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Saturday, April 23, 2011

Greed in Ceaseless Profit-Seeking: Is Generosity Enough in Terms of Christian Ethics?

In his 2011 Easter sermon, the Archbishop of Canterbury issued an outspoken attack on the greed consuming the world’s civilized nations. Speaking against the rush for oil, power and territory, the Rt. Rev. Rowan Williams argued that the comforts and luxuries that people take for granted can not be sustained forever. He forecast that civilization itself would one day collapse from the over-production and consumption.  

                             The Archbishop of Canterbury (The Telegraph)

Williams laid the root of the excessive acquisitiveness at the doorstep of the fear of death. “Individuals live in anxious and acquisitive ways, seizing what they can to provide a security that is bound to dissolve, because they are going to die. . . . Whether it is the individual grabbing the things of this world in just the repetitive, frustrating sameness that we have seen to be already in fact the mark of an inner deadness, or the greed of societies that assume there will always be enough to meet their desires - enough oil, enough power, enough territory - the same fantasy is at work. We shan’t really die.” Relentless activity in the world of business is our way of forestalling the thought of our own coming non-existence.  It follows that “(w)e as individuals can’t contemplate an end to our acquiring, and we as a culture can’t imagine that this civilization, like all others, will collapse.”  Therefore, we take our comforts and luxuries for granted and ignore the warning signs that they cannot be sustained indefinitely.

In short, the West defines itself in terms of ceaseless activity geared to acquisition without limit—as though a fatted calf stuffing itself for dear life—in order to keep the inevitability of an end at bay. Hence, we identify ourselves by our functions, as in “I am a banker,” rather than by our respective natures, which exist in idleness as much as activity. In fact, it may only be in the silence of a holy night that one can come face to face in the darkness with oneself, unfettered by one’s vocation.

Whereas the Archbishop’s sermon focused on greed inherent in excessive acquisitiveness, the Easter message of the Bishop of Rochester, the Rt. Rev Nazir-Ali, discussed the immorality of the financial markets in terms of financial inequality. As reported in The Telegraph, “The bishop said that high-earners such as City traders and company directors must swap their desire to ‘make a quick buck’ for a commitment to share their wealth. Bishop Nazir-Ali blamed the turmoil in the world’s financial markets on amoral forces and warned that one of the ‘great disparities’ of our age was the gap between rich and poor.” Even though capitalism necessarily makes use of people unequally according to particular efforts, talents, and resources, the greed of the “haves” need not be utilized in ways that exacerbate the inequalities such that the “have nots” are left without the means of sustenance. Writing in a Sunday newspaper, the bishop charged, "The turmoil in the markets is almost certainly the result of such forces.” Indeed, the greed of irrational exuberance pushes the gap to such an extent that volatility can destroy the market from within.

Accordingly, the bishop urged: “Those with power need to ensure that the poor are not disproportionately affected. What is required is a change of heart, of disposition, of attitude. . . . From possessiveness we need to move to gratitude for what we have, from 'cutting corners’ to make a quick buck to that integrity for which business in this country was celebrated, and from mere accumulation of wealth to a generosity of spirit. . . . When that happens, hedge fund managers and directors of companies can indeed go into the kingdom of heaven ahead of the chief priests and elders." This statement is a departure from the rich man getting into the kingdom of God being like a camel getting through the eye of a needle—a view that was dominant in early Christian thought. The bishop’s thesis that generosity can deliver even a rich person harkens back to the salience of the virtues of liberality and magnificence that were dominant in the Christian thought on wealth in the late Renaissance. Such is the distance within the history of Christian thought on wealth in relationship to greed (on this shift, please see my book, Godliness and Greed).

Because generosity requires wealth in the first place, the bishop was assuming that the link between earning wealth and greed is mitigated or even eliminated by charity (the root of which is caritas, which means sublimated human love) of part of one’s wealth. Although involving virtue, this approach is less idealistic than the earlier stance in which even pursuing wealth was assumed to be tantamount to being greedy. In other words, the bishop’s stance is more worldly because it allows for some profit-seeking and wealth-holding (as long as they are accompanied by the virtue of generosity rather than the vice of selfish acquisitiveness sans limit). Even so, the stance is quite idealistic compared with the greed that nearly brought the financial markets to collapse in 2008. The question is perhaps whether generosity amid profit-seeking and wealth-holding is sufficient to restrain the ceaseless productive activity for still more.



Source:
Jonathan Petre, “Archbishop of Canterbury Attacks Western ‘greed’ in Easter sermon,” The Telegraph, April 24, 2011.

On the Merger of Comcast and NBC: A Structural Conflict of Interest

On January 18, 2011, Comcast received government approval to acquire NBC Universal. This followed a lengthy review, which mandated a list of conditions. The most important of them is aimed at preventing the new media conglomerate from thwarting competition in online video. However,even though regulators described their review as the most intense scrutiny ever for a planned media merger, Comcast managers said they believed their company faced few onerous restrictions from the review. “I don’t think any of the conditions are particularly restrictive,” said David L. Cohen, executive vice president of Comcast. This statement ought to give readers some pause.

According to The New York Times, "The combination of Comcast’s cable and Internet systems and NBC Universal’s channels will create a media powerhouse, and it will be the first time a cable company will control a major broadcast network." In abstract terms, process or transport will control content. It is perhaps as though the flying to grandma's for Thanksgiving were itself the point. Less abstractly, it is worth looking at how the privileging of throughput might have an impact on content. It seems at the very least like a case of mistaken priorities.  Even so, what sticks out to me is the conflict of interest that is inherent in the combination. I believe we put too much stock on the ability of regulations to mitigate such conflicts.

The concentration of market power in a combined media company that includes program content with a strong cable-system influence is inherently at odds financially with other routes being able to use the content. In other words, there is an inherent conflict of interest at the root of the combination. Interestingly, it could be argued that NBC content, being private property, could rightly be limited to one pipeline. For example, NBC could have purchased Comcast in order to have its own route. It would be understandable if NBC wanted to limit its content to its own pipeline. Our resistance to this idea is perhaps because we view the major networks as public goods because they are readily available over the airwaves. The latter give the content the veneer of being public goods. Similarly with the free content available on the internet, it is easy to view it as a public good because it is free and available, even though the content has ownership.

