CASES

Principles of Systems
Thinking
Cases
Participant’s Guide
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Case 1 It's Global Warming, Stupid
By Paul M. Barrett on November 01, 2012
http://www.businessweek.com/articles/2012-11-01/its-global-warming-stupid
Hurricane Sandy churns off the coast of Florida as a line of clouds associated with a powerful cold front approaches the U.S.
East Coast on Oct. 26, 2012
Yes, yes, it’s unsophisticated to blame any given storm on climate change. Men and women in
white lab coats tell us—and they’re right—that many factors contribute to each severe weather
episode. Climate deniers exploit scientific complexity to avoid any discussion at all.
Clarity, however, is not beyond reach. Hurricane Sandy demands it: At least 40 U.S. deaths.
Economic losses expected to climb as high as $50 billion. Eight million homes without power.
Hundreds of thousands of people evacuated. More than 15,000 flights grounded. Factories,
stores, and hospitals shut. Lower Manhattan dark, silent, and underwater.
An unscientific survey of the social networking literature on Sandy reveals an illuminating tweet
(you read that correctly) from Jonathan Foley, director of the Institute on the Environment at
the University of Minnesota. On Oct. 29, Foley thumbed thusly: “Would this kind of storm
happen without climate change? Yes. Fueled by many factors. Is storm stronger because of
climate change? Yes.” Eric Pooley, senior vice president of the Environmental Defense Fund
(and former deputy editor of Bloomberg Businessweek), offers a baseball analogy: “We can’t
say that steroids caused any one home run by Barry Bonds, but steroids sure helped him hit
more and hit them farther. Now we have weather on steroids.”
Principles of Systems Thinking Cases

Date Developed:2013_01 page 3 SMPSYSTH001 Case v2014 QCCI
In an Oct. 30 blog post, Mark Fischetti of Scientific American took a spin through Ph.D.-land and
found more and more credentialed experts willing to shrug off the climate caveats. The
broadening consensus: “Climate change amps up other basic factors that contribute to big
storms. For example, the oceans have warmed, providing more energy for storms. And the
Earth’s atmosphere has warmed, so it retains more moisture, which is drawn into storms and is
then dumped on us.” Even those of us who are science-phobic can get the gist of that.
Sandy featured a scary extra twist implicating climate change. An Atlantic hurricane moving up
the East Coast crashed into cold air dipping south from Canada. The collision supercharged the
storm’s energy level and extended its geographical reach. Pushing that cold air south was an
atmospheric pattern, known as a blocking high, above the Arctic Ocean. Climate scientists
Charles Greene and Bruce Monger of Cornell University, writing earlier this year
in Oceanography, provided evidence that Arctic ice melts linked to global warming contribute
to the very atmospheric pattern that sent the frigid burst down across Canada and the eastern
U.S.
If all that doesn’t impress, forget the scientists ostensibly devoted to advancing knowledge and
saving lives. Listen instead to corporate insurers committed to compiling statistics for profit.
On Oct. 17 the giant German reinsurance company Munich Re issued a prescient report
titled Severe Weather in North America. Globally, the rate of extreme weather events is rising,
and “nowhere in the world is the rising number of natural catastrophes more evident than in
North America.” From 1980 through 2011, weather disasters caused losses totaling
$1.06 trillion. Munich Re found “a nearly quintupled number of weather-related loss events in
North America for the past three decades.” By contrast, there was “an increase factor of 4 in
Asia, 2.5 in Africa, 2 in Europe, and 1.5 in South America.” Human-caused climate change “is
believed to contribute to this trend,” the report said, “though it influences various perils in
different ways.”
Global warming “particularly affects formation of heat waves, droughts, intense precipitation
events, and in the long run most probably also tropical cyclone intensity,” Munich Re said. This
July was the hottest month recorded in the U.S. since record-keeping began in 1895, according
to the National Oceanic and Atmospheric Administration. The U.S. Drought Monitor reported
that two-thirds of the continental U.S. suffered drought conditions this summer.
Granted, Munich Re wants to sell more reinsurance (backup policies purchased by other
insurance companies), so maybe it has a selfish reason to stir anxiety. But it has no obvious
motive for fingering global warming vs. other causes. “If the first effects of climate change are
already perceptible,” said Peter Hoppe, the company’s chief of geo-risks research, “all alerts
and measures against it have become even more pressing.”

Which raises the question of what alerts and measures to undertake. In his book The
Conundrum, David Owen, a staff writer at the New Yorker, contends that as long as the West
places high and unquestioning value on economic growth and consumer gratification—with
China and the rest of the developing world right behind—we will continue to burn the fossil
fuels whose emissions trap heat in the atmosphere. Fast trains, hybrid cars, compact
fluorescent light bulbs, carbon offsets—they’re just not enough, Owen writes.
Yet even he would surely agree that the only responsible first step is to put climate change back
on the table for discussion. The issue was MIA during the presidential debates and, regardless
of who wins on Nov. 6, is unlikely to appear on the near-term congressional calendar. After
Sandy, that seems insane.
Mitt Romney has gone from being a supporter years ago of clean energy and emission caps to,
more recently, a climate agnostic. On Aug. 30, he belittled his opponent’s vow to arrest climate
change, made during the 2008 presidential campaign. “President Obama promised to begin to
slow the rise of the oceans and heal the planet,” Romney told the Republican National
Convention in storm-tossed Tampa. “My promise is to help you and your family.” Two months
later, in the wake of Sandy, submerged families in New Jersey and New York urgently needed
some help dealing with that rising-ocean stuff.
Obama and his strategists clearly decided that in a tight race during fragile economic times, he
should compete with Romney by promising to mine more coal and drill more oil. On the
campaign trail, when Obama refers to the environment, he does so only in the context of
spurring “green jobs.” During his time in office, Obama has made modest progress on climate
issues. His administration’s fuel-efficiency standards will reduce by half the amount of
greenhouse gas emissions from new cars and trucks by 2025. His regulations and proposed
rules to curb mercury, carbon, and other emissions from coal-fired power plants are forcing
utilities to retire some of the dirtiest old facilities. And the country has doubled the generation
of energy from renewable sources such as solar and wind.
Still, renewable energy accounts for less than 15 percent of the country’s electricity. The U.S.
cannot shake its fossil fuel addiction by going cold turkey. Offices and factories can’t function in
the dark. Shippers and drivers and air travelers will not abandon petroleum overnight. While
scientists and entrepreneurs search for breakthrough technologies, the next president should
push an energy plan that exploits plentiful domestic natural gas supplies. Burned for power, gas
emits about half as much carbon as coal. That’s a trade-off already under way, and it’s worth
expanding. Environmentalists taking a hard no-gas line are making a mistake.
Conservatives champion market forces—as do smart liberals—and financial incentives should

be part of the climate agenda. In 2009 the House of Representatives passed cap-and-trade
legislation that would have rewarded more nimble industrial players that figure out how to use
cleaner energy. The bill died in the Senate in 2010, a victim of Tea Party-inspired Republican
obstructionism and Obama’s decision to spend his political capital to push health-care reform.

