Category: Government Failure

Remember Challenger And The Ethical Failings That Killed The Crew

On By southwerkIn business ethics, Capitalism, Economic measurement, ethics, Government Failure1 Comment

On January 28, 1986, the space shuttle Challenger disintegrated at 11:39AM. The crew cabin flew free of the conflagration and fell toward the earth. The initial forces on the crew were in the area of twelve to twenty times the force of gravity. These forces are not sufficient to cause death and unlikely to even cause injury. There are oxygen tanks available on the backs of the seats. These tanks are turned off during flight and have to be manually turned on. Three of four in the command section were turned on. Analysis of the amount of air used is within the bounds of what individuals would breathe during the fall to earth. The crew cabin fell to earth for two minutes and forty-five seconds. There is no clear conclusion to the question of whether or not these astronauts were conscious up to the point of impact. If they were conscious what they would have been thinking is also a matter upon which there is no clear conclusion. The crew cabin struck the ocean at two hundred and eight miles per hour. This is equivalent to over two hundred times the force of gravity.

January 27th, 1986: That evening there was a telecon meeting between Morton Thiokol, Marshal Space Flight Center and Kennedy Space Center.

The four engineers from Morton Thiokol recommended canceling the launch because the temperature at the pad was too low. They noted that previous launches at low temperatures had coincided with damage to the o-rings protecting the joints in the rockets from the contractions and movements of the launch and flight. It was pointed out that if an o-ring failed hot gas would be expelled from the resulting hole in the rocket.

NASA placed pressure on the company to launch. Morton Thiokol cleverly developed a new way to make decisions removing the engineers from the process and disregarding their report.

It should be emphasized that the men who made the decision to launch were not bad men. They were upstanding members of the community with wives and family. They had legitimate concerns about their jobs and futures. Morton Thiokol was pursuing a new contract with the government for a one billion dollar contract for missiles. NASA was trying to get a launch done while under considerable pressure from the White House to get the thing up on schedule.

It is of course also to be noted that while these upstanding members were under severe pressure to make a difficult decision, it was not quite as serious a situation as falling for two minutes and forty five seconds at two hundred and eight miles per hour into the surface of the ocean less than a day later.

No one who advocated that the Challenger be launched over the objections of the engineers lost their jobs, were demoted or punished.

Morton Thiokol was liable under its contract with NASA for a ten million dollar penalty in the event of such a failure but was also liable for all damages that resulted from such a failure. NASA in a brilliant move released them from liability for the damages if they would immediately pay the ten million dollar penalty. (Losses from the Challenger disaster are minimally two billion dollars.) However, upon later consideration concluded that Morton Thiokol should not pay the ten million immediately but should take it out of later profits. However, there is no indication that any such money has been paid.

Morton Thiokol won the missile contract they were seeking and also continued to build the rockets for the shuttle, although there were able to charge a higher price.

The CEO was later quoted, which he said was taken out of context, as saying that the Challenger disaster had cost the company less than ten cents per share of stock.

Roger M. Boisjoly and Allan J. McDonald, the engineers who was principally responsible for raising concerns about the launch and were willing to discuss what had happened in the discussions between Morton Thiokol and NASA were shunned by colleagues and demoted.

Let us review.

No one who sent these astronauts to their deaths were fired, demoted or otherwise punished.

The company that built the malfunctioning units and whose officers had sent the astronauts to their deaths were rewarded with further contracts and improved profits.

Those that warned of the danger were demoted and shunned by their colleagues.

Their warnings had no effect. They might very well have smiled, said the shuttle rockets were the epitome of engineering perfection, and asked to be assigned to a new and promising project.

So, let us place ourselves in the position of McDonald or Boisjoly. You can object to the launch and save no one. Even if you directly participate in the decision to launch giving every possible assurance of safety when you know nothing of the kind, you will not be punished.

Goodness, this is not like your usual example in ethics is it? In the classical decision making example in the standard textbooks, you have an ethical decision which if you make you will lose your job, your income and have your future seriously damaged.

This is a real one.

You no matter what your training or experience can give an opinion based on hard evidence to your company of imminent danger based on your product and not only do they not care, neither does the consumer. When death occurs it is you that is penalized even with full national news focus on the subject and a commission of inquiry asking you whether or not you have been retaliated against. Your superiors chew you out using expletives and when found out claim they never even raised their voices. But nothing will happen to them. You rocked the boat. The company knows what you do not. They will not be penalized. You were right but you were right in the wrong way. You’re just not a team player. You don’t have the right attitude. Killing, maiming, destroying the prospects and impairing the future of your nation are not serious problems. The worst moral failing you can have is not playing well with others.

