Indonesia and the Ultimate Tobacco Ban Protest

Just look at the size of that sucker. Philip Morris, eat your heart out! I am genuinely of two minds over cigarette smoking bans being imposed throughout the world. The Emmanuel that wants to live a reasonably healthy lifestyle abhors the practice and the many diseases it gives rise to. But, the relatively live and let live me grants that persons have a genuine right to severely impair their health under certain conditions. Truth be told, I have no problems with requiring tobacco firms to place graphic warnings on the dangers of their products--see the recent US FDA graphics (and I do mean graphic). If adults still persist in smoking after seeing these warnings, well, that's their prerogative.

However, both tendencies clash when it comes to smoking in public places. Aside from the offputting aroma, we also have to deal with the reality of second-hand smoke which has been found to be exceedingly unhealthy as well. For example: how far should we go in dissuading smoking from, say, hangouts where people traditionally indulge in vices to (literally) let off some steam? Here in the UK, there is an ongoing debate as to whether thousands of pubs have found their business diminished since smoking bans were instituted at these places. There's even an online petition movement clamouring for a change.

These debates on smoking are now moving to the developing world as tobacco giants join local firms in trying to expand their business there. Call it regulatory arbitrage as laws become more onerous for selling tobacco in the industrialized world--for now. In Indonesia, tobacco farmers want to sabotage legislation that would (1) limit tobacco advertising, (2) place graphic warnings on tobacco products, and (3) ban smoking in public places. Sounds familiar, eh? However, I was particularly taken by the antics of tobacco farmers protesting the bill such as with the "megarette" above. My blogging affiliates at Global Post have more fun if ludicrously unhealthy images. What follows though is a summary of the legislation which has incited the most colourful libertarian--ish protests IMHO from Berita Jakarta:

Thousands of tobacco farmers from various regions who incorporated in Kretek Rescue National Coalition (KNPK)[kretek is the Indonesian term for flavoured cigarettes] demonstrated by surrounding the State Palace on Jl. Medan Merdeka Utara, Central Jakarta. In this action, they demanded the Act Draft (RUU) about Control of Tobacco Products Impact for Health and the Regulation Implementation Draft (RPP) of Security on Materials Containing Addictive Substance in form of Tobacco Products to be canceled.

Abhisam Demosa as Head of National Kretek said the rules were feared threatened the life of tobacco farmers and workers in Indonesia. “It could also threaten the hawkers and cigarettes seller agents,” he expressed, Wednesday. Besides carried coffins [ironic, this], demonstrators also brought a property of big cigarette which burned and smoked alternately. Because of this demonstration, traffic flows in front of the State Palace severely congested. In fact, Jl. Veteran III was closed temporarily.

Hundreds of security officers stand by at the scene equipped with two units of water canon car and one unit of barracuda. To block demonstrators, officers installed barbed wires along 100 meters from the State Palace. This demonstration did not only cause congestion in front of the State Palace, but also on Jl. Veterean, Jl. Merdeka Barat towards HI Roundabout and vice versa, as well as around Harmoni area.

Smoke 'em if you got 'em? These habits are dying hard throughout the world.

The Political Comeuppance of Rupert Murdoch

I used to rule the world
Seas would rise when I gave the word
Now in the morning I sleep alone
Sweep the streets I used to own

[With apologies due to Coldplay.] For a long time now, I've grudgingly admired Rupert Murdoch's business acumen if not necessarily the fruits of his media empire [1, 2, 3, 4, 5, 6, 7]. Starting from Australia, he has literally made the world his oyster. Such is his influence that the rise of New Labour is said to not have been possible without him backing away from Tory support. Murdoch's UK titles are well-known: the Times of London, the Sunday Times, the Sun, and until a few hours ago, the News of the World. The latter two tabloids set the template for other lowbrow publications around the world owned by Murdoch alike the New York Post.

However, time moves on and the big money to be had in media has long since gone to more interactive forms such as cable services. Not that Murdoch has always struck gold; witness the ill-fated News Corporation purchase and subsequent fire sale of MySpace. Still, these occasional lapses have been more than offset by successes such as the Fox Channel and Fox News stateside. The success of the latter alongside other right-leaning publications and programmes has always made Murdoch an arch-conservative in the eyes of some, but a keener understanding is that he shifts with the political winds when it suits. Instead, more conservative governments have traditionally allowed him more leeway to operate his media empire when antitrust questions came up. Witness Fox News' much-parodied broadcasting style.

I used to roll the dice
Feel the fear in my enemy's eyes
Listen as the crowd would sing
"Now the old king is dead! Long live the king!"

It is certainly an open question if Murdoch is a kingmaker insofar as his media outlet's outsize influence is concerned. Forbes ranks him as the 13th most powerful person in the world ahead of several dozens of world leaders. Not only did Tony Blair fear offending Murdoch at all costs, but the current Tory-led coalition also values good relations with the media titan. Aping Blair's tactic of hiring Alastair Campbell--a former tabloid journalist from the Daily Mirror--as his director of communications, Cameron infamously appointed Andy Coulson from the News of the World to the same post when he became PM. Coulson subsequently being sacked over phone hacking allegations is well-known.

Yet having made strong inroads into Britain's political-economic elite over the decades, Murdoch is now in imminent danger of overplaying his hand. It's been a slow-burning story over the years of how the News of the World has been associated with phone hacking. (See a summary and timeline here.) Whereas previous controversies have surrounded the usual suspects of the rich and famous of typical tabloid fare--actors, celebrities, sports stars, politicians, and other public figures--in recent days things have become far more dramatic and constitute a tabloid story onto itself. In its hunger for the sensational story, it appears the News of the World phone hacking also targeted families of servicemen, crime victims, and those affected by the 7/7 attacks.

To be certain, not all right-leaning voices back Murdoch. Still, for a long time, it could count on those who mattered overall. Aside from Coulson, David Cameron is also chummy with Rebekah Brooks, CEO on News International--publisher of Murdoch's various UK publications. However, the recent news of phone hacking extending to regular folks who find themselves in difficult situations made News Corporation universally vilified in Westminster's halls even among Cameron's people as such odiousness is difficult to dispel.

One minute I held the key
Next the walls were closed on me
And I discovered that my castles stand
Upon pillars of salt and pillars of sand

Today, the seemingly unthinkable has happened: Rupert's son James Murdoch announced the closure of the News of the World, with its last edition to be published this Sunday--without advertising--after 168 years in operation. Prior to this announcement, it was the widest circulation newspaper (tabloid) in the UK.

In no small, part, this action is due to several previously loyal sponsors abandoning ship: Boots, O2, Halifax, Virgin Holidays, The Co-op, Butlins, Ford and Vauxhall all ditched it for fear of offending common decency. With many others potentially following suit, the writing on the wall became clear: NoW was no longer a commercially viable title for as long as these accusations were being contested in legal proceedings.

Revolutionaries wait
For my head on a silver plate
Just a puppet on a lonely string
Oh who would ever want to be king?

Aside from putting News Corporation stock under heavy pressure, the NoW endgame is also calling into question its other activities. As mentioned above, the rapid demise of print publications has shifted the battleground for this firm and many others. For many months, it was expected that News Corporation would acquire the remaining 61% stake in British Sky Broadcasting, the largest cable service in the UK with 10 million subscribers. It was once assumed that the Murdoch-friendly Tories would let this deal pass, but things have changed. Telecommunications regulator Ofcom has put out a statement on media concerns having to be "fit and proper" to broadcast with the target being rather obvious:

In the light of the current public debate about phone hacking and other allegations, Ofcom confirms that it has a duty to be satisfied on an ongoing basis that the holder of a broadcasting licence is ‘fit and proper’.

It is clearly not for Ofcom to investigate matters which properly lie in the hands of the police and the courts, however we are closely monitoring the situation and in particular the investigations by the relevant authorities into the alleged unlawful activities.

The general consensus is that NoW had become, due to the various phone hacking controversies, a sacrificial lamb. The possibility of creating a Sunday Sun or similar weekend tabloid removed of such blemishes exists. More importantly, while print media may be influential--especially in shaping politicians' perceptions of News Corporation--the real money at stake is with the pending bid for British Sky Broadcasting. Chris Hughes over at Reuters has more to say on what's really at stake:

But News Corp’s total UK newspaper operations contribute only about 4 percent of group sales and barely break even. London-based Enders Analysis puts the annual pre-tax profit contribution of the News of the World and its weekday sister paper The Sun at just 86 million pounds. News Corp could clearly cope with a loss of readers and ad revenue. The group will also have to swallow the expense of settling with victims of alleged phone hacking. The actress Sienna Miller was recently awarded 100,000 pounds ($160,000). Two hundred more settlements at the same rate would cost 20 million pounds.

