In Defence of (a certain kind of) Gentrification

Any serious discussion about alleviating poverty has to acknowledge the primary role that economic development plays in the solution. There is no city on this planet, no village, no town where poverty has been permanently alleviated without the benefit of sustained economic development.

At the dawn of the 19^th century, almost everyone living on this earth was poor. Now, most are not. That there are unfortunate places where poverty still persists on a large scale is a direct result of the lack of economic development. This is true regardless of the reason that economic development did not take hold. That Hamilton’s economy is in shatters and that there are too many poverty stricken neighbourhoods in Hamilton is no coincidence.

World-renowned poverty activist and economist Jeffrey Sachs (founder of the UN Millenium Project chaired by President Jimmy Carter) made this point in his seminal 2005 book “The End of Poverty”:

“Since all parts of the world had a roughly comparable starting point in 1820 (all very poor by current standards), today’s vast inequalities reflect the fact that some parts of the world achieved modern economic growth while others did not”

Economic growth is a prerequisite to poverty alleviation and that means business.

Capitalism is Capitalism and Capitalism is bad

Not true. First, Capitalism is not Capitalism – a locally owned and operated organic, fair-trade coffee-shop business can hardly be compared to Monsanto or Starbucks or Google or any other large corporation. Second, notwithstanding all its imperfections, Capitalism is not inherently evil (nor is it inherently good). Capitalism is a human construct and it ought to serve mankind, not the other way around. So we should fight to restrain and reform capitalism but unless and until we invent a better system (we have not), we need to work with capitalism and make it work for us. No political-economic system is going to be perfect, but living in one of the most successful capitalist democracies in the world should convince even the most wary.

Gentrification is Gentrification and Gentrification is bad

Also not true. The absolutely necessary economic development of Hamilton’s downtown core will lead to “gentrification” of one sort or another. But gentrification happens far more gradually than its detractors suggest. The James St. North neighbourhood is slowly, painfully slowly, experiencing some much needed economic growth. The first wave of economic development is essential and good, as well intentioned local entrepreneurs make risky investments because they want to improve the lot of the area – and yes, they hope to make a profit in doing so. They create much needed jobs and attract more businesses to the area. This attracts more people to the area and makes it safer to live and work in – and a virtuous cycle begins. This is the kind of economic development or ‘gentrification’ we should be striving for. This is the kind that has dragged millions of people out of desperate poverty all over the world.

The last wave (what I would call gentrification) is not good. Large profit maximizing corporations enter without particular regard for the people, community or other businesses in the area. Which sort of gentrification we accept and how we control it is worthy of serious discussion.

But economic development does cause disruptions. Rents will rise and some people will be forced to move. Business owners will ask panhandlers to move away from their front door. Earlier generation businesses will sell and retire. New businesses will take their place. The character of the neighbourhood changes. This new reality has to be compared to the current reality – that of a stagnant (or worse) economy with little hope for the poor who live there – or elsewhere in the downtown core. Without economic development the poor are condemned to remain poor.

In opposing “gentrification”, activists ought to be careful not to allow ignorance (of the real solutions to poverty) to cause tragic grief and pain to the very people they claim to be representing.

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Sick Chicken

What the heck is non-organic? Actually everyone seems to know that answer. The question some have trouble with is what does organic mean, exactly? Aside from the politics of the actual use of the word “organic” on food labels, most people know that it means natural – grown without the use of pesticides, herbicides, hormones or other unnatural chemicals or treatments. Unfortunately, tacking a word, any word, in front of a food item causes one to pause to understand how that word modifies the food item, how it makes that food item different. This puts that food item at a competitive disadvantage as it is seen as different and therefore possibly inferior or at least requiring further investigation.

What is vastly unfair about the organic label, is that it should not require a label at all. Organic is the natural version of chicken. It is what we usually refer to as just plain chicken that is unnatural. In other words, we have it quite backwards. Chicken, before the introduction of chemicals and hormones to their lives was natural and did not need a label. What we currently call chicken is not natural and it is what ought to be labeled. What kind of label? Is there a single word that captures chemicals, growth hormones and torturous treatment? Sick?

What if Food Prices are Wrong?

Overcrowding chickens is one way to cut costs

Many people are put off of buying organic because of higher prices. This is understandable; there are some cases where the organic choice is twice the non-organic price. But perhaps this is the wrong way of looking at the situation. In order for something to cost twice as much as something else, you need to have the base price from which to calculate. But what if that base price is wrong?

