9 April 2018

How roads transformed America

By Bhu Srinivasan

In the latest in a series of extracts from America Inc: The 400-year history of American capitalism Bhu Srinivasan recounts how the transformation of American roads led to the development of department stores and the decay of cities.

In the summer of 1960, a green GMC pickup truck with camper attached was delivered to John Steinbeck’s home in Sag Harbor, New York. Years after writing The Grapes of Wrath, he had countered his country’s migratory pattern west by leaving California to settle in this former fishing village on Long Island. Having crossed middle age, and insulated by financial success and literary acclaim, Steinbeck had felt a need to reconnect with America. To once again see and feel his country in the flesh, rather than through news accounts and television footage, Steinbeck embarked on a road trip with his dog, Charley.

After a few days on the country roads of New England, doing his best to avoid interstate highways, Steinbeck was forced to take his green truck onto I-90, “a wide gash” through the wilderness that seemed to him the new “carrier of the nation’s goods.” Efficient but without distinction, the interstate led him to lament the possibility of driving from New York to California “without seeing a single thing,” as the highways were completely removed from local life, a sterile arterial system made up of endlessly paved tar with new, long freight trucks speeding along. The national sameness both struck and distressed him, evoking the feeling of an America lost, of efficiency as the paramount cultural thread as infrastructure changed the landscape.

The nation’s most dominant industry at the turn of the century, railroads, had finally ceded its supremacy in moving commerce. In 1945 railroads carried five times the freight of commercial trucks. In less than twenty-five years, revenues from shipping via tractor-trailers — each one the size of a single rail car — exceeded the railroad’s. This made perfect sense. With each new housing development in suburbia, entire local economies needed to be built around it. Movie theatres, shopping centres, and chain grocery stores, along with local services such as doctors and dentists, started filling out the commercial ecosystem. Instead of quaint town centres with intersections and sidewalks, the new commercial centre of America was typified by large parking lots. In the back, suburban stores often had loading bays that made it efficient to pull up a giant truck. Rather than unload railroad freight at a hub onto local trucks, a preloaded freight truck sent across the country point to point was far more cost-effective in many instances.

This had repercussions for old small towns, communities that already had thriving Main Streets of cobblers and toy stores, bookstores and furniture showrooms. Starting in the late fifties, retailing spawned the idea of the discounter. Just as the railroads had once enabled catalogue merchants like Sears and Montgomery Ward to erase the markups on goods due to distance, the interstate highway opened up logistical possibilities to this new class of entrant.

Unlike the multi-story retail palaces of the downtown department stores or the variety stores that peddled low-cost goods, the new category of discount stores sold everything from appliances to detergent to lawnmowers. The fundamental consideration of the discounters was price. The philosophy was to do away with all aspects of costly service and fixtures, sell goods as cheaply as possible, and do so in volume. In erecting their stores on the peripheries of cities, the stores reflected the economics of the merchandising strategy. Bright fluorescent lights, linoleum floors, cash registers in the front of the store, shopping carts, and limited floor personnel, all accompanied by the most important feature of all: acres of blacktop with hundreds of painted lines for the parked cars.

In the age of postwar American affluence, the retail trend that was sweeping the nation was the opposite of gilded. The department stores of the late nineteenth century had served as a glimpse of luxury for Americans of all economic strata, but the consumer of the 1960s gravitated to the illusion of thrift, of maximising value, at a time of unprecedented middle-class prosperity. The obsequious salesman waiting on the customer was considered not a luxury but an unnecessary intrusion and overhead expense. What assured customers was the names of the brands sold in the stores — the same brands advertised on TV and in magazines. If the price was the same, what difference did the retail environment make? As a result, discount stores in the suburbs were built to the lowest cost specifications allowed by building codes.

As in many phases of American capitalism, the early winners were not the final winners. In mid-1962, the giant Woolworth’s announced a new chain called Woolco. S S Kresge, an operator of similar variety stores, opened a new discount concept called Kmart the same year. Both were overshadowed momentarily by the discount king of the era, Eugene Ferkauf, the founder of the arbitrarily named E J Korvette. The company operated just seventeen stores, but its revenues had climbed to $230 million. It profits, holding with the principle of low margins, were a little over $4 million. The industry as a whole had grown to four thousand stores and several billion dollars in sales by the early sixties.

Low margins, however, were a double-edged sword. The simplicity of leasing or building a large warehouse-type space, stuffing it with goods trucked in from distributors, and selling the best-selling items at close to or below cost left little room for error. Be it a mistake in ordering, shrinkage from shoplifting or employee theft, shortages at a distributor — anything could turn a low-margin business from profitability to losses. Indeed, the industry suffered a dramatic shakeout, with weaker stores closing. But the weakness was operational: The stores rarely closed due to lack of sales, but usually from an inability to generate profits from those sales. The onetime leader E J Korvette sold out to a garment maker and ceded the discounting market to Kmart, which was on its way to becoming the leading retailer in the country.

