Why Gravity Payments’ $70,000 minimum salary, sadly, won’t catch on

What are we to think when a CEO slashes his own salary by 93%, and then uses the money — along with a big chunk of corporate profits — to ensure that every one of his employees makes a minimum of $70,000 per year?

That’s what Dan Price, founder and co-owner of Gravity Payments is doing. The CEO of the Washington-based firm made jaws drop when he announced that, over the next couple of years, all of his employees would be brought up to the $70k mark — a change that would mean doubling the income of his lowest-paid employees.

This has been the feel-good news story of the week. I, too, think it’s a terrific thing, and I congratulate Mr. Price on the move.

But still, there are a few points worth raising.

1) It seems to me that different people are applauding the move for different reasons. Is Price’s decision a move towards social justice? Or, on the other hand, is it an admirable act of charity — a rich guy giving a bunch of his own money to a few dozen colleagues? Note also that market conservatives can applaud the fact that this is a purely private move, involving no statutory fiddling with minimum wage.

2) It matters a great deal that Gravity is a private company. Since Mr. Price is not just the CEO but also the majority owner, he can pretty much do as he pleases with his own salary. At a publicly traded company, it wouldn’t be so straightforward. A corporate board could not pillage profits that way to top up employees. And they couldn’t lower CEO compensation without risking losing a talented leader. This fact limits the generalizability of the Gravity move.

3) It’s worth at least contemplating what effect this change will have on people at Gravity who were already at the $70k mark. Just picture it: you went to college for 4 years, and got your degree. You interviewed successfully for a job at a hip young firm, and struggled to get recognized, to get promoted, to earn a raise. And next thing you know, the kid in the copy room is making the same salary you are. What was the point? I’m sure no one is going to begrudge the raises, but it does make me wonder about the possibility of demotivating certain employees.

4) As an act of charity, the move isn’t a winner. If you want to do good in the world, you don’t do it by giving someone who already earns $60k an extra ten. Instead, you donate it to an organization that is engaged in helping those who are worst off. As an act of solidarity, however, the move fares much better.

5) It’s worth at least considering the possibility that the move is a savvy business move on Mr. Price’s part. Surely this is going to be terrific for morale, generally. And I think we can reasonably expect that applicants will be lined up around the block the next time Gravity posts a job opening. This is not to impugn his motives. It’s just to say that he might well, and reasonably, be aware that there’s an upside to his generosity. (And note: his own salary is set to rise again once the company has its profits back up to the level they were at before this move.)

6) Is this the first step towards a new trend? That’s hard to say. One report says Price has already “heard from almost 100 other CEO via email and text who say they support his move.” Emails are one thing. Volunteering to cut your salary is another. But we shouldn’t be too cynical about this: sometimes one person doing something is what makes others realize that it’s a real possibility. Bill Gates giving away the bulk of his vast fortune to charity was clearly instrumental in convincing Warren Buffett to do the same thing.

6) As Matthew Yglesias points out, it also matters that Gravity is a small company. Gravity has something just over 100 employees. So the money Price is redistributing from himself to others goes a long way. But consider what difference a similar move would make at, say, a company like Starbucks. There, CEO Howard Schultz makes about $21 million per year. That’s a lot. So what would happen if Schultz magnanimously offered to cut his salary by 93% and distribute the money across the company’s 182,000 employees? Each employee would see their annual income increase by $107.31. In other words: don’t look to CEO salaries as the well from which economic equality is going to be drawn.

So, congrats to Dan Price and his employees. The changes at Gravity are a genuinely good thing. Economic disparity has been diminished in a meaningful way for a handful of people, and that’s a welcome change. But we should be cautious about reading into it anything more than that.

Journalists and Ethics Experts

I do a lot of media — I’ve been quoted in plenty of newspaper articles, I’ve done 30-second spots on the TV news, and I’ve done hour-long radio call-in shows. Along the way, I’ve had good and bad experiences. I’ve been misquoted, and quoted out of context. I’ve also been treated with great respect — sometimes more respect than is warranted. But overall, doing media can be fun, and I hope in doing this stuff I put my expertise to good use and help to inform public debate over important issues.

