Book Review: Phil Knight's Endlessly Great 'Shoe Dog'

Book Review: Phil Knight's Endlessly Great 'Shoe Dog'
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The great Canadian economist Reuven Brenner once referred to macroeconomics as “a tautology and a myth, a dangerous one at that, sustaining the illusion that prosperity is necessarily linked with territory, national units, and government spending in general.” Phil Knight, the wildly talented, courageous, and visionary founder of Nike would likely share Brenner’s contempt for the macro side of economics.  He’s lived Brenner’s quote, and much more. 

In Knight’s case, Nike, one of the most important and successful brands in the world, is a creation of Knight’s genius.  At the same time, it’s a good bet Knight would acknowledge that it wouldn’t be Nike absent what was, and what is an increasingly integrated global economy.  Just about every item ever produced by Knight’s wondrous company was manufactured somewhere not the United States, not to mention that Knight’s financial savior in Blue Ribbon’s (Knight’s original shoe company before Nike) less prosperous days was a Japanese trading company, Nissho. 

Knight recently published his memoir, Shoe Dog, and it is quite simply excellent.  Knight’s story is unputdownable as both autobiography and business book, and then as an economics book, it is endlessly great.  If readers are interested in learning about economics, and truly understanding economics, they need only purchase and read Knight’s book.  383 pages later they’ll know more about a not-so-dismal “dismal science” than they’ll ever know if they go the conventional route of reading boring textbooks full of charts, formulas, and statistics.  Knight’s book is one that I’ll be referencing for many years, and constantly quoting.  The lessons within it are many. 

Interesting about Shoe Dog is that it pretty much ends in 1980 when Nike was taken public.  On that day Knight was worth $178 million, while many of his early employees had holdings in the $6 million range.  To Knight, Nike’s early history, one defined by near constant fear of bankruptcy, was the story to tell.  Despite the agony, despite the countless times his creation nearly died, it’s this part of the story that Knight says he would live again if he could. 

Knight writes about how some of his first employees, Jeff Johnson (employee #1) and Bob Woodell, still visit the company’s stunning Beaverton, Oregon campus to tell stories of the early days.  How lucky Nike employees are that they get to hear about how it all began in Knight’s parents’ basement, all of this before Blue Ribbon could afford to rent a space connected to a raucous bar; this one with broken windows that this then-fledgling company lacked the funds to fix. 

Knight’s seeming purpose in bringing back the old-timers is to nourish Nike’s culture, and also to hopefully remind the 5,000+ well-to-do employees in Beaverton that somewhere there’s a “shoe dog” with drive and ambition similar to Knight’s.  This entrepreneur is working feverishly to knock Nike off of its lofty perch much as Nike did formerly #1 Adidas.  No doubt it’s easy for the employees of today to forget how very ephemeral success is.  Johnson’s and Woodell’s stories, along with Knight’s amazing book, hopefully remind the employees of this truth, all the while enhancing their already bursting pride in what they’re a part of.

From an economics standpoint, Knight’s recollection of nearly always being in debt for the first 18 years of the company’s existence, of always fearing the one incorrect move that would bankrupt Nike, is instructive on its own.  It’s already been mentioned that Knight stared failure in the face nearly every day from his company’s creation in the early 60s right up to 1980, and this speaks to the horrors of excessive governmental taxation, along with the tax that is government spending itself.

About this broad point, Knight largely stays away from politics in his autobiography, but it seems reasonable to believe that the founder leans small l libertarian.  Examples in this review will show why that’s perhaps true. 

Regarding taxes and spending, Knight addressed both; albeit in oblique fashion.  Money for Blue Ribbon, and eventually Nike, was always tight.  As Knight recalls about his company's austere past, “Any dollar that wasn’t nailed down I was plowing directly back into the business.” Thinking about the corporate tax through the prism of Knight always operating on a constantly shredding shoestring, the corporate tax robs companies of their present and future. 

More broadly, and while writing about the year 1970, Knight recalls that “I spent most of every day thinking about liquidity, talking about liquidity, looking to the heavens and pleading for liquidity.  My kingdom for liquidity.” What this writer would give to have every politician read Knight’s story, and for Knight to come to Washington in his retirement to tell his story.  Simply put, government spending and taxation shrinks the amount of liquidity otherwise available to the companies of tomorrow.  So many days Nike nearly died thanks to a lack of funds, and it raises the question of how many other brilliant concepts died before their success could benefit people around the world as Nike has, not to mention the company’s global base of well-healed employees. 