But bigger potential costs come with News Corp’s ambitions to take full ownership of BSkyB. The price may now rise if the hacking row stiffens the resolve of the satellite broadcaster’s independent directors. A deal was previously expected at 900 pence to 950 pence a share. If Murdoch now has to pay 10 pounds a share, the extra cost would be 795 million pounds over the midpoint of the lower range.

Then there is a small risk that the UK regulator revokes BSkyB’s broadcasting license. It could if the outcome of the investigations now underway makes it believe that News Corp isn’t a “fit and proper” owner or part-owner. That in turn would lead to forced divestiture of BSkyB. But this looks unlikely given the regulator’s criteria are designed to exclude certain categories of owner — for example political groups — and focus on existing breaches of UK broadcasting law rather than criminality per se.

Slumping stock price aside, also consider the controversy discount on the value of News Corporation stock which may grow even larger if the NoW-killing gambit fails:

That leaves the costs of poor governance. News Corp stock already labours with a “Murdoch discount” of about 30 percent compared to peers on an enterprise value to EBITDA basis. This is a $10 billion burden which, in theory at least, reflects concern that Murdoch isn’t shareholder-friendly.

In cash terms the UK newspapers — which also include The Times and The Sunday Times — are little more than a rounding error for News Corp. Greater economic value may have come because they gave Murdoch power and influence in Britain, and that may have helped him establish his broadcasting operations. But if Murdoch overpays for BSkyB or loses the deal because he addresses the problems in UK print with weakness or sentimentality, the discount deserves to widen.

Lastly, I am particularly critical of the lousy tabloid NoW gating its content, as if its flotsam and jetsam were worth paying a premium price for. It isn't the WSJ or even the Times of London--two other Murdoch titles. Good riddance, you gated monstrosity. Now, if only something similar could bring down Fox News--perhaps the second most repugnant Murdoch property. It was not so long ago that Murdoch was regarded as invincible here in the UK, so things may change in Australia and the States as well . As matters unfold, it seems the mightiest of old school media barons is not as invincible as he thought to simple outrage.

UPDATE 1: As expected, Andy Coulson has just been arrested in connection with the latest phone hacking allegations.

UPDATE 2: The notion that print media was a political battering ram for News Corporation's more profitable interests is echoed by the FT:

For years, shareholders have indulged Mr Murdoch’s love of print “because the political clout was worth the marginal loss”, says someone close to the family. That could change “if these playthings cost us our reputation and our commercial relationships”.

UPDATE 3 (11/7): Instead of rubber-stamping the deal as expected prior to this debacle, News Corporation's bid for the remaining stake in BSkyB has now been sent by the government to the competition regulator.

Bahrain Brutality, But F1 Show Must Go On There

A few months ago I covered how the so-called Arab Spring protests in Bahrain scuttled the first Formula One race of 2011 that was to be held there on 13 March. While the local race organizers and F1 powers-that-be did not rule out holding the event at a later date in 2011, let's just say that many were sceptical that the race would indeed be held given current circumstances.

And so we find ourselves in the same place a few months later. Protester fatalities are still occurring that various reports put at more than two dozen. While martial law has recently been lifted, the Shiite majority still chafes under Sunni rule and protests are still ongoing. Yet both the local organizers and the FIA have now decided that "national reconciliation" demanded that the race be held. First we have the FIA statement:

Following a fact-finding mission undertaken at the request of FIA President Jean Todt, FIA Vice-President Carlos Gracia visited Bahrain on 31 May, 2011 to assess the situation in the country. Meetings were conducted with the Ministry of Interior, the Ministry of Culture and Tourism, the Bahrain Motor Federation and Bahrain International Circuit, as well as other national and international organisations including Mr. Tariq Al Saffar at the National Institute of Human Rights. It should be noted that the recent announcement by the King of Bahrain has established a political dialogue and reconciliation process.

After considering all the factors and taking into consideration all stakeholders' concerns, the WMSC unanimously agreed to reinstate the Bahrain Grand Prix in the 2011 FIA Formula One World Championship.

This decision reflects the spirit of reconciliation in Bahrain, which is evident from the strong support the race receives from the government and all major parties in Bahrain, including the largest opposition group, all of whom endorse the F1 grand prix and motorsport in the country.

The WMSC [World Motor Sports Council] feels that reinstating the grand prix is a means of helping to unite people as the country looks to move forward, and also recognises the commitment made by the F1 teams, their employees and families, and personnel associated with the championship including the local team of volunteers who are so vital to the event.

And so now the final race of the season will be in December, the inaugural Indian Grand Prix. Meanwhile, the Bahrainis also made similar-sounding noises about "national reconciliation":

The head of the Bahrain International Circuit (BIC) today welcomed the decision of the FIA (Federation Internationale de L’Automobile) World Motor Sport Council to reintroduce the Bahrain Grand Prix to the 2011 calendar. The decision, announced by the FIA after the Council’s meeting in Barcelona, follows a FIA delegation visit to Bahrain to assess the situation in country this week.

Zayed R. Alzayani, Chairman of the BIC, said: “This is welcome news for all of Bahrain. As a country we have faced a difficult time, but stability has returned; with businesses operating close to normal, the State of National Safety lifted and countries removing travel restrictions. “Collectively, we are in the process of addressing issues of national and international concern, and learning lessons from the recent past. By the time the Grand Prix arrives we will be able to remind the world about Bahrain at its best.

“The Bahrain Grand Prix has always been a source of national pride and it is an event than transcends politics. Not only does it receive strong support from the Government, but also from all major parties in Bahrain, including our largest opposition group, Al Wefaq, who yesterday endorsed both the BIC and motor-racing in Bahrain. Importantly, it will also offer a significant boost to the economy. The Grand Prix attracts 100,000 visitors, supports 3,000 jobs and generates around $500m of economic benefit. Its positive effect will be felt throughout the country.

The evidence for the usual plea to set politics aside is the major Shia opposition Al Wefaq party endorsing the staging of this grand prix. Then again, you have to wonder how closely Al Wefaq represents the more demonstrably opposed voices to continued Sunni rule. In short, did the authorities consult those most clearly associated with the protesters? There is, for instance, an online activist presence petitioning that the race not go forward with over 320,000 signatures already.

As the video clip in this BBC article points out, F1 impresario Bernie Ecclestone management company FOA stands to lose £21 million if the race isn't held, while the various teams would lose £24M. Ferrari alone it is said would lose £7M. Although Ecclestone says money has nothing to do with the decision to go on with the race later in the year, I leave it to you to figure that one out.

Meanwhile, two of the more conscientious F1 drivers are expressing dismay: retired 1996 champion Damon Hill and Red Bull Racing's Mark Webber (who already discouraged racing there earlier this year):

Before the announcement of Friday's decision, Red Bull driver Mark Webber had gone public with his opposition. "When people in a country are being hurt, the issues are bigger than sport," the Australian wrote on Twitter. Former world champion Damon Hill had expressed his personal view that F1 "will forever have the blight of association with repressive methods to achieve order" if it returns to Bahrain this season.

What price participation? BBC sports commentator Jonathan Legard believes F1 teams must dutifully follow where ringleader Ecclestone goes, public relations folly or otherwise:

The teams won't be happy but Bernie Ecclestone is the man who pays their bills and so they will go along with it. You risk running into another storm of civil unrest. Martial law has only been lifted there a couple of days ago and you wonder what Formula 1 is gaining by this return.

The Atlantic also has some good insights on this decision. With many more months till the race is held, this story is not yet over, and overt targeting of the race by protesters is certainly possible.

June 7 UPDATE: The Formula One Teams Association (FOTA) is not keen on racing in Bahrain. The emphasis of its complaint is on rearranging the calendar yet again, with the season being extended so late in the year through the reinstatement of the Bahrain event and the Indian Grand Prix being moved into December. Since such rearranging requires team assent, it looks like Bahrain is to be struck off the calendar (again). Meanwhile, the politicos have chimed in on the distastefulness of it all:

The FIA effectively has no choice but to accede to the teams' demands - although its World Council voted through the date changes last week, it did so without the full written agreement of the teams, which is constitutionally required. The FIA based its decision on a report written by one of its vice-presidents, Spaniard Carlos Gracia, who visited Bahrain. The report has now been leaked online.

