246 (6 January 2016)

Welcome to week 246!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(31 December 2015): “A Chinese Company in India, Stumbling Over a Culture” (http://www.nytimes.com/2015/12/31/business/international/a-chinese-company-in-india-stumbling-over-a-culture.html)

———–“When a Chinese truck company [Beiqi Foton Motor] wanted to open a factory in India, its president looked at sites that had a mountain in back and a river in front—especially auspicious locations in the traditional practice of feng shui. . . . But the mountain here [Shinde, India] is sacred to many Hindus. . . . One of the most revered Hindu saints is said to have attained a pure vision of his god during the 17th century while meditating in the highest cave overlooking what is now Foton’s site.  The culture clash was immediate.”  Although Chinese companies have expanded extensively overseas, they “lack the experience of their Western counterparts, which have spent decades developing international operations.  As Chinese companies have built their businesses largely at home, they haven’t had to address the same challenges.”  In China, companies face few limits on their behavior, being able to “bulldoze communities and religious sites” with impunity.  Overseas, however, companies “are dealing with a wave of resistance.”

********This is part 7 of the series “The China Factor.”  The article includes a useful six-minute video, as well as an interesting interactive graphic showing Chines investments across the world.  Kazahkstan, as noted in the most recent TIF Weekly, has received extensive funds.  The following sentence in the article caught my attention: “While the investments provide critical support for many economies, Chinese businesses are struggling to navigate complex cultural, political and competitive dynamics.”  In other words, Chinese businesses are struggling to navigate the invisible forces.

(31 December 2015): “Big Oil braced for global warming while it fought regulations” (http://graphics.latimes.com/oil-operations/)

——–“A few weeks before seminal climate change talks in Kyoto back in 1997, Mobil Oil took out a bluntly worded advertisement in the New York Times and Washington Post” noting that “The science of climate change is too uncertain to mandate a plan of action that could plunge economies into turmoil.”  But one year earlier, “engineers at Mobil Oil were concerned enough about climate change to design and build a collection of exploration and production facilities along the Nova Scotia coast that made structural allowances for rising temperatures and sea levels.”  Mobil was not alone in this practice, however.  “As many of the world’s major oil companies . . . joined a multimillion-dollar industry effort to stave off new regulations to address climate change, they were quietly safeguarding billion-dollar infrastructure projects from rising sea levels, warming temperatures and increasing storm severity.”

********This story is part of a joint effort of the Los Angeles Times with the Energy and Environmental Reporting Project at Columbia University’s Graduate School of Journalism, which you can learn more about at: http://www.journalism.columbia.edu/page/1184/8/.  There is much to reflect upon in this story.  An article that is a parallel, of sorts, is “Social saints, fiscal fiends” (http://www.economist.com/news/business-and-finance/21684770-social-saints-fiscal-fiends-opinions-vary-whether-firms-can-be-socially-responsible), which takes drug company Pfizer as a case in point.  Pfizer has prided itself in its “commitment to corporate social responsibility (CSR)” but it is also the company that seeks to move its corporate home to Ireland in order to escape taxation at U.S. levels.  As the article notes, drawing upon the January issue of Accounting Review, “Pfizer is far from unusual in trying to perform this pro-CSR, anti-tax straddle.”  The link for the abstract of the article appears to be: http://aaajournals.org/doi/10.2308/accr-51224.  For a related article, please see “Is Corporate Social Responsibility Performance Associated with Tax Avoidance?” (http://link.springer.com/article/10.1007/s10551-014-2052-8).

(1 January 2016): “Spain Has Little Appetite for Truffles, but Plenty for the Truffle Trade” (http://www.nytimes.com/2016/01/01/world/europe/spain-has-little-appetite-for-truffles-but-plenty-for-the-truffle-trade.html)

——–The black truffle is “a mainstay of French gastronomy” but it is increasingly grown in Spain as the French Périgord region has undergone change “through wars and industrialization that encourage farmers to switch to crops with shorter production cycles.  Changes in the climate—severe droughts and heat waves—have also hurt production recently.”  Currently France produces 56 metric tons of truffles a year compared to about 45 tons for Spain.  About “95 percent of what Spain produces is exported” as “Spanish cuisine rarely uses the truffle.”  Dogs are typically used to detect truffles, which are then dug up by pickers.

********The black truffle business, at least in Spain, seems to have a clandestine air about it, with transactions taking place at night.  According to one truffle broker, the truffle business is “completely opaque,” saying that “three-quarters of his transactions were made in cash, largely because farmers did not want any billing paperwork.”

