Good Honest Dollar $$

Dear readers,

As I mentioned last week, I will be on vacation until August 30.

However, contrary to what I indicated last week, I will not be posting any further entries until I return from vaction. My next post is scheduled for Friday August 30, and will deal with some common objections to Socially Responsible Investing (SRI) based upon principle.

Cheers

Andrew

Do you have a dream to travel the world?

Are you twenty-five years old, five foot eight inches tall, and pretty?

Then why not be a flight attendant?

If you’re Chinese, you’re too old - that’s why. You’re also too tall.

That’s the situation which confronts those who seek employment within the airline industry in China. Many of the recruitment practices which are common throughout the industry are highlighted in a reality TV program, which shows the annual recruitment drive of China Southern, the country’s largest carrier.

According to a report in the Los Angeles Times last year, the program, which is partly funded by the airline, resembles more of a beauty contest than a serious recruitment process. Requirements for qualification are simple – you must be aged between eighteen and twenty-four, and you must be between five foot three and five foot seven inches tall. If you do not meet these requirements, you are not considered suitable for passenger service.

The airline does hire male flight attendants, but these are hired in the traditional way, not on the program. (refer article)

 
Unethical in some countries, encouraged in others

From the viewpoint of many in the western world, such practices are discriminatory and should not be legal. Not so in the world’s fastest growing aviation market, where many passengers equate beauty with excellence.

To be fair, the airline industry in China is in the early stages of development, and for many years, discriminatory practices occurred in western countries as well. In the US for example, discrimination against men or married women was only made illegal in 1971, many years after the birth of the industry. (refer article)

In China, hiring specifications may well be relaxed as the industry matures over time, particularly as demand for staff increases in line with strong industry growth.

Business practices, it seems, that may be considered unacceptable in some parts of the world are actually encouraged in other parts of the world.

The previous post in this series discussed the nature of Socially Responsible Investing (SRI), otherwise known as ethical investing.

Prior to launching into detailed discussion or debate about SRI, I think it is important to step back and first consider the question of whether or not ethical investing is indeed desirable.

Should investors seek to invest their funds in a socially responsible manner? In my view – yes. Nevertheless, I feel that it is important to define and clarify the nature of the benefits of ethical investing, as well giving careful consideration to objections toward SRI.

The objective of today’s discussion is to define and clarify the nature of the benefits of ethical investing. Why should investors seek to be socially responsible? How does SRI help to achieve positive social outcomes?

A range of objections toward ethical investing will be discussed in the next few weeks.

 
Benefits of Socially Responsible Investing

Broadly speaking, there are two mechanisms by which proponents of Socially Responsible Investing argue that SRI helps to generate positive social outcomes. These are as follows:

 
• Allocation of capital resources.

SRI allocates financial resources toward companies and industries whose social, environmental and economic impact is considered to be positive and away from those whose impact is considered to be negative. 

By this mechanism, SRI supplies capital resources to socially benevolent industries, thus helping to stimulate growth, investment and expansion in such industries. This is predominately at the expense of industries whose impact upon society is considered to be particularly harmful.

For example, capital inflows from SRI funds typically help to stimulate growth in industries such as renewable energy and efficiency, healthcare and well-being, efficient transport, infrastructure and communications, waste management, financial services, and knowledge (education and media). These type of industries provide a valuable contribution toward the betterment of society.

On the other hand, capital inflow from SRI will typically be directed away from industries such as alcohol or tobacco manufacturing, adult entertainment, gambling or weapons manufacturing. Whilst such industries may provide some benefits to society, many would not consider growth in such industries to be desirable from a social viewpoint.

In addition, within individual industries, SRI allocates capital resources toward individual firms who adopt best practice in terms of ethical considerations within their industry, and away from firms who fail to adopt best practice.

Again, by this mechanism, SRI helps to stimulate growth of individual firms which adopt best practice at the expense firms which do not.

 
• Encouraging positive corporate behavior.

In addition to stimulating the growth of socially benevolent industries and individual firms, SRI also provides an incentive for industries and individual firms to improve their social and environmental practices.

From the viewpoint of industries and individual firms, there are considerable benefits of attracting the ethical investment dollar. Attracting SRI increases the ability of firms to raise capital and to do so on more favorable terms than would otherwise be possible. It also helps firms to maximize the share price, and in doing so maximize shareholder wealth, reduce the risk of takeover and positively impact the remuneration and continued employment prospects of senior management.

Moreover, given the magnitude of funds flowing into ethical investment, SRI funds now exert considerable influence. In America, SRI funds now account for approximately eleven percent of funds under management (refer PDF report). The equivalent figure for Europe is estimated at between ten and fifteen per cent.

