Category Archives: markets

Are European Soccer Matches Won in Stadiums or in Boardrooms?

Wembley - Tor

Was it a goal or not? This question will forever cause a stir between English and German soccer fans. (Probably less of a stir for English fans since England were awarded the disputed goal in extra time of the 1966 World Cup final in Wembley Stadium: watch the disputed goal here, read about it here.) But this is not the only thing matter of debate between English and German soccer. Germans often complain that English football is just about money, finding a big sponsor, and less about sports and a fair competition.

Whenever we are talking about professional spectator sports there are always two overlapping competitions in play, so to speak. The one we are watching take place on the fields (court, ice, etc.) between the teams, and the one that goes on in the marketplace between rival businesses. The German complaint, in a nutshell, is that English football is driven too much by the pressures of the marketplace, and not enough by what the English fan’s themselves love to call “England’s game.”

In order to promote the sport over the marketplace, the German Bundesliga invented the “50+1 rule”. It says that clubs are allowed to compete in the Bundesliga only if they hold a majority of their own voting rights (50% + at least 1 additional vote; read more about the rule here.) By this rule the “on-field” sporting interests of a club should be protected from the “marketplace” economic interests of its investors. This way, financiers and businesses will be able to gain control over clubs and professional football teams. The Germans believe that this is exactly what has gone wrong with English football. For example, Manchester United is owned by the US-American business-family, Glazer. (You can read about the differences between English and German football policies in this BBC article from 2013.)

What does that mean for the sport? Is the competition in England and elsewhere unfairly manipulated by investors? Is it unfair that some clubs have wealthier or more generous investors than others? Does the German rule make it impossible for smaller teams to compete with the historic giants of the Bundesliga like Bayern Munich? Perhaps finding an investor is just part of the game if you really want to be able to compete on the field. Such are the dilemmas and paradoxes when two fundamentally different kinds of competitions – sports and markets – overlap so completely.

Bi-Partisan Markets

Milton Friedman purports in Capitalism and Freedom that the free market allows the individual to express her individual desires, while the democratic system forces conformity.

“From this standpoint, the role of the market, as already noted, is that it permits unanimity without conformity; that it is a system of effectively proportional representation. On the other hand, the characteristic feature of action through explicitly political channels is that it tends to require or to enforce substantial conformity. The typical issue must be decides “yes” or “no”; at most, provision can be made for a fairly limited number of alternatives. Even the use of proportional representation in its explicitly political form does not alter this conclusion. The number of separate groups that can in fact be represented is narrowly limited, enormously so by comparison with the proportional representation of the market.”

Although Friedman argues for the benefits of proportional representation in the market, the economic system can potentially arrive at a similar conclusion as the political system. Consider the situation of the carbonated soda market, where advertising similarly enforces substantial conformity by raising the barriers to entry. Coke and Pepsi hold over 70% of the market share.[1] This sounds dangerously similar to the current political landscape in the United States, with Republicans and Democrats holding over 60% of the “voter market share.” 36% of registered voters are Democrats and 27% are registered Republicans.[2] The competitive landscape is actually slanted more in favor of Coke and Pepsi than our often-criticized bi-partisan political system.

The point that Friedman is trying to make is that 49.9% of the country may be forced to conform to a political situation to which they are opposed. Obviously, if Coke has a majority market share, you are not forced to consume only Coke. However, Friedman argues that the free market constitutes a system of proportional representation, but that is not consistent in the Coke/Pepsi situation. Due to wide awareness of Coke as a result of advertising expenditure, the consumer has a higher subconscious disposition to purchase Coke. It is not the result of actual product preference, but rather brand preference. Even if a company launches a cola competitor to Coke that is a healthier alternative with the exact taste, it will likely fail due to consumer’s requisite knowledge of the Coke brand. Essentially, a consumer purchasing RC Cola has the same effect of a citizen voting for the green party. The consumer is forced to conform to an economic situation in which they potentially are opposed, but is unable to view or obtain alternatives due to Coke’s stranglehold on the market.

One could argue that the consumer is not truly forced to consume Coke; she could simply purchase RC Cola in the supermarket. However, what about the situations in stadiums, theaters, or restaurants where there is only one option? These venue providers will rationally select the most prominent brand in order to appease the most consumers, and thus select Coke. But this leaves the consumer with a ‘yes’ or ‘no’ choice in those certain environments; the exact situation in which Friedman condemns. Thus, while liberal economists criticize the conformity in politics and espouse the virtues of the competitive marketplace, both systems are equally susceptible to the concentration of power.


[1]Esterl, Mike. “Pepsi Thirsty for a Comeback.” Wall Street Journal, 18 Mar. 2011. Web. <http://online.wsj.com/article/SB10001424052748703818204576206653259805970.html&gt;

[2] “Fewer Voters Identify as Republicans.” Pew Research Center. 20 Mar. 2008. Web. 04 Apr. 2012. <http://pewresearch.org/pubs/773/fewer-voters-identify-as-republicans&gt;.

