The Venti Effect
Locally owned coffeehouses flourish in the Age of Starbucks.

Are you one of the many Americans who believe that the Starbucks Corporation has had a ruinous effect on locally owned coffeehouses? If so, think again. In his new book, Starbucked, Taylor Clark writes, “For most locally owned coffeehouses, a new Starbucks nearby is actually cause for celebration.” 

How is that? “Starbucks doesn’t enjoy the same competitive advantages as other megaretailers,” Clark explains. Wal-Mart “has lower prices than any of its rivals, its hours are generally longer, and its range of products is larger. None of this is true of Starbucks.” A new neighborhood Starbucks tends to boost interest in specialty coffees, thus creating an opportunity for independent coffeehouses that stay open later and offer better or less costly products. “The Omaha World-Herald reported that after Starbucks blitzed Omaha with six stores in 2002, business at locally owned cafés was up as much as 25 percent, with many new mom and pops opening up.”

The number of independent coffeehouses in the U.S. grew more than 40 percent between 2000 and 2005.

Indeed, national statistics suggest that, far from dying, independent coffeehouses are thriving in the Age of Starbucks. “According to Specialty Coffee Association of America figures,” Clark writes, “57 percent of the coffeehouses in America are mom and pops. Even between 2000 and 2005, long after the ascendance of Starbucks, the number of independent coffeehouses in the United States increased more than 40 percent—from 9,800 to just under 14,000. 

“Starbucks’s share of the market keeps inching upward (over the same period, it tripled its U.S. store count, from 2,700 to 7,500), but the proliferation of its stores hasn’t fazed the mom and pops at all—quite the opposite. The failure rate for new coffeehouses is incredibly low—only 10 percent, according to the market research firm Mintel—which means a sizable majority of the independents stay in business regardless of where Starbucks drops its stores.” 

The Old Ball Game
A century ago the Cubs won the World Series. A look at when players never had it so bad.

As Chicago Cubs fans know all too well, the 2008 Major League Baseball season is the centennial of their team’s last World Series championship. Thanks to Fortune magazine’s Cait Murphy, we now have an exhaustively detailed (and highly readable) pop history of the 1908 campaign. In Crazy ’08, Murphy provides a colorful narrative of the Cubs’ path to glory. She also examines how the business of baseball was evolving in the early 20th century, which lends a valuable perspective on present-day MLB labor spats. 

In 1906, National League President Harry Pulliam made the era’s defining statement on player rights: “The ballplayer has no part in the making of the form of contract under which he plays.” Murphy describes this as a “remarkably forthright definition of feudalism.” At the start of the 1908 season, Detroit Tigers star Ty Cobb held out for a three-year contract, worth $5,000 annually, with a written clause guaranteeing he would be paid the full amount if injured on the field. His team scoffed at the demand. “We are not running any insurance bureau and don’t propose to start one,” said Frank Navin, Detroit’s president and part-owner. “There was no pension plan,” Murphy writes, “and one of the items of business at the 1908 winter meetings was to ignore a modest proposal from [American League President] Ban Johnson to finance a fund to help indigent former players.” 

We carry no brief for the current slate of MLB owners. But it is worth noting just how far baseball’s business structure has shifted in a pro-player direction over the past century. 

The Myth of Offshoring Pollution
Huge pollution reductions are mostly the result of new technology, not sending jobs abroad.

Everyone agrees that air pollution from U.S. manufacturing has declined significantly in recent decades. But has America simply offshored its dirty industries and boosted imports of polluting products, as many globalization critics claim? Not according to research by Georgetown University economist Arik Levinson. 