Despite Republican fanaticism about all forms of government intervention in the economy, the
idea of pricing carbon must remain a part of the national debate. One politically plausible way
to tax carbon emissions is to transfer the revenue to individuals. Alaska, which pays dividends
to its citizens from royalties imposed on oil companies, could provide inspiration (just as
Romneycare in Massachusetts pointed the way to Obamacare).
Ultimately, the global warming crisis will require global solutions. Washington can become a
credible advocate for moving the Chinese and Indian economies away from coal and toward
alternatives only if the U.S. takes concerted political action. At the last United Nations
conference on climate change in Durban, South Africa, the world’s governments agreed to seek
a new legal agreement that binds signatories to reduce their carbon emissions. Negotiators
agreed to come up with a new treaty by 2015, to be put in place by 2020. To work, the treaty
will need to include a way to penalize countries that don’t meet emission-reduction targets—
something the U.S. has until now refused to support.
If Hurricane Sandy does nothing else, it should suggest that we need to commit more to
disaster preparation and response. As with climate change, Romney has displayed an alarmingly
cavalier attitude on weather emergencies. During one Republican primary debate last year, he
was asked point-blank whether the functions of the Federal Emergency Management Agency
ought to be turned back to the states. “Absolutely,” he replied. Let the states fend for
themselves or, better yet, put the private sector in charge. Pay-as-you-go rooftop rescue service
may appeal to plutocrats; when the flood waters are rising, ordinary folks welcome the National
Guard.
It’s possible Romney’s kill-FEMA remark was merely a pander to the Right, rather than a serious
policy proposal. Still, the reconfirmed need for strong federal disaster capability—FEMA and
Obama got glowing reviews from New Jersey Governor Chris Christie, a Romney supporter—
makes the Republican presidential candidate’s campaign-trail statement all the more
reprehensible.
The U.S. has allowed transportation and other infrastructure to grow obsolete and deteriorate,
which poses a threat not just to public safety but also to the nation’s economic health. With
once-in-a-century floods now occurring every few years, New York Governor Andrew Cuomo
and New York City Mayor Michael Bloomberg said the country’s biggest city will need to
consider building surge protectors and somehow waterproofing its enormous subway system.
“It’s not prudent to sit here and say it’s not going to happen again,” Cuomo said. “I believe it is
going to happen again.”
David Rothkopf, the chief executive and editor-at-large of Foreign Policy, noted in an Oct. 29
blog post that Sandy also brought his hometown, Washington, to a standstill, impeding affairs
of state. To lessen future impact, he suggested burying urban and suburban power lines, an
expensive but sensible improvement.

Where to get the money? Rothkopf proposed shifting funds from post-Sept. 11 bureaucratic
leviathans such as the Department of Homeland Security, which he alleges is shot through with
waste. In truth, what’s lacking in America’s approach to climate change is not the resources to
act but the political will to do so. A Pew Research Center poll conducted in October found that
two-thirds of Americans say there is “solid evidence” the earth is getting warmer. That’s down
10 points since 2006. Among Republicans, more than half say it’s either not a serious problem
or not a problem at all.
Such numbers reflect the success of climate deniers in framing action on global warming as
inimical to economic growth. This is both shortsighted and dangerous. The U.S. can’t afford
regular Sandy-size disruptions in economic activity. To limit the costs of climate-related
disasters, both politicians and the public need to accept how much they’re helping to cause
them.
Barrett, an assistant managing editor and senior writer at Bloomberg Businessweek, is author,
most recently, of GLOCK: The Rise of America’s Gun.
Analysis
1. Identify what a “hurricane” influences and what influences it. Quantify the variables
identified.
2. Develop a reinforcing loop.
3. Create a balancing loop. Evaluate its significance.

Case 2 The Global Obesity Bomb
Posted by: Charles Kenny on June 04, 2012
http://www.businessweek.com/articles/2012-06-04/the-global-obesity-bomb
Photograph by Julian Wolkenstein/Gallery Stock
New York Mayor Michael Bloomberg was in the headlines last week for his proposal to ban soft drink
servings over 16 ounces. It’s the latest front of his war against obesity, which kills 5,000 residents in the
city each year. (The mayor is the founder of Bloomberg LP, which owns Bloomberg Businessweek.)
The U.S. is a heavyweight champion in fat. It has the most obese population of any industrialized nation.
About two-thirds of all adults in the country are overweight and one-third are fully obese, according to
the World Health Organization.
This, however, is yet another area where U.S. leadership is being challenged by upstart contenders from
the developing world. Already, a larger proportion of people in Panama, Saudi Arabia, and six different
Pacific Island nations are obese than in America. Growing obesity in poorer countries is a sign of a
historic global tipping point: After millennia when the biggest food-related threat to humanity was the
risk of having too little, the 21st century is one where the fear is having too much.

From 1980 to 2008, according to the World Health Organization, worldwide obesity rates almost
doubled. A recent study in the Lancet medical journal concluded that in 2008, about 146 million adults
globally were overweight and 502 million were obese. Around half of the adult population in Brazil,
Russia, and South Africa are overweight and about 8 percent of all African adults are obese. According to
the Lancet study, the worldwide health cost attributable to obesity and its consequences added up to 36
million disability-adjusted life-years (a measure of healthy years of life lost to a disease).
It may seem strange to be worried about too much food when the United Nations suggests that, as the
planet’s population continues to expand, about 1 billion people may still be undernourished. Although
there are good reasons to think the 1 billion estimate might be exaggerated, it is clear that hundreds of
millions do still regularly go to sleep hungry. The issue isn’t so much that we can’t grow enough. Rather,
existing food supplies are so poorly distributed that those hundreds of millions have too little for their
own health, while 2 billion-plus have too much. Even within families, malnutrition is often a distribution
issue: How else to explain that about one in 10 households in Russia contain both underweight and
overweight members? And ever since Amartya Sen did his Nobel Prize-winning work on the causes of
famine, we’ve known the solution to starvation is usually very simple: Ensure poor people have enough
money to buy food.
As poverty declines—and the percentage of the population worldwide living on less than $1.25 a day has
halved since 1990—fewer people will be too poor to buy enough to eat healthily. The Lancet study
reports that the relationship between income and nutritional status breaks down after countries reach
an average income of $5,000. Once a country is over that line, the considerable majority of people have
the ability to eat enough, and the choice to eat too much. A $5,000 average income is a little more than
India’s, at $3,700, about where Indonesia is today ($4,700). China’s average income is $8,400.
When it comes to food, we are living in a world of plenty. For those worried about agricultural
sustainability, there is a lot of slack in the system. A third of food production is simply wasted
worldwide—spoiled before it reaches consumers or thrown away after that. Continued increases in
agricultural productivity, thanks to new seed varieties and more efficient farming practices like fertilizer
micro-dosing and drip irrigation, mean that sustainably feeding the world’s population, even if it grows
past 9 billion, is eminently achievable. The big public health challenge around food over the next 50
years will not be how the planet grows enough to prevent mass starvation, but how it avoids fat
becoming the No. 1 killer.
The bad news is that the global obesity epidemic is a more complex problem than the conditions that
felled most poor people in the past. Many common killers like measles can be prevented by a vaccine,
malaria can be battled with bed nets and insecticide spraying, and diarrhea is a condition where large
quantities of sugar water is actually a plus—add a little salt and you’ve got the perfect treatment for
dehydration.
Obesity, on the other hand, has a whole range of different causes and no simple public health solution.
The increasing numbers of people worldwide who earn a living sitting down rather than moving around,
as services overtake agriculture as the biggest employer, mean the amount of calories the average
human needs to consume is actually falling. But agricultural productivity has led to a dramatic long-term
decline in the cost of food at a time when growing wealth is providing more resources to buy sugary and
fatty products. That wealth also attracts marketers and junk food companies like bears to honey. Pretty