MPs used a debate on the situation in the Middle East on Tuesday to criticise the FIA's decision to reschedule the race. Sir Menzies Campbell, the Lib Dems' former foreign affairs spokesman, said the decision was "simply shameful". Foreign Secretary William Hague added: "Formula 1 has not done itself any good by what has been announced. The important thing is to encourage all sides to get back into a real dialogue."

Whoever hatched this scheme must be under duress right about now.

The PR Art of Selling Authoritarian Regimes?

Here we go again with the alleged dark arts of the marketing trade. Flipping through the London dailies, there's apparently a new cause celebre here in Britain. And no, I'm not talking about fish pedicures--that's so 2010, dahling. As a business major from days long gone, I think of marketing concepts as general-purpose tools of persuasion whose principles can be applied in many realms--selling products, services, candidates, or even countries. (Remember the notion of "nation branding.") As you will read, it turns out that among the most avid users of advertising and public relations services here in Blighty are authoritarian regimes from the Middle East and elsewhere. For the benefit of IPE Zone's international readers, the graphic to the right is supposedly illustrative of these activities--Persil is a major brand of detergent sold by Unilever here in the UK.

On one hand, you can say that it's a perfectly legitimate enterprise. For instance, any number of them are keen on branding themselves as financial services and tourist destinations in that part of the world. Bahrain has (had?) seats to fill for its F1 race, for instance, On the other hand, you have articles like what follows that attribute more sinister motives to these activities in attempting to conceal blood on their hands while suppressing dissent. Reputation laundering, they call it. Which way you see it is up to you. From the Evening Standard:

London's public relations industry has got a PR problem. Top firms such as Bell Pottinger, Brown Lloyd James, Portland and Grayling are coming under intense scrutiny because of their work for foreign governments or in regimes of dubious repute. The catalyst has been the Arab uprisings in Libya, Egypt, Bahrain and Tunisia, which have raised questions about the ethics of these PR firms. Critics claim that London has turned into the global capital of reputation laundering.

Bell Pottinger, run by Margaret Thatcher's former image adviser Lord Bell, has already faced protests outside its High Holborn office because of its work for Bahrain. But it is not just spin doctors working in the Middle East that are being accused of "propping up" unplesasant regimes. Tonight, opponents of the authoritarian regime in Belarus are demonstrating outside the Victoria HQ of Grayling because the PR firm has opened an office in the former Soviet republic. Actor Jude Law and playwright Sir Tom Stoppard are backing the protesters, who are then marching to the House of Commons to hear the two theatre stars speak at a rally, organised by Index on Censorship and the Free Theatre of Belarus.

Tory donor Lord Chadlington, boss of Grayling's parent company Huntsworth, is adamant that his firm is not an "apologist" for Belarus and does not work for any foreign government. Grayling's office in Minsk is just to help international clients keen to invest and explore privatisation opportunities. But Mike Harris, public affairs manager of Index on Censorship, says: "We are targeting Grayling because it is currently working in getting inward investment in Europe's last dictatorship and it is the only major PR firm in Belarus."

For Index on Censorship and other critics, there is a wider point about PR firms in dubious regimes. "They are not just the messenger," says Harris. "They try to normalise these regimes with nice pieces in the papers about holidays in these places and business features on investment. They are instrumental in keeping the economy of these regimes going."

If there is one London firm synonymous with this international spin it is Bell Pottinger - even though, as Britain's biggest PR agency, it also represents many uncontroversial UK household brands. Recent clients have included the Egyptian Ministry of Information, the Economic Development Board of Bahrain and the governments of Belarus and Sri Lanka, and it has also worked in Yemen.

I am of two minds about these practices. Positively, you can say that helping authoritarian regimes solicit business is welcome insofar as their citizens can benefit from the arrival of commercial opportunities. Negatively, you can say that these firms are indirectly contributing to inflows which help solidify these regimes' financial stature.

Unless you have a Bushian-Manichaean world view--or an intractable aversion to all things Libyan, for that matter--there are no easy answers.

Bahrain GP in Jeopardy: F1 and Authoritarianism

In olden days a glimpse of stocking
Was looked on as something shocking
But now, heaven knows - anything goes

It's weekend feature time. I suppose that hosting a Formula One grand prix is, above all else, a vanity project. In the same way that hosting the World Cup or the Winter or Summer Olympics is a way of saying that you've arrived on the world stage, so too does having a spot on the F1 calendar. Unfortunately, however, it's another truism that vanity projects do not always make money. For instance, there were worries over even whether the Shanghai Grand Prix would get a contract extension from the F1 powers-that-be this year given its lacklustre attendance figures. And this is in the mother of all growth markets, mind you:

The Chinese Grand Prix will stay on the Formula One calendar until 2017 after the Shanghai International Circuit agreed a new deal to host the event. Attendances have decreased at the venue since the inaugural race in 2004 attracted a crowd of 240,000. Ticket prices are set to be cut to attract yet more fans while the new deal between Bernie Ecclestone's Formula One Management and organisers Shanghai Juss Event Management Co. is thought to be at a reduced financial rate.

Alike Shanghai which commenced operations in 2004, most of the purpose-built F1 tracks were penned by the German circuit designer Hermann Tilke--the so-called Tilkedromes. Even many of the road races that have been held recently such as the Valencia and the Singapore Grands Prix have received input from him. Hence, charges that the new circuits lack character are rife. Monopolies tend to have their detractors.

Sports-worthiness aside, something that scholars of international political economy have failed to investigate is the link between authoritarianism and new F1 venues. While there are certainly new races in places that do reasonably well on measures of democracy--Istanbul (2005), Valencia (2008), and South Korea (2010) come to mind--more are held in decidedly authoritarian confines: Malaysia (1999), Bahrain (2004), Shanghai (2004), Singapore (2008), and Yas Maria Abu Dhabi (2009). Given the large expenditures associated with putting up racetracks or organizing street races, it is likely easier to create venues in conjunction with maximum leaders (or those approaching such status).

Last season we ended with a climactic race in the desert as Sebastian Vettel became the youngest-ever F1 champion in Abu Dhabi. This year us F1 fans find ourselves in the Middle East sands amidst yet more momentous occasions. However, the excitement at the start of his season will not be on the track but in the host country of the first scheduled race, Bahrain. Cracking down on protesters usually does that. Having brought his racing circus maximus to nearly every (prosperous) corner of the globe, F1 impresario Bernie Ecclestone has been there and done that. Perhaps the prospect of sports event cancellation due to old-fashioned "political risk" in Bahrain may yet be a novel experience.

That is, does F1 with its bevy of Western teams, sponsors, and drivers view popular uprisings with an attitude of "the show must go on," or are there political sensitivities that get in the way? Here's Bernie Ecclestone:

Bernie Ecclestone has expressed hope that the bloody unrest in Bahrain will "blow away" by next week, when he plans to decide whether to pull the opening race of the season. Formula One's commercial rights holder sounded more confident early on Friday that the Bahrain grand prix would go ahead despite the protests in Manama, which have put the race on 13 March at serious risk. But amid reports of renewed unrest in Manama's Pearl Square, with shots fired and reports of at least 20 injuries, Ecclestone later said the situation remained fluid.

"From a realistic point of view it appears that things are changing hourly," he said. "I feel the most important thing now is to wait until after the weekend, to see what happens over the next few days, and then make a decision next Tuesday or Wednesday."

Ecclestone, having sought to expand the Formula One calendar into new, profitable parts of the world in recent years, sidestepped questions about whether the sport should travel to countries that meet protests for democratic change with violent crackdowns. "It seems as if people thought it was democratic a few weeks ago," he said. "We have never, ever, ever been involved in religion and politics. We don't make decisions based on those things..."

"Let's hope this all just blows away. In these parts there have always been skirmishes. This is perhaps a bit more than that." The teams say they will follow guidance from Ecclestone and motor sport's world governing body, the FIA. Speaking on behalf of the Formula One Teams Association after a two-hour meeting, Red Bull's team principal, Christian Horner, said: "It's obviously a really difficult situation in Bahrain.