This essay, for example, is mine because I am writing it. That is, the essay contains my ideas. So it could be argued that the "over the air" system of television broadcasting had led us to "forget" that the content is private property, which could rightly be limited as to throughput.  Yet it could also be argued that broadcasters must have broadcasting licenses because they are being allowed to use the public airwaves, which are a public good, and there can be obligations associated with this privilege that include open access and safeguarding competition. Essentially, there is is a public good vs. private property tradeoff that should be addressed in analyzing the merger.

The matter of who in the merger is in the driver's seat is also relevant, for it might be in NBC's interest to be broadcast beyond its own cable system, whereas Comcast would benefit most by restricting the availability. Part of the angst over the merger may be due to the restrictiveness inherent in Comcast being in the driver's seat. A policy implication might be that in such mergers the content could be mandated to be in charge. That the people at Comcast view the restrictions as far from onerous may suggest that the company will be able to do what is in its financial interest in spite of the conditions. One might recall the case of subprime mortgage derivatives, which had outstripped the ability of regulators to regulate, much less to understand. To rely on regulations to protect the public interest in the case of very complex securities minimizes the ability of traders to circumvent what must seem to them as quite superficial barriers. The conflict of interest in the present case, which involves throughput restricting access beyond what is in the interest of the public or even the content, can be expected to have a subtle and on-going force that would inevitably out-wiggle the ability of regulators to look out for the public interest. 

The case of a media company that includes political and news content means that market concentration also has implications for free speech, and ultimately for the republic itself. Specifially, the views gaining access in the public air waves could narrow, and those that make it through migh be more likely to support the media company's general political interests. It is, for example, in the interest of corporations that we debate secondary issues, rather than the basics that enable large businesses to exist.  For example, it is notable that after the <i>Citizens United </i>case that allows for unlimited campaign donations, the question of whether a corporation should be considered a legal person was not salient in the media.  Also nearly missing was a discussion of whether wealth constitutes speech. 

As another example, in the debate on financial reform in 2010, whether banks too big to fair should be allowed even to exist was not much debated. Consequently, the resulting law applies "too big to fail" only to firms that have already failed on their own (e.g., structuring their liquidation). According to Jesse Eisinger of Propublica, "Goldman, like all the other major investment and commercial banks, had become too big and intertwined, making the financial system too fragile. . . . Unfortunately, despite a hulking financial reform law, the American financial system still has largely the same structural issues that it had before the crisis." Eisinger laments that neither the U.S. Government nor Wall Street has been particularly interested in going after the underlying structural flaw: over-leveraged banks whose size alone renders them too big to fail. Coincidentally, discussion of this structural flaw and the related very existence of the big banks as big banks was kept largely off the public radar. I wonder if we realize how narrow our public political discourse really is,  why that is so, and what the impact has been on legislation.  In other words, what the public debates may not be an accident. The consolidation of the media sector could facilitate the subterranean influence of corporate America on the American polity and society.

 In short, conflicts of interest are of such force that they cannot be undone by regulators. Therefore, it is better that such conflicts not be permitted to exist in the first place. Pipeline should not be allowed to control content. It isn't even good business because it isn't in the interest of the content.  Hence even from the standpoint of private property, there is reason to be critical of the merger. Secondly, it ought to be recognized that the concentration of media power in a republic is dangerous to that form of government because a narrowing of public discourse does not serve the electorate in making informed decisions in voting.  Compounding the problem, both the conflict of interest and the negative effects on the republic itself are long-term, whereas the regulators and the public have their attention fixed primarily on the short term.

Click to add a question or comment on the conflict of interest in the merger of Comcast and NBC.

Sources:

Tim Arango and Brian Stelter, "Comcast Receives Approval for NBC Universal Merger," The New York Times, January 19, 2011.
Jesse Eisinger, "Goldman Sachs's Navel-Gazing Comes Up Short," The New York Times, January 19, 2011.

Tom Delay and John D. Rockefeller: Self-Delusion Enabled by Religion

On January 10, 2011, former U.S. House Majority Leader Tom Delay (R-TX) was sentenced to three years in prison on charges of money laundering and conspiracy to commit money laundering for using a political action committee to illegally send corporate donations to Texas House candidates in 2002. Prosecutors claim the money helped Republicans take control of the Texas House. That enabled the Republican majority to push through a Delay-engineered congressional redistricting plan that sent more Texas Republicans to Congress in 2004, strengthening DeLay's political power. In the face of this charge, DeLay simply repeated his longstanding claim that he did nothing wrong. "I can't be remorseful for something I don't think I did," DeLay said in a 10-minute speech to the judge. This statement is not unlike those of John D. Rockefeller, when the monopolist of Standard Oil was accused in the late nineteenth century of restraint of trade. 

Ida Tarbell, Rockefeller's chief critic, believed the titan was under a sort of self-delusion. For example, Tarbell, whose father was an oil producer who resisted Rockefeller's grasp, pointed out that the titan's "Christ-like" efforts to "save" drowning refiners included drowning those who refused to come aboard Standard Oil. Did Noah kill any animals who refused to come on the ark? Rockefeller's application of religion to his monopolization is thus suspect in terms of his actions. It is possible that Delay suffered from a similar rationalization or state of denial denial.

Just as Rockefeller, who attended Church more than once a week through his 90s insisted that things are right between him and his God, Delay pointed to his faith in Jesus as in effect rendering the verdict nugatory in terms of what really matters. To be sure, Delay probably did view himself as innocent of criminal conduct. "This criminalization of politics is very dangerous" he charged, "It's dangerous to our system. Just because somebody disagrees with you they got to put you in jail, bankrupt you, destroy your family."  Antithetically, Gary Cobb, the lead prosecutor, averred that Delay had "put his principles, ideals and beliefs above the laws of Texas." Particularly when one's religious beliefs are invoked along with a criminal defense (i.e., that it was politics that was being criminalized), one should be on guard against the possibility of self-delusion. 

Both Rockefeller and Delay had immense power, and their respective views of the non-culpability bore on their use of power. The ends justifying the means allows for a slippery slope. Of course, in Delay's case one could simply look at the money exchanges and compare them to the law. According to The New York Times, "a jury determined that he conspired with two associates to use his Texas-based political action committee to send $190,000 in corporate money to an arm of the Washington-based Republican National Committee. The RNC then sent the same amount to seven Texas House candidates. Under Texas law, corporate money can't go directly to political campaigns." Yet as clear as this sounds, it is surprising how divergent Delay and Cobb are with respect to their interpretations.

