The Changing Face of Brick & Mortar Retailers: The Rise and Fall of the Shopping Centre

Edited & Updated

Growing up surrounded by expats in a foreign environment, days at the mall were often a nostalgic subject among my American schoolmates. Indeed, the mall was something of a hallmark for American society to many of us non-Americans. Yet only a few years later, the sprawling shopping centres that were once the favoured activity of families and teens across America, have become relics of a bygone era. Mall mogul and C.E.O. of one of America’s largest privately held real estate companies, Rick Caruso, went so far as to call the traditional mall a “historical anachronism – a sixty-year aberration” that no longer meets the needs of retailers, communities, or the general public. Once known as the ‘temples of consumption,’ the American mall has become outdated and obsolete. Years of haemorrhaging to e-commerce sales has left its mark, driving under anchor retailers and leaving traditional malls increasingly empty. Up from 0.6% in 1999, e-commerce has grown ten times, with sales reaching 6.0% of total retail sales in Q4 2013, according to the U.S. Census Bureau. Meanwhile, total retail foot traffic for the key shopping period of November and December saw declines of 28.2% in 2011, 16.3% in 2012, and 14.6% in 2013. Over the same period, online sales increased at more than double the rate of its brick-and-mortar counterpart. As retailers physical sales as a percentage of the revenue stream drop and e-commerce’s market share burgeon at an expected compound annual growth rate of 13.6%, they are faced with a chilling prospect – adapt or perish.

growth_bigFor malls and brick-and-mortar retailers, the emphasis now lies on what Rick Caruso calls the need for “reinvention of the shopping experience.” Rather than be what was once, according to a 1971 news article, a “monument to big spending and the shopping spree,” the modern mall looks to capitalise on a growing demand for experiential shopping.

“The future of malls is about experience, creating a destination,” says Executive Vice President of Business Development for Mall of America, Maureen Bausch, in an article for Fortune. “It’s about giving the customer an experience they’ll leave their laptop for.” In response to the rising threat posed by e-commerce and declining foot-traffic, real-estate investors and retailers alike have grudgingly initiated plans for the costly redesign and rebuilding of malls across the country. The vision: expand the massive structures to become lifestyle hubs, complete with fitness centers, cinemas, farmer’s markets, massive and unconventional attractions like indoor ski slopes and aquariums.

Rick Caruso, CEO of Caruso Affiliated, speaks at the National Retailers Federation’s annual convention in New York.

Before launching into the spectacle and staggeringly high cost of this overhaul however, it is worth noting the hesitation caused by a culture of surefire investment in commercial property that has hindered, and in some cases, already doomed particular malls and retailers.

The Rise of the American Mall

Following their inception in the 1960s, the spread of malls to suburbia grew rapidly and confidently as downtown areas fell into decline. In a review of one of America’s first enclosed malls, Architectural Record called it  “more like downtown than downtown itself.” As these malls grew in popularity, so too did their bankrolling parents – the Real-Estate Investment Trusts (REITs). Created by Congress in the 1960s, REITs are companies that own and often operate income-producing real estate. These large-scale proprietors enable ‘average investors’ to purchase equity in commercial projects. REITs provide investors with a  pro-rata share of income while offering an easy gateway to the benefits of real estate ownership without the common obligations, risk, or expenses. REITs investors also enjoy special tax treatment – an REIT is exempt from paying federal income tax so long as it pays out 90% of its net income to common shareholders. Though REIT stock took a hit in 2008-9, with many forced to slash dividends to investors in order to free up cash flow caused by the recession’s contractions, most of these dividends rebounded in 2010-11 thanks to severely lowered interest rates. Because REITs borrow money short term to fund their purchase of long term investments, they benefit from the Federal Reserve’s ‘tapering’ or quantitative easing policy. By increasing the money supply, the Fed drives down interest rates to the benefit of REITs.

REIT stock has risen significantly, mirroring lowered interest rates.

