2017: Is 3G the right partner for Berkshire at Kraft?

CAROL LOOMIS: This is a question from George Benaroya. And it adds a layer to the discussion about 3G a little bit ago.

He says, “I am a very happy, long-term shareholder. But this is a concern I have regarding Berkshire Hathaway’s Kraft Heinz investment.

“This investment has done well in economic terms. The carrying value is 15 billion, and the market value was 28 billion in 2016.

“But the DNA of 3G is quite different from ours. We do not make money by buying companies and firing people. 3G fired 2,500 employees at Kraft Heinz. That is what private equity firms do, but we are not a private equity firm.

“Our values have worked for us for over four — 50 years. There is a risk that as 3G continues to deviate from our principles, they will, eventually, harm both our value and our values. How do we prevent that from happening?”

WARREN BUFFETT: Well, that’s interesting. I mentioned earlier that it was very gradual. But it would’ve been, probably, a better decision. We fired 2,000 people over time — and some retired and left and all of that — but at the textile operation [Berkshire Hathaway]. You know, it didn’t work.

And at Hochschild Kohn, the successor — we fortunately sold it to somebody else — but eventually, they closed up the department stores because department stores, at least that particular one and a good many, actually, including our competitors in Baltimore, could not make it work.

Walmart came along with something — and, now, Amazon’s coming along with something — that changed the way people thought they knew. You —

We mentioned our poultry with CTB, which is a lot of different farm equipment.

The farm equipment, often, that CTB develops, the idea is that it’s more productive than what already is out there, which means fewer people are employed on farms.

We had 80 percent of the American public — population, working population — working on farms a couple of hundred years ago.

And if nobody had come up with things to make it more productive — farming — we’d have 80 percent of people working on farms now to feed our populace. And it means that we’d be living in a far, far more primitive way.

So there — you know — if you look at the auto industry, it gets more productive. If you look at any industry, they’re trying to get more productive. Walmart was more productive than department stores, and —

That will continue in America. And it better continue or we won’t live in — or our kids won’t live any better than we do.

Our kids will live better than we do, because America does get more productive as it goes along. And people do come up with better ways of doing things. The —

When Kraft Heinz finds that they can do whatever amount of business — $27 billion worth of business or something — and they can do it with fewer people, they’re doing what American business has done for a couple hundred years and why we live so well. But they do it very fast.

They’re more than fair, in terms of severance pay and all of that sort of thing. But they don’t want to have two people doing the job that one can do.

And I, frankly, don’t like going through that, having faced that.

I faced that down at Dempster in Beatrice, Nebraska. And it really needed change. But the change is painful for a lot of people. And I just would rather spend my days not doing that sort of thing, having had one or two experiences.

But I think that it’s absolutely essential to America that we become more productive because that is the only way we have more consumption per capita, is to have more productivity per capita.

Charlie?

CHARLIE MUNGER: Well, I — you’re absolutely right. We don’t want to go back to subsistence farming. I had a week of that when I was young on a western Nebraska farm. And I hated it. (Laughter)

And I don’t miss the elevator operators who used to sit there all day in the elevator, run the little crank, you know.

So, on the other hand, it — as you say it’s terribly unpleasant for the people that have to go through it and why would we want to get into a — the business of doing that over and over ourselves?

We did it in the past when we had to, when the businesses were dying.

I don’t see any moral fault in 3G at all, but I do see that there’s some political reaction that doesn’t do anybody any good.

WARREN BUFFETT: Milton Friedman, I think it was, used to talk about the time — probably apocryphal — he would talk about the huge construction project in some communist country. And they had thousands and thousands and thousands of workers out there with shovels digging away on this major project.

And, then, they had a few of these big, earth-moving machines behind — which were idle — and which could’ve done the work in one-twentieth of the time of the workers.

So the economists suggested to the local party worker or whoever it was that, you know, why in the world didn’t they use these machines to get the job done in one-tenth or one-twentieth the time instead of having all these workers out there with shovels?

And the guy replied, “Well, yeah. But that would put the workers out of work.” And Friedman said, “Well, then, why don’t you give them spoons to do it instead,” you know? (Laughter)