If we take the verdict as correct, and rather cut and dry, it might be troubling that Delay not only denied any culpability after the verdict, but went on to invoke his salubrious condition in terms of his religious faith. Such an invocation can easily turn into a justification, with the result being that great wrongs, such as wars, can be done in the name of a religion of love. Does religion itself support or enable its role in hypocrisy, or are there tools such that Rockefeller's pastor could have stood up to him as though a mirror to reflect the pride and duplicity or delusion back upon the titan who even as a teenager dreamed of money?

Source:  http://www.msnbc.msn.com/id/41006570/ns/politics-more_politics/ 

For more on the intersection of Rockefeller's commercial and religious roles and what this may imply regarding the Reformation and Christianity itself with respect to profit-seeking and wealth, please see Godliness and Greed, available at: http://www.amazon.com/Godliness-Greed-Shifting-Christian-Thought/dp/0739139835/ref=sr_1_1?ie=UTF8&s=books&qid=1294957599&sr=8-1

Click to add a question or comment on religion and political or business ethics.

Friday, April 22, 2011

The Obama Administration on Democratic Protesters in the Middle East: Prudent & Measured Calculation instead of Principled Leadership

Despite several days of overwhelming popular grass-roots protest in Egypt, on January 30, 2011, the U.S. Secretary of State, Hillary Clinton, stopped short of urging the Egyptian president, Hosni Mubarak, to resign.  According to The New York Times, she spoke of "a process that must include a government dialogue with the protesters and “free, fair, and credible” elections, scheduled for September." In the face of overwhelming protests going on in Egypt, the top U.S. diplomat was urging a dialogue in January through the following September. Specifically, she declared, “We have been very clear that we want to see a transition to democracy. . . . And we want to see the kind of steps taken to bring that about. We want to see an orderly transition.” 

On February 1, 2011, The New York Times reported that Barak Obama had sent a message to Mubarak urging the Egyptian president not run for reelection the following September. According to officials, it "was not a blunt demand for Mr. Mubarak to step aside now, but firm counsel that he should make way for a reform process that would culminate in free and fair elections in September to elect a new Egyptian leader." According to The New York Times, Obama was engaging in a diplomatic balancing act by "resisting calls for Mr. Mubarak to step down, even [while calling] for an 'orderly transition' to a more politically open Egypt." It was  not clear whether the Obama administration favored Mubarak turning over the reins to a transitional government.

On February 5, 2011, The New York Times reported that U.S. Secretary of State Hillary Clinton "said that Mr. Mubarak’s immediate resignation might complicate, rather than clear, Egypt’s path to democracy, given the requirements of Egypt’s Constitution." Not coincidentally, Israeli officials, who had long viewed Mubarak as a stabilizing influence in a dangerous region, "made clear to the administration that they support evolution rather than revolution in Egypt." Accordingly, U.S. Vice President Joseph Biden urged Vice President Suleiman on February 8th to take specific steps toward democracy.

As it turned out, the American-urged baby steps toward overturning a dictator friendly to the U.S. paled in comparison to events taking place in Egypt. Ironically, the Egyptian military took the moral high ground and effectively pushed Mubarak aside and then even prosecuted his sons for abuse of power. Actions speak louder than words, and in this case even the words coming from the Obama administration were languid and self-compromising. This is ironic, given Barak Obama’s 2008 campaign pledge to enact real change. One would have expected principled leadership rather than status quo from the breath of fresh air in the White House.

So it is perhaps no surprise that on April 22, 2011, when, according to MSNBC, “(s)ome 27 protesters [and perhaps 44 more] were killed when Syrian security forces fired live bullets and tear gas at tens of thousands of people shouting for freedom and democracy,” the American administration did not react by leading an international coalition into Syria to protect the protesters against their own ruler. Fox News was reporting at least 49 killed, and yet, a few days later--as the Sryian government was sending tanks into Dara'a with at least 25 killed--the White House was considering a freeze on assets and a ban on business dealings.

While the administration's spokesman said that the "brutal violence used by the government of Syria against its people is completely deplorable" and "unacceptable," the policies being considered say otherwise, especially given the American response against similar brutality by Qaddafi. The administration was not even out in front on this issue at the U.N. Security Council. According to The Wall Street Journal on April 26th,  "British Foreign Secretary William Hague said Britain was working with other members of the United Nations Security Council 'to send a strong signal to the Syrian authorities that the eyes of the international community are on Syria.'" The Security Council soon dead-locked.  Sen. McCain was quoted as telling Al-Jazeera, "I don't see a military intervention as a solution (in Syria). I just don't see the scenerio, so I don't support such a thing." He went on to say that the world should offer its "moral support" to the protesters. Meanwhile, the U.S. requested that the U.N.'s Human Rights Council look into the matter. This route falls seriously short of the Security Council's "all necessary means" No-Fly-Zone over Libya.

Obama had worked through the U.N. Security Council in order to impose a No-Fly-Zone over Libya. However, even then, it was a month-long diplomatic approach rather than a case of principled leadership protecting the protesters while they were still unarmed. By the time of the Council's resolution, the impact of the Libyan turmoil on oil markets was clear to the administration. In contrast, the Syrian ruler, who had killed 400 protesters by April 26th, was useful to the U.S. strategically with respect to a peace-agreement on Israel so a mere hand-slapping would suffice.

Therefore, in spite of a Syrian protester at the time saying, “Our regime is the most brutal and scary in the Middle East. It has no values and can easily kill its own people,” the Obama administration was considering merely financial sanctions as the American military was sending predator drones into Libya and bombing Qaddafi's compound. Coming after five weeks of protests, the bloody turn by the Sryian ruler in violation of his obligation to protect his citizens was significant enough to end his sovereign right to rule, yet the world had neither the will for principled leadership nor a mechanism for international intervention beyond putting Syria on notice at the U.N. and referring the matter to the International Criminal Court for possible, eventual prosecution.

