Fred Smith: Interview transcript
Fred Smith, FedEx founder, president and CEO
TEXT OF INTERVIEW
Kai Ryssdal: Fred Smith, good to have you with us.
Fred Smith: Thank you.
Ryssdal: Seems an appropriate place to start with you since you are so central to the American economy. How's business?
Smith: Well, business is definitely slow compared to where it was, say, a year ago. The overall economy, I think, really had a hard time beginning in the fourth quarter of last year as businesses of all sizes put a lot of brakes on their inventory and investment activities, and consumers stopped buying cars, and buying houses and buying durables, and had a slow retailing season. But having said that, I'm an optimist overall. I don't think the economy is going to drift into a depression and I think you are starting to see just small signs of the industrial and consumer economy turn around with some of the inventory numbers.
Ryssdal: Well, now I have to say you were quoted last year -- I mean, I read a bit about this -- you said, the middle of last year you said, "No, I don't think we are in a recession yet."
Smith: That's right. I didn't think we were in a recession. And when I said it, I didn't think that fuel was going to run to $147 a barrel. And people forget this because so much focus has been on the financial sector. And clearly it was over-leveraged and we backed into this subprime mortgage business and all of these derivatives and so forth. But the match that lit the tinder box was the run-up in oil prices, because what it did was to make the subprime borrower literally have to choose between putting the gasoline in the car and going to work or making the mortgage payment.
Ryssdal: Well, oil is down under 40 bucks a barrel now. Does that mean that better times are ahead under that theory?
Smith: I think that the economy is definitely benefitting from the reduced oil supplies. It's the equivalent of a $300 billion tax decrease. Every time you go to fill up your vehicle at the pump, you can see that you've got more disposable income left than you did in July. So definitely it's had a big effect, and I think the de-leveraging that is under way will begin to abate somewhat as time goes forward.
Ryssdal: Do you think maybe you are over-sensitized to oil and energy prices because this company spends billions of dollars every year on oil and gas?
Smith: No, because the main effect that oil prices have on us is not directly in our P & L because we have a fuel surcharge over a baseline price built in. And each month we change it and put it up on the Internet.
Ryssdal: So you adjust the profit and loss, that P & L.
Smith: Well, the biggest effect on the price of fuel is what it does to us in terms of the macro-economic situation, the elasticity of demand or overall demand. And that's why we are probably more sensitive to what it does to the consumers and the buyers in terms of the effect on them than to us directly. Now there's some short-term phenomenon there when oil prices run up rapidly, we're a little bit behind the power curve because we don't change it every day, we change it each month. And then on the downside that helps us a little bit in the fall.
Ryssdal: As long as we are talking about the economy and how things stand, what do you think of the president's stimulus plan?
Smith: I think the president's stimulus package, which I think in all fairness might equally be called the Congressional stimulus package . . .
Ryssdal: Fair enough . . .
Smith: . . . because a great deal of it was crafted by the House and the Senate. I think it does not put enough emphasis on the industrial economy and try to get it back into a mode where it's making equipment and software purchases, because that's basically what drives the employment numbers. It's the locomotive of the big economic train and so I don't think it does enough in that regard.
Ryssdal: Have members of Congress consulted with you about the Republican side of this because you are -- we should say up front you advised the McCain campaign. You are a Republican of long standing.
Smith: Well, John is a friend of mine. I'm actually an Independent but I definitely supported Senator McCain. I've known him a long time. I've admired and respected him greatly. But he didn't get elected, and obviously we are all proud of the president and we are pulling for him. And I think that one of the things that he has to address is the movement over the past quarter century of our economy into a more than healthy reliance on the financial sector. Financial profits 25 years ago were about 15, 16 percent of all profitability. In 2007, the last full year before the meltdown, they were about 32 percent. And the financial sector is a supporting activity, you know that finances cars and businesses and so forth. It's not an end unto itself but it became one with a lot of the financial engineering and the so-called quants and that type of endeavor. And I think the tax code makes our economy have a tendency to over-leverage and to put too much of its economic activity into the financial sector.