Can Adversarial Contexts Be Socially Integrating?

Recently, Michael Gillespie wrote an article on March Madness and the unifying character of sports in American culture.  What is it about sports, and March Madness in particular, that it is able to organize and direct a group of otherwise — to borrow a term from John Rawls — “mutually disinterested” individuals towards impassioned support of a common goal?  How can a mere game transform a diverse group of individuals into an almost singular consciousness, where personal identities dissolve into a shared communal existence?

Gillespie answers similar questions in terms of Nietzsche’s view of Greek tragedy, which is, at its core, a merging of both the individual and communal elements of life (or the Apollinian and Dionysian).  Nietzsche’s conclusion is ultimately that life is redeemed only as an aesthetic phenomenon, and a sense of meaning is derived from a sense of struggle in which the individual sacrifices his happiness for something greater.

College basketball, and indeed sports generally, might play this redemptive role in American culture, as it is through sports that we experience life in all its peaks and valleys — from the ecstasy of an unexpected win by a buzzer-beating three-pointer, to the despair over an impossible upset in a tournament’s first round.  Insofar as basketball is representative of the unifying character of adversarial institutions, how else might this dynamic play out towards a goal of social integration?  That is, how might conflict help transform a Gesellschaft (society) into a Gemeinschaft (community), to use Max Weber’s terminology.

A similar situation might be seen in the United States during World War II, where civilian support was widespread.  It is well documented that the U.S. contribution to the war effort increased U.S. GDP, through increased productivity and the better mobilization of the workforce.  This had a taxing effect on the U.S. population, but this struggle was tolerated because of, among other factors, some sense of unification expressed as patriotism.

Indeed, this point about economies and markets as an expression of social integration is interesting.  It has been argued* that Adam Smith’s Wealth of Nations, when interpreted in conjunction with his Theory of Moral SentimentsLectures on Jurisprudence, and Letters on Rhetoric and Belles Lettres, forms a comprehensive theory whereby markets are not exclusively constituted by interactions of “competitive and strategic individuals to secure their material preferences,” (553), but rather as a central mechanism for social order derived from the “inexorable struggle by human agents for moral approbation and social recognition” (ibid).  This reading, furthermore, goes on to state how Smith perceived markets as an analogue to the classical Greek polis, as the site where people seek mutual recognition.

Before we commit what Alfred North Whitehead termed the “fallacy of misplaced concreteness,” we would do well to recognize that this represents an idealization, which might be quite undersupported, especially in the context of contemporary market transactions.  While Smith’s Wealth of Nations argues for lack of government manipulation and intervention in markets, the events of recent years has made some people skeptical of the efficacy of this kind of unrestrained free-market capitalism.

Part of the problem is that there is rarely the sense of a common goal among actors within American corporations.  Some economists such as Paul Krugman claim that the U.S. economy has become dominated by the financial sector, and one criticism against financial institutions is that employee’s have no personal investment in the firm beyond their limited tenure.  Performance is usually assessed in terms of a very short time-horizon, and significantly long-term strategies to increase market capitalization might not be implemented if they sacrifice short-term performance.

Obviously, I have no resolution for these difficulties.  Perhaps adversarial contexts could be socially integrating, and the main issue is how might the unifying character of sports, for example, be applied to other adversarial contexts, like markets.  Smith’s model might have been descriptive for its time, but it’s a real question as to whether our contemporary economic climate is one that can ever be socially integrating in this way.  It might be that our attitudes towards the firm is unsupportive of individual responsibility towards the long-term financial health of corporations, insofar as this comes at the expense of short-term personal compensation.

* Kalyvas, A. and Katznelson, I.  “The Rhetoric of the Market: Adam Smith on Recognition, Speech, and Exchange,” The Review of Politics, Vol. 63, No. 3 (Summer, 2001), pp. 549-579.

Race-to-the-bottom watch: The sensational path to the gutter

In today’s 24-hour coverage by cable and internet news media, keeping abreast with current events has become more convenient than ever, but has the increased quantity of news come at the expense of quality?

The ubiquitous nature of news as a product of technological innovation has created a fierce competition among media outlets. Cable news networks such as FoxNews, CNN, and MSNBC compete daily to increase their market share of a limited number of viewers. In this market of perfect or almost perfect substitutes, the logical option to beating your competitors would be to try as much as possible to differentiate your product from the rest of the field, and this is exactly what cable news networks engage in.

A favorite strategy of networks in distinguishing their products is to rely on the over-the-top personalities of their journalists. As a consequence, we have seen a gradual shift of importance away from the news and towards the newscaster, as the voices of Glenn Beck, Bill O’Reilly, Mike Huckabee, Rachel Maddow, Keith Olbermann, Lou Dobbs, and many others work to define a particular station’s unique image. The assumption underlying this trend is that news on its own is not enough to attract viewers; therefore, networks compensate for the dull news with flamboyant hosts (and extreme guests) who do extended opinion shows on the events of the day.

