business, state, and society

Posted on by matt_pouchain1 business, state, and society, Uncategorized

Ford & Jack Kultgen: A true role-model businessman

Over the past century, Ford Motor company has pioneered the automotive industry since the invention of the model T. More or less than eight decades ago, in 1936, Bird-Kultgen Ford had its beginning when Jack Kultgen and Arthur Bird bought the Duncan-Smith Ford dealership on North Fifth Street in downtown Waco. In 1947, they relocated to 13th Street and Franklin Avenue, which then was on the business outskirts of town. Later in 1993, it moved to West Loop 340/State Highway, pioneering as the first dealership on what would become Waco’s “Motor Mile”, and the Kultgen family continues to operate it today.

John Henry “Jack” Kultgen was born onChicago, Illinois and was an extremely successful businessman, and an active individual in society. He was one of the five sons of John Dominic Kultgen and Ingeborg Emma Mary Johnsdotter Johnson Fossenohn. Jack married Reba Belle Mickelborough on June 15th, 1921, with whom he had two sons, David Kultgen and John H. Kultgen. In addition, he was a Roman Catholic and served as Knight Commander of St. Gregory the great in the Roman literature and worked on behalf of St. Mary’s parish, the Diocese of Austin.

During World War I, he took a leave of absence on all of his businesses and responsibilities, and served as a pilot in the Army Signal Corps. In World War II, he served as regional food executive and later as the director on Forth Worth Operations. Subsequently, he also served on the OPA. The Office of price administration (OPA) was established within the office for Emergency Management of the United States government by Executive Order 8875 on August 28th, 1941. The functions of the OPA were basically to control money (price controls) and rents after the outbreak of World War I. Even though Kultgen was associated with automobiles in 1921, only later in 1936 he opened his first Ford Dealership in Waco.

Besides selling cars, Jack Kultgen became a strong civic leader in the community. He was involved in numerous movements and organizations, his leadership was decisive in the achievement of extraordinary progress in many ways. Such as education, health care, water resources management, highway development, community relations, and in good government.

First and far most, he was the President of Bird-Kultgen inc, which is the Waco Ford dealership, (the recipient of the 1984 TIME Magazine Quality Dealer Award). Nevertheless, he was also the president of Huaco leasing company, president of the Huaco corporation, director of the First National bank of Waco, president of Texas life insurance company, president of the Country Retiring Action, Director of the Texas Central Railroad and president of the Behrens Drug company. If all that responsibility wasn’t enough for one man, Kultgen was also the first member and chairman of the Waco Chamber of Commerce Highway Committee, as well as the member of The Texas Highway Commission since 1963  and later served as president of Texas Good Highway Association. Subsequently, The Waco Tribune-Herald further mention Kultgen’s extraordinary recognitions made by Gov. Connally while appointing him for the Highway commision.

Jack Kultgen

John’s extensive resume may seem exhausting, but his philanthropic actions are far from over. The businessman led campaigns for funds to contribute to Baylor-Baylor-Waco foundation, contributed to the Baylor stadium, and gave personal leadership in the Baylor stadium fund drive. Overall, his donations were a pillar to Baylor. Aside from Baylor, he was a member of the U.S Study Commission on water problems, member of the board of the Texas State Technical Institute(TSTI), chairman of the Central Committee for Community Health and Welfare Study, contributed the creation of the Province hospital (where he was the chairman), assisted to St. Maty’s parish, and participated in the development of interstate 35. As president of Waco-Paul Quinn foundation, he raised funds to build the Paul-Quinn library, and to support academic excellence to the oldest negro college west of Mississippi. Jack was also a dynamic leader in the Waco chamber of commerce and at the Greater Waco United Found as president by lending his talents for the good of the community. Nonetheless, The Waco Tribune-Herald and The Waco Citizen articles from the 1950-60s credited him with moving the headquarters of the Brazos River Authority established in Waco, in which he was the director/president, and fighting for the Lake Waco Dam.

An article in 1958 from The Waco Citizen, stated “Jack Kultgen is ‘Man Of the Hour’ In Waco”. The article recognized the member of the advisory board for the national United Fund organizations, Jack Kultgen, for his efforts within the Waco community. The article claimed that he was responsible for the investigation that changed Waco from the Community Chest to the all-inclusive United Fund. Also, it is said that The Chamber of Commerce members “recall Kultgen’s tenure in office as a past president”, and his continuous effort in the organization. It was also mentioned that jack has been a “prime factor” in the air force around Waco as a member of the military affairs committee chairman. Later on, the newspaper credits Jack for his presidency on the Library Board and Heart O’ Texas Fair Board, and mentions that not only “an infinite number” of other local organizations had been supported by Jack, but that he will continue to have “a major part in this civic betterment”. In conclusion it discloses that their “short synopsis doesn’t do justice for the man” and finally that “Waco needs more Jack Kultgens”.