Ryssdal: Now you are a guy who is as responsible as anybody for the way the global economy looks today and how it works, right? I mean, just by virtue of the company you founded. What's the economy going to look like whenever this recession is over? How is it going to be different?
Smith: Well, I think it's going to be different in two or three ways for sure and in one or two, I hope will be the case, at least we are trying to make the point that it should be. In general, I don't think that the world is going to roll back the inter-relationships that have developed over the last 50 years -- the so-called globalization that has gone on. The forces there are too powerful. The ability to do commerce with people via the Internet, to see products, to buy them and to ship them as you say, FedEx and others make it very easy to engage in trade globally, particularly in high-tech, high value-added items of all types. So as people move out of poverty as hundreds of millions did in China by entering the global economy and hundreds of millions in India and so forth, I don't think that it's going to stop because we've had these financial problems. I think globalization, unless there is some enormous mistake like they made during the 1930's putting in the Smoot-Hawley tariffs, that will be one feature of the go-forward economy. I think the second feature is you're going to have a lot less leverage in the financial sector. One, because it will be more heavily regulated, and two, people have been burned so badly.
Ryssdal: Leverage . . . just borrowing.
Smith: Just borrowing, and this gets to the point where I hope there will be a change. The interest that is borrowed to speculate, make financial investments, what have you is 100 percent deductible. So it's not surprising that people go into things like private equity because the government is, in essence, paying for about 35 percent of that because that's our corporate tax rate. So if what used to be profit is now debt service, then the deductibility of interest makes us have a tendency to put too much of our GDP into the financial sector or to be more heavily leveraged.
In the industrial sector where we are, big service companies, which by the way provide a huge net positive balance of payment. I think my numbers are right, the service sector is about a $480 billion international marketplace for the U.S. imports and exports. We have a $140 billion trade surplus! It's not a trade deficit. But the industrial economy, big service companies, manufacturers, agriculture, mining, healthcare, they generally depend on capital investment or technology investments. And the tax code as opposed to the deductibility of interest makes it risky often to make these types of investments particularly when times are bad.
And a good example is us buying a Boeing 777 airplane. Tens of millions of dollars. You have to order it, the plane comes four years later. The fastest you can write that plane off is seven years. So when times get bad, every board room in America is hearing the same mantra: "Preserve cash, cash is King, push off investment." If you could expense capital when the equipment is put into service, you would completely change the dynamics of that. You should be able to expense capital equipment expenditures and software, not buildings necessarily because they can appreciate in value. Because what it does is it changes the risk profile of industrial investment to be more favorable relative to just financial investment. And the only thing it costs the government is the time value of money. And if the investment wouldn't be made absent this change, it costs them nothing. So as I'm fond of saying it's a little bit like the Cardinal says to Don Corleone in Godfather III when he's telling him he ought to go to confession. I mean, what have you got to lose? This is a policy that Congress could put in place.
Now I have talked about it to a number of Congressional leaders and I think they generally agree with it. I also think the corporate tax rate is too high but that's politically (to borrow a current phrase) "toxic" to talk about that. But to restore some balance between the industrial economy and the financial economy by allowing you to expense permanently, I'm not talking about a one-time deal, is very good tax policy and I think that would help more than anything else the blue collar segment of our economy. Because the way you make blue collar workers more wealthy is to invest in capital, infrastructure, and training and education. That's the only way you make people more wealthy unless they are a white collar worker that can just live with their intellectual contribution to their profession. So I think that's a very powerful thing that this country could and should do.
Ryssdal: There's a tendency to look toward FedEx as an indicator of the overall economy. I imagine there are data streams going into your office by the hour every day. What do you look at on a day to day or week to week basis to figure out how your company is doing so that we can figure out how you are doing?
