Tuesday, March 28, 2017

How to Regain Reputational Capital: The Case of Wells Fargo

How does a firm rebound from the toll taken in reputational capital from a track-record of unethical practices? Paying $175 million to settle accusations without admitting any wrongdoing, such as Wells Fargo did in 2012, does not suffice, but neither does merely admitting culpability without real change going forward. The case of Wells Fargo may provide an explanation for how reputation recovers.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  

Monday, March 27, 2017

Young Russians Protest Government Corruption

Russia witnessed the largest anti-government protests in more than five years on March 26, 2017. At the urging of Aleksei Navalny, “tens of thousands of Russians—many of them in their teens and 20s—poured into the streets in scores of cities . . . to protest endemic corruption among the governing elite.”[1] The police responded by beating protesters—a barbaric and psychologically pathological response to peaceful protest—and arresting more than a thousand. As the protests were not directed against Putin, but, rather, corruption, the Kremlin should have been a cheerleader rather than antagonist to the protests.

Aleksei A. Navalny at a court in Moscow on the day after the protests. He told reporters that he was “amazed” by the number of cities and by how many people had taken part in demonstrations. (Source: Denis Tyrin/Associated Press)  

Yet personal ties among the elite are by nature enduring. Prompting the protests, Navalny had released a video detailing “a web of dubious charitable organizations that funneled bribes from prominent oligarchs to Prime Minister Dmitri A. Medvedev, allowing him to maintain a series of luxurious estates, vineyards and yachts in Russia and abroad.”[2] The allure of such easy money at the highest level of a government can easily dwarf any desire to reduce systemic corruption inside the system. This can be viewed as private advantage trumping the public good.
Fortunately, young people are sufficiently idealistic to hope for a better, fairer world. “I am glad and happy that a new generation grew up in the country that will not accept such [pro-corruption] atttitudes from the government and wants to feel that they are citizens,” Mavalny told reporters in court after the protests. Middle-aged people can easily slip into the self-fulfilling prophesy that the world cannot be improved much unless the change is in the interest of the political and financial elites. How to hold the most powerful in check is an especially vexing problem for any people, even in a healthy democracy. It is no accident that the elite typically control the media, such as Channel One in Russia. That station ignored the protests—a glaring editorial decision given the station’s duty to report the news.
Had the insiders in the Kremlin been strategizing in an enlightened self-interest, they would have realized that being on the side of the young in opposing corruption would pay off even just in good public relations. Stronger still, rooting out corruption can enhance a government’s stature, and thus the chances of genuine re-electability. Sadly, the old grooves of power tend to lead to clamping down on popular protest regardless of the cause. Rather than aligning, the instinctive reaction is to grasp at the levels of power available to any government: the police power of the state. I submit that a corrupt police state is the downside of politics and even democracy.

1. Neil MacFarquhar and Ivan Nechepurenko, “Aleksei Navalny, Russian Opposition Leader, Receives 15-Day Sentence,” The New York Times, March 27, 2017.
2. Ibid.

Making a Joke Out of Liberty: Unmasking a Political Travesty

“Land of the free” is a ubiquitous expression that Americans use to describe the United States. Presumably those states esteem liberty as a political value even though it is oxymoronic for a government to voluntarily limit its own power over the governed. Hence, ratification of the U.S. Constitution was predicated on a Bill of Rights quickly to follow. Declaring governmental power to be limited was not enough. That many States have had “mask laws,” many still on the books as of 2017, testifies as to how invasive government power can be precisely at the expense of personal liberty wherein no one is harmed.
In Virginia in late March, 2017, police arrested a man dressed as the Joker (of the Batman comic/movies). The man “was called in for walking around town in the creepy clown villain makeup while carrying a sword.” According to the Virginia criminal code, “It shall be unlawful for any person over 16 years of age, with the intent to conceal his identity, wear any mask, hood, or other device, whereby a substantial portion of the face is hidden or covered, so as to conceal the identity of the wearer, to be or appear in any public place, or upon any private property in this Commonwealth, without first having obtained from the owner or tenant thereof consent to do so in writing.”[1] Incredibly, a tenant with paint (e.g., of a professional or college sports team) on his or her face could not sit out on the porch of a house or a balcony of an apartment without the property owner’s written permission. Even indoors, in the privacy of the person’s residence, such permission would be needed. What room is there for liberty in a society having such an invasive law in spite of the fact that no harm to self or others is involved or even imminent? A slogan cannot hold up to such arduous “facts on the ground.”
Tellingly, the police arresting the man in Virginia “were apparently less worried about the weapon, and focused instead on [the man’s] face, which was covered in white paint.”[2] That priority defies common sense (which is what led me to write this essay). Clearly, a sword is more of a threat than white makeup on a face. Such makeup does not even constitute a mask, for the face itself is still recognizable. I suspect that the law’s true intent comes from the interest that police have in being able to identify people. That is to say, the law privileges a police state over individual liberty.
In the context of political protests, such as those of “Occupy Wall Street” in which New York City police cited protesters wearing masks, wearing makeup or even a mask can be considered part of the right to protest (though not free speech, as a mask is not speech). In the “Occupy Wall Street” protests, the mask used symbolized an aversion to governmental power, as per the influence of private wealth. Wearing the mask was in itself a protest.
Additionally, the right to protest anonymously may also be at stake; it is entirely reasonable to fear being identified by government security agencies simply for protesting peaceably. Furthermore, the requirement that political protests exclude the wearing of makeup or masks is dogmatic in the sense of being arbitrary—unless from the standpoint of a government’s security agency in wanting to be able to identify protesters. Where the protests are against the government, the government’s interest in identifying protesters is fraught with difficulty and is rightly to be questioned in terms of legitimacy.
Liberty not backed up by consistent statutes is meaningless. Statutes on the books contravening harmless actions such as face-painting makes a freedom-loving people a living hypocrisy. Some laws are so needlessly invasive that they cast a pall over rival broad claims of liberty; indeed, going to the extreme against liberty is itself a red flag, rather than a virtue.