But journalists are often confused about just what to expect from someone like me. Some expect me to give quick “yes that’s unethical” answers. Some expect me to adopt a reflexively negative attitude towards business and innovation. Some expect me to predict the future. I’ve been interviewed by sloppy reporters, and by amazingly sharp and diligent ones. But in general, I sympathize with the reporter’s task, which often includes needing to get up to speed on a new topic several times a week, or even several times a day.

So that’s why I wrote this: Finding & Interviewing Experts in Business Ethics: What Journalists Need to Know. It’s a distillation of years of experience with journalists both good and bad. I hope journalists, and perhaps others, find it useful.

Indiana, Commerce, and the Ethics of Tolerance

Indiana’s new Religious Freedom Restoration Act (RFRA) has not been popular. Critics (such as Apple CEO Tim Cook) worry that it will be used to allow businesses to discriminate based on sexual orientation. More precisely, the new law limits the ability to use legal mechanisms to restrict the freedom to exercise one’s religion, including the exercise of one’s religion while engaging commerce. The “standard” example: if the baker’s religion says homosexuality is a sin, then under the RFRA no one can force the baker to bake a wedding cake for a gay couple.

It’s easy to miss a couple of key distinctions, here.

One is the difference between public law and private law. The government using legislation to force business owners to do something that violates their religion, is one thing, and that, on my understanding, is what the Federal RFRA and various other state-level RFRA’s are intended to limit. Historically, protection against the power of the state is, after all, an important liberal-democratic principle. But the Indiana RFRA apparently extends protection of religious freedom to cases in which the government plays no role. So if the gay couple in Indiana sues the baker, the baker can (apparently) point to Indiana’s RFRA and say, “no, the law protects me.” But having one’s religious conscience protected from intrusion by one’s fellow citizens is a much less compelling need than having it protected from the government. That doesn’t settle the issue of whether Indiana’s RFRA is a good law, but it’s an important distinction to note.

The second distinction is between rights, on one hand, and what is right, on the other. The RFRA is designed to protect bad behaviour — namely discrimination based on sexual orientation. Or to put it more generously, the RFRA is designed to protect religious freedom, and to protect it even when your religion requires you to do something bad, such as violating another human being’s right to be treated with dignity and respect.

Alas, living in a free society does sometimes require that we protect bad behaviour.

If you are a wealthy homeowner, and on a hot summer day a homeless passerby steps off of the sun-baked sidewalk and onto your lawn to pause in the shade of your tree, you are within your rights to tell him to get off your lawn. It’s your property, after all, and technically he is trespassing. And it would be wrong for government to tell you, “No, you must welcome everyone onto your lawn.” Respect for private property is a cornerstone of civilization, and so the right to property must be given broad respect, even when exercising that right means engaging in grotesque incivility.

(In the case of the motivations behind the Indiana law, the incivility in question has in fact been highly organized. As political theorist Jacob Levy points out in a blog entry, the anti-gay-marriage camp has historically been not just aggressive in defence of its take on religious freedom, but viciously and hatefully so.)

It bears considering that civility in the relevant sense is not just a set of behaviours; it’s a disposition, a way of being, a way of carrying oneself in life. In this regard, it is worth pointing out that those who would exercise their religious freedom by refusing to do business with gay consumers are not only engaging in morally-unjustifiable discrimination (as if that weren’t bad enough); they’re also conducting themselves in a way that is anathema to capitalism itself.

Consider this lovely quotation from Voltaire — pardon the somewhat dated vocabulary and examples — written in response to seeing people of various faiths interacting peaceably in pursuit of commerce in London.

