Business Columns & Blogs

With WTO, slow motion is redefined

Here is some stuff I know, the “let’s turn the paper upside down, shake it hard and see what topics of interest fall out” edition:

 • What is the smallest amount of motion that can be detected by humans? Glaciers? The growth of a blade of grass? The forward progress toward school of a reluctant, sleepy kid on a cold, dark morning?

Minute as those units of measure might be, they are in danger of being surpassed by a new standard to gauge the near inactivity of an entity that is in fact still moving: the time it takes the World Trade Organization to reach a decision in a trade dispute.

The WTO last week finally issued a ruling on a complaint filed by Boeing against Airbus six years ago. Reports indicate that the trade organization agreed with the U.S.’s (i.e., Boeing’s) contention that European nations offered subsidies in the form of loans at incredibly preferential terms to launch new Airbus planes.

And that should wrap it up, right? Surely you jest. Once the decision is officially published, the various aggrieved parties can appeal (including the side that “won” the dispute, if it’s unhappy with how little it won).

Just to complicate matters, the WTO may get around to releasing a ruling this year on a retaliatory complaint the Europeans filed (also six years ago) against the U.S. over subsidies federal and state governments provided to Boeing. An important component in that case is the package of incentives Washington state provided to Boeing for the first 787 assembly line, valued at the time at $3.2 billion.

Even without details on the WTO’s decision, the hint that the trade body ruled in favor of the U.S. was enough to motivate the political types to both celebrate and wax indignantly. U.S. Sen. Patty Murray, D-Wash., used the occasion for one more plug for Boeing to get the Air Force tanker deal, as though the field hasn’t been sufficiently tilted in its favor already.

No doubt European politicians will take the same umbrage at the U.S. when the WTO rules that Boeing got illegal subsidies (a decision that will likely be ignored by politicos over here). And why not? It’s a cheap and easy way to score points with the respective electorates. Europeans don’t vote in our elections. We don’t vote in theirs.

At some point, the charges, countercharges and political posturing take on the appearance of a Three Stooges script: Heavy on head slaps, eye pokes and nyuk-nyuks, light on actual meaning.

What gets obscured is this: Of course the Europeans subsidize Airbus. Of course we subsidize Boeing. What we’re quibbling over are the details, the form, the structure and appearance.

The WTO isn’t going to tell either side to stop subsidizing their job- generating aerospace companies entirely. Such bans are unenforceable and politically unlikely anyway. If there ever is a true resolution to these cases, it’s likely to be in the form of a request: Sure you can keep helping Boeing and Airbus. Just try not to be so obvious about it, OK?

 • Starbucks paying a dividend? Why that’s as unlikely as … Microsoft paying a dividend.

But Microsoft did in fact start paying a dividend in 2003, and this past week Starbucks announced it too will commence paying a cash dividend, at 10 cents a share.

Growth companies, which Microsoft and Starbucks most assuredly once were, aren’t in the dividend- paying business. Growth companies need the cash to fuel that growth. Shareholders get their payout through stock price appreciation.

Starbucks hasn’t been a growth stock or a growth company in several years. The company has had to retrench from ambitious growth by closing stores, and the stock price, while it has regained some ground, is still well below the level of a few years ago.

But retrenching companies need cash too, which makes the decision not only to pay a dividend but to buy back shares intriguing. Starbucks set as a target a dividend payout rate of 35 percent to 40 percent of net income.

Paying a dividend can be read several ways. One is that the company believes it is generating sufficient cash to take care of its operations and whatever expansion it has in mind. Another is that the company has more cash than it knows what to do with, so it might as well return some of it to the owners.

Isn’t that good? Isn’t that preferable to having the comp- any think up ways to spend the cash, only to invest it in ventures that not only don’t generate much revenue or profit but wind up sucking even more cash into them?

Perhaps. But the Starbucks story has long been about trends and fashion and pizzazz and the latest. Continuously coming up with whatever is the latest trendy fashionable bit of pizzazz, and getting it out to its stores, takes cash. Starbucks can survive without a regular flow of new products, retail channels and amenities, but without those it’s just another coffee company, one in a low-margin, low-growth commodity business.

And that, one suspects, is absolutely not how Starbucks thinks of itself or the image it hopes to convey to the public. The challenge to Howard Schultz, then, is to convince both investors and the public that paying a dividend does not signal that Starbucks is out of ideas, and that it has both the financial resources and the innovative know-how to generate growth.

Or, to borrow the old Douglas MacArthur quote, Starbucks needs to prove that it is not retreating, just advancing in another direction.

Bill Virgin’s column on business and economics appears Sunday in The News Tribune. He is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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