“The good news,” Levinson writes, “is that most of the pollution reduction over the past 30 years has come from changes in technology, rather than from changes in imports or changes in the types of goods produced domestically. Criteria air pollutants collectively declined 58 percent from 1972 to 2001, despite a 71 percent increase in manufacturing output. The cleanup was accomplished by changing the mix of goods produced and by altering the technologies used to produce those goods. For a typical pollutant, technology accounts for a large majority of the cleanup. Moreover, although some of the improvement is due to the changing composition of industries, that change cannot be explained by increases in imports. For the typical pollutant, increased international trade explains at most half of the pollution reductions from composition changes in U.S. manufacturing. Those composition changes in turn explain less than half of the overall reduction in U.S. manufacturing pollution.” 

Source: Arik Levinson, “Technology, International Trade, and Pollution from U.S. Manufacturing,” National Bureau of Economic Research working paper, November 2007.

The Real Story on Worker Compensation
Average real hourly compensation for American workers has increased.

The next time you hear a U.S. politician or pundit lament that “average real hourly wages” have declined, don’t be misled. “The average real wage is a fundamentally flawed measure of the well-being and progress of American workers for three reasons,” writes Daniel Griswold, a trade expert at the Cato Institute. “First, the real wage does not include benefits. Second, it relies on cost-of-living estimates that have tended to systematically overstate inflation in recent decades and thus understate gains in real earnings. Third, real wage numbers are often compared to previous peak years, a practice that tends to minimize longer-term upward trends.”

Although “the average real hourly wage paid to American workers is lower today than in the 1970s,” says Griswold, average real hourly compensation, which includes benefits such as healthcare and 401(k) contributions, has gone up. “Since 1973, average real hourly compensation for American workers has increased 45 percent,” Griswold writes, citing Bureau of Labor Statistics data. “The growth in real hourly compensation has accelerated in the past decade, rising at an annual rate of 2 percent.... Even the average real wage—despite the overstatement of inflation and omission of benefits—was 8.2 percent higher in mid-2007 than ten years ago.”

Source: Daniel Griswold, “Trading Up: How Expanding Trade Has Delivered Better Jobs and Higher Living Standards for American Workers,” Cato Institute, October 2007.

Jagdish Six-Pack, Crying in His Beer
The average American must work ten minutes to afford a beer. The average Indian?  Over six hours.

For over two decades The Economist magazine has used its “Big Mac Index” as a way of comparing currency values. According to the most recent version, China’s yuan is the most undervalued currency versus the dollar: a Big Mac costs $1.45 in Beijing compared with $3.41 in the United States. In a slight variation, the Swiss bank UBS aimed to demonstrate purchasing power parity among countries by determining the number of minutes the average worker must toil to enjoy a Big Mac. While in Tokyo it takes ten minutes of work, and in New York 13 minutes, the average worker in Bangkok must labor for more than an hour, and in Lima he must work for almost 90 minutes. But what the average worker wants at the end of the day is less likely to be a Big Mac than a tall cold one. So South African brewer SABMiller has created a global beer index.

The index reveals that it takes just ten minutes of hard labor for the average American to buy a bottle of beer. Czechs spend only 12 minutes laboring per bottle. Meanwhile, the average Indian must work 369 minutes to quench his thirst. “One of the reasons beer is so expensive in India,” says The Sunday Times of South Africa, “is that country’s high sin taxes.”

Goldman Sachs on ‘Hispanization’

According to the Census Bureau, the U.S. population will jump to 309 million by 2010, of which 48 million will be Hispanic. Indeed, between now and then, Hispanics will drive roughly 50 percent of overall population growth. Over the long term, their share of the population is projected to swell from 14 percent in 2005 to 20 percent in 2030. 

In a recent study, Goldman Sachs analyzed how the “Hispanization” of America may influence the country’s investment strategies. (This was a follow-up to Goldman’s November 2004 report, “The Hispanization of the United States.”) “Hispanics will represent 14 percent of aggregate U.S. consumer spending growth over the next three years,” the Goldman researchers write, relying on Bureau of Labor Statistics (BLS) numbers. “We believe Hispanic ‘consumer units’ (as defined by the BLS) will increase expenditures from $500 billion in 2005 to $691 billion by 2010, a CAGR [compound annual growth rate] of 6.7 percent.” 

