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What do I have to do to get you into a democracy today?

Y'all know what goodwill is, right?

purchase price - net assets = goodwill

Ha. Fooled ya'. You thought goodwill had something to do with an intention to "do good", didn't you? Well, I'll amend that: you probably thought that if you aren't an accountant or a lawyer.

Think of it this way: Say you want to buy a company, Kooky Kooler, Inc. How much should you pay? First you figure out the value of all its tangible assets -- it's distributorships, the vehicles it owns, all its bottling plants -- then you subtract whatever liabilities it has -- debt or what-all. That gives you, more or less, the net asset value of the company -- let's say in this case $10 million.

So you offer that price hoping that the owners of Kooky Kooler, Inc. are idiots.

Sadly, they're not. They know that their brand name is known and loved worldwide. Their tasty and refreshing product delights billions all over the planet. If you think you are going to get that kind of customer goodwill for a song, then you are the one who is an idiot.

You offered $10 million; the owners of Kooky Kooler say they can't let you have it for less than $100 million. After running the numbers, you decide it's still a steal at $100 million so you crack open the checkbook and happily pay an extra $90 million for something that doesn't tangibly exist anywhere -- except in the hearts and minds of Kooky Kooler's loyal customers.

You know that's supposed to be crazy, but you also know in your gut that it isn't. In fact, it makes perfect sense to you, doesn't it? You know the value of feeling good about a product or the way a company does business with you. If you want a nice lunch, where're you going to go? To the restaurant where the food is lousy and the staff treats you like crap? Or to the one where the food is tasty and the people are cool? You make your choice based on the goodwill you feel toward a particular outfit, or on the badwill you feel for another, and the business that went to the trouble of cultivating your goodwill gets your money. In a competitive environment, customer goodwill can make the difference between staying in business and going, as my daddy used to say, "tits up".

Yep. Goodwill is a big damn deal. Your run-of-the-mill CFO knows that. He even gives it its own column on the company's balance sheet. Or, at least a proper footnote in the annual report.

Thing is, though, it wasn't always that way.

A merchant had sold his stock of goods at a price in excess of their inventory value, and, in selling, had agreed not to set himself up in competition with the business of the purchaser.  He violated his promise, suit was brought against him by the purchaser for damages, and decided in the latter's favor.  Prior to that time contracts in restraint of trade seem uniformly to have been held void and even criminal, and the only case on record in which an English judge is reported to have resorted to profanity in rendering his decision was in the case of a dyer in the year 1417 who had agreed under bond not to practice his craft within the town for a certain period of time.  The bond was declared void and the dyer was absolved by the court from compliance.  So the decisions had uniformly run against agreements in restraint of trade from the year 1417 until, in 1620, this exception was made, thus laying one of the cornerstones of the modern law of goodwill. (Commons, John R., Legal Foundations of Capitalism, Macmillan Company, 1939, pp. 263-64.)

So. Looks like we're coming up on the 400th anniversary of goodwill, at least insofar as it can be bought and sold as a business asset.

It should be obvious by now, if it wasn't before, that goodwill can only exist in a competitive environment. If you as a customer don't have the choice of withholding your goodwill from a company, if that company has no competitors, then your goodwill is utterly without value to that company. That company knows you are going to do business with them whether you like them or not.

When, in 1907, the Consolidated Gas Company of New York, claimed the right to charge its customers a price high enough to earn interest on "goodwill and franchises,"  Justice Hough in the federal court disallowed the claim as respects goodwill, on the ground that the company enjoyed a monopoly in fact, and the customer had no choice except to remain with the company.  And the Supreme Court adopted this view, saying, "The complainant has a monopoly in fact, and a consumer must take gas from it or go without. He will resort to the 'old stand' because he cannot get gas anywhere else."

And Justice Savage, of the Supreme Court of Maine, in a case where a water company had set up a valuation of the goodwill of customers as a valuable asset, said, "Goodwill is inappropriate where there can be no choice.  So far as the defendants' system is 'practically exclusive' the element of goodwill should not be considered." And similarly the Wisconsin court excluded goodwill as assets in the case of a monopoly like that of a water supply. (Ibid, p.270)

There's a movie made back in 1967 named The President's Analyst (1967) starring James Coburn. It's generally pretty bad, but there's some mildly amusing stuff in it about The Phone Company, a reference to a time when our only choice for phone service in this country was Ma Bell. In the film the Phone Company is not, to say the least, presented sympathetically.

I think it is in the nature of human beings to hate monopolies. It isn't so much that we are born with an affinity for the free enterprise system. I think it's more that we are born liking to have things go our way. And we're pretty good at resentment, too, especially when it comes to somebody telling us how it's going to go whether we want things to go that way or not.

Yep, we hate them. But don't take my word for it. Listen to an official spokesman for The Monopoly:

No one likes us.... resentment of our power, hatred of our success has been a staple for decades... The fact is that the world hates us for our wealth, our success, our power. They hate us into incoherence....

Okay, no fair. That's from "To Hell With Sympathy: The goodwill America earned on 9/11 was illusory. Get over it", by Charles Krauthammer (Time, November 17, 2003) As you will have guessed, The Monopoly here is America.

Hey, wait just a darn second, you might say. America isn't a stand-in for monopolies.

The free flow and the open competition of ideas is the heart of our free societies. What a striking contrast this is with those nations of the world where the people have no role but must sit weakly by and wait for a small group of men to conclude their struggle for power behind closed doors and then rule without being accountable to anyone.