                            Getty Images (in MSNBC.com article) 

With regard to the American position, the problem involved prioritizing self-interested calculation over principled leadership.  The American society had embraced the bureaucratic age such that leadership had generally been replaced by incremental strategic management--even in the Oval Office. Sadly,  being "professional" had replaced being "principled," such that the highest officials in the U.S. Government privileged the expertise of immediate tactical advantage over the principles that were innately felt by the Egyptian protesters (and presumably by ordinary Americans as well).  The American "leaders" had forgotten that in trying to have it both ways, they would be apt to end up stagnate, confused, and not well respected.  Were the officials bold in putting principle above immediate tactical advantage, I submit that the tenor of the U.S. government would better reflect the values of the American people. In the context of the Egyptian and Syrian protests, as in that of the preceding Iranian protests, people the world over were crying out--yearning--for principled leadership rather than professional bureaucrats in the U.S. Government.

It is in human nature to value and respect leaders who have the courage of conviction to say, "This might piss off some powerful people whom I could otherwise use, but this is what we as Americans believe in." Simply stated, the belief is that a government is no longer legitimate if it loses the consent of a significant number of citizens, especially if they are willing to put everything on the line to "just say no" with their lives. In the face of such courage, the attempt by American officials to "managerialize" leadership into self-maximizing strategy answers the protesters’ principled leadership with "tactic as leadership." Generally speaking, too many managers (in business as well as government) want to use the nomenclature of leadership without actually leading. There is indeed an expertise in principled leadership, and I suspect an instinct for it, which the typical manager (whether in business or government) does not have. I contend that principled leadership is more valuable than technical expertise in the upper echelons of organizations. "Prudent" and "incremental" were not the words that came to my mind in watching the popular protests in Egypt and Syria in 2011. It was far easier for me to agree with the protesters in the Middle East than with my own government. Sometimes principled and courageous action is more human (and humane) than is prudent bureaucratic calculation.

Click to add a question or comment on U.S. foreign policy on Egypt and Syria.

See related essay on lessons learned from the Libyan case.

Sources:

Mark Landler, "Clinton Calls for 'Orderly Transition' in Egypt," The New York Times, January 30, 2011.
Mark Landler et al, "Diplomatic Scramble as Ally is Pushed to the Exit," The New York Times, February 1, 2011.
Mark Lander and Helene Cooper, "Allies Press U.S. to Go Slow on Egypt," The New York Times, February 8, 2011.
Syrian Protesters Call for Democracy, Security Forces Answer with Deadly Fire,” MSNBC.com, April 22, 2011.
"US Weighs Syria Sanctions amid Worsening Violence", MSNBC.com, April 25, 2011.
Nour Malas, "Nations Pursue U.N. Censure of Syria," The Wall Street Journal, April 26, 2011.
"McCain: No Military Solution to Syria Crisis," MSNBC.com, April 27, 2011.

Computer Technology Revolutionizing Industries – Part II: Movie Theaters, On Demand, and DVDs

The effects of computer technology on the sales of movies and on film-making itself were notable as the second decade of the twenty-first century was getting underway. Stopping inside a Blockbuster store to rent a DVD, which itself was short-lived in the process of technological development, was going by the wayside; even buying a DVD at a Borders or Barnes & Noble was fading. As dramatic as these changes seem, the impact on film-making and, moreover, in what a film is hinted at even greater transformation.

In early 2011, Borders closed 200 stores in the United States. Although e-books sold by Amazon.com were giving Borders a run for its money, the chain was also being pummelled by the increasing file-sharing of music and movies as well as DVD rentals by mail and online movie-streaming sold by Netflix, which was rushing to ride the wave from DVD to on-line streaming.

In April 2011, Netflix posted an 86% jump in quarterly profits as its online movie streaming service clicked with consumers. According to The Wall Street Journal, “In the letter to shareholders, signed by Netflix Chief Executive Reed Hastings and Chief Financial Officer David Wells, … the two executives said in the letter that its DVD offerings will be a ‘fading differentiator’ for the service, which last year began letting people subscribe to a streaming only service for $7.99. Already the company has begun to discourage people from choosing rental plans that offer consumers the option of also renting DVDs. In its letter to shareholders, the company said the sign-up page on its website for non-members is now ‘all about streaming’.” The executives wanted to see the postal costs associated with the company’s DVD rental service drop with the decreasing volume as customers switch over to online streaming to make room for the rising costs of licensing content. In other words, the company was riding the technological wave from DVDs to online viewing, leaving brick-and-mortar based DVD companies such as Borders in the dirt.
                                                     (The Wall Street Journal)


The eclipse of DVD sales by on-line streaming effected not only companies like Borders and Blockbuster that had remained primarily Brick-and-mortar enterprises; the change was also putting more pressure on studios to get their films On Demand sooner—at the notable and rather vocal expense of movie theaters.

According to The Wall Street Journal, technology was putting pressure on the old “windowing” system, which “staggers a movie’s release through avenues like theaters, DVD and television, to maximize the profitability of each.” Theaters were concerned about DirecTV’s plan to add movies sixty days after they hit theaters to premium video on demand—cutting the time in half. The studios pointed out that most films earned the bulk of their profits within the first few weeks of release. Filmmakers, including James Cameron of “Titanic” and “Avatar,” wrote that theaters are “the optimum, and most profitable, exhibition area” of the art form.

To be sure, films such as “Titanic” and “Avatar” are particularly striking on the big screen. By the time “Titanic” got to TBS on television, the relatively tiny screen was encumbered by the network’s programming graphics even during the film. Imagine, if you will, a cartoon figure dancing around the bottom left of the screen while “TBS” is shown on the bottom right as the hero and heroine “fly” at the front of the ship in a beautiful sunset.  The “windowing” process can be viewed as a trajectory of increasing decadence as well as inferiority in terms of picture.

However, even with the decadence of commercial television cannibalizing even its own programing, the size of the screen makes less difference for some films than others. Furthermore, to claim that earlier availability on television (or computer) reduces the incentive to see a film in a theater is to manipulate customers rather than trust in us to choose the means of delivery. Todd Phillips, director of “Hangover,” argued that the new science would dissuade would-be movie goers from going to the theaters because the sense of urgency would be removed.  If that sense is constructed rather than real, DirecTV may have been doing the customers a favor.

