-interest, it isn’t always in my interest to compete with everyone I encounter. I don’t know about objectivists more generally, but Lampert is taking this idea to the point where you aren’t even allowed to cooperate. You have to be pretty obtuse not to realize how often people cooperate and collaborate with each other for selfish reasons.

  2. “I don’t see how a shoe department is supposed to “compete” with a hardware department. ”

    Oh, that’s easy: figure out ways to play games that cause their numbers to get worse while yours get better, of course!

    I’m not actually one to think that just because someone is successful means that they can’t be a moronic lunatic, but still, this seems so self-evidently stupid (your average undergrad business major could shred this is the span of one lecture) that I have to put at least even odds that it’s deliberate for whatever reason.

  3. I can’t tell you how many MBA’s came through our telecommunications company, that couldn’t run a children’s lemonade stand.
    We used to laugh – until we cried,
    They knew nothing!

    They come with the pre-drawn conclusions, given to them in school, and tried to apply the same model to customer subscription-based products like TV, the internet, and phone, and, tried to run them like they were the fable “Widget” manufacturing companies, of decades ago.

    And the focking funniest thing is, they couldn’t deal with an industry – telecommunications – that was already a monopoly, because everything these morons had been taught, was how to make Pop’s Lawn Care Company, into a company that handled every Baseball, Football, and Soccer team’s playing fields, until it BECAME a monopoly!

    But in the end, the joke was on the rest of us.

    No matter their know-nothing tendencies, and actions that turned into fuster-cluck’s, they still moved up the ladder.
    It was an “Good Ol’ Boys – and occasional Girls Club,” for prior graduates.

    They ALWAYS failed UP!

    If you doubt the system is rigged, then you’ve been more cloistered that the ‘Saints” of may religions.
    People of a certain pedigree are never allowed to fail! Unless it’s to the next level up!

  4. The thing that her fans never seem to get is that not only did Ayn Rand never try to run a business, she never tried to run ANYTHING, except perhaps a cult of supplicants. It’s not like her ideas are any better as principles of government than they are as rules for business.

    (Heck, they don’t even make plausible fiction, if you’re not a egotistical 13 year old boy!)

    One of the signs that our system is broken is that someone as mucked up in the head as Lampert could have become a billionaire, and is in charge of a major business.

  5. Not only did Ayn Rand never try to run a business, she never tried to run ANYTHING

    In fact, as a functional adult she was a complete failure, and required her husband to sublimate his interests entirely to get her through life. The cult of supplicants, uh, “helped” when they could (the young attractive male ones anyway). Personally, Ayn Rand was the complete opposite of a self-reliant human being. She was, however, the perfect Rightie: a phony to the marrow of her bones.

  6. “I can’t tell you how many MBA’s came through our telecommunications company, that couldn’t run a children’s lemonade stand.”

    I think the future will be about GREATLY increased employee ownership. Solves a LOT of problems.

    “She was, however, the perfect Rightie: a phony to the marrow of her bones.”

    Ain’t THAT the truth.

    • I remember many years ago Mike Royko wrote a column about visiting a new restaurant. The service was terrible, the food was cold when it arrived, orders got mixed up, the silverware wasn’t clean, etc. The owner/manager was a recent business school graduate who was sitting at a table looking at spreadsheets, oblivious to the problems. Royko commented that the owner should find the patriarch of one of the Greek families that owned restaurants all over Chicago, and ask if he had a son or nephew who was ready to manage the place. Yeah, it could have been a daughter, but this was years ago. The point was that some guy with hands-on experience would know how to get orders filled and the silverware cleaned.

  7. she never tried to run ANYTHING, except perhaps a cult of supplicants.

    That’s the kink! The cult of supplicants. What would cause a group of young males to sit at the feet of Ayn Rand? I can’t put my finger on it, but in a sense I see a kinda female Rasputin type thing with a pick of the court and the earning of favors dynamic.

  8. “We surely dodged a bullet when he lost”

    Agreed, we dodged an Atomic Bomb when McCain-Palin lost! OT but FAUX has really out done themselves today, they are running tape of President Obama saying “I won’t let Detroit go bankrupt” and then asking the question where was he today? Are their viewers really that ignorant? Of course they are!

  9. A good example with Sears is the gutting of their service department. We live in a remote area, so one of the up sides of buying Sears was that we could get local service. About five years ago Sears started cutting its service department and it could take weeks to get a repair. We haven’t shopped at Sears since, and this has hurt our local Sears franchise. Service was probably never a big money maker for Sears, but is worth running near break even as a marketing point for getting customers. They probably insisted it jack up its margins, and right now, it probably has great margins but is half the size and no longer as useful to anyone.

    It’s all ideology. The capitalists are no better than the old communists. I remember cancelling my subscription to Forbes when Malcolm died and his idiot son took over. The magazine started to read like Pravda. (The old Forbes was quite different.) As long as the Soviet threat was around, there was some restraint. The capitalists actually had to produce goods and provide services, but when the Soviet Union collapsed they gave up and focused on ideological purity which, ironically, is just what killed the Soviet system.

  10. Ayn Rand is a reactionary. Take, for example, satanists – their rituals turn Christianity (specifically Catholicism) backwards. There is no independent, original theology to be found – it’s just anti-christisanity. One would expect more from Lucifer, since he was God’s favorite angel. But I digress. The point is that Ayn Rand is reacting to communism. Remember, Rand was born in Russia – and IMO, her entire philosophy is built around anti-communism and a rejection of any and all collective political thought. Libertarians want to claim that Randian principles are the reflection of the ideals of the founding fathers, but a casual look at the writings of Jefferson and Madison and legislation of the early Congresses – contradicts that claim.

    Rand is not original nor has she distilled the thinking of the architects of democracy. She’s a knee-jerk reactionary – determined to get even with Russian Communism by creating it’s mirror opposite in the US.

  11. People of a certain pedigree are never allowed to fail! Unless it’s to the next level up!

    The ultimate example of this being GW Bush in the White House, a perfect distillation of the ideology of the MBA vermin.

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