"But we have complete trust in Bernie, FOM [Formula One Management] and the FIA to make the right decision. They will only send us there if it is safe. It would be a great shame to lose the race, but it's not the teams' decision - it's down to the promoter. Bernie and the FIA will have much more information than us and we will trust their decisions..."

"Consultations are taking place on the whole logistic possibilities and what is happening in Bahrain," Fota's general secretary, Simone Perillo, said. "If things don't calm down then we'll have to consider the possibilities." If the Bahrain race was cancelled, the Melbourne grand prix on 27 March would be the first in a truncated 19-race season, but it is not thought that Ecclestone would be out of pocket, with the costs of up to $60m (£37m) in race fees being swallowed by the Bahraini organisers.

But cancellation would be a blow for both the sport and Bahrain, which became the first Middle East country to host a round of the championship in 2004 in an attempt to transform itself into a tourist destination as well as a business hub. While Abu Dhabi, Dubai and Doha have increasingly sought to attract a range of world-class sporting events as means to showcase their potential, Bahrain has relied on the annual grand prix.

As its energy reserves dwindle, Bahrain has sought to diversify itself as a banking, tourism, and services destination alike Dubai (Abu Dhabi and the Qataris have reserves up the wazoo). The response so far from Bernie Ecclestone is an automotive spin on the non-intervention in the affairs of other countries ("we don't do politics"). However, as a cash-spinner or at least as an event that would clearly not take place with considerable cooperation from Bahrain's rulers, F1 is implicated quite deeply by its previous actions.

While many F1 bigwigs prefer that the political mess just "blow away," Renault driver Nick Heidfeld has perhaps heaped trouble on himself by honestly suggesting that F1 should be more responsive to current events:

Nick Heidfeld says Formula One's rulers should be sensitive to the Bahraini people when it comes to whether the grand prix gets the go ahead. The island kingdom was again rocked by further unrest on Friday as the army and police moved in on anti-Government demonstrators who earlier in the day had attended the funerals of three protesters.

Formula One is undoubtedly on edge at the prospect of visiting a country at the centre of such political unrest and uncertainty. F1 supremo Bernie Ecclestone has promised a decision will be made by next Wednesday at the latest as to whether next month's season-opening race is given the green light or cancelled.

Heidfeld, this week confirmed as a Renault driver in the absence of the injured Robert Kubica, feels there is more at stake than just the safety of drivers, team personnel, media and fans. "It is not only down to how it is for the drivers, but how it is to the general public, to everybody who visits, to all the spectators and whether the risk is too high," said Heidfeld. "It's not just about the safety of those involved, but being sensitive to what is going on in the country."

Former champion Damon Hill once said of F1: "It's all about the wonga [money], isn't it?" I guess we'll find out more come Wednesday. As the graphic above taken from the event website suggests, people fuel their passion in different ways.

UPDATE: Ecclestone now says he will leave it in the hands of the local organizers. More specifically, the House of Khalifa's heir apparent. What's more, rumour has it that some F1 teams are thinking boycott if the event pushes through:

Ecclestone told BBC Sport that Crown Prince Salman ibn Hamad ibn Isa Al Khalifa was best placed to decide. "He will decide whether it's safe for us to be there," Ecclestone said. "I've no idea. I'm not there, so I don't know." He added: "We won't advise people to go unless it's safe..."

He said Bahrain could be moved to another date later in the year if the race in March was called off. Ecclestone said a decision on whether the race could go ahead would be made on Tuesday. "Let's hope it'll be all right," he said. His comments come as the Sunday Times reported that some teams would boycott the grand prix if it went ahead. F1 insiders have told BBC Sport that the teams' contractual commitments to Ecclestone's Formula 1 Management company mean they would be obliged to attend the race if it is held.

It's hard for some to let go. Still, I very much doubt whether Ecclestone's eagerness to avoid political entanglements is best served by placing the decision of whether the race goes on in the hands of someone affiliated with the party with the most vested political interests. You can argue though that the race won't proceed if the kingdom believes it cannot put its best face forward, but the notion of sporting impartiality is not obvious, to say the least [!]

Max Interest Rate Microlenders Should Charge Is...

By now, I'm sure you've read all about the controversies over suicides attributed to microlending in Andra Pradesh state in India and government attempts to regulate such lending. Now, a bigwig has waded into the controversy, claiming that many commercial lenders there have not really been faithful to the original vision of microlending. Any number of issues have cropped up that negatively affect a microborrower's ability to pay:

• lenders offering more loans to microborrowers who already have existing ones with other lenders;
• microborrowers taking on a multiplicity of loans given fast growth in this area (or even from loan sharks);
• commercially-oriented borrowers charging "what the market will bear" as opposed to having any overt social mission that bears on setting interest rates.

Now Nobel Peace Prize Winner Muhammad Yunus, microfinance pioneer, identifies some guidelines that conscientious lenders should observe:

Yunus says he’s not against making a profit. But he denounces firms that seek windfalls and pervert the original intent of microfinance: helping the poor. The rule of thumb for a loan should be the cost of funds plus 10 percent, he says [my emphasis].

“Commercialization is the wrong direction,” Yunus says, speaking in a telephone interview from Bangladesh’s capital of Dhaka. “An initial public offering is the triggering point for making a lot of money personally as well as for the company and shareholders.”

There is a case to be made that Indian microlenders infringe on the Yunus rule, charging well over 10 percent over the cost of funding:

Indian microlenders themselves borrow from banks at 13 percent or more on average and extend credit to the poor. They charge interest rates that can rise to 36 percent, says Alok Prasad, chief executive officer of the Microfinance Institutions Network, which represents 44 microlenders. He says all 44 firms are registered with the Reserve Bank. SKS Microfinance gets funds at about 12 percent interest and lends at 24.52 percent in Andhra Pradesh, spokesman Atul Takle says.

In Bangladesh, Grameen Bank got a banking license in 1983, which allowed it to take deposits. It charges 5 percent for education loans and 8 percent for housing loans. Beggars can borrow for free, and interest on major loans is capped at 20 percent, Yunus says. “Microfinance has been abused and distorted,” he says. “I feel so sad because that’s not the microcredit I have created.”

Andra Pradesh will be a litmus test for microfinance in India. These are probably the three main issues to look at: MFIs overlending to those who already have many microloans; overextended borrowers who borrow from many sources to create "macroloans" if you will; and setting appropriate ceilings to borrowing costs.

MFIs need to take a closer look at their funding sources and how to rationalize their lending rates in light of growing corporate social responsibility questions. Grameen-style self-help groups were meant to be exclusive so that participants could focus on the activities of their peers (and help alleviate "moral hazard" in the process) instead of having multiple groups to deal with that are loosely affiliated as what is often happening now in Andra Pradesh when multiple loans are taken out.

The Microfinance Backlash in India Over Rates

I thought this post would be a good follow-up to one I featured earlier regarding the debate on whether to cap interest rates on microloans. Generally, I believe that the standard of judging whether microloans are comparatively beneficial should be something sensible. For instance, in rural communities where commercial banking is scarce, a good basis of comparison would be with rates charged by local moneylenders (or worse, loan sharks). However, it now appears that microfinance is encountering more teething pains as mainstream financial concerns enter this area. Previous generation microfinance lenders were arguably more focused on social objectives and patterned themselves on Muhammad Yunus' Grameen Bank. Next generation microlenders, however, include more conventional financial services providers that want to explore the "fortune at the bottom of the pyramid" in the famous phrase of the late CK Prahalad.

It is here where we encounter difficulties. Setting aside the social mission, it is of course understandable why the cost of administering a bunch of smaller loans to borrowers in often more remote areas is higher than servicing larger loans to borrowers who come to your bank's branch. In other words, while attracting larger pools of funding may be beneficial in broadening the reach of microfinance, the higher cost of capital that commercial entities generally take into consideration translates into concomitantly higher rates of interest. So, we are back to the old issue of whether interest rates on microfinance loans should be capped. As a growing backlash in India suggests, it's certainly a topic for discussion:

The microlending movement that was supposed to help lift millions of people in India out of poverty has in recent weeks fallen into chaos. Urged on by local government officials and politicians, thousands of borrowers have simply stopped paying lenders, even though they have the money. The government has begun ratcheting up restrictions, fearing that borrowers are being buried by usurious interest rates. In some cases, officials have even arrested lending agents for allegedly harassing borrowers.