Take a view of the Royal Exchange in London, a place more venerable than many courts of justice, where the representatives of all nations meet for the benefit of mankind. There the Jew, the Mahometan, and the Christian transact together, as though they all professed the same religion, and give the name of infidel to none but bankrupts. There thee Presbyterian confides in the Anabaptist, and the Churchman depends on the Quaker’s word. At the breaking up of this pacific and free assembly, some withdraw to the synagogue, and others to take a glass. This man goes and is baptized in a great tub, in the name of the Father, Son, and Holy Ghost: that man has his son’s foreskin cut off, whilst a set of Hebrew words (quite unintelligible to him) are mumbled over his child. Others retire to their churches, and there wait for the inspiration of heaven with their hats on, and all are satisfied. Voltaire (Letters on the English, Letter 6. 1734)

Voltaire’s point here isn’t about religion, but about the civilizing tendency of commerce, and the in turn about the virtues upon which commerce is founded. Non-discrimination is central among those virtues. When we engage in commerce, it’s not supposed to matter whether you’re black or white, Muslim or Jew, straight or gay. As my friend and fellow philosopher Alexei Marcoux wrote,* “To survive and flourish…a commercial culture must be populated in significant part by individuals possessing the virtues, habits, and dispositions that complement classically liberal institutions.” And that includes a commitment to treating each other with respect. If your religion doesn’t encourage such respect, then the law may well protect you, but so much the worse for society’s reverence for your religion.

(*See: “Is a Market for Values a Value in Markets?” Here’s the PDF.)

Kevin Crull, the CRTC, and CTV News: Is apology enough?

Note: News that Bell Media president Kevin Crull has apologized for interfering in news coverage has meant I’ve had to revise this blog entry, and change its headline.

The headline I originally proposed was “Bell Media President Kevin Crull Must Resign.” And my opening paragraph was, “Bell Media president Kevin Crull should resign. He has behaved dishonourably, and tendering his resignation is the honourable thing to do. Here’s why.”

Here’s the rest of what I wrote. At the end, I’ll talk about resignation vs apology.

It was recently reported that Crull, who is president of Bell Media, interfered with the journalistic independence of producers and reporters at CTV, a TV station that Bell owns.

Crull didn’t like a decision made by the CRTC (the Canadian Radio-television and Telecommunications Commission). So he reportedly ordered Wendy Freeman, the president of CTV News, to make sure that CRTC chairman Jean-Pierre Blais didn’t get any airtime on the Bell-owned station.

This was a flagrant violation of the fundamental tenets of journalistic ethics. According to the tradition of that honourable profession, according to sound ethical reasoning, and according to the tenets of the Code of Ethics of RTNDA (the Radio Television Digital News Association), journalists need to be free of interference from outside forces (including, for example, advertisers) and corporate bosses. Their duty is to report in the public interest, not in the corporate interest.

In particular, the RTNDA code stipulates that journalists must “Refuse to allow the interests of ownership or management to influence news judgment and content inappropriately.” Of course, Crull himself isn’t a journalist, so he himself isn’t bound by the code. But his position as head of a media company implies a need to respect the code nonetheless. You can’t plausibly run a company that employs professionals subject to such a requirement if you don’t intend to respect it. You couldn’t run a company that employs engineers and instruct them to build bridges out of papier mach&eacute. So Cull’s attempt — successful, at least in part — to interfere with reporting at CTV is a dire offence.

Normally, the head of a company has fairly wide latitude, ethically, in pursuing the best interests of the company. It’s your job, as the person entrusted with the care and feeding of a corporation, to do your best to protect its interests. But that task must always be carried out within the limits of the law and society’s ethical code. And media companies are in a special category. A significant portion of the value they bring to the table — the reason so many people are willing to watch, read, or listen — is that they make a promise, explicit or implicit, to report news based on what’s newsworthy, not based on what’s conducive to the corporation’s own interests.

Since some might wonder, I’ll point out that I’m not technically a professional journalist myself — I’m a professor who dabbles at blogging — but I take my independence seriously, and I assure you that the first time anyone in management at Rogers Media (owner of CB) tries to tell me what to write here at Canadian Business, that will be the very last day I write for them. Luckily, that has never happened. And even more luckily, I have another gig and so I have the luxury of saying “bye-bye” if anyone tries to tell me what to write. The journalists at CTV don’t have the luxury.