Not surprisingly, Jack won the national recognition, notably Benjamin Franklin Award, for conduction his business in the public interest. His wisdom and foresight have been enlisted by board directors of first national bank, Texas life insurance company, Waco savings and loan association. He also won the annual state-wide award for “Unselfish Service in Water Conservation” at the Fort Worth Press’ Save the Soil and Save Texas program in 1959.  Finally, Kultgen had a freeway(Jack Kultgen expressway) dedicated to him by the city of, Mclennan Country and Waco Chamber of Commerce.

Lately, a contingent from Ford visited the dealership to take a few photographs and congratulate president Peter Kultgen(Jack’s grandson) “for delivering excellent service and taking care of customers for this long,” said Dan Gubasta, zone manager for East Texas and Waco. The dealership at 1701 W. Loop 340, on Waco’s “Motor Mile,” is still operating and employs about 80 people. Lastly, the Kultgen family received the Heritage Award from Baylor University’s Institute for Family Business in 2011.

The historic Bird-Kultgen Ford building at 13th Street and Franklin Avenue will become a climate-controlled storage facility that will target the hundreds of people who have moved into lofts and townhomes in downtown Waco, which was vacant since 2006.

Bird-Kultgen Ford dealership

 

Bonus: Not surprisingly, Henry Ford(founder of Ford) also had a notable impact on the society. Henry was known as an American automobile manufacturer who created the Fort Model T in 1908, and went on to create the assembly line method production, which revolutionized not only his industry but the entire economy.

1 Comment Posted on by matt_pouchain1 business, state, and society, Uncategorized

Incentives and Their Impact on Society

In chapter 12 of MP, the author looks upon the safety issue in the automotive industry. The automakers advocate against the government claiming the existence of a lack of economic incentives regarding automotive safety. Furthermore, the automotive industry was compared to railroads and airplanes. In that matter, in the 20s, the government played the major role in incentivizing the aeronautics. Under the Contract Air Mail Act of 1925, the U.S. Postmaster General gave subsidized air mail contracts to encourage the airlines to demand safer, quieter, and larger planes from aircraft manufacturers. This generous government incentive scheme worked: By 1933, plane manufacturers Boeing and Douglas had each developed the modern all-metal, two-engine monoplane for the airlines, and air travel for people took off.  As we observed, incentives play a major role in the economy as they provide support or avoidance of determined industries. Another great example of incentives are in the railroad’s industry also covered in the MP: Under the Pacific Railroad Acts of 1862 through 1866, the U.S. government demonstrated strong economic incentives as they handed railroad companies 103 million acres of public land; But anyhow, that just one type of incentive available.

There are 3 categories of incentives: Moral, Social and Economic Incentives. Recycling bottles in exchange for small amounts of money is a clear example of the cross-over between a moral and an economic incentive. Recycling the bottle in itself satisfies the human desire to contribute to the betterment of the environment. Seeing that climate change is becoming a more pressing issue the option of recycling bottles gives some moral relief to those that take part. In addition to this, the act of recycling bottles or any material really can wield 30 cents per can on average which could total large sums of money in the long run. Furthermore, if the US were to recycle 75% of its waste around 1-2 million new jobs would be created as supported by EPA’s study. In this way, it offers an economic incentive such that profit can be made. In this particular example, both incentives are complementary.

The most obvious of the “Big Ideas” for this course that stands is Business, State and Society. If one chooses the recycle for the economic reason the moral ability to save I am saving the earth one step at a time comes as an additional perk and vise versa. The moral incentive can be seen as the primary motive for most. According to an infographic study done by the GOOD Magazine over 81% of participants in the study recognized a moral benefit of recycling- no landfills. In the same study for those individuals that didn’t recycle regularly, the primary reason was due to the fact that the recycling plants were too far not the fact that it was time-consuming.

Similarly, charges that enforce public safety such as driving under the influence offer an overlapping of two incentives: social and economic. In the social aspect after the receipt of a DUI most driving licenses get suspended for 6 or more months or the possibility of 6-months jail time. Both of these social punishments lead to a tarnished record often isolating them from job opportunities and social situations. The economic incentive i.e charges ranging from $1000- $3000 deter the possibility of intoxicated persons taking the risk of driving. Both incentives possess a beneficial symbiotic relationship such that the added effects of both incentives proves to be a strong deterrent and achieves the goal of keeping roads safe. In this particular case, the strongest deterrent would be the social aspect. If the DUI was solely based on economic gain, a majority of people would pay the fine and have the error be permanently erased. In this way, the mistake would not seep into social situations and would have a low chance of affecting success career-wise. However, having the line blurred allows people to be more cautious seeing that it is their future that comes into play, not just financial stability.

