Fin/370 Starbucks Ethics Compliance free essay sample

Ethic and Compliance FIN/370 Ethics and Compliance Starbucks celebrates 40 years with 17,000 stores in more than 50 countries (Goals Progress, 2010). Starbucks thrive on their values as a company to improve the lives of people who grow their coffee, neighborhoods where the company does business, and they care for the environment (Goals Progress, 2010). Starbucks strives to incorporate good business practices and ethics across the globe not only for the enhancement of the company but also for the enhancement of the stakeholders and the communities the company impacts. Starbuck’s mission statement is â€Å"to inspire and nurture the human spirit. As said by Howard Schultz, Chairman, President and Chief Executive Officer, in the 2010 Starbucks Global Responsibility Report; â€Å"one person, one cup and one neighborhood at a time. † Ethical Behavior Ethical standards play an intricate role in safe guarding companies’ assets. To ensure that all employees understand what the company expects of them, Starbucks establishes procedures for the employees to follow. We will write a custom essay sample on Fin/370 Starbucks Ethics Compliance or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page One of Starbucks’ procedures is to use â€Å"ethical trading and responsible growing practices† (Ethical Sourcing, 2011, para. ). This procedure ensures that Starbucks’ product is the best on the market. Starbucks has also established Coffee and Farmed Equity (CAFE) Practices. The CAFE Practices are a set of measurable standards focused in four areas: Product Quality, Economic Accountability, Social Responsibility, and Environmental Leadership (Starbucks Corporation, 2011). The CAFE Practices are in place to ensure that all parties involved are conducting business ethically. Product Quality is essential to ensure repeat business. Economic Accountability is set in place to ensure that the company purchases products ethically. Starbucks has a third-party to evaluate Social Responsibility and Environmental Leadership (Starbucks Corporation, 2011). These two areas evaluated by a third-party, guarantees Starbucks is treating their employees and the environment ethically. Starbucks’ ethics have contributed to their many years of success. SEC Regulations The Securities and Exchange Commission (SEC) is a federal agency, which is responsible for enforcing federal security laws and regulations, the nation’s stock exchanges, and other electronic security markets (Keown, Martin, Petty, Scott, 2005). Starbucks as well as other corporations must conform to the rules and regulations of the SEC. Starbucks make every effort to comply with the SEC regulations by providing the company’s financial state on the company’s website. Starbucks’ website provides annual reports, proxy filings, quarterly reports, 10-K’s, 10-Q’s, and Section 16 filings regarding insider trading (Starbucks Corporation, 2011). Starbucks must report all financial standings. If Starbucks fails to report the required information, the SEC has the authority to take legal action. Financial Performance The Financial performance of a company is the measuring (in monetary teams) of the firm’s polices and operations. These measurements consist of Current Ratio, Debt to Equity Ratio, Return on Assets, and Net Profit Margin. Measuring a company’s financial performance help the company know where they profits are and in what areas of any that the company may need to improve. These measurements can determine the success or failure of a company. In the December 2009, National Federation of Independent Business report shows that two thirds of businesses make no profit. This is not the case with Starbucks. Current Ratio The current ratio of a company examines the credit from a liquidity standpoint. To see how much short-term liabilities the business can pay off with short-term assets. The higher the number of this ratio represents how wisely the company manages their cash and pays their debts. If the number is lower it translates as poor cash flow and would mean that in the instance the company needed to pay debts off they would have to liquidate fixed assets such as inventory or equipment. The formula for figuring the current ratio is: [pic] Starbucks reported their current assets as $2,756. 4M and the current liabilities as $1,779. 1M in 2010. Using these numbers show a ratio of 1. 549; this is a fairly low number for a company considering anything under â€Å"1† is reason for concern. Starbucks reported their current assets as $2,035. 8M and $1,581. 0M in 2009. Using these numbers show a ratio of 1. 287; this number is also considerably low but does show improvement from 2009 to 2010. Starbucks acknowledges the need for liquidity but comply with federally limits and believes the credit risk to be very minimal (Starbucks Corporation, 2010). Debt to Equity Ratio The debt to equity ratio examines the credit from a financing standpoint to see how much equity and debt is the company using to finance its assets. The debt to equity ratio determines how much of their growth the company is experiencing by increasing debt and shows if the company had to pay off debt and how much money would remain for the shareholders profits. The formula for figuring the debt to equity is: [pic] Starbucks reported their total liabilities as $2,703. 6M and the shareholder equity as $3. 674. 7M in 2010. Using these numbers one can show a ratio of . 36; this number should be low and under â€Å"1† so this number is an attractive ratio. Starbucks reported their total liabilities as $2,519. 9M and shareholder equity as $3,045. 7 in 2009. Using these numbers the company can show a ratio of . 828 meaning that the debt to equity ratio improved from 2009 to 2010. Return on Assets The profit produced by invested capital is the return on assets. Th e operating return on assets (OROA) ratio takes into account an organization’s success in controlling expenses and the efficient use of assets to generate the organization’s sales (Titman, Keown, Martin, 2011). One can measure the return on assets ratio by the net operating income divided by the total assets. [pic] Starbucks reported an operating income of $390M and $5. 576M in total assets for 2009. Starbucks ended the fiscal year with an operating income of $390M compared to $315M in operating income in 2008 (Starbucks Corporation, 2010). This shows an increase in operating income from 4. 9% to 5. 7% from 2008 to 2009. However, Starbucks reported a decrease in total assets in 2009 of $5. 576M compared to 2008 when the reported total assets were $5. 72M (Starbucks Corporation, 2010). Starbucks decrease in total assets occurred because of related The United and international store closures, charges incurred for unoccupied office space resulting from reduction in corporate positions and organizational structural changes, and under-performing company-oriented retail operations. Although Starbucks reported a decrease in total assets, the organization’s operating return on assets was 7% for the 2009 fiscal year. Net Profit Margin Firms use net profit margin to measure the amount of net income per $1 of sales. Reviewing net income as a percentage of total sales can allow investors and regulators to compare Starbucks Corporations ability to manage its income statement year over year. [pic] Net income in 2009 for Starbucks Corporation was $390. 