This benefit has not, however, translated into economic recovery for most malls. Following the 2008 collapse, consumer and personal spending as well as retail sales sunk to record-lows. Bottoming out in 2009, personal spending was down -1.5% from a high of 0.6% while retail sales slumped to -3.0% over the same period. Yet across the board, these losses were expected to reverse along with rising economic activity. As Jeff Jordan points out in his 2012 blog post for Quartz, however, vacancy rates and rents have “shown virtually no improvement” despite economic revival. As REITs and retailers have reshuffled their finances to accommodate for this lag, the focus has shifted to luxury goods and overseas sales. The rising demand for value or luxury items has been well-documented, in the fashion industry, between supermarkets, and even with malls. This polarisation has resulted in a widening gap that leaves many middle-market brands (and their respective malls) in a literal no-man’s land. For example, mid-market retailers like J.C. Penney and Sears, concerned with market saturation and oversupply, have begun cutting back on stores, raising mall vacancy rates across the country. In contrast to the relative stability achieved between 2002 and 2008 vacancies at regional malls spiked to 9.4% in Q3 2011, according to a Reis Report. The mid-market, as a whole, is expected to decline by 1-2% per year through to 2017, according to a recent article in Forbes.


Industry-giants like Simon Property Group have already adjusted for this market shift. The group recently isolated its ‘traditional’ properties saying that “it will spin off into a separate company its strip centers and smaller enclosed malls.” At the same time, REITs have capitalised on the rapid recovery of the nation’s affluent, seeing increased performance in Class A malls, which demand the highest rents. In comparison, Class B and C shopping centres that serve lower- to middle-income crowds remain in deep trouble. While vacancy rates for Class A malls have dropped back to and even below their pre-2008 levels, B and C malls are faring significantly worse with vacancies still 40% above pre-recession levels. The future of these malls, who occupy the mid-market position and are removed from the now-bustling and hip areas in-town, is bleak. Though some have been successfully converted into community centers, churches, and schools, their ultimate demise (and demolition) seems almost inevitable.

Middle-market stores like J.C. Penney have seen a crippling decline in foot traffic and sales-per-square foot.

Towards the Future

Despite this apparent impending doom, however, there is hope for the better-off malls and retailers to achieve success. Many malls have adjusted their offerings for the digital era, selling products less conducive to online sale, like jewellery and sporting apparel. At the same time, a more diverse selection of stores, particularly small brands, keeps things interesting.

“The industry was effectively finished, no one wanted to shop at a store anymore,” says Ton Van Dam, a Dutch businessman and shopping center tycoon. “But we have evolved, and now they come to try and compare different brands, to engage with the product.”

Ton Van Dam

A founding partner and former investor in Multi Corporation, a shopping centre developer responsible for more than 180 shopping centres across 12 European countries, Van Dam stresses the need for a complete shift in the way retailers operate.

“It is all about selling and sharing the experience” he goes on to explain. “The main focus now is experiential shopping, creating an in- and out-of-store experience and community that…motivates people to be part of it in person, to share it with their friends.”

The experiential focus Van Dam describes is already a fast-emerging trend among retailers. British fashion-house, Burberry, made waves as was one of the first to offer a digitally-integrated shopping experience. In its flagship store, full-length mirror screens in the fitting rooms correspond with radio chips in clothing to show the item being worn on the runway. Store associates recommend products based on data from iPads that log all the items a customer has previously purchased in store or online, allowing for a more personalised shopping experience.

“The aim of these efforts is to bring Burberry’s online brand environment, to life in a physical space for the first time” says Burberry Chief Creative Officer Christopher Bailey.

Burberry’s in-store experience merges the digital feats of its ecosystem with the personalisation and attention to detail in its stores.

In the US, Verizon Wireless debuted its first ‘Destination Store’ at the Mall of America. A dynamic space that allows customers to interact and engage with the products on offer, the store includes six ‘lifestyle zones,’ that give customers the opportunity to use the technology in scenarios relevant to them.

The Verizon Destination Store encourages customers to interact with products in scenarios relevant to them.

Malls have like the Mall of America have diversified their offerings by expanding into non-retail categories. The Minnesota-based mall is hoping to become more of a destination, planning to include an office tower and J.W. Marriott on site. The Dubai Mall, the world’s largest, plays host to 75 million people a year. It features a 10-million litre aquarium with over 400 sharks and rays, as well as a ski slope and an ice rink.

The Aquarium at the Dubai Mall, the world’s largest.

Harnessing the power of e-commerce as opposed to resisting it, these malls and retailers are working to transform the shopping experience. Digital and online sales offer a host of measurable metrics that allow companies to form a deeper understanding of their customer. Basic tactics include the personalisation of the shopping experience, dynamic pricing strategies, and easy-access to post-sales service.

