Archive for the ‘consumers’ Category
Food Labels that Matter
Filed under: capitalism, consumers, economics, efficiency, food, honesty, information, labelling, marketing |
Comments (13) Product labels are important, both practically and ethically. Reading the label is a key way to make sure the thing you’re buying meets your needs. Labels on products can help inform consumers about what they’re buying, reducing what economists call information asymmetries between buyer and seller. Where substantial information asymmetries exist, voluntary exchanges can fail to live up to the promise of mutual benefit, and society as a whole suffers from the resulting reduction in market efficiency.
Of course, not everything that could be said about a product could possibly be crammed onto a product’s label, so generally the information provided consists of what the maker of the product really wants to brag about, what consumers insist on knowing, and anything beyond that that regulators have seen fit to insist upon.
So precisely what gets labeled, and what form the labelling takes, matters a lot. Now while the moral significance of labels in general is not disputed, just what should be included on labels is hotly debated.
Take, for instance, the question of whether a food product has been genetically modified (GM). Or, more precisely, whether the ancestor of the organism from which a food product was derived was genetically modified by means of a particular set of laboratory procedures. It’s important to be precise, here, because there is virtually nothing that we eat today that hasn’t been ‘genetically modified’ by humans in some loose sense.
If you thought the question of GM labelling had gone away with the demise of California’s Proposition 37 this past November, think again. Washington State is apparently about to hold a vote on the issue, and there are reports that the anti-GM faction has been energized by the battle in California, and perhaps even galvanized by the massive sums of money that ‘big food’ and ‘big ag’ apparently spent to help defeat Prop 37. But as I’ve argued before, the demand for mandatory labelling of GM foods is misguided: the broad scientific consensus is that there’s no reason to worry about GM foods. Making such labelling mandatory, just because some people want to know if their food’s genes have been tweaked in certain ways, would be unjust.
Contrast this with the stunning report recently released by the ocean conservation group, Oceana. Nevermind subtle genetic modifications. Oceana found that a very high proportion of the fish sold in American retail outlets isn’t even from the species indicated on the label. So consumers are buying “snapper” that isn’t really snapper, and “tuna” that isn’t really tuna. Here, consumers are being lied to. Information isn’t just being omitted; the information being given is actually a lie, and so consumers are being cheated.
If the food companies of the world are going to expend money and effort to provide consumers with information, it’s pretty clear which kind of issue they should expend it on.
Are Smaller Restaurant Portions Ethically Better?
Should restaurants aim at serving smaller portions? Many are doing so, these days, and it’s easy to see why. Some of this is motivated by calorie-labelling requirements that are now in force in some jurisdictions. But there are other reasons, too.
Regardless of regulations, smaller portions are appealing proposition, in many ways. Other things being equal, smaller portions mean fewer calories, which is good for customers’ waistlines. And, other things being equal, smaller portions means less money spent on ingredients, which is good for restaurants’ profits. Looked at that way, smaller portions look like a win-win.
But obviously there are limits to that argument. Some customers may appreciate smaller portions, just as some will choose ‘lite’ beer, child-size portions, and salad with dressing on the side. But plenty of other customers still appreciate bigger helpings, with extra cheese, please. So while offering choices in terms of serving size may be a no-brainer, smaller portions generally can’t be assumed to be a crowd-pleaser at all.
An argument could be made that there’s a social obligation here. Regardless of what individual customers want, it’s pretty clear that, as a society, we could all stand to eat less. North American waistlines keep expanding, and the effects that is having on our health and our healthcare costs are by now pretty familiar. Do restaurants have an obligation to help stem the tide of the obesity epidemic? Do they have such an obligation even if smaller portions drive customers to the restaurant down the street, the one that’s more than willing to supersize it?
This is a question that pits social obligation against a company’s interest in making a profit. But note, of course, that “profit” here is a misleading term; if it is to be used at all, we need to understand it broadly. Not all restaurants are mega-chains like McDonalds and Subway, and not everyone who benefits from restaurant profits is a stereotypical wealthy shareholder. For your average restaurant or even small chain, “profit” might really just mean “staying in business.” For a small business, staying in business can itself be an obligation; staying in business means fulfilling obligations to investors, to employees, to suppliers, and to creditors.