1 Comment Posted on by noah_roberts1 20th century, business, state, and society, unacknowledged assumptions, Uncategorized

Plans To Lower CEO Pay Actually Increase CEO Pay…?

Noah Roberts

In movies and TV shows depicting corporate America, CEO’s and business executives are usually portrayed in the same way. What comes to mind for me is the show “Suits” where top executives in the law firm wear their expensive suits, drive their expensive cars, and have the nicest and largest office in a huge office building. But, why do we have these stereotypical depictions of business executives? Why were they ever paid so much and are their salaries still growing exponentially today?

In Planet Money’s podcast “When CEO Pay Exploded”, they review the events in the 1990’s that resulted in a boom in CEO pay. Before 1990 CEO pay was consistently increasing by a little each year. No matter the performance of the company, the CEO would continually have an increase in salary. During the 1990 recession, where executives were being paid more and more while employees were being laid off, the economist Kevin Murphy wrote a paper on changing the way CEO’s were paid. This launched campaigns for people like Bill Clinton who proposed a new Tax Code that would change the pay of CEO’s. This ultimately resulted in a use of Stock options as payment, which did not work out the way the government intended. However, in the early 2000’s, companies realized the effect on their companies by issuing stock options to executives and have changed pay scales.

The overarching idea throughout this podcast is Business, State, and Society. After Kevin Murphy’s paper on the principal that CEO’s should be based on company performance and not given a base salary, Bill Clinton proposed a new tax code. This tax code would prevent big companies from writing off more than a million dollars of their CEO’s salary. This was to discourage a high base pay. However, they did add in section 4C of the tax code saying that if companies paid based on company performance, they could write off all of the salary. This encouraged stock options to be offered to executives as a form of pay. Where if an executive performed well, they could possess a stock at a certain price and sell it for a gain if the company improved, or a loss if the company did not perform well. Ultimately, this did motivate CEO’s to try to advance their company.

However, this held both Unacknowledged Assumptions and Unintended Consequences. Economists like Kevin Murphy assumed that companies would lower base pay because they were offering stock options as a way for CEO’s to make more money. The reality, though, was quite different. If you were a CEO, you wouldn’t want to lower your own salary, and if you were on the board of executives and liked the CEO, you wouldn’t want to risk losing him or her to another company that would offer more money. This resulted in a same base pay with the addition of a 40% growth in stock options. Consequently, the average CEO salary for Fortune 500 companies dramatically increased from $4 million to $8 million between 1992 and 1996.

Image result for planet money ceo pay

Although, this increase in stock primarily happened due to another Unacknowledged Assumption made by corporations. Due to a weird accounting rule, stock options could be expensed at zero cost, and in result, businesses genuinely thought they were issuing stock to their workers with a zero cost. All they had to do when an employee cashed in was create a stock and give it to them to sell. This led to greater effects on everyone associated with the company. Employees that had their retirement based in stock, or citizens that had many shares of stock were being greatly affected. Their stocks were now worth significantly less because of how many shares the companies were creating out of thin air to pay salaries with.

Eventually, the companies did realize the affects of issuing a lot of stock and stopped giving it out so freely. This has actually resulted in a decrease in average CEO salary over the past few years, going against what most may think. Although one could make a fair argument that executives are still overpaid, we do know that the salaries aren’t going anywhere but down for now.

 

Picture from Planet Money

1 Comment Posted on by jacob_gochis1 20th century, business, state, and society

Ravings for Savings: The History and Evolution of Black Friday

JACOB GOCHIS

As November comes and goes, many Americans are preparing for a national holiday that gives us time to reflect on what we are truly thankful for what we have and celebrate good ol’ American values such as family, and generosity. The weekend following this holiday, 174 million Americans will participate in a shopping frenzy that marks the beginning of the holiday gift shopping season and emphasizes consumption.

(Image from Google)

I was interested in the history of this retail celebration that today gives us news stories and videos of people trampling each other for the newest Xbox. This article helped guide me through the history of the holiday and allowed me to see its development and adaptation to the times. Within this post I will explore the mingling of business, state, and society as retailers encouraged consumers to view the Friday after Thanksgiving as the time to start shopping.

The modern day Black Friday came about as a result of the Macy’s Thanksgiving Day Parade. While the parade was originally adapted from a Canadian retail shop’s idea of a parade, and was meant as a celebration of Macy’s success rather than an advertising opportunity, their first parade in 1924 gave Macy’s increased sales the next day and they chose to continue the tradition. This led to the recognition between stores that the Friday after Thanksgiving would mark the official beginning of the holiday season.This trend was only furthered as workers would take the Friday after Thanksgiving off in order to have a four day weekend and get a head start on holiday shopping. Employers embraced this rather than fighting the trend and Black Friday seemed to have its official recognition.