“The digitalisation of our brand has been one of the biggest challenges faced by the company,” says John Clarke, Vice President of External Communication at the 140-year old HEINEKEN International. “But it has also given us fantastic ways through which to better understand our customer, their habits, their preferences. It has really altered the way we approach our communications.”

In addition, digital sales have greatly altered the supply chain. Customers now visit stores to compare products, only to buy them online later. Similarly, customers can request in-store pickup, allowing retailers to stock precise amounts of particular products and offer a more tailored product selection. Today, the shopping experience begins end long before customers cross the threshold of a physical store. More and more the brick and mortar environment feeds off of what is happening online, anticipating customer needs. In Apple’s retail stores, ever the shining beacons of forward-thinking retail, technology called iBeacon, which uses short-range technology to track how customers move around in-store, sends relevant promotions in the form of push-notifications.

The integration of digital into the actual product, too, has gained stead. Heineken created “the Sub,” a pressurised countertop  beer tap that chills a chosen ‘torp,’ a mini-keg of torpedo-like design in order to pour the perfect beer without even leaving the kitchen. HEINEKEN International offers several of its 250 different beer brands in torp-format. Merging physical and digital, the Sub measures which torps are consumed most frequently and makes recommendations via a smartphone app to order more torps of the same or similar brand when they run low.

The Heineken ‘Sub,’ allows beer enthusiasts to swap different beer brands in the form of ‘torps.’

The number of behemoth malls that dot the American and global landscape almost certainly prevent them from going extinct, however bad business may be. But for many of these malls, which occupy the traditional space, their success depends on the ability of management and brick and mortar retailers to enhance the mall experience.  The nation’s top malls leverage their sheer size to go beyond retail, moving instead to engage their customers with a relevant, changing tenant mix and exciting design, their success shows there is still viability in the mall model.

The Resurgence of Some and the Death of Many

The number of malls that dot the global retail landscape almost certainly prevent them from going extinct, however bad business may be. Success, though, hinges on the ability to adapt to the changing retail climate. For many of the malls in the traditional space, their age, location, and design mean it may well be too late. Built for a past retail heyday, the already uphill battle to transform retail combined with a massive oversupply of property, the fate of these malls is mostly decided.

For the nation’s top malls, though, the ability to leverage their sheer size to go beyond retail, moving instead to engage their customers with a relevant, changing tenant mix and exciting design, and achieve success shows there is still viability in the mall model. For now, the experiential shopper is entertained. But one must ultimately wonder, for how long?

The Cost of Hollywood: Runaway Production

Hollywood, California: long synonymous with film and television production; the Mecca of the entertainment industry. If you weren’t here, you weren’t anywhere. That said, movies and TV aren’t all about entertainment. To the hand that feeds them, they’re investments, and huge ones at that. Putting together a budget for the production of a film is a complex and intimidating process. That’s where state-based tax incentives come in, easing the financial burden and encouraging productions to stick around the area to generate future economic benefits. However, such incentives have spread to other states and countries, disrupting California’s film business at its core and bringing into question it’s worth.

Dubbed runaway production, it has waged a war of attrition on Hollywood production over the last decade, and if not for the government incentivized projects (represented by black on the graph below, provided by runaway production outreach program FilmWorksLA), 2010 would have been a record low year for Los Angeles productions.


California’s legislation on film production credits was established as a defense system to incentivize production in-state. “The motion picture and television industry is responsible for 191, 146 direct jobs and $17.0 billion in wages” in California, according to the Film Commission of California. In an interview with the Los Angeles Daily News, Louis Friedman, producer of 2013’s Lone Survivor, believes production planning around tax credit is “’the single most important financial decision made” and it “affects both the creative look and financial bottom line from day one.’” This production season is bread and butter for the highly skilled – and highly populated – pool of artists, technicians, and other crew people in the state.

However, that legislation has served as a model for other states’ and regions’ incentive programs to surpass. In California, the program was “crafted with limits, from a $1 million minimum to $75 million maximum [in regards to overall budgets] on feature films, and further restrictions on drama series,” not to mention a lottery system that deals with the high demand. This leaves out a lot of areas of production, as major tentpole films’ budgets soar higher and higher and TV shows take bigger and bigger slices of the market. Sensing this sitting-duck situation, the film lobbies of other regions responded.