The conundrum is that as one network becomes more entertaining, the others have to scramble to catch up if they want to avoid being left in the dust.  So far, the three major networks have all done their share to stay competitive, but what has been left in the dust is the news they were originally intended to report.

A recent study done by the WorldPublicOpinion.org found that, while there is a significant number of misinformed viewers of all cable news outlets, FoxNews viewers are the most likely to be misinformed about objective facts in current affairs. This may come as no surprise however, as the industry incentives to sensationalize have, for example, frequently led FoxNews’ primetime pundit Glenn Beck to turn world news into entertaining puppet shows for his audiences to enjoy. And puppet shows are not even the end of the story. Some viewers have even turned exclusively to Comedy Central’s Colbert Report or The Daily Show for their portion of the day’s news.

For cable news, the race to entertain viewers has led to a race to the bottom in factual reporting. In order for a network to be competitive, it has to have its own brand of radical anchors that cater to a specific and ever-more partisan audience. The result has been the creation of a perpetually polarized atmosphere and an uneducated viewership. Only time will tell if the demand for entertainment news programs will continue or if viewers will become disillusioned and seek alternative or additional sources for news, hundreds of which are already available online.

A friendly chat about adversaries

This blog got plenty of free publicity last Friday when I (Wayne Norman) did a turn on Duke University’s weekly “Office Hours” live tweet-in show. For better or for worse, the conversation should be permanently accessible here:

Some of the topics of conversation were plucked from my other blog, This Sporting Life, including one on Why the NCAA Tournament is the American Idol of Sports, and What’s Wrong with the Wonderlic Test.

Bethany’s post here about what we learn about political ethics from primary elections also got a quote and a shout-out during the interview, and it can be found here. Stay tuned for some of her follow-up thoughts on that topic.

Race-to-the-Bottom Watch: Are We Drowning in Advertising

Advertisements are everywhere.  Cabs and busses are covered in full-size ads, billboards are placed every 50 yards along highways, YouTube now plays ads before you can watch the video you intended, TV events are created out of one-sentence announcements (e.g. Heisman Trophy presentation, American Idol final), pop-ups pervade web browsing while we simultaneously find ads for pop-up blocker applications, high school prom dances turn into ads for the usefulness of duct tape, and people are ever getting paid to get advertisements tattooed on their bodies.  A 2009 study suggests that the average American adult spends over an hour a day watching advertisements on TV alone.

But really, you’ve got to feel sorry for the advertisers, don’t you? Think about it: the more ads that are put into the public domain, the less effective each individual ad becomes.

This stems from the fact that advertisers are competing to satisfy the existing and limited demand of a consumer base, rather than creating new demand.  Think of the sheer volume of ads for food and drinks.  These companies are not assuming that without advertisements people will just not eat at all; rather, they assume that people are going to eat somewhere, and advertisements are intended to direct the consumers’ demand in their direction.

While there is a certain amount of demand created by advertisements, advertisers aren’t so naïve as to assume that they can convince you, with a single 30-second spot, to buy a brand new car out of the blue.  Rather, their primary interest is to direct, and at times exaggerate, a consumer’s existing desires.  This means that marketers are essentially competing to win the same consumer demand, and consequently, with each entrance of a new competitor, the old ones have to fight even harder to maintain its market share.

Imagine visiting a city for the first time and getting lost on your way to the hotel.  Contrast the following scenarios:

Scenario 1 –You pull over and ask someone for directions.  The person says they know where you are intending to go and gives you concise enough directions to follow.

Scenario 2 – You pull over and ask a group of people for directions.  They all say that they know where you are intending to go and each gives you concise enough directions that you believe you can execute—however; everyone in the group gives you a different set of directions that lead you to altogether distinct places!

Presumably in scenario 1, you would simply follow the directions you were given, but scenario 2 seems much more confusing.  Whose directions are you to follow?  The person who has lived in the city the longest?  The one who seemed most confident?  The one who claimed to be a taxi driver?  The one who claimed to be a doctor?  The one who was most well dressed?  In fact, the situation seems altogether so confusing that you will probably reject all of their opinions and ask a new person or try purchasing a map.

The same confusion arises when advertisers compete for your demands.  The more businesses that decide to advertise, the more the existing advertisers have to shout louder, in more places, and in smarter ways in order to get your attention.  This ultimately leads to more and more of our dollars and minutes being spent on advertisements every year. We are, in short, in a commercial race to the bottom wherein the more effort that is expended leads to not only fewer gains but higher costs for both businesses and consumers. 

Race-to-the-Bottom Watch: Fishing for Trouble

What’s the most deadly occupation in America? According to the U.S. Bureau of Labor Statistics, it’s fishing. Commercial fishing, to be precise. Why is fishing so dangerous? Fisherman can be trapped in a perfect storm of collective-action problems and, well, actual storms.

