My Francisco D'anconia Moment

Don’t want to make the mistake of assuming anything about anyone who reads this, so I’ll just say that if you haven’t yet read Atlas Shrugged by Ayn Rand you’re missing out. At one point in the novel, at the wedding of James Taggart, Francisco D’anconia, the owner of the largest copper mining entity in the world, makes a speech about the nature of money. It could really be called the perfect rallying cry of capitalism distilled down to one empassioned speech. It could also be called the perfect eulogy for American exceptionalism, should the full demise of the concept ever come to pass. Read it here

The scene before that tends to get lost behind the weight of the speech though. D’anconia tries to force Taggart to take credit for a series of political moves that have forced the compettiors of D’anconia Copper out of business resulting in huge profits for Francisco’s company. The governments of the world are in the collective business of choosing winners and losers, and Francisco is chosen as a winner due to the prestige that the D’anconia name. Despite being completely against the “looter” mindset that sets up this scenario, D’anconia later in the chapter boasts about the profits he’s making.

So what does this innocent little scene have to do with little ole me? Well, I work in a small factory making signs. From small nameplates next to doors in office buildings to large architechtural structures that you see in front of shopping centers, we do it all. One of our largest customers is a chain of hospitals. Next time you’re in a hospital, look at all the signs and you’ll see why its a major money maker for us. And now, thanks to Obamacare, its become an even bigger money maker. No, I’m not talking about higher health care costs leading to higher profit for health care providers leading to more money to be spent on things like signs. I’m talking about 1099 forms.

So that’s Atlas Shrugged, Obamacare, 1099 forms. Just making sure you’re keeping up.

There’s been plenty of talk about how the new 1099 requirements are going to hamper small businesses with greater tax compliance costs. And rightfully so. But did you ever think that those same 1099  requirements would force larger corporations to chose winners and losers from amongst their suppliers? I sure as hell didn’t.

See, we only covered a regional contract for this hospital company. We handled all the signs their locations needed in a specific area and other sign manufacturers handled the signs in other areas. For sake of the article, lets say we handled all the signs for one state out of thirty with 29 other companies handling one state apiece. This contract represents a good chunk of our profits, roughly 10% of all the business we do. Well, at least until Obamacare. Thanks to the rising costs of healthcare that will be coming from the law, and the increased complications of tax compliance due to the 1099 requirements, it became financially expedient for the hospital chain to cut the number of suppliers it uses and that includes the number of companies that make their signs. Guess which company was chosen as the winner in this case?

Considering that every one dollar we made of the old regional contract just became thirty dollars under our new national contract, I was pretty excited. We were going to have to find a new larger facility to handle all the new orders, buy some new equipment to speed up our production process, and even hire a few new workers to handle the work load. Thanks to this contract, my job is pretty secure for at least the next five years and at the end of that term I’ll be making more money than I am now. Things are looking no where but up for us. So what killed the “Rah! Rah! Go Team!” mentality for me?

Because of this, the futures of 29 guys who do the same thing I do just got a lot bleaker. Think about it: how would your business handle a 10% drop in revenue from one contract in the current economic climate? Thanks to political moves that neither me nor my couterparts had anything to do with, I’m going to be making more profit at the expense of my competitors. Not because I made a better product, but because I was in the right place at the right time. Some of these other companies won’t be able to absorb the shock and will fold up entirely. Others will struggle to find new revenue streams and add stress and dread to the lives of their workers. Still others will do the “heartless” thing and cut costs everywhere possible, including jobs. Just by doing my job, I’ve been forced into becoming a looter.

I can’t imagine that this is an isolated incident, but it is the incident that I am most closely tied to and am most readily able to comment on. I’ve been chosen as a winner at the expense of the livlihoods of others, much like Francisco D’anconia was chosen as a winner at the expense of his own competitors. And, because of this, our suppliers and their suppliers on down the line have also been chosen as winners at the expense of thier competitors. Its a long winded example of the law of unintended consequences. There was plenty of business to go around, but now it has been concentrated into one location with the destruction of all other locations as the cost. Even if the law is found unconstitutional, the contract has been signed and the damage has been done.

Remember, they did it for the little guy. Feel better?