Canada was the first big player to encroach on Hollywood’s territory in any serious way, putting into law their first production tax incentive in 1997 (just one year after the “all-time high in 1996” of film productions in Los Angeles, noted by  FilmWorks). For awhile, Variety reports, “it was only lower-budget series for cable that set up shop outside of Southern California…usually in Canada…[b]ut now the network-studio congloms play a kind of incentive sweepstakes” and pit California cuts against out-of-state cuts. As Variety points out, “these days studio chiefs insist that filmmakers…take advantage of out-of-state incentives…[whose] savings are crucial in a franchise-obsessed era when big-budget movies commonly cost north of $200 million to produce.”

States like New York, North Carolina, Louisiana, Michigan, and many others got into the game. Kevin Klowden, director and managing economist at the Milken Institute’s California Center, estimated a total loss of “4500 production jobs…between 2005 and 2012,” compared with the “7900 production jobs the state should have gained during that period.” New York now has a $420 million annual cap on tax credits, compared to California’s $75 million cap, and has begun to offer additional incentives for productions that complete post-production work in New York as well. Stan Spry, founding partner of up-and-coming management and production company The Cartel, knows this reality very well: “Tax incentives and rebates have been a massive part of our financing plan. We’ve been able to finance up to 40% of production budgets due to incentives…why stay in LA when you can save almost half the money somewhere else?”

Another industry professional, Michael Karnow, creator of SyFy’s Alphas, mentions for that show “we shot in Toronto to save money,” but out-of-state locations “could end up being an asset. It can turn out to be very exciting to turn a problem into an opportunity, and not only let the benefits be financial, but creative.” He mentions Breaking Bad as such an example, one of the most groundbreaking shows of the last decade…almost completely shot in New Mexico, and tailored specifically to the state. It’s interesting to note the original pilot of Bad was written to take place in Southern California…until AMC heard those incentives calling.

This competition, though, now faces the same question that California does: what exactly are the economic benefits of these incentive programs? Other states and countries realized Hollywood was a state of mind, and put into action measures to replicate that mindset for cash-desperate filmmakers. At its peak around 2010-2011, 42 states were offering over $1.4 billion combined in tax credits to productions, hoping to reap economic gains. However, it helps to recall that California’s incentives were built to keep productions inside of its already-developed infrastructure, not to lure runaway production away from Michigan or New Mexico. Historically, California remained the center for production because it housed the developed pool of workers, artisans, and talent, aged like fine wine. Other states don’t have that history, and therefore may not have the job force or economy in place that would benefit from film and television productions.

Take Michigan: leading up to 2011, $57 million had been given out annually to productions each year, with high profile movies like Oz, The Ides of March, and Transformers 3 basing their filming in the state. The problem here became that the Michigan Film Office did not have to disclose the true costs/benefits of the program. Responding to fervent state government criticism, who believed the program wasn’t bringing the economic growth its proponents promised, the program was scaled back in 2011, capping total credits at $25 million and changing the classification of the credits from tax breaks to grants. Michigan legislature, led by Gov. Rick Snyder, now “obligates the [Michigan] Film Office to report back on the specific movie projects that it finances; and to openly declare the criteria it uses to award subsidies,” according to the Tax Foundation. Snyder argues this new criteria makes transparent expenditures that were once “hidden in the tax code.” The Tax Foundation analyzed Michigan and other states’ specific programs, and ruled the incentive programs “distort[ed] the allocation of resources, provide[d] only temporary jobs and benefit[ed] special interests at the expense of the taxpayer.” Other states have scaled back recently as well, with only 35 states offering incentive programs currently.

However, there’s still been a huge increase of programs spanning the globe, and California and its competitors face a race to the bottom. New Los Angeles Mayor-elect (and therefore Prime Minister of Hollywoodland) Eric Garcetti is well aware of this possibility. “’We lost feature films. That’s sad. They may come back to some degree, but probably by and large won’t.’” Instead of competing neck and neck for the most generous incentives, Garcetti wants California to stay ahead of the curve, focusing on creating an environment for a wider spectrum of media production. His plan is to remove the $75 million cap, and make incentives a more viable option for premium cable shows, commercials, visual effects, and even videogames. Garcetti admits he’s seen unfavorable studies, projecting the state seven cents on every incentive dollar spent, but believes there is an unseen multiplier in effect due to California’s historical place as the home of production, and that productions spur economic activity up to five times that incentive dollar’s worth.