The worst thing about this little piece of history is what it says about the standards of morals and ethics at the highest level of government, media and industry. The story held to was that this was an unfortunate accident. Most people still believe that.

http://www.onlineethics.org/CMS/profpractice/ppessays/thiokolshuttle.aspx

http://history.msfc.nasa.gov/book/chptnine.pdf

http://www.jstor.org/pss/4165304

Why Is Unethical Conduct In Business So Common?

On By southwerkIn business ethics, Capitalism, Economic measurement, ethics, Government Failure2 Comments

This is a re-publish of an earlier essay. I think it is on point for our current situation.

There are several factors. The first was the advent of the baby boomers to power and authority replacing the Depression and the World War Two Generations. Probably the best date for this transfer would be 1976 when Jimmy Carter became President. He was the first President to not have served in the Second World War since Truman. The significance of this was huge. The previous generation had solid memories of the failures of financial sector and the long hard times that resulted. The difference between study and experience are dramatic. It’s even worse when it’s collective experience. The new generation had stories, movies and television to remind them of the pain of those years, but it didn’t carry the power of the emotions involved, the collective helplessness of more than fifteen years when everything that generation knew was in peril.
The second factor I point to is the advent of the Chicago School of Economics and the doctrines of Milton Friedman. I point in particular to Friedman’s 1970 article in the New York Times Magazine, The Social Responsibility of Business is to Increase its Profits. This is my favorite quote.
But the doctrine of “social responsibility” taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a “fundamentally subversive doctrine” in a free society, and have said that in such a society, “there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
I want you to understand that it appears to me that included in “the doctrine of social responsibility” is duty, honor, religion and patriotism, to name a few. (I like to tell my ethics class that the no religion agrees with this doctrine that doesn’t practice human sacrifice.) Here we have a rejection of those values that constitute Western Civilization. From Wikipedia:
The concept of western culture is generally linked to the classical definition of the Western world. In this definition, Western culture is the set of literary, scientific, political, artistic and philosophical principles which set it apart from other civilizations. Much of this set of traditions and knowledge is collected in the Western canon.
These things that make us human, these things that convey the values – the principles, that are the result of thousands of years of human experience are swept away in a simple doctrine that justifies any action within “the rules of the game.”
I want to point out one more thing: notice that the principles of “within the rules of the game” and “open and free competition without deception or fraud” are in many ways contradictory. If you can make or influence the rules why should you compete? Now get a load of this: Friedman tells businessmen that they are free of any restraint, every limitation of conduct, but they are supposed to hold to the duty of engaging in open and free competition without deception or fraud: Do whatever is necessary to make a profit but be good boys and compete.
The third element is the gradually increasing wave of deregulation which begins in a small way in 1971 when the Nixon Administration recommends the rail and trucking industries be deregulated. By the time, Jimmy Carter is elected the doctrine has gained enormous strength and much wider application. The basic implication that government regulation damages business success hampered any attempt at new regulation no matter what happened. This attitude is critical to what happens next.
The fourth element can be dated roughly as beginning 1981. Hostile takeovers and corporate raiding become regular parts of the business news. The basic significance of this is that it is a war. A war fought between manufacturing and finance, with manufacturing losing at every turn. The secondary effects were only a little less worse. You could make money at it. Not little money like people made from developing new products and making things, big money. T. Boone Pickens, one of the major corporate raiders of the period is worth three billion dollars and is rated currently as the 117th richest man in the world. Now let us add in a related development, the financing of these takeovers. Drexel Burnham Lambert paid Michael Milken 550 million dollars a year during its heyday. What did Michael Milken do to merit this: he created high yield bonds, junk bonds. The era of “financial innovation” begins here. Continuing to the present day, more and more bizarre mathematical creations will be used for investment, financing and speculation.
Now, let’s combine them. Those Americans familiar with the pain of the results pass on the reins of power to a new generation. The Chicago School of Economics will provide the philosophical basis for discarding societal responsibility. The government reacts with deregulation which makes it exceptionally difficult to re-regulate industries. The financial industry begins destroying manufacturing in its search for profits.
All the elements are now in place for what has happened and continues to happen. The American population without previous experience of the fruits of financial speculation have no common idea of what should be done. The ethic of the business world is converted from a complex set of factors motivated by religion, philosophy, the myriad other factors that tie us to one another as a people to one of profit as the only value. The government accepts this philosophy and applies it, making deregulation and not regulating pretty much the official doctrine of the government. The financial industry begins destroying healthy companies making hundreds of millions of dollars for what might kindly be described as little effort. The government does not intervene to stop this, which is a clear demarcation line in history that the power of that part of American that makes things is eclipsed by the power of the deal makers, the part of American society that moves money.
Out of this history we grew a generation of Americans who knew with certainty (and unfortunately with accuracy) that going into the financial industry, taking risks, and pushing the boundaries of the rules could make one a multi-millionaire in short order. The most capable of the students at the great universities many of them Ivy League schools went into finance. Those individuals were supposed to be a wide variety of things especially the keepers of the flame, the torch that is passed from one generation to another, the moral standards, the courage, the willingness to sacrifice for their country and their fellow man so that all can prosper. It is difficult to maintain a system of morals when the rewards are so extreme. My understanding is that ivy leaguers can start at a Wall Street firm for as much as $350,000 in salary. And after that if you are willing to do “what it takes,” the path to being a mere millionaire is quick and easy. These people were supposed to be crusading attorneys, publishers, politicians, administrators – all those things that make societies function. There is an ancient precept that nations succeed based on the wisdom of the learned, the courage of their soldiers and the efforts of the workers. Our best and brightest don’t go there. They go to make money in a moral vacuum.
We are going to pay for this for a long time. When the basic doctrine, the ethos of a country becomes devoted to the acquisition of wealth with not even a tiny lip service to virtue you get unethical conduct on a broad front across the business world. Everything that has happened since then, has grown out of these events that I described. The Savings and Loan Etc. (I was going to list them but you know as well as I do what they are and I find it too depressing to make such a list just at the moment) are all explainable out of these elements.
Well, I wrote this in two hours. It’s a quick and dirty summary of what I think. A lot of it is just a portion of my thought and I will probably develop the elements over time.
I wouldn’t mind hearing what you think and you can be brutal. When I was in grad school, I thought that if some teacher marked on my papers, I would be terribly offended. A professor named Don Hoover literally marked out more than a third of what I wrote in a quite lengthy article with great big red pen strokes and I discovered to my astonishment that it didn’t bother me at all. I made the corrections and turned it back in. So, if you find the time it what must be a very busy schedule to comment I will be pleased.
James Pilant