To the idea of Nike and its “well-healed employees,” the truly small and bereft of knowledge will respond that this global behemoth has overseen sweatshops around the world that “exploited” poorly paid employees.  What these ankle-biters fail to understand is that when Nike arrived in Vietnam (this alone could be a book itself, and an interesting one at that), the workers in its factories were walking to work.  Once in Knight’s employ they were soon enough riding bikes to work, then scooters, then driving automobiles.  As the perhaps overly modest Knight notes, “Whenever reporters said a factory was unsatisfactory, they never said how much better it was than the day we first went in.” Interesting about Nike’s overseas factories is that the company always paid above the prevailing market rate; sometimes so much above it that Nike, according to Knight, was “disrupting the nation’s entire economic ecosystem.” Translated, there were times when “exploited” Nike factory workers were earning more than doctors in the impoverished countries that Nike entered. 

Knight’s bigger, more economic point is that “the only answer” to poverty “is entry-level jobs.  Lots of them.” The global expansion of Nike has been a certain enemy of poverty, but at the same time Knight writes with regret of three layoff periods in ten years that forced his company to lay off 15,000+ employees.  Ok, but imagine if Nike and its owners had been taxed quite a bit less.  Maybe some of the layoff rounds wouldn’t have been as substantial as they were.  Getting right to the point, governments can only tax and spend insofar as companies and individual investors have less money to spend on existing wages, along with expansion.  Contrary to what its enablers in the policy commentariat believe, government exists at the expense of work opportunity and rising wages.  Sorry, but there’s no free lunch.  Government is an expensive lunch paid for by you, the worker. 

More on government spending, the modern economics profession has taken the absurd belief that government spending drives prosperity in a rather horrifying direction.  Members of it almost unanimously believe that the government spending surge that took place during World War II saved the global economy, and the U.S. economy specifically.  Knight’s book rejects what is ridiculous.

Knight subscribes to the correct, Fredric Bastiat view of war.  And for those not familiar with Bastiat, Knight subscribes to the Joseph Kennedy view that “war is bad for business.” Yes it is.  War is about wealth destruction, it’s about the extermination of human capital that is the driver of all wealth creation.  Thinking about Europe and Japan alone (Knight’s description of 1960s Tokyo’s bombed out existence in Shoe Dog is chilling and sad), imagine how much more prosperous both would be, and by extension imagine how much more prosperous the U.S. would be today, absent the waste of precious life that the war was. 

As Knight sees it per Bastiat, “When goods don’t pass international borders, soldiers will.” Are you listening, President Trump? To read Shoe Dog is to wish that Trump would beg Knight for hours and hours of his time.  Knight “hated” the Vietnam War, and hates war in general.  He does because he’s plainly a humanitarian, but also because it certainly is bad for business.  When we’re shooting at one another, we’re not improving one another through trade.  Knight’s correct view is that the more the world is interconnected by trade, the more peaceful it is.  As he further explained it, “That’s why, haunted as I was by the Vietnam War, I always vowed that someday Nike would have a factory in or near Saigon.” Knight’s story is not just one of building one of the world’s greatest brands.  In globalizing his business out of necessity, he also plainly promoted world peace.  If we’re trading with individuals around the world, wars that kill those trading partners become rather expensive. 

Governments often fear companies that grow too large and "powerful." They wrap themselves in antitrust laws to fight what they don't trust, and don’t understand.  Knight's story reveals the obnoxious folly of this odd, and economy-sapping strain of legal thought.  Indeed, Knight first presented his ideas for a shoe company (jogging shoes) at Stanford Business School.  The response from his top-of-the-heap MBA classmates was silence.  As Knight recalls, “Not one [student] asked a single question.  They greeted my passion and intensity with labored sighs and vacant stares.” So did financial sources for years and years.  His own father thought he was “jackassing” around. 

Implicit in antitrust is that the present foretells the future, but it doesn’t.  Few took Knight seriously; least of all the dominant brand at the time, Adidas.  In Knight’s case, the man who signed Michael Jordan, Bo Jackson and Tiger Woods to lucrative endorsement deals predicted a pedestrian NBA career for Magic Johnson, and years later viewed Ryan Leaf as a better pro prospect than Peyton Manning.  Nike has since eclipsed Adidas, but then history tells us some apparel and shoemaker will eventually eclipse Nike.  The always silly notion of antitrust is further exposed in this essential autobiography. 

About early finance for his company, Knight dealt with the very local First National Bank of Oregon.  He recalls that banks, including First National, were very risk averse back then.  Suffocatingly so.  “They wanted you to never, ever outgrow your cash balance.” Not much has changed since.  Knight reports that around the founding of Blue Ribbon, 26 out of 27 companies failed.  Since banks were and are in the business of lending money, small businesses eager to grow large were bad bets simply because most failed.  This is a crucial economic point given the odd focus of economists on a Federal Reserve that projects its always overstated influence through a risk averse banking system.  Knight’s memoir is yet another reminder that the Fed really doesn’t much matter to economic growth.  The truly dynamic finance that powers the world’s most dynamic economy isn’t of the bank variety. 