Then there’s Black Friday wasn’t always a sweet sound for capitalism, the earliest use of the name was in reference to a stock market crash caused by two speculators that wrecked havoc on the nation’s economy and prices. Later the name was re branded for the purpose of creating a better public image as another source I looked into describes:

No wonder retailers wanted to make the name “Black Friday” mean something positive. To them, the Friday after Thanksgiving was one of the most profitable days of the year. To compensate, they decided to follow the adage, “If you can’t beat ’em, join ’em.”

Retailers changed the name to reflect their success. Accountants use black to signify profit when recording each day’s book entries.

One more interesting fact, Thanksgiving’s location on our calendars might well be thanks to retail stores trying to get a head start on holiday sales. In 1939, Thanksgiving happened to fall on the fifth week of November which retail stores worried would lead to decreased sales. They petitioned President Roosevelt to change it to the fourth Thursday instead. The plan fell through in the end due to the late action by Roosevelt, however in 1941, Congress officially recognized the fourth Thursday of every November.

While these may all seem like trivia facts on Black Friday, I believe they show just how businesses have impacted society with their influence. We have studied in class how in the 20th century, businesses began pushing increased consumption on American society. This is reflected by the Macy’s Thanksgiving Parade showing off advertisements and essentially functioning as a billboard. The name re-branding reflected the idea that it was a consumers job to fuel the economy and help generate profit for retailers. These changes reflect the interaction between business and society, but I find the story of Thanksgiving’s official date most compelling. We see business asking the state to determine the day of a societal holiday in order to maximize revenue.

One would think that Thanksgiving and Black Friday would be separated on the calendar due to their differing values behind it, but business has created a tradition of consumption immediately following our day of thanks. This is a blatant example of businesses influence on our society and perhaps its worth looking into a few of our other traditions to see just how many of them are influenced by a corporate spirit.

1 Comment Posted on by matt_pouchain1 business, state, and society, unacknowledged assumptions

Oppression in the Job Market and the Black Power Movement.

In chapter 7 of MJ, Kenneth Lipartito alleges the existence of  “whites only” policies and remarks that the overlaying majority of the woman hired where white single females. Consequently to the ongoing black employee oppression and discrimination, numerous movements pro-black culture were gaining popularity. One of the major movement in the late 19th century was the Black Power Movement. The popular TV shows called “Independent Lens” featured by PBS, the documentary debuts the arrival of Swedish filmmakers to explore the Black Power Movement. As the movement was classified as a “violent threat” by the U.S media, a lot of intangible data was acquired by the filmmakers. Some may claim that the movement was basically a necessarily a black narcissistic movement, as it raised the pride of negros.  However, the effect of the movements goes much further than raising pride, as it built a column/foundation to the modern movement “black lives matter”.  Just as the police and their actions were the prime focus of Black Lives Matter, the law enforcement was targeted during the Black Power movement. The main difference between the two movements was that the Black power movement was an unadulterated black movement, meaning that whites did not chant it.

In the 1970ʻs the Black Power movement began to spread throughout America. The movement was a political and social movement that incentivized racial pride and equality by empowering Black people to reclaim a sense of culture that was taken from them over generations of enslavement. To expand my knowledge in the subject, I consulted the data presented by the government’s national archives. Due to the aggressivity of the movement,  Federal agencies and collections have records that are directly related to the Black Power movement, including information on various organizations, such as the Nation of Islam (NOI), Deacons for Defense and Justice, and the Black Panther Party for Self-Defense (BPP). The documentation also includes records on individuals, such as Malcolm X, Fred Hampton, Stokely Carmichael, and Shirley Chisholm. In fact, the first articulation of “Black Power” was credited to the Student Nonviolent Coordinating Committee leader, Stokely Carmichael, who represented black activists.