Student Loan Debt – 830 Billion Dollars

On By southwerkIn Government Failure3 Comments

Anya Kamenetz writes in a new column available online that student loan debt could be similar to the mortgage bubble. Student loans total about 830 million dollars. That’s larger than all the credit card debt in the United States. Nontraditional student are often hardest hit. I quote Ms. Kamenetz –

From where I’m sitting, the buildup of the national student loan balance looks like a massive betrayal of trust. People have been told for decades that this is “good” debt. In fact it’s really, really bad debt. Increasingly, high unmanageable debt burdens are falling on those least prepared to deal with the stresses and costs of college: the so called “nontraditional” adult, working-class student who is more and more likely to attend for-profit colleges that cost an average of around $14,000. And 40% and higher of these students are defaulting.

If, as a nation, we are going to increase our graduation rate, we will have to find different ways of financing. The current system with nontraditional students defaulting at a 40% rate is neither sustainable nor in any way effective.

In an article on the ABC World News site, they outline the grim statistics of U.S. graduate rates, 12th in the world.

Nationwide, 40.4 percent of 25- to 34-year-olds held such degrees in 2007, falling far short of Canada’s 55.8 percent, as well as South Korea and Russia, both of which had 55.5 percent rates, according to statistics from the College Board.

I firmly believe our current method of student borrowing is a drag on the graduation rate. It’s a drag on the decision to go to college. There are some people that believe owing a half million dollars for a medical degree is not a good investment.

If college graduation rates are a good measure of national success then why do we discourage people from going to college in the first place? As a policy it is a good idea for only the well-off to go to school?

Right now, someone is reading this article and saying, “They can work while going to school, I did, look at me. I did it on my own.” Or some other method of self help. The statistics are clear, self help is not effective. The more we rely on it, the fewer graduates we are going to get. As citizens in common, as members of a human community we have duties to one another and helping people get ahead by means of an education is one of those responsibilities.

