Pete On Rails

em·i·nent (m-nnt) adj. Towering or standing out above others; prominent: an eminent peak.
do·main (d-mn) n. A territory over which rule or control is exercised.

“The true foundation of republican government is the equal right of every citizen in his person and property and in their management.” –Thomas Jefferson to Samuel Kercheval, 1816.

The only eminent thing about the Supreme Court’s activities last week is how prominently wrong their decision on Eminent Domain was for this country. They have made a particularly distinguished mistake. An outstanding travesty of justice. Indeed, they’ve hurt us more than the last ten policy mistakes combined.

In case you missed the story, the town of New London has condemned the property of several homeowners in a well maintained, middle class neighborhood in order to clear the way for a private redevelopment consisting of townhomes, condominiums, and offices. After lengthy negotiations, the owners refused to sell their homes and businesses to the developer, and that developer had the government invoke eminent domain. This is one of the first examples of the government taking from one private party, and giving to another private party for a development project.

My good friend, talented author, master story-teller, and fellow thinker had a few things to say about the recent Supreme Court Decision on Eminent Domain. I must say, I agree with Steph, as you can see in my comment to her journal entry.

Countries that accumulate economic wealth generally have several distinct characteristics. There are several characteristics that I consider the most important:

1. An economic systems that rewards and promotes competence and performance
2. A government that establishes a set of rules that are fair, knowable, and generally not corrupt.
3. A suitable climate and geography to facilitate trade.
4. Access to education and other mechanisms for skills improvement
5. Protection of private property rights, both real property and intellectual property

These aren’t just my crazy ideas. The National Center for Policy Analysis agrees, along with Bernhard Heitger of the Kiel Institute for World Economics. Classical economists like Adam Smith and Keynes didn’t just think property rights were an important element of an economic policy, but rather an assumed pre-requisite. That is, without property rights, you don’t have a functional capitalist economy. You have something else.

Peter Boettke, of the Viginia Institute, says in this article that there are four important reasons for private property rights:

• Recognized private property rights provide the legal certainty necessary for individuals to commit resources to ventures. The threat of confiscation, by either private individuals or public officials, undermines confidence in market activity and limits investment possibilities.
• Clear property rights tend to make decision makers pay close attention to resource use and the discounted value of the future employment of scarce resources. Absent private property rights, economic actors will tend to be short-sighted in their decision making and not conserve resources over time.
• Property rights are the basis of exchange and the extension of ownership to capital goods provides the basis for the development of financial markets that are essential for economic growth and development.
• Secure private property rights, as indicated in the above quote by Thomas Jefferson, is the basis for limited and civilized government. The elimination of arbitrary confiscation and the establishment of regular taxation at announced rates enables merchants to calculate the present value of investment decisions and pass judgment on alternative allocations of capital.

The thinkers mostly agree, which is a rare occurence, that private property is a central pillar of capitalism. It is also a crucial element of The American Dream. In this case, do the needs of the many really outweigh the needs of the few? Or, perhaps more appropriately, are we really concerned with the needs of the many here? Or with the needs of the rich?

No matter what the rationalization, it seems to me that taking someone’s only valuable asset, while paying an unfair market rate (because the property is “blighted”), then giving it to a developer who will probably make 30 or 40 times the price paid from the project is an ethical travesty. It doesn’t matter that it’s legal. It’s unethical no matter how you slice it. That’s probably why the “moral values” crew is speaking up against it.

In the liberal state of Maryland, The Rouse Company was forced to build Columbia, MD around the properties of holdout families that refused to sell their land. Columbia, MD did just fine, and the holdout families either coexist peacefully or have cashed out at better market rates. And The Rouse Company still got rich beyond belief.

The Supreme Court, however, has handed developers a shortcut. Why would any big developer even try to negotiate a fair price with a landowner now? If I want to build 100 houses on your grandmother’s farm, why wouldn’t I just try to get my County Executive to condemn your family farm and cut out the pain of negotiating with you?

Don’t worry. You’ll get fair market value.

I read three interesting articles today. One is an old article, but I thought it was spot-on in pointing out that often we have a conscious attitude of racial tolerance, while harboring an unconscious racial bias without even knowing it. The second article is a more recent publication that reinforces the findings of the first: that we have some built in racial discrimination processing logic in our brains. That last article says to me that this “built-in” logic wasn’t just put there by our maker: social and cultural factors put it there, and that same mechanism can take it back out.

NYU/Yale Research Team Explores Neural Basis of Racial Evolution

Brain Activity Reflects Complexity Of Responses to Other-race Faces

New Study Suggests Race Fear Isn’t Hard Wired

While I think that the studies may have the ill-effect of giving the unenlightened (i.e. the “Davids” from The Color of Fear) a hook to hang their white guilt on, the last article shows that perhaps the key to undoing the cognitive damage of race bias lies in actively retraining your brain to recognize people as individuals, rather than members of a class or race. That’s something that sounds reasonably easy to do, but I haven’t found any studies yet where someone has tried to measure the effectiveness.