The harsh competition in this already dangerous industry is leading workers to labor in ever-worse sea conditions in order for businesses to stay afloat (so to speak). The best fishing grounds are often found in the most treacherous seas, and the clock ticks down quickly in some fisheries (say, the crab fishery off the coast of Alaska) where the seasons last only a few weeks. When one vessel decides to go out in stormy weather in order to get a competitive edge, crews of other vessels are faced with the dilemma of either falling behind the competition or following suit in braving the potentially life-threatening conditions.

This dilemma is only exacerbated by the depleted state of many of the world’s most important fisheries.  In an effort to stem the “tragedy of the commons” of overfishing, authorities have commonly resorted to setting an overall limit of fish that can be caught in a given fishery for a given season.  The approach of giving an aggregated limit breeds intense competition because each fish caught by one fisherman entails one fewer available to all the others.  This creates what has become known as a “race to fish” wherein fishermen are willing to do almost anything in order to nab a greater share of the overall quota before it runs out, including foregoing safety precautions.

So this race to fish is really a race to the bottom. One crew deciding to risk the elements in order to gain a competitive advantage starts the race. But once the other vessels join the competition by going out in perilous weather conditions, the competitive edge that motivated the first mover vanishes, while the risk of death for all of the fishers increases.  Thus, in the race to fish we can see how individuals attempting to act in their own interest, while responding to the actions of others attempting to do the same, can all end up worse off.

Is there any way out of this race to the bottom? Some authorities have replaced the overall quota with individual allocations to prevent such fierce competition.  Critics protest, however, that this solution does not live up to the free-market principles of American capitalism.  However, it is evident that the case of a totally free market for fishing (in which fishers and their customers do not pay the cost of replenishing the fish stock) is likely to lead to overfishing and ultimately the end of any kind of market for fishing. What if the rights of individual allocations were auctioned off in advance?

 

 

The Hesitant Hand: what Adam Smith did and didn’t say about government regulation, corporate lobbying, and CSR

Ethics for Adversaries has been on spring break, but should be roaring back to life in the coming days.

Here’s a newish book I’ve just ordered on the history of Adam Smith’s Great Idea — the one that still frames so much of our thinking about the ethics of deliberately adversarial institutions. (Steven G. Medema, The Hesitant Hand: Taming Self-Interest in the History of Economic Ideas.)

I just hope the book is better than the first line of Princeton University Press’s blurb, which seems at best skewed and revisionist, and at worst just false:

“Adam Smith turned economic theory on its head in 1776 when he declared that the pursuit of self-interest mediated by the market itself–not by government–led, via an invisible hand, to the greatest possible welfare for society as a whole.”

It is well-known that the famous phrase “an invisible hand” (not even “the invisible hand,” which is what we tend to say now) was used only once in the massive two-volume Wealth of Nations. It comes in a chapter railing against Restraints on the Importation of Goods. Much of the chapter concerns what we would now call the law of comparative advantage — that is, about why it is to each country’s advantage to produce what it can produce most efficiently, and to trade abroad for what can be produced more efficiently in other countries. Throughout the chapter and the book Smith points out the myriad ways restrictions on international trade create inefficiencies. And also how these restrictions inevitably come from business people lobbying gullible or corrupt politicians in order to secure domestic monopolies.

But not only is it inefficient to restrict imports of goods produced more efficiently abroad, it is usually unnecessary. Business people prefer to keep an eye on their investments and to be able to trust the people they deal with, so they will naturally, even other things not equal, invest domestically. As Smith says in the famous “invisible hand” paragraph,

“As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own gain, and he is in this, and in many other cases, led by an invisible hand to promote an end which was not part of his intention.”

He is talking about a particular case, and criticizing a particular type of government regulation, namely, what we would now call protectionism. He notes that this basic logic of the market replicates itself “in many other cases.” He does not say “in all other cases.” We know, for example, that the invisible hand will get all messed up in situations that involve collective action problems like the Prisoner’s Dilemma. Adam Smith would have had no reason to object to that (and I suspect that a real Smith scholar could point you to his discussions of PD-like situations). And he wouldn’t think that the general welfare would necessarily be increased by trade involving deceit, the exploitation of what we now call information asymmetries, or negative externalities.

It is also noteworthy, given the wording of the Princeton University Press blurb, that he does not say that self-interest via the invisible hand leads to “the greatest possible welfare of society as a whole.” In the “invisible hand” paragraph he is talking about “the annual revenue of every society [which] is always precisely equal to the exchangeable value of the whole annual produce of its industry.” That is, something like GDP. It is obviously an open question whether GDP tracks the “welfare of society.” Even the British Conservative Party doubts that assumption these days!

Once again, I’m no Adam Smith expert, but I have actually read great swaths of the Wealth of Nations, which is more than most latter-day “disciples” of Smith can claim. It is somewhat odd that the enduring lesson from that monumental work is the panglossian one that markets, left to their own devices, always lead to the best of all possible worlds (since that is not what Smith ever says), rather than Smith’s repeated warnings that we should always be suspicious of corporate lobbying and corporate conspiracies.