much any country with a McDonald’s (MCD) is experiencing a growth in obesity. And just shouting “eat
less fat and sugar” at people doesn’t seem to work too well as a response.
As vexing a challenge as obesity might be, it is worth noting two things. First, it is a disease of choice—
even if choosing to eat right can be very hard. Nobody chooses to be stunted by a lack of nutrition.
Second, there are some signs of approaches that work to improve the choices people make. In 2003,
near the start of Mayor Bloomberg’s campaign against fat, New York City banned sweet drinks from
schools. Perhaps partially as a result, obesity rates in public school kids have fallen by 5 percent in the
last four years.
The problem of global plenty is a real one. But for all of New York’s—and the world’s—challenges with
excess, it is still considerably better than the reverse.
Kenny is a fellow at the Center for Global Development and the New America Foundation.
Analysis
1. Identify what “school children obesity” influences and what influences it. Quantify the variables
identified.

Case 3 The Financial Crisis Blame Game
By Ben Steverman and David Bogoslaw on October 18, 2008
http://www.businessweek.com/stories/2008-10-18/the-financial-crisis-blame-
gamebusinessweek-business-news-stock-market-and-financial-advice
European economic affairs ministers debate "The Future of the Eurozone" during the World Economic Forum in Davos,
Switzerland on Jan. 27, 2012
Think of the current market and economic turmoil as a disaster by committee, with blunders by
government officials, Wall Street pros, and regular Americans alike
Tune in to Anderson Cooper on CNN and watch as he counts down the "10 Most Wanted Culprits of the
Collapse." Pick up the New York Post and read about FBI investigations of top financial firms under the
headline "Fraud Street." With a bewildering and frightening financial crisis in full swing, the new national
pastime is finding someone to blame.
As markets crash and retirement dreams fade away, media and the public are full of outrage at
everyone from mortgage brokers and Wall Street CEOs to real estate investors to experts who failed to
predict the crisis was coming. Congress hauls the most prominent executives before tough committee
hearings, while political candidates blame each other. Pundits proffer lists of the mustache-twirling
villains who caused the whole thing.

An Epic Whodunit
Investigators will undoubtedly uncover fraud, cheating, and other criminal behavior. But for now, there
is no shortage of players who stand accused of having a hand in the crisis. It just depends on where you
think the landslide began or who gave it the biggest push.
If you blame loosened financial regulations, maybe former Sen. Phil Gramm (R-Tex.) or Securities &
Exchange Commission Chairman Christopher Cox are your men.
Think that a political push to boost homeownership handed too many people mortgages they couldn't
afford? Why not single out Franklin Raines, former CEO of Fannie Mae?
Maybe you think the whole housing bubble could have been avoided with an interest rate increase (Alan
Greenspan, step right up). Or, that folks should never have signed up for no-doc, interest-only loans, no
matter how many silhouettes danced across their computer screen in a Web ad. In that case, the villain
may be no further than your bathroom mirror.
(For a walk through some of those people who are blamed for having a hand in the meltdown, go to our
slide show.)
"Whole System" at Fault
Of course, all of these people had something else in mind other than wrecking the U.S. economy. Some
of them were making lots and lots of money—for themselves, of course, but also for their investors.
Others truly believed in the virtue of freeing the marketplace's animal spirits from the cold hand of
government regulation. And how many people were arguing against the virtues of homeownership?
Just the fact that one can assemble such a long list of possible villains gives a hint as to how many
institutions, officials, and regular Americans made mistakes. "It's so difficult to pinpoint one person or
two people," says Georgetown University finance professor Reena Aggarwal. "It really was the whole
system."
Even Presidential candidates eager for votes have acknowledged there's no easy scapegoat. "Part of the
reason this crisis occurred is that everyone was living beyond their means—from Wall Street to
Washington to even some on Main Street," Senator Barack Obama (D-Ill.) said on Oct. 13.
Indeed, it was a series of bad ideas, surprising linkages, and all-too-predictable blunders that came
together to send the U.S. financial system, and then the entire world economy, into a serious credit
crunch and global stock panic. That's not to say that it couldn't have been prevented.
A Sign: Soaring Home Price-to-Income Ratio
First, there was a bubble in the U.S. housing market as home prices hit unsustainable levels. We should
have recognized a bubble when we saw it: Just a few years before, another market bubble collapsed—in
technology stocks. And all the signs were there in housing.

If you ever drove through row after row of new tract homes sprouting from the California desert and
wondered, "How can all these people afford $500,000 houses?" the answer was, they couldn't. For the
two decades until 2001, the national median home price went up and down, but it remained between
2.9 and 3.1 times the median household income, according to the Harvard Joint Center for Housing
Studies. By 2004, however, the ratio of home prices to income hit 4.0, and by 2006 the ratio was 4.6. Or
consider this statistic: in 2006, at the height of the bubble, more than four in every 10 California
households owning a home spent 30% or more of their incomes on housing.
"As a system, we were pressing beyond what the economics were suggesting people could afford," says
Michael Strauss, chief economist at Common fund. Nonetheless, nearly everyone in the system had a
"false sense of security that housing prices would always go up."
That included home buyers and real estate and mortgage professionals.
Another Sign: The Securitization Monster
But what turned a nasty housing downturn into an extinction-level event for the whole economy was a
Wall Street innovation called securitization.
With interest rates low, investors around the world were eager for places to put their money that
offered substantial returns. While the federal funds rate was at 6.5% for much of 2000, by the end of
2001 Federal Reserve Chairman Greenspan had lowered the rate to below 2%. It remained there until
late 2004. In 2003, the yield on the one-year Treasury bill dipped well below 2%, its lowest level in the
past 40 years. Securitization, and the new investment products it could spawn, seemed to be the answer
for a Wall Street seeking a bigger payoff.
Through securitization, Wall Street firms would buy up mortgages, bundle them together, and sell them
off to investors. These mortgage-backed securities were highly complex and hard to price accurately.
But selling them offered returns for financial firms far above those of safer investments. And with home
prices continuing to rise, many, including ratings agencies, assumed that assets backed by U.S.
mortgages were safe.
"The development of the securitization pipeline [meant] there was a lot of pressure to create the loans,"
says University of Kansas finance professor George Bittlingmayer. Mortgages were given to buyers with
low credit scores—so-called subprime borrowers—and other high-risk borrowers, with little concern
that they wouldn't be able to pay the loans off. The easy money, in turn, contributed to an "upward
spiral" of home prices, Bittlingmayer says—"until the bubble collapsed."
Most of the mortgage brokers who originated these loans weren't "bad people," Bittlingmayer adds.
"They were doing what the system was asking them to do."
Wall Street was eager to buy up, bundle, and securitize the mortgages. Washington, in turn, had urged
the mortgage industry to give more loans to low-income home buyers. During the Clinton and Bush
Administrations, "there was a push to try to put homes within reach of everyone," says Larry Tabb,
founder and chief executive of the TABB Group, a capital markets research and advisory firm.

