Strong ethics are good for business

An article I recently read starts out by discussing the effects that the Sarbanes-Oxley Act had on ethics in the business world. The author states that the act really has not helped with businesses practicing unethical behaviors. The article goes on to say that even though the act did add some discipline to the business world, it will never be able to fix the problem entirely. A company will have the same ethical behaviors as its top managers do. If the top executives tend to be unethical, the rest of the company will follow. Many people in the business world tend to think that sooner or later a company will have to make an unethical decision to be able to compete, but the article tends differ. It says that if a company will have strong ethical and moral principles it will be more successful than if it were not to have them. People that do business with you will want to be sure that they can trust you. In order to keep a long term relationship with customers and suppliers you should always make ethical decisions. Every action has a consequence, for good or bad. If you are not ethical and don’t see any negative consequences right away, don’t worry, it will catch up to you someday. In other words, always do the ethical thing.

Government’s Role in Increasing Hybrid Car Demand

Rebates, income tax credits, and increasing model availability are a few approaches used to increase the demand for hybrid cars. Toyota has asked for an extension and a boost on the 60,000 sales limit cap for each automaker for the income tax credit when buying a hybrid car. According to an article in USA Today, as the income tax credit for buying a hybrid has decreased, so has the demand for the Toyota Prius and other Toyota hybrid cars. With lowered demand a decrease in economies of scale for Toyota hybrids has become prevalent. Toyota is the only automaker giving this strong plea for an extension and a raised cap for the tax credit. Toyota was also the only car maker who reached the sales limit which was set by congress.

The government has subsidized the hybrid car industry to increase the demand of a product that they saw as beneficial to the environment in more ways then one. Is this going to be the only reason that the subsidy will continue or is there going to be another strong armed reason?

Working Past 65

In a recent article "Economic growth means working longer" by Heather Scoffield it points out that in the next few decades people will have to work longer in order to maintain economic growth. Alan Greenspan the former US Federal Reserve chairman spoke of this topic to a group of businessmen in Toronto. This article mentions that we are at the cutting edge of technology and because of this; it is hard to have big growth because of technology. The next place to look for economic growth is to have more workers working. This is not a possibility because the baby boomers are in the workforce right now and the population growth is dwindling. The only answer to maintain economic growth is to work longer. Is Greenspan being a little pessimistic or is this something that the younger generations should start to look forward to? Are those of us entering the workforce going to be working until we are 70 or 80 years old? People are starting to live longer, why not work longer? This to me seems a little pessimistic. I believe that we as a human race will always find ways to be more productive. Technology, although we are right on the cutting edge, will still continue to improve and to help maintain this economic growth. That will be supplemented by more efficiency in the work environment due to learning curves and the struggle for people to get more for less. I think people may choose to work longer and this will be part of the economic growth, but I do not think it will be a consequence.

Growth in Cedar City

I was browsing the Cedar City website looking for statistics on its recent growth. As of 2006, there are an estimated 27,000 residents in Cedar itself. There is an average growth rate of 3.3% over the past five years. I was in a class the other day when the economic developer for Cedar came in and told us they are expecting Cedar to be at 40,000 people in 5-10 years. One of my problems is: There are at this time a reported 81 restaurants in Cedar City with numerous more planned. That is one restaurant for every 333 people in Cedar including kids. There are tons of new businesses that are being built as well. My question: Is there too much building going on in Cedar? Will the growth support the rapid building that is going on? I have seen a couple businesses start up and close down within a few months time because they are not getting enough business. If this is taking place, why are there more companies coming in? I am afraid that people are coming in and setting themselves up for failure. What other evidence is there that people actually want to come to Cedar? What if all these estimates are not accurate? I think that the Economic planners for Cedar should pull back the reigns on allowing businesses to come here. We should wait for a little more actual growth before we dig ourselves in too deep.

