Is their National culture values the reason why entrepreneurs have florish more in United States and Europe?

American[i] and Western European entrepreneurs and their firms were capable of seizing the opportunities to build international businesses across national borders because they were able to combine three factors: institutional support, appropriate national cultural values and multinationals leverage. These factors were key for entrepreneurs and firm not only in the first global economy but also both during the era of deglobalization after 1914 and during the second global economy after 1979.

INSTITUTIONS

The beginning of global entrepreneurs and their firms started with the building of well-thought institutions in their nations. There are two important characteristics for a national institution to be successful: (a) fairness and consistency, and (b) promote creation and accumulation of wealth.

Institutions that promote fairness and consistency across its constituents are able to create trust. By creating trust, the nation is able to leverage each citizen to form a larger support system. If the national institution wants to promote the creation and accumulation of wealth, then trust is its key component. To be able to promote the creation and accumulation of wealth, an institution needs to promote people and capital mobility. Trust is the factor that allows for people and capital to move around the country.

On one hand, trust-worthy institutions allow people to leverage each other to create larger support system. One example of this case is banks. Banks are able to operate because the citizens believe on the system would protect their investments. By trusting the institution, citizens are allowing to leverage each other to create more wealth. Banks are able to fuel the economy by investing on entrepreneurial ideas. Entrepreneurs are able to finance their ideas due to the existence of these support systems (i.e. banks, angel investors, venture capitalists, etc.)

On the other hand, trust also allows increasing people and capital mobility. When people know that there is consistent treatment and fair processes in their national institutions, they are more willing to move across the nation. When a nation has this environment, people would travel across the nation to find better opportunities with good chances of finding it. It is a matter not only of thinking that there are better opportunities out there but actually of finding those opportunities. When the national sentiment is full of trust, people can take the decision of looking for new opportunities across the country. Having consistent and fair institutions allows those people to find the opportunities. Success in this case is a combination of willingness to move and finding the opportunity.

Institutions in United States and Western Europe were developed to help their societies find and capture wealth. In United States, the founding fathers established a set of rules that treated everybody as equal. Being a nation of immigrants, United States made its institutions behave fair and equal with all its citizens. In Western Europe, its institutions evolved moving from an unfair system (monarchy) to a fair system (democracy). For example, Hans Wilsdorf (Hans Wilsdorf and Rolex) was able to create Rolex legacy because there was an implicit trust in the system. People trusted him with the idea of export product across Europe. Wilsdorf trusted the system that allowed him to ship his product across Europe. Wilsdorf was able to move to London and established his company because he trusted British institutions. Weetman Pearson (Weetman Pearson and the Mexican Oil Industry) was able to build its reputation before going to Mexico in the U.K. and the U.S. because of the fairness of the system. Infrastructure projects were given to the best constructors not to the ‘son’ of the minister. Then Pearson was able to capitalize on its reputation and take advantage of an unfair system in Mexico. It would have been impossible for Pearson to be such a global entrepreneur if he has been born in Mexico.

On the other hand, in developing nations, there are several examples that prove what happen in the absence of good institutions. The case Multinational Corporations in Apartheid-era South Africa: The Issue of Reparations shows how African institutions only favored the elite, creating inequalities among its citizens. The case Jamnalal Bajaj, Mahatma Gandhi and the Struggle for Indian Independence also shows the differences in treatment between Indians and British. It is clear how citizens of these countries didn’t have a similar trust-worthy environment than United States and Western Europe to create a range of global entrepreneurs. South Africa and India didn’t have supportive institutions that could allow entrepreneurs to leverage on their people for financial or human capital. The case Can Bollywood Go Global? also shows the lack of a supportive institution that can create a financing market to promote the movie industry. Bollywood is financed by the mafia corrupting its growth potential. The reason why India’s Technology sector has been successful in the recent years is because its participants are creating their own systems that they can leverage against (Jerry Rao: Diaspora and Entrepreneurship in the Global Economy), instead of trusting the national institutions.

Latin America also didn’t create institutions that promote wealth across its societies. Portuguese and Spanish colonization corrupted the opportunity for the region to develop fair institutions. Most of the Institutions in Latin America have been run by the elite, starting with the Spanish conquistadores. Nevertheless, there are still few entrepreneurs that have defied unfair national institutions to be able to conquer the international market. Natura (Natura: Global Beauty Made in Brazil) in Brazil has been able to create trust among its users and create a network in Brazil through its direct selling system that has proven successful. The Colombian Coffee Federation (Thousand Hills Coffee Co. of Rwanda: Breaking New Grounds) has also leverage on its growers to build a cooperative that can tackle international crisis and promote its product internationally.

CULTURE

In addition to the fairness of the institutions in the country, the national cultural values play a key role in developing and promoting entrepreneurship. The difference between local and global entrepreneurship is a matter of the right institutions combined with some key cultural values.

Local entrepreneurship is just a matter of culture and individual’s characteristics. When individuals lived in a culture where creation of wealth is the ultimate goal, entrepreneurship spirit increases. All the nations in the world posses this drive, and that’s why all nations have local entrepreneurs (95% of the businesses in the world are family businesses). Nevertheless, having global entrepreneurs requires more than just a drive for wealth. As mentioned in Professor Geoffrey Jones’ course (Entrepreneurship and Global Capitalism at the Harvard Business School), global entrepreneurs possess three main characteristics that are key for their success: (i) Understanding of global trends, (ii) High geographic mobility, and (iii) Acute business model and organizational knowledge. Furthermore, global entrepreneurs that posses this three characteristics leverage its local institutions (i.e. financial institutions) to be able to tap into the global market.