No "Skin in the Game"
That led some lawmakers to overlook serious problems at federally chartered mortgage giants Fannie
Mae (FNM) and Freddie Mac (FRE). Major players in the securitization process, both were taken over by
the government in early September after it became clear the firms wouldn't have enough capital to
cover mounting losses from defaulting mortgages.
"Everybody thought they were passing on the risk to someone else through securitization," Aggarwal
says. When the housing bubble collapsed, the folly of the securitization process and the mortgage craze
became apparent.
The problem was that investment banks didn't have "skin in the game," says Dan Lufkin, one of the
founders of Donaldson, Lufkin & Jenrette. Banks "made plenty of money putting [mortgage-backed
securities] out on the marketplace. But they could explode a day later and you are not impacted one
single iota."
That means that unlike the old-fashioned community savings and loan officer who pored over your pay
stubs to make sure you'd make the monthly payments, Wall Street had little incentive to ensure the
quality of the underlying loans in its mortgage-backed securities. Credit agencies awarded high ratings to
mortgage-backed securities, giving investors more confidence that they were safe investments.
All the large Wall Street investment banks were enthusiastic participants in the securitization process.
But two firms, Lehman Brothers and Bear Stearns, were most aggressive about their mortgage
investments. According to Thomson Reuters (TRI), Lehman issued more U.S. mortgage-backed securities
than any other firm in 2007, $95.8 billion out of an industry total of $922.1 billion. Bear Stearns had the
top spot in 2006, issuing $100 billion in U.S. mortgage-backed securities out of an industry total above
$1 trillion. Both firms' reliance on the mortgage business helped lead to their failures in 2008.
"A Lot of Smoke and Mirrors"
With all the brainpower on Wall Street—and many of those who created securitized products had
doctorates in math or physics—few made the connection between the trillions of dollars in real estate
assets held by financial firms and what would happen if the value of those assets suddenly dropped.
But this might not have created a serious economic crisis without other ingredients.
Wall Street had become increasingly sophisticated in the past few decades, and this complexity made
the entire system extremely fragile. In addition to securitizing mortgages and other assets, financial
firms created a vast array of other products, called derivatives. The buying and selling of these
obligations, such as credit default swaps, was supposed to be "a way of reducing risk, not adding risk,"
Strauss says.
However, "there was a lot of smoke and mirrors," says Bob Ried, president of Ried Thunberg ICAP, a
financial research firm. For example, because the products were highly complex, there was no central
marketplace, making it difficult to know how much they were worth.
Ironically, the huge number of derivative contracts between institutions actually increased the chances
that problems at one firm would ripple through the financial system, causing a chain reaction of losses.

That's what prompted Berkshire Hathaway (BRKA) Chief Executive and legendary investor Warren
Buffett to call derivatives "financial weapons of mass destruction" in 2003.
Too Much Leverage
Another big risk that financial firms took was in borrowing heavily. Many firms were employing
leverage—debt used in investing—of 30 to 40 times their core holdings. Previously, the SEC had kept
firms to leverage ratios of 10 to 15 times their core holdings, but the agency loosened the rules for
investment banks in 2004. With leverage, "you can make fantastic income when things are going the
right direction," Tabb says. "When things go against you, it unwinds very quickly."
Why did Wall Street ever take such dangerous risks?
The big reason, obviously, is greed. Wall Street bankers were taking home a lot of money by making
these gambles. The chief executive of Lehman, Richard Fuld Jr., for example, earned $34.4 million in
2007. "Once this business model gets going, it's very hard to stop," Tabb says. Firms had hired risk
managers who should have spoken up, but they were not supposed to "get too much in the way of
generating revenue."
Many also have criticized the way Wall Streeters are paid. "People [were] compensated on the returns
they got, and so there was a motivation to take more risk," Aggarwal says. In the record year of 2006,
Wall Street executives took home bonuses totalling $23.9 billion, according to the New York State
Comptroller's Office. Wall Street traders were thinking of the bonus at the end of the year, not the long-
term health of their firm, Tabb says.
The whole system—from mortgage brokers to Wall Street risk managers—seemed tilted toward making
short-term risks while ignoring long-term obligations. The most damning evidence is that most of the
people at the top of the banks didn't really understand how those credit default swaps and other
instruments worked.
"Regulators Didn't Regulate"
Finally, all this risk-taking by firms added up to a big gamble for the entire financial system, which only
became fully apparent as the crisis unfolded. Because no firm knew of other firms' exposures to toxic
assets or complex derivatives, it was difficult to predict how problems would flow through the system.
"It's very hard to tell the risks various parties are exposed to," says Bittlingmayer. "We don't have
transparency."
As the crisis approached, few in government spotted these problems. And no one in a position of power
moved to prevent them.
"The regulators as a whole didn't regulate," Ried says. Some officials, often at the state or even city
level, did warn of the risk but were ignored (BusinessWeek, 10/9/08). Ried blames regulators for relying
on a "free market philosophy" that "just let things go."
But Wall Street also made it worth Congress' while to look the other way. According to the Center for
Responsive Politics, the securities and investment industry, including donors at Goldman Sachs (GS),

Morgan Stanley (MS), Merrill Lynch (MER), Lehman, and Bear Stearns, gave $97.7 million to federal
political candidates for the 2004 election, and another $70.5 million for the 2006 congressional election.
A big reward for Wall Street came in 1999, when Congress passed, and President Bill Clinton signed,
legislation loosening New Deal-era bank rules, including the Glass-Steagall Act creating strict separation
between investment banks and commercial banks. Commercial banks, which rely on deposits for
funding, were allowed to encroach on investment banks' turf. That, in turn, spurred investment banks to
take on even more leverage and risk to survive.
"Investment banks started operating more like hedge funds," Aggarwal says.
In the End, Basic Bad Banking
The complexity of the people, actions, and instruments behind the meltdown are truly mind-boggling.
But strip things down to their essence and you are left with some surprisingly simple notions.
Investment banks and corporations engaged in basic bad banking, says Robert Ellis of the financial
consulting firm Celent. They broke a cardinal rule: "Never borrow short to lend or invest long." Firms
were relying on short-term funding sources for long-term obligations. When the crisis froze up short-
term markets, these institutions ran dangerously short of cash.
Even more basic was the mistake of taking too much risk. More risk allows for bigger payoffs for
participants, but it put the whole system in jeopardy.
Finally, even as problems were becoming apparent, few spoke up. Maybe it was because everyone
assumed that someone smarter than them understood how it all worked.
"There were so many financial incentives and political incentives that were aligned toward making this
work," Tabb says. "It was very difficult to stop it."
Analysis
1. Identify what a “financial crisis” influences and what influences it. Quantify the variables
identified.

