The Business Ethics Blog

On Friday I blogged about my lack of understanding of the Big Bailout and what led to it being necessary. Over the weekend I found a bunch of good resources.

First, some multimedia stuff:

This half-hour PBS documentary is good on the politics involved in negotiating the bailout: Behind the Bailout (See the video link at the right-hand side of the page.) (Thanks, Kim!)

Via economist Greg Mankiw’s blog, here’s a stick-figure slide-show that explains the source of the trouble: Subprime Primer (follow the link, and then click to advance through the 45 or so slides). Funny, but not appropriate for small children.

Next, on to wordier stuff:

Here’s Ed Harrison’s Dummy’s Guide to the US Banking Crisis (a bullet-point history, starting in 2001)

Two renowned economically-savvy legal scholars, Richard Posner
and Gary Becker have weighed in, over at their joint blog. (Posner is particularly clear & useful. Interesting how some of the biggest minds are able to dumb things down the best.)

Finally, here’s an even more cynical view. Filmmaker Michael Moore is claiming that it’s all a scam, an effort by Bush & his pals to squeeze a few more dollars out of Americans before leaving office: The Rich Are Staging a Coup This Morning …a message from Michael Moore. My quick take: the weight of expert opinion is against Moore. I take it as significant that just about every economist & finance expert I’ve read says this bailout is necessary, even if they think it’s a necessary evil. Economists are pretty famous for disagreeing amongst themselves. But there seems little credible disagreement here. Lots of them think this is a really terrible thing (either ideologically because they’re against government involvement in the economy or pragmatically because they think it sets a bad precedent). But they pretty much all seem to agree that yes, indeed, the government really does need to do something big here. The stuff to haggle over is about the size of the bailout, the terms, and questions of oversight. And, of course, what to do to prevent a ‘next time.’

Just finished watching author & Newsweek International editor Fareed Zakaria‘s interview of Chinese Premier, Wen Jiabao on CNN.

In response to a question from Zakaria about the role of free markets in China, Wen said (roughly) that it’s the policy of the Chinese government to give full play to market forces, under the careful regulation of the government. That is, he says, the Chinese government wants to give full play to both the visible and the invisible hand.

For authority, he reminds viewers that Adam Smith wrote not just one, but two books. The first, he says — The Wealth of Nations — deals with the invisible hand, with market forces. The other — which he doesn’t name, but which is Smith’s Theory of Moral Sentiments — is about morality & ethics. According to Wen, the latter deals with social equity and justice, and the important regulatory role of the government, and its role in distributing wealth among people.

I won’t engage Wen’s Smith scholarship. But it’s pretty cool not just to see an important world leader citing the philosopher who is the great-grand-daddy of modern economics, but to see one who is aware that Smith wrote not just one, but two great works.

Not sure how I missed this one, back in April.

PETA (People for the Ethical Treatment of Animals) has offered a $1 million prize to the “first person to come up with a method to produce commercially viable quantities of in vitro meat at competitive prices.” Why? PETA suggests that artificial meat would not only help avoid animal cruelty, but would also avoid much of the greenhouse-gas emissions associated with traditional animal agriculture.

It’s an interesting strategy, for an activist group to offer not just sticks, but carrots. That is, if PETA’s goal really is to stimulate food science, rather than just to gain publicity (best guess: it’s likely both.)

One problem: The world’s biggest producer of meats, Tyson Foods would be an obvious place to look to for developments in food science. But Tyson has annual profits of about $1.4 billion. So, that $1 million PETA is offering represents about 6 hours’ profits for Tyson.

That doesn’t mean PETA’s strategy is a bad one. Of course, convincing the meat industry to develop synthetic meat may not be as hard as convincing consumers to consume it. (But one final thought on that note: though the idea of artificial, lab-grown meat may score high on some people’s gross-out scales, consider the possibilities that synthetic meat provides for fine-tuning the taste and nutrition of foods. Imagine a veal cutlet was not just produced cruelty-free, but that tastes better than real veal, and is healthier for you.)