That is why I had concluded, when I drafted this piece, that Kevin Crull needed to resign. But instead, he has apologized. That’s a good move. Is it enough? Maybe. But anyone in a position like his — at the head of a media empire — ought to have the good judgment not to do things that require such public apology in the first place.

Starbucks’ ”Race Together” stunt is working—just not for Starbucks

So apparently Starbucks wants to turn tens of thousands of baristas into facilitators for discussions about race. Starbucks CEO Howard Schutlz recently announced that he wants the company’s front-line employees to write “Race Together” on the sides of customers’ cups. The idea is to inspire a conversation about race.

Not surprisingly, the plan has been thoroughly mocked online. Jokes abound, as do cynicism and outright disbelief.

More seriously, there’s a worry about the position the plan puts baristas in. It’s reminiscent of recent criticism of a plan by McDonald’s to require employees occasionally to engage in cuteness — dancing, singing, etc. — as part of the chain’s “pay with lovin'” campaign. The indignity that could imply is pretty clear. As for Starbucks employees, these are people in low-wage jobs who don’t need the extra hassle, or worse, that might come from being required to engage strangers on touchy topics.

But from a social point of view, it’s hard to fault Starbucks for trying. After all, of all the social ills facing modern society, racial prejudice, racial discrimination, and the resulting racial tension together constitute one of the big ones. And in fact, trying to do something — anything — that would help combat racism is a good example of what I would call true corporate social responsibility. That is, it’s a matter of a company taking on what it sees as a responsibility not to customers, or to employees, or to other specific stakeholders, but to society as a whole. Whether Starbucks or any other company actually has such a responsibility is another question. But if it does, then such a responsibility is emphatically a social one.

Naturally, some will be cynical. As is almost always the case when a big company makes big headlines, there will be conspiracy theorists who speculate that the campaign was never really intended to get baristas to engage customers, but to raise a ruckus and thereby garner Starbucks free exposure. There’s no such thing as bad publicity, blah blah blah.

That could certainly be the case. But that doesn’t mean the campaign couldn’t have social impact. Even if thousands of baristas are not going to be joining hands with customers to kick down racial barriers, the company has none the less started a dialogue about race. After all, the question everyone is talking about now is about just why it is that having employees engage customers on race would be such a problematic thing. The fact that the prospect is an awkward one is, after all, precisely a result of racial tension. So, we’re not talking about race, but (you’re reading this, aren’t you?) we’re talking about how hard it is to talk about race. And that, I think, amounts to the same thing.

See also: Why Starbucks CEO Howard Schultz is right to talk about race

Why it matters that the Apple Watch is gender neutral

The Apple Watch is here! OK, not quite here yet. But soon, soon. Will the nifty features built into Apple’s latest gizmo help the company win this round of battle of wearable tech? Opinions vary.

Whether you love it, hate it, or doubt it, one of the most interesting things about the new Apple Watch lies in the somewhat subtle fact that the watch is ungendered. Rather than coming in two genders — men’s and women’s — it merely comes in two sizes, bigger and smaller. On Apples product page you’ll find reference to the 38mm model and the 42mm model, but no reference to “his” and “hers” models.

This is a subtle thing, but entirely refreshing. Even in 2015, we still have plenty of pointlessly gendered products. But Apple isn’t the kind of company that was going to produce watches with a “pink for her” option.

Of course, not all gendering of products is stupid. Women are, on average, smaller than men. And so clothes and other wearables designed for women should generally be smaller. But that statistical generalization obscures substantial overlap in body size, and a commensurate overlap in preferences. And as for watches, gender bifurcation is at least somewhat dubious. Most jewelry and department stores keep watches neatly divided, like members of some especially conservative place of worship, into a section “for him” and a section “for her.” Generally, the big watches are in the “for him” section and the dainty ones are in the “for her” section. But interestingly, when you look in the display cases you see considerable overlap in the size of the watches. The biggest watches in the women’s section frequently dwarf the most slender ones in the men’s section. So the bifurcation amounts to gendering for gender’s sake.