Case 4 Airport Security Is Killing Us
Posted by: Charles Kenny on November 18, 2012
http://www.businessweek.com/articles/2012-11-18/how-airport-security-is-killing-us
A U.S. Transportation Security Administration employee passes a metal-detecting wand over a traveler's chest at O'Hare
International Airport
This week marks the beginning of the busiest travel time of the year. For millions of Americans, the
misery of holiday travel is made considerably worse by a government agency ostensibly designed to
make our journeys more secure. Created in the wake of the Sept. 11, 2001, attacks, the Transportation
Security Administration has largely outlived its usefulness, as the threat of a terrorist attack on the U.S.
homeland continues to recede. These days, the TSA’s major role appears to be to make plane trips more
unpleasant. And by doing so, it’s encouraging people to take the considerably more dangerous option of
traveling by road.
The attention paid to terrorism in the U.S. is considerably out of proportion to the relative threat it
presents. That’s especially true when it comes to Islamic-extremist terror. Of the 150,000 murders in the
U.S. between 9/11 and the end of 2010, Islamic extremism accounted for fewer than three dozen. Since
2000, the chance that a resident of the U.S. would die in a terrorist attack was one in 3.5 million,
according to John Mueller and Mark Stewart of Ohio State and the University of Newcastle,
respectively. In fact, extremist Islamic terrorism resulted in just 200 to 400 deaths worldwide outside the
war zones of Afghanistan and Iraq—the same number, Mueller noted in a 2011 report (PDF), as die in
bathtubs in the U.S. alone each year.
Yet the TSA still commands a budget of nearly $8 billion—which is why the agency is left with too many
officers and not enough to do. The TSA’s “Top Good Catches of 2011,” reported on its blog, did include

1,200 firearms and—their top find—a single batch of C4 explosives (though those were discovered only
on the return flight). A longer list of TSA’s confiscations would include a G.I. Joe action doll’s 4-inch
plastic rifle (“it’s a replica”) and a light saber. And needless to say, the TSA didn’t spot a single terrorist
trying to board an airline in the U.S., notes Bruce Schneier.
According to one estimate of direct and indirect costs borne by the U.S. as a result of 9/11, the New York
Times suggested the attacks themselves caused $55 billion in “toll and physical damage,” while the
economic impact was $123 billion. But costs related to increased homeland security and
counterterrorism spending, as well as the wars in Iraq and Afghanistan, totaled $3,105 billion. Mueller
and Stewart estimate that government spending on homeland security over the 2002-11 period
accounted for around $580 billion of that total.
The researchers quote Rand Corp. President James Thomson, who noted most of that expenditure was
implemented “with little or no evaluation.” In 2010, the National Academy of Science reported the lack
of “any Department of Homeland Security risk analysis capabilities and methods that are yet adequate
for supporting [department] decision making.” In short, DHS (and the TSA in particular) is firing huge
bundles of large denomination bills completely blindly.
There is lethal collateral damage associated with all this spending on airline security—namely, the
inconvenience of air travel is pushing more people onto the roads. Compare the dangers of air travel to
those of driving. To make flying as dangerous as using a car, a four-plane disaster on the scale of 9/11
would have to occur every month, according to analysis published in the American Scientist. Researchers
at Cornell University suggest that people switching from air to road transportation in the aftermath of
the 9/11 attacks led to an increase of 242 driving fatalities per month—which means that a lot more
people died on the roads as an indirect result of 9/11 than died from being on the planes that terrible
day. They also suggest that enhanced domestic baggage screening alone reduced passenger volume by
about 5 percent in the five years after 9/11, and the substitution of driving for flying by those seeking to
avoid security hassles over that period resulted in more than 100 road fatalities.
That’s not to say TSA employees bear responsibility for making the roads more dangerous—they’re just
following incentives that reward slavish attention to overbearing and ambiguous rules over common
sense. And don’t blame the officials of Homeland Security, either. They’re merely avoiding the far
greater backlash associated with doing nothing than with doing something—even if nothing is probably
the right course in a lot of cases. Instead, the blame lies somewhere among the politicians, the media,
and the electorate, who will happily skewer officials over a single fatal plane incident while ignoring car
crashes, gun homicides, and even bathtub accidents, which kill far more Americans than terrorism does.
If Americans really care about saving lives this Thanksgiving travel season, for goodness’ sake, don’t beef
up airport security any further. Slashing the TSA will ensure that more people live to spend future
holidays with loved ones.
Analysis
1. Identify what “Islamic extremism” influences and what influences it. Quantify the variables
identified.

Case 5 Death or Debt Confound Egyptians
By Tarek El-Tablawy and Salma El Wardany on October 11, 2012
http://www.businessweek.com/news/2012-10-11/death-or-debt-confound-egyptians-awaiting-
mursis-good-life
Mohamed Mursi, president of Egypt. Photographer: Jin Lee/Bloomberg
On a warm September morning as Egypt’s President Mohamed Mursi began his 74th day in office, Heba
Ibrahim’s mother took her last breath.
Five weeks of treatment for kidney failure at a Cairo hospital had left the 56-year-old mother of four
emaciated. Her normally bronze complexion was sallow and the smile that had shepherded her children
from infancy to adulthood disappeared behind the mask of a coma. The final breath was drawn on the
day the last of Ibrahim’s savings ran out.
“It was as if she knew -- knew that while she was worth the world to me, we had nothing left to pay to
save her life,” Ibrahim said in a recent interview, blaming what she said was a health care system that
helps only those with means. “Is this the new Egypt we were promised? A miserable country where the
only thing left is to sell myself to raise money?”
Her experience highlights the difficulties facing Mursi as he passed 100 days in office this week, a date
by which the Islamist had pledged to cure 64 of the ills that beset everyday life under President Hosni