Smith: Well, our traffic statistics and probably UPS's traffic statistics together are as good a plebiscite on the economy on any given day and what our customers are telling us are probably as good a forecasting mechanism as you can think of. In fact Chairman Greenspan used to joke all the time with me that when he would see me up at the Redskins' football games where we would see one another from time to time that I was one of his secret forecasting things. And on a more literal basis the Federal Reserve contacts FedEx for all of these numbers as they do for many businesses. So we do have a very good view of the economy in a generally effective feel if you will for where it's headed I think.
Ryssdal: So how are you feeling?
Smith: I think the de-leveraging that's taken place and the inventory bleed-off that will take place, that's already taken place because so many people stopped buying things in the fourth quarter, by the time you get into the summer and people start buying things for the next Holiday season, I think you'll start to see people have to re-order and that will be the impetus on the way up. Now the financial sector as was seen in Secretary Geitner's talk today, there aren't any good answers. We've created an entirely new regime with this mark to market accounting and these huge "losses" that are been reported are not cash losses. What they are is the value of their security. They're assets that on the day that they are measured are worth much less than they were at purchase. But it doesn't mean the cash flows associated with those securities, the interest payments, the mortgage payments aren't going to pay off over time. And the real losses: the sub-primes and the things that are just in default, are a much smaller percentage of the financial assets, I think, than people would think. But what it does because of the inherent leverage in a bank when you mark to market and mark your assets or your securities or your loans down, your capital or your equity doesn't give you the lending power. And people have criticized Secretary Paulson and his team for taking the TARP money and putting it in the capital side of the bank, which is exactly the same thing by the way, they did in the United Kingdom. I think that it is exactly right because it was the tourniquet that stopped the bleeding.
Ryssdal: Well if it is exactly right, then how come it is not working yet?
Smith: Because the total debt in the United States, I think this number is right, in 2007 was about $45 trillion. And by the way, over that same 25 year period that we went from 15 or so percentage points of corporate profits from the financial sector to 32 percent...I'm sorry, it's more than that. It's more than $45 trillion -- debt increased by $45 trillion over that 25-year period of time while the GDP went up by $12 trillion. Well even a liberal arts major like me can figure that's going into debt. So when you have whatever the amount is, let's say it's $60 trillion -- I don't know, but it increased. It's a lot of money! What happens is when that financial debt swings around like a magnetic compass, it's gone crazy. Up one day and down the next. You simply cannot lend because you don't have the capital ratios that the regulators permit you to lend with. Now what really proves the point I believe, is some of the banks that weren't as badly leveraged are making a very big point that they are lending. I saw Mr. Diamond, Jamie Diamond you know of J.P. Morgan, and he's made the case in many forums, from Davos I watched an interview, they are lending. And this very day, you know it was a $4 billion bond issue by Cisco. We did a billion-dollar offering a few weeks ago, not particularly because we needed the money but because we wanted to make sure we could get it.
Ryssdal: Did you have any problem?
Smith: No we didn't. We paid more than I think we should have for a company with the strength that we have. But the point is we did it and it was very over-subscribed. So again, I think that there is a large part of the financial sector that is in gridlock and you ask why it isn't working? Well the problem is that the numbers are so big that if you talk about a bad bank or an aggregator bank or one thing or another. I mean, you are not talking about a few hundred billion dollars which used to be an enormous amount of money, these days it sounds like pocket change with what the Congress is talking about. You're talking about trillions of dollars that on any given day mark to market to take these so called "toxic" assets off of the balance sheets. And therein becomes the problem, just the enormity of it.
Ryssdal: The story of you and how you founded this company is pretty well known. You write this paper at Yale, you go to the Marine Corps and you see how a military logistic system is, you come back and in 1971 you get FedEx going. I'd like to get your take now on what the kernel of the idea was. What's the brilliance of this business model?
Smith: Well I don't know that there is any brilliance involved.
Ryssdal: Well I don't know; you are doing pretty well so far.