Accordingly, there is now a significant incentive for firms to make efforts to attract the ethical investment dollar. This they can only do by adopting sound practices in terms of social, environmental and other ethical considerations. 

Dear readers,

As of Friday, I will be on vacation for three weeks.

On a personal note, this will be very exciting for me, particularly as it is the first time my family has been on an overseas holiday together.

I have forward scheduled posting during this period, so that entries entries are scheduled on Tuesdays and Fridays as per normal. Most likely, I will check my blog and respond to comments every three or four days or so.

In addition, I will probably not be doing a great deal of commenting on other blogs, but I look forward to visiting all of your blogs in early September.

Cheers,

Andrew

Under normal circumstances, I would oppose government restrictions which prevent or limit the expansion of legal business enterprises.

However, the recent decision by the Los Angeles City Council to impose a one-year moratorium on the granting of permits for new fast food outlets is a perfectly reasonable decision, and any legal challenges from the fast food industry (which have not been ruled out) would be counter productive from a viewpoint of public health.

The moratorium, covering a 32 square mile area in the city’s south, represents part of the city’s effort to tackle obesity problems in the area.

Although not an outright solution in itself, the moratorium has two main objectives: to provide a window of opportunity to stimulate growth in areas such as grocery stores and fresh food outlets, and as a temporary means of stopping the proliferation of fast food outlets, whilst the city attempts to devise more permanent solutions to prevent obesity.

Both of these are worthy aims, and there is good reason to support the measure.

The case for the moratorium

South L.A. does have a serious problem, with obesity rates standing at 30% for adults and 29% per cent for children, compared with rates of 20.9% and 23.3% respectively for the country overall (refer article).

Given the potential consequences from a public health perspective, this is a serious problem which requires concrete action steps.

The problem may have several causes. High levels of crime and gangland violence dissuade outdoor exercise, and high poverty levels as well as the local pop culture are not conducive to positive nutritional habits.

But the local food supply is a critical aspect of the problem. The area has approximately four hundred fast food outlets and very few grocery stores or outlets for fresh food (refer article), leaving a very restrictive choice for residents who wish to eat healthy food.

Addressing this problem is critical – dietary habits will only change if residents are able to source nutritional food in a convenient manner at affordable prices. The area badly needs more grocery stores and fresh food outlets.

The moratorium will not accomplish this in itself. However, what it will achieve is a temporary halt to the proliferation of fast food outlets. Provided it is accompanied by other measures, such as consumer education about the importance of balanced diets, the measure may just provide a window of opportunity for grocery stores to get a foothold in the area.

Objections

The fast food industry’s opposition to the measure is understandable. From their viewpoint, the moratorium unduly places limitations on their ability to expand their fully legal business operations.

But their objections are not particularly strong.

Contrary to industry claims, the moratorium does not represent an attack on consumer choice. It applies only to new restaurants, and consumers who wish to eat fast food will still have approximately four-hundred outlets in a 32 square mile area to choose from.

Moreover, if the plan to attract grocery stores and fresh food is successful, the net result will be an increase in real consumer choice, not a decrease.

In addition, the measure is unlikely to have much impact upon prices, contrary to industry claims, according to which the measure will increase the cost of food in an area with high poverty levels.

Given the socio-economic status of the area, any new grocery stores or fresh food outlets are not likely to charge unaffordable prices. Besides, consumers will still have the option to frequent existing (low cost) fast food outlets if they wish.

The industry also argues that the measure ignores positive initiatives which it has already put in place, including healthier menu options and the elimination of trans fats in many restaurants. (refer article)

Whilst these are positive initiatives, fast food outlets still represent places where vast amounts of junk food are consumed, and there further proliferation in the area is unwarranted from a public health viewpoint.

The strongest objections are that the measure will be successful in attracting fresh food outlets, and that there are more effective approaches toward tackling obesity.

To be sure, there is no guarantee that the plan will produce a significant expansion of grocery stores in the area, particularly given its socio-demographic status.

Moreover, the plan in itself is unlikely to have a significant impact upon dietary habits in the near term future.

But what does achieve a temporary stoppage on the proliferation of fast food outlets whilst the city attempts to devise more permanent measures to encourage the establishment of grocery stores and fresh food outlets.

Furthermore, the moratorium is not in itself a solution to poor nutrition. However, if it is accompanied by other measures, such as consumer education and changes to school lunches, it may have a positive impact.

Conclusion

The moratorium on new fast food restaurants in South L.A. is a step in the right direction and any legal attempt by the industry to thwart such an initiative would be most unproductive.

More fast food restaurants, at least for the time being, are not what the doctor ordered.