(1 January 2016): “Advocates push for the U.S. Postal Service to offer basic banking” (http://www.latimes.com/business/la-fi-post-office-banking-20160102-story.html)

——–“Until the late 1960s, you could walk into a post office and deposit money in a savings account at the same time that you bought stamps or mailed packages.  An outgrowth of the financial panic of 1909, the no-frills postal bank surged in popularity during the Great Depression.  But as commercial banks expanded and offered higher interest rates, the United States Postal Savings System became as outdated as a black-and-white movie.  Now, in the wake of another financial crisis, there’s a new push for the U.S. Postal Service to deliver basic banking services again.”  The provision of “services such as paycheck cashing, bill payment and free ATMs would provide cash-strapped consumers with an affordable alternative to payday, auto-title and other short-term loans that have been criticized for high fees.”

********The existence of the US. Postal Savings System is news to me, even though it falls during my lifetime.  Given the modern development of alternatives to postal banking, substantial lobbying against reinstituting postal banking would be forthcoming.  Looking for information about the system, which should be useful given the interest of some, e.g., Bernie Sanders and Elizabeth Warren, I found a doctoral dissertation by Donald Bruce Schewe, A History of the Postal Savings System in America, 1910-1970 (https://etd.ohiolink.edu/rws_etd/document/get/osu1283255504/inline).  Schewe was the Director of the Jimmy Carter Presidential Library, 1981-1999 (https://www.arma.org/who-we-are/awards/the-company-of-fellows/donald-schewe).

********Postal banking is also forcefully discussed in “Debt Scarred” (http://democracyjournal.org/magazine/39/debit-scarred/), a review of How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy.  For an article that suggests why it might be desirable to reinstitute postal banking, please see “Why Small Debts Matter So Much To Black Lives” (https://www.propublica.org/article/why-small-debts-matter-so-much-to-black-lives).  The article was co-published with The New York Times (http://www.nytimes.com/2016/01/03/opinion/debt-and-the-racial-wealth-gap.html).

(1 January 2016): “Iraq Says It Exported More Than 1 Billion Barrels of Oil in 2015” (http://www.bloomberg.com/news/articles/2016-01-01/iraq-says-it-exported-more-than-1-billion-barrels-of-oil-in-2015)

——–“Iraq said it exported 1.097 billion barrels of oil in 2015, generating $49.079 billion from sales, according to the oil ministry.”  The average price of a barrel was $44.74.  “Iraq, with the world’s fifth-biggest oil reserves, needs to keep increasing crude output because oil prices have curbed government revenue.”

********This is a tiny article but Iraq’s exports surprised me.  Perhaps the often-stated opinion that the Iraq (Second Persian Gulf) War was about the oil had some truth in it.  You can refresh your memory about the War at: http://www.britannica.com/event/Iraq-War.

(3 January 2016): “Electrifying India, With the Sun and Small Loans,” (http://www.nytimes.com/2016/01/03/business/energy-environment/electrifying-india-with-the-sun-and-small-loans.html)

********How do you sell solar power to individuals who earn $3 a day?  First, give them an example of what solar power can do to enrich their lives and show them how it works.  Then, develop creative financing with local banks that enable them to assume a loan as a group, allowing each member to act as act as “another’s guarantee, so if . . . of defaults, the whole group does, too.”  Finally, structure the loans so the monthly payment is the same as the kerosene that is being displaced by the solar electricity.  Such a model has great potential as about “a quarter of the world’s off-the grid people, or 300 million or so, live in India, mostly in remote, rural communities . . . or in informal urban settlements.  Hundreds of millions more get electricity for only a few hours a day.”

(5 January 2016): “The Hidden Financial Incentives Behind Your Shorter Hospital Stay” (http://www.nytimes.com/2016/01/05/upshot/the-hidden-financial-incentives-behind-your-shorter-hospital-stay.html)

——–Upon their discharge, patients “are often left wondering whether they have been discharged from the hospital too soon or too late.  They also wonder what criteria doctors use to assess whether a patient is ready to leave.”  According to Harvard physician Ashish Jha, discharge “depends on more than clinical factors,” with the amount of support the patient has at home being one of them.  Financial incentives, too, “have also played a role in how long patients tend to stay.  Past changes in how hospitals are paid appear to be affecting which patients are admitted and how frequently they are readmitted.”  Changes in Medicare payments, in particular, have brought about a decrease in average hospital stay and an increase in average readmission rates, as anticipated.  More recently, reducing readmissions has been a goal of health policy, but that development has come about by the introduction of the category “observation status” and the apparent “gaming” of hospitals.  Those placed in the category “are not counted in the readmissions metric,” thereby contributing to the more recent decline in readmissions, an outcome that was highlighted by the Obama administration the 2013 Economic Report of the President.