Smith: We've had a lot of luck and a lot of people have put a lot of hard effort in and it's been a team effort. But the fundamental insight, to get to the question you asked, was very simple and that society was going to automate. And once you begin to automate, both the people that sell the equipment and both the people that use the equipment have a very different logistical requirement than in previous generations of economic activity. So I observed back in the 60's the computer industry with IBM and Sperry in those days and Burrows and Univac, they would go to a bank and offer to sell them a computer and they'd make the case that it's more accurate, it's faster than any of these armies of clerks here sorting these checks. Because the machine reads the checks and makes the debits and credits. Well that sounds terrific until the point that you realize that your whole business efficacy is built around that computer operating. It cannot not operate. So if IBM wanted to sell a computer in San Antonio, Texas, it was irrelevant to the bank of San Antonio, whether the computer was made in Armonk, New York, and it was easy to get a part to Chase Manhattan right down the river and very hard to get a part to San Antonio. And you could predict that on any kind of automated equipment -- a computer, a flight director on an aircraft, a diagnostic machine in a hospital -- you could predict with great precision generally, out of the number of installations you have, what parts you are going to need on any given day. You simply couldn't predict where the part was going to be needed, which machine was going to be needed. So FedEx was a way to provide non-discriminatory transportation from a point to all points utilizing a hub and spoke system (which I never thought was particularly innovative). The banks have used it for years, telephone companies have used it for years. And so you could from Armonk, New York deliver to any user absolutely, positively overnight (to use our original tagline) items. And that was the insight.
Ryssdal: Who came up with that "Absolutely, Positively" thing, was that you?
Smith: No, it was our head of marketing Vince Fagan and our head of the advertising agency and Carl Alley, and I think Art Bass, and Tucker Taylor, my old partners there. Vince and Carl have both passed away. But they were both very iconoclastic and very creative and of course they essentially introduced a whole new genre of advertising: that sort of "cheeky" humor that FedEx was known for. But what it did is it put our money where our mouth was, literally. Because we put a money back guarantee and we didn't say, "Oh, we'll get it there some of the time or we'll do our best", it was "absolutely, positively overnight."
Ryssdal: Well, it leads to this next question: What's the most scared you've ever been while running this company?
Smith: Oh, I don't know that I've ever been scared. Listen, I've spent two year in the Marine Corps and in Vietnam and I was scared there a few times, but you know the initial Arab oil embargo was very threatening to us. Business is just a matter as some famous man said, J.P. Morgan or Rockefeller or somebody, is "just a matter of arithmetic." So I've never been scared about it. I've always had confidence that the business was a very important business and doing a lot of good things for a lot of people.
Ryssdal: You lost, though, when you first started this company, I think the number is $29 million in two years, right?
Smith: Well, it lost money which by today's venture capital standards was laughably small, but you got to remember a couple of things: First of all, about half of the loss was because of the oil embargo, in other words, the price of oil went far above what was in the original business projection. And the other thing you've got to remember, because it was a capital intensive program and these assets, the other half was non cash. It was depreciation on the planes and the trucks. So the reason that there was never any doubt at least in my mind that the company was going to be successful and survive is because when we put the system out there, and remember you can't sell a network until you have a network to sell, so there is a lot of front-loading of it. And we had to have a minimally sized network to go out and tell customers. Because you wouldn't buy phone service, if somebody came and said I have a wonderful phone service, you can talk to six cities.
Ryssdal: So did you just set this thing up on a wing and a prayer?
Smith: No, no, no. I had money from my family and then we raised a lot of money from venture capitalists and that sort of thing.
Ryssdal: But you set it up in the "blind." As you said, "You can't sell a network until you have a network."
Smith: No, no. It wasn't in the "blind" because we had not one, not two, but three separate in-depth marketing analyses by unimpeachable sources and we knew that the latent demand was there so it wasn't like we were trying to build a new widget that nobody had ever seen before. It was something that people needed to do.
Ryssdal: Take this question in the spirit with which it's intended because obviously you are insightful and creative and you've done well for yourself but why you? Why were you the guy who came up with this business model?
