The Legend of Dan & Gus

[Music] This is the legend of Dan and Gus.  Two brothers, [making] their parents proud of them by going out into the world and making  good. And they have every chance of doing it, too, because they live in this  land of freedom and opportunity. One of the many things that make our country  great is the fact that every one of us has the opportunity to be a king or a queen, [to] get  all the wonderful things he or she wants out of life. But this fabulous opportunity also  carries with it certain responsibilities. To be entitled to enjoy the more abundant  life, we must also be willing to spend part of the time as subjects supplying the needed  goods or services to fellow kings and queens. And the value of these goods and services [is]  governed by the ancient law of supply and demand. This is our land-the land where Dan  and Gus live-the land in which they are going to make good and seek fame and fortune. Well, boys, mother and I have done everything  we could for you. Taught you right from wrong and given you a good education. So,  good luck and God bless you both. As the boys start out, each in his own way  has all the confidence in the world [in] his ability to make good and perhaps even outshine  his brother. So when they arrive in the city, they look around for a need for the goods or  the services that fit their respective talent. Well, it isn't long before the two young men  make their choices. Dan decides to seek fame and fortune by trying to fill the need for  doorknobs. He's going into the manufacturing business. He has a flair for that. Gus decides to  seek fame and fortune by trying to fill the need for natural gas with which to supply heat and  fuel for the town's homes and factories. He's going into the public service business, for  that's the kind of job he has always wanted. Because there's quite a difference  between the two jobs they've chosen, let's just follow along and see what  some of those basic differences are. Before he opens his factory, Dan, of course, must first invent a practical doorknob.  This takes much time, effort, research, and a lot of other things, including salaries  for people skilled in designing and engineering. Gus also has the problem of development. He must  search out-must explore for-natural sources of gas. This takes trained geologists and  geophysicists who know how and where to look for possible reservoirs of gas-  [And to look for] it and transport it takes time, plus a lot of scientific tools, special  equipment, experienced people, and much money. [Next], to raise more money with which to finance  their respective projects, both Dan and Gus have the problem of borrowing money from the bank  and also the problem of selling stock in their companies. So, they each talk to the various  people in the town and compete with each other in selling the town's people on the idea of  investing their savings in the new companies. Eventually, enough people are convinced that  Dan's doorknobs and Gus's gas company will prove to be sound and profitable  investments in which to risk their money. So, the financial problem  is solved-but only for the moment. Dan is now ready to go to work, and what's more, he has obtained a permit to  build a doorknob factory. Gus is all set to go into operation. That is, almost-for he must take another  and quite different step, because his gas company will be classed as  a public service. Gus needs a franchise from the government. So Gus calls on the government  representatives and applies for the franchise. Naturally, the government representatives must be very careful when it comes  to granting a franchise. Detailed examinations and many long discussions  are called for-to be sure that there really is a market or a need for natural gas, that the supply  is adequate, and that Gus can finance the project. Finally, the franchise is granted. This franchise  gives Gus exclusive rights to supply natural gas to the homes and factories of the town. In  other words, no other company can sell that particular kind of fuel in that particular town.  The privilege belongs to Gus-and to Gus alone. The reason for that is if two or more  companies invested in such costly facilities, this duplication would result in  higher rate costs per customer. That's the reason for an exclusive franchise. However, the franchise [of] this  gas company must always be ready, willing, [and able] to [serve] all the town's  people who want to buy it and can pay for it. But Gus says, “Hey, wait a minute.  Suppose the demand for gas goes up unexpectedly-no matter how willing I am.  