What if chicken that costs $2.79/lb. only got that low because large factory  farms continuously cut corners to cut costs. Placing 3 times the number of chickens that could move about comfortably in a confined space would lower the cost. Keeping them indoors for their entire life would shave a few more dimes per pound. Growth hormones will speed up production and reduce the price again. At the point where the consumers would be shocked and offended by the animal’s treatment, the price is wrong. We would choose to pay more for more humane animal husbandry and less harmful additives had we all the information at our disposal.

We should think twice before using the absolute lowest cost as the base price from which we compare “higher” prices. If the base cost is ill-gotten and morally offensive, we should never have gone there in the first place.

In North America, we spend only about 10% of our incomes on food. In France, they spend close to 15%, Italy and Germany, nearly 20%. In Honduras, almost 40%. Why is food so cheap here? There are a number of reasons. One of them is that the price is wrong.

Shark Fin Soup

Watched Sharkwaters recently.

We indiscriminately kill sharks only for their fins. The sharks are still alive when they are finned. They get dragged onto boats, have their four fins sliced off and are thrown back into the ocean to either bleed to death or drown. Shark fin soup sells for up to $350 a bowl in Japan.

Many sharks are now facing extinction.

Sharks are predators at the top of the food chain. If they disappear there will be a massive increase in the number of smaller fish normally eaten by sharks. These smaller fish eat phytoplankton. Turns out that the phytoplankton  supplies over 50% of the oxygen (by taking in CO2, incidentally) of the planet.  Without sharks to keep the smaller fish population in check, we may be endangering our own source of oxygen.

Business as Government, Government as Business

A discussion with my son Justin about Independent Power Projects in British Columbia got me thinking about the mess we have created, and perpetuate for ourselves.   A contentious issue in BC is allowing private corporations to own and run IPPs on rivers in relatively pristine wilderness.   Justin feels that private business should not be involved in something as important to the public trust as power generation, at least or in particular, insofar as it  involves operations in environmentally sensitive areas.  My position (generally) is that with the exception of a very few highly sensitive areas (like health-care and education), that governments should regulate, not run.

Unfortunately, neither position works very well.  Private interests in a public concern would be fine if, and only if, governments would provide effective regulation and enforcement.  Governments owning and running a number of enterprises that are important public trusts would be fine if, and only if, they ran them efficiently.

Apparently, each IPP on its own, has only a small impact, but the government has not properly assessed the cumulative impact of these projects – which could be devastating to local ecosystems.

The punchline, that Justin delivered near the end of our conversation, is that BC has no need for more electricity.  The province is already a net exporter of power.

So you really have to ask yourself, what in the world are they doing mucking about in these pristine environments?  I thought business was for profit.  Governments ought not be.

Free Range & Organic or Confined, Drugged & Tortured

Someone recently explained to me that they had tried organic coffee and didn’t care for it. I was struck by the remark because, of course, the organic farming of coffee has little to do with the taste. The type of bean, the region, the elevation, the way it was roasted, how fresh it was and the way it was brewed; any one of these would have more impact on the flavor than whether or not it was farmed organically. In fact, generally speaking, organic farming is usually done under the shade of a tropical forest canopy protecting the coffee cherries from too much direct sunlight, allowing it to ripen more slowly – resulting in a richer flavor, not a poorer one.

It was the label that threw her. It probably was not a great cup if coffee – but the organic factor was not likely the culprit (it is actually quite hard to find a really good cup of coffee, organic or otherwise). Labeling coffee or other foods ‘organic’ can create confusion when no label is applied to the ‘non-organic’ variety. It makes organic seem, like the new, untested, and possibly weird choice. Of course quite the opposite is true – all of our food used to be organic until the green revolution of the 1950s. That is, it was raised without the use of chemicals, hormones, antibiotics or other unnatural additives. It was also, most likely raised without undue confinement. Unfortunately, the ruthless corporatization of farming has changed all of that. It is possible, as we now know, to consider a pound of animal protein like any other product and apply the same cost-cutting, efficiency driving economics to its production. It does however have one additional requirement; that you completely disregard the involved animal’s welfare.

Ask any pet owner how they would treat a calf or a chicken were they to raise them themselves for their own consumption and you get 2 answers. First, they would treat them with respect and care irrespective of their plan to ultimately consume them. Second, they would find it nearly impossible to go through with the plan.

By choosing the ‘non-organic’ (often confined, drugged and tortured) beef, most people are effectively betraying their own values choosing to remain either willfully or just blissfully ignorant of the facts. Suggesting, when confronted, that the organic beef is significantly more expensive as a justification is a knee jerk reaction that any kind of reflection would render embarrassing. (Would they buy an even cheaper cut of beef if they knew that child labour was involved?)