Smith: You know, I think it's like a lot of things. I love stories about habit and a conceptual leap. One of my favorite stories about the man, he's a Nobel laureate, and still to this day medicine, trauma medicine . . . He used to tell a story. He'd done an experiment and he looked at the Petri dish and all this gunk in the dish and a year's worth of experiment and, of course, what he was looking at was penicillin. And a year or so later Dr. Fleming revolutionized this world. I mean, you look at gunk, you don't think that's good, and it revolutionizes the world. They couldn't figure out a way to send things to the moon and some person, I don't know who it was, said, "You know what we ought to do? We ought to make rockets in three stages rather than in just one." You throw away the first stage, you get rid of the weight, and you fire another one. Or swept-wing airplanes or just conceptual . . . I like to call it kaleidoscope thinking. You know where you look at the thing and you don't see it but then you turn the kaleidoscope and all of a sudden you know you're right. There are all kinds of examples of that -- innovation. I don't know who thought up the idea of putting a little RF thing in your car chain but it's a heck of an idea. You got to open the door.
Ryssdal: Those are great stories but you didn't answer the question. What is it about you that got this company going?
Smith: Well, you know it was just a . . . when I was in college, I was flying, I was a pilot and I used to fly up to Westchester County. And in these headquarters I used to watch the requirement to charter these small planes to fly a 10-pound part and they were spending in those days, hundreds now thousands of dollars and I just got thinking about that. And it probably is in my blood, both my grandfather and father were in the transportation business, and it just was something that I pursued as a business when I got out of the Marine Corps.
Ryssdal: Let me change gears here for a second. I wanted to ask you about Kinko's. A number of years ago, FedEx decided to purchase Kinko's, the copying and document center. What was it about that company that made so much sense to you?
Smith: Well, Kinko's had something that was very synergistic that had something with our basic transportation companies: FedEx Express and FedEx Ground in that small and local businesses, particularly in high density areas like downtown Los Angeles or New York City, could take packages and ship them. And those are very attractive transactions for us because the revenue per piece is much higher for a small and local customer than a big company that has got negotiated rates. It's not economically viable for us to put a package acceptance and a package wrap station in these high-rent areas. And Kinko's of course was the leader in doing copy and certain value added things for the front office. Now we were very familiar with running retail counters because we had retail counters, they just weren't very compensatory to us because of the reasons that I mentioned. And we were very familiar with the white collar trades, you know, architectural engineering, whatever. And so it was a logical adjacency you might call it. And we've done the same thing by going into the freight business. You know, it's a logical adjacency. So we took it over and after a time we moved it to FedEx Kinko's and now it's being re-branded as FedEx Office because more and more the business is the shipping and the packing. And we are a more industrial company than the original. Kinko's was very entrepreneurial. It actually got started on a college campus. They did a great job. So now the digital copy and print has moved to much more of a network situation rather than coming in with something you want. You do it from your desktop and then we print it out. So it was a very logical business. Now, it's had its share of issues with the meltdown because it's so tied into mortgages and architecture and to engineering. But the original premise of the synergies has been more than borne out.
Ryssdal: If you had it to do again, would you?
Smith: Sure. Absolutely! Yeah, no question.
Ryssdal: Obviously, this is a global company, FedEx. You're in hundreds of countries all over the world. Is there one you think either poses the most problems or the most opportunities for you?
Smith: Well you have to put China close to the top of the list; I mean there are 300 million people who are very adept at manufacturing and very entrepreneurial. India is a very important market too but it's more white collar software rather than industrial production. Europe as a whole, we have a good business in Europe but we don't have as broad a product line as we have in the United States or even in China now because we introduced, almost two years ago now, a domestic China service which has grown by leaps and bounds. So it's hard not to identify those three things: the industrialization of China, the emergence of India, and the melding together of the EU as really one market rather than a collection of independent economies. Brazil is very important as well.
Ryssdal: Given all those things then, what does FedEx look like as a global transportation company in say, I don't know, ten years?