Were directors such as James Cameron truly concerned to protect the optimality of their art form, the fact that films do not benefit equally from being on a big screen relative to a television wide-screen would suggest that customers could benefit from a system in which films are ranked in terms of the importance of the big screen. Directors could issue a recommended score, say from 1 to 10, and film critics could proffer their own recommendations.  This would systematize the tendency of critics to urge “see it at home” versus “go to the theater.” Of course, in viewing previews advertised on a computer or on television, consumers make their own decisions, rather than feeling an artificial urgency that is in the interest of the theater owners.

As salient as computer technology is to changing how (and where) movies are being watched, the impact of such technology on filmmaking itself and how films may be viewed in the future is perhaps even more dramatic. Cameron’s “Avatar,” for example, involved new digital motion-detection technology in 3-D. More significant still would be a merger of virtual reality and movies (perhaps via video game technology), such that one day a viewer may be in a scene rather than looking in on a narrow range of one on a rectangular screen. Such a development would probably reverse the tendency of scenes to get shorter and shorter (in line with decreasing attention-spans?) because the viewer would be more invested in a given scene.  “Shots” would not make sense; rather, the question for the director would be whether to control the viewer’s vantage point, and if so, how often to change it in a given scene. Furthermore, an editor would have to make the scene changes such that the viewer would not disoriented—“jumping” from one “world” suddenly into another.

Of course, movie theaters would not exist were virtual reality the predominant means, unless the traditional showing would also be sought, and even then, the economics might not support the brick and mortar venues.  In fact, if Cameron and the theater owners were correct, the theaters might not survive DirecTV and the internet.

Like the brick-and-mortar bookstore and library, the movie theater might not be as permanent as their history in the twentieth century might suggest. Indeed, what we take for a book and a movie may be on the brink of fundamental change not only in delivery, but also in terms of content. In both cases, novices with a passion are able to try their hand (or camera) and gain some market share from the “professionals.” Even the latter are being forced to adapt or become antiquated.  As the second decade proceeds, these industries are on the cusp of changes perhaps on the order of those that occurred in lighting and transportation from the 1850s to the advent of commercial air travel. It is difficult to compare the two periods in terms of their respective transformations because the industries differ and the same people were not alive for both. Even so, I suspect that the hope and optimism that came with electricity and the automobile are in the air concerning what is possible as computer technology continues to develop and be applied.
Click to add a comment or question on the film industry and computer technology.
Sources:
Michelle Kung and Ethan Smith, “Filmmakers Pan DirecTV Plan,” The Wall Street Journal, April 21, 2011, B2.


Nick Wingfield, “Netflix Faces Rising Costs,” The Wall Street Journal, April 26, 2011.

Computer Technology Revolutionizing Industries – Part I: Publishing and Book-Selling

Crude oil was first drilled in 1859 in northwestern Pennsylvania (not in the desert of the Middle East). It was not long before oil lamps became ubiquitous, lengthening the productive day for millions beyond daylight hours. Just fifty or sixty years later, as electricity was beginning to replace the lamps, Ford’s mass-produced automobile was taking off, providing an alternative use of crude oil. For those of us alive in the early decades of the twenty-first century, electric lighting indoors and cars on paved roads have been around as long as we can remember. As a result, we tend to assume that things will go on pretty much as they “always” have. Other than for computer technology, the end of the first decade of the twenty-first century looks nearly indistinguishable from the last thirty or forty years of the last century. 

As the second decade of the new century began, applications based on computer technology were reaching a critical mass in terms of triggering shifts in some industries that had seemingly “always” been there.  Books, music and movies were certainly among the fastest moving,  perhaps like the dramatic change in lighting and cars beginning a century and a half before with the discovery of crude oil.

Borders, a chain of book stores that branched out into DVDs and music CDs, was at ground zero in terms of the major changes beginning to affect industry by 2010. All three of the company’s product areas were in decline due to applications of computer technology being harnessed by new companies more so than the old guard predominantly based in brick and mortar. Indeed, it was precisely the brick and mortar foundation of retail that was undergoing such dramatic transformation. Part I of this essay discusses the book publishing and sales aspect, while part II covers DVDs and CDs.

Even as established institutions such as Lehman Brothers can have tremendous inertia and thus seem nearly immortal, discovery or invention can act with relative haste in transforming industries—though after the vested interests with power have put up their last defense against the all-but-inevitable onslaught of the future piercing into the present. The invention of securitized mortgage-backed bonds brought the world's financial system to its knees in September 2008 after years of posturing in a housing bubble. Lawrence McDonald, who had been a trader at Lehman Brothers, subsequently wrote of his father's bearishness on the housing bubble.

In 1999, the elder had read a report that claimed that brick and mortar shopping malls were nearly obsolete--that within two years everyone would be doing their shopping on-line. Yet this prediction was too hasty. The prospect of even such far-reaching and transformative invention requires some time. "The retail world will hit back," Larry's dad said. "I guess people like picking up books and holding 'em, checking 'em out. There'll still be bookstores. They've been there for hundreds of years, and they'll still be there in the next century" (McDonald, p. 63). Yet in going so far beyond the inevitable hitting back, the elder McDonald sounds antiquarian. Even such inertia protected by name, wealth and real estate was bound to succumb after a threshold point at a speed that would take many in the older generation by surprise. For once a threshold point between the status quo defenses and the application of a new technology is reached, it is inevitable that change shall come cascading down like a waterfall over a dam then realized to be mud rather than gold.

In mid-April 2011, the number of e-book sales surpassed paper books in the U.S. for the first time. This could be taken as such a threshold of sorts. The digital book market had reached $1 billion. Amazon.com had the vast majority of the e-book market and e-readers, with Barnes & Noble's Nook reader running second. Borders had waited too late with the Kobe reader, and was thus left depending largely on its declining paper book sales. Launched in November 2007, there were already 7.5 million Kindle readers sold by Amazon by 2011. The company was taking advantage of the revenue from its e-book sales to move its color e-readers closer to ipods by adding applications such as the ability to check email, hence integrating applications and facilitating the shift from paper to digital books.