The conspiracy part we do remember from the famous quote about how we should worry whenever members of the same trade meet, “even for merriment and diversion” since they will inevitably try to fix prices. That is why even conservatives support anti-trust regulation; even if they also tend to think it is unfair in almost any particular case. But just as relevant today would be Smith’s utter contempt for business people lobbying and corrupting hapless politicians in order to enact particular regulations that serve their interest more than the public’s. Smith was concerned with trade restrictions that create unnatural monopolies, but he would be just as worried today about lobbying to allow for the exploitation of other market failures in a modern economy. And he would have been horrified when the right-wing — supposedly pro-market — justices on the Supreme Court used the Citizens United case to make it easier for corporations to pursue their interests by manipulating election processes.

And while this new book is drawing our attention to the famous “invisible hand” paragraph, it is worth noting that Smith was no fan of Corporate Social Responsibility, or CSR, either. He continues the paragraph quoted above by noting:

“By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.”

Who needs trade unions?

So far on this blog we have not talked much about the choices between adversarial and non-adversarial relations inside of firms. But this is a great context in which to sharpen our understanding of adversarial ethics, because we do have experience with much more and much less adversarial corporate cultures and industrial relations.

The legal recognition and buttressing of labor unions from the late 19th century until, say, the 1980s, could be described in two ways: either as instituting deliberately adversarial mechanisms in the governance and management of firms, or as making an already-adversarial relationship between owners of capital (and their managers) and laborers less unfair. There are other ways of describing this contested institution, for sure.

We’ll talk much more about what goes on inside the firm in the future; but at this point I would just like to flag a brief debate going on in the blog space at The Economist. Mark Thoma, an economist at the University of Oregon, proffers a brief answer to the question “What good are labour unions?” His one-sentence answer is, “Governments should replace unions as a protector of workers.” And of course, in many ways they have. Government occupational health and safety legislation, along with extensive bodies of employment law, now give to all workers what unions had to bargain tooth-and-nail for on behalf of their members.

But however important unions may have been in the past (and for Thoma this is an open question), he argues that:

In an increasingly globalised world where digital and other technology allow firms to easily escape unionised labour, unions have lost their ability to act as an equalising force in negotiations over wages and benefits.

Global labor organisations could provide an alternative, but this would require global institutions that do not presently exist, and that do not look likely to emerge anytime soon. For now, the answer has to come domestically and the only institution powerful enough to protect workers is government. Government-provided health and dental care, security in old age, workplace safety, insurance against job loss, higher education that is essentially free, and other such benefits would go a long way toward remedying what workers have lost since the 1970s. In addition, government redistribution of income may be needed to ensure that economic gains are shared more equitably. In combination, this would provide the things that unions fought to get for workers and maintain the current social protections that government provides.

There seems to be a general trend to make more institutions adversarial, competitive, or “market-like.” Ed Sullivan got people to watch singers and dancers on TV, but now we won’t watch them unless they’re competing against each other and we can vote on who wins. But here is a proposal to make one very important economic and social institution — the firm — less adversarial. Or maybe just less fair.

Adversarial ethics under the stars: competitive time-wasting in K-Ville

This is the inaugural post by Leonard Ng’eno and Michael McCreary.

Hours before this year’s basketball showdown in Cameron Indoor Stadium between consummate rivals Duke and University of North Carolina Chapel Hill, the chancellor of UNC—Holden Thorp—took an early swing at the Blue Devils by tweeting, “Our students are talking about the future and asking smart questions instead of wasting time sitting in a tent.”[1]

The Krzyzewskiville tradition involving hundreds of Duke undergraduates camping out for weeks in advance to get their single-square-foot claim on courtside real estate for one of the most highly anticipated events in all of sports has become iconic of both the institution and fandom at large.  Duke fans, or Cameron Crazies, are known for their intensity and are proud to serve as the “Sixth Man” on Duke’s squad, providing an added advantage for the home team which is soundly reflected in the record books.  As Duke undergraduates, we were obviously offended by Thorp’s cheap shot at our tradition, our team, and our friends, but after the initial sting began to fade we started to wonder: Was Thorp right?  Is spending a month in a tent in order to see a premier basketball game a waste of time?

We’ll let K-Ville residents speak for themselves as to whether or not their month outdoors was worth their while this year; the specific questions we wish to address are these: What is the function of K-Ville?  What are its shortcomings?  And is there a preferable alternative?

The necessitation of K-Ville comes from the foundational economic principles of supply and demand, where supply represents the limited number of seats available and demand represents the number of undergraduate students vying for those seats.  This excess demand creates the need for some filtration process to achieve equilibrium.  In effect, tenting at K-Ville serves as a kind of “price adjustment” mechanism, increasing the cost (not monetary, but physical) of attendance and as a consequence lowering the demand.

