Sears was too Big to Fail but It Did

SearsI’d guess the majority of people under my age, fifty-two, don’t remember how dominate Sears, Roebuck and Company was in the retail industry. Sears was enormous. Too Big to Fail according to a metric that seems to be prevalent in this political era. Sears has pretty much failed and it hasn’t affected the economy or jobs in a significant way. There’s a lesson to be learned in that.

First let’s take a look at how dominant was Sears prior to the Wal-Mart and Internet era. At the turn of the century, that’s nineteenth century youngsters, people purchased things from their local general store. The selection was limited and the price was exorbitant. Then came the Sears Catalog. It changed everything in the same way as did Amazon and online shopping. People no longer had to rely on their local store. People simply sent an order form in and, within a few weeks, they had their item. It was revolutionary. It was the beginning of the end for small stores across what was then the largely rural United States.

Sears grew from that initial catalog until they were the dominant retail sales company in the country. There were, and remain, Sears stores in every city. The Sears Tower was for a time the largest building in the world. They employed huge numbers of people and their sales methods allowed others all over the country to purchase the goods they wanted at an affordable price.

I feel confident suggesting that if someone back in 1980 told Congress Sears was going to fail, there would have been panic. The thought of all those lost jobs and the fact that so many wouldn’t be able to purchase cheap goods would have caused an immediate effect. We would have seen a rush of public committee meetings, speeches about how vital was Sears to the economy, and a plethora of grim looking politicians pledging to save us from this impending disaster.

Happily, no one knew. Wal-Mart came along. The Internet came along. Sears pursued a bad business model and now they stand on the brink of insolvency. They are closing stores all over the country but, and this is important, politicians don’t care. It’s the natural course of business in their eyes and, for once, they are right.

Businesses fail. When executives make poor decisions, when the nature of the market changes, when circumstances and luck go against it, a business fails. The vital factor is that it failed for reasons. Another business model can succeed and provide profit, and people who pursue a good strategy will fill the void.

If the car manufacturers had been allowed to fail someone else would have stepped up to take their place. If the financial institutions that badly managed their affairs had been allowed to fail, others would have ably stepped up to replace them. For every job lost to the failing company, another one would have been created, if not two.

There is no such thing as too big to fail. What exists is too much vested interest in politics. The businesses that were going to fail had the Democratic and Republican Nation parties in their pockets. It was in the interest of the two major political parties to save those companies. The politicians and their parties don’t want the gravy train to stop.

The lesson to be learned is that there is no too big to fail. Failure is as much a part of capitalism as is success. Where one business fails, for whatever reason, another arises with a better model. Where one job goes away, two more appear.

Does it hurt for those who lose their job? Is it painful for the executives who have failed? Yes.

That’s capitalism.

Tom Liberman

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