Is Wall Street unethical, or just foolish? I mean that in general, not referring to any particular trader or firm. Clearly, there are ethical & unethical firms and traders, as well as smart and foolish ones. But from a business ethics point of view, the question everyone is asking is whether the current (growing) crisis is the result of a series of culpable negligence, or just a series of bad errors in judgment.

I wish I understood better the current U.S. financial crisis, and the federal government’s proposed bailout plan. I’m a philosopher who reads a reasonable amount of economics, but I can’t pretend to understand fully what’s going on. That’s embarrassing for me, as someone who works in business ethics; but I suspect it also means that a very, very high percentage of the public likewise doesn’t understand what’s going on.

I wanted to be able to post some clever commentary. For now, I’ll settle on pointing to people who understand this stuff better. Most of them are economists.

Over at the Marginal Revolution blog, Tyler Cowan discusses the Paulson plan vs. Dodd plan

For a critical commentary, see: Why You Should Hate the Treasury Bailout Proposal

Economists are at least somewhat divided… Via the blog of Harvard economist Greg Mankiw, here’s A Defense of the Paulson Plan

Then from yesterday’s NY Times, 192 economists speak against the current bailout plan: Economists Of The World, Unite! (Basically, these economists argue that the current plan is unfair, ambiguous, and could have worrisome long-term effects.)

It’s worth noting that a lot of economists are calling this bailout plan unfair. One reason this is worth noting is that economists — as economists — usually don’t have a lot to say about fairness. The key normative concept for most economists is efficiency, although some definitions of efficiency (such as Pareto Efficiency) seem to bundle in some notion of fairness. It’s not that economists don’t care about fairness — everyone does — it’s just that the tools of academic economics tend to have a different focus. Simply put, economists aren’t (usually) experts on fairness. So what do we make of this apparent expert opinion, coming from so many economists, that the current bailout plan is both likely-ineffective and unfair?

One point is that economists are (standard jokes aside) moral human beings like the rest of us. They care about fairness, and they have a moral reaction when they see unfairness. Their opinions about fairness matter (though not more than anyone else’s). You don’t need advanced expertise in various philosophical theories of justice to see that, if the fat-cats who are responsible for this mess get well taken care of, while millions of average folks get left in the lurch, that’s unfair.

But more importantly, perhaps, and the thing that might reasonably be taken as giving economists’ pronouncements on fairness in situations like this more weight, is that they are better qualified than most to understand the factual underpinnings of the claim that “this bailout is unfair.” Economists are better able than I am, certainly to predict just what the effects, short-term and long-term, of this bailout will be. And such predictions (on which there is unfortunately not consensus) are a crucial part of assessing the fairness of this plan.

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p.s. a final note: I’m having trouble finding a good, non-technical explanation of the source of this crisis and the U.S. government’s plan, on-line. Anyone know of one? Sometimes The Economist or the NY Times does features like that, but I haven’t found one yet.

I’ve often told my students (and anyone else who will listen) that rule #1 of understanding the business world is this:

“Never assume that large, complex, successful organization is guided by morons, just because you can’t understand that organization’s behaviour.”

So here’s a story that caught my eye, about drug companies apparently throwing away hundreds of millions of dollars on useless direct-to-consumer advertising:

Study says direct-to-consumer drug advertising not that effective

Drug advertisements aimed at consumers may not be having the effect on sales that opponents and proponents of the practice assume they do, a new study suggests.
The analysis, by researchers from Harvard Medical School and the University of Alberta, looked at Canadian sales data for three drugs that were heavily advertised in the United States, ads which Canadians watching U.S. television would have seen.
The researchers found no evidence of a spike in sales for two of the drugs after the TV ads started to run. There was a marked increase in sales for a third drug but the effect was short-lived.