K-Ville, and lining up in general, functions from a deliberately adversarial point of view where many students are competing against one another for a limited number of seats.  The principal shortcoming of K-Ville is that very few students—including the ones who participate—enjoy sleeping out in the cold while concurrently paying for a nice, heated room: grades suffer, relationships are strained, and comfort is sacrificed.  Yet, it is K-Ville residents themselves who dictate their own fate.  Living in a tent is not, strictly speaking, a requirement of attending the game.  Admittance relies on a “first-come first-served” policy, and K-Ville residents are merely admitted because they are the first in line.

In this way, we can see how lining up poses a serious collective action problem; one which, according to Professor Joseph Heath, “can easily degenerate into a race to the bottom, in which each individual, responding to the actions of the others, generates an outcome that is successively worse, but where each iteration of the interaction only intensifies their incentive to act in the same way.” While lining up early may be in one’s own self-interest in order to guarantee a spot, the inherently competitive move prompts others to line up earlier as well and can eventuate into months of waiting for hundreds of students.  On the other hand, if the amalgam of attendees turned up just an hour before the game, the result would be the same as if they had lined up in the same order months ago.

The primary problem in dodging this race to the bottom, however, is that there is no way to know who would commit to lining up first without going through the process genuinely (i.e. with every intent to sleep there for the entire duration).  It could be conceived that one year K-Ville residents decided to form a pact, after completely intending to stay there the whole time, that said they would each get in line in their set order an hour before the game and avoid camping out.  However, problems with this solution would be that there would be no way to prevent others from lining up during that time or to ensure that signatories of the pact would not break their oath.  Furthermore, such an agreement would, to some extent, undermine the legitimacy of the next year’s line, as some might line up with an expectation to make another pact while some might not line up at all, thinking that they could just outwit the people who make the pact this time around.  In essence, there doesn’t seem to be any way to artificially generate and ensure the results of the natural queuing process.

To tackle this problem, we need to reduce the demand for seats by setting up a fair competition that does not lead to a race to the bottom.  In arriving at our proposed solution, we took as a premise that a fair competition is one that favors those who want to go to the game the most (i.e. those who are willing to pay the highest price).  This premise is not only founded upon common marketplace ideas, but also seems to be the source of legitimacy for the existing queuing system.  Thus our method was to find some competitive system that would allow the most devoted students to demonstrate their fanaticism by paying a more productive and fun cost than standing in a line.  By definition, costs are rarely productive or fun (you aren’t going to reduce demand by giving people free candy), and so it took some thinking to come up with something, but in the end we were pleased with our solution.

We propose setting up a competition based on attendance of other Duke Athletics events.  Those who have attended the most Duke games, of any sport, would get priority for the seating to men’s basketball games, including the marquee matchup with UNC.  The university already has a system in place that rewards students for attending sporting events, called The Inferno.  We suggest that The Inferno be expanded to not only give points to students for attending games, but also to reward students with game seats when demand is expected to exceed supply. Thus by basing admittance to the Duke-UNC game on a student’s attendance at other Duke games, we avoid the race to the bottom result that forces students to camp out for longer and longer periods each season in order to attend one game.


[1] Thorp has since taken down the tweet and apologized.

Should we be Worried When Competitive Arenas Compete with Each Other?

[Ed. Note: This is the debut post by founding member, Dominic Martin.]

The Deutsche Boerse announced this week that it was in advanced talks to buy NYSE Euronext in a deal that would create the world’s largest stock market.

And by complete coincidence, on the very same day, the London Stock Exchange Group (LSE) had also announced that it would merge with the TMX Group Inc. (who owns the Toronto Stock Exchange). Both of these mergers (Frankfurt-New York and London-Toronto) are presented as a necessary measure to compete with other stock markets at the international level.

So here is a big question. If competition is justified within properly regulated and self-contained competitive arenas, should it also be justified, at a “meta-level,” between these arenas themselves?

My intuitive answer is … yes.

Because competition already goes on at many different levels: corporations compete against each other (obviously), but also, in other ways, with their suppliers and their customers; consumers compete with each other over products that are scarce (houses, for instance, or art), and even national markets compete with each other to attract investors, increases their exports, and so on. What is a tax haven, if not a competitive national economy that plays “dirty” at that game? (Or so say highly taxed and less internationally competitive economies, like Canada or France.) Competition among stock markets also contributes to the dynamic that makes rivalry desirable in the first place.

However, a few things have to be kept in mind regarding the London-Toronto stock exchange merger:

  • What Canadians will gain, in terms of stocks volume, they will lose in terms of control over their own national stock market.

Even if LSE CEO Xavier Rolet is seeking to reassure Torontonian financiers, and even if the Canadian authorities will require some guarantees that TMX won’t lose all its sovereignty in the merger, the fact remains that the bigger player is the LSE. It will hold 55% of the share of the new corporation. It will occupy eight seats at the Board of directors, compared to seven seats for TMX. What will happen when UK’s financial interests conflict with Canada’s? To ask the question is to answer it.

In 2008 TMX acquired the Montreal Stock Exchange. Let’s just say that Montreallers’ interests would now be even further down the food chain.

  • If you are out in the market of stock markets, ready to merge with another player, why not go after the biggest one?