Smith: Well I think that you've got to look at the basic numbers. There are 300 folks in the United States, 2020 there are going to be 7 billion people on the planet so clearly you want to be buying and selling to and from the other 6.7 billion if you want to have a significant business. That's why maintaining the United States leadership on trade is so important. It's been why we've become so much wealthier since World War II and the main. So FedEx will become a much more global company. Today, the global part of our business is 25-30 percent. Fast forward ten or twenty years I'd be surprised if it's not at least half, or the majority. It certainly will be as we have demonstrated over these many years, a much more technologically based company. I mean, the power that we are putting in the hands of our pick-up and delivery people, in our airplanes and our trucks and our sortation equipment; it's fantastic compared to what was possible just a few years ago. And I suspect that if we manage the company well, it will be a significantly larger company. Because the forces that are driving it, absent some big political mistake like a Smoot-Hawley or what have you will continue to create demand for the services we provide.
Ryssdal: Who's going to be running that FedEx of say 2025? Is it going to be you? You've been around for awhile.
Smith: No it certainly won't be me. Look, we have a great team at FedEx. I'm sitting here talking to you representing the company but I can assure you I don't shout orders from the bridge. We manage in a very team-oriented manner. We have a strategic management committee that has seven other senior officers. Their opinion and input is as important as mine. We have two people that are very expert that support the SMC as we call it. Now occasionally I'll have to call a jump ball if you will, but we have a great team, perhaps because of my military experience, we have a minimum of two qualified successors for every executive job. We have several candidates that I review with the board of directors, and they make their own assessment and if I were incapacitated, we wouldn't miss a beat I can assure you. It's not a cult of personality. It's a professionally managed and highly choreographed industrial enterprise that's really startling in its scope: you know 700 planes, 80,000 trucks, 5000 locations. It's very programmatic so whichever individual that's selected to follow me, whether it's tomorrow or two years from now and it certainly will be before 2025 will be able to run the company.
Ryssdal: What were your ambitions for this company in 1971? Did you imagine this?
Smith: No of course not. I knew it was going to be an important thing because of the reasons we discussed but it certainly has become a major enterprise and as we just discussed, I suspect it's going to become even bigger due to these macro-economic factors.
Ryssdal: Let me get back to that for a second and the environment in Washington and New York now. I'd like to touch on CEO pay which is obviously a very sensitive topic in Wall Street and Washington . . .
Smith: It certainly is to my wife . . .
Ryssdal: Well let's talk about that. You took a $300,000 pay cut. Why did you do that?
Smith: Well I wish, as I said I wish you hadn't brought that up. All kidding aside, the most important element in the FedEx system are the people that are out there, the front line folks that are delivering what we call our "purple promise" and the front line management equally so. So we've always looked at it that the top management of the organizations' job is to try to make their job easy . . . give them the best tools, give them the best service, give them the best methodology. So when the economy got bad and traffic, particularly in a couple of our operating companies got tougher and we had to cut expenses, we felt it was imperative that we cut from the top, the management first before we did other things. I think it was the right thing to do but much more importantly, because of the nature of the business, it was the best business decision as well.
Ryssdal: But on the topic of larger pay cuts in the banking industry, given that the government has now such a vested interest in that industry, do you think that the government ought to be dictating pay terms to some of these banks?