Basically the study went like this. Direct-to-consumer (DTC) advertising of pharmaceuticals is generally forbidden in Canada, but permitted in the U.S. But TV signals (and the ads they carry) tend to cross borders, so most Canadians see plenty of DTC advertising of pharmaceuticals on American TV. But people in Quebec — a predominantly French-speaking Canadian province — watch much less American TV, and hence presumably see far fewer pharmaceutical commercials. So, measure the differences in prescription rates, in Quebec vs the rest of Canada, for well-advertised drugs, and you have a rough estimate of the effectiveness of those ads. Neat idea. And the conclusion reached in this case is that, actually, the ads don’t have much effect.

OK, I’m sure there are plenty of methodological questions to ask. But skip that for a minute and ask yourself this: what happens next? What do you do now, if you’re in charge of marketing for a major pharmaceutical company. Do you:

a) Immediately rush to cancel all advertising, based on the realization that you’ve been wasting zillions of dollars on something that really doesn’t work;
b) Re-evaluate your marketing plan, based on the realization that, in at least some cases, advertising seems not to have the impact you had hoped it would have;
or
c) Laugh out loud.

Sure, it’s an intriguing study. And it is indeed possible that the marketing people working for big pharma are really bad at their jobs. But don’t bet on that.

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Here’s the link to the original paper: Effect of illicit direct to consumer advertising on use of etanercept, mometasone, and tegaserod in Canada: controlled longitudinal study

Regular readers will know that food certification (and especially competing, overlapping, and conflicting certification regimes) are a special interest of mine. So I was interested to see this story about one of the most ancient food certification standards — kosher slaughter — being interpreted as requiring an additional normative component, one I hadn’t expected.

Here’s the story from the NY Times caught my eye: Meatpacker May Lose Kosher Certification.

Here’s a snippet from the article:

The leading Jewish authority in charge of certifying kosher food has threatened to withdraw its certification from the products of Agriprocessors Inc., the nation’s largest kosher meatpacker, after criminal charges for more than 9,000 child labor violations were brought against the company and its owners in Iowa this week.

Rabbi Menachem Genack, who is in charge of kosher supervision for the Orthodox Union, the major kosher certifying organization in the United States, said he had set a deadline of “several weeks” for Agriprocessors to name a new chief executive, or the group would suspend supervision of kosher production at its plants.

So, according to Rabbi Genack, at least, the term “kosher meat” implies more than just meat-slaughtered-in-the-ritual-manner. I don’t know nearly enough about Jewish law in general, or kashrut in particular, to know just how much sense that makes (though I’m told that Orthodox Judaism has enough of a focus on social justice to make this bundling unsurprising). But it’s certainly interesting any time one normative standard gets bundled with another, which in practice (as in this case) can come apart. Most people think of “organic” food as food produced without chemical pesticides or herbicides; but plenty of people assume/insist that organic food also be non-genetically-modified. Some people also want food that is “free range,” but that standard can easily run afowl of others: wild salmon, for example, are “free range” (and for now also GM-free) but cannot be “organic” because the food they eat is (by definition) not monitored and hence can’t be guaranteed to be chemical-free.

One further possible source of conflict is the fact that certification for each additional normative dimension — free range, kosher, organic, fair-trade, etc etc etc — will, other things being equal, require someone (i.e., consumers) to pay some cost for monitoring compliance (i.e., unless you’ve raised it yourself, you can only know that your chicken is free range, organic, kosher if you’ve paid someone to verify all those things for you). And different customers are likely (look around you!) to care about different combinations of standards — some will be willing to pay a premium to know that their food is organic but will not care much (and hence be unwilling to pay much) to verify that their food was produced by workers who were treated fairly. And vice versa. In some cases, this will result in micro-niche markets. (Kosher vegetarian Indian restaurants always struck me that way, when I first noticed them in New York). In other cases, there will be significant-but-incomplete overlap between two value systems (e.g., organic & GM-free) and the adherents of those systems will have to figure out amongst themselves whether one implies, or instead trumps, the other.