8M with total sales of $9,774. 6M (Starbucks Corporation, 2009). A focus on supply chain improvements, back-end IT systems, and a better go-to-market engine helped remove $580M of costs from the business in fiscal 2009 (Starbucks Corporation, 2009). The net profit margin in 2009 was 3. 9% that includes $17M of store operating expenses that offset with an income tax credit that result in 30. 1% effective tax rate (Starbucks Corporation, 2009). Starbucks Corporation Net Profit Margin 2009 [pic] In 2010 net income increased to $945. 6M and total sales for Starbucks Corporation rose to a record $10,707. 4M (Starbucks Corporation, 2009). Income taxes in 2010 did not include a tax credit, resulting in a 34. 0% effective tax rate and 2011 tax rates expect to range from 34% to 35% (Starbucks Corporation, 2009). The net profit margin in 2010 rose to 8. 83%. Starbucks Corporation Net Profit Margin 2010 pic] The increase in Starbucks net profit margin show a stronger company emerged in fiscal 2010 after consumer trends and a weakened global economy in 2009. Investors should be aware of the 2009 income tax credit, which inflates the year-over-year not profit margin when determining future financial decisions. Conclusion Starbucks continues to set fourth standards in operating practices, ethics, and helping the community. The company also continues to thrive in the business world as they strive for the highest quality of customer service and providing a high quality of products. Starbucks shows commitment to shareholders by complying with the SEC to protect the company’s financial state. Starbucks provides financial reports on their website, and manages their cash and depts. Managing a company with these standards helps a company continue its success. Starbucks success shows in its current ratio, debt to equity ratio, return on assets, and net profit margin reports. These reports along with Starbucks firm operating practices shows Starbucks is a stable and trusting company. References Goals Progress. (2010). Starbucks Global Responsibility Report: Message from Howard Schutltz (para. 1). Retrieved from http://www. starbucks. com/responsibility on July 23, 2011. Goals Progress (2010) Starbucks Global Responsibility Report: Year Review: Fiscal 2010. Retrieved from http://www. starbucks. com/responsibility on July 23, 2011. Keown, A. , Martin, J. , Petty, J. , Scott, D. (2005). Financial Management: Principles and Applications (10th ed. ). Upper Saddle River, NJ: Prentice Hall, Inc. National Federation of Independent Business. (2009). Financial Performance. Retrieved from http://www. financialperformancecenter. com/The_Financial_Performance_Center/Why_Switch. html on July 24, 2011. Starbucks Corporation. (2009). Starbucks Investor Relations. Retrieved from http://investor. starbucks. com/phoenix. zhtml? c=99518p=irol-reportsAnnual. Starbucks Corporation. (2011). Ethical Sourcing. Retrieved from http://www. starbucks. com/responsibility/sourcing Titman, S. , Keown, A. J. , Martin, J. D. (2011) Financial Management: Principles and Applications (11th ed. ). Upper Saddle River, NJ: Prentice Hall, Inc.

Coffee Cup and Bomb Calorimetry

Coffee Cup and Bomb Calorimetry A calorimeter is a device used to measure the quantity of heat flow in a chemical reaction. Two of the most common types of calorimeters are the coffee cup calorimeter and the bomb calorimeter. Coffee Cup Calorimeter A coffee cup calorimeter is essentially a polystyrene (Styrofoam) cup with a lid. The cup is partially filled with a known volume of water and a thermometer is inserted through the lid of the cup so that its bulb is below the water surface. When a chemical reaction occurs in the coffee cup calorimeter, the heat of the reaction is absorbed by the water. The change in water temperature is used to calculate the amount of heat that has been absorbed (used to make products, so water temperature decreases) or evolved (lost to the water, so its temperature increases) in the reaction. Heat flow is calculated using the relation: q (specific heat) x m x Δt Where q is heat flow, m is mass in grams, and Δt is the change in temperature. The specific heat is the amount of heat required to raise the temperature of 1 gram of a substance 1 degree Celsius. The specific heat of water is 4.18 J/(g ·Ã‚ °C). For example, consider a chemical reaction that occurs in 200 grams of water with an initial temperature of 25.0 C. The reaction is allowed to proceed in the coffee cup calorimeter. As a result of the reaction, the temperature of the water changes to 31.0 C. The heat flow is calculated: qwater 4.18 J/(g ·Ã‚ °C) x 200 g x (31.0 C - 25.0 C) qwater 5.0 x 103 J The products of the reaction evolved 5,000 J of heat, which was lost to the water. The enthalpy change, ΔH, for the reaction is equal in magnitude but opposite in sign to the heat flow for the water: ΔHreaction -(qwater) Recall that for an exothermic reaction, ΔH 0, qwater is positive. The water absorbs heat from the reaction and an increase in temperature is seen. For an endothermic reaction, ΔH 0, qwater is negative. The water supplies heat for the reaction and a decrease in temperature is seen. Bomb Calorimeter A coffee cup calorimeter is great for measuring heat flow in a solution, but it cant be used for reactions that involve gases since they would escape from the cup. The coffee cup calorimeter cant be used for high-temperature reactions, either, because they would melt the cup. A bomb calorimeter is used to measure heat flows for gases and ​high-temperature reactions. A bomb calorimeter works in the same manner as a coffee cup calorimeter, with one big difference: In a coffee cup calorimeter, the reaction takes place in the water, while in a bomb calorimeter, the reaction takes place in a sealed metal container, which is placed in the water in an insulated container. Heat flow from the reaction crosses the walls of the sealed container to the water. The temperature difference of the water is measured, just as it was for a coffee cup calorimeter. Analysis of the heat flow is a bit more complex than it was for the coffee cup calorimeter because the heat flow into the metal parts of the calorimeter must be taken into account: qreaction - (qwater qbomb) where qwater 4.18 J/(g ·Ã‚ °C) x mwater x Δt The bomb has a fixed mass and specific heat. The mass of the bomb multiplied by its specific heat is sometimes termed the calorimeter constant, denoted by the symbol C with units of joules per degree Celsius. The calorimeter constant is determined experimentally and will vary from one calorimeter to the next. The heat flow of the bomb is: qbomb C x Δt Once the calorimeter constant is known, calculating heat flow is a simple matter. The pressure within a bomb calorimeter often changes during a reaction, so the heat flow may not be equal in magnitude to the enthalpy change.