Suppose I can't get the supplies I need in order to be ready and able. It takes  time to expand a gas plant. What then?” “Regardless, you  must make every effort to be ready and able to give service-to all. [Price will be]  regulated by the government.” [They] explain to Gus that "price regulations  will take the place of competition." “Competition? I'll still have  competition, but no competition from gas.” “You will just compete against other kinds  of fuel. And as for the selling price, we will appoint a commission to set up  fair rates. The rates will be based on operating costs. In other words: cost of  production, transmission, distribution, and other operating expenses, including  taxes; and an amount to return gradually the money put into the business-plus what we  consider a fair return on the money invested. Of course, we can't guarantee you'll make all  expenses plus a profit. That's just [a] chance you'll have to take. We'll regulate  only how much you make, not how little.” “But how quickly can we get back [the  money] we put into the business?” “Not for a long time.” “What? How come?” “You're [going to have many] years. Therefore, in fairness  to present as well as future customers, money put into the business will be  paid back only a little at a time. Yep-paid back over the many years  your plant will be in operation. Still want the franchise,  Gus? Willing to risk it?” “Okay, I'll risk it.” In the meantime, Dan's doorknob factory has gone into production. Dan has worked hard  to introduce and sell his product, and now sales are good. Dan has gradually built  up a great demand for doorknobs. As a result, Dan has been able to set his own price. So, it  isn't too long before he can make substantial payments on his loan from the bank and at the  same time pay dividends to his stockholders. Of course, Gus has also worked long and hard to  build up a demand for the use of natural gas. Now people are buying more and more  of it-to be used as fuel in the homes, and for fuel in the factories, and for  many other practical uses in the town. However, in spite of the steadily increasing  use of gas under his regulated rates, Gus can pay back only a small portion  of his bank debt-because the money put into the business is returned  only over a period of many years. Also, his stockholders receive only a  small return on their investment. Why? Because, as with all [public] service companies, the production plants and other equipment [are]  long-range investments. They are tremendously expensive. It may take several years before  they even begin to pay for themselves. Because of the expensive original equipment, money in  this company just doesn't turn over as fast. Well, time goes on. The demand for doorknobs  and the demand for natural gas both continue to grow. Soon, both plants are operating at full  capacity and the demand is still increasing. In fact, right now, the demand for doorknobs is  exceeding the supply. Result: there is a shortage of doorknobs. And because of the ancient law of  supply and demand, buyers begin [bidding] against each other. (auctioneer gibberish)  Naturally, the price of doorknobs goes up, and so does the value of doorknob company stock.  There's a good profit in doorknobs these days. But what about the price of natural  gas? The price is exactly the same as it was at the beginning. You see, gas  rates are regulated by the government. The law of supply and demand has no effect  here. Remember, it says so in the franchise. Nevertheless, the demand for gas keeps up. But then, as the years roll on, the economic cycle  changes. There is a downward trend in business. “Buy a doorknob. Please-bargain price. Won't  you buy a doorknob? Two for the price of one.” Yes, with a downward trend in business,  doorknob sales are way off. The price is down, and of course so are the  stockholders’ profits. In fact, right now they are getting no return at all  on the money they put into the business. As Dan looks out the window toward Gus's gas  plant, he begins to envy his brother because their situations are so different. The demand for  gas is also down, to be sure-but not anywhere near the point to which the demand for doorknobs has  dropped. That's because by now the town's people consider this gas-which gives them fuel for heat  and for cooking-a necessity to their way of life. They sacrifice in other directions but  continue to buy all the gas they need. Consequently, the gas company stockholders  still receive a steady return on the money they put into the company, and Gus can  still make his regular payments on his loan from the bank. Gus's regular employees  are still kept down on their steady jobs. “Yes,” says Dan. “And in times like  these, brother Gus with his gas company is certainly one to be envied. Looks as  if he's on his way to fame and fortune.” However, about this time, the government  representatives decide to review the gas company rates. The government men work with Gus and his  staff and find that the conscientious efforts of Gus's employees have stepped up the gas company's  operating efficiency. So Gus can lower the rates. “Hey, that's not fair. How about  letting us make up for the times when our return was less than the amount allowed?” “That's all history. Today, lower the rates.” Now it's Gus's turn to envy Dan  with his doorknob factory. Maybe Dan isn't so badly off after all.  