Local politicians, meanwhile, have blamed dozens of suicides on microlenders and are urging borrowers not to pay back what they owe. Though so far the backlash has been confined to a southern Indian state of Andhra Pradesh, what happens there is frequently a bellwether for microlending in India, and programs around the world. Hyderabad, the state capital, is home to some of the world's biggest microlenders, including SKS Microfinance Ltd., Spandana Sphoorty Financial, Basix & Share Microfin Ltd. The state accounts for about 30% of the loans for all of India, one of the world's biggest microfinance markets.

"This is potentially going to devastate lending to rural areas for a long time," said Vikram Akula, founder and chairman of SKS Microfinance, India's largest microlender by loan volume, which recently listed its shares in India. "We are confident that we will survive, but certainly this is going change how things could and should be done."

Microcredit is the lending of tiny amounts of money, usually less than $200, to entrepreneurs who use the loans to start or expand small businesses such as a vegetable stand or a bicycle repair shop. Most microcredit firms lend money through women's groups and reach out to borrowers who are either too far from or too poor to borrow from a bank. The repayment rate on the loans have tended to be better than that of richer borrowers. Interest rates, however, can be high, from 25% to 100% a year, mostly due to the cost of administering millions of tiny loans in remote areas...

Troubles emerge as international capital enters the picture:

As the microfinance industry has grown, it has attracted international capital that has greatly boosted the size of the industry, much as payday lending and subprime borrowing soared until two years ago in the U.S. In a significant move that showed international investors' interest in the industry, SKS recently sold $350 million of its shares on the Indian stock market.

But along with that has come concern among politicians, regulators—and indeed some in the industry—that unfettered expansion was leading to poor lending practices, multiple loans to the same borrowers, and fears of widespread repayment problems. While they have been much in demand wherever they have been introduced as they provide a kinder, cheaper alternative to the village loan shark, some economists are skeptical about whether the small loans actually help lift people out of poverty.

And in regions where there are more than one microlender competing for clients, some experts are concerned that the poor are being encouraged to take on more debt than they can bear. So far, the repayment rate across the microlending industry has remained extremely high. But Andhra Pradesh's payment strike could presage a turn—and put the capital that has flooded into the industry at risk. Mainstream Indian and international banks have backed the microlending industry in India with more than $4 billion of loans this year, with private-equity funds pouring more than $250 million into the industry in India last year alone.

The repayment strike is a rare black mark for an industry that has long been viewed as a social benefit. One of the industry's leaders, Muhammad Yunus of Grameen Bank in Bangladesh, won the Nobel Peace Prize in 2006 for pioneering the system. The industry has spread across emerging Asia, Africa and South America. India, with its giant population and hundreds of millions of people living in poverty, is one of the most important markets...

There is a hysteria fuelling restrictions in Andra Pradesh state about microfinance causing several defaulting to seek the suicide solution:

Andhra Pradesh slapped new restrictions on the industry that effectively shut it down last week. While a state court order put the restrictions on hold and allowed the lenders back in the field this week, close to half of all borrowers are continuing to avoid payments, microlenders say. State officials say they are trying to protect the poor from usurious interest rates and heavy-handed practices, which they say have triggered more than 70 suicides in the state. Microlending companies say that often where they have investigated suicides attributed to their lending, they have found that microloans were among the smallest of the many problems of the people that have killed themselves.

In Sankarampet village about 2½ hours from Hyderabad, Satyama Ayrene is still in mourning over the death of her son who hanged himself. While local police say they have been told to investigate whether microdebt caused the death, Ms. Ayrene says it was the $2,200 he owed loan sharks that was bothering him, not the $220 his wife owed to a microlender. "He did not commit suicide because of the [microloan] companies," said Ms. Ayrene, 55 years old. "He was burdened with loans from the local moneylenders and didn't know how to pay them back."

Microlenders say they are being punished for the success at reaching the poor and that if the resistance continues, many of them will go out of business. Many have been taking steps to create good will to try to avert the situation from worsening. The biggest lenders who account for the majority of borrowing say they will cap their rates at around 24% and form a fund to help troubled borrowers reschedule their loan payments. They say they are ready to comply with more government restrictions as long as they are given time to meet new requirements. But in the meantime, the industry has ground to a halt.

To alleviate this lending logjam, legislators in Andra Pradesh look set to go forward with laws aimed at regulating the industry by--get this--ensuring that microfinance institutions do not lend to the same groups over and over. The general thrust of this legislation is that these lenders are pushing loans that self-help groups keep taking due to the proliferation of lenders. Said end result? Overborrowing and a reduced capacity to pay:

Though the Bill is still being given the final touches, sources said the key elements of the ordinance will definitely be carried forward in the Bill. Registration will be mandatory for the MFIs keen to operate in the state will be mandatory and any MFI operating without such registration will face punitive action including punishment up to three years and Rs1 lakh fine. There is also a proposal for naming all the directors and the top management in case of violation of this rule, though the government is said to be seeking legal opinion on such a move.

With the preliminary information on the MFI activity in the state suggesting the borrowers are being pushed into a debt trap due to multiple lending by the companies, the government has decided to cap such lending.

The MFIs will be asked to apply to the registering authority before lending to a borrower or a self help group already covered by a bank. The authorities will then verify the repaying capacity of the borrowers. Only after ascertaining the repayment capacity will the MFIs be allowed to extend loans. Lending to SHGs with a bank linkage without seeking the prior approval of the authorities is also a punishable offence.

While coercion will be a crime of sorts, leading to a punishment of up to three years, the MFIs will also have to disclose the interest collected to the authorities on a monthly basis. The government will also set up fast track courts to try the violations of the MFIs. “The information available with the authorities so far indicates that the interest rates are higher than what is being claimed by the MFIs. The average rate is upwards of 30%. There is also proposal to make the MFIs start collecting the repayments on a monthly basis instead of weekly. There is no final decision on this yet,” the source said.

Industry officials fear the conditions being laid out by the government would have a significant negative impact on the MFI activity in the state initially, though the institutions will have to find ways to keep themselves afloat.

What to regulate? Multiple lenders chasing the same pool of customers--in which case shouldn't borrowers be made more cognizant of the troubles that could arise from overborrowing? Or, should interest rates be capped? There are also obvious costs in meeting all these new regulations that will be passed on to borrowers, possibly defeating the objective of lowering borrowing costs in the first place. It's interesting, and Andra Pradesh certainly is a litmus test for India--and after India, the world that has grown accustomed to microfinance.

Microfinance - Should Interest Rates be Capped?

Hot on the heels of my recent microfinance in Cuba post, here comes a more mainstream debate on whether rates charged by lenders should be capped. As with the example of European banks leading the charge into Cuba, so it is around the world: more conventional commercial banks are seeking to enter the realm of microfinance in search of new markets. Yet, the involvement of these banks literally comes at a price since (a) the profit motive gains salience alongside the social one; and (b) servicing several small loans in often widely dispersed areas is not usually the modus operandi of commercial lenders who are accustomed to having lenders come to them instead of the other way around. So, just as I alluded to in the Cuban microfinance post, there is a concern from segments of civil society that the entry of those representing rentier classes--some fresh from being implicated in the global financial crisis--would dilute the social mission of microfinance.

So, the question becomes one of "Is microfinance selling out?" to some. Still, the counterargument involves my current favourite development buzzword of "scaling." The argument here is that welcoming the involvement of commercial banks can expand the number of those availing of microfinance loans. On the other hand, they may also have less reluctance in charging interest rates that those in the West would consider usurious.

I found this article in Forbes of all places; the conclusion follows though the rest is well worth reading:

While there are legitimate reasons for concern over the interest rates charged by commercial lenders, their role in the industry is an important one. Profit seeking lenders will allow the industry to scale by tapping into the funding potential of global capital markets. A Deutsche Bank research paper reveals that only a fraction of global demand for microloans are being serviced. It’s estimated that while the current amount of microcredit loans amounts to roughly $25 billion, an additional $250 billion will be needed in order to satisfy global demand. The introduction of commercial lenders provides access to vast pools of capital that can’t be matched by donor based models. In addition to attracting capital, the success of commercial lenders will attract competitors, which in turn will eventually exert downward pressure on interest rates. Dr. Yunus, in a recent debate with SKS founder Vikram Akula at the Clinton Global Initiative, acknowledged the capital raising power of for-profit models, but voiced concern over the implications of their involvement. He argued the need for locally owned and operated banks to prevent against the volatility of global capital markets. He also stressed the need for a clear definition of the term microfinance so that it could only be applied to microcredit lenders with social objectives.