********We shouldn’t be surprised that hospitals game the system.  The underlying assumption behind much health policy, at least as far as payments are concerned is that people will respond to financial incentives.  It is just that those who design such incentives seldom imagine the many ways that different actors will respond to them.  Of course, there is the not-so-little issue of moving from policy design to policy implementation.

********This article is from The Upshot column and was written by Austin Frakt, who has a blog called The Incidental Economist (http://theincidentaleconomist.com/).  I scrolled down a bit and found the post “Making and keeping (or discarding) New Year’s resolutions.”  Frakt advocates an intentional and time-bound approach to testing resolutions that makes sense to me.

(6 January 2015): “Racial Identity, and Its Hostilities, Return to American Politics” (http://www.nytimes.com/2016/01/06/business/economy/racial-identity-and-its-hostilities-return-to-american-politics.html)

——–“Why do working-class Americans vote as they do?  The question has long bedeviled analysts on the left, troubled that people who would largely benefit from a more robust government seem so often to vote for right-leaning politicians eager to cut federal programs to pay for tax cuts for the rich.”  Economists Alberto Alesina,Edward Glaeser, and Bruce Sacerdote shed light on this question.  Observing that “European countries are much more generous to the poor relative to the United States” they write: “Racial animosity in the U.S. makes redistribution to the poor, who are disproportionately black, unappealing to many voters.”

********The article by Alesina, Glaeser, and Sacerdote is “Why Doesn’t the US Have a European-Style Welfare System?”  You can learn more about it (and download a copy) at: http://www.nber.org/papers/w8524.  In effect, people are more inclined to support programs for the poor if the poor “look” like themselves.  Political institutions, too, make a difference.  An article consistent with this theme is Livia Gershon’s JSTOR Daily post “Affirmative-Action For White Protestants” (http://daily.jstor.org/affirmative-action-white-protestants/), which addresses different forms of affirmative action, including legacy admissions.

(6 January 2016): “Lions are actually raised to be killed in South Africa.  And American hunters love it.” (https://www.washingtonpost.com/news/energy-environment/wp/2016/01/05/lions-are-actually-raised-to-be-killed-in-south-africa-and-american-hunters-love-it/)

——–“They call it canned hunting.  South African ranchers breed lions in captivity, from cubs to adults, then release them just after the arrival of a hunter who pays about $15,000 for a kill.  Sometimes the animal is drugged to make it easier game.  Sometimes it’s lured by fresh meat to a place where the hunter lurks.  Sometimes the felines are so accustomed to humans that they amble up to the person waiting to kill it.  Not surprisingly, the success of these hunts in 99 percent.  But the Obama administration’s federal protection of lions could end the practice when a new rule goes into effect in about three weeks.”  According to Humane Society International, “almost nine of 10 lions shot in canned hunts there are killed by Americans.”  Although the hunting industry “publicizes captive breeding as a potential solution to the dwindling [lion] population in the wild[,] . . . lions bred in cages rarely have the tools and behaviors to survive on their own.”

********This calls to mind the expression “Shooting fish in a barrel.”  You can learn more about it at: https://en.wikipedia.org/wiki/Shooting_fish_in_a_barrel.  Canned hunting in not limited to South Africa.  According to Born Free USA, “there are more than a thousand captive hunts in at least 28 states in the U.S.” (http://www.bornfreeusa.org/a9d_hunts.php).  All this reminds me of Michael Sandel’s book What Money Can’t Buy: The Moral Limits of Markets (http://www.amazon.com/What-Money-Cant-Buy-Markets/dp/0374533652/).  Sandel discusses paying to hunt rhinos and walruses in pages 79-83.  He clearly shows the problematic, troubling character of the reach of “markets and market-oriented thinking” as they “reach into spheres of life traditionally government by nonmarket norms—health, education, procreation, refugee policy, environmental protection” (79).

********While we are on the subject of hunting, consider hunting for whales, i.e., the whaling industry.  This week The Economist has an article entitled “The first venture capitalists: Fin-tech” (http://www.economist.com/news/finance-and-economics/21684805-there-were-tech-startups-there-was-whaling-fin-tech).  The article connects up with the current movie “In the Heart of the Sea” and notes the importance of the 19th-century whaling industry in developing a business model that aligned the interests of owners, managers, and employees.  The article draws upon—I’ve concluded—a Harvard Business School case study “Whaling Ventures” written by Tom Nicholas and Jonas Peter Akins.  You can read its Abstract at: http://www.hbs.edu/faculty/Pages/item.aspx?num=43322.  The whaling syndicate of Gideon Allen & Sons “made returns of 60% a year during much of the 19th century by financing whaling voyages—perhaps the best performance of any firm in American history.”

May you have a good week!

Bruce

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