But the intense competition among discounters had other casualties. Small mom-and-pop shops often had little pricing power in competing with stores that literally sold everything. Contemporary criticism often suggested that this was a distorted free market at work. In 1965’s The Great Discount Delusion, Walter Henry Nelson pointed out the fallacies of low prices and their impact on small businesses. Often the discounter, in an advertisement, listed a price below cost on a highly popular good such as a new toy or popular brand of toothpaste. The “loss-leader” served to drive customers into the store, where the discounter then made up the difference on other goods. For a small shop focused on selling one category of product, such as toys or books, to compete with the loss-leading practices of a discounter on best sellers was particularly devastating — there was no place for this specialised retailer to make up the loss. Loss leaders also served to cement the belief among consumers that the discounters generally offered lower prices across the board. This then served to attract shoppers from long distances, drawing commerce away from the Main Streets of small town America.

But while the discounters in the Northeast, such as Dayton-Hudson’s Target and Kmart, expanded in the Midwest and Northeast suburban markets, an operator in the South understood that rural customers would drive even longer distances to get low prices. Sam Walton’s Wal-Mart, based in Arkansas and starting in towns with populations as small as six thousand, grew to dominate the entire South. Walton understood the discount business to be one of information and logistics, of using the roads to maximise efficiency in attracting customers and procuring goods. With his old plane, he would scout for locations where he could see advantageous traffic patterns, positioning stores at a distance so that one didn’t cannibalise another. And once this system was established, semi trucks roving the country saw little difference in stopping in rural Arkansas versus suburban St. Louis to supply their merchandise.

Fifty years earlier, American economic vitality had been so strong that even an immigrant family, with a couple of years of hard work, could afford its own car. By the mid-sixties, postwar affluence meant that even the American teenager with a part-time job at McDonald’s could entertain prospects of his own car, the driver’s license becoming a rite of passage like a bar mitzvah. Children of the baby boom, largely raised in the suburbs, had turned the two-car household from a rarity to a necessity — even as late as 1950, only 4 per cent of households had more than one car. But the wives needed an additional car at home while the husbands commuted to work. When the teenaged baby boomers started driving in the sixties, the growth in the number of cars on the road, incredibly, outpaced population growth. While the population from 1960 to 1970 grew from 180 million to 203 million, an addition of 23 million people, American roads added over 27 million registered passenger vehicles during the same time, with much of the growth found in high school parking lots.

Some saw this affluence as a form of hollow prosperity, a mindless and fundamental alteration of society, where people served the economic engine, moved by the momentum of commercial events, rather than the other way around. To Jane Jacobs the evidence suggested that the cultural vibrancy of the city was being lost to remote, metallic islands travelling at seventy miles per hour. At the time of her book The Death and Life of Great American Cities, reflecting the move to the suburbs, the urban core of nearly every American city had started declining. Cities in the East and Midwest had once been bustling centres of activity, but the idea of the city would come to be associated with decay.

To Jacobs nothing about this death of her beloved cities was “economically or socially inevitable” due to market forces. To enable the “ fresh-minted decadence” of suburbia, she argued, “extraordinary governmental financial incentives have been required to achieve this degree of monotony, sterility, and vulgarity.” Thanks to federal appropriations that ultimately used private contractors, “highwaymen with fabulous sums of money” had little incentive to make automobiles and cities compatible. In addition, she pointed to central planners who guaranteed housing loans in the suburbs but did not do the same in the city, which then resulted in greater blight due to little credit being available. Kentucky Fried Chicken and Kmart were entrepreneurial reactions layered upon federal policy, not organic outcomes of either free markets or civilisation’s progress, which for hundreds of years had caused people to crowd into denser living conditions. Poetically, the largest American city to feel the full scale of this trend reversal was Detroit, the epicentre of the automobile industry. The definition of the city instead now included a geographically unspecified, undefined “inner city,” which meant any urban core where there was a concentrated presence of blacks who had stayed behind.

But the federal policy of highways was itself a product of one overlooked source of American success: oil. For well over a century, from the time that oil had first been successfully drilled from the Pennsylvania earth in 1859, America had been the world’s largest producer of oil. By 1970 oil production in the United States had gone up to nearly ten million barrels of oil per day, not far from Saudi Arabia’s present production levels. For most of American history, oil was never a foreign product and never needed to be; real-life men like John D Rockefeller, John Paul Getty, and the founders of the American Football League, as well as fictional ones such as J R Ewing and James Dean’s character in the movie Giant, had always symbolised oil as a source of great American wealth. Wide roads, suburbia, and tens of millions of large cars, many with fuel-inefficient automatic transmissions that are still uncommon in Europe, were all reflections of this seemingly limitless natural endowment. But despite America being the world’s top producer through the 1960s, the unrelenting American growth into distant suburbs had consequences. The country consumed every drop of oil it produced and turned to the cheap global markets for more. Soon, when a few countries in the Middle East learned the extent of their pricing power given the American demand, an oil crisis was at hand — the postwar growth came to a screeching end. Starting in the seventies, for the first time since 1893, America started running trade deficits — importing more from the world than it sold to the world.

Bhu Srinivasan is a media entrepreneur whose career has spanned digital media, pop culture, technology, publishing and financial content. He is the author of 'America Inc.'