Before this century, United States and Western Europe, in general, are more likely to have these three main characteristics of global entrepreneurship than other countries in the world. Given that United States and Western Europe are the leaders of the global economic market, their entrepreneurs’ knowledge on global trends are better seeded than their competitors. Nowadays, there has been a shift of power to other countries in the world. Asia could take the lead in the future given its growth potential. If China can set the global trends in the future and its institution can promote entrepreneurial characteristics (i.e. trust), then Asia would become another powerful region for global entrepreneurs.

Additionally, people from United States and Western Europe are more accustom to move around. Europeans has always been a very mobile group. In comparison with Latin America or Asia, Europe and the United States are very easy to travel within. Even if geography is not in consideration, the European and American[ii] culture were based on people’s mobility. For example, people that populated United States were mostly immigrants. American[iii] culture was based on finding new opportunities to create wealth, even if that meant leaving the family behind. Some may argue that that is why American[iv] culture does not have such family ties as other countries in the world, but this is hard to determine. On the other hand, it is clear that an ability to sacrifice family ties for pursue of wealth can bring a lot of advantages when thinking about global opportunities. In the case of Weetman Pearson (Weetman Pearson and the Mexican Oil Industry), it is clear that he was able to move around the world and travel so much because he was able to sacrifice family time.

Lastly, Western Europe but specially United States has been able to accumulate business knowledge; business knowledge that is reflected not only in the publications but also in the competitive environment. When there is a competitive culture that is in a race to create and accumulate knowledge, global entrepreneurs flourish around it. Equally important is the transfer of knowledge inside the culture. In this case, Western Europe and United States had an advantage against other countries. Business consultants began in Western Europe and United States. Incidentally knowledge transfers went between Western Europe and United States with the globalization of consultancy (McKinsey and the Globalization of Consultancy), creating a virtuous circle that was difficult to break.

Virtuous Circle

Trust on Management Practices --> Knowledge Accumulation --> Transfer of Knowledge --> Excellent results on average --> Trust on Management Practices

Even though there are some counter examples for such virtuous circle (Toyoda Automatic Looms and Toyota Automobiles), it is clear that the initial advantage was for Western Europe and United States. In the second global economy, some of this virtuous circle has been transfer to Asia and some countries in Latin America (Brazil at the Wheel)

MULTINATIONALS

Multinationals play a key role on global entrepreneurship. Multinational are able to maintain the trend previously mentioned (institution + culture à global entrepreneurship). There are two ways in which Multinationals try to maintain the beneficial trend for United States and Western Europe: (a) Exploitation of other nation’s resources, and (b) Capturing knowledge.

Multinationals have not only maintained the trend in favor of United States and Western Europe, but also have impeded new entrants. Developing countries are playing catch up for the past centuries with respect to developed nations. Nevertheless developing nations are taking advantage of these differences. An example would be the exploitation of banana growers in Colombia and Guatemala (United Fruit Company in Guatemala) in the 19s. Nowadays multinationals are behaving more friendly towards their hosting nations because of strict regulation and a change in culture. Nevertheless in the beginning of globalization, multinationals were created to create value for their shareholders despite the outcome of hosting nations.

Additionally, by creating wealth for United States and Western Europe, their multinationals were able to capture the best knowledge available in the market. Multinationals are the source of knowledge. The Research & Development (R&D) of some multinationals is higher than a lot of developing countries. Over the last decade 10 countries accounted for 87% of world R&D, and 90% of business R&D All are developed, except China and Korea. R&D is the least internationalized segment of multinationals value chains[v]. By having similar trust-worthy institutions combined with excellent human capital, multinationals were able to reinvent themselves and create new wealth (Multinationals as Engines of Growth). A clear example of this is that multinationals in United States and Western Europe have been helped by their own country to avoid bankruptcy (i.e. Ford or GM).

Other countries have been trying to participate in this virtuous cycle of creating multinationals that can promote knowledge and wealth that would help create more multinationals (i.e. Brazil at the wheel). Nevertheless, the real shift would be provided when multinationals realize that by transferring technology across the world would improve the overall future of all of us (i.e. Cisco Goes to China: Routing an Emerging Economy)

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[i] Referring to people from United States and not people from the Americas.

[ii] Referring to people from United States and not people from the Americas.

[iii] Referring to people from United States and not people from the Americas.

[iv] Referring to people from United States and not people from the Americas.

[v] Entrepreneurship and Global Capitalism Course by Geoffrey Jones

Multinationals: Stealing from the Poor to Give to the Rich?

Latin-Americans always voice their disgust when multinationals come to invest in their country. Most of these people think that multinationals only come to rob their country of its natural resources leaving only devastation and poverty in their wake. This perception is based on past experience and in some ways they are justified in their complaints. Most of the multinationals that have come to our countries in the past have, indeed, only left behind further impoverishment and, in some cases, diseases.

My opinion, however, differs in that I believe that this initial misconduct has been due to the fact that there was not sufficient governmental regulation to encourage a fair process of negotiation. After a hundred years of experience, we can no longer continue to blame these companies. Now, the fault lies with our own governments, and if these are corrupt, then the fault lies with us.

At a time when the United States was coming into its world power status, at the beginning of last century, a lot of entrepreneurs embarked to conquer the world. In a similar fashion as our past conquerors, these entrepreneurs where looking for land and other factors of production. A very particular case is that of the United Fruit Company (UFC) in which they were looking for land to grow bananas. The UFC exploited many countries if for no other reason than, simply, because they could. Local governments also needed to industrialize and the UFC gave them the infrastructure in exchange for a proper environment for their business. In terms of control and coordination, the UFC exploited local workers offering them the minimum survival conditions. However, it wouldn’t be unreasonable to say that the UFC also gave aid and certain benefits to the local communities where it was placed (i.e. hospitals and schools) but the damage to the workers was far worse. This lack of control was in part due to the lack of power in the government. These governments didn’t have many options. They needed to modernize and didn’t have the money or the technology or the resources to do so. They were, thus, forced to sell themselves to the highest bidder.