Furthermore, Amazon’s Kindle Direct Publishing was fundamentally changing the self-publishing business, with major implications for publishers, established writers, and bookstores. With self-published writers selling their books for $1 on Kindle, downward price pressure was being felt even by bestsellers, who found that they had to compete on Kindle at $10 a book, rather than merely sell for higher amounts at the brick and mortar bookstores. In The Wall Street Journal, Jeffrey Trachtenberg quotes a senior publishing executive who observed that Amazon was “training their customers away from brand name authors . . . instead creating visibility for self-published titles. Trachtenberg explains that the low cost of digital publishing, plus the ability to use twitter, facebook and a blog to market a self-published book “enabled previously unknown writers to make a splash.” The rise of digital and self-publishing was prompting more people to question their next trip to the bookstore.  Indeed, the book itself was being fundamentally changed with the readers like Kindle and Nook.  Such changes naturally take some time for particularly older people to adjust to, but the young, having been raised with computers, slipped right into the new way of buying and reading books (and newspapers, for that matter).

Even the traditional brick-and-mortar library was being forced to adjust. In April 2011, Woo and Trachtenberg reported that Amazon had announced that it would add a public-library feature to its e-reader, Kindle. For Amazon, library borrowing mean more Kindle readers sold and e-book sales. Barnes & Noble's Nook reader had begun with a library-reader ability, so Amazon was making the feature universal. Rather than being able to save to a hard-drive, library-card holders can temporarily download a digital book they have checked out, typically for 14 or 21 days. Publishers that sell digital books to libraries realized that such books do not wear out, so the arrangements typically require a re-purchase after so many check-outs. HarperCollins, for instance, requires repurchase after twenty-six.

Not surprisingly, libraries tend to question the need to repurchase a product that they have already purchased. It might be that traditional publishers were still not “getting it.” That is to say, they had not yet understood the impact of the new technology—the repurchase requirements being essentially a manifestation of insecurity. The traditional publishers may have been sensing that they were suddenly on borrowed time, and were instinctively grasping at whatever was closest to them in the water.

At the time, I found myself grappling with e-books and readers. At the same time, I would find myself in Borders sometimes thinking “all this will be gone and yet no one here—even the staff!—seems to realize it.” It was as though the world of brick and mortar bookstores I had known would “always” be had already gone; it was like seeing something as already a ghost even as other people were still taking it as real. It is perhaps like looking back on one’s childhood home as distant and already gone even while it still exists and one is in it. That is to say, it is to sense the present as already historical because one can see that it too shall pass. From such a perspective, the present takes on the appearance of being its own world because one is no longer completely in it; rather, a part of one’s perspective is like a time-traveller already stepping back in time to that world.

As a writer, I was grappling with making the leap to digital and self-publishing even as I was frustrated with the traditional route, as having published an academic book had not made it any easier to broaden out into novels and screenplays. I can understand why digital and self-publishing has taken off at the expense of the traditional publishers. Whereas formerly new writers had to find a literary agent and a New York publisher, the changing technology has brought with it new decisions, suck as whether to go with Kindle or put one’s first book on one’s blog for free downloading in hopes of viral marketing albeit without revenue on the project. In other words, the technology opening has pushed writers more into the publishing business.  Future writers might feel they need an MBA—perhaps taken on-line (university education being impacted by the new technology as well).

Click to add a question or comment on e-books, digital publishing and Borders.

Sources:

Jeffrey A. Tracktenberg, “Cheapist E-Books Upend the Charts,” The Wall Street Journal, April 21, 2011, B1, B4.

Stu Woo and Jeffrey A. Trachtenberg, “Amazon’s Kindle Will Offer E-Books from Libraries,” The Wall Street Journal, April 21, 2011, B4.

Lawrence G. McDonald, A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers (New York: Three Rivers Press, 2009).

Thursday, April 21, 2011

Saving the Fisheries: Greenpeace Lauds Safeway for its Ethical and Stately Leadership

In April 2011, Greenpeace gave fifteen supermarket chains a passing grade; five others failed. Surprisingly, Safeway came out on top, above even Whole Foods. Safeway pledged to stop selling Chilean sea bass (Patagonian toothfish) because current fishing levels are unsustainable. Furthermore, the grocer called on governing bodies to declare the area in the southern Antarctic where the bass is fished a marine reserve. According to Casson Trenor of Greenpeace, such an act of “corporate marine activism” had “never been done before.” Safeway also discontinued the sale of orange mughy, which is unsustainably being fished in the deep sea off New Zealand.  In fact, the company stopped adding red-list species to its inventory.

Beyond any added sales from the enhancement of Safeway’s reputational capital, the company’s moves, going even as far as activism, are in line with facilitating the future supply of the seafood products.  In other words, the moves represent a sort of long-term investment, with the cost being the additional money that could be made in the short term from selling the fish. That other grocers, such as Giant Eagle and Publix, failed in the Greenpeace grading suggests that other companies are profiting in the short term from Safeway’s self-imposed restraint for a long-term benefit available to every grocer. 

In other words, it goes against the law of externalities for one company to voluntary exclude an otherwise salable product from the shelves while competitors benefit from not only that exclusion, but also the long-term benefit of full fisheries available to any grocer. Ordinarily, this dynamic is why a cartel or government regulation is necessary—so all companies recognize the constraint in the short term for the good of the whole industry in the long term. As compelling as that long-term benefit may be, some people will refuse to shove the trough away while there is anything left in it—such is the instinct of instant gratification over deferred enjoyment in human nature.  Hence, it is amazing that any one business would observe a self-imposed constraint at the expense of expediency that is not being observed by others in the industry.

Safeway may represent a case of ethical leadership that is in line with statesmanship. In addition to being ethical (i.e., following an ethical principle such as sustainability), standing alone in the activism (i.e., the leadership) in this case forsakes immediate self-interest for the public good (i.e., statesmanship).  The three elements—ethics, leadership, and statesmanship—can thus be distinguished and related.

An interesting question is whether corporate managers are being ethical in terms of their fiduciary duty if ethical leadership in line with statesmanship is not in stockholders’ financial interest even in the long term. In the present case, it could be argued that the foregone profit is not worth the added profit in the long term from sustainable fisheries.  Additionally, it could be argued that Safeway could have continued to sell the unsustainable fish as Target and Wegmans sacrificed for the eventual benefit that Safeway too could enjoy. The problem of fiduciary duty could be obviated in such scenarios by securing stockholder approval at an annual meeting. 