[2] Andy Campbell, “’Joker’ Charged with Felony for Concealing His Face in Public,” The Huffington Post, March 25, 2017.

Saturday, March 25, 2017

Perspective on the European Union

At the signing of the Rome Declaration at the 60th anniversary of the Treaty of Rome, which established the European Community on March 25, 1957, E.U. leaders expressed their intention to further strengthening the federal Union. Even as “regional conflicts, terrorism, growing migratory pressures, protectionism and social and economic inequalities,” as well as Britain’s upcoming secession provided a sense of pessimism, Jean-Claude Juncker, president of the European Commission, the E.U.’s executive branch, said, “Let us not lose perspective.”[1] I submit that this advice was at the time very important.

The complete essay is at Essays on Two Federal Empires.

E.U. leaders in Rome to sign the Rome Declaration (source: NYT)

[1] James Kanter and Elisabetta Povoledo, “E.U. Leaders Sign Rome Declaration and Proclaim a ‘Common Future’ (Minus Britain),” The New York Times March 25, 2017.

Monday, March 20, 2017

Happiness: A Matter of Prosperity or Economic Security?

A macro-economist would probably assume that the percentage of people rating their lives positively enough to be considered thriving is positively correlated with real GDP per capita. Yet evidence suggests that this is not the case. The key to happiness, I submit, is having the sense of foundational economic security—that come what may, even in the case of rich people, you won’t fall through the cracks. It is difficult to thrive over a continuous, subterranean (i.e., subtle) anxiety, whereas a sense of security, such as most children feel while still living in their childhood homes, is a sturdy foundation on which a sense of thriving can grow and survive. I think most people, particularly Americans, take this point for granted, and thus are all too willing to make staples like housing, food, and health care conditional on having money.

In Britain during the two years leading up to the referendum to secede from the E.U., Gallup found that the percentage of people who were happy in the sense of having the sense of thriving fell 15 percent.[1] Meanwhile, GDP per capita (PPP) in current international dollars increased from $38,873 to $41,499.[2] Egypt, likewise, went from 29 percent “happiness” in 2005 to 8 percent in 2012, while GDP per capita increased from $8,123 to $11,210. Clearly, something other than the level of prosperity is behind changes in happiness as a sense of thriving.

That Norway (7.537), Denmark (7.522) and Iceland (7.504) led the pack among countries in terms of happiness as thriving in 2017, with the Netherlands coming in sixth and Sweden tenth may suggest that having an economic safety-net may be important. The United States stood at only 6.993, and the safety nets in those states are partial. To be sure, the state of France in the E.U. came in even lower, at 6.442, and Italy at 5.964, so we cannot conclude that the stronger safety nets in the E.U. necessarily translate into more happiness. However, even within the E.U. Denmark and the Netherlands were known for their well-fortified socio-economic infrastructures, whereas in the U.S. only Massachusetts and California were known to have relatively encompassing social policies in comparison with the other American states. Unfortunately, Gallup lumped all of the American states together while distinguishing the European states, so we cannot tease out differences within the U.S. 

Even so, the high marks of Denmark, Norway, and the Netherlands suggest that having a solid social-welfare safety net for the most vulnerable in matters of food, housing, and medical care is at the very least consistent with a broad sense of happiness in the sense of not merely surviving, but thriving in life. With less of the existential, conditional angst, people rich or poor can feel more stability upon which they can step out onto striving, venturing, into the unknown, with paradoxically a higher chance of sustainable self-sufficiency.

1. Jon Clifton, “The Happiest and Unhappiest Countries in the World,” The World Post, March 20, 2017.
2. Source: The IMF

Saturday, March 18, 2017

European Officials at the G20 Grapple with a New American Trading Position: Beyond the Joint Communiqué

It is perhaps only natural---only human—for us to take ourselves and our produced artifacts too seriously. Diplomats and other government officials, for example, fret arduously over mere words. When those words are etched in governmental or treaty parchment, the effort is understandable. The flaw of excess is evident in all the time and effort that go into the joint communiques of international conferences and meetings. I submit that the real politic at such occasions is much more significant even if nothing shows from it for some time.
At the March 18, 2017 meeting of the Group of 20, which includes the E.U. and U.S., the joint statement “became an unlikely focus of controversy” issuing in “a tortured compromise stating, in effect, that trade is a good thing.”[1] I submit that the use of such language is spurious—certainly much less than the attendees and even their principals back home supposed. The real politic was instead that the U.S. was “overturning long-held assumptions about international commerce,” and such transformational change takes time even just to register in minds ensconced in the status quo. That is to say, the real shift in power would need to play out in actual negotiations on trade, rather than in how to word a meeting’s joint statement.