Garcetti has charmed his way into many meetings in Sacramento already, but he is facing strong opposing arguments from other neglected California groups. A coalition, made up of the MPAA, the Directors Guild, the Teamsters, and the IATSE artisan union, will work to “win over powerful [opposing groups]…such as the California Teachers Assn.” Groups like the teachers believe more Hollywood tax cuts are merely “giveaways to the glitterati,” similar to the arguments that shut down other states’ programs’ momentum. The Tax Foundation rebuffs Garcetti’s and groups like FilmWorks’ arguments about the film and TV’s  key place in states’ economies, believing state legislators should make sure they’re not just lining the pockets of “one particularly vocal and connected industry.” While it is certainly true that the Clooneys and the Spielbergs don’t need much pocket padding, California is a unique economic home of the production worker, and Garcetti wants to make sure it stays their home. An ally, assemblyman Mike Gatto, quoted in Variety, says, “’incentives offer a return on investment that has more to do with individuals’” than studios. “’This is about the regular, workaday people who make a living from production.’”

Despite questions of its long-term economic worth, California undoubtably has a large group of uniquely skilled workers that are facing the possibility of major disruption and possible migration. Garcetti’s planned innovations are important to the future of the state now that Hollywood has proved to not be as stationary as it once appeared.


Interviews with:

Stan Spry, Co-Founder and Head of Production, The Cartel Management & Production, West Hollywood, California

Michael Karnow, writer & creator of SyFy’s Alphas, Venice, California

Other sources:

MPAA, State-by-State Statistics

Tax Foundation,

The End of the Australian Automotive Industry

When a Toyota Camry Hybrid rolls off the assembly line in the port city and Melbourne suburb of Altona, the mid-sized sedan is shipped to 13 markets from New Zealand to the Middle East and the Pacific Islands. At one point, Australia was a production hub that allowed large automakers to tap into thriving auto markets throughout the South Pacific and Middle East. But by 2017, Toyota will stop manufacturing the Camry and other vehicles in Australia ending the country’s once vibrant automotive industry.

Toyota’s departure follows the announced departures of Mitsubishi, General Motors (GM) and Ford. In 2013, GM and Ford blamed the strong Australian currency and small local market as reasons for the closing of its manufacturing operations. Industry experts predicted Toyota would soon follow, despite appeals from Australian Prime Minister Tony Abbot.

In an article in the Financial Times detailing GM’s departure, former GM Chief Executive Officer Dan Akerson said, “The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country, including the sustained strength of the Australian dollar, high cost of production, small domestic market and, arguably, the most competitive and fragmented auto market in the world.”

The strength of the Australian dollar has negatively affected the domestic economy for many years, not only resulting in lower auto sales profits, but has also hurt the tourism and hospitality industries among others.

But how did the Australian dollar get so high in the first place? Economists point to Asia as the main reason. Australia has a strong trade relationship with many Asian countries and Asia’s demand for Australian natural resources has propped up the dollar. Volatility in the U.S. and EU economies has also made Australia a stable place for speculative investment, which has contributed to the dollar’s strength.

And the stronger the currency, the more expensive it is to produce goods domestically. Since the dollar has stayed consistently high, the manufacturing industry has dwindled, as Australia tries to support traditional economic drivers, such as housing.

The Australian dollar has risen more than 20 percent against the United States dollar since 2011 and more than 10 percent against the Japanese yen since 2012. The Reserve Bank of Australia constantly describes the Australian dollar as “uncomfortably high.” The current value of the Australian dollar has dipped to $0.90 per U.S. dollar in recent months due to the Reserve Bank of Australia slashing interest rates to a record low 2.5 percent.

Aus v US Dollar Oct 2013

GM noted that at the Australian dollar’s peak, making things in Australia was 65 percent more expensive compared to a decade earlier. And retail has remained flat in recent years as consumers spend less and save more.

The higher the Australian dollar, the more Toyota, GM and Ford lost in export markets. More importantly, cars made in Japan or Korea could sell in Australia for a cheaper price than cars manufactured in Australia resulting in a loss of market share in the domestic market.

Toyota’s departure is especially wrenching, because of all the automakers in Australia, Toyota was the most commercially viable. Exports in growing automotive regions, like the Middle East, allowed for additional manufacturing volumes and economies of scale.

Though the loss of Toyota only results in a loss of about 4,000 jobs, unions argue that the end of the auto industry could lead to the loss of 50,000 skilled jobs across all car and automotive component industries and, ultimately, trigger a recession.