Add to that the limited impact of unilateral action. Few if any restaurants or even chains have the ability to make a dent in the obesity epidemic. Your typical restaurant owner is faced with the fact that downsizing portions just isn’t going to have any real effect. Only a collective effort can do that, and that can only really happen through regulation.
The other interesting, and perhaps counter-intuitive, route, is for restaurants to get creative. They can look for ways to reduce portion sizes — and hence calories — in ways that aren’t going to be noticed and resented by those customers who are accustomed to judging restaurant servings according to a ‘bigger is better’ mentality. I’m not suggesting anything deceptive here. But if there are differences in composition or process or plating that can leave customers feeling well-fed without dumping excess calories into their systems, that seems to be a good thing.
One last note. If you’re running a restaurant and the best way you can think of to bring in customers is to serve gut-busting portions, then shame on you. You’re just not as good at your job as you should be. The very best restaurants typically have very small — but incredibly satisfying — servings. Clearly there’s more than one way to make customers happy. So while it’s hard to defend an obligation to promote social welfare in a way that risks profits, it’s much easier to say that restaurants have obligation not to take the easy way out. After all, innovation, efficiency, and creativity are core market values, aren’t they?
3D Printing and the Ethics of Value Creation
Filed under: consumers, CSV, Design, entrepreneur, innovation, supply chain |
Comments (1) 
Kelly John Rose, co-founder of Panda Robotics, with a PandaBot 3D printer
A technology that adds value to our lives is an ethically good thing. A technology that enables a whole range of services that add value to our lives is even better. Smartphones are the obvious example: Apple’s iPhone has spawned an entire industry of app-makers. Even more important, ethically, would be a technology that could make a real change in grass-roots manufacturing, one that would allow innovation to be democratized, and that would allow local entrepreneurs to solve all kinds of problems, both big and small.
So, what if a single technology could do all of the following?
What if it allowed a surgeon in an isolated northern Canadian town to manufacture custom-made surgical implants, right in the clinic, to allow reconstructive surgery to be done locally, rather than sending her patient hundreds of kilometres to a larger city? What if it allowed a self-employed courier with an electric bike in a rural African community to have replacement parts for the bike made, cheaply and quickly, in the nearest town with electricity? What if it allowed every potential entrepreneur with a great idea, and some basic computer skills, to click “Print” and have those ideas turned into physical realities? What if this technology meant you didn’t have to drive anywhere to replace the plastic bolt that was missing when you opened the box for that Ikea desk, but instead just printed it out, yourself?
All of those things — life-enhancing things, big and small — are part of the promise of 3D printing.
If you haven’t yet heard of 3D printing, now is the time. 3D printing is exactly what it sounds like — printing 3-dimensional objects much the way current desktop printers print 2-dimensional text and images. Although technologies vary, the most common method of 3D printing uses “molten polymer deposition,” basically laying down micro-thin layer after micro-thin layer of melted plastic to build things. Such printers operate much like standard desktop inkjet printers, but with an extra axis of motion and a “print” head that squirts molten plastic rather than ink.
To learn more about this technology, I paid a visit to Toronto’s own Panda Robotics, a startup in the final phases of finishing its prototype PandaBot printer. Unlike many existing 3D printers, which are aimed at industrial applications, the PandaBot is intended as a consumer gadget, priced at about $1000 and expected to ship in spring of 2013. The PandaBot plugs into a computer via standard USB cable.
I asked Pandabot co-founder Kelly John Rose why he thinks 3D printing is so exciting. “It opens up a whole new economy,” said Rose, “in customization for clients, in how designers can interact with their customers directly by creating designs and sending them cheaply over the internet to be printed out, and in how companies can provide better customer service by providing replacement parts at no cost to themselves.” To provide a replacement part, all a company needs to do is create a printable CAD file for the replacement part and make it accessible on its website. All the consumer has to do is download the file and hit “Print.”