The TMX-LSE merger will create the biggest stock market in the world in terms of subscribers, but only the second in terms of market capitalization. The first one being the New York Stock Exchange (now I let you do the math if NYSE Euronext is acquired by the Deutsche Boerse). So why didn’t the TMX try to merge with that group? Shouldn’t Canadian’s benefit ever more from that transaction?

The fact that the stock markets owned by TMX and LSE specialized in similar product might be an acceptable rationale, however. Once taken together, the London and Toronto stock exchanges will become the biggest market for merchandise, natural resources, energy, and small- and medium-sized businesses in the world.

  • Did they really have a choice? And if not, what does the TMX Group should be accountable for?

Technological development (that allows decentralization of transactions) and the integration of world-wide economies (that increase the size of markets and corporations) have pushed many stock exchange to merge since 2000. Some like to say that these mergers are unavoidable (see Professor Louis Gagnon’s comments in the Globe and Mail for instance). If it is the case, does it wave all obligations for the corporations that own these stock markets? Ought they to promote their respective national interests?

 

Conference Announcement: Property, Markets, and Morality

At least since the publication of Adam Smith’s An Inquiry into the Causes of the Wealth of Nations in 1776, most discussions on the foundations of political economy have been about the design of a very important deliberately adversarial institution we call “the market.”

Here is an announcement for a conference on some of the philosophical and ethical issues at the heart of capitalism (so to speak), taking place in my neck of the wood.

PROPERTY, MARKETS, AND MORALITY

18-20 March, click here for an early schedule.

University of North Carolina Greensboro

Speakers:

Hillel Steiner (University of Manchester), “Greed and Fear”

Richard Arneson (UC San Diego), “What is Wrong with Working for a Boss?”

Daniel Russell (Wichita State University), “Capabilities, Redistribution, and Ownership”

Michael Munger (Duke University), “Euvoluntary Exchange and the Difference Principle”

Julian Lamont (University of Queensland), “University Education, Economic Rents, and Distributive Justice”

Commentators:

Eric Mack (Tulane University)

Geoffrey Brennan (UNC Chapel Hill / Australian National University)

Jonathan Quong (University of Manchester)

Daniel Shapiro (West Virginia University)

Bas van der Vossen (UNC Greensboro)

This symposium is hosted by the philosophy department at the University of North Carolina Greensboro and the BB&T program in Capitalism, Markets and Morality.

All welcome. Attendance free, but registration required.

To register and for more information, please contact Bas van der Vossen: b_vande2@uncg.edu

Organic Farmers “Cheating”

Any time standards are established for the production of some product, and if money can be made by skimping on those standards…well, skimping is liable to start happening. Nowhere is that worry more obvious today than in the realm of organic agriculture.

See this little note from The Morning Sentinal: ‘Cheating’ organic farmers mostly from overseas

The brunt of the problem is with overseas farmers who sell much of the certified-organic food in the domestic, American and Canadian retail markets. Who’s watching them? Well I’ll tell you. for the most part, they’re watching themselves. And they undercut American and Canadian organic farmers like Thoet four times out of five.

Clearly, if people in China, Mexico and Indonesia are cheating, we need to start field testing on a surprise basis to weed them out. I’m not sure why exactly that message bothers some organic farmers, like Thoet, but the good news is that the overwhelming majority of organic farmers in North America agree completely….

Notice here the multi-layered competition:

  • American organic farmers are competing with each other;
  • American organic farmers are competing with with American non-organic farmers;
  • American organic farmers are competing with foreign organic farmers (or maybe “organic” farmers);

It’s also worth noting that, perhaps less obviously, American organic farmers are competing with American farmers who adhere to a “nearly organic” method of farming, but who do not or cannot meet the standard necessary to gain the regulated designation “Organic.”

In each case there’s a competitive environment, subject to a more-or-less formal set of rules; and in each case, the opportunity exists to break rules, or to game them in various ways. Notice also that, when one sees oneself as playing several separate games at once, one has in principle the opportunity to justify cheating at one game by appealing to the rules of the other games. (For instance, “Yes I know I was bending the rules for USDA Organic, but it’s more important that we beat out imports from Indonesia!”) Does this happen in practice?

(See also: The Challenges of Organic Certification, over at my Food Ethics blog.)

Skins and the Edge of Indecency

Last week there was some controversy over MTV’s “edgy” teen drama, “Skins.” I’m quoted giving a business-ethics perspective on the show in this story, by the NYT’s David Carr: “A Naked Calculation Gone Bad.”

What if one day you went to work and there was a meeting to discuss whether the project you were working on crossed the line into child pornography? You’d probably think you had ended up in the wrong room.

And you’d be right.

Last week, my colleague Brian Stelter reported that on Tuesday, the day after the pilot episode of “Skins” was shown on MTV, executives at the cable channel were frantically meeting to discuss whether the salacious teenage drama starring actors as young as 15 might violate federal child pornography statutes.