Perhaps a clear delineation between microfinance and “bottom of the pyramid credit” lenders (Dr. Yunus’ term for commercial lenders) should be made. After all, they are different funding models that service different segments of the market. Labeling them as such would subject them to different regulations and expectations. That said, there is a need for multiple investment models in the industry as it will help to close the estimated $250 billion funding gap.

Moving forward, transparency will also have to take on an important role for the microfinance industry in order to retain the trust of those on both sides of the equation. Either through non-reciprocal peer reviews or through examination by regulatory bodies, transparency, which is crucial to maintaining the integrity of the industry, will have to be rigorously enforced. In the immensely large and nuanced world of microfinance, there’s a need serviced by each investment model and collectively they work to advance the industry, the frontier, and perhaps most importantly, the access to people who are in need of their services.

I suppose that the latent demand for microfinance will help set interest rates, but there are indeed ethical concerns if "what the market will bear" is used as an approach in this context.

Is CSR a Distraction From Solving Social Ills?

Here we go again for another round of the endless debate about whether corporations are responsible for performing socially beneficial actions. Milton Friedman famously argued that the social responsibility of business is to increase its profits and nothing more. That is, corporations as artificial persons according to law were not obliged to address "social responsibilities." Rather, it was up to individuals outside of their roles as corporate actors to address social issues:

Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he rec­ognizes or assumes voluntarily-–to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. He may feel impelled by these responsibilities to devote part of his income to causes he regards as worthy, to refuse to work for particular corpo­rations, even to leave his job, for example, to join his country's armed forces. If we wish, we may refer to some of these responsibilities as "social responsibilities." But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are "social responsibili­ties," they are the social responsibilities of in­dividuals, not of business.

Now, Aneel Karnani at the University of Michigan has been one of the most vocal modern-day critics of corporate do-gooding. He thinks microfinance misses its mark. He also thinks there is no such thing as a fortune at the bottom of the pyramid. Although I am not in agreement with Karnani on either count, he is back with yet another naysaying missive, this time in the pages of the MIT Sloan Management Review. Here, Karnani makes an even more damning suggestion than the late Milton Friedman. Whereas Friedman merely said that CSR was better suited to individuals, not corporations, Karnani suggests CSR actively harms the process of addressing social ills:

Very simply, in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.

Irrelevant or ineffective, take your pick. But it’s worse than that. The danger is that a focus on social responsibility will delay or discourage more effective measures to enhance social welfare in those cases where profits and the public good are at odds. As society looks to companies to address these problems, the real solutions may be ignored.

In cases where profitability and achieving social objectives are in opposition, Karnani suggests a three-pronged government regulation, watchdogs and advocates, and self-control:

So how can that balance [between profits and the public good] best be struck? The ultimate solution is government regulation. Its greatest appeal is that it is binding. Government has the power to enforce regulation. No need to rely on anyone’s best intentions.

But government regulation isn’t perfect, and it can even end up reducing public welfare because of its cost or inefficiency. The government also may lack the resources and competence to design and administer appropriate regulations, particularly for complex industries requiring much specialized knowledge. And industry groups might find ways to influence regulation to the point where it is ineffective or even ends up benefiting the industry at the expense of the general population.

Outright corruption can make the situation even worse. What’s more, all the problems of government failure are exacerbated in developing countries with weak and often corrupt governments. Still, with all their faults, governments are a far more effective protector of the public good than any campaign for corporate social responsibility...

Civil society also plays a role in constraining corporate behavior that reduces social welfare, acting as a watchdog and advocate. Various nonprofit organizations and movements provide a voice for a wide variety of social, political, environmental, ethnic, cultural and community interests...

Overall, though, such activism has a mixed track record, and it can’t be relied on as the primary mechanism for imposing constraints on corporate behavior--especially in most developing countries, where civil society lacks adequate resources to exert much influence and there is insufficient awareness of public issues among the population...

Self-regulation is another alternative, but it suffers from the same drawback as the concept of corporate social responsibility: Companies are unlikely to voluntarily act in the public interest at the expense of shareholder interests. But self-regulation can be useful. It tends to promote good practices and target specific problems within industries, impose lower compliance costs on businesses than government regulation, and offer quick, low-cost dispute-resolution procedures. Self-regulation can also be more flexible than government regulation, allowing it to respond more effectively to changing circumstances.

The challenge is to design self-regulation in a manner that emphasizes transparency and accountability, consistent with what the public expects from government regulation. It is up to the government to ensure that any self-regulation meets that standard. And the government must be prepared to step in and impose its own regulations if the industry fails to police itself effectively.

And then he goes back into neo-Friedmanite mode. Instead of just alluding to following laws as Friedman does, Karnani places priority on devising laws in such a way that corporate malfeasance imposes too high a cost. In so doing, untoward acts are avoided since, well, they eat into profits:

In the end, social responsibility is a financial calculation for executives, just like any other aspect of their business. The only sure way to influence corporate decision making is to impose an unacceptable cost—regulatory mandates, taxes, punitive fines, pubic embarrassment—on socially unacceptable behavior. Pleas for corporate social responsibility will be truly embraced only by those executives who are smart enough to see that doing the right thing is a byproduct of their pursuit of profit. And that renders such pleas pointless.

I have several issues with Karnani's reasoning. First, laws cannot be devised as to foretell every form of corporate malfeasance. As we have seen, corporations have been cunning in working around regulation given that the resources at their disposal are usually greater than those of governments. Second, different nations have varying institutional capacities to enforce the law. That is, laws may look pertinent and stringent on paper, but implementation is another matter entirely. Third, it is entirely conceivable that a corporation can follow the letter of the law but act in bad faith.

While Karnani is worth listening to in order to sharpen arguments as to the merits of CSR, his alternatives are not quite the solutions we're looking for. With regard to the current topic, it's repackaged Freidmanite reasoning.

Just Shoot It: Cambodia's Military-Business Tie-Ins

This may be the most ingenious or noxious thing you've ever heard--or even both at the same time. Coming from Southeast Asia, I get to study all sorts of unusual goings-on that would shock the rest of the world. However, I must admit that this incident takes the cake if you think in terms of "conflicts of interest" and "principal-agent problems" (to say the least).

Through the initiative of Prime Minister Hun Sen, the Cambodian military is exploring the use of corporate sponsorship of the armed forces [!] as a means of raising revenue. As you might expect, this is raising all sorts of issues about the military serving public, not private interests. From TIME:

At the end of February, Cambodian Prime Minister Hun Sen kicked off a program creating partnerships in which businesses would provide donations for particular units of the Royal Cambodian Armed Forces. The government has framed the initiative, which involves some 60 pairings, as facilitating the magnanimous inclination of corporations operating in Cambodia to support the welfare of the country's troops. Observers, however, caution that the program will ultimately serve to further enmesh the country's powerbrokers — political, military and business — into a network to serve their mutual interests and ensure everyone's allegiance to the ruling party.

The Cambodian military regularly guards large-scale private land concessions across the country, according to rights groups, and has been used to evict the rural poor for business developments. Hun Sen's new policy, says U.S.-based watchdog group Global Witness, is a step toward formalizing that process. "Global Witness has documented links between Cambodia's military and powerful business tycoons for many years now, so the relationships are not new," says Eleanor Nichol, a campaigner with the group, which was expelled from Cambodia in 2007 after publishing a report, fervently refuted by the government, that linked prominent officials in the government, military and business community with the illegal logging trade. "This latest move ... to officially sanction these partnerships is particularly shocking because it legitimizes a guns-for-hire scenario."

The government and companies participating in the new patronage program reject claims that the partnerships could lead to improprieties. Ly Yong Phat says his involvement in the program is to compensate for the military's lack of funding for troops' basic needs. Corporate support, according to a government memo, will "solve the dire situation of the armed forces, police, military police and their families through a culture of sharing." The government has responded to criticisms by specifying that donations would likely come in the form of food and shelter.

If this ain't the mother of corporate social responsibility issues, I don't know what is. Nike, eat your heart out. It's the return to the shilling fields.

Socially and Environmentally Innovative Wal-Mart?