At the level of property rights, profit-maximization is only a default that a company’s stockholders, as the owners, can modify or even replace.  Therefore, if a majority of shares vote to use the company to save the fisheries even at the overall financial detriment of the company, such a use of property/wealth is proper and legitimate for owners, with the caveat of minority stockholder rights being respected. Such rights can be satisfied by giving minority stockholders the right to sell at a worthwhile and fair price. Such selling would result in more solid ownership support for the new mission. Moreover, to use one’s property not only to make money, but also for a cause that one is passionate about can make life itself more enjoyable and thus worth living.   

Click to add a question or comment on Greenpeace, Safeway and fisheries.

Source:

Kim O’Donnel, “Safeway Scales the ‘Seafood Scoreboard’ by Greenpeace,” USA Today, April 18, 2011, p. 5D.

Holding the U.S. Debt-Ceiling Hostage: A Case of Political Expediency over Statesmanship

In April, 2011, S & P lowered expectations on U.S. Government debt from “stable” to “negative.”  The $14.2 trillion debt was still rated as AAA. Ironically, the shift in the expectation did not trigger higher borrowing costs, as the market presumed that a deal lowering the deficit could be facilitated by the warning-call. At the same time, Congress and the president were grappling with the need to extend the federal debt ceiling. The federal government was projected at the time to reach its borrowing limit by May 16th, though the Treasury secretary said he could use accounting options to push the date back to July 8th. Geithner assured the public that Republicans had told Obama that they would go along with a higher limit. “I want to make it perfectly clear that Congress will raise the debt ceiling,” the Treasury Secretary said.  He said the Republican leaders had assured the president that they “couldn’t play around with the government’s credit rating. They recognize it, and they told the president that.” Such a recognition and statement evince statesmanship on the part of the Republicans over political expediency in trying to leverage their votes on raising the ceiling to get more in negotiations on the budget.

However, Rep. Paul Ryan, chair of the U.S. House Budget Committee, said that while it was true that nobody wanted the U.S. Treasury to default, “(w)e want cuts in spending accompanying a raising of the debt ceiling. And that is what we have been telling the White House.” A spokesperson for Obama said a debt ceiling vote could not be contingent on upcoming negotiations over the budget.  So, in effect, the matter of default on the U.S. debt was being used for leverage in negotiations rather than held as untouchable.  It is no wonder S & P lowered its expectations concerning the ability of U.S. Government officials to avoid default.  To say that no one wants default but then to hold it ransom is disingenuous and duplicitous. It is as if to say, “I don’t want to do it but I have to,” when in fact one does not have to do it at all. We see such statements from corporate managers and customer service employees. “Unfortunately, I can’t do that”—when in fact the person or his or her boss could.  The conflation of preference with constraint is ubiquitous in the corporate mentality, and customers typically enable the fallacy by responding to the constraint. “Well, if you can’t do X, how about Y?”  The agent is apt to reply, “Unfortunately I can’t do Y either.”  In actuality, neither X nor Y is illegal and thus could be done.  Similarly, Rep. Ryan could have resisted the temptation to gain greater advantage on the budget by holding the debt ceiling hostage. 

In short, nothing is off-limits to political expediency, and self-interest more generally.  Given human nature, it is amazing that statesmanship has happened at all in the political history of mankind.  The encroaching nature of expediency is similar to the tendency in business for anything to be commoditized.  The question, “Isn’t anything sacred?” thus applies to both business and government, as does the more philosophical question concerning why a human being would recognize any limitation that is not backed up by impossibility.  That is to say, political expediency and the desire to make more money are inherently antithetical to any self-enforced limitation.  It is thus a wonder that some people in business and government have held things to be sacred, or off limits, when they would otherwise be able to profit by them.

Click to add a comment or question on the debt limit and political expediency.

Source:

Geithner Confident Congress Will Raise Borrowing Limit,” USA Today, April 18, 2011, p. 6A.

Wednesday, April 20, 2011

A Structural Conflict of Interest in Feinberg's BP-Claims Disbursement Office

A year after the BP oil rig explosion in the Gulf of Mexico, only $4 billion of the $20 billion fund alloted by BP had been paid to claimants. Out of 800,000 claims submitted, two-thirds had been processed.  That is to say, two-thirds of the claims translates into 20% of the available funds. It appears that Ken Feinberg, the lawyer tasked with administering the funds, was being too stingy.

For example, a sea-food restaurant on the Gulf that was hit hard by the loss of tourists received only 10% of the funds due.  P & G Oyster Co. received only a little reimbursement from the fund because the oyster beds had been destoyed, according to BP, by fresh water diversions rather than by the oil itself.  That the oil was the underlying cause of the diversion was "no-nevermind." 

Ken Feinberg asserted that claims that are "legitimate" and "collaborated" had been fully funded. However, "legitimate" in particular can be a signate for "constraints applied." In the wake of such an obviously damaging disaster, being a stickler on the burden of proof placed on the claimants comes off as needlessly tight, if not insulting to the victims. In other words, the error should lean toward the victims rather than BP. For example, presumably tourist areas could be readily identified and businesses therein given the benefit of the doubt if they have submitted claims. Beyond a litigious mentality, Feinberg's restaint could be due to a conflict of interest that may have heightened his awareness of BP's perspective (i.e., tightness).

Specifically, BP upped the amount it paid Feinberg's law firm for processing the claims to $1.25 million per month through 2011. With 800,000 claims submitted, the work involved could perhaps justify such an amount, especially given the intricacy of the (tight) procedure designed by Feinberg as "prudent." Even so, the fact that BP was paying the "impartial" intermediary constitutes a structural conflict of interest within Feinberg's office. Defending this financial arrangement, Feinberg claimed that there was no alternative.  The claimants certainly couldn't pay.  Interestingly, Feinberg added that it would be unreasonable to ask the state or local governments to pay. I question his assumption.

The "emergency management" function of Feinberg's claim office could be considered as a delegated government function, and therefore properly paid for by the states whose people have submitted claims. Alternatively, because the explosion occurred beyond the state territories, the U.S. Government may be the proper government to fund the function itself. In terms of any conflict of interest that might be involved, at least it would be in favor of the victims (particularly if the state governments were funding Feinberg). 