It’s clear that the technology has significant implications for manufacturing and for supply chains. “As 3D printing continues to evolve at an incredibly rapid rate, it won’t be long before we will simply purchase designs and print them out as needed at home rather than go to a store every time we need a new part, new mug, or new tool,” Rose enthuses. “It essentially democratizes manufacturing.”
Entry-level 3D printers like the Pandabot are the all-important thin edge of the wedge, in terms of understanding the significance of this technology. Industrial-quality 3D printers are now being used for rapid prototyping and for architectural modelling. There are also reports that the US military has deployed one or more 3D printers to the front lines in Afghanistan, where engineers can use them to make replacement parts for vehicles and weapons right on the spot. Advanced 3D printers can print objects out of metals, too, so the possibilities are endless.
But cheaper, smaller-scale printers like the Pandabot are going to play a crucial role in weaving 3D printers into our lives, and into the way we think about manufacturing. According to Pandabot’s Rose, “the more 3D printers are out in people’s homes, the more companies will want to provide [printable] goods for them. The more companies provide goods for them, the more people will want these printers in their homes. It’s a positive feedback cycle that, once it starts, will change how we all purchase goods.”
Technologies like this help us see that ethics isn’t just about rules. It’s about creating value, and finding fairer distributions of value. Our interest in business ethics should include an interest in the ways in which markets and businesses create value, and the rules, principles, and innovations that help them do that.
GMO Labelling and Consumer Rights
Filed under: activism, consumers, labelling, product safety, rights |
Comments (3) Next month, Californians will vote on Proposition 37, regarding the mandatory labelling of genetically modified foods. Because it’s about food, and because it’s taking place in California — a place where they take their food and their plebiscites seriously — the effort has been highly-publicized and highly politicized. California is both an important agricultural state and the state with perhaps the highest concentration of believers in the “Natural is Good” mantra. So it’s not surprising that the fight over Prop 37 is raising some dust.
One of the favourite slogans of the pro-Prop37 forces is the claim that consumers have a right to know what they’re eating. This is a strong claim. Using the language of rights is a way of making the strongest possible kind of ethical claim, a way to draw a line in the topsoil, as it were. To say that someone has a right to something is quite different from saying merely that “it would be good if we did this” or “good people and good companies do this sort of thing.” It expresses a kind of moral absolute.
Indeed, if it were true that consumers really have a strong right to know what they’re eating — including, presumably, a right to know the genetic makeup of their food — then Prop 37 ought to be redundant. Any corporate citizen worth its salt makes every effort to respect its customers’ rights. When there is a right to some piece of information, institutions and methods of production need to be designed and implemented to respect and promote such rights.
But the idea that we have a right to know what we’re eating can’t stand up to scrutiny, at least not if we define “what we’re eating” to include every aspect of the food’s makeup and indeed its history. Counter examples are easy. If you’re sipping a Coke, do you have a right to know the exact proportion of various ingredients? No, that’s a secret. If you’re eating in a restaurant, do you have the right to know the Chef’s method for searing your tuna steak so perfectly? Of course not — though you of course have the right to eat elsewhere.
Or consider this example: do you have the right to know whether the banana you’re eating was picked on a Thursday? (Imagine that Thursday is a holy day in your religion.) No, because recording and tracking day-of-harvest for boatloads of bananas would be difficult and expensive. Yes, the fact might matter to you a lot, but there are other ways of accommodating your interest in that information, short of attributing a morally weighty (let alone legally binding) right to it. Taken seriously, the right to know your food’s history even implies that the racist or sexist or homophobe has a right to personal information about the people who handled their food along the supply chain. And yet surely there is no such right to information that let’s someone act out their prejudices.
The point is that people might want to know all sorts of information about the food their eating. And that’s fine. But saying they have a right to it is a different thing altogether. Rights protect important interests. And there simply is no compelling evidence that anyone needs to know that genetic makeup of their food, or that a right to such information would protect any important consumer interest.
