Small companies are the wolves of the global economy: NYU Professor
Vice TV launched a weekly business show hosted by NYU Professor of Marketing Scott Galloway. Scott joins Yahoo Finance’s On The Move to discuss his new show, stimulus funding, and Uber’s reported approach to buy Grubhub.
Video Transcript
- Well, there's someone else who has a few things to say about stimulus. He is a frequent guest on the program, Scott Galloway, New York university professor of marketing. He also has a new show on Vice. It's called "No Mercy, No Malice," much like his newsletter. And we want to play a little bit for you about what he had to say.
SCOTT GALLOWAY: But know what happens when you give lower and middle income people money? They spend it. There are 128 million households in the US with the bottom half registering incomes of less than $65,000. If we took that $2.5 trillion in stimulus and spread it across those households, we could give each over $30,000. Small businesses don't need artificially inflated job rolls. They need demand to come back.
- And Scott is with us now. Scott, congrats on the new show. I want to get you to expand on what you were saying a little bit, because, you know, there is definitely this push for stimulus. We've seen parts of it already. The Democrats have now announced a new piece of it. But it does have a lot of different layers, right? So what do you think? Should we just been given people cash?
SCOTT GALLOWAY: Yeah, I think we protect people, not companies. I think every bailout, stimulus, whatever you want to call it, in the past, where we bail out an industry or companies, results in a moral hazard. Whether it's long-term capital management resulting in banks figuring out a way to massively lever up, because they think they'll be bailed out. Whether it was Chrysler being bailed out only to go bankrupt 20 years later-- it put off smaller cars.
I think this creates moral hazard. And I think small companies are the wolves of the global economy. I think they're more agile. I think they're more aggressive. And I don't think they need artificially inflate employment rolls. They need a return of demand. So my sense is you put money in the hands of consumers as opposed to businesses. I worry that the wealthiest cohort in America is small business owners is effectively-- there's a cartoon of a owner of a cupcake bakery, single mom, and some of this money will get to her that just needs to get through to the other end. But there are a lot of wealthy investors and small business owners that immediately got PPP, whether it's-- there's a lot of well publicized examples.
But I just worry that we're effectively, this is doing nothing but with the government continues to do, and that is rob from future generations to flatten the curve for people who are already rich. Bankruptcy and failure is part of the cycle here. A pandemic is no less historic than an 11-year-old bull economy. We are turning the wolves of small business in America into poodles waiting for the government to come home and feed them.
- Scott, it's Adam. Good to see you. Some people think that we have the best Congress that money can buy. And I'm going to ask you the same question I just asked Gene Sperling. These people that-- that all of us I think want to help, how do they vote? They tend to vote against their self-interest, don't they?
SCOTT GALLOWAY: You know, I get-- I don't understand. The one thing I know that I don't know is how and why Americans vote. And I don't understand that people would want-- I mean, money is nothing but the transfer of work and time from one entity to another. And I think if we were to be honest about what the stimulus is, I would think we should start calling it a hate crime against future generations. We're transferring opportunity and wealth from future generations, because someone is going to have to pay this back so Nana and Pop Pop can continue to be on Crystal Cruises instead of Carnival.
This is, in my view, such reckless-- reckless behavior. And I want to be clear, it's not one party-- well, it's mostly one party, but both parties are complicit in this. And that is the only thing that passes for bipartisan behavior these days is reckless, irresponsible spending. There's a reason that the Democrats didn't want to put Katie Porter on the Oversight Committee, because she brings this competence called math to the party, which they weren't interested in talking about.
So yeah, I mean, the Republican Party, I would argue, are the players here, but let's be-- let's be clear. We Democrats have been played-- agreeing to this type of stimulus with a total lack of oversight.
RICK NEWMAN: Hey, Scott. Rick Newman here. I'm trying to pinpoint the genre you're creating. The best have come up with is Tea Party for the intelligentsia. But I do have a question.
SCOTT GALLOWAY: [LAUGHS]
RICK NEWMAN: Take this away from a policy level. At an individual level, so many people are being displaced here, and they tend to be ones further down the economic food chain. People in tech and if you're connected to the digital economy, the data economy, you're probably going to survive OK. What kind of advice do you have for the people who are really getting hurt here in terms of what they can do to protect themselves and try to survive?
SCOTT GALLOWAY: Oh, gosh, Rick, we're going to need a bigger boat.
RICK NEWMAN: Three bullet points.
SCOTT GALLOWAY: OK, so we need to hold our government more accountable. Sucks that when a pandemic hits, the wealthiest nation in the world doesn't have 50% of its populace vulnerable. This is just so ugly. In addition to the hard truth around the fact we have more deaths and more infections, that 50% of the populace of the wealthiest nation in the world would just find themselves so fearful.
You know, happiness is not only a function of what you have. It's a function of an absence from fear from what might be taken away from you. So as Gene pointed out-- you know, higher minimum wage-- what they did in Germany, where they aren't protecting companies as much as they're saying, let's take 70% of your salary, and insure through the pandemic that you have access to that so you're not worried about basic food level.
I would argue that it's more of a comity of man that we have to understand that if billionaires don't pay their taxes, if large corporations constantly buy back shares as opposed to making investments-- forward-leaning investments result in more jobs-- that they should not be bailed out. I think there needs to be a greater sense of, all right, at some point-- at some point, we start worrying about the lower medium.
That this "Hunger Games" economy, where we assume all of our children are going to be in the top 1%, and we have to recognize that 99% of our kids are not in the top 1%. I can mathematically prove this. And we need greater-- I'm gonna use the R word-- redistribution of wealth in this country.