The most evident of the “Big ideas” for this course that within the movement is Business, State and Society. The movement encouraged African Americans to return to their traditional, African roots. As result, clothing with traditional African patterns became more common, along with Afros and African dance groups. However, the movement brought more than new fashion statements.  Black activists encouraged their community to reclaim their African heritage and build a new African American culture through names. During this time America began seeing an increase in what they called, “black names”. While some of these names were linked to traditional African names, many of them were also invented by the African American community. Until this shift, most African American and white children shared similar, if not identical, names.  The diverse naming of African American children compared to white children began to create an even bigger divide between the two peoples. It was now easier for citizens to put their personal biases on others just by seeing a name, for names had begun to indicate culture and ethnicity as well as personal identity. But not all African Americans followed this trend. While some African American parents picked traditional African names, other continued to use classically “white names”.  Using data from California birth-certificates dating back to the 1960ʻs, we can begin to see what kind of African American parents would choose to name their child a “black name” instead of a “white name”. What Roland G. Fryer Jr., a young black economist, found was that young, undereducated, low-income black women with a similarly traditional “black name” were significantly more likely to give their child a “black name”. These women commonly lived in black communities, making the choice of giving their child a “black name” a lot easier, for it signaled their solidarity with the community and agreement with the black power movement.  This decision was also majorly influenced by outward societal pressures felt by these women, many of which surrounded the idea that a black woman giving their child a “white name” was seen as the said women trying to “act white”. This label could lead to her and her child being heavily judged by their community, and possibly becoming outcasts.

The criticisms of the movement also align with another “Big idea” for this course. The criticism reveals “unintended consequences ”. Most of the critics on the movement were focused on aggravated gender disequality generated by the movement. While some disagree, most claim that the movement the implemented a concept of black masculinity, which was extremely assertive and selective. Subsequently, it also used sexist language which excluded women. It is asserted that the Black Power movement was a call to black men and completely ignored the role of women, who thought that the movement was misleading.  Curiously, some claim that the “black gender issue” mirrored the racial issue- woman says that they were oppressed by black men just as black men were oppressed by Whites. Interesting controversy right? 

One of the main assumptions out there is that there exists systematic oppression such as white privilege and male privilege. However, the constitution does not support any form of oppression, thus there are no premises for constitutional or systematic oppression. So what are the premises of oppression? How should society deal with discrimination and oppression?

Link to the TV show: https://www.pbs.org/video/independent-lens-looking-back-at-the-black-power-movement/

1 Comment Posted on by haley_beard2 business, state, and society, Uncategorized

How Sears Challenged the Social Structure Jim Crow Enforced

When thinking about Jim Crow laws and how they fought to keep racial segregation in the south, I did not take into consideration that other groups besides the African Americans would be fighting against them. My mind automatically thought of the African Americans that would rally against the law and not to other white people, or even businesses, who would fight. An article posted a couple weeks ago by The Washington Post titled “Sears’s ‘radical’ past: How mail-order catalogues subverted the racial hierarchy of Jim Crow” opened my mind to see that other people fought against those unjust laws as well.

Within this article, I learned about how the catalogues Sears released, primarily the 322 page one released in 1894, was seen as a radical act during this era of Jim Crow. The Rural Free Delivery Act allowed Sears to reach communities in the south and be able to send them catalogues. This gave the opportunity for people who weren’t as literate to fill out order forms that would be sent through and processed no matter what the format looked like. These forms allowed anonymity for the customers, especially African Americans, by not having to go in to face racist treatment from storeowners and instead, being allowed to purchase however many goods they want no matter the color of their skin. This way, the playing field was leveled for all races by ensuring they would be treated the same way. If an African American were to go into a retail, grocery, or any type of store, they would have to wait until all the white customers purchased the goods they wanted first and only be given the leftovers/lower quality goods. However, with the catalogues Sears provided, African Americans were able to buy the same goods white people had.

       

(image from age fotostock and Marketplace)

One of the part owners of Sears, Julius Rosenwald, became a philanthropist for black communities. He donated millions of dollars to build schools for African Americans to attend and earn a fair shot at learning, since the new schools would omit racial discrimination when teaching. Rosenwald wanted African Americans to have the same opportunities at a better life that white people have. Rosenwald helped fund financial support, as well as helped fund YMCA’s and YWCA’s for African Americans. Sears was able to give African Americans something white people took away from them, their dignity.

The Sears catalogue, in a way, was a beacon of hope for African Americans during the time of Jim Crow laws to show that not everyone wanted to keep the racial segregation that the south imposed. The most prominent “Big Idea” from our course within the Sears article is business, state, and society. We are able to see how a business, Sears, can capitalize on the south’s Jim Crow laws by passing their own, the Rural Free Delivery Act, that allows their business to reach the African Americans the south is trying to suppress. Sears is undermining the state in attempt to give the African Americans a society in which they can be seen as equals, even if it is in something as small as ordering clothes or supplies from a catalogue that allows everyone to be treated equally. Also, Julius Rosenwald is defying the norms of how white people are supposed to act toward African Americans by trying his hardest to give them the society they deserve, one of equality. Businesses, such as Sears, have the ability to go head to head against the state or society and fight for the change they believe in. It only takes the defiance of one, whether it be one business, one state, or one society, to give others the courage to stand up as well to fight for what they want.

