Leadership and Administrative Dynamics

1. Leadership and Administrative Dynamics Eckerd Fall 2011

2. Agenda Public Goods Nonprofits Government The arena for nonprofit and governmental intervention in society. Scope of nonprofit sector. Discussion: purpose of nonprofits. Leadership defined, traits, power, creating a marketplace of ideas. Externalities and Cost Benefit Analysis. Directions on writing clearly and memo writing in class. Discussion: purpose of government. Leadership Pareto Optimality Memo Writing

3. What is the public sector? The part of the economy concerned with providing basic government services. The composition of the publicsector varies by country, but in most countries the public sector includes such services as the police, military, public roads, public transit, primaryeducation and healthcare for the poor. The public sector might provide services that non-payers cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service (such as public education), and services that encourage equal opportunity.

4. What is government? Harmonized life lifted to its highest potency One of many social institutions (unions, churches) Orchestra leader Organized oppression (parasite/tyrant) Clumsy instrument to solve conflicts

5. Should Government: Protect the rights individuals already have or Create a more equitable distribution?

6. Example OP-ED CONTRIBUTOR Stop Coddling the Super-Rich By WARREN E. BUFFETT Published: August 14, 2011 Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

7. Federal Income tax rates $8,375 - 10% Up to $34k – 15% Up to $82k – 25% Up to $172k – 28% Up to $374k – 33% Above - 35% 1950 taxable rate: $400,000 + = 84%

8. Conflicts - Private vs. Public • Human acts have consequences. • If Party A and Party B have a discussion, this transaction is between them and does not extend beyond the private boundary. • But if the consequences of this discussion extends to the welfare of others the transaction becomes public.

9. Goods – Adam Smith “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” A good will be produced if the marginal cost of producing is lower than the cost the user is willing to pay.

10. Is self-interest good and to what degree? • Evil consequences – • There is common interest in creating and maintaining “rules” to protect Party C from Party A and Party B.

11. John Dewey When the state is involved in passing laws, enforcing a contract…it still acts through a person who is a representative of the public. Officials are public agents.

12. What is the state then: An organization of the public effected through officials for the protection of the interests shared by its members. Can this be true even if everyone doesn’t wish to be a member? Can this be true if everyone doesn’t agree?

13. What is a non-profit agency? A non-profit organization is a group organized for purposes other than generating profit and in which no part of the organization's income is distributed to its members, directors, or officers. Churches, public schools, public charities, hospitals, political organizations, legal aid societies, volunteer services, labor unions, museums, orchestras…

14. Why? Why do we need government and non-profit agencies? What does economics say about this?

15. Discussion If I eat a piece of fruit, can someone else eat it as well? No. (rival/excludable). I walk in the national forest. I cannot keep others from walking in the national forest. Non-rival, non-excludable, free-riding – someone else will pay for it.

16. Private vs. Public • Private Enterprise • Benefits only those engaged in the action • Social Costs • Benefits both those engaged in the action and others. • Example: smoking

17. Smoking What does a pack of cigarettes cost a smoker, the smoker's family, and society? Private Cost: For a 24-year-old male smoker the cost is $183,000. Social Cost: $220K. The total social cost of smoking over a lifetime—including both private costs to the smoker and costs imposed on others (including second-hand smoke and costs of Medicare, Medicaid, and Social Security). The cost per pack over a lifetime of smoking: almost $40.00.

18. PUBLIC GOOD Things that can be consumed by everybody in a society, or nobody at all. They have three characteristics: • Non-rival – one person consuming them does not stop another person consuming them Non-excludable – if one person can consume them, it is impossible to stop another person consuming them Non-rejectable – people cannot choose not to consume them even if they want to.

19. EXAMPLES Clean air National security Judiciary Non-rivalry plus non-excludability = hard to get people to pay to consume them.

20. Role of Government and Nonprofits Thus public goods are regarded as an example of MARKET FAILURE. Public goods are provided by GOVERNMENT or NONPROFITS and paid for through compulsory TAXATION, philanthropy and fees. Might not be provided at all if left to MARKET FORCES.

21. Market Failure Examples Illegal drugs Prostitution is illegal Mandate to wear a helmet when riding a motorcycle

22. Why do we need government and non-profits?, continued… What does philosophy say about this:

23. John Rawls • Equality • Does not hold that inequality is always unjust. • When is inequality unjust?

24. Inequality • When people are suffering. • When people are stigmatized. • When the political process is not fair.

25. Rawls continued: Fair equality of opportunity: Social conditions are such that regardless of class or origin a citizen given the same talents and willingness to try should be equal to another citizen.