Smith: Well I think the government has a right to do whatever it wants. If it puts money into your business then you become a political entity to some degree. I think it would be unwise to do something that is draconian in that regard. There was a great deal of controversy a couple of weeks ago about the Wall Street bonuses. The reality of it is that we are down 44 percent year over year. The average bonus was like a $110,000, it wasn't like it was $110 million. They went to thousands of investment bankers and bankers, middle management people, because the compensation structure on Wall Street and in the financial sector is much more heavily bonus-oriented than it is in the industrial economy. Now we tried to use variable compensation and at the managerial level it might be 15 - 20 percent. At my level it is 90 percent and that's as it should be. If the economy does well then we all ought to do well and as I've said in the last two years, we've had to pull in our horns so we haven't done well. In the financial area though, because of the items we mentioned before, where you're talking about managing billions of dollars in these hedge funds and in these investment banks and so forth. The problem is the pay at the very top is a tiny percentage of the amount of dollars going through the enterprise. But in human terms, they're staggering. A couple of years ago you were talking about people getting a $50 million pay cut. Some of the hedge fund managers are making a billion dollars a year. It's something that has created, quite predictably, a political backlash. But markets react and as stock options have been moved to the P and L, I don't believe that's good accounting but anyway it happened, compensation committees and Board's of Directors have reacted. And there was a very good story I think yesterday in the news about a financial house where there were very large bonuses being discussed and the head of the compensation committee said, "That's ridiculous, it's not going to happen!" So I think the people that run companies get it. And the Boards of Directors get it. And at the end of the day, we have 200 some odd years of history of the joint stock company that invests in the Board of Directors, the legal requirement to oversee the enterprise. And I think that when you go down the street of having either the government or the shareholders through some sort of additional methodology try to influence how the corporation is run is not a good idea! And corporations have moved to make Boards much more accountable.
Ryssdal: You understand though in today's environment, given the trouble we're in, not too many people have faith in corporate governance and Boards of Directors anymore.
Smith: Well, but I again go back to an essential point, I think this is part of the Washington/Wall Street access problem. Is people talk about business or corporations. The reality is there is the financial sector and there is the industrial sector. And there are clearly industrial companies that people might not agree with the pay practices or think an executive got more or want to second guess the Board for what they did to recruit an executive, and then they leave and then they have a big pay day and they think 'well how could they have done that?' But the reality is if you make a home run by making a great strategic decision, again the numbers in percentage terms are very small for the enterprise but in human terms, they're very shocking. So I think you have to divide the industrial sector and the financial sector, and the number of outrageous pay days, if you will in the industrial sector are surprisingly small. And that I think is part of the problem we have is we lump these two very different sectors together.
Ryssdal: The company just announced about 900 layoffs in its FedEx Freight division. I wonder as the company makes that decision whether you worry that you contribute a little bit to the downward spiral of the economy.
Smith: Well I mentioned just a few minutes ago that the two companies that are probably felt the brunt of the slow down the most are FedEx Office, which is tied into home building, and mortgages in the financial sector and FedEx Freight, which is automotive, construction, durable goods and so forth. So we, understanding as I commented when you brought up the pay cuts, the management pay cuts, we tried to take every step that we could do prior to reducing head counts in our operating units. But the reality is that people in the operating units are driven by the requirements of the marketplace. I mean, there's nothing we can do with folks in the freight division if the freight's not there. I mean, we can't have them just sitting home -- for a time you can do it but you just can't over time because business has to be profitable or it just doesn't exist tomorrow. Now in that particular case the reality is, while it was very painful for us to make that decision and much more painful for our teammates -- the reality is they were done over hundreds of locations. So it's one or two people here, and one or two people there. So we've tried to be very prudent at both Office and Freight, where they've been the hardest hit, in trying to fit the work and being innovative in that regard. So clearly the secret is to get the economy going again and I've told you what we think is the most important thing that could be done to get the industrial economy going again.
Ryssdal: Remind me.
Smith: Well, I think expensing of capital would change the dynamics of risk as perceived by the Boards and managements of industrial companies rather than having to write them off over several years; it's virtually costless to the government. I think we should reduce our reliance on imported petroleum and produce more energy here: electrify the short-haul transportation system. And third, we've got to keep in mind that open markets are what created this enormous prosperity in this country since the end of World War II. Trade gives us about one in five, some people say as much as one in four of our jobs. They are much higher paying and jobs just related to the domestic sector. So those are the three things that I would definitely prescribe as anecdotes to the current malaise.
Ryssdal: Fred Smith is the founder, he's the president and the CEO as well, of FedEx. Mr. Smith, thanks a lot for your time.
Smith: I enjoyed it. Thank you as well for having me.