Toward the end of the 90s, these conditions changed dramatically. By then, the majority of multinational companies were not only obeying the written laws of the land but also the over arching ethics codes and moral standards. For example, many investing companies from the United States were working within United States’ standards. Others were simply obeying some series of ethical agreements in order to avoid damaging their reputations. Moreover, there were multinationals that were pioneering change in the area of ethics and standards in the countries that they were operating in, making an effort to balance the conditions’ inequalities

In Latin-American countries this hasn’t been much different. Multinational companies that invest in Latin America must comply with very strict standards that prevent workers from the mistreatment that we saw in 1990. Even then, in many cases, we see the same results as we did in the past. Why does this keeps happening? Are the multinationals the problem or is it something else? A potential example is in Barrica in Chile where there is a group of people that are against the over-exploitive mining expeditions by the Barrick Company on the border of Chile and Argentina. The reason for their objection is that it is believed that the environmental effects are more important that the any economic rewards that the project would bring. If this project were to go forward it could in danger the glaciers in the area which could have devastating effects to the supply of water for various communities in Chile. There has been some governmental response in Chile, mandating that Barrick analyze the environmental effects, but the critics say that this is not sufficient. They do not mention, however, the potential positive effects that this project would create (an estimated 5,500 jobs.) Still, this reaction is understandable given the history of multinationals in the region. Unfortunately the problem is no longer the multinationals. They are entities that have the objective of maximizing profits for their shareholders. The real problem is that the government lacks presence or control in these situations. In this case, the Chilean government didn’t even think there was a problem. I realize that there may exist a group of experts that are able to analyze the environmental effects and decide on the best solution. For the rest of Latin America, this solution is more complicated.

Unfortunately our experience in Latin America has been tainted by corrupt governments and has usually ended up damaging the country. Many people, motivated by the effect of incredible inequality, believe that the cause of all of this is capitalism and imperialism on the part of United States. Capitalism isn’t really the monster that it is made out to be, per se, but what is bad is that the local government, which should be acting as a coordinator of the process, is only looking out for its own interests. In theory the government is the mediator between the capitalists and the established society. It is the government that has the manpower and the obligation to manage the assets of its nation. With this it serves as the system of checks and balances in interactions between multinational companies and the local businesses.

An example of this is Botswana, an interesting case that has received little coverage in Latin America. Botswana was poorer than Ecuador in the 70s. However, during the last three decades, Botswana has had an annual growth of 9%-10%. Poverty indexes have been decreasing drastically (only 30% below the poverty line) and the GDP per capita has increased over Ecuadorian levels (now in $11,000 PPP in comparison to Ecuador in $4,500 PPP purchasing power parity) This is all the result of excellent coordination, control and resource management done by their government. During the 70s, DeBeers, the largest diamond multinational exporter company in the world, invested in one of the mines in Botswana. In this case, however, in contrast to what happens in Latin America, the local government was able to negotiate the suitable contract and to manage the natural resources in a intelligent way. Botswana was able to eliminate the desperation that existed; they took the capital and invested it in a development plan. (DFI – Direct foreign investment). This kinas of measures bring long term development, but they can also destabilize the country in the short term. In the case of Botswana, its citizens were willing to be patient and to avoid the chaos that would destabilize the government.

Unfortunately, in our countries, this is different. Most of the chosen governments only focus on the short term (or at least that is what it seems). They think they are doing the people a favor when they try to redistribute wealth, nationalize corporations and close the doors on foreign investment. Our economies do not produce enough to maintain our growth pattern. If we want to isolate, we will never be free poverty. If we want to grow, however, we need to be open to foreign trade, generate foreign investment and use our resources to educate our people so that the generations to come have greater factors of production to work with. Our countries need the financing that only foreign investment can give us. It is crucial that a mechanism for wealth redistribution is explored (like the one working in Sweden, were there are over 70% in taxes depending on ones income), but also, it is important to generate wealth through new policies that encourage exports (like the case of South Korea and Singapore)

Unfortunately, we keep blaming the United Status, and their multinationals, for our own problems. The problem is internal. The history of Latin American politics has been deeply scarred by corruption. Our society is infested by corrupt people and the fact that we welcome it does not make it any better. Everyone, from people we know from school to co-workers, everyone practices corruption and we brag about it. That is the main root of our problem. If we had a government branch that was in charge of controlling corruption (even in high executive positions), we might have a chance. However, we need the institutions that support the greater benefit of the majority; we can’t expect that this is going to be achieved with some profits that help a few.

We need a president that is truly connected to his country. We need a president that will attempt to solve the problem of poverty by creating social programs and by developing the nation’s financial assets through open economic policies (most likely capitalist ones). We need a consensus that allows the government to do its job and that has the patience to allow these policies to run their course and bring benefits in the long term.

Co-Authors: Maria Teresa Burbano & Marcelo Burbano

Why American foreign policy begins and ends with the President of the US?

As a new president takes office, he usually rides a wave of momentum from the mandate he received in the November election. This gives him a brief ‘honeymoon’ (typically 100 days) to push many of his domestic campaign promises through Congress. Reagan did this successfully with his tax cuts in 1982, despite a heavily Democratic Congress. Bush passed his Education act “No Child Left Behind” on his 3^rd day in office. However, as any married person can attest, all honeymoons come to an end. Congress returns to its business-as-usual self that is fraught with petty partisanship, pork-barrel legislation (which is a law that garners money and/or infrastructure projects for a Congressman’s home district, such as a new 10-lane bridge in small town, Kansas), and the perpetual re-election campaign (House of Representatives are elected every two years).