Addendum:
For more, see my previous entry on the “Right to Know What I’m Eating” over at my Food Ethics Blog.
The Hidden Ethical Value of Social Networking
Filed under: accountability, capitalism, complexity, consumers, economics, information, internet, markets, trust |
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Like it or not, we are in the middle of a social networking revolution. And of course, that’s hardly news. Endless ink, digital and otherwise, has been spent on worrying over whether Facebook, Twitter, and their rapidly-multiplying ilk are the best or the worst thing that has ever happened to humankind.
A recent story about car-pooling apps highlights the fact modern technology, including social media, has a role to play in making markets more efficient. And since efficient markets are generally a good thing, this counts as a big checkmark in the “plus” column of our calculations concerning the net benefit of social media.
Carpooling is a great example, because the relative lack of carpooling today is a clear instance of what economists call “market failure” — a situation in which markets fail efficiently to provide a mutually-beneficial outcome. Think of it this way. There are lots of people in need of a ride. And there are lots of people with rides to offer. The problem is a lack of information (who is going my way, at what time?) and lack of trust (is that guy a potential serial killer?) Social networking promises to resolve both of those problems, first by helping people coordinate and second by using various mechanisms to make sure that everyone participating is more or less trustworthy.
With regard to car-pooling, the obvious benefits are environmental. But the positive effect here is quite general: just about any time we find a way to foster mutually-advantageous market exchanges, we’ve done something unambiguously good. This is one example of the ethical power of social media.
Another big enemy of efficient markets is monopoly power, or more generally any situation in which a buyer or seller is able to exert “market power,” essentially a situation in which some market actor enjoys a relative lack of competition and hence has the ability to throw its weight around. Social media promises improvements here, too. Sites like Groupon.com allow individuals to aggregate in ways that give them substantial bargaining power.
The general lesson here is that markets thrive on information. Indeed, economists’ formal models for efficient markets assume that all participants have full knowledge — that is, they assume that lack of information will never be an issue. Social networks are providing increasingly sophisticated mechanisms for aggregating, sharing, and filtering information, including important information about what consumers want, about what companies have to offer, and so on. So while a lot of attention has been paid to the sense in which social media are “bringing us together,” the real payoff may lie in the way social media render markets more efficient.
Organic Foods and Bad Behaviour
Filed under: consumers, ethics, food, labelling, marketing, values |
Leave a comment Is labelling foods as “organic” a positive thing or not? The Environmental Working Group certainly thinks so. To support this notion, the EWG has just released its annual “dirty dozen” list, consisting of fruits and veggies that are especially high in pesticide residue.
But check out this recent study, which suggests that seeing and thinking about organic foods can make people less ethical. The researchers report that test subjects asked to look at and rank (basically, to focus on) either a bunch of organic-labelled foods or to look at and rank either comfort foods (e.g., ice cream) or a more neutral food (e.g., mustard). Following this, the test subjects were given tests to evaluate a) their willingness to help a needy stranger, and b) the harshness of their evaluation of various apparent moral transgressions. The result: people exposed to organic foods were both less likely to help others, and more likely to be harshly moralistic.
This is an interesting result in its own right, but it has particular implications for marketing. Very roughly, the study suggests that marketing produce as organic can have negative effects on consumers’ attitudes and behaviour. That is, the study says nothing negative about organic food itself, or about consuming it. The implication is specifically for labelling it and promoting it as organic.
Of course, we can’t immediately condemn such marketing based on this kind of evidence. It may well be that the net effect of selling lots of organic food outweighs the effect such marketing has on people’s attitudes and behaviour. But at very least, this should make us stop and think.
Now, it’s highly unlikely that this effect is specific to organic foods. Presumably, labelling food as organic here is relevant because for many people that label implies something virtuous. So the implication is that promoting foods (or presumably other products) in terms of virtue could be a mistake.