It is interesting, then, that Apple opted to buck the trend and go gender-free. Of course, the fact that the company didn’t name them “men’s” and “women’s” doesn’t mean Apple didn’t intend to target two different sets of customers. And some people are inevitably referring to the 38mm Apple Watch and the 42mm one as the “women’s” and “men’s” sizes. But Apple isn’t calling them that. And words matter. The company apparently has no interest in reinforcing gender stereotypes. For its part, the company is just making two different sizes of watch, and offering them for sale. And its refusal to gender the watches is as much a recognition of the diversity of its customers as the fact that the company offers more than one size to start with.

From Oxycontin to Fast Food: The Ethics of Selling Not-Too-Much

Business is about sales. From a business point of view, your mission is to make a product that people want, and to sell a lot of it. The drive to sell a lot is what motivates cleverness in product design, efficiency in production, and consumer-friendly low prices.

Sure, the idea of selling more-more-more has its critics. There’s a strain of anti-consumerism that sees the drive to sell (and hence buy) more as the root of all evil. And certainly in some product categories, maximizing the selling-and-buying cycle can have pretty bad environmental effects.

But in general, it’s hard to tell a businessperson, with a straight face, that they’re ethically obligated not to sell so much stuff. After all, that’s their function.

There are, however, exceptions, cases in which selling more is so obviously socially destructive that it becomes morally mandatory to try to maybe sell a little less.

See, for example, this must-read piece by Mike Mariani in the Pacific Standard, called “Poison Pill: How the American opiate epidemic was started by one pharmaceutical company.” It’s the story of how Purdue Pharma, maker of the opioid analgesic Oxycontin, used innovative marketing strategies to turn the painkiller into a $100-million commercial success, and how the drug not coincidentally became the darling of millions of addicts. Part of that story is about unethical (and illegal) marketing methods. But the question of methods can’t be separated entirely from the question of goals. And the goal, here, is sales — in particular, maximizing sales. But when you maximize sales of a drug like Oxy, you inevitably encourage a greater amount of “leakage” of the drug from the stream of legitimate uses into the realm of addiction and criminality.

This is clearly an extreme case. Oxycontin is a potent narcotic, subject to strict legal controls for good reasons. Taken incorrectly, it can ruin your life or even kill you, and for that reason distribution channels are limited.But it’s worth noting that this is not a bad product. Used properly, it’s a godsend.

But oxy is far from the only product that is good when used properly, but dangerous when used incorrectly. Consider the Big Mac. Or 7-Eleven’s Big Gulp. Or Coca Cola. Each of those is harmless when consumed the way any reasonable person would consume them, i.e., relatively seldom. A single Coke — or even a Big Gulp-sized Coke, just isn’t going to hurt you. So, it would seem no one is doing anything wrong by selling you one. Or even two. Or even several.

Now, when consumed in excess, both Coke and Big Macs can have, shall we say, a negative impact on your health. But it’s hard to imagine telling the cashier at minimum-wage earning clerk at McDonald’s or 7-Eleven that they’re obligated to cut customers off after they’ve had “one too many.” And besides, with regards to grownups, at least, consumers are allowed to make their own mistakes, even at the risk of significant personal injury. Hey, that’s the price of freedom.

But there’s also the question of social impact. Coke and Big Macs aren’t just having an impact on individuals; they (along with lots of other high-sugar fast foods and snack foods) are implicated in the obesity epidemics currently plaguing so many industrialized countries. From a social point of view, selling more isn’t better. And from the perspective of net sales, it’s slightly more plausible to think that a company might contemplate exercising some restraint.

Of course, it’s all too easy to think that such companies should sell less. But it’s much harder to specify how much less, and how they should do it. Indeed, it’s hard even to enunciate what the relevant moral principle would look like. Go ahead and sell, sell, sell, but only up to…what point?

I don’t have a solution to suggest here. My point is just that the tragic story of oxycontin is merely a grotesquely extreme example of a larger problem, namely how to do business responsibly when selling a product that is at once both good and evil.