Screen Shot 2014-02-26 at 6.52.12 PM

The History of the Australian Automotive Industry

John and David Shearer, who were agricultural machinery manufacturers and inventors, built the first car in Australia in 1896. The isolation of the country forced those interested in owning a vehicle to create, design and produce cars on their own. By 1909, Ford began importing the Model T and GM and Ford began producing vehicles in the country after Australia lifted a ban that didn’t allow production of foreign car bodies.

In 1963, Toyota began importing small, low-cost cars competing with companies like GM, Ford and Chrysler, which had a combined market share of 86 percent. After nine years of selling cars in Australia, Nissan and Toyota asked permission to build factories and manufacture cars.


By 1982, the automotive industry employed more than 70,000 people in Australia, but according to a 1990 study conducted by the Massachusetts Institute of Technology (MIT), it wasn’t a great place to work. The Australian automotive industry ranked lowest in workforce flexibility, human resources management and overall management.

In 1991, exports reached $1 billion, but more and more imported cars began to enter the market. Between 1989 and 1996, the amount of imported cars, primarily from Japan, increased by more than 10 percent from 29.8 percent to 40 percent of the market. And by 2003, only 28,000 people had jobs building cars and that number steadily decreased throughout the 2000s.

GM discontinued the Pontiac brand in 2008 and GM’s Australian exports declined by 86 percent. By 2009, only 16 percent of cars on Australian roads were built in Australia, while cars built in Thailand comprised 15 percent of the local market. Not only had Australia stopped making cars for the world, but they’d stopped purchasing and driving the cars they made.

Who’s to Blame? 

Seeing the industry seize before their eyes, the Australian government provided a $52 million grant to Ford in 2006 to expand design operations. And before Toyota decided to pack up its manufacturing hubs and layoff Australian employees, Australian Prime Minister Tony Abbot vowed to do everything in his power to keep the giant Japanese automaker in Australia.

But being the last major producer of cars in Australia has major drawbacks. First, Toyota can no longer find savings in costs due to increased levels of production. Projections show that the cost of doing business in Australia will only continue to rise. Lastly, it’s unlikely young Australians will want to enter the automotive workforce since career opportunities would only be limited to Toyota’s manufacturing hub in Altona.


So, who’s to blame? Automotive manufacturers lost more than $1.5 billion on local manufacturing over the past decade, despite receiving more than $3 billion in taxpayer funding over the same period. Many critics have argued that CEOs at major automakers used Australia as a cash machine. But it’s hard to compete in a market where cheap foreign cars no longer have to pay high import tariffs. And when the dollar gets too high and Australia stops becoming a production hub for Asian countries, Toyota starts building more cars in Japan.

The Impact on the Australian Economy

By 2017, the Australian automotive industry will be no more, and it could have a profound effect on the Australian economy. But the levers that forced Toyota, GM and Ford to end manufacturing, might still be Australia’s biggest concern.

Though Australia is transitioning to more traditional economic drivers and away from former powerhouses like mining and manufacturing, the country must be prepared to deal with a rising unemployment rate.

Dave Smith, a secretary at the Australian manufacturing workers union told the Australian Herald Sun “when you take a person’s job and the dignity that goes with that job, it creates enormous social problems.”

“When Mitsubishi closed, a lot of workers fell into drug and alcohol problems, domestic violence issues, suicides, mental health issues and all these things need to be carefully managed because they will happen,” Smith continued.

For Australia to come out of this transition and “perfect storm” of external factors, as former GM Chief Executive Akerson noted, they’ll need to rely on the continued recovery of the United States economy.  In addition, Australia will need to improve trade with China, currently Australia’s biggest trading partner. And most importantly, the Australian government needs to create the right conditions for new businesses and innovation to occur within the island continent.

Sources: Wealth Daily, The Sydney Morning Herald, RTE News, Herald Sun News, The Car Connection, Financial Times, The Wall Street Journal, GMA News, ABC News, Toyota, D.C. Haas

GDP is an Outdated Idea

According to Diane Coyle, an economist and author of GDP: A Brief Affectionate History, we tend to think about GDP as a natural object, like a mountain, river or lake. But GDP isn’t a thing; it’s an idea – an idea that made the U.S. economy $500 billion bigger in 2013.