Through looking at the actions of Sears during the late 19thcentury, we are able to see that a small act of defiance against the Jim Crow laws by Sears can go a long way. They were able to give African Americans the opportunity to be treated the way the state should have. Businesses have the ability to change society for the better if they just choose to act, the way Sears did.

1 Comment Posted on by noah_roberts1 business, state, and society, unacknowledged assumptions

The Private Business of the Public Government

Noah Roberts

To an extent, almost every American values, or is at least told to value, the free market society. We often hear references to Adam Smith and his proclamation for a free market and automatically pair it to the idea of no government interference in corporations. Many will often argue, “Let the government deal with the issues of the government, and businesses deal with the issues in business.” But, what if we shift our perspective on the relationship between innovative corporations and the government? We often look at the relationship as a black and white issue; government regulation or no government regulation. However, we should be focusing on the degree to which the government helps innovate, not regulate.

On her Freakenomics podcast “Is the Government More Entrepreneurial Than You Think?”, Mariana Mazzucato, a professor in the economics of innovation and public value at University College London, further explains this relationship. At the very start of the Podcast, Mazzucato completely flips the argument that Adam Smith wanted a free market separate from the state. She mentions how he actually wanted a free market from rent-seeking, which were activities that would extract value. This sets the foundation for the rest of the podcast where Mazzucato shows how the government is actually very involved in the innovation and investment of new companies. The state has been involved in many startup companies and industries. They are often the first to invest in the innovation of risky and uncertain technologies that private firms don’t want to invest in. This fuels her stance that the state shouldn’t be thought of as a last resort, but as a “first resort investor”. They have had plenty of successful investments, as well as plenty of failures. She brings to light, however, that the failures are always talked about and not the successes. This led to Mazzucatos’s point that the government has done a poor job of making returns on their successful investments, and that the private companies are benefiting the most of these tax funded loans given to them from the government.

The big idea most evident throughout this podcast, is the relationship between business, state, and society. Mazzucato mentions how many people think that to be more innovative we need less government. However, she disagrees. One of the most innovative parts of the U.S. economy is Silicon Valley. Most would assume that this is because of the private companies’ own research and advancement. What most fail to realize is that the government was deeply involved in investing in innovative research with programs like DARPA and ARPA-E. The government was also a leader in the exploration of fracking in the late 1920s, spending more than $130 million on extraction techniques. This point alone shows how essential the governments involvement with business innovation is. Other private companies didn’t want to take the risk of investing that much money into a business that may fail, but the government’s leadership into that field led to a very essential part of our economy. The government has also loaned money to, and invested in, multiple outside corporations. A successful company that most of the public fails to realize was given state funding is Tesla, which was given a $465 million loan. On the other hand, when the state funded company Solyndra failed after receiving a $500 million loan, every taxpayer was told about it on the news and as a result, angry with the government. The question is why was the success drowned out and the failure brought to the attention of everyone? The answer lies within the governments poor marketing of themselves. They don’t publicize their affiliation with companies like Tesla enough, which results in heavier criticism when they invest in a failing company.

The government also makes the unacknowledged assumption that having businesses give them stock when they can’t pay off the loan will cover the debt of the money given. Mazzucato mentions that the government will ask for 3 million shares of stock when a company does not completely pay off its loan. This policy doesn’t make much sense to enforce, however, when the stock is most likely not going to be worth very much. The government actually needs to be doing the exact opposite. Every time the company is able to pay off their loan, they need to give the government 3 million shares of stock. If we revisit Tesla, their stock was worth 9 dollars in 2009 and increased to 90 dollars by 2013. Mazzucato noted that this increase multiplied by 3 million would be able to pay off the debts of other loans that were not paid back in full, like Solyndra. Instead, Elon Musk has made a profit of $5 billion, while the government is left with the debts of their unreceived money.

Lastly if we revisit the relationship between business, state, and society and the capitalist nature of corporations, we can see why industries like the pharmaceutical industry are able to charge such high prices. Like the companies mentioned earlier, the state is loaning money to pharmaceutical companies for research. These loans of course come from the tax payer. Then, in the capitalist ideal of maximizing profit, the company will charge outrageous prices for new pharmaceuticals. People then have the choice to either let themselves or a family member stay ill or pay the price set before them. Essentially, this results in the customer paying for the drug twice. Once through the tax funded loan, and again on the overpriced market. The most frustrating part about the high prices may be that even though the government has the right to set a price cap for publicly funded products, they choose not to in fear of pushback saying they are anti-free market.

Overall, these points are not trying to prove that we need more government investments in the business world. What they do prove though is that the government needs be recognized as more than a by-stander waiting for things to go awry. As Mazzucato put it, “it is to be an active co-creator and co-shaper.”