Mubarak. Sworn into office in June, he squeezed past his rival Ahmed Shafik with promises of immediate
action to clean the streets, improve security and ease traffic congestion, along with longer-term goals of
greater social justice and lower poverty.
He’s accomplished only four of the short-term pledges, according to the Mursi Meter, a website
launched by Zabatak, a nonprofit organization run by politically unaffiliated young people that says it
seeks an Egypt “free and safe.”
‘Losing Hope’
Several activist groups have called for a protest tomorrow against what they say is the overwhelming
influence the Islamists are wielding in the writing of a new constitution and the government’s lack of
progress so far. Parts of the draft were unveiled yesterday.
“Change hasn’t brought any real benefits on the ground yet,” Said Hirsh, Middle East economist with
Capital Economics, said by phone. “People’s expectations are higher” than the government’s “ability to
deliver with speed. That risks people losing hope that things will change.”
The economy has shown few signs of emerging quickly from its worst economic crisis in a decade, while
a $4.8 billion loan application from the International Monetary Fund has yet to be agreed. This leaves
the government struggling to find money for the social projects that are a priority for Mursi.
Unemployment has climbed to 12.6 percent and the country needs growth of 7.5 percent to bring that
down, the government said on Oct. 9. That’s a distant goal for now -- Prime Minister Hisham Qandil says
he’s targeting economic expansion of as much as 4.5 percent this year. The country’s economic growth
fell to 1.8 percent last year, a 19-year low.
Parliament Dissolved
There are other uncertainties -- the courts dissolved parliament, there’s no constitution and arrests on
blasphemy charges have fueled criticism that Mursi, 61, hasn’t matched his rhetoric of freedom and
dignity with action. There’s no date for fresh elections, which will only come after the constitution is
drafted and ratified.
“There’s been a desire to garner enough political goodwill before the right economic decisions -- or
before the controversial economic decisions -- are taken,” according to Wael Ziada of EFG Hermes
Holding SAE.
While analysts and economists are eying macroeconomic barometers, Egyptians, of whom nearly half
live on or below the poverty line, focus on the tangible changes.
‘Second Revolution’
In an Oct. 6 speech commemorating the 1973 war with Israel, having prefaced his remarks with a victory
lap in an open-top vehicle driven around a Cairo stadium track, Mursi dismissed criticism that he had
wasted public money by taking at least nine overseas trips. The visits were aimed at winning
investments.

“I still live in a rented apartment,” he said.
He has had successes, for example ending a tug-of-war with the military council that inherited power
from Mubarak and forcibly retiring the two most powerful generals. Mahmoud Ghozlan, a spokesman
for the Brotherhood, described it in a recent interview as “the second revolution.” Mursi, a U.S.- trained
engineer, says he inherited a nation mired in debt and a legacy of corruption.
The president buttressed his accomplishments with statistics, though did not say from where they came.
He said in his Oct. 6 speech that 70 percent of his 100-day plan’s security goals were realized together
with a majority of targets on bread, traffic and fuel shortages.
“Really?” bus driver Abdel-Halim Arafa said when asked about the president’s comments in a recent
interview. Arafa’s wait at a Cairo gasoline station was in its second hour, the view from his driver-side
window one of a mountain of garbage uncollected on the side of the road. “I hadn’t noticed.”
Medical Costs
Ibrahim’s near-bankruptcy from medical costs is just another example of the challenges the Muslim
Brotherhood-backed Islamist faces. Striking doctors seeking a bigger health budget said yesterday that
Egypt was headed for a “health care collapse” and that 20 million Egyptians, about one in four, have
Hepatitis C.
As doctors unplugged the respirator, Ibrahim, a divorced mother of a three-year-old boy living with two
of her three siblings, took stock. A mother dead, friends owed more than 4,000 Egyptian pounds, almost
every bit of furniture that held some value sold and a lost 5,000 pound security deposit on the
apartment they all shared. In debt and without a steady income, they now faced eviction after having
paid more than 10,000 pounds for the roughly five-week hospital stay.
Ibrahim said she was met with bureaucratic intransigence when she applied to have the state cover her
mother’s medical costs -- something she says was much easier under Mubarak.
“I can’t see any change,” Wael Khalil, an activist and member of the National Front of secularist groups
that had rallied behind Mursi in his race against Shafiq, Mubarak’s last premier. “Decisions are still made
with the same authoritarian attitude.”
Analysis
1. Identify what “personal debt” influences and what influences it. Quantify the variables
identified.
3. Create a balancing loop on top of the existing loop. Evaluate its significance.

Case 6 Pakistan Tries New Way of Tackling Corruption
By By Sebastian Abbot on February 04, 2013
http://www.businessweek.com/ap/2013-02-04/pakistan-tries-new-way-of-tackling-corruption
Muhammad Tahir-ul-Qadri, who heads an Islamic group with 90 branches worldwide, said, “This march will end the political
dictatorship in our country.” Photographer: Carl Court/AFP/Getty Images
Corruption is so pervasive in Pakistan that even Osama bin Laden had to pay a bribe to build his hideout
in the northwest where he was killed by U.S. commandos.
Ordinary Pakistanis complain they have to grease officials' palms to get even the most basic things done:
File a police report when they have a traffic accident. Obtain copies of court documents. Get permission
to see their relatives in the hospital.
Now, an enterprising group of Pakistani officials is cracking down on this culture of graft with an
innovative program that harnesses technology to identify corruption hot spots in the country's most
populous province, Punjab.
The initiative, which leverages the ubiquitous presence of cell phones, relies on the simple concept of
asking citizens about their experience.
But experts say it represents the first large-scale attempt by any government to proactively solicit
feedback from citizens who are forced to pay bribes for basic public services and use that information to
discipline officials.
"The strength of the model is that word gets out among officials that there is someone watching and
there is someone who can make them accountable to what the public says," said Nabeel Awan, a
government official who has played a key role in the program. "It may not eliminate corruption, but it
does reduce corruption and bad administration."

Pakistan's anti-corruption wing recently estimated that graft costs the country billions of dollars each
year. Citizens regularly identify corruption as one of the nation's biggest problems, and it is getting
worse. Pakistan slipped nine places to the 33rd most corrupt country in the world last year, out of a total
of 176, according to Transparency International.
The issue could gain more relevance in the run-up to parliamentary elections expected in the spring. The
vote will be watched closely by Washington, which relies on Pakistan to help fight Islamic militants and
stabilize neighboring Afghanistan.
One of the candidates is former Pakistani cricket star Imran Khan, who has made fighting graft a key
component of his party's platform. That has put pressure on candidates from the country's two main
political powers, the ruling Pakistan People's Party and the opposition Pakistan Muslim League-N.
The PML-N controls the provincial government in Punjab, and the party may be hoping the anti-
corruption initiative, which became fully operational in the middle of last year, will steal some of Khan's
thunder.
The program — run by the Punjab Information Technology Board — uses telephone calls and text
messages to get feedback from citizens conducting transactions with a dozen different government
departments, including those dealing with property, health and emergency response.
Many of the reported cases of corruption involved low-level property officials known as patwaris, who
are notorious for demanding bribes. One man in the city of Multan sent a text message saying he had to
pay a patwari about $170 to get his new property registered. Another man in Sheikhpura district
reported paying about $15 to a patwari and his assistant and said "they should be removed from their
jobs."
Bin Laden's courier, who built the al-Qaida chief's compound in the town of Abbottabad, had to pay
roughly a $500 bribe to a patwari to purchase the required land, according to Pakistani intelligence
officials, who spoke on condition of anonymity because they were not authorized to talk to the media.
While the plight of bin Laden's courier might not elicit sympathy, ordinary Pakistanis — many living on a
few dollars a day — often struggle under the weight of the constant demand for bribes.
One man in the city of Multan sent a text saying police were demanding about $300 to register a case
for him. A woman in Punjab's capital, Lahore, said hospital officials demanded bribes to allow relatives
to visit patients.
The text messages were provided to The Associated Press under condition of anonymity to protect the
respondents from retribution.
While the initiative does not attempt to tackle the millions of dollars thought to be involved in high-level
government corruption, it faces significant challenges since much of Pakistan's political system is based
on patronage. Politicians hand out jobs to their supporters in exchange for votes. It's not the salary or
benefits, but the chance to solicit bribes that makes the jobs highly coveted.
Under the program, government clerks are required to log the cell phone numbers of citizens with
whom they do business. The citizens then receive a robocall from Punjab's top official, Shahbaz Sharif.

