Category: Business and Society

Blog author: mvandermaas
posted by on Thursday, November 3, 2005

Aaah, the magical soothing balm that is government regulation!

The delightfully titled Now Batting for Pedro Borbon blog (“Manny Mota…Mota…Mota”) reveals the (predictable) results of governmental efforts to “increase transparency” in the business world:

So, let’s review. The law that was supposed to ensure greater transparency and make the stock market safe for all of us, especially the little guy, is driving companies to purge the little guy, become less transparent, and shun our world-class public capital markets.

Score another beaut for the Great Sausage Factory!

“We’re from the government, and we’re here to help you,” indeed…

Regardless, it seems to me that this is yet another opportunity to reflect on the importance of maintaining ethical business practices in both large and small corporations. As you recall, Sarbanes-Oxley was the congressional response to the various Enron-Worldcom type business accounting scandals in the late 90′s. Those scandals – a result of a distinct lack of ethical practices – resulted in a lot of people losing a lot of money, public distrust of corporations, and a resulting governmental response to the public outcry. The final links in this chain of events include massive new costs for businesses in order to comply with the new regulations, and now the phenomenon noted above. In other words, everyone loses. Returning to and reinforcing core ethical principles, however, creates a situation in which everyone can win.

Blog author: jspalink
posted by on Thursday, October 27, 2005

So often we are bombarded with news of businesses accusing others of unfair trade practices, intentional competition smashing, monopolization, etc. Every once in a while, its good to hear about the good business that goes on, the appreciation that one company has for another, and a customer oriented view of production. In that spirit, I offer up two companies: Adobe (the creators of the PDF and Photoshop) and Apple. Apple’s recent foray into the image-editing world with the release of Aperture has many people intrigued about the possibilities of Apple trying to take marketshare from Adobe. John Nack, the program manager for Photoshop at Adobe has this to say from the Adobe Blog:

“And you know, to the degree that Aperture stirs things up, I’m excited. [Photoshop] CS2 wouldn’t be all it is today without the apps I mentioned keeping us on our toes, and the more tools offer solutions for photographers, the better off customers will be. So in the spirit of the Apple of yore, I say Welcome Apple. Seriously.”

Nack acknowledges that Aperture is a useful and easy application to use, and is thankful for it. Nack understands that in order to best serve the clients of Adobe, competition is neccessary. Competition is what drives a company to improve a product. Competition drives innovation. Competition drives the market.

Blog author: jballor
posted by on Wednesday, October 26, 2005

A lively discussion is going on over at the evangelical outpost on the idea of the “sin tax,” spurred on by Rev. Sirico’s paper on that subject.

A key point to remember: once the state gets to decide which activities are immoral (but not illegal) and has a vested financial interest in them, you’ll find more and more activities becoming “sins.” Exhibit A: eating fast food.

For more on this subject, see “The Sin Tax Craze: Who’s Next?” by Rev. Sirico.

Blog author: jspalink
posted by on Wednesday, October 19, 2005

Dr. Jennifer Morse, a senior fellow in economics for the Acton Institute, argues in this week’s Acton commentary that the key road-block to successful economic development in impoverished nations is the lack of good “moral qualities, like the even-handed enforcement of law, and the transparency of government.” Dr. Morse cites a report from the World Bank Institute detailing the extensive bribery that occurs in developing countries, a practice that is considered “normal” by just about everyone. While this may seem to be a small thing (a few bucks here and there), the economic impact on the poor is very significant.

Another impact of the poor moral quality displayed by the governments of developing nations is the over regulation of business. Over regulation of business, argues Morse, discourages would-be business owners from pursuing their dreams and breaks the entrepreneurial spirit. According to the Harvard Institute of Economic Research, some nations may take up to 112 days to comply with all of the legal requirements before opening a business. In Canada, you can legally open a business in 2 days. Faced with four months of bribes, permits, and fees, many shrink away from even considering starting up a new business. Opening up a business outside of the law (about 30 percent of Mexico’s economy) requires even more bribes, and can be shut down at any time. The Harvard Institute report states in its abstract that “Countries with heavier regulation of entry have higher corruption and larger unofficial economies.”

Morse proposes that the solutions to these problems are simply holding these nations accountable, encouraging transparency, and reducing semi-legal corruption.

Without a legal system that protects those who take bribes, those who produce jobs are at a serious disadvantage. Reforming the legal system in underdeveloped countries is a necessary part of any strategy for economic advancement.

Put another way, sin is not cost-effective.

Read her full commentary here.

