Here’s a story–the story of the history of Fender Musical Instrument Corporation.
In the 1950s, Leo Fender invented the Telecaster, and with it, the Fender company. Also coming out of Leo Fender’s mind (and shop)? The Precision Bass, the Jazz Bass, the Stratocaster, the Twin Verb amplifier, the Bassman Amplifier. Ground-breaking and industry (co) leading musical tools. He focused on innovation, and on quality.
Eventually, Mr. Fender was approached by CBS Corporation, and he sold his company to them. Eventually, the suits at CBS began to cut corners. It started with little things like using three bolts instead of four on the plates that secure the guitar necks to the guitar bodies. You see–the suits thought that they could continue to move product–that the thing was just a widget–and the quality of the product didn’t matter at all.
Sales fell off a cliff. New competitors–like Ibanez, Jackson, Charvel, Paul Reed Smith–even Leo Fender’s own new company, G&L—rose to fill the quality gap.
(As an aside, this was the same time that CBS Corporation was destroying the New York Yankees’ legacy. See a pattern?)
Eventually, CBS gave up and the employees were able to buy back the company, and they’ve completely re-built the company.
But here is the point. Leo Fender was a “maker” and an entrepreneur and a risk taker. He innovated, he made quality products. The guys at CBS? The suits? The ones who differ from, say, Bain, only in that their company also had a core business (broadcasting) while Bain and others have none? What was there contribution? They unwittingly attempted to dismantle and destroy a company in the name of squeezing every cent they could imagine out of it. In a way, they “unwound” all of the true value in the company that Leo Fender had built into it.
So which are the Makers, and which are the Takers? Wouldn’t a group of people trying to enrich themselves by squeezing value out of someone else’s innovation qualify as “Takers”?
So when Mitt Romney complains about “Takers,” about whom is he talking? Wealth per se isn’t proof of creativity. Or value-adding. Rather, in many cases it seems, it is evidence of value-taking–value destruction. For example, a private equity fund that pays itself by loading a business with debt, leaving what should have been a viable business in bankruptcy. But also consider a case like Staples—taking market share from smaller supply stores. Traditionally, one would see this as “creative destruction,” a competitor enters the market and outcompetes. Another way to see this, though, is that this is a kind of deflation–there is more efficiency, but there are also fewer jobs that pay less; and most of the benefits accrue to the Funds and the Fund owners. I’m not suggesting that there is necessarily anything wrong with this, as such. But I am saying that Governor Romney’s success here is, rather than a kind of making, is a kind of taking.