General Eisenhower wrote in his personal diary less than a year after the end of the Second World War, "Our most effective security step is to develop in every country where there is any chance or opportunity a democratic form of government. To lead others to democracy we must help actively, but more than this we must be an example of the worth of democracy."


I do not underestimate the capabilities for repression of dictatorships of either the left or the right or the devastating effect of terrorism. But the imperishable democratic ideal and the democratic movement -- these are stronger.


[T]he free competition of ideas at the ballot box is an invitation to stability and flexibility that is so necessary for economic and social progress...

That's Ronald Reagan speaking in November of 1982 to delegates at the Conference on Free Elections.

The business of America is democracy, right? We like "the open competition of ideas". No monopolies here. Well, except we are kind of bossy sometimes. Like as if we don't care about customer goodwill in this marketplace of ideas. Sometimes we even invade countries that aren't even threatening us, which kind of makes it look like we don't care how our product, liberal democracy, looks to other potential customers.

Wait a minute, you may object, you can't treat the world of international politics as if it were the marketplace. You can't rely on the "free flow and the open competition of ideas" to protect us in a dangerous world.

Hey. I'm not the one who says a reasonable price for Kooky Kooler, Inc. is not $10 million. I'm not the one who says it's worth $90 million more, taking into account... goodwill.

That was their idea, the Big Shots, though I certainly agree with it. It comports with everything I know about patronizing my local businesses. It is, in short, true in a fundamentally human way.

Goodwill is big money, so how come it isn't big politics?

Look, I could see invading Afghanistan. That country more or less sponsored the attacks on September 11, 2001. Attacking back made sense to the world, generally speaking. That particular war didn't cost us much goodwill.

But Iraq? Come on. That was our leaders turning us into The Monopoly, and it was us, as a nation, acquiescing. And now Guantanamo? "Black prisons" in unnamed countries? Extraordinary rendition? Torture?

How can you describe that sort of behavior other than it's the sort of thing you'd expect from The Phone Company?

We have become the jerks at The Cable Company who put you on hold for hours when you call for repair. We are the infuriating couldn't-care-lessers who make you take the whole day off to be home when they come, and then they never show up.

But this isn't screwing around, you may say! This is international politics! This is the War on Terrorism! You can't compare the two situations at all!

Well, maybe we could justify acting like The Monopoly if we actually had a monopoly on world politics. But the thing is... we can't even maintain order in a country that was beaten down for a good decade before we went into it. Nobody believes we really have the power to behave monopolistically in this world. We are powerful, but we are nowhere near that powerful.

Whether we like it or not, we are in a marketplace of ideas... just like Ronald Reagan said. So, the thing is... maybe we shouldn't be all that surprised if people take their business elsewhere when we continually behave like we don't care about winning their goodwill.

I didn't think this thought on the morning of September 11, 2001 as I stood there looking up at the burning towers, but I just might think it now:

"Well. Another dissatisfied customer."

All I'm saying is... think about this:

We have a good product. Why do we have to sabotage ourselves by continually alienating our customers?

You can't hold a gun to the heads of your customers and force them to buy your product. Unless you are A Monopoly, of course, but we can already see that we are not that in this world.

Goodwill matters. You know in your gut that it does. Even the Big Shots say it's so.

So why don't they act as if they believe it?

My guess is it's because they are all used to living in a world of no-bid contracts. Who needs goodwill from your customers when your fellow Big Shot is happy to give you, free and clear and without competition, more business than you can possibly care about doing well? Goodwill is a pain in the ass, after all. Why work for it when you can just take what you want without even breaking a sweat?

Unfortunately, what you ultimately end up with then, in a situation like that, is an Enron or a Worldcom or a Tyco.

Me, I'd rather work for an outfit that's likely to stay in business.



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No doubt there's someone out there ready to take you to tasks for valorizing everything, but quite a few quondam supportes of GWB are more likely to grasp this argument than one based on actual, you know, moral arguments.

My brother-in-law's father was a self-made business man, who turned a single dump-truck into a good-sized business. He had a rule of thumb for business deals, one the people running this administration clearly are unfamiliar with: Before you finalize a deal, consider it from the other guy's point of view. Is is satisfactory to him? If he's being taken gross advantage of (whether he realizes it now, or only later) he not only won't want to do business with you another time, but will be sure to tell other people what you did, and do his best to ruin your chances of making a good deal with anyone else.

In other words, there's a reason why Warren Buffett is still a really really rich guy, and Ken Lay is down to his last $25 million, and a reason why Paul O'Neill has been replaced by John Snow, a man for whom CSX Transportation was only to glad to build a bridge of silver.

If these guys really were the great CEOs they claimed to be in 2000, instead of the kings of hinky deals, they'd know that. They aren't even really good salesmen, because a really good salesman knows to look down the road at the deal after the deal after this one--and for that deal, goodwill is as imporant as whatever you happen to be selling.

No doubt there's someone out there ready to take you to tasks for valorizing everything, but quite a few quondam supportes of GWB are more likely to grasp this argument than one based on actual, you know, moral arguments.

Yeah, that was sort of the idea. :)

I never doubted that, you being so good at thinking around corners and all, but valorized arguments or not, they stll own the voting machines. America--what a country! In the old days, even dead people could vote, but now, only Republicans can. And then, only if they vote right.

Well, I certainly agree the product could be improved. And, in fact, doing so could only increase our chances of generating goodwill in the marketplace.

More evidence the Big Shots don't have the slightest clue no matter how many times they mouth the right words...

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