Over at my Business Ethics Blog, I focused on the way the Skins controversy serves as an example of how a kind of corporate group-think can end up producing a product that might, on second thought, not be such a good idea.

But it’s also worth noting (for purposes of this blog) that TV is fiercely competitive. Viewers generally benefit from that competition, as in any industry, but there are limits on competitive behaviour. What are the relevant limits, here? TV is relatively loosely regulated. The Federal Communications Commission does regulate TV (see their rules here) but their main focus is on avoiding ill-defined “indecency.” But their process has to begin with objections from someone in the community. And what we take to be “indecent” is surely evolving, a fact that broadcasters are both subject to and contributing to. Something more like “bright line” might be found in child pornography laws, the spectre of which has been raised in the controversy over Skins. But even there, there’s plenty of room for interpretation, and plenty of room for broadcasters, in a competitive game, to play along the edges of the rule.

Before there was EthicsForAdversaries.com there was Ethics for Adversaries, the book

This blog shares its name with what we believe was the first academic book to deal with the dilemmas of ethics across a broad range of what we are calling “deliberately adversarial institutions.” Arthur Isak Applbaum’s book came out in 1999, and continues to be widely read and cited in the scholarly community. But it cannot be said to have spawned a new subfield. Yet.

There have been philosophical worries about the perverse consequences of competition in public and private life ever since Socrates denounced political corruption, and Plato scorned the Sophists (the lawyers of his day) for discarding the truth when it was not in their clients’ interest. But few before or after Applbaum have tried to develop a framework for addressing these dilemmas across the full range of competitive institutions, and to link this up with more “foundational” ethical and political theories.

(Applbaum is not founding member of this blog team; though he would certainly be welcome if he wanted to join us.)

From time to time, we will post salient quotes from scholarly works, including Applbaum’s. Let us start where Applbaum himself did (in the preface to Part I of his Ethics for Adversaries: The Morality of Roles in Public and Professional Life), with a quotation from the 16th-century French thinker, Michel de Montaigne:

“Likewise in every government there are necessary offices which are not only abject but also vicious. Vices find their place in it and are employed for sewing our society together, as are poisons for the preservation of our health. If they become excusable, inasmuch as we need them and the common necessity effaces their true quality, we still must let this part be played by the more vigorous and less fearful citizens, who sacrifice their honor and their conscience, as those ancients sacrificed their life, for the good of their country. We who are weaker, let us take roles that are both easier and less hazardous. The public welfare requires that a man betray and lie and massacre; let us resign this commission to more obedient and suppler people.”

Michel de Montaigne, “Of the Useful and the Honorable.”

Montaigne is addressing the morality of roles. There are defined roles in all institutions (i.e. adversarial and non-adversarial), and some of these will require role-holders to do things they could not do outside of those roles. In this blog we will focus especially on the roles within deliberately adversarial institutions, which are even more ethically treacherous. Montaigne’s reluctant public servant administers poison-as-medicine for he knows it is ultimately for the public good. But in contemporary adversarial institutions like financial markets and electoral politics, that links between legal and winning tactics, on the one hand, and the invisible-hand benefits for the public good, on the other, may be so tenuous or dubious they look like delusional rationalizations. If only we could be sure that it was not the “weaker” among us who gravitate toward these roles….

Competitive Ethics in the Dairy Industry

Over at my Food Ethics Blog, I’ve just posted a short entry on regulating competitive behaviour in the dairy industry: Using, Regulating and Testing for Antibiotics in Milk. The key point, there, from the perspective of ethics for adversaries, lies in looking at the obligations that competitors have to those they server (consumers of milk, in this case) compared to the obligations they have to other members of society. In sports terms, it’s the comparison between what a baseball team owes its fans, versus what it owes to people whose windows might be smashed by a stray ball.

Bankers Bonuses and Multi-Level Structured Competition

Here’s an interesting story about structured competition within an organization. By Michael Flaherty and Sarah White, as appearing in the Globe and Mail: Gap in bankers’ bonuses spurs discontent

Annual bonuses at top global banks are causing friction that could drive an outsized round of defections as weaker profits and tougher rules widen the pay discrepancy between star performers and everybody else.

That growing difference between a small number of top-fee earning investment bankers and the bulk of their colleagues may see an exodus from big European and Wall Street banks to smaller upstarts or different industries in the weeks and months ahead….

Actually, what we see here are several nested levels of structured competition:

  • Competition between bankers, structured by the banks that employ them, in order to incentivize them for maximum productivity;
  • Competition between banks (structured by the legal and regulatory environment) to see who can offer an incentive structure that attracts (and retains) the best talent;
  • Competition between industries to see which industry can attract (and retain) the best talent, at least to the extent that such talent is mobile and involves transferrable skills.

Did I miss any layers?

Each of those competitive structures of course implies its own set of ethical norms, both for those who design the institution and for those who are subject to it. The intersection between, and conflict between, those alternative sets of competition-specific ethical regimes, seems a fertile ground for investigation.