Also see Transparency International’s just-released 2005 Corruption Perceptions Index (CPI). More than two-thirds of the 159 nations surveyed scored less than 5 out of a clean score of 10, indicating serious levels of corruption in a majority of the countries surveyed.

The 2005 Index bears witness to the double burden of poverty and corruption borne by the world’s least developed countries, TI said.

“Corruption is a major cause of poverty as well as a barrier to overcoming it,” said Transparency International Chairman Peter Eigen. “The two scourges feed off each other, locking their populations in a cycle of misery. Corruption must be vigorously addressed if aid is to make a real difference in freeing people from poverty.”

Blog author: jballor
posted by on Monday, October 17, 2005

On the heels of a proposed city-wide tax on quickservice restaurants in Detroit, a state bill has been introduced in the Michigan House to implement a 2% tax on fast-food establishments. The “Fast-Food Restaurant and Food Service Tax Act” (HB 4804) would apply only to cities with a population over 750,000…and to the best of my knowledge the city of Detroit is the only one in the state that meets that criterion.

A key provision of the bill in its current form: “The treasurer shall remit, upon appropriation, all proceeds in the fund to the eligible city from which the proceeds were collected.” Given the negative reaction to Detroit Mayor Kwame Kilpatrick’s proposed fast-food tax of 2%, this House Bill seems to be a way to circumvent the city’s own policy-making mechanisms. If the people of Detroit decide for themselves they don’t want such a tax, it seems unjust for the state to impose it upon them. The House Fiscal Agency does note, “The city council would also have to approve, by resolution, the imposition of the tax,” but resorting to a state bill seems to be a back-door way of achieving the tax hike.

In any case, it looks like one way or another Mayor Kilpatrick is committed to getting his tax increase. And if the city ever passed its own measure in addition to the state bill, fast-food restaurants in Detroit would be subject to an additional 4%. These sniggling little tax increases can add up quickly.

My take on the fast-food tax is available here.

Blog author: mvandermaas
posted by on Friday, October 14, 2005

Economic reality is finally catching up with the big American automakers and their suppliers, as noted by Thomas Bray in Wednesday’s Detroit News:

Around Detroit, the bankruptcy of giant auto parts maker Delphi Corp. is seen as a precursor of what’s in store for the entire American auto industry. More fundamentally, it confirms the bankruptcy of the industrial welfare state.

The powers of denial ensure it may be some time before our politicians, unions and even corporate leaders catch up to that fact. Exhibit A was the knee-jerk rant by Gov. Jennifer Granholm, who pronounced herself “angry” at Delphi. She then went on to blame the usual catalog of left-wing villains: “globalization,” “outsourcing,” “upper management,” “lack of support from Washington for the industries that made our country great” and “so-called free trade.”

Oh yes, and not enough government spending on health care.

I must pause here to note that Governor Granholm seems to be of two minds on the issue of globalization. Sure, international trade and investment are great when German and Japanese corporations partner to open a new engine plant in your state, or when you go on a trade mission to Japan in order to urge Japanese companies to outsource their jobs to… (ahem) …”invest in Michigan.” But when Delphi feels the heat of international competition? Well, that’s another story.

But I’ve gotten off-topic. Returning to Bray’s article, we see that all of the reasons listed by Granholm for Delphi’s struggles lose their punch when faced with cold, hard reality:

But no amount of foot-stamping is likely to change facts. Among them: Delphi’s 33,000 unionized workers in the United States, like those of General Motors, Ford and Chrysler, still earn far above the national average in wages and benefits long after it was clear that this was no longer sustainable.

Touché.

Bray closes with an observation that we would do well to take to heart:

Globalization isn’t the enemy. It’s simply the messenger, exposing the rotten structure of the industrial welfare state for what it is, a lumbering dinosaur that can’t see 20 feet ahead of itself. Like the broader welfare state, to which it is so closely tied through labor, tax and other laws, the industrial welfare state of the 20th century is badly overdue for a rethinking.

Related: Suspension of Davis-Bacon Act in hurricaine-ravaged areas leads to higher wages for workers.

A man’s home is his castle, unless of course government officials need his property for a new strip mall or a hotel. Since June, when the U.S. Supreme Court dramatically expanded government’s eminent domain powers, some three dozen states have formulated measures to protect property owners from the Kelo v. New London ruling. Sam Gregg looks at the potential Kelo has to “violate basic norms of justice concerning property.”

Read the full commentary here.