Should the United States which was first in college graduation rates ten year ago decide to abandon its position as a successful nation, a good formula is to have a system where educational endeavor is tied to large debt loads.

Tell me the name of another nation any where on earth that finances college attendance by loans of the size and weight we have here. Borrowing for an education is not something I am opposed to, but education should be financed by a wide variety of methods, so that student loan debts are manageable and limited in size.

James Pilant

Look At This!

On By southwerkIn business ethics, Capitalism, Economic measurement, ethics, Government Failure

I found this on the web last night. It’s a video of American unemployment by county. The film runs month by month and in about a minute you see how unemployment developed in the U.S. over the last two years. It starts in January 2007 and runs until May of 2010. High employment counties have light colors. High unemployment counties are darker. You can watch the whole nation darken in a two year period, it’s very striking.

Andrew Day McLelland Adds His Thoughts On Net Neutrality

On By southwerkIn business ethics, Capitalism, Government Failure

My blog posts also appear on my Facebook. One of my friends made some interesting comments and I want to share them with you.

As I understand it the U.S. Military built the main cable grid of the internet in the 60’s or 70’s(my history is maybe a bit hazy here) and out of all the things the government could socialize or keep socialized it seems the information super-highway of the internet would be high on their list of priorities(if protecting those less fortunate was one of ’em) and absolutely within their jurisdiction. It seems obvious to me that the dissemination of information has become a threat to the oligarchy and now they’ll use proxy companies to absolutely fuck the lower-classes into absolute uneducated ignorance. Then when the obvious pitfalls of privatized internet (organized as such) manifest they’ll say “See! This is what happens with capitalism!” Fascism is wily two-headed cobra, I hope I live to see it bombed and sacked back into the stone age.

Thanks, Andrew!
jp

Can Manufacturing Come Back?

On By southwerkIn business ethics, Capitalism, Economic measurement, ethics, Government Failure6 Comments

Joseph Stiglitz, one of my favorite economists, believe that Asia is “decoupling” from the United States and Europe. You see, the United States is a 300 million population but if you sell to India and China alone of the nations in the region, you have 2.6 billion consumers. It’s a better market in the long term than the United States or Europe as well as providing necessary long term benefits to the nations themselves.

But there are other reasons, the great nations of Asia are likely to shift more to domestic production and investment. In the past, China, India, South Korea, Japan, etc. invested in the United States. They as well as many European nations bought into the housing bubble as well as many more reliable investments. They did this in the belief that the United States was reliable investment environment and that, more importantly, Wall Street had great skills in the banking and other investment industries. Of course, the “legendary” expertise of Wall Street was no more than successful propaganda protecting a rotting edifice that through financial “innovation” and simple greed severely damaged the world’s economy.

If you were a government official would you encourage investment in the United States or take the advice of any Wall Street investment firm? I’m sure there are some officials remaining who can hold that view but the long term does not bode well for U.S. investment or purchasing, you see, the development of the domestic market in these countries means a rise in the standard of living, an increase in wages and rise in prices. All of these factor mitigate against the corporate dream of an endless stream of off shored jobs pushing their profits.

But this is an opportunity. As these other nations develop higher standards of living and their purchasing power increases, we can sell them products. We can make things again. If we start now, and by now I mean by the end of this decade, for not only is there no political will, intelligence or leadership, the current business philosophy will not allow the government to encourage such investment. The United States government since the 1980’s has pursued a policy of the financial sector as a priority as opposed to the poor stepchild of manufacturing. The result of this policy are all around us. We can do better.

James Pilant

No Vacation – Keep your job?

On By southwerkIn business ethics, Capitalism, ethics, Government Failure

ABC news reports that many Americans are declining to use their vacation time. Only 57 percent of Americans are taking their full vacation time. And what makes this story even more bizarre, Americans average only 13 days of vacation.

Want to see the numbers?
Italians 42 days
France 37
Canada 26
Japan 25
Korea 25

United States 13 days

How did we get here? Aren’t we supposed to be the richest country on earth? How did Americans wind up with an average of 13 days of vacation and far, far worse, almost half unwilling to use their full time apparently for fear of losing their jobs?

It takes a decoupling of morals from business. When a businessman, when an employer, looks at his workers and says to himself, “That one is using his vacation time. I can do without him,” we have arrived at a bad place.