Fed's Call for CEO Pay Cuts

I recently read an article in USA Today, that contained several excerpts from a speech that was given by the New York Federal Reserve President, William McDonough. In his speech, he accused executives as having bloated salaries and that they were grossly overpaid. In addition, he said that their large salaries are difficult to justify. I totally agree with him! Many CEO’s are receiving salaries that far beyond what they deserve. For example, Richard Fairbank is the CEO of Capital One Financial, he is reported to have 5-year compensation package worth $448.58 million. His salary is absurd! While I think the idea of, “getting what you pay for,” may be true in some circumstances, I do not believe it is true with many of the over paid CEO’s. Perhaps a better way of paying a CEO would be to base his/her salary on performance, with bonuses and incentives for increasing revenue, decreasing costs, etc… I am curious about what you think about this topic.

They Clapped

I recently read an article found on The Library of Economics and Liberty website. The article was entitled, "They Clapped" and addressed the issue of price gouging. The author addressed a situation in North Carolina that happened to his family in 1996. The situation took place after a hurricane ripped through the area and claimed a lot of property and goods from the local populous. North Carolina had laws that prohibited people from selling a good to the victims of the hurricane for any more than 5% above the usual price. Well some people from a neighboring community heard that the residents in Raleigh needed ice, so they loaded up their truck with ice and headed to Raleigh to make money. Many residents lined up to buy ice and some were upset that the people were selling ice for $8 a bag, which was obvious price gouging. Someone reported the deliverers to the police and the individuals were arrested. The author was upset with the situation not because of the price, but because people cheered as the deliverers were incarcerated. The laws prohibiting such gouging prices kept a lot of people from receiving ice that they needed. I agree with the author in that the people who needed the ice would have paid any price, but I do not agree with astronomical price gouging. I do not think that the government needs to regulate the market so tightly that nobody wants to provide the goods or services. People would rather deal without than pay the higher price. I also agree that the prices would be driven back down again if government would have allowed more entrance into the market. Businesses would want to make money and not lose it to some other guy who went down with the same idea, so one seller would drop prices, the others would follow and the war would go on like everywhere else. The regulation of the government has cut the competition out and set up a virtual monopoly after a disaster, and therefore, nobody wants to help in the cause. Perhaps government needs to regulate certain sectors like power and other necessities, but not luxuries like ice. However, where do we draw the line?

Death-Penalty Prosecution Costs

Whether for or against the death-penalty, taking into account the cost of prosecuting a death-penalty case is one factor that should not be overlooked. There was an article in the Wall Street Journal that discusses the cost struggle that counties have in prosecuting the death-penalty. In 1997 Utah was one of the first to create a risk pool which allowed counties to pay annually into and receive funding from in the event of a death-penalty case. Uintah County did not see the need to pay for this insurance until a police chief was shot to death in Roosevelt in July 2001. It was easy to make the decision to go for the death-penalty, then paying for the trial came into play. In August of 2001, Uintah County paid their share into the risk pool as insurance for their next death-penalty case.

To get funding to prosecute death-penalty cases, counties have higher taxes then counties that do not have death-penalty cases. There is also a worry on the other end that counties which do not have death-penalty cases are downgrading cases to avoid the high costs.

It is interesting to see that counties must have different values set for when it becomes beneficial to prosecute death-penalty cases. There are many factors that can increase and decrease these costs, including the support for or against the death-penalty.

What Drives CEOs?

There seems to be a general understanding that the only thing that drives CEOs is money. Therefore people heavily scrutinize the enormous salaries and huge benefit packages that CEOs get, even when companies seem to perform poorly under their management. There is a great article on BusinessWeek online that talks about the psychology of CEOs.

http://www.businessweek.com/magazine/content/07_04/b4018001.htm?chan=search

Most will argue that it is money and power that drives CEOs, but I think most overlook the most important motivator: the rush that comes from winning. I’m mean let’s face it if you are worth over a hundred million money can no longer be a real motivator, at least not for most people. Why does Michael Schumacher, formula one driver, keep putting his life on the line? Why do top athletes keep putting in so much effort? Everyone knows it’s not the money but their need for victory. Why would this be any different for CEOs.

Beating the crap out of the competition, being a rival business, another racing team, or the world number one track runner, that’s what drives these people. They are the best of the best and the only thing that matters to them is becoming the best they can be. Of coarse the pay also plays a role but it’s not the only thing that drives them.