Writrer choice Essay Example | Topics and Well Written Essays - 750 words

Writrer choice - Essay Example The notion that only African, as opposed to other races, were only fit to serve as slaves was an invention of whites who were in need of a working class.2 The working class, however, had to be legitimized; the legitimacy was that Africans could not fit elsewhere, but in the institution of slavery. More specifically, this paper compares the works of David walker’s appeal to the colored citizens of the world and Leslie Harris’s in the shadow of slavery. It will be argued that class was fundamental in institutionalization of the racial slavery, and the race solidarity in New York in the seventieth century. David Walker is a male abolitionist of an African- American origin. Further, the outspoken abolitionist was born to a slave father, but the mother was a free black mother.3 However, owing to the status of his mother, David Walker enjoyed that status of being a free black person. The author used his position as a free person to speak against the evils of slavery. In this work, appeal to the colored citizens of the world, the author writes against the evils of slavery in a bid to draw the attention of African American to a need for abolition of this practice. The first goal of his writing is to encourage the solidarity of African living under slavery. Walkers’ position as a free African during a period when slavery is ubiquitous in New York is likely to be instrumental in luring slaves into seeking a free African status. Whites during this era of slavery in New York have established a social class, and justified their actions as far has holding slaves is concern. In essence, the white slave owners believe that Africans are inferior, and do not belong to the social class of whites.4 To illustrate this, the author writes, â€Å"Has Mr. [Thomas] Jefferson declared to the world, that we are inferior to the whites, both in the endowments of

Honor System a Professional Responsibility Essay - 1

Honor System a Professional Responsibility - Essay Example They cannot afford any blunder in their behavior which may lead others to think anything in contrast to the behavior and belief which was expected of that person. This set of rules, this guideline that is there to direct members on how to act or more specifically, how NOT to act, is called the honor code. In simple terms, it is there to uphold the honor of the community by avoiding any action which goes against its teachings. There are majorly two types of honor codes. One is academic and the other is for forces. The academic honor code is highly evolved into becoming perfect now. All major colleges and universities have their own honor codes which have been perfected to their own standards by trial and error. Students have found loopholes in each one of them and when discovered, the holes were filled by re writing the code for the new students. The result is that the present honor codes, though different, are very well defined and do not give any excuse to any student to behave in a way regarded as unacceptable. The honor codes for forces are present for all three, the Naval, Air Force and Military. At the heart of these honor codes, is the military honor code. Being trusted by the public for the welfare and security of that whole country, the military honor code is well defined and comprises of the essence of responsibility. It reads that "A cadet will not lie, cheat, or steal, nor tolerate those who do." (USAF Academy, 1985) This is all very interesting. Surely it shows how thoroughly the code encompasses the whole idea of the organization. The soldier knows by reading the code what his duties and responsibilities are and how to go about fulfilling them. This will help shape his life at the academies. From the very start he knows what is required of him and he will be following a clear cut path towards becoming the sort of soldier and commander that is required and expected of him by the nation.