Blog author: jballor
posted by on Friday, October 7, 2005

In between dire warnings from the World Alliance of Reformed Churches (WARC) about the evil neo-liberal economic order and calls for more money from its member denominations, this gem arrived today via Ecumenical News International:

Church bank says its loans are at forefront of anti-poverty fight

Utrecht (ENI). Thirty years after its launch, a church-backed international development bank says it has become a world leader in providing resources for small loans for poor people to set up in business. The Netherlands-based Oikocredit agency announced it had approved record funding in the first nine months of the year for what is called the microfinance sector, which among other things offers small microcredit loans to cash-strapped borrowers.

According to its website, “Oikocredit believes that poor people can build themselves a better life, if only given the chance, if only given credit.” Beyond the cliches and PC buzzwords, there’s some clear economic thinking going on here.

“Throughout our years of operations, Oikocredit has proven that small poor entrepreneurs, cooperatives and others in developing countries are credit-worthy partners indeed. In fact, the demand for loans offered by Oikocredit steadily increases as the effectiveness of this credit for development is broadly recognised. Thus our loans are directed at groups: cooperatives of small-scale coffee farmers, for instance, who need their own coffee mill for increased income. Or microfinance institutions that split up our loans into thousands of small loans to very poor people.”

It’s not perfect, but its a far sight better than many other half-brained church schemes to “end poverty now.”

Blog author: jballor
posted by on Friday, October 7, 2005

This interview with Charles Sandmel, a veteran of the municipal bond market, gives us some insights into current trends in the ethical investing movement. Some key points:

  • The leading market sectors over the last few years are in areas that “most of them [ethical investors] avoid, such as energy.”

  • Ethical investors don’t buy “Big Oil because of the pollution problems.”
  • Examples of ethical investments: wind turbine farms and facilities.
  • Examples of unethical investments: government bonds for nations with standing armies.
  • Sandmel likes bond funds for ethical investors because “going to the companies that are borrowing gives you a much greater chance to engage them on your social issues than simply buying their stock.”

Mark Cuban, billionaire owner of the Dallas Mavericks, opines on his blog about the difference between “investing” and “speculating.” He says, “The difference between the two is very simple. If you spend the money and the only way you can earn a return on that money is by selling whatever it is you have purchased. You are speculating.”

With respect to buying bonds, Cuban writes:

If you give your money to a mutual fund or hedge fund that puts money into public stocks and bonds, that’s super speculation.

Why Super Speculation? Because there is a 99 pct certainty that you are 3rd in line to get paid with whatever earnings the fund generates with your money.

First the fund itself has to get paid. They take money off the top.

Then the person who makes the investment decision has to be concerned about keeping their job. You see if the fund doesn’t outperform its peers or comp indexes, then the person who is responsible for the fund is out of a job.

Do you think that person cares more about putting a roof over his family’s head or you? Which means when push comes to shove, unless there are strict limitations, that fund manager is going to take the chances necessary to outperform his comps. And I can tell you that its par for the course to “go down swinging” than it is to take a called 3rd strike. Meaning, they risk your capital in hopes of keeping their jobs if that’s the only way to keep their jobs.

For Cuban, the “the problem is when the balance between the two shifts from heavy in investing to heavy in speculation.” This is because an emphasis on the former, “when money goes to create commerce, that’s capitalism at its best. Money going to smart people to do smart things. If it has good results, everyone makes money. The economy grows. Expectations are based on the prosperity of the company, typically over a longer term. New ideas create new wealth. It’s not a zero sum game. It can be an everyone wins game.”

But when there’s an emphasis on the latter, and while “speculation isn’t a bad thing. It can serve many purposes,” even so “it primarily just results in redistribution of wealth. If I speculate better than you, even if you are investing in apples and me in oranges, then its just a contest to see who does a better job. The winner gets the cash. Across all the different levels of speculation, the trillions of dollars, its a zero sum game.”

Blog author: jballor
posted by on Wednesday, October 5, 2005

Check out this exchange, involving Tony Blankley from The Washington Times, Pat Buchanan of MSNBC, and Eleanor Clift of Newseek, from last week’s McLaughlin Group about President Bush’s call for people to conserve gasoline in their daily activities:

MR. BLANKLEY: Let me make a quick point. Free-market prices maintain equilibrium of supply and demand. Let the price go up. People will make individual decisions.

MR. MCLAUGHLIN: Right.

MR. BLANKLEY: And they will cut back. They did when the prices went up. Some did; some didn’t. The idea of hortatory calls for conservation never work.

MR. BUCHANAN: John, they are all buying Eleanor Clift Priuses and they’re not buying my Navigators anymore.

MS. CLIFT: Right. (Laughs.)

MR. BUCHANAN: The market is working. People will not drive when the price goes up –

MR. MCLAUGHLIN: So you agree –

MR. BUCHANAN: — but they’ll put investment and money into oil.