You and I are going to be fine. As I sit here today, the NASDAQ is up. If you own Amazon, Facebook Apple, and Google on January 1, you're up 7% for the year. If you own Amazon, you're up 23% on the year. If you work at Amazon or if you're someone who spends a lot of time on Instagram, there's a good chance that you're fearful. There's a good chance that you're worried not only about this pandemic hitting you, but bankrupted.
This is-- I mean, there are just some ugly truth we're going to have to face here. And I apologize for the roundabout way of saying I think we just need to spend more money on social programs. I think a great place to start would be as Gene Sperling said, increasing minimum wage federally across the nation at 15 bucks an hour.
- So Scott, what you're talking about is sort of more long term change, right? But I want to bring it back to right now and what you're proposing in terms of giving people more stimulus money, right-- just more cash in their pockets. Because are they going to spend it right now? And are they going to spend it where it is needed the most? Or are they just going to put in more Amazon orders and more grocery orders and not go out to their local restaurants or other local small businesses because they're afraid? Or because they're not allowed to yet?
SCOTT GALLOWAY: Well, that's a great question. So first off, the stimulus might as well be called the Amazon and Walmart shareholder act. I mean, in their wildest dreams, they couldn't figure out a way to put $2.5 trillion of stimulus out there, the majority of which are-- the two largest beneficiaries are Amazon and Walmart, because they capture the most consumer income.
But what if they said, all right, we don't want our stocks up 30%, we want it up 60%, let's try and convince the federal government to mandate the closure of 98% of our competition. So there are some unintended consequences here. The strong are getting stronger, the future doesn't look any different. It's just being accelerated faster.
Now I don't think we should pick winners and losers. I do think that if you put money in the consumer's pocket-- the thing about lower income and middle income people is you give 100 bucks, they spend 100. You give a wealthy person 100 bucks, they spend 20, and they spend 80 on Amazon stock. So if you want to juice the economy, you put money into the system where there there's going to be a greater multiplier which, is across lower and middle income-- middle income households.
I don't-- you know, I have a-- I think it's dangerous to pick winners and losers. I think we put money in people's pockets and we let them decide who are the winners and losers. I worry, Julie, that all we're doing with an artificial stimulus that artificially inflates or keeps the current employment rolls and small business-- that all we're doing is kicking the can down the road. But after 11 years of a bull economy, a lot of these small businesses, quite frankly, just shouldn't be around and are going to have to adapt and reshape.
And the thing about America-- the reason we hire faster than any economy in the world is we're allowed to fire faster. I don't think the worst thing in the world is laying off people. What we need to do, though, is protect those people if and when they are laid off.
- Hey, Scott, Melody here. Of course, one company that's trying to make this pivot mid-pandemic to better buoy itself post-pandemic is Uber, right? The news yesterday, Uber potentially eyeing Grubhub. They would then control-- if the deal happens, they would control 55% of the US mail delivery market.
When you think about that dichotomy, right, with those sorts of acquisitions potentially happening, but the workers who are not having tons of work right now, but also, Uber and Lyft are facing lawsuits here in the state of California, specifically trying to identify the employees correctly, right-- they are advocating that they want that third definition between employee and a contractor. How do you see this all shaping out as we emerge from this? Where are the kinds of workers' protections going to be in place? Do you think those will get overlooked? Or do you think that we'll be able to kind of double down and advocate for those folks?
SCOTT GALLOWAY: So a lot there. So if you think about-- I don't think any one restaurant has more than 3% or 4% share of the marketplace. There are thousands-- thousands-- I think the top 10 restaurants have less than-- they still have single digit market share. Then you have 105 million households. And you're about to have two delivery, food delivery companies control 90% of the market. So you can imagine where the power is going to create.
Now how does that power-- if the power goes to the two players in food delivery, they control 90% of the market, we have a playbook for what happens when one player, Uber, controls a disproportionate amount of market. And what we end up with is a workforce that they call partners-- so driver partners. Partner is Latin for using software to circumvent minimum wage laws and basically turn desperate workers' cars into their payday loan asset, where they have no health insurance or no protection, such that we can take a small group of people, the employees at Uber, and give them extraordinary gains. And also, to be clear, consumers win. Ride hailing has never been less expensive.
So if we allow two companies to control 90% of what will be an enormous industry around food delivery, you're likely going to see some big winners and losers. I think Uber would be a big winner here. There are winners there if you own Uber stock. I think the losers would likely be restaurants and their employees, who will have to deal with it a duopoly, who will slowly but surely extract more and more payments and fees from the food that are ordered on those platforms.
The biggest losers will continue to be people who don't have the skills to accept anything but the work they get over their smartphone. They will have flexibility. They will have on demand-- on demand need for their labor. But you're going to see their wages continue to be not only a minimum wage, but below minimum wage.
So the question here is where the hell is the FTC and the DOJ? If the DOJ and the FTC let Uber's acquisition or merger with Grubhub go through, we are effectively saying we have bought into a monopoly era, where we transfer money, wealth, and general well-being from a a large-- a large cohort of workers who, quite frankly, we see it as their fault. This is the war on the poor-- you didn't get the certification, you don't have the skills-- sorry, boss, you're out of luck-- to the innovators that figure out the software.
So I think this is a real test for us. Are we comfortable with a small number of companies having such incredible power that everyone else in the ecosystem slowly but surely loses? I think this will be an interesting moment in our economy if the DOJ or the FTC let this continue, this monopoly era continue to run unfettered-- run unfettered, and let this acquisition of this merger go through.
- Scott, it is always interesting to get your perspective on these matters. Thank you so much for joining us. Scott Galloway is a professor at NYU and also, the host of new show, "No Mercy, No Malice" on Vice. Thanks, Scott.
SCOTT GALLOWAY: Thanks, Julie.