Rome and Milan During the Renaissance Essay Example for Free

Rome and Milan During the Renaissance Essay The Renaissance is a period in the history of Europe beginning in about 1400. The word Renaissance in French means rebirth. During the Renaissance, there were many famous artists, many writers and many philosophers. Many people studied mathematics and different sciences. A person who is knowledgeable in many different things is sometimes called a Renaissance man. Leonardo da Vinci, who was a painter, a scientist, a musician and a philosopher, is the most famous Renaissance Man. The Renaissance started in Italy but soon spread across the whole of Europe. People † The time of Ancient Greece and Rome, when there were many philosophers, writers, painters, sculptors, architects and mathematicians was seen by people as a Golden Age, a time when things were beautiful, well-organized and well-run. This time had lasted from about 400 BC to about 400 AD. In the year 1400, in the city of Rome, people could wander around looking up at the ruins of a city that had once been great. Inside the broken walls that had been smashed in 410 AD were the remains of huge temples, sports arenas, public baths, apartment blocks and palaces. Nearly all of them were ruined and could not be used. Nearly all of them were half-buried in dirt. A lot of them were pulled down to use as building stone. But they showed people what great things could be done. Among the ruins of this once-great city, the people of Rome lived in cottages. They still went to church in the huge churches (basilicas) built by the first Christian Emperor, Constantine the Great, in the 4th century. They still held market day in the Ancient Roman market place of Campo dei Fiori (Field of Flowers). One day in 1402, into the middle of Rome, came a young man called Filippo Brunelleschi and a teenage boy called Donatello. They were fascinated by everything that they saw. They measured ancient ruined buildings, they drew things and they dug around for weeks looking for bits of broken statues and painted pottery that they could stick together. They were probably the worlds first archaeologists. By the time they went back home to Florence, they knew more about Ancient Roman architecture and sculpture than anyone had known for about a thousand years. Brunelleschi became a very famous architect and Donatello became a very famous sculptor. They both used the ideas that they had, when they were studying the remains of ancient Rome†. [1] During the renaissance there was great economic growth. †In the 13th century, much of Europe experienced strong economic growth. The trade routes of the Italian states linked with those of established Mediterranean ports and eventually the Hanseatic League of the Baltic and northern regions of Europe to create a network economy in Europe for the first time since the 4th century. The city-states of Italy expanded greatly during this period and grew in power to become de facto fully independent of the Holy Roman Empire; apart from the Kingdom of Naples, outside powers kept their armies out of Italy. During this period, the modern commercial infrastructure developed, with double-entry book-keeping, joint stock companies, an international banking system, a systematized foreign exchange market, insurance, and government debt. [2] Florence became the centre of this financial industry and the gold florin became the main currency of international trade. The new mercantile governing class, who gained their position through financial skill, adapted to their purposes the feudal aristocratic model that had dominated Europe in the Middle Ages. A feature of the High Middle Ages in Northern Italy was the rise of the urban communes which had broken from the control by bishops and local counts. In much of the region, the landed nobility was poorer than the urban patriarchs in the High Medieval money economy whose inflationary rise left land-holding aristocrats impoverished. The increase in trade during the early Renaissance enhanced these characteristics. The decline of feudalism and the rise of cities influenced each other; for example, the demand for luxury goods led to an increase in trade, which led to greater numbers of tradesmen becoming wealthy, who, in turn, demanded more luxury goods. This change also gave the merchants almost complete control of the governments of the Italian city-states, again enhancing trade. One of the most important effects of this political control was security. Those that grew extremely wealthy in a feudal state ran constant risk of running afoul of the monarchy and having their lands confiscated, as famously occurred to Jacques Coeur in France. The northern states also kept many medieval laws that severely hampered commerce, such as those against usury, and prohibitions on trading with non-Christians. In the city-states of Italy, these laws were repealed or rewritten†. [2] Romans architecture was also something developed during the renaissance. â€Å"The obvious distinguishing features of Classical Roman architecture were adopted by Renaissance architects. However, the forms and purposes of buildings had changed over time, as had the structure of cities. Among the earliest buildings of the reborn Classicism were churches of a type that the Romans had never constructed. Neither were there models for the type of large city dwellings required by wealthy merchants of the 15th century. Conversely, there was no call for enormous sporting fixtures and public bath houses such as the Romans had built. The ancient orders were analysed and reconstructed to serve new purposes†. [3] â€Å"The Roman orders of columns are used:- Tuscan, Doric, Ionic, Corinthian and Composite. The orders can either be structural, supporting an arcade or architrave, or purely decorative, set against a wall in the form of pilasters. During the Renaissance, architects aimed to use columns, pilasters, and entablatures as an integrated system. One of the first buildings to use pilasters as an integrated system was in the Old Sacristy (1421–1440) by Brunelleschi†. [4] There were some people in Rome who weren’t Christian and even opposed it. â€Å"There are thousands of instances of this kind, where nothing will prevail,not even the majesty of the Christian name nor reverence for Christ himself (whom the angels fall down and worship, though weak and depraved mortals may insult him), nor yet the fear of punishment or the armed inquisitors of heresy. The prison and stake are alike impotent to restrain the impudence of ignorance or the audacity of heresy†. [5] The Roman renaissance was the greatest renaissance. â€Å"They left Florence for a city that was greater than Florence ever dreamed of being, They left for the imperial city they left for rome†. [6] Milan was also very important in the renaissance. â€Å"When we think of the Renaissance we automatically think of Italy, but we must not fall into thinking of the Italian peninsula during this time as a nation. Far from it he southern half of the Italian boot was the Kingdom of Naples. In the North was the most powerful of the city-statesthe Duchy of Milan†. [7] â€Å"Central to the city of Milan were the Dominicans. Church and state were not separate but two legs of a single civic being, neither of which could have survived long without the other. The home of the Dominicans, the church of Santa Maria della Grazie went from being a modest oratory in the middle ages to a major cathedral with its own elaborate monastery complex in the fifteenth century, becoming the centre of all learning in the city. It was here, in the refectory (dining hall) that Leonardo staged his Last Supper. It was here Bramante learned his trade, laying the foundation for the new St. Peters Cathedral in Rome. Unlike Venice or Florence, or Rome, Milan (aside from the Last Supper) is not known for its painting but for its robust power and pursuit of scientific knowledge. Architecture and engineering, science and religion were the key elements in its strong, towering presence as it cast a ponderous shadow over all of Italy during this time. †[8] References http://www.humanitiesweb.org/human.php?s=gp=aa=iID=423 http://en.wikipedia.org/wiki/Renaissance_architecture#cite_ref-10 http://simple.wikipedia.org/wiki/Renaissance

student :: essays research papers

Organizations have long sought to provide employees with consolidated desktop access to the various applications, business processes, and sources (both technology and human) required to perform knowledge-based work. But as recently as five years ago, the desktop environment was still woefully inadequate to this task. The ability to access aggregated enterprise information on-demand required a more reflective, process-centric model of desktop computing-that is, if someone were to look over your shoulder as you work, would their view of your desktop reflect the nature of the work (i.e., the business processes) in which you're engaged? The classic desktop computing interface did not allow this kind of on-demand access-much of the integration between information, enterprise apps, and business process still occurred in the "gray matter" between the ears of knowledge workers. The enterprise information portal (EIP) addresses this need.. At their core functional level, EIPs are all about access-a single point of personalized, on-line access to business information and knowledge sources, as well as, increasingly, real-time access to core applications and processes. Key enabling technologies here include advances in security (including sophisticated directory/authentication services), the proliferation of "portlets" or "gadgets" (API-like chunks of code for plugging enterprise apps into the portal), as well as the maturation and widespread adoption of XML (for "active" or "intelligent" content). As the technology behind portals evolves, so do the ways in which enterprises are using enterprise portals to achieve their business goals. Originally adopted by small departments and subsets of employees, the portal concept has expanded to encompass virtually all employees as well as the extended organization's partners and su ppliers. Enterprise portals are reaching all the way out to individual customers, providing them with a personalized view of the organization or enterprise.