A European official, Wolfgang Schauble, perhaps straining at the meeting to understand the new American position. (source: NYT)

The full essay is at "European Officials at the G20."

1. Jack Ewing, “U.S. Breaks With Allies Over Trade Issues Amid Trump’s ‘America First’ Vows,” The New York Times, March 18, 2017.

Thursday, March 9, 2017

The E.U.’s Central Bank: Beholden to State-Level Politics

Faced with the rise of anti-euro candidates for state offices throughout the E.U., Mario Draghi, the president of the E.U.’s central bank deemed it politically prudent to depart from the light world of cool economic data to mount a spirited defense of the euro and even free trade in March, 2017. With the UK having voted to secede from the Union, he could not assume that the state of the Union would continue to be inherently viable. Indeed, some political candidates at the state level were “questioning the whole idea of a united Europe and the European Central Bank’s fundamental reason for being.”[1] 

The complete essay is at Essays on Two Federal Empires.

[1] Jack Ewing, “As E.C.B. Charts Economic Course, Politics Complicate the Picture,” The New York Times, March 9, 2017.

Wednesday, March 8, 2017

Disentangling a Worsening Trade Deficit: Sector-Specific Industrial and Macro Economic Policy

he U.S. trade deficit rose 9.6% in January, 2017, to the highest level since 2012. The gap of $48.5 billion of exports exceeding imports looks daunting, yet the story is more complex at the sector level.[1] According to Neil Irwin of The New York Times, “What really matters is not whether the trade deficit is rising or falling. What matters is why?”[2] Distinguishing macro factors such as a strengthening dollar from sectoral strengths and weaknesses is thus necessary.

 The Port of Oakland. (source: Jim Wilson/NYT)

In the automotive sector, a $1.3 billion increase in exports corresponds to a $900 million increase in imports—essentially a draw. The $2.1 billion more in exports of industrial supplies is favorable, suggesting that that sector is doing well, but exports of civilian aircraft fell by $611 million, and other high-tech capital goods were also down, while imports of consumer goods—notably cell phones—increased by $2.4 billion. Boeing may simply have had a bad month, though it is also possible that Airbus had been out-competing its American competitor. The numbers on electronics add to the general perception that the U.S. is not competitive in such manufacturing. Industrial policy could address the possibility that automation and tax incentives (and penalties on American companies producing abroad only to import the finished goods back to the domestic market) could rectify this weakness in the American economy. 
Meanwhile, the balance of trade in services worsened by $5.3 billion. The fact that the money that foreign travelers spend in the U.S. on hotels and restaurants counts as exports suggests that a strengthening dollar could have been in play.[3] The Federal Reserve’s monetary policy was thus in play, for rising interest rates mean a strengthening of the dollar. Industrial policy may thus be less relevant here.
“A big piece in the rise in imports was crude oil and other petroleum products. They were up by a combined $2.2 billion.”[4] Exports also increased, by $1.2 billion, so this sector obviously contributed significantly to the overall trade deficit. To be sure, an increase in the price of oil favored producers, but this matter is dwarfed by the strategic national-security goal of self-sufficiency on fossil fuels. In terms of industrial policy, an expansion of domestic sources of oil and refining capacity may have been advisable at the time—not so carbon emissions would increase, but, rather, so imports of oil could drop.
In short, analyzing changes in a trade deficit requires distinguishing sectors, and, moreover, discerning where industrial policy recommendations are in order from cases in which macro political economic policy is at issue. Ideally, sector-specific industrial policies and macro policies are “on the same page.”

[1] Neil Irwin, “The Huge January Trade Deficit Shows Trump’s Hard Job Ahead,” The New York Times, March 7, 2017.
[2] Ibid.
[3] Ibid.
[4] Ibid.

Monday, March 6, 2017

Federalizing State Warheads in the E.U.: The Problem of Excessive State Power in a Federal System

Only months after Donald Trump became the federal president in the U.S., an idea, “once unthinkable,” was “gaining attention in European policy circles: a European Union nuclear weapons program.”[1] The arsenal in the state of France would be “repurposed”—which is to say, federalized in American terms—to protect the European Union rather than merely one of its states. The command of the weapons, as well as the funding plan and defense doctrine, would be federal. Even though the question of whether the E.U. could continue to count of American protection—there being dozens of American nuclear weapons in the E.U.—was at the time most tantalizing, I submit that the matter of federalism in the case of the E.U. is salient too.

The complete essay is at Essays on Two Federal Empires.

[1] Max Fisher, “Fearing U.S. Withdrawal, Europe Considers Its Own Nuclear Deterrent,” The New York Times, March 6, 2017.