So as an MBA student, this raises an interesting question. When do we generalize and when do we individualize? It is a tough lesson to learn in MBA school. We take the management lessons from diversity and ethics courses: “Diversity is important. It is an asset. People deserve respect. Generalizations about people are dangerous.”

Then we go over to a marketing class where we learn how to sell useless widgets to “black mothers between the ages of 21 and 35 with teenagers in the home (!) ” by speaking to certain emotional concerns of a generalized group of people. We can certainly say we know the difference between treating people like individuals who deserve respect and treating people like a market to be targeted, tapped, and harvested. But do we really know what that means? Marketers make outrageous statements sometimes. Even though there is demographic data to back those statements up, I think that the language they use creeps into the organizational culture.

Do you think the traditional marketing function reinforces certain biases people have about women, black people, or any of the other groups of people that marketers use to segment markets? Have you seen any effective material on how the marketing and management functions of an organization can be designed to clearly differentiate between targeted market segmentation and discrimination within the organization itself?

I think that MBA schools ought to discuss the relationship between organizational goals, ethical concerns, and social factors in more depth. How do we balance marketing strategy with management factors, operational concerns, financial strategy, and other organizational issues? The more I learn in B-school, the more it seems like running the business of any one organizational department is the easy part. Sitting on the senior leadership team and representing your department is easy too. In order to be a great executive, you have to have a broader skillset that knits all of the organizational factors together and finds the right balance. That’s what I’ll be looking for in my last few courses at Loyola.

I have been reading quite a bit lately about the Radio industry. It’s a particularly interesting topic because the business model could potentially change based on technological advancements. Now, more than ever, audio broadcast technology is available to the average person. Podcasting, internet music streaming, and other technologies promise to empower more people to produce content the same way that the printing press and the Internet spread written knowledge.

Invariably, this has people thinking about how to make money under the new paradigm. Heather Green’s Blog and Om Malik’s Blog have an interesting examination of Yahoo Music’s new subscription service. Om Malik postulates that Yahoo Music could make a killing if they turned into an advertising-only service. I think Malik misses one key point, though: the interesting thing about the internet music model, as opposed to the broadcast model, is that the customer is the listener.

In over-the-air broadcasting, the advertiser is the customer, the audience is the product, and the individual listener is a supplier. Broadcast radio is all about giving away content “free” to listeners in order to supply them to advertisers.

Satellite radio, podcasts, and streaming music subscriptions seem to be more about pleasing the listener at an individual level. That is, treating them like a customer.

I haven’t seen any examples yet of a successful business model that merges the two concepts: “listener as customer” vs. “advertiser as customer.” I think that most subscription service listeners join because they want to be a customer instead of an audience to advertisers.

Though I haven’t thought all the way through the subtle differences in the mind of the customer, I think that’s exactly where the answer lies for a successful blend of the two revenue streams. That is, until we understand the psychology of the radio listener a little better, we can’t mix advertising and pay services.

After all, if HBO, Showtime, Cinemax, and other pay TV channels started running commercial advertisements, wouldn’t you rethink your $10 monthly payment for the service? It’s a tough problem to crack.

For what it’s worth, in order to have a profitable advertising business in streaming media you need a lot of listeners. According to David Frerichs, founder of iM Networks: “The reason that many of these stations aren’t profitable is simply because they’re not big enough. To create a profitable streaming radio business, you need about 10 million listener hours per month.” I am betting that the introductory offers Yahoo is putting out there are aimed at building that critical mass.

I just finished a class in business school about managing technology and innovation. Though we studied a lot of interesting management theories and creative companies, the most fascinating and curious aspect of managing modern innovation is the ethical dimension. This topic is particularly relevant given many of todays conundrums in areas such as biotechnology, stem cell research, climate change, and data mining.

Primarily, ethicists give us two frameworks to use in evaluating ethical dilemmas: teleological and deontological. The teleological framework is a utilitarian point of view. The ends justify the means. The needs of the many outweigh the needs of the few. On the other hand, deontological analysis is the opposite. That is, we must alway conduct ourselves according to certain moral standards, regardless of the outcome. Put another way, it’s not whether you win or lose, but how you play the game. The difference between the teleological and deontological methods of ethical analysis rationalizes decisions into two distinct camps. To what extent, however, do innovative organizations fall into one camp or the other? I think they are driven by a blend of both, but with emphasis on the deontological.

Consider the innovative and wildly successful firm IDEO (http://www.ideo.com). This company is an example of one of the most exciting places to work today. If you saw the Nightline documentary on this company, you know that they place an amazing amount of power and emphasis on their people. You also know that their employees are among the best and brightest in the nation. For example, one product specialist has deferred entry to Harvard medical school for three years now because he’s having too much fun. Clearly, the way IDEO plays the game has a lot to do with their results. They’re winners.