Monopoly as a source of market failure Essay

Abtsract. Environmental problems also occur when one of the participants in an exchange of property rights is able to exercise an inordinate amount of power over the outcome. This can occur, for example, when a product is sold by a single seller, or monopoly. A firm that has no competitors in its industry is called a monopoly. Monopolies are not all evil. Neither are they utterly good. Monopolies are much maligned because their profit incentive leads them to raise prices and lower output in order to squeeze more money out of consumers. As a result, governments typically go out of their way to break up monopolies and replace them with competitive industries that generate lower prices and higher output. Our study examines Arcelor-Mittal: the uncontrolled growth of this steel giant often at the expense of peoples’ health in a rapidly globalizing world has given people all around the world common cause for resistance. We have focused on Arcelor-Mittal Temirtau Kazakhstan which as we think is the best example of monopoly of market failure. Our paper work on â€Å"Monopoly as a source of market failure† explores global steel giant’s environmental and social impacts in 2008-2009 that have emerged from the Environmental&Natural Resource Economics. First, we provide the background information about the theory of natural monopoly as a source of market failure. Then we show the certain case of such monopoly – ArcelorMittal Temirtau Kazakhstan. Our research analysis is divided to two parts: background information and social&environmental impacts of global steel giant’s work in our homeland. Considering the situation and the current conditions of Arcelor-Mittal we then provide following solutions to the company that have to be implemented in order to enable it to overcome and or limit the potential problems in the foresseable future. This topic is very crucial and relevant not just only for our country to be mentioned and finally to be solved but also for the whole world as Arcelor-Mittal is operating worldwide. However it still neither has taken into account the seriousness of the problems that it has induced to the environment nor all of the responsibility. Introduction: The rise of a steel giant. We are all shareholders, maybe not in the company, but 1 / 13 indeed in our environments, and shareholders of corporations such as ArcelorMittal need to be aware of this reality. Company shareholders are often blinded by the glossy reports, company greenwash and figures detailing rising profits. This paper work seeks to create a new awareness amongst ArcelorMittal’s shareholders, and calls on them to act on the evidence presented. Many perceive the rise of Mittal Steel – now ArcelorMittal – from a small mill to a global steel giant as one of the great wonders of the business world. The success of the company has coincided with the exploitation of weaker national laws and political wrangling. In the last three decades Mittal has bought up old, run-down state-owned steel factories in places like Trinidad, Mexico, Poland, Czech Republic, Romania, South Africa and Algeria. The cost of Mittal Steel’s success has largely been paid by the communities living and working near the company’s plants. Mittal Steel has a global reputation for prioritising productivity over the environment, communities and fair labour practices in countries where it operates steel mills, such as Romania, Poland, Czech Republic South Africa, Kazakhstan and the United States, in spite of frequent company statements about its attention to and investment in these areas. No longer can they be uninformed shareholders reaping annual profits. They need to accept responsibility for the negative impacts their investments have on peoples’ lives along with accepting the profits they reap on their shares. It is critical to understand that the local injustices presented in the report will not just ‘go away’. They need careful deliberation and shareholder resolutions for ethical investment that calls for improved operations on the ground in order to deliver environmental justice to local people. Economic monopolies have existed throughout much of human history. In ancient and medieval times dire scarcity of resources was common and affected the lives of most human beings. When resources are extremely scarce, little room exists for a multiplicity of producers for many products and services. Monopoly is a well-defined market structure where there is only one seller who controls the entire market supply, as there are no close substitutes for his product and there are no barriers to the entry of rival producers. However in this dynamically changing world there is no such situation where the commodity does not have a substitute. So for a monopoly to be effective there must be no practical substitutes for the product or service sold, and no serious threat of the entry of a competitor into the market. This enables the seller (â€Å"monopolist†) to control the price. The term monopolist is derived from the Greek word â€Å"mono†, meaning â€Å"single†, and â€Å"polist† meaning seller. Thus the monopolist may be defined as the sole seller of a product which has no close substitutes. At the beginning we state the background information about the theory of natural monopoly as a source of market failure. Then we show the certain case of such monopoly – ArcelorMittal Temirtau Kazakhstan. Our research analysis is divided to two parts: background information and social&environmental impacts of global steel giant’s work in our homeland. Considering the situation and the current conditions of Arcelor-Mittal we then provide following solutions to the company that have to be implemented in order to enable it to overcome and or limit the potential problems in the foresseable future. The Theory of Natural Monopoly. Market failure occurs when resources are misallocated, or allocated inefficiently. There are five important sources of market failure, each of which results from the failure of one of the assumptions basic to the perfectly competitive model. Each also points to a potential role for government in the economy. One of the causes of market failure is imperfect competition, particularly monopolies. An imperfectly competitive market is one where the assumption of many buyers and sellers does not hold. These types of market organizations include monopoly, monopsony, oligopoly, and monopolistic competition. The operations of monopoly or natural monopoly often result in misuse of market power and inefficient allocation of resources, which reduce community welfare. For this reason, governments generally regulate monopoly and enforce laws preventing cartels. This type is a major rationale for a comprehensive competition policy. A monopoly is a market with one seller and many buyers. A monopoly may exist because of special 2 / 13 government regulation or because the monopolist is the sole owner of a resource (due to a patent or some other reason). A monopoly has the following characteristics: †¢There is only one producer in the market †¢They