In general, labels that indicate a product’s characteristics help consumers get what they’re looking for. This is especially important with regard to characteristics that can’t be seen with the naked eye, including key characteristics of most so-called ethical products. You can’t tell by looking at an apple, for instance, whether it’s been sprayed with pesticides — unless, of course, you see the “Certified Organic” label on it. Labels of various kinds help people get what they value, and in that way help achieve the promise of a free market.
The alternative to using labels to help people find products that match their own values is to rely on government regulation and industry “best practices.” If there were widespread agreement that organic foods really were better, ethically, they there would be some justification for having government use legislation to drive non-organic foods from the market. We rely on labels and third-party certifications precisely because there isn’t sufficient consensus to warrant a general standard. But the study described above highlights one of the costs of the path we’ve chosen. By moralizing the marketplace we may, ironically enough, be encouraging immoral behaviour.
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Thanks to Andrew Potter for pointing me to the study discussed here.
Financial Advice, Competency, and Consent
Filed under: consumers, decision-making, ethics, finance, investing, professionalism, trust |
Comments (1) I blogged recently on a California case about an insurance agent who was sentenced to jail for selling an Indexed Annuity — a complex investment instrument — to an elderly woman who may have been showing signs of dementia. I argued that giving investment advice is just the sort of situation in which we should expect professionals to live up the standard of ‘fiduciary’, or trust-based duty. An investment advisor is not — cannot be — just a salesperson.
But asserting that investment advisors have fiduciary duties doesn’t settle all relevant ethical questions. It settles how strong or how extensive the advisor’s obligation is; but it doesn’t settle just how the financial advisor should go about living up to it.
The story alluded to above again serves as a good example of that complexity. How should a financial advisor, in his or her role as fiduciary, handle a situation in which the client shows signs of a lack of decision-making competency? Sure, the advisor needs to give good advice, but in the end the decision is still the client’s. How can an advisor know whether a client is competent to make such a decision?
In the field of healthcare ethics, there is an enormous literature on the question of ‘informed consent,’ including the conditions under which consent may not be fully valid, and the steps health professionals should take to safeguard the interests of patients in such cases.
The way the concept is explained in the world of healthcare ethics, informed consent has three components, namely disclosure, capacity and voluntariness. Before a health professional can treat you, he or she needs to disclose the relevant facts to you, make sure you have the mental and emotional capacity to make a decision, and then make sure your decision is voluntary and uncoerced. And the onus is on the professional to ensure that those three conditions are met. But there’s really nothing very special about healthcare in this regard. Selling someone an Indexed Annuity isn’t as invasive, perhaps, as sticking a needle in them, but it often has much more serious implications.
Of the three conditions cited above — disclosure, capacity and voluntariness — disclosure is of course the easiest for those in the investment professions to agree to. Of course you need to tell your client the risks and benefits of the product you’re suggesting to them. But of course, many financial products have an enormous range of obscure and relatively small risks — must the client be told about those, too? There’s only so much time in a day, and most clients won’t care about — or be able to evaluate — those tiny details.
Voluntariness might also be thought of as pretty straightforward. A client who shows up alone and who doesn’t seem distressed is probably acting voluntarily, and it’s unlikely that we want investment professionals poking around our personal lives to find out if there’s a greedy nephew lurking in the background and badgering Aunt Florence to invest in penny stocks.
What about capacity? That’s the tough one, the one implicated in the court decision alluded to above. Notice that in most areas of the market, no one tries to assess your capacity before selling to you. I bought a car recently, and all the salesperson cared about was a driver’s licence and my ability to pay. No one tried very hard to figure out if I was of sound mind — beyond immediate appearances — and hence able to make a rational purchase.
Investment professionals do typically recognize a duty to ensure the “suitability” of an investment, and presumably whether an investment is suitable depends on more than just the client’s financial status. It also depends in part upon whether the client is capable of understanding the relevant risks. Being a true professional and earning the social respect that goes with that designation is going to require that financial advisors of all sorts adopt a fiduciary view of their role. That means learning at least a bit about the signs of dementia and other forms of diminished capacity. It also means knowing how and when to refer a client to a relevant health professional. Finally and most crucially, it means putting the client first — solidly and entirely first — and hence being willing to forego a sale when that is clearly the right thing to do.