There are lots of things he is free to do when times are tough. He can cut  back production and keep costs down-or fill up his warehouse and wait for better times.  Or export doorknobs all over the place-or even try making a different style of doorknob, or lightning  rods, or mouse traps, or almost anything. With Gus, of course, again, it's different. He  can't do any of these things even if he wanted to. He hasn't Dan's freedom of action  because in accepting his franchise, he agreed to be always ready, willing, and  able to supply gas. And what's more, Gus's gas must be produced and delivered on the split  second-ready when the customer wants it. So Gus's faithful gasmen are always on call, 24 hours a  day, every day and night of the year, regardless. No, Gus and his public service company must  keep right on serving-and in the same business: gas. That's the way it is with a public  service company. It has its advantages and disadvantages. But right now, Gus's dream  of vast achievement seems very remote. Once again, time passes, and once again  the economic cycle swings upward. And with it comes an increased demand for doorknobs  and for gas. To meet this increased demand, both Dan and Gus are faced with a problem  of expanding their facilities. Of course, Dan has some leeway-but Gus  must do it. And right away. Dan, to pay for this expansion, can use  the money that-as a good businessman-he has held in reserve for that very  purpose: money taken out of profit. However, before the gas company can  expand, Gus not only has to borrow money on a mortgage from the banks, but more  money from insurance companies, churches, colleges, and anywhere else he can sell  public service company bonds. And he must also raise more money from the stockholders-the  butcher, the baker, and the candlestick maker. Why? Because the government allows him only a  profit that it considers a fair return. Naturally, most of this must be paid in dividends.  Thus, there is little left for expansion. That's just one more difference  between a public service company and-well-a company like Dan's doorknob factory. But the job must be done. So Gus  raises the necessary funds and the gas company is expanded to meet the demand. But now competition arrives in a big way.  For Dan, the competition is in the form of the little wonder doorknob-manufacturers of  a new kind of doorknob. Competition for Gus comes with a greater supply of a different  kind of fuel. And here again, the price of this different fuel is not subjected to government  regulation. They don't have to have a franchise. At first, the men resent this competition.  Then they remember that here in America, competition is a good thing. Competition ensures a supply of better goods and services at  less and less cost to the customers. Well, in spite of greater competition, business continues to be good. The demand  for doorknobs and for gas keeps climbing. Gus reads that the wells in the great  Southwest are producing more natural gas than the folks in that area can use. So,  to augment the supply from his own wells-and to help meet the ever-growing demand-he  arranges to buy additional natural gas. This gas is transported from the  Southwest through underground pipelines. Later on, Gus's chief bookkeeper points  out that the rising costs of manpower, materials, and everything else make  it necessary for Gus to appeal to the government for a raise in rates. So  he presents his case to the government. The granting of permission to raise the  rates is a long and involved process. For some reason or other, it takes much longer to raise rates than to lower them-and  in all fairness, that should not be. Permission to raise rates requires  time-consuming examinations, plus many special hearings  over periods of many months. “Still at it? What takes so long?” In fact, it takes so long that often  when permission to raise the rates is finally granted, economic conditions have again  changed-and the gas rates are still too low. The town's building boom means that a tremendous  number of gas-consuming appliances are being installed, and this in turn means that  the demand for gas is going up and up. So once again it means Gus must expand  his facilities-and he must again raise more and more money. This time, however,  the money is harder to get-much harder. Stockholders point out that in spite of greater  overall company earnings, the dividends-or profits per share-have not increased in proportion. “We  want more dividends. We want more interest.” All investors say that maybe they should consider  investing in a business in which the price is not regulated by the government-a business that's  different from a public service company. So, as anyone can see, Gus has  another selling job on his hands. Now, with Dan, it's different.  