sell a single product with no close substitutes †¢Monopolies are price makers. The monopolies demand curve is the market demand curve; therefore the firm can sell the product at a higher price but only if it reduces output. It has control over the price or quantity sold, but not both. †¢There are very strong barriers to entry. This might include: High capital costs; High ‘sunk’ costs. Sunk costs are those which cannot be recovered if the firm goes out of business, such as advertising costs – the greater the sunk costs the greater the barrier. Technological knowledge, when one firm acquires the technological know-how that other firms do not have Patents and copyrights, protecting other firms from copying their product; Government regulations and restrictions; The monopoly can execute predatory pricing which involves dropping price very low in a ‘demonstration’ of power and to put pressure on existing or potential rivals and/or limit pricing. Limit pricing is a specific type of predatory pricing which involves a firm setting a price just below the average cost of new entrants – if new entrants match this price they will make a loss! A natural monopoly. A natural monopoly is a firm that can supply a good or service to an entire market at a lower price than if there were two or more firms. It has some similarities to a monopolist. It is an imperfect competitor, the sole producer in a market, and able to retain this position because of barriers to entry, such as government regulation, technological leadership or large start-up capital, It is able to restrict output in order to increase price and earn supernormal profits. However, a natural monopoly has a downward-sloping average cost curve (AC) over the relevant range of outputs, which results from economies of scale. Economies of scale develop in the long run, which is a period of time when all inputs are variable and the constraints imposed by diminishing returns no longer apply. The graph below shows the long run as being made up of a series of short-run periods, shown as a series of short-run AC en shown together illustrate economies of scale. Figure 1. Economies of scale. Source Senior Economics Workbook: NCEA Level 3. Geoff Evans, Ben Cahill, John Rogers. Pearson Education New Zealand Limited, 2005. Chapter 10. Page 93. A â€Å"natural monopoly† because it is economically efficient for there to only be one supplier. The following diagram can help to illustrate just why: Figure 2. A natural monopoly. Source Senior Economics Workbook: NCEA Level 3. Geoff Evans, Ben Cahill, John Rogers. Pearson Education New Zealand Limited, 2005. Chapter 10. Page 109. Given the downward sloping supply curve, and ignoring the demand curve for a minute, having an equilibrium at point E1, which gives us price P1. We could assume that this is a monopoly equilibrium, where Q1 represents the entire size of the market – it represents everybody who wants to buy the good. But in the case of a duopoly market, where there are two suppliers, we could assume that each seller in the market has exactly half of the market. This corresponds to the equilibrium E2 on the above diagram, which gives us quantity Q2 and price P2. We can assume the Q2 = 0. 5 x Q1, and that each of the two firms supplies Q2 of the good in question. And here a major problem arises. If we have one firm only, the marginal cost of supply is P1, which is lower than the duopoly price, P2. This means that having two firms in a market ends up with the firms having to charge a higher price than if only one firm existed. In this case, it is efficient, or â€Å"natural†, for there to only be one firm in 3 / 13 the market. This is why declining-marginal-cost industries are called natural monopolies. Because natural monopolies tend to be utilities, which are services like gas, electricity, water and telephones, which the public generally holds to be necessities of life, we are not comfortable allowing these firms to charge monopoly prices (i. e. , the pricing where MR = MC). Because these are staples or necessities, the demand curve for these goods is very inelastic – it is very steep. This means that the monopolist price would be much higher than the free-market price, and a large volume of people would be denied basic necessities of life. Instead, we use the power of government to regulate prices in these markets. The normal avenue for regulation of natural monopolies is the public utilities commission. These exist at the state-level in the United States, and at the national level in many other countries. Utilities commissions are given the task of making sure that utility companies make enough money to stay in business, but not enough to enjoy monopoly profits. They make sure that everybody is served, and served well, in theory. Since utilities are monopolies that are not subject to market forces and competition, they have little pressure to be responsive to market forces, which means that they do not have to treat their customers well, because their customers do not have the ability to switch to a different supplier. The costs of monopoly: †¢Less choice. Clearly, consumers have less choice if supply is controlled by a monopolist – for example, the Post Office used to be monopoly supplier of letter collection and delivery services across the UK and consumers had no alternative letter collection and delivery service. †¢High prices. Monopolies can exploit their position and charge high prices, because consumers have no alternative. This is especially problematic if the product is a basic necessity, like water. †¢Restricted output Monopolists can also restrict output onto the market to exploit its dominant position over a period of time, or to drive up price. †¢Less consumer surplus A rise in price or lower output would lead to a loss of consumer surplus. Consumer surplus is the extra net private benefit derived by consumers when the price they pay is less than what they would be prepared to pay. Over time monopolist can gain power over the consumer, which results in an erosion of consumer sovereignty. †¢Asymmetric information There is asymmetric information – the monopolist may know more than the consumer and can exploit this knowledge to its own advantage. †¢Productive inefficiency Monopolies may be productively inefficient because there are no direct competitors a monopolist has no incentive to reduce average costs to a minimum, with the result that they are likely to be productively inefficient. †¢Allocative inefficiency Monopolies may also be allocatively inefficient – it is not necessary for the monopolist to set price equal to the marginal cost of supply. In competitive markets firms are forced to ‘take’ their price from the industry itself, but a monopolist can set (make) their own price. Consumers cannot compare prices for a monopolist as there are no other close suppliers. This means that price can be set well above marginal cost. †¢Net welfare loss Even accounting for the extra profits derived by a monopolist, which can be put back into the economy when profits are distributed to shareholders, there is a net loss of welfare to the community. Welfare loss is the loss of community benefit, in terms of consumer and producer surplus, that occurs when a market is supplied by a monopolist rather than a large number of competitive firms. 