Does the punishment really fit SNC-Lavalin’s alleged crimes?

News that Canadian engineering giant SCN Lavalin is facing new criminal charges caused a stir last week, not least because of the penalties that are on the table. The fraud and corruption charges spring from the company’s dealings in Libya. And if convicted, in addition to any other penalties handed out the company could be barred, for 10 years, from competing for contracts with the Government of Canada — a category of contracts that make up an important element of the company’s income.

Jacques Daoust, economy minister for Quebec (where SNC is based) thinks that rule is too harsh, and was quoted as saying, “In 10 years a company might not be the same. Everything can change. And in the case of SNC, they’ve decided to make drastic changes already over a short time…”

But the appropriateness of the punishment depends in part on what your goal is in punishing in the first place.

Some will say that we need harsh penalties as a deterrent. That is, if we punish wrongdoing (including corporate wrongdoing), wrongdoers should be less likely to repeat their offences, and other potential wrongdoers are likely to think twice before stepping out of line. But so far criminologists have been unable to find support for the claim that deterrence actually works. It defies our intuitive understanding of human motivation, but it’s true: we simply don’t have clear evidence (despite having looked for it) that the threat of punishments deters corporate crime.

Another possibility is that punishment is intended to inspire reform. This is presumably what Daoust has in mind: having already suffered significant legal penalties, SNC Lavalin has engaged in a process of reforming itself, making internal changes that (hopefully) will change the organization’s character and make it less likely to offend in future. Will it work? Who knows? But reforming a corporation may be more plausible than reforming a human criminal: after all, you can literally re-engineer a corporation to change the way it makes decisions, but you we don’t know how to do that to a human (and if we could it likely wouldn’t be ethical). And if, as Daoust seems to imply, the key reforms have already been implemented, a prohibition on federal contracts would be baldly punitive, a form of punishment for its own sake.

And to be sure, some will cheer for purely punitive actions. Denunciation — the community, through legal mechanisms, effectively shouting “No!” in the face of wrongdoing — is another of the ‘classical’ justifications for punishment. But in engaging is such denunciation, the Canadian government might be ‘cutting off its nose to spite its face,’ as the saying goes. Because by barring SNC for competing for contracts, just for the pure punitive joy of it, the government would also thereby be cutting itself off from a large, competent, Canadian engineering contractor.

This leaves one possibility, one rationale that would make sense of debarring SNC, in addition to whatever other penalties the company and its officers might suffer. The other classical rationale for punishment — a rationale usually reserved for explaining the value of incarceration — is an interest in removing offenders from settings in which they would be able to repeat their crimes. Criminologists refer to this as incapacitation. When you put the child molester in jail, he no longer has access to children and hence can no longer molest them. Put him away for 20 years, and those are 20 years during which he will molest zero children. By parallel, if you forbid a company from competing for government contracts for 10 years, those are 10 years during which they will engage in precisely zero instances of attempted bribery or other acts of corruption, at least with regard to bribery or corruption of Canadian officials.

Why did Louis CK price his latest video at just $5? Why leave money on the table?

As the entire universe probably knows by now, Louis CK released his latest hour-long comedy special, “Live at the Comedy Store,” a couple of weeks ago.

His business model—the distribution mechanism for the video—is by now familiar. As with his previous special, he’s selling this one as a video that can be downloaded via his own website. Not on iTunes, not on Amazon. Just his own website. And the one-hour video is priced not at the $9.99 or $18.99 that the pricing savants at iTunes or Amazon would surely have insisted upon, but at the low, low price of $5.

All of this is pretty amazing. Why, in particular, the $5 price tag? After all, the comedian surely could have charged more, and made more money for himself in the process. Yes, as price goes up, demand goes down, generally. And probably there really are some people who would be willing to pay $5 but unwilling to pay, say, $10. So keeping the price low let demand rise. And indeed this video is apparently selling better than the previous one. But if CK had opted to choose more — even substantially more — relatively few fans would be unable or unwilling to afford the difference (and even fewer such people who have the requisite internet connection in the first place). I’d wager that he could literally have doubled his price and not reduced demand by anything close to enough to offset the gains. But I’ll leave such speculation to the marketing gurus out there. Suffice it to say that as these things go, $5 is a surprising bargain.