Only competition and his own business judgment-not regulation-can  force him to expand. So, right now, his chief concern is in what his competitors  [are doing]. He'll base his decision on that. But Gus, according to the conditions of his  franchise, must make every effort [to] be ready, willing, and able to sell gas to  all who demand it. So regardless, he must expand-and that isn't  always an easy thing to do. Apart from the fact that it is often difficult  to raise the additional capital for expansion, material shortages may add to the problem of  obtaining tools, machines, and building equipment. For instance, not only do the huge and expensive  compressor stations take months and months to build, but manufacturers who make them may  also be faced with the same material shortages. And as far as new pipelines are  concerned-pipelines to transport additional natural gas from the huge gas  reservoirs of the Southwest-sometimes there just isn't enough steel pipe available. The  distance is too great. That's all there is. “There ain't no more pipe.” Yes, Gus has a problem. As always, he's  conscious of his responsibilities to his investors, his responsibilities to his customers, his responsibilities to his employees,  and his responsibility to the community. To add to the problem, the demand for  natural gas as a heating fuel grows constantly. Natural gas is usually cheaper and  more convenient than other fuels. Consequently, it is wanted more than any other.  It's just as simple as that. So Gus must do everything possible to try  to keep the demand from getting ahead of the supply. The geologists and his public  service company must be constantly on the lookout for new sources of supply. They must explore  and re-explore in old areas as well as new. Gus must risk millions and millions of dollars  drilling wells in every conceivable spot where natural reservoirs of gas are even likely  to be found. Pipelines must be constructed. Hundreds of miles of tough steel pipelines  costing more millions of dollars must be laid. A public service company must make every  effort always to be ready, willing, and able to meet the demand for its product-24  hours a day and 365 days and nights a year. The drilling of a new gas well is not  only a costly gamble, but an exciting one, too. The well is drilled deeper and  deeper into the heart of the earth. The drillers and the geologists  check samples of the cuttings every few hours. Sometimes the evidence seems  encouraging and sometimes very discouraging. The pipeliners, too, have their problems.  Laying pipe can be a plenty tough job. Back at the well site, something is happening. The last sample showed signs indicating  the approach to a pool of natural gas. Now there's an air of tenseness and inner  excitement in the heart of every man on the job. You can see it in their  eyes. Feel it in the atmosphere. Then suddenly-there she is. “We hit it. Gas. Natural gas.” And the men silently thank their lucky stars  that this well didn't turn out to be a dry hole. the search for new supplies  is endless. As long as the demand is there, Gus must make every  effort-take every risk-to meet it. And that, in a nutshell, is the  greatest difference between the obligations of a public service company like the one headed by Gus and a nonregulated  enterprise like Dan's doorknob company. Gus, regardless of problems like  material shortages, gas shortages, current economic conditions, rate regulations,  special taxes, abnormal weather, abnormal demands, or a thousand other problems that come up, must  constantly do his best to serve his community. Dan and Gus are much older now-older and more  experienced, too. As they go home for their annual holiday visit with their parents, they  no longer have their boyhood dreams of vast achievement and world acclaim, but they've  won something more important: the respect and admiration of their fellow citizens. So  they're not disappointed in their accomplishments because each has made good in the job of his  choice. Each has served in his own way. Each has contributed to the higher living standards  of the kings and the queens in the community. And the town itself is a bigger, better, more prosperous and enjoyable place to  live because Dan and Gus came there. And so this story comes to a close, but we all know that the legend of  Dan and Gus is always to be continued. Well, that's the story. They certainly  had their ups and downs, didn't they? Of course, this business of running  a business nowadays is a lot more complicated than appears in this simple  story. But basically-- well take me, for example. In my business, we can make a lot  of money quickly if our products are right, and we can close up shop and sit it out if  times get bad. We've got that choice-not Gus. He's in business to stay. He's got to go  on selling gas so long as the people demand it-in good times or bad. Gus's earnings aren't  spectacular, but they're steady so long as he gets a fair shake from the rate regulators.  And I guess that makes for steadier jobs and steadier returns for the investors. At  least that's the way it appears to me. Of course, this legend raises a lot of other  questions in my mind-maybe in yours, too.