26. Rawls says “the gap cannot be wider than the criterion of reciprocity allows, so that the least advantaged have sufficient all-purpose means to make intelligent and effective use of their freedoms and to lead reasonable and worthwhile lives.

27. Rawls also says: Once this state is reached, there is no need to further reduce the gap.

28. Back to economics

29. Pareto Criterion and Pareto Optimality • Pareto Criterion A policy change is an improvement if at least one person is better off and no one is made worse off. • Pareto Optimality No other feasible policy could make at least one person better off without making anyone worse off.

30. John Farmer and Mary Organic • Mary Organic • Has 3 acres of land where she grows blueberries, corn and tomatoes 100% organically. • John Farmer • Has 10 acres of land where he grows apples, peaches , pears and vegetables. He uses pesticides.

31. Is this Pareto Efficient? • Mary now has 20 acres of land • John now has 9 acres of land.

32. Fairness Any policy which improves resource allocation necessarily increases society's real income. Therefore society can, if it wishes, use compensating bounties and taxes to redress any inequitable effects that may result from the policy.

33. Competition Competition is considered better than monopoly since only the former brings price down to equality with marginal cost.

34. Utilitarian/Utility • Utilitarianism - principle that the utility (happiness or satisfaction) of different people can not only be measured but also meaningfully summed over people and that utility comparisons between people are meaningful. • We can create a well-defined societal optimum in decisions, and achieve "the greatest good for the greatest number."

35. Ethical Diversity Within each culture there exists a distinctive ethos, a particular concept of "the good life." In each case the ethical principles used by the culture are appropriate to that ethos. Since cultures differ in their ethos they differ in their ethics.

36. The Problem One man’s ceiling is another man’s floor, yet… We don’t agree on what is just and ethical Should we break into small groups? Locke, Rawls etc., all agree that there is strength in numbers. What do we do?

37. Justice Can we agree on what is just and ethical and then set policy accordingly?

38. Reflective Equilibrium We examine our moral judgments about a particular issue by reviewing our beliefs about similar issues. We seek coherence.

39. What is the right thing to do in this case? We have intuition, which allows us to balance previous experience, rules, judgments, principles into a coherent judgment about a current issue. We can change or modify our positions as new information becomes available.

40. Age vs. Race Morally irrelevant traits? We all age. We do not change race. Medical treatments – May we ration medical treatments at different ages? May we ration medical treatments based on race?

41. John Rawls has proposed a conception of justice as fairness • In the case of distributive justice, justice is fair distribution of the goods of society • But what is fair? • We should conceive of ourselves as in a position of ignorance regarding our position in society • In such a position, it would be reasonable for each of us to require that if a distribution is unequal, it must help the least advantaged

42. Updating an Existing Intersection Cost to the city about $55,000, when including the engineering costs. Controller - $9,250. 16 signal heads- $13,350. 14 other item categories in the bid - $22,545 Examples: cable, the traffic signals’ back plates, construction warning signs and the magnetic loops construction materials and labor.

43. Policy Making and the Challenge of Leadership Public Goods Consider update to a traffic intersection, which costs $55K . If built, engineers estimate that the chance of being fatally injured in a traffic accident will fall from 1.6 percent to 1.1 percent. Should we implement this project? What is the cost of human life?

44. Decisions Nonprofit and Government Leaders have to make with Limited Resources Kaldor-Hicks: When do benefits exceed the costs? The benefits should be enough that those that win could in theory compensate the losers. Society as a whole benefits.

45. Growth in Nonprofit Organizations by Type, 1996 and 2008 Sources: IRS Business Master File 04/2009 (with modifications by the National Center for Charitable Statistics at the Urban Institute to exclude foreign and governmental organizations).

46. Memo Writing Consider the role of the Blackberry in the modern office environment. Executives have little time to read flowery, superfluous, creative writing exercises. It is rare that the point cannot be made in a few pages. Poor writing leads to the reduction of the value of your recommendation. Email has changed the way staff communicate with each other (not always for the better). Memo writing is not like texting. To paraphrase: “Never doubt that a well- written memo can change the world.”