And yet, where is the outrage (besides mine)? Foreigners in far less wealthy countries give their workers in many cases three times the vacation time of American workers and what’s more they take the time.

“Let’s get rid of the people who work here for fifty weeks a year and take a vacation.” How do you even think like that? What kind of thought process produces that kind of cruel immorality?

It is written: Thou shalt not muzzle the ox when he treadeth out the corn.

The King James Bible prescribes better treatment for an ox than that given American workers. The ox gets some share of its labor that could be denied. American workers have no benefits that cannot be denied if even the legal ones put you in danger of being fired.

And I don’t want to hear, “They have to do it to compete.” That’s a nasty age old excuse for any kind of immoral (and often incompetent) act. You could compete better with workers who have no where to go, who don’t get minimum wage or get pregnant or have bad days or get ill or don’t look like other people, etc. Where do you want to stop? You can’t. Talk about slippery slope. If any vile, virtually criminal, act can be justified by the need to compete, there is no bottom standard to stop at, no place of safety, no island of ethics.

You might ask me as a business ethics teacher, what it’s like to teach that subject in a country where taking your vacation days can cost you your job. No fun. It’s preaching against alcoholism in a saloon, safe sex in a Thai brothel, hypocrisy in mega church. In short, it’s hard and it’s not getting any easier. You always think that it’s just got to turn a corner that some limit has been reached and it hasn’t.

James Pilant

What Is Net Neutrality?

On By southwerkIn business ethics, Capitalism, ethics, Government Failure, Teaching

I found some videos explaining the subject.

A more comic book take on the same subject.

This is (adult content) The Daily Show’s take on net neutrality in 2006. (You have to click on the link because the videos won’t come in directly. Sorry!)

Here is The Daily Show’s take on the subject on October 26, 2009.

This is the best one. It’s a clear explanation. Watch this one.

I hope this helps. Sometimes video is just more effective than print.

James Pilant

And remember this.

Timeline – Google/Verizon Divide Internet

On By southwerkIn business ethics, Capitalism, Government Failure2 Comments

Google's Customers
October 21st, 2009 Google and Verizon issue joint statement in which they say this – For starters we both think it’s essential that the Internet remains an unrestricted and open platform — where people can access any content (so long as it’s legal), as well as the services and applications of their choice.

January 14th, 2010 Google calls for open internet.

June 22nd, 2010       FCC begins back room negotiations with internet carriers.

August 4th, 2010 New York Times reports Google and Verizon near secret deal to undermine net neutrality.

August 5th, 2010 FCC abandons talks on net neutrality.

August 5th, 2010
Verizon issues following statement – The NYT article regarding conversations between Google and Verizon is mistaken. It fundamentally misunderstands our purpose. As we said in our earlier FCC filing, our goal is an Internet policy framework that ensures openness and accountability, and incorporates specific FCC authority, while maintaining investment and innovation. To suggest this is a business arrangement between our companies is entirely incorrect. Translation – we’re not making a deal.

August 5th, 2010 Google denies deal to end net neutrality.

August 9th, 2010 Verizon and Google announce a “proposal.” This is apparently strikingly different from a deal, because a deal would imply profits of billions of dollars. You see, a proposal only “implies” profits of billions of dollars. Got it?

What are the results of this deal? Let me quote Craig Aaron The deal would allow ISPs to effectively split the Internet into “two pipes” — one of which would be reserved for “managed services,” a pay-for-pay platform for content and applications. This is the proverbial toll road on the information superhighway, a fast lane reserved for the select few, while the rest of us are stuck on the cyber-equivalent of a winding dirt road.

What do you think?

James Pilant

Top 5% Income / 37% Consumer Purchases

On By southwerkIn business ethics, Capitalism, Economic measurement, ethics, Government Failure

To reiterate, the top five percent of income earners in the United States make thirty seven percent of the consumer purchases. This means that what these people buy is a key determinate of whether or not this economy recovers.

Probably, you are wondering how you fit into this picture. Now hold on to your hat, gentle reader. Those in the bottom eighty percent make thirty nine point five of all consumer purchases.

So, look on the bright side! The bottom 80% of Americans buys 39.5 % of consumer goods as opposed to 37% of the top five percent of the income earners in the U.S. That means we are 2% up.

I have to admit I feel a little left behind but 2% is 2% and I should take what solace I can from this. Right?

James Pilant