So, where does this leave the President? As Congress reassumes its control over the domestic agenda, the President is left looking outward toward foreign policy. This is the area in which over the next 2 to 6 years, if re-elected, where he will enjoy the most room to manage and affect policy. He appoints the Secretary of State, the Secretary of Defense, and the CIA director. This is his domain where he can act unfettered. Congress does have to approve the ‘extended’ use of force but in general it has been the tradition of Congress to leave foreign affairs to the executive branch. In fact, this tradition was born in the drafting the Constitution, and a partial reason for the creation of that document.

This is where the cruel irony begins. While a president can affect the most change in foreign affairs, this is the area where he is the least versed. The past 4 out of the 5 US presidents were state governors immediately before assuming the Oval Office. Simply put, this meant that they don’t have a clue about foreign affairs upon assuming office. They spent their governor years worrying about education in Jerusalem, Ohio and tornadoes in Paris, Indiana…and rightly so. This paradox is unambiguously detrimental to the American people and to the world. No doubt, this inexperience caused JFK’s misjudgment to go ahead with the Bay of Pigs invasion in 1961 and contributed to George W’s sheep-like susceptibility after 9/11 to neocons such as Cheney and Wolfowitz (9/11 occurred only 8 months Bush’s inauguration).

The only non-governor president in the past 5 was George H. W. Bush (Bush I), who previously served as VP and CIA director, and he was wildly successful in foreign affairs. He marshaled together an unparalleled international coalition in the first Iraq campaign. No doubt, he leveraged his previous executive branch experience. Ironically enough, his success abroad arguably cost his reelection at home in 1992 against Bill Clinton.

This leads us to the cruel irony #2 about the American presidency. While the president can impact the most change abroad and the least at home, he has historically been held accountable by the US citizenry for the opposite. Looking back at the past 30+ years, the incumbent president or VP has only been unseated due to economic downturns (Ford, Carter, Bush I) or scandal at home (why Gore didn’t win in 2000 and Nixon with Watergate). LBJ (Johnson) was the last president not to run for reelection based on a foreign issue, Vietnam. Can the President control the economy? No. Besides natural economic cycles, fiscal policy (tax cuts, hikes) must be passed through Congress, which as we saw earlier is tough for a president to manage. Monetary policy is governed by the federal reserve, whose governors are elected to 14 year terms, which restricts any one president’s influence. So, the president finds himself utterly responsible for an outcome that he can’t control.

Conversely, Americans, like Congress, give the benefit of the doubt to the President concerning foreign affairs. This deference stems from the American tradition of isolationism, both sociological and geographical. I believe this is why Americans voted Bush back to office in 2004. We don’t like to change leaders in the middle of a war; at least until we are damn sure it is wrong. Unfortunately, we weren’t at that point as a nation back in 2004.

In summary, my hope is not to dissuade you (i.e. business leaders) from improving US foreign policy, but to only highlight the vast influence the US President holds over American foreign policy. Indeed, a change of leadership can make a marked difference in US foreign policy (or at least its tone).

Thus, my action item is to elect a new president in 2008 that espouses:

Sincere contrition to the world for its misjudgment in Iraq and its insensitivity to all involved. There is a myth that the world superpower will look weak if he recognizes ‘enemies’ such as Iran and Syria by talking with them. My bet is that only good could come from this. The US still can boast a $420 billion defense budget (more than the rest of the world combine) and an economy that can kick anyone’s ass (GDP $12.6 trillion; the #2 is Japan with $4.6 trillion). Talking and understanding does not automatically mean legitimizing or approving (B. Hall taught us this).

A humble yet firm posture in other world affairs (i.e. Iran, North Korea). Like Ricardo and Nico said tonight, rebuild and bolster international institutions and take on ‘low-cost high benefit’ initiatives like AIDS in Africa. In short, rebuild the goodwill and win back the hearts and minds of the world. ‘Remind’ them about the best of America…its ideals and values.

A leadership role in nuclear nonproliferation. The US is clinging to the moral high ground here, and can easily reclaim it by ceasing all developments of new nuclear weapon designs, such as nuclear bunker busting bombs. For god’s sake, the benefit of these such developments can by no means outweigh the costs to international goodwill and/or trust. On such an important issue, we must be fervently consistent. The easiest way to prevent a nuclear catastrophe is preventing the bombs from being created in the first place. Indeed, as one moves from enriched uranium to warheads to border security it becomes exponentially more difficult to defend against.

By Tim Heis

Comparing Patagonia Ltd. to other environmental companies

The key of Patagonia’s success is the correlation between high quality product and environmental concern. Patagonia concern for the environment has required its product to innovate. Patagonia has been able to recover some of this environmental cost through product differentiation (high quality), private cost savings (better processes), and strategic behavior (low turnover and close suppliers relationships).

A key characteristic of Patagonia is the fact that its shareholders believe in sustainable development. Its shareholders are more worried about not harming the environment that about the financial returns of the company. By choosing not to grow fast, Patagonia has impeded the proliferation of bad management practices that would probably damage the environment in exchange for financial returns. This pre-requisite is necessary for any other company to be able to successfully implement Patagonia’s approach.

Among all the cases studied, there wasn’t anyone that has such a virtuous circle that takes advantage of the benefits of the environmental concerns. Nevertheless, Patagonia’s approach could be extrapolated to other industries in similar spaces. I believe it could not be extrapolated to firms that exploit public goods directly. For example, AES would have some problems adapting Patagonia’s approach. Even though AES could create better dams through innovation, its user wouldn’t pay more because its product cannot be differentiated. Then AES wouldn’t be competitive. Without product differentiation the companies can only recoup the environmental cost through privae cost savings and strategic behavior. On one side profit from strategic behavior is the most difficult approach to recoup environmental cost. On the other side better innovated process are difficult in industries that invest heavily in R&D. In the case of oil or infrastructure related projects unless the company integrates forward to the end-user, it would never commands better prices. In the case of Patagonia, cotton suppliers were able to have a premium because they worked close with Patagonia to create innovative fibers.