It may be hard to imagine given its share of criticisms regarding labour and environmental practices--think of its carbon footprint by virtue of sheer size--but Walmart in Brazil recently received an award in honour of the recently deceased "Fortune at the Bottom of the Pyramid" pioneer CK Prahalad. So yes, social innovation can occur with large MNCs operating in the developing world. In this context, to help preserve the irreplaceable Amazon rainforests:

The Corporate Eco Forum (CEF) today awarded Walmart Brazil and its CEO Hector Nunez the inaugural C.K. Prahalad Award for Global Sustainability Leadership for their historic work to preserve the Amazon. Mr. Nunez will accept the award tonight during the Gala Dinner at the 3rd Annual Meeting of the Corporate Eco Forum. "By taking extraordinary action to protect the Amazon, Walmart Brazil and Hector Nunez have carved out a place in history as both pioneering environmentalists and savvy business strategists," said MR Rangaswami, founder of the Corporate Eco Forum. "We created the Prahalad Award to honor the companies and individuals who best demonstrate that sustainability is the key driver of innovation. We can and must do a better job of integrating the principles of sustainability into core business strategy and Walmart Brazil, under Hector Nunez's leadership, has proven that it is not only possible, it is also smart business."

In June of 2009, Walmart Brazil convened a Sustainability Summit to introduce new mandates across their supply chain to protect the Amazon. At the Summit, Walmart Brazil announced historic plans to address some of the thorniest environmental and social problems in the world. Walmart Brazil will now ensure that its supply chain uses: no companies that employ slave labor; no soybeans sourced from illegally deforested areas; and no beef sourced from any newly cleared Amazonian land. The new mandates also call for a 70% reduction in phosphates in detergent and a 50% reduction in plastic bags by 2013.

Walmart Brazil recruited the presidents of the Brazilian operations of twenty major suppliers, including Cargill, Johnson & Johnson, Kimberly Clark, The Coca-Cola Company, 3M, Diageo, P&G, and Sara Lee, to sign an agreement on-stage at the Summit to meet these goals. The Brazilian Minister of the Environment and the head of Greenpeace in Brazil both spoke at the Summit and congratulated Walmart Brazil for its aggressive leadership.

Wal-Mart as an antidote to BP? You better believe it. Given the sheer vastness of its supply chain, Wal-Mart's actions have considerable knock-on effects, whatever you think of the firm's other practices.

The British are Coming to Kick Obama's Ass on BP

A few days ago, some bozo predicted that matters would come to a head between the US and UK over the nefarious BP spill:

It will be interesting to see how transatlantic relations will be affected by this spill. The Tories are usually sycophantic towards the Yanks, but their coalition partners the Lib Dems aren't. Perhaps Deepwater Horizon will finish off the hoary notion of a "special relationship" once and for all.

As I noted well before the American press did, the British public is up in arms over the way the Yanks have blackballed BP. Ever one to channel negative sentiment given his inability to do anything constructive to mitigate the oil spill, Barack Obama has labelled British Petroleum a "recurrent environmental criminal" while searching for "whose ass to kick" at the company. While the exceedingly litigious Yanks attempt to sock it to BP by tying it up in litigation sure to cost billions of dollars, the British are pushing back for the understandable reason that Britain's plight is very much tied to BP. Depending on whom you listen to, £1 out of every £6 to £8 in dividends paid out in the UK come from BP shares. What's more, UK pension funds have large holdings of BP stock. With the stock price of BP dropping like a blown offshore platform, let's just say many Britons are up in arms over American bellyaching over BP. Somewhat surprising to me is that the normally transatlantic-friendly Tories are leading the charge:

Senior Tories today warned Barack Obama to back off as billions of pounds were wiped off BP shares in the row over the Gulf of Mexico oil spill. [London] Mayor Boris Johnson demanded an end to “anti-British rhetoric, buck-passing and name-calling” after days of scathing criticism directed at BP by the President and other US politicians.

Former Conservative Party chairman Lord Tebbit branded Mr Obama's conduct “despicable”. And with the dispute threatening to escalate into a diplomatic row, Mr Johnson also appeared to suggest that David Cameron should step in to defend BP. He spoke as the US onslaught against the firm became a “matter of national concern” — especially given its importance to British pensions, which lost much of their value today as BP shares plunged to a 13-year low.

Asked on BBC Radio 4's Today whether he thought the Prime Minister should intervene, Mr Johnson said: "Well I do think there is something slightly worrying about the anti-British rhetoric that seems to be permeating from America. Yes I suppose that's right. I would like to see cool heads and a bit of calm reflection about how to deal with this problem rather than endlessly buck-passing and name-calling.

"When you consider the huge exposure of British pension funds to BP and its share price, and the vital importance of BP, then I do think it starts to become a matter of national concern if a great UK company is being continually beaten up on the international airwaves. OK, it has presided over a catastrophic accident which it is trying to remedy but ultimately it cannot be faulted because it was an accident that took place. BP, I think is paying a very, very heavy price indeed."

Downing Street steered clear of criticising Mr Obama's conduct but in an apparent reference to concerns over UK pensions highlighted the “broader impact” of the spill and the need to deal with it swiftly. British business chiefs are alarmed that tough talking by Mr Obama and other US politicians is undermining the battered oil giant.

BP's shares fell by 12 per cent at one point today on the London market, after hitting their lowest level since 1997 in New York trading overnight, amid intensifying political attacks in the US. Their price dropped to 345p in early London trading before recovering to 370p — still down five per cent. The slump means the firm's share price has almost halved since the spill started in mid-April, when a well ruptured and the rig exploded, killing 11 workers.

Mr Cameron is due to speak to Mr Obama at the weekend over the issue. Among the President's criticisms of BP was his suggestion that chief executive Tony Hayward would have been axed if he had been working for him. BP said its latest effort to capture oil from the leak with a cap was now collecting about 15,000 barrels a day.

Here's a fair warning to the Yanks: the British are coming to kick Obama's ass on BP as my post title goes. By comparison to what I'm hearing, other Evening Standard articles are almost sedate with titles such as "American attacks on BP help nobody" and "PM must counter this US jingoism that threatens our pensions." Meanwhile, the Telegraph says "Gulf of Mexico oil spill: David Cameron fails to back BP in fight with Barack Obama." Meanwhile, the Daily Mail is even more strident - "Stand up for your country, Cameron: PM ducks chance to speak up for BP after cynical attacks from Obama."

Make no mistake: this may indeed be the conflict that finally finishes off the hoary notion of a US-UK "special relationship." I think that the recent record of trying to get with America speaks for itself--fiascos in Afghanistan and Iraq as well as the subprime implosion borne of neoliberal ideology. Certainly, Nick Clegg thinks the "special relationship" is hogwash. If he listens more to the right-of-centre British press, David Cameron will soon be taking the fight to Obama as well. It lends that bit of frisson to the upcoming England vs United States World Cup match, no? In honour of the Americans, let's call it BP Bowl I.

PS: An unidentified wiseacre sent me an invitation to join the "Boycott BP" Facebook page. You needn't ask me to boycott BP for I already do in the sense that I travel via BMW: bus, metro rail (subway), walk. If I can get to my destination in under 30 minutes of walking, I do. Having lived in the US for some time and seen the bulbous girth of your typical Americans firsthand, let me just say their environmentally damaging and unhealthy ways are not for me. In the end, BP is in America because its services are indispensable to their way of life.

UPDATE: See my update on what happened during BP Bowl I and recent evolutions in the US-UK political row over BP.

BP Spill: How Litigious Yanks Hurt UK Pensioners

(Before reading on, I suggest playing AC/DC's "Cover You In Oil" above.) British Petroleum's oil spill in the Gulf of Mexico is not only an ungodly public relations fiasco but also a corporate social responsibility one. With the US government likely to fine BP over a billion dollars, its stock is sinking as quickly as thousands of barrels of oil are rising. To be sure, much blame falls on BP. It, after all, claimed in its permit application that it could handle a spill ten times the current one.

All the same, BP--despite its ham-fisted efforts at stopping the oil spill--probably has the most expertise in containing accidents of this sort. I am reminded of Charles Perrow's renowned volume on Normal Accidents where he investigated the Three Mile Island nuclear incident (as well as the space shuttle Challenger explosion in the revised edition). In it, while he does make suggestions for improving safety that can be done at little cost, these systems must ultimately be plotted on the dimensions of "Net Catastrophic Potential" and "Cost of Alternatives" to determine to see if they are worth pursuing.