Investment Advice and Fiduciary Duties
Filed under: complexity, consumers, ethics, finance, honesty, investing, law, professionalism, trust |
Comments (6) Most of us rely on accredited professionals for a range of services. Doctors, lawyers, accountants and so on play a huge role in our lives, giving us advice and rendering services that we would be foolish to provide for ourselves. Some topics, in other words, are beyond the ken of even the dedicated do-it-yourselfer. Financial planning is in that category. If you plan to do anything much beyond storing your money in a mattress, you probably want help from a professional. And you hope — really, really hope — that that professional is on the ball and has your best interests at heart.
A recent story highlights some of the difficulties in this regard. The story is about an independent insurance agent facing jail time for selling a particular kind of investment — an indexed annuity — to an 83-year-old woman. The catch: prosecutors say the woman showed signs of dementia, and the implication is that the agent took advantage of the fact that the buyer may not have understood the limits and disadvantages of the investment instrument she was buying.
Even minus the question of the buyer’s competency, there are worries here. For perspective on this story, I talked to Prof. John Boatright, who literally wrote the book on ethics in finance. He pointed out to me that Equity-Indexed Annuities are so complex that they’re a dubious product quite generally. He also pointed out that such annuities are investment instruments sold by people in the insurance industry who are not truly investment specialists. Most investment instruments are regulated such that they can only be sold by investment professionals with suitable training and credentials.
But regardless of the kind of professional you go to for investment advice, the underlying ethical question is whether that professional is going to have your best interests at heart. When the thing you’re buying is too complex to understand, you have to put your trust in the seller. Such trust is best underpinned by what are called fiduciary duties. A fiduciary, roughly speaking, is someone to whom something of value is entrusted. And a professional who bears a fiduciary duty has a stronger obligation than a mere salesman. Someone out to sell you something — a car, a stereo, whatever — has a plain obligation not to deceive you, but generally isn’t obligated to make sure that the product is right for you. Whether the product is right for you is up to you to decide. But a fiduciary is held to a higher standard. As Alexei Marcoux points out, we are vulnerable in various ways to professionals of various kinds, and that vulnerability generates duties on the part of those professionals, not just to be honest to us but to put our interests first. The transaction between a professional and a client is not a regular market transaction; rather, it is (or ought to be) governed by the higher standard implied by a fiduciary relationship.
Whether financial advisors and financial planners proclaim and live up to such a high standard is another matter. It certainly seems they should. In some places, financial professionals are explicitly expected to live up to the standard applied by a fiduciary duty, and other jurisdictions are moving in that direction. If ever there were a circumstance in which we were vulnerable, a situation in which we are trusting a stranger to tell us what to do with our life’s savings seems to fit the bill.
What Determines Consumer Value?
Is it ethically OK for a manufacturer to reduce the amount of product in a package, but to keep charging the same for it?
Here’s an interesting example. The image shown here shows three varieties of Kraft Peanut Butter — Smooth, Extra Creamy, and Whipped. Notice that all three varieties are in jars of the same size, and all three cost the same. The ingredients are also virtually the same. But notice also that the one on the right — the Whipped peanut butter — includes one special ingredient not listed on the label. That ingredient also happens to be one that is free to the manufacturer, and that takes up a lot of space in the jar. That ingredient is air.
Yes, whipping peanut butter (like whipping cream or anything other liquid or paste) adds air to it. It fluffs it up. So if you look closely you’ll see that the label on the jar of Smooth peanut butter indicates that its contents weigh 1 kilogram (1000 grams). But the label on the jar of Whipped peanut butter indicates that its contents weigh just three quarters of a kilo, or 750 grams. The result is that when you buy a jar of whipped peanut butter, you’re getting 25% less peanut butter, or a jar that is effectively 1/4 full of air.
From a manufacturer’s point of view, this is wonderful. Being able to charge just as much while reducing the amount, and cost, of ingredients by a quarter is something of a coup.