The recorded call informs them that they will receive a text message asking if they had to pay a bribe, or
whether they have any complaints.
Their responses are logged into a computer database. Call center agents also contact citizens who don't
respond in case they weren't able to read the text message, a common problem in a country where the
literacy rate is near 50 percent.
So far, more than 1 million citizens have been contacted under the program, and about 175,000 of those
either responded to the text message or talked with a call center agent. About 6,000 — or 1 in 29 —
reported corruption. More than 18,000 others reported other types of complaints.
The low level of corruption reported could be partly driven by citizens' reluctance to tell government
officials the truth, said Michael Callen, an assistant professor of political science at the University of
California, Los Angeles, who is conducting research on the program. That could improve as the program
becomes more widely known, the anonymity of individuals is protected and more punitive action is
taken against corrupt officials, he said.
The initiative's scale and proactive solicitation of feedback differentiate it from other anti-corruption
efforts around the globe, such as the "I Paid a Bribe" website run by an Indian non-profit group. The
website and other similar schemes rely on citizens to take the initiative to complain. That can produce
fictional accusations made to blackmail honest officials, said Umar Saif, head of the Punjab technology
board.
The Punjab government already has used data from the program to pressure officials to clean up their
operations.
The chief minister's office recently sent the top official in Rawalpindi district more than 100 reports of
corruption at an office that issues residency certificates to citizens, said Awan, the official involved in the
program. That resulted in clerks being suspended. The government also has punished clerks who sought
to avoid oversight by falsifying citizens' cell phone numbers.
But not everyone is convinced the program is a good idea, raising questions about whether there is
sufficient political will to follow through.
The top political official in Lahore, Noor-ul-Amin Mengal, said bribes were so ingrained in the system
that he was worried the bureaucracy might seize up if low-level officials couldn't take them.
"I'm a practical man," Mengal said. "If an official is worried he is going to get into trouble, he may just
delay the transaction."
Analysis
1. Identify what “official bribery” influences and what influences it. Quantify the variables
identified.

Case 7 The End of China's One-Child Policy?
By Dexter Roberts on April 19, 2012
http://www.businessweek.com/articles/2012-04-19/the-end-of-chinas-one-child-policy
In China, having a second child can cost a year's salary in fines
Molly Zhang, a 31-year-old account manager in the lighting industry, just had her second son. Now she
has to pay a fine likely to total 30,000 yuan ($4,760), roughly equal to her annual salary, for violating
China’s one-child policy. “Even for an average white-collar worker in Dongguan, this is a lot of money.
But I didn’t want to have just one child,” says Zhang, adding that paying the penalty is necessary to get
her child a household registration document, without which education and employment would be
impossible.
Last year’s publication of China’s 2010 census, which revealed a much more pronounced decline in
births than previously estimated, galvanized 20 or so of China’s top demographers, sociologists, and
economists to advocate ending the one-child policy. “It is time to think about removing this policy
decided 30 years ago—China’s situation has changed so much,” says Gu Baochang, a demographer at
Renmin University of China in Beijing and one of the informal leaders of the group, which has twice
submitted petitions to China’s top leaders urging them to reform or end the policy.

The latest salvo was the April 16 publication of a book by James Liang, chairman of online tourism
company Ctrip.com (CTRP), China’s version of Expedia (EXPE). The title: Too Many People in China?
Three publishers refused to print the book, citing the topic’s sensitivity, Liang says. His thesis is that the
demographic changes wrought by the one-child policy will challenge Beijing’s goal of moving from being
the factory to the world to a more innovative economy. A rapidly aging workforce will stifle creativity
within companies, argues Liang, who looked at the experience of enterprises in more than 60 countries
for his book and who earned his doctorate in economics at Stanford University. “In pretty much every
country, developing and developed, you see that the older the age of the workforce, the lower the
overall entrepreneurship,” says Liang, citing Japan as the classic example.
Since it was put into place in 1979, China’s one-child policy has had strong official backing. The National
Population and Family Planning Commission, which employs about half a million people, says its efforts
have averted a population surge that would have added 400 million Chinese to a population of
1.34 billion and strained the country’s scarce resources. That claim is widely supported by China’s top
leaders, who as recently as April 10 reiterated their intention to keep birthrates low. “The mindset for
many Chinese policy makers, including a large share of the public, is still back like it was 30 to 40 years
ago,” says Wang Feng, senior fellow and director at the Brookings-Tsinghua Center for Public Policy at
Tsinghua University in Beijing. “The belief is that the Chinese people like to have many children, and that
unless the government does something extraordinary to deal with that, China will be doomed by a
population explosion.”
Those attitudes date to the period just after China’s Cultural Revolution ended in 1976, when the
economy suffered huge shortages and food rationing was common. The demographic results of the one-
child policy have been dramatic. In 1966 the average Chinese couple had about six children. Birthrates
have dropped to around 1.5 children now, which means China’s population will likely peak at 1.4 billion
people before 2030. Couples in the U.S. average roughly two children.

To date, China has enjoyed what economists call the “demographic dividend,” with a growing labor
force contributing about 0.9 percent to annual economic growth, according to World Bank estimates.
That dividend will disappear when the working-age population peaks at 1 billion, then starts to shrink, in
2013. While China today has some 120 million people aged 20 to 24, that’s expected to drop more than
20 percent in the next decade, according to the United Nations Department of Economic and Social
Affairs.
Labor shortages have emerged earliest in the Pearl River Delta, in large part because export factories
have relied on workers under the age of 25. In coming years the labor force will grow older. “The
problem is employing those older workers, who are mushrooming in size, and yet have much less
human capital [such as higher education levels and general good health] to offer the employers,” says
Judith Banister, a leading China demographer who formerly was director of global demographics at
economic researcher the Conference Board. While the U.S. and Europe took about 100 years to become
aging societies, in China it has taken less than 40 years. “For the first time we are seeing a country
getting old before it has gotten rich,” says Philip O’Keefe, human development sector coordinator at the
World Bank in Beijing.
So far, China’s officials have taken only small steps to loosen the policy. China’s ethnic minority groups
have long been allowed to have multiple children. Farmers whose first child is a girl have been allowed
to have a second baby. And now most provinces allow couples who are themselves from single-child
families to have a second child. Still, about two-thirds of Chinese people fall under the restriction,
estimates Renmin University’s Gu. Says demographer Banister: “You try to get away with a child outside
the plan, and all of a sudden the powers that be come and fine you or put so much pressure on you that
you have an abortion.”
The planning commission has decided to stop using the most threatening slogans aimed at scaring
people into compliance. The People’s Daily reported in February that China will no longer broadcast the
vow that “We would rather scrape your womb than allow you to have a second child!” Instead it will
substitute softer messages, including, “Elderly people from one-child families can get allowances after
they are 60 years old!”
Meanwhile, demographers such as Gu and Wang concede that China will never reverse the aging trend.
That’s because the fall in fertility is now also due to the drop in childbearing typically seen in countries
as they become wealthier and better educated. Still, they argue that keeping the one-child policy is only
exacerbating the problem. “There has been a serious under-appreciation of the profound, tectonic
change in China’s population that is now occurring,” says Wang. “China is on a demographic downhill.
And instead of stepping on the brakes, the current government is continuing to step on the gas pedal.”
The bottom line: As China’s working-age population peaks, its plan to shift from ordinary factory work to
innovation is threatened by an aging workforce.
Analysis
1. Identify what “one-child policy” influences and what influences it. Quantify the variables
identified.

