Monday, February 21, 2011

Ethics of Inefficiency

The Business Ethics Blog

The current way of thinking seems to imply that small-scale production is the way to go. Of course, for much of the 20th century, small-scale production was a sign of affluence: only the wealthy could afford to have a craftsman dedicate hours, perhaps days, to the task of custom-making an item just for them. Today, everyone from yuppies to hippies is clamoring for just that, in their rush to grab for things perceived as local and green and anti-commercial. We don't want multinationals to get between us and the skilled hands that make our loafers, and we want no agrifood giants mediating our relationship with the farmer who lovingly raised the goats that gave the milk that made the cheese. We want our business small, and indie. We want our consumer goods "bespoke," and "artisanal."

And the reason for this seems to be some vague impression that those kinds of businesses, and those kinds of products, are somehow more ethical. And in some cases, along some ethical dimensions, that may be true. But if anyone thinks that products produced by a small, local artisan are likely to be environmentally superior, well excuse me for being just a tiny bit skeptical.

This vague association of the small with the ethical misses the fundamental truth that, when it comes to production methods, size brings efficiency. Mass production tends to be efficient in its use of energy, materials, and labour. There are of course tradeoffs and exceptions: it's entirely possible for a factory mass-producing something to be highly efficient in the use of labour, but to be highly inefficient in the use of, say, water — especially if water is had at no cost. But generally, mass production is efficient; that's its raison d'etre. Consider: a local tailor spending an entire day hand-stitching a jacket has to use, to begin with, an entire day's worth of energy to light and heat his workshop. Alternatively, the same jacket could be made in a garment factory in a matter of minutes, using a few minutes' worth, rather than an entire day's worth, of energy.

Now that's not a blanket endorsement of all mass production. It's entirely possible for production processes to be set up so that they are highly efficient in their use of whatever resource is particularly costly, and highly inefficient in its use of whatever happens to be cheap, regardless of the ethics of doing so. Note also that mass-produced goods tend to cater to the lowest common denominator. It should also be noted that assembly lines may tend to result in repetitive strain injuries among workers — and, if you believe some critics, in feelings of alienation as the worker whose job is reduced to some trivial aspect of production is effectively cut off from any connection with the product as a whole.

But (generally) efficiency is good. Certainly no one is in favour of inefficiency, with the possible exception of those of us who revel in a well-earned "inefficient" weekend. At any rate, the very reason we engage in mass production is that it is efficient: it produces the most output per unit of input. And that's a good thing. So while there may be reason to value the small, the local, the artisanal, we ought at least to be aware that such goods are liable, at least in general, to be the product of highly inefficient — and hence environmentally unfriendly — production methods.


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Sunday, February 20, 2011

How to avoid the 7 deadly sins of business storytelling

How to Change the World

Over in the American Express Open Forum I posted an interview with Jennifer Aaker and Andy Smith about the "7 Deadly Sins of Busines Storytelling." It will help you optimize the impact of storytelling in your marketing.

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Research: Money Makes People Stingy

SSIR Articles
The more you have, the less you give. According to a 2002 Independent Sector survey, households earning more than $100,000 a year contributed only 2.7 percent of their income to charity, while those earning less than $25,000 gave a more generous 4.2 percent. New research shows that's no accident. "The more money a person makes or has, the less generous, helpful, compassionate, and charitable he is toward other people," says Paul Piff, a doctoral candidate in social and personality psychology at the University of California, Berkeley. Piff started out by noticing that rich people are generally ruder. When he videotaped them in the lab as they got to know a stranger, people who had identified themselves as having more "would check their cell phones ... or doodle without establishing eye contact. Whereas the individuals who identified themselves as having less, were more engaged: They would establish eye contact, they'd laugh more, they'd nod," Piff says. There seemed to be basic differences in the level of social engagement and concern for others. So Piff and colleagues designed a series of experiments. Given $10 worth of points and asked how much of it they wanted to share, rich people were less generous…
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why t-shirts are bad aid: the research

Texas in Africa
As the World Vision/NFL 100,000 t-shirts controversy swells on (now with a post on Freakonomics!) , I thought it might be useful to talk about the research that shows why t-shirts is a matter of bad aid. If your eyes glaze over at the thought of JSTOR and academic journals, I can sum it up for you in one sentence: the evidence is solid that t-shirt donations are bad for local economies.

For those of you wanting to go a little more in depth, read on.

One of the best known and most-referenced articles on the subject is "Used-clothing Donations and Apparel Production in Africa" by Garth Frazer. There's a gated version of the article here. Frazer set out to explain why African economies haven't advanced beyond basic manufacturing. He concludes that one major factor prohibiting the development of major textile industries is used-clothing donations by consumers in industrialized countries. That is, if you box up your old t-shirts and take them to Goodwill, you may actually be inadvertently undermining the development of clothing production facilities in Africa. Why? Because with a huge supply of cheap apparel that is ready for sale, there's no need to build factories to produce more. These are not insignificant effects; Frazer finds that "Used-clothing imports are found to have a negative impact on apparel production inAfrica, explaining roughly 40% of the decline in production and 50% of the decline in employment over the period 1981–2000." In other words, clothing imports result in job loss for people who could probably otherwise lift themselves out of poverty.

Frazer is dealing with used clothing, of course, but there's little reason to think that new clothing would be any different, especially since World Vision will be distributing it for free. In fact, free clothing donations undermine the secondhand clothing markets that provide what employment does exist in the sector.

Daniel Slesnik tackles the problem of in-kind goods more generally in "Consumption and Poverty: How Effective are In-Kind Transfers?" (also gated). Slesnik does not study the developing world here, but rather looks at programs designed to tackle poverty in industrialized states. He finds that, in order to be effective at poverty alleviation, in-kind transfers have to be highly targeted and the valuation recipients place on the transfers. In other words, the recipients have to be getting appropriate aid that actually solves their problems, and they have to place as much or more value on the in-kind transfer as they would on cold hard cash.

How is this relevant for World Vision? Well, it suggests that any kind of in-kind donation that is not highly targeted and valued by recipients is a waste of effort, money, and resources. As Bill Westerly points out, this gets pretty messy when we take into account the cost of actually getting the shirts to the recipients. If $A isn't less than $B, then it's a big mistake.

These are just a couple of examples of the body of research that clearly shows the negative impact of clothing donations on developing economies. There's just no way World Vision can honestly claim that these facts are unknown or that the impact of a clothing donation is unclear.

(If you're really interested in this topic, I'd also recommend writing to Loomnie and begging him to let you read his excellent dissertation on the secondhand clothing trade in Nigeria. If you have other suggestions for research on the topic, please note them in the comments.)
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