Companies that want to pursue Sustainable Development need to recover the environmental cost using the three methods mentioned above. Any company that has only one possibility to recover environmental cost is doomed to fail. Companies need to create synergies between these approaches to be able to maintain their competitive advantage.

It is clear that an industry that can’t create differentiation between the participant’s products is not incline to pursue a sustainable development approach. Companies in that industry would only be able to pursue a sustainable development approach with help of the government or a collaboration between all the members of the industry.

Example of Sustainable Development: Patagonia

Sustainable development is characterized by having a process that produces for this generation without affecting the next generation’s outcome. It is important not to confuse between sustainable development and environmentally friendly approach. An environmental commitment could be included in sustainable development but not vice versa. Patagonia is making significant contribution to not harming the environment but on the sustainable development front it could do much more.

Sustainable development covers three main areas: raw materials (i.e. energy), environment (i.e. pollution) and social impact.

In the area of raw materials, company should focus on developing supply of renewable energy and natural resources. For example Patagonia (the clothing company in the U.S.) is working in most of its retail stores to be able to implement a renewable energy approach. Nevertheless there is no evidence that is requiring the same from all its suppliers. Patagonia could fall in the same trap as automakers, where most of the damage is caused by chain reactions due to the company’s existence than from the company’s processes. Nevertheless, Patagonia is working with recycled raw material and its suppliers to avoid damaging the natural resources. In terms of water, there is no evidence in the case that Patagonia is doing anything.

In the environment front, Patagonia spends more than $2.4 million in its environmental commitment. Patagonia commits 1% of its sales to environmental grants programs, non-cash donation, company campaigns, and other programs. Patagonia also provides for the promotion of environmental activism and helps its partners along the supply chain to improve their environmental front.

In the social impact front, Patagonia is not doing much. Patagonia spends a lot of money supporting a paternalistic approach with its employees but it doesn’t invest on the communities that are providing for the raw materials. Sustainable development requires the communities that produce Patagonia’s raw material to exist for the next generation. Patagonia needs to understand that by buying raw materials from this communities it is affecting their future. There is no evidence in the case, but Patagonia suppliers partners could be paying to low to their communities. Patagonia guarantees that its partners are in a win-win situation but it doesn’t guarantee well behavior down in the supplier’s chain.

In general Patagonia is doing a lot for the environment and to maintain sustainable development. Nevertheless there are still certain areas where it can improve. For example making sure that the supply chain believes in sustainable development and takes action to correct for mistakes.

The Biodiesel Market

Despite the common knowledge of ethanol incredible growth in recent years, Biodiesel growth far outpaced that of ethanol. Global production of Biodiesel reached 3.9 billion liters, up from 2.1 billion liters in 2004. Biodiesel production increased by 75 percent in the EU, led by increases in Germany, France, Italy, and Poland, and tripled in the United States. Germany alone accounted for half of global Biodiesel production in 2005. Nine EU countries began producing Biodiesel for the first time in 2005, bringing to 20 the number of EU Biodiesel producers.[i]

World capacity, production and consumption of Biodiesel grew on average by 32% per year during 2000–2005, and the industry looks set for even faster growth rates—115% per year for capacity, and 101% per year for demand—in the years to 2008 and beyond.[iii]

Although growing rapidly, the global Biodiesel market is an order of magnitude smaller in size compared to the global ethanol market. The European Union is the world’s largest producer of Biodiesel, making it primarily from rapeseed. Soybeans are the primary feedstock for Biodiesel in the United States.

It is difficult to estimate how much consumption would be in the world for Biodiesel. There is two main markets for Biodiesel in the future without considering local legislation and incentives of each of the countries that have vast plantation of related feedstock. The two markets are United States (U.S. or US) or European Union (EU).

In the United States there are several assumption that need to be consider. First the Ultra Low Sulfur Diesel standard imposed to the Petro-Diesel (Diesel Fuel from Petroleum) that would increase the usage of Biodiesel as additives; second, the EPACT05 that mandates for a certain amount of Biofuel usage; and third, the AJCA04 that creates tax incentives for Biodiesel producers. All of these factors are explained better in later sections.

For instance, the EIA (Energy Information Administration) suggests that in the US if considering a 1% blend into ULSD (Ultra Low Sulfur Diesel) would drive demand to 1.6 million tons by 2010. Currently the U.S. Biodiesel production is estimated in 500,000 tons per year.

On the other hand, the European Commission has set as a goal that by 2010, 5.75 percent of the energy used for transportation shall be biofuel. The most important biofuel in the EU is Biodiesel, which represents some 80 percent of the biofuel production. These goals are part of the main energy policy target of the EU which is to double the share of Renewable Energy Sources (RES) in gross inland consumption from 5.4 percent in 1997 to 12.0 percent by 2010. These measures are taken to meet the Kyoto goals, and to decrease the EU’s vulnerability in the energy sector. The goals set by the Commission are not mandatory, however the Member States (MS) have to report to the Commission yearly about their progress, and MS must have good reasons if they are not to comply. On the basis of findings in MS reports, the Commission can propose changes to the system of targets, including mandatory targets if it seems that national targets will be missed without good reason. [vi]

The goal set by the European Commission on 5.75 percent renewable energy for transportation by 2010 will according to different forecasts be hard to accomplish without importing Biofuel from third countries. The Directorate General for energy and transports estimates that the fuels for transports in EU25 by 2010 would be 330 million tons. To meet the Commission biofuel goal for 2010 it would take 19 million tons. Currently in 2005, the EU produced 3.9 million tons of Biofuels (Biodiesel + Ethanol). If the EU wants to meet the Commission goal by 2010 it needs to grow it Biofuel production by 23% every year. Given that countries that have fueled the recent growth (i.e. Germany) are likely to decrease its growth trend, InterConsorcio expects that there are great opportunities on the Biodiesel EU import market.[vii]

EU's Biodiesel production capacity may exceed 4 million tons by mid-2006 as a result of the bloc's efforts to promote cleaner fuels, according to the EU's vegetable oil industry federation (Fediol). The European Biodiesel Board (EBB) confirms that Biodiesel production in the EU has risen by 35 percent compared to production in 2003. The production in 2004 was 1,85 million tons, and in 2003 1,45 million tons.[viii] For 2005, the Global Status Report 2006 Update by Renewable Energy Policy Network for the 21st Century estimates that production of Biodiesel in the EU had increased to 3.1 million tons.

Most of the countries in the EU have incentive the usage of Biodiesel through tax-breaks. Britain for example has a goal of 5 percent of road fuels coming from renewable sources by 2010. That policy, known as the Road Transport Fuel Obligation, called for a 2 percent usage rate by now but the actual current figure stands at only 0.3 percent.[x]

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[i] Renewables – Global Status Report 2006 Update by Renewable Energy Policy Network for the 21st Century.

[ii] Graph built using information from Renewables - Global Status Report 2006 Update by Renewable Energy Policy Network for the 21st Century, WORLD FUEL ETHANOL ANALYSIS AND OUTLOOK By Dr. Christoph Berg April 2004, and CEH Report Biodiesel By Ralf Gubler Published November 2006

[iii] CEH Report Biodiesel By Ralf Gubler. Published November 2006

[iv] Graph built using information from Renewables - Global Status Report 2006 Update by Renewable Energy Policy Network for the 21st Century, WORLD FUEL ETHANOL ANALYSIS AND OUTLOOK By Dr. Christoph Berg April 2004, and CEH Report Biodiesel By Ralf Gubler Published November 2006

[v] Data taken from Contribution of Biodiesel to US Economy (LECG) June06 and National Biodiesel Board, Biodiesel Fact Sheets, Production Capacity.

[vi] Biofuels situation in the European Union. Date: 3/23/2005. USDA Foreign Agricultural Service. GAIN (Global Agriculture Information Network) Report Number: E35058.

[vii] Biofuels situation in the European Union. Date: 3/23/2005. USDA Foreign Agricultural Service. GAIN (Global Agriculture Information Network) Report Number: E35058.

[viii] Strong Growth Anticipated For EU Biodiesel Production. Date: 5/3/2005. USDA Foreign Agricultural Service. GAIN (Global Agriculture Information Network) Report - E35085

[ix] Renewables - Global Status Report 2006 Update by Renewable Energy Policy Network for the 21st Century.

[x] UK Parliament Urges More Tax Breaks for Biofuels by Reuters (November 20, 2006)

Advantages and disadvantages of Biodiesel

Currently there are different advantages and disadvantages of producing Biodiesel as an alternative energy source. The key benefits of using Biodiesel are: (a) Environmental Benefits, (b) Engine Life, and (c) Economic Considerations.[i]

Environmental Benefits

Burning Biodiesel releases carbon that has just been taken out of the atmosphere by plants, so the CO2 released doesn't add to global warming. It is practically free of sulphur and carcinogenic benzene. It is the only alternative fuel to have completed the health effects testing requirements of Clean Air Act (explained in the following section). [ii]

Engine Life

The lubricity is much higher as compared to diesel which in turn reduces engine corrosion and increases performance and longevity of the engine. The diesel fuel injection system relies on the fuel for the lubrication of its closely fitting parts. The lubricity of ethanol is low so it degrades the lubricity of the diesel fuel. [iii]

Economic Considerations

Economic benefits of a Biodiesel industry would include reduction in healthcare costs due to better air quality and greenhouse mitigation. [iv]

On the other hand, the Biodiesel industry has several disadvantages. The limitations facing Biodiesel are: (a) Continual engine performance, emissions and durability testing in a variety of engine types and sizes is needed to develop increased consumer and manufacturer confidence, (b) The technical problems of using Biodiesel include winter operability, clogging of filters and degradation of rubber hoses and seals. (c) Development, coordination, verification, and publication of a scientifically developed engine based on ASTM Biodiesel Fuel Standards.

In addition, there is lack of complete information on several critical parameters and further studies are needed to reduce the cost of processing, develop low cost feedstocks, produce a resource inventory, and identify potential markets in order to balance cost and availability with the primary uses where Biodiesel benefits can be maximized. [v]

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[i] Biodiesel-Is It A Solution To The Renewable Energy Market In North America? by Shreyas Rajan. Date Published: 7 Jun 2006.

[ii] Biodiesel-Is It A Solution To The Renewable Energy Market In North America? by Shreyas Rajan. Date Published: 7 Jun 2006.

[iii] Biodiesel-Is It A Solution To The Renewable Energy Market In North America? by Shreyas Rajan. Date Published: 7 Jun 2006.

[iv] Biodiesel-Is It A Solution To The Renewable Energy Market In North America? by Shreyas Rajan. Date Published: 7 Jun 2006.

[v] Biodiesel-Is It A Solution To The Renewable Energy Market In North America? by Shreyas Rajan. Date Published: 7 Jun 2006.

Opportunities in Biofuels

Liquid Biofuels made from biomass are attracting increasing interest worldwide. Industrial countries see Biofuels as a way of reducing greenhouse gas (GHG) emissions from the transport sector and diversifying energy sources. Developing countries see Biofuels as a way to stimulate rural development, create jobs, and save foreign exchange. Both groups view Biofuels as a means of increasing energy security. These concerns, taken together and highlighted by recent surges in the world oil price, have prompted a wide range of countries to consider Biofuels programs. Canada, Colombia, the European Union (EU), India, Thailand, Indonesia, Malaysia and the United States have adopted new targets, some mandatory, for increasing the contribution of Biofuels to their transport fuel supplies. [i]

Under this new scenario, Biodiesel production plays a new role on the world market. Given the high incentives from EU and the U.S., Biodiesel producers can overcome the wall that petro-diesel has created. Despite the fact that petro-diesel is less costly to produce than Biodiesel, Biodiesel consumption is increasing. Biodiesel consumption is currently driven by tax incentives, government regulation, and environmental concerns.

Biodiesel is defined as the mono-alkyl esters of fatty acids derived from vegetable oils or animal fats. In simple terms, Biodiesel is the product you get when a vegetable oil or animal fat is chemically reacted with an alcohol to produce a new compound that is known as a fatty acid alkyl ester. A catalyst such as sodium or potassium hydroxide is required. Glycerol is produced as a byproduct.[ii]

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[i] Potential for Biofuels for Transport in Developing Countries (October 2005) by Masami Kojima and Todd Johnson

[ii] Business Management for Biodiesel (NREL) July-2004

Situational ethics vs Moral Absolutism

SUMMARY

Philosophers have always debated between moral absolutism and relativism. Moral or ethical proposition could be judged under either assumptions; one that there are absolute standards against which moral question can be judge (Moral Absolutism), or one that standards are relative to social, cultural, historical and personal references. On the other hand, I believe that focusing on the discussion between moral relativism and absolutism is pointless. I believe that if there is absolute standards in the universe, this standards cannot be understood or revealed to any individual due to lack of information. Then, the best approach to this dilemma is to use situational ethics to judge our ethical decisions.

SOME BACKGROUND

In philosophy, moral relativism takes the position that moral or ethical propositions do not reflect absolute and universal moral truths but instead are relative to social, cultural, historical or personal references, and that there is no single standard by which to assess an ethical proposition's truth. Relativistic positions often see moral values as applicable only within certain cultural boundaries or the context of individual preferences. – Taken from Wikipedia

Moral absolutism is the position that there are absolute standards against which moral questions can be judged, and that certain actions are right or wrong, regardless of the context of the act. According to moral absolutists, morals are inherent in the laws of the universe, the nature of humanity, or some other fundamental source. Moral absolutists regard actions as inherently or inarguably moral or immoral. – Taken from Wikipedia

Situational ethics (also known as Situationism) refers to a particular view of ethics that states: the morality of an act is a function of the state of the system at the time it is performed. This is frequently confused with moral relativism, which states that there is no universal moral truth, that there are only beliefs and perspectives, none more valid than another. Situational ethics by itself does not say whether there are universal truths or not; it only says that the state of the system at the time of an act must be included in consideration of the act. – Taken from Wikipedia

MORE ON THE DISCUSSION

Moral Relativism and absolutism are opposite sides of an argument about the existence (or not) of objective truth. Critics of this view assert that this argument places the burden of proof on relativism, by treating it as a theory that makes the positive existential claim "it is objectively true that there are no objective truths" as opposed to simply being the necessary consequence of a refusal to accept the absolutist's claim "there are objective truths." – Taken from Wikipedia

Then it is easier to assume that moral absolutism is correct for my analysis, but the situational ethics approach would work for both assumptions. In case moral absolutism is correct we can approach any ethical dilemma in two ways: (a) Assuming that we know what is the objective truth, or (b) Assuming that we don’t know. Here’s is my first decision on this matter. I believe that assuming that we know what is the objective truth (universal truth) is somehow misleading. Our knowledge is based on our social, cultural, historical and personal education. Then, by assuming that we know what is the universal “good”, we are assuming that we have “universal knowledge”. I believe that even if you are a very thoughtful individual or a well acclaim philosopher, it is hard to assure that you have “universal knowledge”. For example, even Aristotle that was ahead of his time and universally proclaim as a one of the greatest philosophers of all times, didn’t have “universal knowledge”. Aristotle defends the existing good customs of his time. Although he argues for many values which many of today's philosophers agree with, the things he values include slavery, sexism and rule by a small leisure class, all of which seem unethical according to today's standards (Taken from Wikipedia).

I believe that it is more sensible to assume that you don’t know the universal truth. Then it is very important to collect as much information before making any decision. We need to analyze character and situation before taking an ethical decision. It is not just about the character (moral absolutism) or situation (moral relativism). Assuming that moral absolute truth exists and it is impossible to decipher, we need as much information as possible to make the right decision.

Even some individuals that consider themselves absolutes have navigated this dilemma with other approaches that seem similar to Situational Ethics. For example, many Christians regard Christian theology as teaching a hierarchy of moral absolutes — a view called graded absolutism. Here, if there is a conflict between two absolutes, the duty to obey the higher one exempts one from the duty to the lower one (Taken from Wikipedia). Then I could also say that Moral absolutists that judge slavery, war, dictatorship, the death penalty, or childhood abuse to be absolutely and inarguably immoral regardless of the beliefs and goals of a culture that engages in these practices (Taken from Wikipedia), could use graded absolutism to make a decision in favor of such immoral proposition (i.e. a “good” dictatorship). By using graded absolutism they avoided using situational ethics.

APPLYING IT TO OUR COMMON LIVES

I believe that United States have used this situational ethics practice to build its judicial system. From my understanding the basis of any political science resides on the understanding of moral and ethics. As Aristotle implied with its work, the philosophy of human affairs (political or social science) is the second half of his ethics treatises. Aristotle's Ethics states that the good of the individual is subordinate to the good of the city-state, or polis (Taken from Wikipedia).

United States have understood the importance of having a law that evolves with time (due to Legal Realism). A law that is sensible to social, cultural, historical and personal references and it is not confined to a static view given by an individual or group. We need to avoid the danger of Legal Realism. Legal realism is a family of theories about the nature of law developed in the first half of the 20th century in the United States (American Legal Realism) and Scandinavia (Scandinavian Legal Realism). The essential tenet of legal realism is that all law is made by human beings and, thus, is subject to human foibles, frailties and imperfections (Taken from Wikipedia). For this reason we need to allow the law to correct itself with time, to allow the law to evolve.

It has become quite common today to identify Justice Oliver Wendell Holmes, Jr., as the main precursor of American Legal Realism. No single set of beliefs was shared by all legal realists, but many of the realists shared one or more of the following ideas (Taken from Wikipedia):

· Belief in the indeterminacy of law. Many of the legal realists believed that the law in the books (statutes, cases, etc.) did not determine the results of legal disputes. (Taken from Wikipedia).

· Belief in the importance of interdisciplinary approaches to law. (Taken from Wikipedia).

· Belief in legal instrumentalism, the view that the law should be used as a tool to achieve social purposes and to balance competing societal interests (Taken from Wikipedia).

If you believe on Legal Realism, there is a need to create the tools to allow the law to change. I view the United States (US) judicial system as one that gives the tools to the people to allow the law to evolve. Other countries do change their laws (i.e. constitutions) but lack the tools to make these changes more dynamic. The fact that the US judicial system have different levels (statutes, prescedemts, and ethical common norms) allows the society to give a dynamic approach to judging between good and bad. If we don’t know the universal truth the best way to approach a decision is being able to collect as much information at that time. By fomenting a discussion of new points of view and allowing the law to take into account those new perspectives, the US judicial system avoids judging on static laws that do not reflect today’s reality.

LEARNING FROM OURSELVES

Now if we have understood that human foibles, frailties and imperfections have also created religions, we should take the same approach of law with religion. Create the tools to allow religion to evolve. Again, most religions do change with time but they lack the tools to make these changes more dynamic.

Comparison between The Prince and Carr's philosophy

Regarding two tough calls and flashback to [Conflict on the] trading floor [by Joseph L. Badaracco Jr., Jerry Useem] and [Is Business Bluffing Ethical? by Albert Z. Carr] Carr: Alex Bradford prepared a very pertinent quote from Machiavelli's The Prince and compared it to Carr's philosophy. -- Henry B. Reiling

“….From my interpretation of Carr's article, Carr stressed law/government as the primary boundary influencing decisions/outcomes, but Machiavelli took a more complete approach and argued that [of course] ethics/morality influence decisions/outcomes in addition to the law (sometimes superseding the law). So the "Machiavellian" leader is able to USE ethics to his own good by promoting and teaching them, even though he wont always BE ethical. Sun Tsu makes a similar argument in saying reputation is everything... Locke through Nietzsche even make the same ethics-based argument. For this reason I don't believe Carr is a true Machiavellian. Imagine if everyone in an organization followed Carr's advice, how would a leader lead an organization of completely self-serving individuals? And what about reputation and trust? I pasted below an excerpt from Machiavelli's 18th chapter "Concerning Ways a Prince Should Keep the Faith," that summarizes Machiavelli's thoughts on the importance of ethics. The source of misinterpretation is between looking ethical and being ethical -- something that I would argue most successful business/political leaders have understood (from George Bush to Bill Clinton to Bill Gates etc etc). The danger for society is that looking ethical allows one to act more unethical. So in this sense, Machiavelli promotes ethics but is unethical, whereas Carr is just plain unethical. Thanks-Alex”

"Therefore it is unnecessary for a prince to have all the good qualities I have enumerated, but it is very necessary to appear to have them. And I shall dare to say this also, that to have them and always to observe them is injurious, and that to appear to have them is useful; to appear merciful, faithful, humane, religious, upright, and to be so, but with a mind so framed that should you require not to be so, you may be able and know how to change to the opposite. And you have to understand this, that a prince, especially a new one, cannot observe all those things for which men are esteemed, being often forced, in order to maintain the state, to act contrary to faith, friendship, humanity, and religion. Therefore it is necessary for him to have a mind ready to turn itself accordingly as the winds and variations of fortune force it, yet, as I have said above, not to diverge from the good if he can avoid doing so, but, if compelled, then to know how to set about it.

"For this reason a prince ought to take care that he never lets anything slip from his lips that is not replete with the above-named five qualities, that he may appear to him who sees and hears him altogether merciful, faithful, humane, upright, and religious. There is nothing more necessary to appear to have than this last quality, inasmuch as men judge generally more by the eye than by the hand, because it belongs to everybody to see you, to few to come in touch with you. Every one sees what you appear to be, few really know what you are, and those few dare not oppose themselves to the opinion of the many, who have the majesty of the state to defend them; and in the actions of all men, and especially of princes, which it is not prudent to challenge, one judges by the result.

"For that reason, let a prince have the credit of conquering and holding his state, the means will always be considered honest, and he will be praised by everybody because the vulgar are always taken by what a thing seems to be and by what comes of it; and in the world there are only the vulgar, for the few find a place there only when the many have no ground to rest on. One prince* of the present time, whom it is not well to name, never preaches anything else but peace and good faith, and to both he is most hostile, and either, if he had kept it, would have deprived him of reputation and kingdom many a time." * (Maximilian I, Holy Roman Emperor)

References:

Is Business Bluffing Ethical?
Albert Z. Carr

Product Type: Harvard Business Review Article
Product#: 68102	Pub. Date: January 01, 1968
Length: 7p

Business, like poker, is often a game of strategic bluffs. The worlds of private and business life are separate and demand separate codes of...

Conflict on a Trading Floor (A)
Joseph L. Badaracco Jr., Jerry Useem

Product Type: Case (Field)
Product#: 394060	Pub. Date: October 20, 1993
Length: 5p

A junior salesperson on FirstAmerica Bank's trading floor is assisting a top salesperson, Linda, on a deal to finance the construction of a new...