‘Hispanics will represent 14 percent of aggregate U.S. consumer spending growth over the next three years.’

The states with the largest Hispanic populations are California, Texas, Florida, New York, and Illinois—roughly 66 percent of U.S. Hispanics live in those five. The states with the highest concentrations of Hispanics relative to their overall populations are New Mexico, Arizona, Nevada, Colorado, and New Jersey. “We estimate that the Hispanic populations in South Carolina, Georgia, Tennessee, North Carolina, and Maryland grew almost 7 percent per year from 2000 to 2007, the fastest rates in the country,” says the Goldman report. “The Hispanic populations in these states grew from a small base in 2000, but we expect continued rapid expansion, representing growth opportunities especially for small businesses concentrated in these states.” 

Bottom line: “For domestically focused investors and companies, gaining exposure to the rapidly growing U.S. Hispanic population offers the best prospect for sales and earnings growth over the next three years.” 

Source: David J. Kostin, Robert Koyfman, Caesar Maasry, and Amanda Sneider, “U.S. Hispanization: Long/Short Strategies,” October 2007.

In Ease of Paying Taxes, We’re #76
What the U.S. can learn from Europe when it comes to corporate taxation.

In “Paying Taxes 2008,” its second annual report on corporate taxation produced in tandem with PricewaterhouseCoopers, the World Bank “seeks to compare the ease of paying taxes in 178 countries around the world.” Despite the popular perception of  America as a land of laissez-faire, the United States ranks 76th. That means it is easier to pay corporate taxes in Lithuania (71st), Germany (67th), Portugal (66th), Belgium (65th), Sweden (42nd), Australia (41st), the Netherlands (36th), Estonia (31st), Canada (25th), Norway (16th), Denmark (13th), the United Kingdom (12th), New Zealand (9th), and Ireland (6th) than it is here.

The 2008 survey stresses that “government revenues can be enhanced by simplifying tax systems and compliance obligations.” We hope the presidential candidates are listening.

Out with the Old Money, In with the New
When it comes to America’s richest people, it’s mostly a story of self-made fortunes.

Last year marked the 25th anniversary of Forbes magazine’s annual list of the 400 richest Americans, which, as a recent book puts it, has become “the dominant symbol of wealth in America.” All the Money in the World—produced by the collaborative work of editors Peter W. Bernstein and Annalyn Swan and writers Paul Berger, Anna Isgro, Gwen Kinkead, and Alex Ulam—explores a quarter century of American fortunes: how they were created, how they were spent, and where the moneymakers came from.

Over the years, the Forbes list has reflected key changes in the U.S. economy. “In the first Forbes 400, oil was the source of 22.8 percent of the fortunes, manufacturing 15.3 percent, finance 9 percent, and technology 3 percent,” the book reports. “By 2006 oil had fallen to 8.5 percent and manufacturing to 8.5 percent. Technology, however, had risen to 11.75 percent and finance to an extraordinary 24.5 percent.” Meanwhile, self-made wealth had grown more influential compared to inherited wealth. “Twelve families who possess ‘old money’—bearing names such as Du Pont, Ford, Frick, Rockefeller, Harriman, Hunt, Hearst, and Whitney—represented 21.4 percent of the list in 1982. They had declined to 1.7 percent in 2006.”  Inherited wealth is still “a very powerful factor in American society,” and today’s new money will become tomorrow’s old money. “But even when heirs who increased the family fortune are counted on the ‘inherited’ side of the ledger, that number continues to fall against the self-made. In 1982, 212 members of the 400 created their own fortunes—just over half the entire number. By 2006 the number of ‘self-made’ fortunes had risen to 280, with the heirs dwindling to less than a third of the list.”

Self-made fortunes dominate the upper echelon of the 400. Tellingly, only one inheritor has ever placed Number 1: Gordon Getty, son of the late oil baron Jean Paul Getty, earned that distinction in 1983 and 1984. But in the 2007 Forbes list, Getty ranked 133rd.