Before you fire off angry e-mails in my direction, note that it's the Evening Standard's idea behind this post's title, not mine. Aside from hyperconsuming debt and grub, another American pastime is suing the bejesus out of all comers. (Possibly for rather irresponsible consumption of excess debt and grub, it ought to be noted.) While again reading the evening paper on the ride home, the newspaper's editorial section comes up with its own opinion of the Deepwater Horizon mess. While ranking offshore drilling as being high on net catastrophic potential, they tacitly believe that it is something worth pursuing in a world of dwindling natural resources. That is, the cost of alternatives is higher. There are few alternative domestic energy sources America can tap to replace the role petroleum fills at the current time.

What is more, there is an interesting IPE angle posed here: economic reality means that offshore drilling is not likely to abate in the near future. Therefore, American politicians' "smack BP and toss its execs in jail" attitude borne of American thirst for energy is misguided. Ultimately, pensioners whose funds hold many BP shares and rely on dividends from them are the real victims of US litigation lust (or so they say). There is something to be said for this line of argument. Alike the Mexican border being turned into on big crack house for America, this spill may be more an indictment of the energy-intensive American way of life than anything else. However, it would have helped if BP were more forthright about its damage limitation capabilities. At any rate, here's the op-ed:

The US government's decision to bring criminal charges against BP as a result of the oil spill in the Gulf of Mexico is a characteristically American reaction to a crisis: if something goes wrong, sue. But it is questionable whether that approach at this point will do anything at all to address the real problem, which is that every effort that BP has made to stem the leak has failed.

Bringing criminal charges against company executives will do nothing to add to the urgency with which BP is attempting to put matters right. Deep-water drilling is patently risky and, when it goes wrong, has potentially devastating environmental consequences. Almost certainly, better contingency plans should have been in place and may have prevented 11 deaths. But they weren't, there was an accident and there can be no doubt that BP, which has most to lose from this crisis, has done everything possible to put things right.

It has failed, but not from want of trying. And the notion that the US government can succeed where BP has failed by "taking over" the operation seems illusory. The US reaction is political, an attempt by the President to respond to increasingly angry calls in the US for him to be seen to do something. But sometimes this approach is downright damaging.

An attempt retrospectively to get tough with BP by bringing criminal charges will not help us now. Indeed, the prospect of a hugely expensive lawsuit in addition to the damage to the company's reputation in the US has already driven the BP share price down; there are likely to be cuts in the dividend. Some 40 per cent of BP profit is derived from the US.

One in every six pounds that UK institutions earn in dividends is derived from BP: a reduction will have a direct, adverse effect, not just on fat cats, but on British pensioners. This is bad for all of us. We can understand American anger at this environmental and human catastrophe but the punitive approach to BP will help no one.

Agreed--criminal charges are a nonsense. All the same, the usual suspects--Senators Charles Schumer (D-NY) and Ron Wyden (D-OR)--are calling on BP not to pay $10 billion out in dividends in anticipation of further obligations arising from this spill. I wonder how those UK pensioners would feel if BP is turned into a "growth stock" via American legislation:

Two Democratic senators pressed BP on Wednesday to delay plans to pay shareholder dividends worth an expected $10 billion or more until the full costs for cleaning up the oil spill in the Gulf of Mexico are calculated. Sens. Chuck Schumer of New York and Ron Wyden of Oregon called it "unfathomable" that the oil giant would pay out a dividend to shareholders before the total cost of the cleanup is known. In a letter to BP CEO Tony Hayward, the lawmakers said taking action to "move money off of the company's books" will make it more difficult for BP to pay the U.S. government, fishermen and others affected by the environmental disaster.

BP PLC has paid an estimated $1 billion to clean up the oil leak and expects to spend billions more. BP spokesman Toby Odone called the distribution of dividends "a company matter" that will be decided by company leaders. BP paid $10.4 billion in dividends last year and $10.3 billion in 2008.

But, does Tony Hayward listen to AC/DC? I think he's doing a fair bit of headbanging right about now. And definitely, he's got the (litigious) Yanks covered in oil. Send John Edwards to New Orleans, ASAP.

It will be interesting to see how transatlantic relations will be affected by this spill. The Tories are usually sycophantic towards the Yanks, but their coalition partners the Lib Dems aren't. Perhaps Deepwater Horizon will finish off the hoary notion of a "special relationship" once and for all.

Barcodegate: Ferrari Retains Marlboro Advertising

Being a liberal in the classic sense, I've always thought it overstepped the mark when Formula One decided to ban tobacco advertising in its entirety after the 2006 season. It's not as if I came into close and regular contact with second hand smoke (which is indeed harmful) watching TV. As a non-smoker, it did not harm me any watching cars painted in the livery of tobacco brands. If people want to smoke away from those who do, it does not bother me at all. However, the industry's critics have had two longstanding objections. First, association with F1 glamorizes smoking. Second, impressionable youth may be particularly susceptible to ad pitches of this sort. To both I retort that it is highly unlikely that those in their teen years or beyond are unaware that none of the current drivers are habitual smokers. Super-fit F1 drivers lighting up a pack or two daily? You must be joking.

So, I was quite amused when a brouhaha erupted recently over Scuderia Ferrari Marlboro and its alleged use of barcodes to represent the now-missing Marlboro advertising. Unlike Mild Seven which left the sport (and then-world champion Renault) after 2006, Marlboro remains very much involved with Ferrari. Having just watched the Barcelona Grand Prix, the Ferrari team has indeed replaced the controversial barcodes with just a simple box outline. A few days ago, they justified their change thusly to placate their nannying critics:

Together with Philip Morris International we have decided to modify the livery of our cars starting with the Barcelona Grand Prix. This decision was taken in order to remove all speculation concerning the so-called “bar code” which was never intended to be a reference to a tobacco brand. By this we want to put an end to this ridiculous story and concentrate on more important things than on such groundless allegations [my emphasis].

Previous to that, Ferrari denied that the bar codes stood in for Marlboro advertising:

Neither of these arguments have any scientific basis, as they rely on some alleged studies which have never been published in academic journals. But more importantly, they do not correspond to the truth. The so called barcode is an integral part of the livery of the car and of all images coordinated by the Scuderia, as can be seen from the fact it is modified every year and, occasionally even during the season. Furthermore, if it was a case of advertising branding, Philip Morris would have to own a legal copyright on it.

The partnership between Ferrari and Philip Morris is now only exploited in certain initiatives, such as factory visits, meetings with the drivers, merchandising products, all carried out fully within the laws of the various countries where these activities take place. There has been no logo or branding on the race cars since 2008, even in countries where local laws would still have permitted it.

That's quite a spirited defence, Ferrari. But common sense suggests the following -

1. Marlboro remains a title sponsor of the Ferrari F1 team despite tobacco advertising being banned from most countries where races are held;
2. The barcodes appear on the racing cars and drivers' uniforms where Marlboro logos used to be;
3. It makes no commercial sense to place these "coordinated" barcodes when they're space that could've been sold for literally tens of millions to sponsors had they no symbolic representation as Ferrari claims;
4. You must be *&^%$£ gullible to believe Ferrari's argument that these barcodes were placed to enhance the car's aesthetic appeal as none of their other cars feature them.

Let's look at a few photos to sort this matter out quickly and definitively. First, here is the 2006 car or the last one prepared in traditional livery prior to the tobacco ad ban:

Yes, it was very much I Love You Philip Morris. And here is this year's car prior to barcodegate. The placement of the barcodes has been more or less consistent since the ban took effect:

Today's car has reduced the barcode thingamajig to just a box outline, but still. It doesn't take a genius to figure out what goes into the box:

And, of course, contrast the driving suit of Herr Schumacher in his Ferrari prime with that of Felipe Massa in more recent years. The same phenomenon holds on the back of their suits as well:

Those hellbent on a tobacco ban can certainly make the point that, ah, vapours of Marlboro advertising are still there. It's a corporate social responsibility (CSR) issue all the same regardless of the team's protestations as no other sponsor in any other sport goes to such lengths to do what Ferrari has for Philip Morris. It removed the barcodes from the car, but not from its drivers' outfits as far as I can tell from Barcelona. Until the Marlboro name is excised from the name of the team, I doubt whether critics will be satisfied with these half-hearted gestures.

Come to where the flavour is. Come to Scuderia Ferrari! (And cue the Magnificent Seven theme while you're at it.)