 

(Picture found on politicalcartoons.com)

 

 

 

1 Comment Posted on by jeff_kirwin business, state, and society, unacknowledged assumptions Link

Trash, The Decline in the Recycling Business

Usually an afterthought for most, trash is big business in the United States. According to NPR’s “Planet Money” the recycling business in the U.S. is a one hundred billion dollar industry annually.When scrolling through the different podcast topics, I saw the one on trash and instantly became interested. I had this interest because my grandfather previously had a business in recycling and I can remember him navigating through many of the same problems that recycling businesses face today. Although the industry is often up and down, lately many recycling companies face shrinking profit margins as the value of different materials fall.

(Picture of the sign at my grandfather’s recycling facility)

The recycling business is failing for several reasons. One of them being the big idea of business, state, and society. China usually accounts for fifty percent of the worlds paper and plastic recycling, but recently that number is going down. This is due to the National Sword Policy implemented by the Chinese government that prohibits importing papers and plastics. Most recycling companies used to ship their materials to China, but they are now forced to find a new market. The new markets are in places like Southeast Asia and domestically, but they pay far less for recycled materials. This has caused paper to have a negative value. It is cheaper for businesses to pay someone to take their paper from them rather than dump it in a landfill.

The national policy created by China aligns with another big idea. The bid idea of unacknowledged assumptions. China has few natural resources to support its large population, so many companies believed they would likely always have a need for international materials. Unfortunately China is attempting to develop its own recycling capacity which means businesses have to find a new place to send their materials. The combination of state intervention causing an unacknowledged assumption has created a large hole in the market that used to be profitable.

The fluctuating price of oil is another unacknowledged assumption.One may not think about oil prices affecting plastic recycling, but it has a large affect on the market. This is true because plastic is made from petroleum. At the time of the podcast the price of oil had been declining. This makes it cheaper to manufacture plastic bags than complete the difficult process of recycling them. The drop in oil has caused several companies, including the trash giant Waste Management, to give up on recycling plastic bags. Recycling plastic bags also incorporates one attribute of capitalism. Currently, the technology involved in the process is slow and difficult, so some businesses are trying to come up with new technological ways to solve the problem.

Values of currency is another unacknowledged assumption made by some companies. When the dollar was weak, recycling was much more profitable. This is true among many industries that have business internationally. Other countries are looking to buy at the lowest price possible, so when the dollar is stronger compared to other currencies, the buyer will buy will choose the lesser currency. China used to buy most of recycled paper and and plastic from the U.S., but since the Euro has dropped there has been a shift towards buying from European countries. Now businesses are struggling to find places that will buy their product, and those that are buying are far less.

While the business continues to decline, companies must find new buyers that will purchase the materials at at decent rate.

Link to podcast: https://www.npr.org/sections/money/2018/08/15/638929347/episode-613-trash

2 Comments Posted on by noah_roberts1 20th century, business, state, and society

Lobbyists: Their Opinion Means More Than Yours, Or At Least To Congress

Noah Roberts

Junior year, after we had completed the AP government and politics exam, my class watched the movie, “Thank You for Smoking” starring Aaron Eckhart and Cameron Bright. The movie focuses on a slick lobbyist, Nick Naylor, who works for the Big Tobacco Corporation. Throughout the movie, Naylor is often spinning the reported negative effects of smoking and trying to work out deals with the government on how to brand and warn society about the effects of smoking. The twisted agenda of Naylor and the Big Tobacco corporation was to market cigarettes in the most appealing way possible. They didn’t care that they were deceiving the public into buying goods that were damaging to their health; they were focused on maximizing their sales and profits. Although this movie satirized to show the extremes of lobbying, it holds some truth in the relationship between businesses and government.

To learn more about the state of lobbying within our government, I read,”How Corporate Lobbyists Conquered American Democracy” written by Lee Drutman from The Atlantic. Drutman brought to light the continual growth of lobbying in our government. Lobbyists reportedly spend $2.6 billion a year, which is more than the $2 billion that is provided to fund the House of Representatives and Senate combined. Compared to the 1950s and 60s, where special interest groups and labor unions had much more impact in the government, business lobbying has become the strongest force in government influence. The relationship between government and business has completely flipped in the last 50 years, from corporations shifting their focus from avoiding government involvement in their business, to focusing on how they can be business partners with the government. This has resulted in more lobbyists being more politically active and proposing and supporting more laws and legislation.