Is it fair to the consumer? Or is the consumer being ripped off, getting less peanut butter for the same price? Is the consumer getting less value?
Well, no, I don’t think the consumer is being ripped off, though I suspect some will disagree with me. The 750g jar of Whipped peanut butter contains no less value than the 1000g jar of Smooth peanut butter precisely because there’s nothing to say that 750g of the one is less valuable than 1000g of the other. They’re different products, despite having the same ingredients. The value of a thing is absolutely not determined by its ingredients; all that its ingredients (or rather their cost) determines is the lowest level at which the product could be sold without the seller suffering a loss. A thing’s ingredients no more determine its value than does the amount of labour that went into it.
Or rather, no one can say that 750g of one thing is worth less than 1000g of the other, other than the customer. What matters is how the customer values those two things. If the customer finds 750g of Whipped PB to be as useful to them as 1000g of Creamy, then charging the same price seems perfectly fair. Consumers who disagree are naturally free to object — that is, to refuse to make a purchase. But that, I’m afraid, would be akin to cutting off their noses to spite their faces.
Tourism as Foreign Aid
Filed under: aid, consumers, profits, supply chain, tourism, trade |
Comments (2) 
A couple of weeks ago, I spent 5 days contributing to the economic wellbeing of a developing nation. To be more specific, I spent 5 days in Mexico, at an all-inclusive resort on the Mayan Riviera. I’m a lucky, lucky man, no doubt. So in what sense does my vacation count as “contributing to the economic wellbeing of a developing nation”?
Now, to be clear, this is a personal example, and so there’s reason for me to worry about the clarity of my own thinking (even now that the margaritas have long-since worn off.) Am I just congratulating myself in order to get past the uncomfortable feeling that many people from affluent nations feel at enjoying luxury while visiting a nation rife with poverty? After all, the tourism industry is often portrayed as one that helps mostly-white Northerners visit places where they pay mostly-brown inhabitants of southern climes to call them “sir” or “ma’am” — with the profits going largely to the mostly-wealthy shareholders of the cruise-line or resort chain.
But is that portrayal of the industry accurate? Let’s take a very rough look at the economics, here.
Let’s say a vacation package — flight plus accommodations at an all-inclusive resort — costs something like $1500 per person, just to pick a round number. Where does the money actually go? Who does it help? By vacationing in Mexico, am I helping Mexicans, or just the shareholders of some American or Canadian corporation?
A big chunk of that $1500, maybe a little less than half, goes to the airline. Aha! Profits for the airlines!
But wait a minute. Profit margins in that industry are razor-thin — in some years, negative! So most of the airline’s half of that $1500 isn’t actually going to shareholders in the form of profits, but is instead going to cover the airline’s costs, including fuel, salaries, etc.
The other half ($750) of the total price goes to the resort. How much of that is profit? One source (a few years old) puts profit margins in the resort industry at about 8%. Let’s be generous and round up to 10%. That means $75 profit, which leaves $675 for various costs — including the cost of food, labour, alcohol, maintenance of buildings, and so on. And it’s a truism of economics that $675 in costs for them is $675 in income for someone else.
And so, overall, only a tiny sliver of the money paid for such a vacation goes to the shareholders of the airline and of the company that owns the resort. Most goes to employees, and suppliers, and employees of suppliers, and so on. About half of that stays in Canada (home of the airline) and almost half stays in Mexico (where the employees and key suppliers of the resort are). By my very rough math, I contributed nearly $700 to the Mexican economy, and more specifically to the income of low-wage Mexicans. And it’s a kind of help I’m very happy to give.
So the questions for discussion: “Is my math at least roughly right?” and “Is this the sort of math those of us who aspire to ethical tourism ought to be doing?” Of course, I’m setting aside for now the environmental impact of such a trip. I’ll leave that for a future blog entry. But at very least, it seems to me that a rough assessment of the economic impact of a vacation is a pretty good starting point.
The Business Ethics Blog 