So CK presumably had an actual choice about how to price his special, his ‘product.’ Why choose such a low price?

Some will suggest that what’s really going on is something cynically clever, perhaps an attempt to use low prices as a way to build his brand or his market share? Perhaps. But CK’s brand could hardly be bigger. If you hadn’t already heard of Louis CK, and if you weren’t already an ardent admirer, it’s unlikely that being able to access what is by all accounts his least-polished special to date would result in your sudden awareness and conversion.

Another possibility was that CK’s pricing was effectively an act of charity. He “left money on the table,” as the saying goes, and that money stayed in the pockets of his fans. And for those fans (however many there are) who could not have afforded to pay $10 for the video, his pricing effectively amounted to gifting them with access that they otherwise wouldn’t have had.

In other words, this rich entertainer (according to some reports CK is worth over $25 million) just donated a little bit of money to every single person who downloaded his special.

Of course, whether he was thinking of it that way when he chose that price is impossible to tell. Who knows what was going on in that head? This is a good illustration of an age-old debate about what it is that really matters, ethically: outcomes or intentions. In this case, it’s impossible to know what CK intended, but it’s much easier — for fans of comedy and fans of charity — to praise the outcome.

Canada should follow New York’s crackdown on bogus herbal remedies

This is good news for consumers, but bad news for makers and sellers of herbal supplements. The New York State attorney general’s office accusing major retailers of selling. The office issued a series of cease and desist orders on Monday, targeting herbal supplements that, according to genetic tests, don’t contain what they claim to and often contained ingredients that don’t appear on the label. Walgreens, Walmart, and Target, along with supplement and vitamin retailer GNC, have been ordered to stop selling “adulterated and/or mislabeled” herbal dietary supplements, and given one week to produce a small mountain of information regarding the methods by which those products are manufactured and tested.

The AG’s investigation was apparently spurred by a 2013 article in the New York Times that cited a University of Guelph study that used genetic analysis to examine various commercial herbal remedies. That study found a striking disparity between what was on the label and what was actually in the bottle. (I wrote about the study here.)

As I wrote back in 2013, the findings of the Guelph study (and now the findings of the New York attorney general) suggest a quality control problem at best, and outright fraud at worst.

As it happens, I gave a presentation last week (with pharmacist and blogger Scott Gavura) on the ethics of marketing complementary and alternative medicines, including things like herbal supplements. You can see the webcast here. One of the key points we made involves the difference between marketing, say, a homeopathic ‘remedy’, which is utterly incapable of having any biological effect because it literally lacks any active ingredient, and marketing herbal products, a category of products which can in some cases be quite potent, but which can be highly variable in content, concentration, and labelling, not to mention the extent to which their effects and side effects have been verified. Marketing the former is unforgivable: you have to be either a huckster or willfully ignorant to market homeopathy as if it actually works. But the ethics of marketing herbal products is a trickier thing.

The heart of the ethical problem here is that herbal supplements are what economists call a “credence good” — that is, a good that most consumers aren’t qualified to evaluate. The only thing you can do, as a consumer who buys an herbal supplement, is rely upon the word of the manufacturer who claims that those pills really do contain ginkgo biloba or garlic or whatever. In other words, it requires trust.

And that trust could in principle be supported in two things, two forces that could make it more likely that those product labels would tell you the truth. The first is the ethics of the manufacturer. Most people are basically honest, so most-of-us-most-of-the-time trust the makers of the goods we consume, and that works out just fine. But as a backup, we have commercial law and various regulations to give makers and sellers of products good reason, from a self-interested point of view, to treat consumers well.

Alas, the herbal supplement industry has demonstrated that it cannot be trusted. So it’s a good thing that the NY state attorney general is stepping in to protect consumers.

Now if only Canadian regulatory and law enforcement agencies would follow suit.


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