The most obvious “Big Idea” to me, is the relationship between business, state, and society. The actions of business and government are not so separate, and actually go hand in hand. The businesses and government are proposing new laws that can benefit both of them. For example, the article states how in 2000, the industry lobbyists were able to get Medicare Part D passed, which would benefit them by $205 billion in the span of a decade. The lobbyists were able to use the government as a vehicle to a major profit, while Congress was able to get legislation passed. So, if both sides are getting what they want, it makes sense the lobbying relationships have grown so rapidly. This relationship, however, ultimately effects the everyday people in society. For example, when a deal with Medicare Part D was made between the government and corporations, it resulted in different Medicare options offered to the people. Or when a cigarette company like the one portrayed in the movie actually does lobby for less regulation on their products, more people will be attracted to consuming more of their product.

Lobbying in the government doesn’t always result with a harmful outcome for the people in our society. What it does do, though, is take away the voice of the people. Everyday workers who are a part of labor unions or special interest groups now have less of an impact with what legislation is passed. Congress is listening to the people with the money, and not the people who have to deal with the outcome of whatever is passed. The article mentions that for every dollar spent by a special interest group, lobbyists are spending $34 and that each corporation has about 100 lobbyists. With no way to compare to these resources, the interests of the common man are being drowned out.

In his 1961 Inaugural Address, John F. Kennedy stated one of the most famous quotes, “Ask not what your country can do for you; ask what you can do for your country.” I think that corporate lobbyists should reflect on this quote, as it seems to me they are trying to see what our government can do for them.

1 Comment Posted on by katie_shore1 20th century, business, state, and society

It Ain’t Easy Being Cheesy

Katie Shore

(Image from NPR: “Uncle Cheese”)

Who would have thought that the government cared about cheese? Believe it or not, they did. The government and cheese have interacted in the past and affected our country’s economy and society.

Let’s go back to when it all started: Jimmy Carter’s campaign promise to give farmers what he called “an equal break.” It makes sense that Carter would want to help the farmers because he knew what it was like to be a struggling farmer: in 1954, his farm’s net profits were a mere $187. After winning the election, Carter went to work trying to fulfill his promise. First, he raised the price of a gallon of milk by six cents. The interaction here between business, state, and society is quite remarkable. The government came into the dairy industry and raised prices by using a price floor. I wonder how other businesses felt about this decision by the government. They must have been asking why the dairy industry was getting bailed out; surely, the dairy industry wasn’t the only struggling industry at the time. The state’s involvement in the pricing of dairy clearly shows Carter’s bias towards the farmers. While these dairy farmers and their businesses might have benefited from the government’s help, the rest of society was stuck paying more for their milk.

Let me pull out my notes from my Economics class (thank you, Dr. North). Because of the government-instituted price floor, dairy farmers were ramping up production; at a higher price, producers wanted to make and sell more goods to earn more money. Consumers, however, didn’t want to pay this higher price and demanded less than the producers were producing. This led to a surplus, which led to more government intervention.

The government started buying and trying to store lots of milk, but milk has a short shelf life. The solution then was to turn this milk into products that didn’t expire as quickly, such as powdered milk, butter, and cheese. Next, the government told dairy farmers that it would set a price and purchase as much as the farmers were willing to sell. Unfortunately, farmers took advantage of the situation and tried to sell the government their worst cheese. That’s where cheese graders – not graters – came into play. These people traveled the country evaluating cheese based on specific criteria including its flavor, acidity, fruitiness, and so on. The government bought cheese that met all of the grading requirements and then stored it in caves.

This whole cheese-buying extravaganza was costing billions of dollars, and the government needed to find a way to get rid of its cheese. Rather than flood the market with the cheese, destroy it, or send it overseas, the government decided that it would process the cheese, package it, and then give it away. These blocks of government cheese – pictured below – were given to schools and food banks to try to provide for the hungry.

(Image of a Block of Government Cheese from a magazine titled Rolling Out)

Government cheese often gets a bad rap, primarily because of its unintended consequences. First, the government’s efforts to help the farmers led to very expensive cheese for consumers. Second, the government’s supposedly beneficial price controls were actually harmful and very difficult to undo. Third, the government had to start paying farmers to stop producing milk while simultaneously instituting campaigns to convince people to buy milk. Got milk? Today, instead of directly buying farmers’ products, strategies such as direct subsidies work much better – and don’t require the government to store billions of dollars worth of cheese in caves.

You would think that we had learned our lesson from the past, but it appears the government is going back to its old ways. As of August 31, there are plans to purchase $85 million worth of dairy for schools and food banks. I’ll leave you with a quote by philosopher George Santayana: “Those who do not remember the past are condemned to repeat it.”

If you have time to listen to the NPR episode of “Planet Money” about the history of government cheese, I would recommend that you do so. Who knows? We might have another cheesy situation on our hands very soon…