4 / 13. †¢Monopoly welfare loss A ‘net welfare loss’ refers any welfare gains less any welfare loses as a result of an economic transaction or a government intervention. Using ‘welfare analysis’ allows the economist to evaluate the impact of a monopoly. †¢Less employment Monopolists may employ fewer people than in more competitive markets. Employment is largely determined by output – the more output a firm produces the more labour it will require. As output is lower for a monopolist it can also be assumed that employment will also be lower. The benefits of monopoly:Monopolies can provide certain benefits, including: †¢Exploit economies of scale As we have already mentioned above, the natural monopoly exploits economies of large scale. This means that it can produce at low cost and pass these savings on to the consumer. However, there would be little incentive to do this and the savings made might be used to increase profits or raise barriers to entry for future rivals. †¢Dynamic efficiency Monopolists can also be dynamically efficient – once protected from competition monopolies may undertake product or process innovation to derive higher profits, and in so doing become dynamically efficient. It can be argued that only firms with monopoly power will be in the position to be able to innovate effectively. Because of barriers to entry, a monopolist can protect its inventions and innovations from theft or copying. †¢Avoidance of duplication of infrastructure The avoidance of wasteful duplication of scarce resources – if the monopolist is a ‘natural monopoly’ it can be argued that competitive supply would be wasteful. Natural monopolies include gas, rail and electricity supply. A natural monopoly occurs when all or most of the available economies of scale have been derived by one firm – this prevents other firms from entering the market. But having more than one firm will mean a wasteful duplication of scarce resources. †¢Revenue Monopolists can also generate export revenue for a national economy. A single firm may gain from economies of scale in its own domestic economy and develop a cost advantage which it can exploit and sell relatively cheaply abroad. Remedies for monopoly:If a monopolist can gain a foothold in a market it becomes very difficult for new firms to enter, with the result that the price mechanism is restricted from doing its job. Resources cannot be allocated to where they are most needed because the monopolist can erect barriers to other firms. These barriers will not ‘naturally’ come down. The failure of markets to ‘self regulate’ is at the heart of monopoly as a ‘market failure. There are a number of ways in which the negative effects of monopoly power can be reduced: Regulation of firms who abuse their monopoly power. This could be achieved in a number of ways, including: †¢Price controls Setting price controls. For example, the current UK competition regulator, the Office of Fair Trading (OFT), has developed a system of price ‘capping’ for the previously state owned natural monopolies like gas and water. This price capping involves tying prices to just below the current general inflation rate. The formula, RPI – X, is used, where the RPI (the Retail Price Index) is the chosen index of inflation and ‘X’ is a level of price reduction agreed between the regulator and the firm, based on expected efficiency gains. †¢Prohibiting mergers Prohibiting mergers – in the UK the Competition Commission can prohibit mergers between firms that create a combined market share of 25% or more if it believes that the merger would be against the ‘public interest’. In making their judgement, the ‘public interest’ takes into account the effect of the merger on jobs, prices and the level of competition. †¢Breaking up the monopoly Breaking up the monopoly into several smaller firms. For example regulators in the EU are currently 5 / 13 investigating potential abuse of market dominance by Microsoft, which is under threat of being broken up into two companies – one for its operating systems and the other for software. †¢NationalisationBringing the monopoly under public control – which is referred to as ‘nationalisation’. The ultimate remedy for an abusive monopoly is for the State to take a controlling interest in the firm by acquiring over 50% of its shares, or to take it over completely. The monopolist can still be run along commercial lines, but be made to operate as though the market were competitive. †¢Deregulation In those cases where a monopolist is already State controlled, such as the Post Office, it may be necessary to engage in deregulation to enable it to become more efficient. Deregulation could be used to bring down barriers to entry and open up a previously state controlled industry to competition, as has happened with the British Telecom and British Rail monopolies. This may help encourage new entrants into a market. Do Monopolies Undermine The Environment? As monopoly and natural monopoly tend to have a perpetual ownership of a scarce resource, they do not only ‘tie-up’ the existing scarce resources making it difficult for new entrants to exploit these resources, but also they often cause some environmental problems. Furthermore for many skeptics of the environmental benefits of market economies it seems that the fear of monopoly control over natural resources is one of their greatest concerns as well. The reality is actually much more complicated, because of the following: 1. Most natural resource industries are not controlled by monopolies, and are in fact characterized by a high degree of competitiveness. Agriculture, forestry, and fishing industries are almost everywhere characterized by markets with hundreds or thousands of players, some of them big but with plenty of smaller players as well. While limited degrees of market power exist in some of these industries in some areas, on the whole they are actually some of the more competitive industries in the world. Even energy and mineral industries are fairly competitive and where they are not they are characterized by oligopoly structures, almost never a monopoly. 2. Monopolies restrict output and raise the price of goods above their marginal costs (which leads to a loss of social welfare), which is why economists (mostly) consider them bad. But from an environmental perspective, they may actually be quite good since they lead to lower resource use and higher prices. For example, if oil was a completely competitive market the price would be lower and we would burn even more of it than if OPEC kept the price artificially high! The problem the environmentalist faces is not that monopolies keep prices high and limit output (that’s called conservation), but that this has a regressive effect and hurts the poor. (By the way, this is one of the biggest issues that confront environmentalists more generally, who for the most part would like to see resource prices rise. ). 