In today’s hyper competitive business world a lot of corpses are left behind on the battlefield. Executive turnover is spiraling out of control and corporate scandals are becoming a daily phenomenon. That is the risk CEOs have to take and that is why I think there is nothing wrong with paying them enormous salaries. Of coarse it is crucial to link pay to performance, but corporations will have to keep increasing pay if they want to get the top performing CEOs. The next question is: How do we define performance?

Minimum Wage: It's Official

It is official. As of February 1, 2007, the national minimum wage is going to be hiked up to $7.25 over the next 2 years and 3 months. The first raise is supposed to take place May 1, 2007 to $5.85. The second, May 1, 2008 to $6.55 and third, May 1, 2009 to $7.25 <http://www.shrm.org/government/insiders_published/>. I realize that this has been part of discussion already, but it is a topic I don't think gets old. The only reason I agree with raising wages is for the average college student. As living expenses increase and wages do not, it is more difficult for students to get through school on crappy wages, which forces them to take out more student loans and dig themselves deeper into debt. This is one way I feel that the government can help support college students and their ability to make just a little more money. I know that grants are given to students, but a little more money in the pocket is always nice. I realize that businesses will probably raise their prices to cover the increases and the government won't be able to really do anything to stop that. But, if prices are being raised around us anyway, why not get a little more money out of it? So the question I pose to you is: Who really benefits from the increase in minimum wage? In my opinion, it is only those who are actually getting paid the lowest possible wage and no one else.

Health Care Reform

On January 18, 2007 the Healthy Americans Act was introduced.
(see http://www.shrm.org/government/insider_published/CMS_020269.asp#P41_9110) This act would provide universal, private health insurance for all Americans. The bill would eliminate the current employer-based system and put individuals in charge of their own medical/health care. Another benefit in this act is that all would be accepted regardless of their medical wellness and regardless of prior existing conditions. There would be subsidies for low income families and tax deductions. However, it is also mandating that ALL Americans obtain coverage (and we all know how we feel about being told what to do by big brother.) The economic feasibility of only offering two medical programs to cover the entire United States and the logistics are not spelled out in this Act. While I am not sure that I agree with all facets of this particular Act, I do know that change is needed. Recent article in business journals and newspapers indicate the growing trend for employees to enter the work force not for an additional paycheck but for insurance coverage and other employees not being able to advance in their fields because they can't switch insurance companies (based on what the new employer would offer) because of pre-existing conditions is ludicrous. While this particular bill may not be the 'best' answer, I am relieved that it will at least generate more discussion in congress on the matter.

Organ Donor Legislation

According to a January 28, 2007 article in the New York Times, titled "Grim Harvest" (see http://query.nytimes.com/gst/fullpage.html?res=9C0DE1D71130F93BA15752C0A9619C8B63) 94,000 people are essentially waiting for someone else to die so that they might live. Organ Donor Economics was the title of an article in Business Week last month that covered the growing debate over the compensation for organ donation. For many years, families that donated cadavers to medical schools received compensation from the schools. Legislation has been introduced to compensate the families of organ donors. The National Kidney foundation is one group that is in severe opposition to selling 'surplus' body parts. Medical Schools in the United States have a surplus of bodies and yet economically it makes more sense for the families to donate 'used' body parts to a medical school where they receive some compensation rather than donate the organs to a name on a waiting list and receive no compensation. Economically we know that the low price (in this case compensation) is causing a major shortage of supply. An economic sociologist, Kieran Healy, adds to the debate over organ procurement indicating one method to succeed would be to have healthy adults make a binding contract to be organ donors when, "with life insurance paid for by transplant centers, the government or a private foundation going to their heirs." I believe that compensation for organ donors would not cause the average Joe to go out and sell his body parts, rather it would encourage surviving family members to give the 'gift of life' and help organ recipients live longer with an increased chance of a fuller life. Approving the legislation would be the 'invisible hand' that guides free market and would allow the quantity supplied to shift until it meets the quantity demanded.

