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Thursday, March 28, 2013

Facebook Gets Political: Corporate Social Responsibility as Pursuing the Public Good

Mark Zuckerberg, the CEO of Facebook, announced in March 2013 that he and Joe Green would co-found a political advocacy group made up of the heads of major technology companies. The group would register as a 501(c)(4) “social welfare” nonprofit—a designation that would allow the group to raise and spend an unlimited amount of money in political lobbying and advertisements. Both strategic and ethical implications exist.
The full essay is at "Taking the Face Off Facebook."

Wednesday, March 27, 2013

Railroad Boom: On the Ethics of the Drawback

In the first quarter of 2013, North America’s freight railroads were “in the midst of a building boom,” according to the New York Times, “unlike anything since the industry’s Gilded Age heyday in the 19th century. Meanwhile, trucking languished under high fuel prices, crowded highways, driver shortages, and cost-driving regulations. Meanwhile, freight rates were nearly half what they had been in the early 1980s. This cost advantage was also contributing to making North America competitive again in manufacturing. The railroads were doing their part to take up the slack. In 2013 alone, $14 billion was to be spent on rail yards, refueling stations, and additional track. That was the third year in a row of record capital spending. In 2003, it had been a mere $5.9 billion.



The increased capital investment would enable the railroads to take advantage of the “enhanced speed and efficiency of rail transport” that were making it “a dominant player” in the commercial transport system in North America. In this essay, I discuss an ethical implication from the resurgence of railroad freight transport. In particular, I want to dredge up the earlier controversy of “rebates and drawbacks,” for the debate could show its contentious head again in the midst of the railroads’ comeback.
In 2013, the railroads were competing to haul more and different types of freight. “Hot trains,” for example, were dedicated to high-priority customers like UPS. Were that company to come to rely on a particular railroad only to see its capacity taken by other favored customers, one might ask whether the railroad should give that particular big customer a discount, or rebate. In the 19th century, John D. Rockefeller took his Standard Oil company to over 90% of the market. With such dominance in his market power, he could extract not only rebates, but also drawbacks from one of the main railroads. When pipelines became an alternative, he simply had Standard Oil purchase the pipeline company. He could thus keep the pressure on the railroads. The issuance of drawbacks in particular triggered moral condemnation, particularly from Ida Tarbell, whose father had been an oil producer in western New York or Pennsylvania. By the time of the “rebirth” of freight rail in 2013, Tarbell’s debate with Rockefeller on rebates and drawbacks had been all but forgotten.
In a drawback, a railroad pays a favored (i.e., large-volume) customer a percentage of the revenue received from another customer. The theory behind the practice is that hauling the other customer’s freight limits what the railroad can do for the favored customer. Crucially, the limitation must restrict the railroad from supplying what the favored customer had been relying on and expecting as per the long-term relationship. A rebate is less contentious, being simply a discount for hauling a large volume. Standard Oil had even supplied some of its own railroad cars and loading machinery, saving the railroad money. The question of whether one customer should (i.e., ethically) receive a cut from a supplier’s business with a competitor is much more difficult to answer definitively.
The underlying question concerning the legitimacy of the drawback is whether a regular customer deserves to be compensated when the regular arrangement is compromised by the other party. “We’ll go with you if you can handle the oil we produce or buy,” Rockefeller might have said to railroad executives eager to have Standard’s business. If an executive assured the oil baron, “Don’t worry; we can handle whatever you give us” only for exceptions to arise, wouldn’t it be ethical for Standard Oil to be compensated beyond the usual volume discount (i.e., rebate)? How astounding it must be to consent to this argument, for it entails justifying one customer getting paid off the supplier’s business with a competitor! What seems obviously unethical may in fact be ethical.
In 2013, the U.S. Department of Transportation estimated that freight demand would grow to $27.5 billion by 2040. Would rail capacity keep up? If not, might large customers demand drawbacks in addition to volume discounts—profiting from a competitor’s business with a supplier. To land a big fish, railroad executives might be tempted to make promises their respective railroads may not be able to keep. If the historical record is any indication, paying drawbacks may be worth landing the big one. Of course, drawbacks could also be the virtual extortion from a customer with tremendous market-power. In any case, the ethical debate is rather rich, and thus worth contemplating.

Sources:

Betsy Morris, “Boom Times on the Tracks: Rail Capacity, Spending Soar,” The Wall Street Journal, March 27, 2013.
S. Worden, Godliness and Greed (Lexington, 2010). See part IV John D. Rockefeller. I relate the ethics of the rebate and drawback enjoyed by Standard Oil to John D.'s claim to be a Noah and even "Christ figure" in saving the refining industry. If the drawback is unethical, does it invalidate Rockefeller's religious sense of his vocation at Standard?  Hint: see the Book of Job

Tuesday, March 26, 2013

Keeping the Free Trade in Free Trade: France in the E.U.


In negotiating free-trade deals with the U.S. and Japan, E.U. officials had to reckon with differing concerns of particular state interests, given the salience of the state governments at the E.U. level. For example, while Germany and Britain were pushing for a deal, Nicole Bricq, the French trade minister, was reflecting the concerns of French producers in urging caution. The impact on trade negotiations could only be to turn them into Swiss cheese.
 
                                       Nicole Bricq, French trade minister, seeking to slow the E.U. down in negotiating free-trade deals with the U.S. and Japan.   Getty Images
 

For example, l’exception culturelle translates into special treatment to protect France’s culture. “We want to exclude from the negotiations everything that concerns culture,” Bricq said. One might ask whether any product or service can possibly stand above all of the particular cultures in the E.U., let alone that of France. The subjectivity involved in tagging particular products as “cultural” in nature provides an opening for a myriad of exceptions.

As if delimiting “concerning culture” were not difficult enough, Bricq voiced concerns from French farmers that the sanitation, environment and animal welfare rules that apply in the E.U. also apply in the U.S. and Japan. Is it possible, however, to achieve such a convergence in harmonizing particular standards, especially given the tremendous cultural differences concerning genetic-engineered crops and hormone-treated livestock? That Bricq wanted to exclude meat and egg producers, corn growers and ethanol producers entirely simply because of alleged “unfair advantages” presumably enjoyed by American producers means that the Americans will insist on still another set of excluded categories (due to alleged unfair advantages on the other end).

In negotiating a trade deal, the parties to such agreements are best advised to look beyond particular disturbances or domestic pressures in order to maximize the long-term benefits of an expansive free-trade. Technological advancement is not easy to predict, not to mention the impact on particular industries. What is in the interest of a dominant industry in a particular state at one point in time may not be so at another time. Pegging included and excluded sectors to a state’s interest at a particular time ties down the resulting trade deal dogmatically. From the standpoint of the long term, the series of exclusions can seem arbitrary. The problem is of course political: that of resisting the immediate political pressure of domestic industries. It is difficult to keep the interest of the whole foremost even when the whole concerned is one’s own union at the expense of particular state interests. Put another way, the salience of state governments at the federal level in the E.U. complicates the efforts of E.U. officials to negotiate trade deals that are in Europe’s long-term best interest.

Source:

David Jolly, “France Seeks Slower Pace of Negotiations For a U.S.-Europe Trade Pact,” The New York Times, March 25, 2013.