Many people now choose organic meat for health, environment and animal welfare reasons. But there are others who are ignorant or confused. It is time that we sorted the labeling out so that consumers can make informed choices. Here are a few suggestions to add to the meat package:

1. Identify the use of hormones to increase size and speed of growth (and a warning that these hormones may impact your own development)
2. Identify the type of feed used and any agricultural chemical residue present in the feed
3. Identify the size of space and the average amount of roaming available to the animals in question (i.e. cramped quarters, no roaming)

New labels: [Free Range & Organic] or [Confined, Drugged & Tortured]

Now watch Organic sales take off.

Real Disclosure

It is entirely possible to make an investment in a publicly-traded company one day, only to have it declare bankruptcy the next.  Navigating the labyrinth of public disclosure documents that would be necessary to get the very simple piece of data that would tell you that the investment that you are about to make is going to zero tomorrow is near to impossible.

Why not have a one pager on every public company that gives the investor some very basic, very important information?

Information like how much cash they have. And, if they are not cash-flow positive, how much cash they burn each month.  Maybe a link to a list of infractions for which they been convicted.  How about a simple sales & profit graph that shows which direction they are headed.

If the Government really wants to protect investors from the shenanigans of late, how about making corporations provide real disclosure.

The Bad Side of Big

In business, size matters.  But maybe not the way you think it does.  An overlooked, but obvious common denominator in the numerous ‘bail-outs’ of late is in the sheer size of the companies involved.  They are all big. Huge actually. Perhaps we should take a closer look at that.  Perhaps size is a problem in itself? 

A common taxpayer response to the bail-outs has been why?  Why should our tax dollars be used to prop up a badly managed, failing company, or worse, a company who brought the situation upon themselves?  Just because they are big?  Small and medium-sized business owners in particular are annoyed; many of them could use help too.  But they don’t qualify for bail-out cash because, in the big scheme, they don’t matter.  And they don’t matter because they are not big.  To qualify for bail-out funds, your failure has to be perceived as potentially catastrophic.  And for that you need to be big. Really big. 

 

Growth.  Expansion.  Globalization.  Getting bigger, almost in and of itself, is a central goal of Management.  Boards encourage growth.  And getting bigger often rewards shareholders.  So CEO’s compensation plans reward growth over most other metrics.  But is big good for the rest of us?  From a consumer’s perspective, quality goods and services at a reasonable price is what really matters.  Sometimes being bigger helps a firm to deliver on this, sometimes not.  

 

Consider the case of small and medium-sized businesses (SMBs).  In Canada and the U.S., SMBs employ over 50% of the workforce, create 8 out of 10 new jobs and grow at a much faster pace than big business.  If SMBs are the driver of growth and jobs, and big businesses pose huge financial and job loss risks, wouldn’t it be better if all companies were SMBs?

 

Really big companies employ tens, sometimes hundreds, of thousands of people.  If they fail, a lot of jobs are lost.  Enough to make headlines.  Politicians don’t like those kinds of headlines. And a failure of a company employing that many people causes a lot of personal devastation, often within a smaller community.  Placing a physical limit on the size of companies would reduce or eliminate a lot of these problems. 

 

We have long known that distributed systems in other fields are better than centralized ones.  They are more robust, less prone to failure, and easier to fix if damaged than centralized systems.  Google uses tens of thousands of PC-like machines to respond to search queries rather than just a few super-computers, the failure of any one of which could be disastrous to their business.  It’s the same basic reason that the Internet doesn’t fail.  There are small failures throughout the internet (probably every day) but they have little or no effect, as the system itself never fails.

 

Why would we, as a society, organize ourselves to allow so much wealth, power, and employment concentrated in just a few companies?  It creates fragility in the economic system in the same way that a few large supercomputers would for Google.

 

Lest you think that limiting the size of companies is somehow counter-capitalistic, remember that we already do limit the size of companies.  And we do it for good reason: to limit unfair competition. 

 

In the 60’s, the Department of Justice broke up the Telco monopoly held by At&T precisely because they were too large, and consequently had too great a power to set unfair prices for their products and services (remember how much long distance used to cost?).  More recently a proposed Yahoo / Google deal fell apart as it would have been properly opposed and likely defeated by the Department of Justice for the same reason. 

 

So limiting any one company’s size to protect society is not without precedent.  Why not limit size to create a more distributed and robust economic system? 

 

This observation, that large companies pose a real risk to the financial system when they fail, may or may not help us to figure out how to prevent another economic meltdown, but limiting the size of companies would limit the devastation.  No bail-out cash required.

Brave New Capitalism

Corporations are a human construct and should serve humans – not the other way around.  This site is dedicated to generating ideas and discussion around making positive changes to the modern corporation for the good of humanity.  

It is not a place to rail against capitalism or staunchly defend the staus quo.  I am sure you can find websites that are dedicated to those narrow and wasteful pursuits.

Roger