Why does the world revolve around an idea that hardly anyone understands? GDP can impact elections, influence major political decisions and determine whether countries can continue borrowing or be put into a recession. In addition, though utilizing the GDP might’ve been a good statistical measure of the economy during the twentieth century, it’s become increasingly inappropriate for an economy driven by innovation, services and intangible goods, argues Coyle.

The GDP was created because of the Great Depression and people first referred to it as national income. In the decades that followed the Great Depression, national income transitioned into gross national product and eventually Gross Domestic Product.

Screen Shot 2014-03-09 at 2.33.26 PM

But around the 1950s and 1960s, the GDP began to have too much power. If a country needed help from the World Bank or the United Nations, it needed to know its GDP.  When the Cold War began, GDP began to reflect the success of a country and distinguished winners and losers.

When the GDP, a statistical measure of the economy, begins to have an inflated importance that defines whether your country is doing well or not, politicians begin to look at is a measure of their success as well. But what the GDP doesn’t do, as Robert F. Kennedy famously spoke about, it doesn’t measure the “health of children, the quality of their education, or the joy of their play. It doesn’t include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.”

Not only is GDP out of touch with our current economy, but economists also warn that GDP is a tool only to be used to measure market activity and not a country’s prosperity. GDP needs to be redefined, restructured and/or replaced in order to enact progressive change. Case in point, GDP tends to rise when crime or pollution increases or when households accrue more debt. When the United States pays to fix the damage from a hurricane or tornado, the GDP actually goes up.

That raises the question, what does a post-GDP world look like and how can we promote a measure of economy that defines real progress in the United States?  Justin Zorn, a public service fellow at Harvard University, argues that we need comprehensive indicators that are empathetic to core elements of national wellbeing in the 21st century, including economic mobility, strong families and communities, entrepreneurship, health, education, environmental quality and public safety.


We shouldn’t leave GDP behind, but our ability to collect data and analyze it in new ways opens up the window for innovation in national accounting. With the capacity to tell stories with data in new and more complex ways, we can find an objective truth – a truth that can do better in measuring the prosperity of a nation.

Sources: Huffington Post, PrincetonNPR

The Red Blood (and Blue Collar) Cells of the Port of Los Angeles

Thirty miles south of the city proper lies the heart of L.A.’s economy: the Port of Los Angeles. In the words of the Port’s economist Michael Keenan, “logistics is the Silicon Valley of Los Angeles,” and the well-oiled machine of the San Pedro harbor proves that statement. While our tour out on the water was relatively quiet, my drive there and back provided me a firsthand look at the worker ants of this Los Angeles behemoth: the port truck drivers. Looking into their role specifically, I came across a recent article in the Los Angeles Times focused on a recent battle the truck drivers have faced as Los Angeles and other ports across the nation classify the truckers not as higher-paid employees, but independent contractors. Freed of the responsibility of guaranteeing higher wages and working conditions, ports are reaping the benefits while the truckers suffer.


Out of a total 75,000 truckers who serve the ports of the United States, 15,000 of those work in the Los Angeles/Long Beach port area. They handle more than a “trillion dollars of cargo annually.” A common trucker works a six-day week, up to 14 hours a day, and takes home about $200. According to the report in the Los Angeles Time, “the median earnings of an independent contractor is…$29,000 a year, compared with $35,000 for a trucking company employee.” Even though trucking companies control their business, where and when they work, and what their fees are, most drivers are still considered independent contractors in company eyes, and have to pay for gas and repairs on the company-owned trucks, reducing their earnings further.

Throughout this, trucking companies desperately work to find more drivers, claiming a shortage of workers. Here’s a graph from the American Trucking Associations:


However, drivers respond, if such a shortage actually exists, why are their real wages still kept so low? Wages for the trucking industry grew 2% less than the entire private work force. Either the trucking companies are drastically overstating their need for drivers as an excuse to avoid more risk in this post-recession world, or the number of truckers is truly declining due to other reasons. Amongst those reasons may be the large number of truckers approaching retirement age and others, like the frustrated parties in Los Angeles, leaving the field for greener and less uncertain pastures.

Trucking, once “one of the backbones of the blue-collar middle class,” according to Jared Bernstein of the Center on Budget and Policy Priorities, has turned into “sweatshops on wheels.” So far in L.A., “400 complaints” have been filed to the state agency, and a few have already gained rulings confirming their misclassification as independent contractors. Due to these early successes, the number of potential lawsuits may grow, and the thriving port of L.A. is going to have a problem on their hands.

Other source: