Monday, December 11, 2006

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.

Saturday, November 11, 2006

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]

[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)

Wednesday, October 11, 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]

[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.

Monday, September 11, 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]

[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

Friday, August 11, 2006

Situational ethics vs Moral Absolutism


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.


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


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.


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.


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.

Tuesday, July 11, 2006

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)


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...

Sunday, June 11, 2006

Few Thoughts About China's Development

What’s the background of China’s reform at the end of 1970’s?

  • After 10 years of political campaign (the disastrous “culture revolution” period), China’s economy run into deep trouble, with slow growth, low productivity, huge economical chaos and very limited capital.
  • People had been in poverty and underdevelopment for many years, hoping for change, while did not know which way to go and which model to adopt (SU’s model did not work after 30 years of trail, Japan’s model seemed unsuitable for China since China lacked its strong education and technology foundation while burdened with huge population, and south east Asian countries’ model might only applied to small countries)
  • Dengxiaoping visited U.S. and Japan around 1977-1978, and talked with Li
    Guangyao about Singapore’s boom in Beijing. Finally, he realized this was nearly the last chance for China to catch up and decided to launch the reform and opening policy to lead China out of poverty.

Why China could achieve such dramatic and continuous growth and development? What are the logics, features, differences of China’s reform and development?

  • Liberate mindset and create sense of urgency (abandon the old communism-centered ideology, accept reality and focus on economy development):
    • “Poverty is not communism”
    • “As long as the cat could catch the mouse, who cares it is black or white”
    • “Practice is the sole criteria for evaluating right or wrong”
    • “Stop arguing which is right, or which is real communism, just try it”
    • China could not wait any more, or we will lag behind the world for-ever”
    • “Time is money, efficiency is life”
  • Make incentive right and make systems effective
    • Adopted “Household Responsibility System” to release rural productivity, motivate peasants and bolster agriculture and country’s development (critical given China’s huge population)
    • Developed “Town and Village Enterprises” to absorb idle countryside labors and establish industrial manufacturing capability in rural area
    • Tried various ways on SOE reform and transformation, abandoned the “iron rice bowl” and encouraged people to innovate, sparing no efforts to boost large conglomerates
    • Invested tons of capital to develop heavy, chemical industries like Automobile, Machinery, Airline, Petro, Power etc.
    • Gradually allowed private ownership and encouraged private sector’s development.
    • Attracted FDI to supplement capital input by opening the market and preferable tax policy, and then learnt the technology, knowledge, management expertise of western companies.
    • Emphasized on regional economy development’s importance and used it as key promotion criteria for local officials.
  • Be creative and flexible, while retain control
    • Horizontally, absorbed western’s best practice and other Asian countries’ proved experience. Focused on tailoring them to China’s specific situation, but not just copying rigidly.
    • Vertically, all policies, principles and even the system could change over time, according to the new situation or dealing with the new issues.
    • Kept control of the critical industries and large conglomerates, making sure state dominates the most strategic industries and large companies – “Retaining the commanding heights”
    • Improved central government’s monetary and fiscal policy authority.
  • Adopt a gradual, step by step reform and transformation program, contrary to Russia’s Shock Therapy (most unique part as I understand)
    • Whole country: Economy reform first; political reform second
    • Geographically: Bottom up pilot in some regions first; (such as special zones in several southern provinces) nationwide top down roll-out second (if proved valid or successful)
    • Economy: Rural, agriculture and peasants first; city, industry and workers second
    • Economy: Industrial sector first; financial sector second
    • Industry: Labor intensive industries first (to build up capital and create employment); capital and tech intensive industries second (to improve economy structure and utilize the capital and tech resources piled)
    • Trade and Investment: Current account control deregulation first; capital account second. (Still not fully release now).
    • Trade and Investment: Attract foreign direct investment first; invest in other countries second (now becomes a hot topic).
    • Financial sector: Insurance first, banking and securities second (more important in China’s financial sector and much weaker than insurance).

What Zhurongji did?

  • Adopted expansionary fiscal policy and relatively cautious monetary policy to boost internal demand and whole economy
  • Continued SOE reform and privatization (highly debatable)
  • Transformed and improved the financial sector especially the huge state banks by inserting capital
  • Negotiated with U.S. and Europe and finally lead China enter WTO (huge impact and implication to China, make China return to the mainstream and almost impossible to return to its old track)
  • Further encouraged private sector
  • Tried all means to provide more employment (private sector, increase college entry rate etc.)

What are the key challenges China faces now?

  • How to maintain the sustainable growth? (previously high cost, inefficient use of energy and huge environment damage will not work any more)?
  • How to allocate the wealth fairly and keep social stability?
  • How to further improve economical structure for the next several decades’ growth?
  • How to further control the population and unemployment?
  • How to ensure a relatively peaceful period and friendly international environment? (acting as a responsible large country and playing a key role in the world)
  • How to deal with the belief system collapse?
  • How to deal with the severe government corruption?
Author: Jia Sun

Thursday, May 11, 2006

United States against the newcomers

After reading the new book of Thomas L. Friedman, “The World is Flat”, I realized that the flattening of the world is causing more than just the ability to move around resources. It is not only about productive but also non-productive resources that get moved by the flattening of the world.

In Friedman’s book, he touches on different flattening factors, and by flattening he means increased connectivity. Several of those flattening factors are off-shoring, outsourcing, availability of information, supply chaining, etc.

To the increasing power of these different factors, Friedman attributes the lost of manufacturing and service rendering power of the USA.

From my perspective, I think it goes beyond the fact that manufacturing or certain services are migrating to countries where you can get cheap labor (the “new comers”). In the short run, USA would be able to adapt to this migration of production power. USA production would focus on high-level processes and the “newcomers” would take on the lower-level processes. In certain cases, the “new comers” are already taking over high-level production processes.

On the other hand, in the long run, USA would decrease its output and will not create any sustainable value. If USA cannot –as Friedman says—power its intellectual resources to overcome the “newcomers”, it would be at the mercy of the newcomers’ business strategies.

Something that I covered a couple of days ago and really stuck into my mind was the fact that wealth is not valuable if we don’t produce any goods or services that could be exchanged. Let’s take a extreme example. If I have $100 dollars but I cannot buy anything, my US$100 dollars are worthless.

In the world where the “newcomers” take over USA’s production of goods and services, the “newcomers” receive all the money from the wealthy USA. At the end of the day, all the wealth from USA would move to the “newcomers”.

With USA multinationals investing on research and development (R&D) in places like China or India, they are just accelerating the process. Instead of replacing old scientific power in the USA, multinationals are boosting “newcomers” potential. In the case of China, USA multinationals are investing a huge percentage of its R&D expense in knowledge centers in one of the 11 Chinese cities with population over 2 million. But the investing is not only in knowledge but infrastructure. The foreign direct investment (FDI) in China per year is $60 billion.

The problem is that multinationals believe that this FDI and investment in R&D would return higher profits and better margins. What they don’t see is that in the not-that-far future, Chinese would learn from their internationals counterparts and would implement their own production lines. This is already happening in industries like automobile, cement and oil. Chinese companies are founded on the knowledge acquire by partnering with multinationals. The apprentice is becoming the master.

To avoid the migration of all production (goods or services) from any country to the "newcomers", we not only need to invest in education to overcome the increasing technical and scientific capabilities of the "newcomers" but also think about investing R&D in our own countries. Focus on the long term, it is not about tariffs, quotas, or subsidies (those are not sustainable). Think about creating the resources that are not longer migrating to the USA (i.e. foreigners to US universities).

Let's invest in education and research.

Tuesday, April 11, 2006

Open Source in Pharma

Imagine if in the future we can have "Open Source" for pharmaceuticals. Similar to the trend that we have in technology nowadays. Instead of dealing with 10, 20, or 30-year patents, we had a group of scientist that contribute some part of their research for a better cause.

Some of the obstacles for OSPh (Open Source Pharma) is the fact that the research needed to develop medicine is pretty expensive. Not only the beginning stages were everything could almost theorical but also the other stages with government approval (in the U.S. it would be FDA approval). This type of costs differ from the software industry because there is not an entity that approves the softwares that are going to be launch. The market does that job itself. Good software would be sold and bad softwares would be forgotten.

Nevertheless there could be some similarities and maybe some similar catalyst for the existence of OSPh. The biggest catalyst in the software space was the internet. In the case of OSPh the internet would play the same role (shortening distances between collaborators and reducing transaction/communication costs). Additionally there could be other catalyst that could help us obtain a type of OSPh. That catalyst would probably be related to the way the research is performed and documented. In the case of software there are very clear parameters that anybody can follow to write code. In Pharmaceuticals is a little bit different. The reason behind the different research approach is simple: try to find a different way to "cure" the problem.

I believe that in the future would see some guidelines for open research collaboration between scientist. Those guidelines would be the first catalysts for Open Source Pharma.

Saturday, March 11, 2006

La Nueva Economía Virtual

Hace unos días atrás salió publicado un articulo en FORTUNE ("From Megs to Riches", Nov 18, 2005 By Roger Parloff) que me impactó. El artículo habla de la nueva economía que se ha creado alrededor de los juegos de rol virtual.

Por ejemplo habla de "Paul" que tiene su mansión y su Porsche en Dallas. Paul era un abogado exitoso pero decidió cambiar esa vida por la de los juegos de rol virtuales. Paul juega EverQuest que es un juego virtual de la edad media. Debido a que existe una gran comunidad de personas jugando EverQuest se crea la necesidad de un mercado donde se puedan comprar cosas. Esto no es nada extraordinario y ha existido desde el comienzo de este tipo de juegos. La diferencia es que esta vez las personas están dispuestas a pagar dinero de verdad para adquirir ciertas cosas. Esta Economía Virtual se ha vuelto tan grande que existen personas como Paul que viven de eso. Para facilitar este mercado se han creado bolsas de valores donde se cambian monedas del mundo virtual por monedas del mundo real (i.e. Dólares Estadounidenses). Inclusive existe brokers que te ayudan a hacer los tramites (i.e. Internet Gaming Entertainment).

EverQuest es un juego creado por Sony con más de 300,000 subscriptores en línea. Aun así no es de los juegos mas populados, se dice que World of Warcraft tiene 4.5 millones de subscriptores.

Otro ejemplo es, Anshe Chung, que tiene un personaje (o "avatar") que hasta ahora ha acumulado riquezas por US$200,000. Estos US$200,000 no son dinero virtual sino dólares Estadounidenses. El avatar de Chung vive en un mundo virtual llamado "Second Life". Ahí se encarga de comprar tierras y construir bienes raíces. Paul explica que el ítem más caro que ha vendido en este mundo virtual fue por 3 millones de piezas de platino (la moneda de EverQuest) que equivalen a US$840 - US$1200 dependiendo de la tasa de cambio del día.

Estamos hablando que solo para la Economía de Everquest se ha calculado que el volumen de transacciones en dinero real (dólares Estadounidenses) equivale a un nivel de PIB que la posicionaría como la economía #77 del mundo. (Mas información en este tipo de análisis en "Synthetic Worlds: The Business and Culture of Online Games de Edward Castronova).

Teniendo en cuenta de la dimensión de esta economía no es sorprendente pensar que ya existen subeconomias. Se dice que en algunos países en vías de desarrollo existen grupos que se dedican a "cultivar" riquezas en este mundo para venderlas por dinero real. Estamos hablando que haciendo actividades sencillas en EverQuest una persona puede ganar US$3.42 dólares la hora.

Algunos pensarían que esta Economía Virtual no tiene mayor volumen pero están equivocados. Estamos hablando de que esta Economía Virtual ha sido calculada en US$200 - US$1000 millones con un crecimiento del 100% anual! Increíble como la simple interacción de personajes en un mundo virtual termina creando un mercado virtual de bits y bytes. Lo que se vende son manifestaciones graficas (i.e. espadas o armadura) de un código creado por una compañía de tecnología (i.e. Sony).

Muchos de estos mundos virtuales tienen políticas que prohíben este tipo de mercado (i.e. EverQuest de Sony) pero aún es imposible controlar este tipo de transacciones. Otros mundos autorizan e inclusive ceden los derechos de propiedad a sus subscriptores (i.e. Second Life de Linden Lab). El problema de estas Economías Virtuales es que si la compañía que crea estos mundos virtuales desmonta los servidores, los subscriptores que tienen invertido dinero real en sus personajes virtuales pierden todo su dinero. Esto nos hace cuestionarnos quien seria el responsable de esta perdida. Por esta misma razón, Sony se evita el problema al decir que no le entrega a sus subscriptores ningún derecho de propiedad sobre los ítems creados en sus mundos virtuales. Hay evidencia para pensar que tarde o temprano las compañías terminarán por aceptar esta nueva economía. Inclusive Sony ha creado una bolsa para el intercambio de mercancía de uno de sus mundos virtuales para una fracción de sus jugadores. Station Exchange, la bolsa de valores de Sony, ha tenido un volumen total de US$540,000, de lo cual Sony se ha llevado una comisión del 10%.

Esta nueva economía emerge en la época cuando nuestra sociedad valora otro tipo de bienes de una manera igualmente subjetiva. Nuestra economía gira entorno a otras necesidades (i.e. prestigio, status) además de las necesidades básicas. Nuestros mercado "real" esta lleno de artículos como diamantes, carteras Louis Vuitton, o botellas de agua donde su valor real difiere con el actual. Ahora, como decirle al jugador del mundo virtual que el bien que compro para su personaje virtual no tiene un valor real.

Saturday, February 11, 2006

Bienes Raices Virtuales

Hace unas semanas atrás el mundo comenzó a reconocer una nueva era en bienes raices. El WallStreet Journal publicó un artículo que habla sobre las nuevas tendencias del mercado de los domain names. Seguramente este artículo se deriva del interés que generó la revista Business 2.0 después de publicar algo sobre el mismo tema.

No encontre una sinopsis de este artículo por lo que voy a intentar resumirlo en un párrafo. Básicamente habla de como a través del nuevo mercado de publicidad que se ha venido desarrollando en internet (con la ayuda de Google), nuevas compañìas se están enfocando en crear portales de solo publicidad. Estos portales o sites que solo contienen links de publicidad reciben un porcentaje de los ingresos de compañías como Google por prestar su domain name (i.e.

Lamentablemente este artículo esta en ingles pero estoy seguro que mas adelante lo podremos encontrar en español.

Articulo de WallStreet Journal:
Thanks to Web Ads, Some FindNew Money in Domain Names

Wednesday, January 11, 2006

Un mensaje a la nueva generación

He encontrado que con el nuevo conflicto entre Perú y Chile, algunos jóvenes de países en América Latina han vuelto a recordar sus conflictos. Se han extendido a traves de internet un sin numero de quejas contra y a favor de Chile y Perú. Creo que es importante que recordemos varios puntos al ser invadidos por esta avalancha de opiniones.

Recordemos que los ciudadanos de los países son mucha veces ajenos a las decisiones de sus gobernantes. No porque hubo una guerra entre Ecuador y Perú, o Colombia y Ecuador, o Perú y Chile, tenemos que seguir acarreando ese rencor y resentimiento. Construyamos una América Latina libre de rencores.

Siempre debe de haber espacios donde se pueda compartir lo que pensamos, siempre y cuando sea de una forma organizada y respetuosa. No tratemos ni de de cobardes ni de traidores a las personas que están en desacuerdo. Entiendo perfectamente que con cualquier guerra se crean dolores, pero siendo nosotros el futuro necesitamos encontrar caminos para apaciguar estos resentimientos. Así podremos tener un futuro lleno de paz.

Hay que entender que en una guerra existen violaciones de derechos humanos, acciones abominables pero comunes. Los autores materiales de este tipo de invasiones (o guerras) son personas (soldados) que se llenan de odio y rencores que los acarrean a hacer cosas que normalmente no harían (i.e. violar a una mujer). Cuando se llega a ese punto es difícil evitar este tipo de acciones, por eso hay que evitar a toda costa que se creen las situaciones.

Debemos de alejarnos de la forma pasional de resolver conflictos que son mas apropiados para los bárbaros de siglos pasados. La nueva generación de ciudadanos latinoamericanos somos personas que podemos llegar a resolver conflictos de una manera más inteligente. El primer paso para esto es tratar de investigar la verdad. No porque lo leo en un email, o en un periódico, o en una revista tengo que creerlo. Tengo que ver que existe una tendencia, que varias fuentes comparten la misma opinión. Imagínense si uno guía solo por CNN o si se guía solo por el Canal Nacional Iraki, crees que hubieran tenido puntos comunes? O verdaderos?. Dejemos de ser uno mas de un rebaño que no argumenta lo que se le dice.

Nosotros somos la nueva América Latina. una llena de jóvenes que resuelven conflictos, crean oportunidades y fundamentan sus opiniones. Nosotros somos capaces de encontrar el profesionalismo en nuestra toma de decisiones. No nos basemos en nuestras pasiones que se fundamentan en la ignorancia. Motivemos y movamos a las masas no con nuestras opiniones sino con hechos concretos, con argumentos fundamentados. Si vamos a protestar por el TLC, protestemos porque tenemos fundamentos económicos y sociales por los cuales no estamos de acuerdo. No protestemos porque simplemente creemos que es mal para el país. Ese tipo de raciocinio dejémoselo a nuestros políticos de poca entereza. Nosotros somos mejores.