President Trump and many on his economic team regularly tell us that the China, Japan, Mexico and other foreign countries are “beating us to a pulp.” Funny is this ridiculous theory.  Figure that trade is voluntary, it occurs among consenting individuals, and as such, individuals can only import insofar as they have something to export.  Trade is a two-way street.  Knight knows this well.  As mentioned at this review’s beginning, global trade made what became Nike possible. 

Lest we forget, Knight spent the first eighteen years of his time running Nike worrying on a daily basis that his company would soon go under thanks to a lack of cash.  This is important because Knight plainly spent a lot of the company’s limited funds traveling on the other side of the world in search of factories capable of making his shoes.  He wouldn’t have done this if there had been manufacturing capacity in the States capable of and willing to make the shoes for him here.

Trump et al bemoan the hollowed out factories that allegedly dot the American economic landscape, but at least when Knight was on his way up, they plainly weren’t giving him the time of day.  Absent a globalized supply chain, Nike once again isn’t Nike.  Notable here is that Nike entered China early, in 1980, when it was a horrendously poor country.  Today more Nike shoes are produced in China than in any other country.  This would doubtless offend Trump, Peter Navarro and other economic illiterates within the Trump administration, but Knight helpfully adds that China is “our [Nike's] second largest market.”

The above is what protectionists often miss about free trade.  Individuals are only sellers insofar as they’re buyers, or exporters as insofar as they’re importers.  China is a large market for Nike precisely because the U.S. is a large market for Nike goods produced in China.  Trade is a two way, lifestyle enhancing street.  As Knight puts it, “International trade always, always benefits both trading nations.”  It can’t be repeated enough what a valuable book Shoe Dog would be for every teacher, economist, and politician in the U.S., and around the world. 

Interesting about trade is that money is solely a lubricant of it, or a way to push capital goods into the future as investment.  Knight knows this well, and this writer would give anything to hear him lecture on currencies.  Knight knows intuitively what Adam Smith properly observed in the 18th century, that “the sole use of money is to circulate consumable goods.” Money facilitates the trade that always benefits both sides.  Notable here is that Knight’s early days as a “shoe dog” were spent in Japan, the manufacturing locale for his shoes.  This was complicated by President Nixon’s protectionist 1971 decision to delink the dollar, and by extension all global currencies pegged to the dollar, from gold.  The yen, formerly pegged to the dollar, suddenly had no definition.  As Knight describes the scenario wrought by floating money, “now the yen-to-dollar rate was like the weather.  Every day different.  Consequently, no one doing business in Japan could possibly plan for tomorrow.  The head of Sony famously complained, ‘It’s like playing golf and your handicap changes on every hole.’”

This reader’s reaction to Knight’s experience with floating money was “what did he leave out?” and once again, would he or could he ever give a course on the horrors of money without definition?  Knight lived it, and the uncertainty of a yen sans a price rule was that life was suddenly “treacherous for any company doing the bulk of its production in Japan.” So while the Japanese wisely didn’t devalue the yen as much as Presidents Nixon and Carter wrecked the dollar in the 70s, floating exchange rates made conducting business there quite a bit more difficult.  Logically it did.  How does one trade and invest if the proceeds (yen, dollars, euros, Pounds, francs, etc.) of trade are ever changing? Hedging of currencies allows for mitigation of some of the uncertainty, but at substantial costs thanks to human talent wasted on the trading of the chaos.  Knight’s book is 383 endlessly interesting pages, but without a hint of hyperbole, he should expand his memoirs whereby he would apply his business experiences to taxes, regulation, trade and monetary policy. 

Why did Knight succeed? It’s hard to say exactly.  He admits to being intensely competitive, doesn’t hide the truth that his boys suffered his devotion to his “third child” through lost time with their father, he was courageous and full of vision, etc.  All those things make sense, but it also can’t have hurt that Knight had a major chip on his shoulder.  And with the latter in mind, we’re constantly told that discrimination is harmful, that it discourages the otherwise talented.  Really? What stories of entrepreneurs almost invariably tell us is that these outsiders were and are discriminated against, almost as a rule.  Precisely because they’re doing things differently, few take them seriously. The discrimination fuels them. As Knight recalls about the employees of a much younger Nike, “Each of us had been misunderstood, misjudged, dismissed.  Shunned by bosses, spurned by luck, rejected by society, short-changed by fate when looks and others natural graces were handed out.  We’d each been forged by early failure.” Yes!

So if readers are interested in understanding the misunderstood better, and perhaps what powers their drive, they should buy Phil Knight’s spectacular memoir.  They’ll understand commerce and the crucial role of entrepreneurs quite a bit better, and then they’ll never read economics commentary the same way again simply because Knight’s unputdownable book explains economics better than any economist could ever hope to.  This reviewer simply hopes that Knight takes more time to explain what he did, and what he saw.  If so, our understanding of everything will grow. 

John Tamny is editor of RealClearMarkets, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed? (Encounter Books, 2016), along with Popular Economics(Regnery, 2015). 

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