3. As to examples where monopolies restrict R&D or limit technological innovation, there certainly are examples of this, but in general, the profit motive is sufficient to overcome this. Bottom line: the cheap prices of resources are the greatest threat to advances in efficiency and monopolies lead us in the opposite direction. 4. There are examples of what economists call â€Å"natural monopolies† where fixed costs are so high that only one company can be profitable providing a given service in a given region; examples are water, telecommunications, and electricity (imagine if every provider of water had to build their own pipe system? ). In cases where natural monopolies arise it is much more efficient for society to grant the company limited monopoly rights and regulate them. These are often called public utilities and abound in America (PG&E is my public utility in CA). The problem with public utilities is that often the regulators force them to charge very low prices that favor consumers but again lead to increased uses of resource; that is, if the monopolies were unregulated we would see lower resource use. 5. Let us not forget that the biggest monopolies in the history of humanity are state-owned. The monopolies in the former Soviet Union were certainly the biggest ever (and the worst environmental 6 / 13 offenders the world has ever known), and even today state-run monopolies for all sorts of resources (primarily oil, gas, and telecommunications) abound. Almost without fail, they are characterized by high prices, poor service, and abysmal environmental records. 6. Since competitive markets are one of the foundations of a prosperous economy, market-based societies have developed various forms of anti-trust legislation to ensure relatively high degrees of competitive in most markets. Laws regulating market share, anti-competitive pricing, etc. are commonplace in all of the advanced market systems, and have a relatively good record of success. Probably the greatest success has been in the telecommunications industry where deregulation has led to real price declines of almost 95% in telecommunications fees over the past 25 years. (Examples of the failure of states to break up monopolies abound in Latin America, particularly in telecom. I have written about how the Telmex in Mexico is one of the most egregious examples of robbing from the poor to give to the rich and how it is a great impediment to Mexico’s economic development. What the Mexiccam telecommunications industry desperately needs is more market-based competition to break Telmex’s grip, but unfortunately, due to immense corruption the average Mexican must continue to spend large shares of their meager earnings on phone calls. ) 7. Probably the biggest pro-competition policy is free trade and globalization. The greatest threats to regional and national monopolies come from trade from abroad and the innovation that trade accelerates. Contrary to popular wisdom, globalization does not increase the power of corporations over individuals, but just the reverse; people can shift their business to the other companies more easily as their choices increase. If you doubt this, just look at how lists of the â€Å"Fortune 500† companies continually shift every few years, and even more so in this more globalized age. In summary, while economists have long ago identified the pros and cons of monopolies, how they interact with environmental outcomes is not entirely straight-forward. What is obvious is that in non market-based economies we witness the worst forms of monopoly abuse and the resulting environmental degradation. ArcelorMittal: Going nowhere slowly. Background. ArcelorMittal Temirtau Kazakhstan(formerly Mittal Steel Temirtau, Ispat Karmet and Karaganda Metallurgical Plant). Arcelor Mittal Temirtau (AMT), founded in 1950, is one of the largest integrated steel plants in the world. The steel plant, along with all its infrastructure facilities, captive coal, iron ore and power plant, was acquired by ArcelorMittal – then Ispat – from the Kazakhstan government in 1995. Located in the city of Temirtau, population 170 000, in the Karaganda Region of Central Kazakhstan, it covers about 5 000 hectares and has a steel-making capacity of about 5. 5 million tonnes per annum. AMT operates eight coal mines in the region, producing a total of 12 202 million tonnes of coal in 2007. In the same year AMT’s output of rolled steel was 3. 581 million tonnes. The plant exports about 90 percent of its output, mostly to Russia, Iran and China. The towns of Temirtau and Karaganda as well as the surrounding area (about 1 million people) indirectly depend on the plant, which used to account for nearly 10 percent of Kazakhstan’s GDP . As of 2006 it employed 55 000 people and generated 4 percent of the country’s GDP. Figure 3. ArcelorMittal Temirtau exports the majority of its steel output but local residents pay the costs. Photo by CEE Bankwatch Network. Table 1. Mittal’s plant in Temirtau has received several direct and indirect loans from IFIs in the last 12 years: Year1997 Financial InstitutionEBRD PurposeTo restore productive capacity and improve efficiency in the steel mill and coal mines; develop value-added, higher quality steel, and to implement three environmental action plans that would improve environmental and health & safety impacts and bring the company into compliance with World Bank environmental guidelines. AmountUSD 54 million 7 / 13 RecipientAMT (former Ispat Karmet Steel Works) Year1997 Financial InstitutionIFC. PurposeTo restore productive capacity and improve efficiency in the steel mill and coal mines; develop value-added, higher quality steel, and to implement three environmental action plans that would improve environmental and health & safety impacts and bring the company into compliance with World Bank environmental guidelines. AmountUSD 132. 5 million RecipientAMT (former Ispat Karmet Steel Works) Year1999 Financial InstitutionIFC PurposeTo support the development of small and medium enterprises directly or indirectly associated with AMT and/or to assist workers formerly employed by AMT and/or to provide for the growth of the private sector in the Karaganda region. AmountUSD. 2. 5 million RecipientIndirect financial help to AMT through Kazkommertsbank. Year2001 Financial InstitutionIFC PurposeTo stimulate the relationship between the large corporate sector (in this case AMT) and the private SME sector. AmountUSD 3. 4 million equity investments. RecipientAMT. Year2004 Financial InstitutionIFC corporate loanPurposeTo enable LNM to improve the environmental performance of its present and future subsidiaries and bring them up to World Bank Group and/or European Union standards; – to assist LNM in creating and maintaining an environmental and worker health and safety system on a corporate wide level, to bring all its current and future operations in compliance with WB and/or EU standards;- to rehabilitate, dbottleneck and provide working capital and cash support to LNM’s present and future subsidiaries.