Perhaps the only way to obviate any conflict of interest connected to Feinberg's claims office would have been for BP to send a fund to cover Feinberg's charges to the U.S. Treasury. This would be in keeping with holding BP financially responsible for the damage from the explosion while having the government be in charge of paying the intermediary. Were Feinberg to have resisted governmental pressure to be too lax with the $20 billion, the government would have been put in the position of having to explain itself should it have held back in paying the law firm from the fund set up for that purpose by BP.

While not perfectly neutral, such a way of compensating Feinberg would have involved less of a conflict of interest than simply having BP pay the law firm directly. Even if Feinberg had resisted the temptation to cover his bases with BP, the structural conflict of interest could have subtly impacted the lawyer's perspective. At the very least, the set-up was inherently unethical, given Feinberg's stated role as an impartial intermediary. In general terms, to obviate a structural conflict of interest from an ethical perspective, one must go beyond stated motives of the participants and change the arrangement itself in terms of its design.  For in a structural conflict of interest, the design itself is unethical.
Click to add a question or comment on BP claims and Ken Feinberg's conflict of interest.

Sources:

Harry R. Weber, "BP Increases Pay for Claims Czar Ken Feinberg's Law Firm to $1.25 Million Per Month," Huffington Post, March 25, 2011.

AC360 Anderson Cooper, CNN TV, April 19, 2011.

Tuesday, April 19, 2011

Conflicts of Interest for Public Officials: How Broad?

Michael Carrigan, a member of the City Council in Sparks, Nevada, “says he was trying to make sure his vote on a proposed casino, one that his campaign manager helped develop, did not pose an ethics problem.” Carrigan backed the Lazy 8 casino project proposed by Red Hawk Land Co. Carrigan’s friend and campaign manager, Carlos Vasquez, worked as a consultant on the project. The question is whether the elected official’s relationship to his campaign manager who was a consultant on a project to be voted on constitutes a conflict of interest sufficient for the official to have not voted.

The Sparks city attorney told Carrigan that he could vote on the project as long as he publicly disclosed his relationship with the project consultant. The attorney was obviously thinking in terms of transparency. Carrigan made the recommended disclosure. The Nevada Ethics Commission, however, claimed after the vote that Carrigan had a conflict of interest and should have abstained even with the transparency.

In its reprimand, the commission cited ethics law that says public officials must not vote when their judgment could be affected by a commitment or relationship to someone in their household, a relative, business partner, or a person “substantially similar” to those specified. The commission classifies the campaign manager in the “substantially similar” category because Carrigan’s loyalties to his campaign manager would have affected his judgment. Caren Jenkins, executive director of the Nevada Ethics Commission, explains, “Here was a friend, a buddy, a close confidant. If Mr. Carrigan ever thought it was in his best interest to vote against the project, would he have?”

Carrigan sued the commission for its reprimand, claiming it violated his free speech rights. The Nevada Supreme Court sided with Carrigan, who pointed to the fact that he was not in business with his campaign manager. The Nevada Supreme Court said the catch-all category the commission cited failed to “limit the statute’s potential reach (or) guide public officers as to what relationships require recusal.” The state court said the law “thus chilled speech.”

In its appeal to the U.S. Supreme Court, the lawyer representing the commission argues, “State and local legislators have no personal ‘free speech’ right to cast votes on particular matters, much less ones in which they have a personal interest.” The Reporters Committee for Freedom of the Press similarly claims that rules such as Nevada’s are important to ensure politicians don’t vote based on personal interests.

Analysis:

In 2009, the U.S. Supreme Court ruled by 5-4 that a West Virginia judge should have withdrawn from case because of a risk of bias. The court majority said judges must sit out a case when a risk of bias arises because a person with a significant stake in the case “had a significant and disproportionate influence” in getting the judge on the bench. In the present case, Carrigan’s campaign manager had a significant influence in getting Carrigan elected, but did his consulting role at the casino constitute a significant stake, and, if so, was it only in the past, or did the consultant/campaign manager stand to benefit financially after the vote? 

Regarding the Nevada ethics law, a campaign manager can be regarded as similar to a business partner. The vagueness of last category in the law is poor legislation, but it does not nullify the similarity in the present case. In fact, I contend that the law does not go far enough, for it excludes friendship. Presumably a public official would want to see one of his friends benefit even if there is no financial relationship between the official and the friend. Suddenly the vagueness in the law does not seem to be a formidable problem, but, rather, a virtue. 

In general, a conflict of interest in politics or business need not involve a financial relationship between the decision-maker and the other person.  The problem with sidestepping votes to avoid any conflict of interest is that too many votes may be missed. Moreover, evading votes when an official might be tempted to vote in line with his or her more particular interest can be interpreted as giving up on the civic duty to vote in line with the public good; it is assumed that if there is a personal interest involved, the official will act on it rather than the good of the city. In other words, the Nevada law essentially punts by separating a voting official from conditions in which voting in the public interest would be felt as a duty (there being an opposing motive in line with the official’s own interest extended out to business associates, relatives and friends.

As for the Nevada ethics law, that its vagueness somehow “chills speech” is perplexing. The same kind of conflation seems to take place when spending money is reckoned as political speech. The court seems to have been assuming that the vagueness would mean that officials would be skipping many votes, and therefore “silenced” by the law.  Even if the law is too broad in its coverage, to consider voting as “speech” is patently absurd.  To vote is not to speak.  To claim that one is proffering his opinion by voting magnifies a side-effect out of what it means to vote. A vote takes place after the give and take of opinions in order to settle the question.  Hence, “the vote is on the question” rather than being an elaboration of the question.  A vote is a collective decision rather than a dialogue.  We are therefore back to the problem of whether too many votes would be skipped.

At some point, if the duty of civic virtue is trampled upon, no law can bracket the corruption.  In the end, it is up to the popular sovereign, the people, to evaluate their elected officials with respect to the voting records. As for the officials, skipping a vote to avoid a conflict of interest must be weighed against the duty to vote.  From the standpoint of the latter, a skipped vote is a failure, even if it is to obviate a hard choice. Ideally, public officials would stand up to their particular relations and explain to them that the public trust is bigger than them and the relations. Yet if the official foresees himself succumbing to the temptation of expediency, skipping a vote would be worth evading the duty.


Click to add a question or comment on the political ethics of conflicts of interest.

Source:

Joan Biskupic, “Nev. Official’s Vote Turns Free-Speech Case,” USA Today, April 18, 2011, p. 6A.