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p.s. before someone from PETA emails to remind me, I’ll point out that kosher (and halal) slaughter practices have themselves been subject to moral criticism based on the belief (correct or incorrect) that animals slaughtered that way suffer more than animals slaughtered by standard methods. (Roughly kosher & halal slaughter involves a single swipe with a sharp knife across a conscious animal’s throat; whereas the standard method involves stunning the animal first by means of a reusable ‘bolt’ fired from a gun into the animal’s head. Many jurisdictions require stunning animals prior to slaughter, and make exceptions for kosher and halal slaughter.) That criticism, of course, also depends upon the belief (plausible or implausible) that animal suffering counts, either morally or aesthetically.

After yesterday’s depressing entry about business students, this one’s a breath of fresh air.

From BusinessWeek: The Push to Do Good and Turn a Profit

Politically active and culturally aware, young entrepreneurs…are pursuing socially responsible business ventures in record numbers, say administrators at several top B-schools, including Babson College and the University of Arizona’s Eller School of Management. Defying tradition, students and recent grads are pitching business plans with dueling bottom lines—social and financial—and hoping investors will buy in.

It’s good news — if it is indeed true — that the current crop of would-be entrepreneurs are embracing social values. That is not to say that they should be thinking in terms of the so-called “Corporate Social Responsibility” movement. But it’s good that they are thinking about products and services that stand to make the world a better place. In general, I tend to share the view that entrepreneurs (or people in business generally) don’t have any special insight into what will make the world better, but if a young person’s option are a) marketing videos of drunken co-eds b) marketing an energy drink named after a dangerous street drug, or c) inventing a solar-powered trash compactor to help keep city streets clean, I for one am glad to hear that that’s a multiple-choice question at least some find pretty easy.

What’s a school to do when it finds that students have cheated to gain admission to their program? Does it make a difference when it’s a business school?

I missed blogging phase 1 of this story when it broke back in June. But there are new developments in the GMAT cheating case: the Graduate Management Admission Council (GMAC, the organization that administers the GMAT) has cancelled (i.e., nullified) the test scores of 84 individuals who, according to GMAC’s investigation, are guilty of cheating. The issue is complicated by the fact that at least some of the cheaters have already been admitted to various business schools on the basis of their illegitimate scores, and at least one has already graduated, which leaves those schools with some uncomfortable decisions to make. It’s easy-ish to decline to admit candidates known to have cheated; harder (practically and maybe emotionally) to expel a student who’s already in, or to rescind the diploma of one who’s already graduated.

Here’s the story from the Wall Street Journal: Schools Cancel GMAT Scores

Top U.S. business schools canceled the admissions-test scores of 84 applicants and students — including two enrolled at the University of Chicago and one who has graduated from Stanford University — who allegedly supplied or accessed live exam questions posted on a Web site.

In June, the Graduate Management Admission Council, which represents the business schools and oversees the GMAT admissions test, obtained a federal court order that shut down the Web site Scoretop.com and won a $2.3 million judgment against its operator. The site had been selling questions from recent exams to subscribers who paid a $30-a-month subscription. The operator of the Web site, believed to be in China, didn’t defend itself in court, and it wasn’t known where any representatives could be reached.

The latest episode has rattled the schools, and it comes as they have been trying to increase security.

Here’s the same story from BusinessWeek: Nearly 100 Would-Be MBAs Nailed in GMAT Scandal

One of the interesting points brought up by the BusinessWeek story is the fact that there’s research suggesting that business-school students are more likely to cheat than other students. The story cites Rutgers prof Donald McCabe who has done research on the topic.

So, what’s the prescription? McCabe seems to think the schools should take a tough stand, though the BusinessWeek story doesn’t say just what that means. I’ll give two arguments on each side:

In favour of tough action (e.g., expelling students admitted based on illegitimate GMAT scores)…

• Cheating is bad; it’s fraudulent. Being admitted to business school based on a fraudulent GMAT score is like being hired on the basis of a fraudulent cv. It’s grounds for dismissal. Period.
• The fact that this is business school militates in favour of harshness. Regardless of your degree of cynicism about current levels of trusthworthiness in business, you have to agree that having trustworthy people going into business (particularly in leadership roles) is important. So b-schools should be at least as tough as anyone else, maybe tougher.