I know of another technology firm that prides itself on the way it wins the game. The company values its people, making only those hires that are strategically relevant to the company. They turn down more business than they take because they want only the best people. Ramping up too fast introduces junk into the human capital pool. This company has amassed enough capital in reserve to survive a full year with no customers without cutting staff, and have articulated this as a core value of the organization. The core values of this organization are deontological in nature. It is not unheard of for people to suggest that the profits from a new product be donated to charity because the employee who had the idea for the product thought that was important.

As long as certain basic financial targets are met, it’s pretty easy to be all about the means to the end. This demonstrates the balance between the teleological and deontological. As long as we have a justifiable end, the means ought to be as morally bright as possible.

The most relevant deontological litmus test is the ever relevant Universalization Test. When making a decision, the deontologist must ask: “What if everyone else in the world made this same choice? Would the world be a better place? Would I want to live in it?” If the answer is bleak, then the choice might not be so good.

There is another dimension of ethics worth exploring, though it is related more to management than innovation. Too often today, it seems that rather than applying the universalization test to ethics questions, organizations instead ask themselves the media question. That is, “What would happen if the media found out we made this decision based on these criteria?” If we apply that ethical question test face value, perhaps we come up with such an answer as, “we’d be embarrassed, so we ought not do that.” Unfortunately, many organizations take this question as a starting point for scenario building and risk mitigation. This shows a bias in favor of the teleological, end-justify-the-means approach that is often found among the large organizations that have been wrought by scandal lately. To be certain, many of those organizations were being creative. But is it innovative to find a way around the norms and values of our culture to profit? Or does innovation demand that we play within a set of moral standards?

Therein lies to dilemma when we think about stem cells. There are certainly more than two sides to the issue. There are a lot of folks who believe we ought to be doing stem cell research. I happen to be one of those people. There are some other people, many of them democratic congressmen, who think that we ought to hold off on certain types of stem cell research because it isn’t safe. That’s a teleological point of view, and it’s certainly valid. Then, of course, you have the deontological position, which many people will equate with the Bush administration’s stance on the topic. The ultimate premise of the deontological position is, “It is not right to take one life in order to preserve another life.” That’s certainly a difficult assertion to argue with as a matter of policy. Given that the Bush adminstration has a very strong position on when life begins, their conclusions certainly make sendse.

But there are two tough questions that are raised by that position. First, when does life really begin. Is it at the time an egg is fertilized? Is it at quickening? Birth? Or at some nebulous biological milestone in between? My gut tells me it’s the last one. If you think it’s the first one, then you are certainly justified in opposing stem cell research. The even tougher question in my mind, though, is this: If it is NOT OK to take one life to save another, if life begins at egg fertilization, and if we must ban new stem cell lines from being created based on this moral code that we adhere to, then why is it OK to experiment on the existing lines of stem cells? Are those lives a sunk cost? Is it OK to benefit from what would have been a moral outrage simply because the damage is done?

When we make decisions about innovation based on moral standards, such as in the stem cell debate, whose ethical norms should we follow? One of the major problems with ethics in high technology is that the general public is easily swayed one way or another on topics that they know very little about. If you ask the average American about embryonic stem cell research, they are sure to have what they believe to be an informed opinion. If you ask those same individuals to draw an embryo, I suspect that more than 75% of them will draw you a fetus. That is, something that looks like a tiny, developing person with a brain, heart, lungs, and presumably consciousness. The debate over whether life begins at quickening, implantation, conception, birth, or some biological development milestone along the way is irrelevant if the people debating the issue don’t understand the basic biological process of reproduction. This topic leaves me with more questions to ponder than answers.

How do we equip ourselves to innovate, then, within the context of our cultural and ethical norms? How do we educate the public about the true nature of what we are trying to do? Is it possible to rationalize every decision we make with respect to innovation, or are some areas of research just not ethically viable? Certainly we have made mistakes. Nuclear energy is a good thing in my book, but nuclear weapons are an unconscionable legacy for which we will all have to pay someday. Would it have been possible to have one without the other, given the diversity in moral values throughout the world? If the United States had not developed and used nuclear weapons, but only nuclear energy, wouldn’t someone else in the world have created the atomic bomb? Would it have been moral not to develop the technology to deter others from using it? Is it moral that we killed so many people in Japan to demonstrate why nuclear weapons are such a bad idea?

I think the answer to these ethical questions lie in a gray area. They are murky, to be sure. The traditional ethical frameworks don’t always apply when we talk about innovation. But to be sure, it helps to go through each method of analysis in order to have a more informed view of the issues. Perhaps Virtue Ethics has the answer. I certainly don’t.