Business in China

TR here is an article that was apart of an assigment for another class that is related to your post. It talks about how difficult it can be to relocate a foreign business in China. I found it interesting, so I made it into another post.
The article gives many examples of why starting a business in China can be good and bad. It seems to me that it would take alot of work. It is true that many companies want to go there to cut down cost, but is it worth it? If a company is to relocate to China or any other country for that matter, they must develop and follow a plan. The article talked about gaining the trust of government officials, get to know the culture, and be productive. The Chinese Government is right with being choosey on enters. Those who don't do this won't last. The only focus of a company shouldn't be to enter a country becuase it cost and you can pay the workers less, but more to make an impact on the culture. Help a struggling economy maybe? Companies need to show the respect neccessary, and not exploit workers by making cheaper, less quality products for a higher profit. I don't know, what does everyone think?

Freakonomics

One of the most interesting books I read recently was Freakonomics. The introduction describes how common predictions for the 1990s foretold crime rates spiraling out of control. When these predictions failed to materialize, and, in fact, crime rates dropped drastically nation-wide, politicians cited their own public policies as the reason. The authors contend that it was, in fact, the legalization of abortion twenty years earlier that was the cause of this drop in crime. Leaving ethical debates about abortion out, it certainly makes sense that legalized abortion contributed to the drop in crime (see the student study guide at the previously mentioned website for details). However, the authors themselves assert that correlation is not causation. In economics, the “all other things being equal” clause never happens, so, in effect, many variables impact everything. What other variables may have impacted this drop in the crime rate? What about a healthy economy, increased access to higher education, or outsourcing many 'blue-collar' jobs overseas? The reality is that all these things likely contributed to the drop in crime.

Outsourcing: Ripoff Nation

The article I read is titled “Outsourcing: Ripoff Nation." Outsourcing has been a major contributor to companies trying to bring costs down. One of the most famous countries to outsource to would be China. Many companies have found that by moving their manufacturing facilities to China they can cut costs dramatically, but those companies are finding out that there are also some consequences involved in relocating to China. Since China is so good at making products so cheap, they will make imitations of the products they see move into the country. They are usually able to make them cheaper, so they are able to sell them cheaper. The article says that competitors in China are able make and market their imitated product in as little as two years. This problem is discouraging many companies from outsourcing to China. I think that this is finally giving Americans an advantage when it comes to outsourcing. More companies will likely keep their manufacturing jobs here and provide more jobs for U.S. citizens. This will only benefit our economy. Prices might go up a little because of the more expensive costs, but a company will be able to keep their competitive advantage longer by staying here.

Intellectual Property, should it have a value?

Apple and the Beatles have come to some resolution about the intellectual property of the apple and iTunes. So the apple value has been decided while many other intellectual property values are still unresolved.

In the archives of the magazine Rock & Ice , the September 2004 issue Ron Olecsky presents the question, what is the value of intellectual property for rock climbing routes? Olevsky claims that climbing routes are intellectual property of the people that created them and that guidebook authors need to share the rewards with those who put up the routes.

Rock Climbing, a common sport in Southern Utah brings many enthusiasts from around the world. Some are individuals that take part in first ascents, and others come to follow the path of others. For both, guide books and internet web sites are a necessity for many reasons, not the least being safety. Each climber that makes a first ascent has knowledge that no other person has. The author of a guide book takes this information and makes a profit. Should they not share the profit with the individuals they recieved information from? Rock climbing is mostly done on public lands, which leads to the another question if the author of a guidebook has to pay the climber that made the first ascent of a climb, should they also have to pay the government for writing a book that includes a climb on public land?

How far can intellectual property reach, should we be able to put an apple value on everything we do or think?

Can Capitalism Fall? - Tangent

I have not read Das Capital, but I considered the question posed by Mason, "Can Capitalism Fall?”. After reading the comments to his post it appears that all are in favor that Karl Marx is off his rocker. However, consider this; in a solely capitalistic society every member of society would be looking out for number one. Men and women would place their wants before any other. This would result in fewer marriages and less family structures in which to teach values. Also, within families both parents may work in pursuit of personal goals and once again neglect the teaching of values to children. A decay of the moral fabric of society may ultimately cause the downfall of capitalism. This is how I propose that capitalism will fall. Few will gain power and monetary control over many through their exceptional ability or good-fortune. These few will lack the civil decency and moral compass (along with everyone else) to do recognize the greater good and will put their selfish desires first. They will do what our government increasing is doing by talking from some and giving to others or to themselves.