In favour of lenient action (e.g., not expelling students, but maybe putting them on probation, etc.)…

• At many schools, at least, one academic violation is not enough to warrant expulsion. Cheat once and you get a reprimand and a note in your file. Cheat twice and they may show you the door. Why be any more harsh regarding one form of cheating than another?
• Contrary to what McCabe suggests, a harsh reaction from business schools may not have any deterrent effect, for the same reason harsh criminal sanctions don’t reliably deter crime: no one thinks they’re going to get caught. Admission to a good b-school is a big deal, with the potential for a big dollar pay-off. Under such circumstances, deterrent is unlikely to work.

What do you think?

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On a related note, I just found out about this interesting project based at the School of Business at the American University of Beirut. Bicharaf (the Arabic for “with honor”), which “aims at promoting academic integrity
and ethical awareness among students, faculty, administrators, and business professionals.”

(Thanks to Faraz for letting me know about Bicharaf!)

I’ve decided to try allowing (and moderating) comments on my blog. Moderating is essential, I think, basically because my name is at the top of the page, and the topics I blog about are contentious ones.

It’s a limited-time offer. Basically, if I find that moderating the comments becomes onerous, or that the comments just aren’t adding value, I’ll simply turn the comments feature off. We’ll see how it goes.

But for now, comment away!

Chris.

Regular readers of this blog will know I’ve got a special interest in the biotechnology industry (and am in fact writing a book on the topic). Lots of attention has been lavished on ethical issues in biotech over the last decade, but I’m specifically interested in commercial issues. Hence, I’m less interested (professionally) in social or interpersonal aspects of technologies such as genetic testing, and more interested in corporate moves to develop and market genetic tests (either through health professionals or direct-to-consumer).

So I was interested in the recent move by a Swiss company to offer genetic testing as part of a dating service.

Here’s the story from Wired: Looking for Love In All the Right Alleles

Swiss startup company GenePartner is offering to evaluate singles and couples according to the potential union of their HLA genes, which help regulate immune response.
People may naturally be attracted to mates with HLA profiles different from their own, ostensibly guaranteeing the hybrid vigor of their offspring’s immune systems — and also providing a spark that will last through good times and bad.

And here’s GenePartner’s website. Essentially what they do is, for $199…

GenePartner will analyze your DNA from a sample of your saliva. Based on the test results, you will receive a GenePartnerID number.
When you meet another GenePartner user (in person or online) that you’re interested in, you can enter his/her GenePartnerID in the matching system on GenePartner.com. GenePartner will then determine how genetically compatible you are.

My friend Bryn Williams-Jones has been speaking and writing about direct-to-consumer genetic testing since before it was cool to do so. I asked him for a comment on this new service from GenePartner. Here’s what he said:

One of many genetic information services beginning to enter the consumer marketplace (alongside genealogy or paternity tests), the GenePartner test seems, at first glance, to be innocuous. The test does not attempt to measure or predict disease risk or heritability, commercial tests for which have been subject to enormous criticism in recent years (including a government crackdown on service providers in California). What can be problematic about “love testing”? And really, how different is it to use HLA typing to predict positive matches between potential partners, from say comparisons of blood type (which is apparently popular in Japan), or even astrological signs? And where is the harm? The issue, however, arises with a growing popularisation of genetic information technologies, that build (often without substantiation) on putative scientific studies. While HLA typing may seem to be based on scientific facts (there appear to be some studies supporting the claims made by GenePartner), the actual confidence that consumers should have in such tests needs to be carefully considered. Consumers may well believe there is more accuracy than is scientifically justified…and so they may not be getting what they’re paying for. The harms of such a test may be limited, and caveat emptor may be sufficient consumer protection. But for $199, its probably still cheaper and more effective to just take the potential partner out for dinner…