The demise of iconic American toy retailer Toys-R-Us has sent many into a nostalgic frenzy. Even in Canada, as a child, I remember how special it was to walk into their enormous stores and see the seemingly endless rows of toys, games, and stuffed animals—it was like you had died and gone to heaven. Though I lament the fact that my children will not be able to share the same magical experience of a large toy department store, much like they will never walk into a Blockbuster to pick movies for movie night, my nostalgia does not entice me to cling to a failed business nor does it make me want to donate my money to see the retailer saved.
On March 22nd, Isaac Larian, a man who has made his fortune in the toy and entertainment industry, launched a billion-dollar GoFundMe campaign to “save Toys-R-Us.” Since its inception, the campaign has accumulated $200,057,000, though two-hundred million of those dollars are from Larian and affiliated investors.
But to ask me to donate my money to a failed, private, for-profit business so someone else can potentially make a buck down the road? I don’t think so.
Quite frankly, I am not sure what is more surprising: the fact that it has raised any external money at all, or the fact that Larian thought he could use nostalgia to allow him and his affiliates to acquire the retailer with donated money.
Whether it was a decline in sales, bad investments, fierce competition (especially from online retailers), or the fact that newer generations of children have swapped toys for tablets and “smart toys,” Toys-R-Us failed as a business. Now, if private investors like Larian and his affiliates truly think they can restructure the business and make it profitable again, they should do so by all means.
But to ask me to donate my money to a failed, private, for-profit business so someone else can potentially make a buck down the road? I don’t think so. Yet this is exactly what the government does with your tax money every time it bails out a business.
First of all, when a business fails in a free market, it is healthy. The business would not have failed if it had stayed competitive and/or was better managed. Clearly, the consumer has found a better/more attractive/more convenient choice to spend his or her hard-earned dollars on.
It is not hard to see what this kind of mentality promotes—more failed businesses and more bailouts.
After all, what killed Blockbuster wasn’t a decrease in demand for movies, it was the rise of digital streaming services like Netflix which provided a cost-effective and easily accessible alternative to the traditional brick-and-mortar movie rental store. Why get off the couch and leave the comfort of my own home to spend more money renting a movie or multiple movies at the local retailer? Blockbuster died because it failed to see the change in the entertainment industry and adapt accordingly, and we are undoubtedly better off as consumers for it.
Secondly, when you bail out a failed business, you teach them and other businesses that it is alright to fail. Nobody wants your product? Can’t turn a profit? Can’t balance the books? Can’t find investors? No worries, here’s some cash from taxpayers to shoulder your failings.
It is not hard to see what this kind of mentality promotes—more failed businesses and more bailouts. Even if the bailout succeeds and the business becomes profitable again, you are never going to see the money the government took from you back in your pocket. The only people that win in bailouts are the businesses and the government.
If there had been no bailout, Ford, Toyota, and Honda would have picked up market share. That would have increased U.S. factories and jobs once the recession was over. The loss of GM would be like the loss of Pan Am, TWA and other companies that had a strong American heritage but lost their competitiveness. It would have perhaps tugged at the heartstrings of America, but not really hurt the economy.
In other words, this economist recognizes that the industry would have adjusted and restructured on its own, and consumers and taxpayers would have been better off. Sure, it may have meant the loss of an iconic American company, but in a competitive market economy, you either adapt or you die.
Failing to allow this process to happen because of sentiment or bad interventionist policy worsens the situation and results in dumping incredible amounts of money into a vortex that will likely never spit it back out again. Thus, in conclusion, I offer Mr. Larian the following advice: either find a way to buy Toys-R-Us with private investor’s money (instead of asking the public for handouts) or let it die already.