The capitalistic system without a moral compass will turn into a socialistic system. A revolution will occur and the system that was previously capitalistic will fall. The fall will occur primarily because of a breakdown in the core unit of society, the family. In order for Capitalism to succeed, families must be socialistic and teach that although individuals are not responsible for society, they have a duty a duty to uphold it.

I was going to leave my thoughts as comments, but felt that it created a subject of its own. Please comment and help me see the fallacy and/or the accuracy of my reasoning.

With investors increasingly unhappy over CEO pay and increased news coverage and public outcry what will the solution be? Too many Board of Directors still have the 'good ole' boy system. However, stockholders are now making their voices heard with the upset over CEO Robert Nardelli at Home Depot, who received more than $120 million after a drop in stock performance, as quoted in Business Week (http://www.businessweek.com/mediacenter/podcasts/cover_stories/covercast_01_04_07.htm?chan=search )Bob Nardelli's departure from Home Depot came down to a squabble over pay for performance and yet they pay him to leave. AT&T gave a $26 million severance package to a CEO that only lasted 9 months. When stocks go up, then CEO's have earned their pay and their pay may go up with limited interference from employees, investors and the public at large. However, when stocks go down, why are CEO’s leaving companies with multimillion dollar severance packages?

Can Capitalism Fall?

I am reading a book written by Karl Marx called "Das Kapital". In the past century there has been much debate on Marx’s comments and theory about capitalism. Marxism is based on the belief that capitalism will inevitably fail in any society. He believed that capitalists (business owners) exploited there workers by awarding low wages to maintain a high profit. Furthermore, as competition increases, capitalists are forced to invest in expensive machinery to increase productivity. Consequently, they lower their workers’ wages to maintain their profit margin. Marx believed the workers would eventually revolt due to the decrease in wages.
Today we have proven that Marx’s theory is wrong. America’s version of capitalism has not only survived, but is thriving due to certain factors. These include: the ability to buy stock in companies, formation of unions, government regulated minimum wages, and the development of a middle class. How have these factors helped capitalism survive?
A web page about Karl Marx can be found at http://clsuk.tripod.com/daskapital/

Is a Minimum Wage Increase Beneficial?

I recently read an article in the USA Today (please see the link to the article below) which confirmed that the increase in minimum wage is still being debated by the House and the Senate. However, it seems that it is no longer a question of the $2.10 raise in wages for entry level workers, although that concerns many about price inflation due to employers transferring costs to end consumers, but the debate lies in the uncovering of tax cuts and breaks for small businesses while larger businesses are being stiffled in their ability to make tax deductions. These breaks were apparently put in the bill to draw more Republican votes. Simultaneously the new Democratic platform of paying for tax breaks with someone else's money in order to keep the deficit low is also satisfied. Apparently the purchaser of the recent benefits for small businesses are the large US corporations. I would like to pose a couple of questions about these tax cut policies. First of all if large businesses are pitted against smaller businesses for favor of tax cuts, who will eventually pay for the loss in large business tax deductions? If small businesses are going to pass the increase in wages to the final customer, possibly causing inflation, then how is the large business going to recoupe some of their lost profits? Wouldn't the large businesses try to do the same in passing the buck to end consumers - whether B2B sales or B2C? In the end aren't we all going to pay more for the products we need to resume business, life, etc.? Are these tax breaks and minmum wage increases all an illusion for quality of living and economic benefits? Don't the markets eventually correct and we just end up with an inflated economy? What do you think?
http://www.usatoday.com/money/economy/income/2007-01-30-minwage-taxes_x.htm

Free to Choose

I am currently reading the book Free to Choose (this links to a website) by Milton and Rose Friedman. I have found it very interesting. In the second chapter, it talks about different currencies across the world. I guess I'm about as dumb as they come when you start talking about Economics, but what would the big problem be to make a worldwide currency? We could commision a group of people to be in charge much like the US has the treasury, and leave them in charge of the distribution of the money. If we switched we could do it for a certain amount of countries each period. It seems that it could be a good solution to foreign exchange, and it would solve alot of the exchange problems discussed in the second chapter. Maybe I am off my rocker and totally naive to the whole concept of economics, but could someone tell me why it wouldn't work?