Case 8 U.S. Grads Work as Waiters While Italy's Remain Jobless
By Aki Ito and Lorenzo Totaro on September 26, 2012
http://www.businessweek.com/news/2012-09-25/grads-shun-italy-disease-proving-dirty-u-
dot-s-dot-hands-work
A greater share of university graduates are working as receptionists, waiters, retail clerks and other positions that use little of
the knowledge, skills and abilities they develop by earning a degree. Photographer: Matthew Staver/Bloomberg
Cinzia Oliva may be Devon Wright’s worst nightmare, even though the Italian woman and the American
man have never met.
Oliva, 35, hasn’t held a year-round job since she graduated from the University of Naples with an art
degree 12 years ago, and now manages a bar near Rome. Wright, 22, who got his B.A. in history from
Middlebury College in Vermont four months ago, moved in with his parents in Queens, New York,
because he is unemployed.
“I knew it would be difficult, but I thought I’d have a job by now,” said Wright, who began seeking work
in April and says he lost count of how many resumes he’s sent out. “All of these places I’m applying to
say they want prior experience, but how am I supposed to gain experience if I can’t get a job?”
He’s now put off the hunt for professional work and is seeking a job as a short-order cook or bookseller.
Federal Reserve Chairman Ben S. Bernanke last month said persistently high U.S. unemployment was
causing “enormous suffering,” even as he expressed confidence that the jobless rate would eventually
return to pre-recession levels, as it has in past downturns.

The situation is especially acute among America’s youngest workers, who are battling an unemployment
rate that’s remained at or above 16 percent for the longest period in postwar history.
Some 16.8 percent of 16-to-24-year-old Americans were without work in August, marking 42 months of
16 percent or above unemployment. Only in 1975 and 1981-1983 did this age group face such poor job
prospects -- and those stretches ended in eight months and 23 months, respectively.
Retail Clerks
A greater share of university graduates are also working as receptionists, waiters, retail clerks and other
positions that use little of the knowledge, skills and abilities they developed by earning a degree.
The ratio of college-educated 25-to-29-year-olds with jobs outside the so-called college labor market
positions surged to 31.5 percent in January through May this year, compared with 26.1 percent in 2007
and 30.1 percent in 2010, according to Neeta Fogg and Paul Harrington at the Drexel University Center
for Labor Markets and Policy in Philadelphia.
Wright is preparing to join that group. After spending months hunting for a job closer to his field, he’s
now looking at positions that don’t require a college degree, such as a part-time customer service
position at a book store or a short- order cook at a diner.
“I was more focused on trying to find a serious job over the summer, but I decided I wouldn’t mind
doing something as interim work to get by,” he said. “I need the money.”
Stimulus Pledge
Persistently high joblessness across all age groups persuaded Bernanke’s Fed to roll out its third round
of quantitative easing this month and pledge an even further expansion of its record stimulus if
conditions don’t improve.
“The stagnation of the labor market in particular is a grave concern not only because of the enormous
suffering and waste of human talent it entails, but also because persistently high levels of
unemployment will wreak structural damage on our economy that could last for many years,” Bernanke
said in a speech in Jackson Hole, Wyoming, on Aug. 31, two weeks before the Fed announced its latest
measures.
The economic troubles of Americans ages 16 to 24 are familiar to young Europeans, who, in addition,
struggle with labor rules that favor older workers. A study co-authored by former Bank of England policy
maker David Blanchflower, now a Dartmouth College professor and a Bloomberg Television contributor,
suggests wages for Europe’s young jobless may never catch up with those who have always worked.
‘Lost Generation’
Jeffrey Joerres, chief executive officer of ManpowerGroup, a Milwaukee-based temporary staffing

company, says he worries about the consequences for the greater U.S. economy as well.
“The result will be the same” in the U.S. as it was in Europe, “which is a lost generation and an inability
to get back those earnings,” he said. “You worry about productivity loss and you worry about the social
costs associated with it.”

Graduates who don’t find appropriate jobs are “missing out on all that time to learn how to be a good
worker,” said Thomas Mroz, a professor of labor economics at Clemson University in South Carolina.
“Things like going to an office every day and greeting customers -- those are things you get better at
with practice. You don’t learn it in school.”
For U.S. employers, the worry is that they will end up with a dearth of proficient, motivated workers to
keep U.S. businesses competitive, according to Joerres. The longer youth remain shut out of training
opportunities, the greater this risk, he said.
No Experience
“The current 25-year-old 10 years from now isn’t going to have the right kind of experience in their
background” to become the “first-line and second-line managers,” he said. “You need to act quickly to
get these young people some job experience.”
In Europe, the euro countries’ debt crisis is eroding young people’s opportunities from Spain to the U.K.
Italy’s 15-to-24 year-olds watched the ranks of their jobless rise to 35.3 percent in July, almost doubling
over five years and surpassing the highs reached in the 1990s. Youth unemployment in the European
Union was 22.5 percent in July, close to 22.6 percent in May. That was the highest since the euro was
created in 1999.
Italy’s Oliva, currently in the middle of a six-month contract managing the bar in a campground, will
once again be out of work when October rolls around.
“Had I known that all those years of research and CVs, job selections and interviews would lead to
nothing, I probably wouldn’t have attended university in the first place,” said Oliva, whose certification
last year as a tour guide still didn’t get her into the field. “Every time I failed to get something, it was
always the same story: a handful of available positions and thousands of people like me wanting to get
them.”
American Flexibility
What separates the U.S. labor market from Europe’s is the American flexibility to hire and fire. Older,
established workers in countries such as Spain, Italy and France enjoy legal protections that make it
difficult for their employers to fire them, which impedes businesses from hiring young people entering
the labor market.
In Italy, for example, even this year’s overhaul of the 1970 labor code gives fired workers the chance to
win their jobs back in court if they can show the dismissal was “patently unfounded.” The government
added back the provision after Italy’s biggest union called a general strike and a party allied with Prime
Minister Mario Monti vowed to oppose the bill, which became law in June.
Legal Actions
“I was counting on the reform of the labor market,” Fiat SpA Chief Executive Officer Sergio Marchionne
told la Repubblica in an interview published Sept. 18. “Today I have to deal with more than 70 legal
actions” brought by Italy’s main worker union against temporary layoffs and new labor contracts.
He was commenting on one of the reasons that prompted Italy’s biggest manufacturer to scale back its
investments in the country. His comments were confirmed by a Fiat spokesman.

In France, companies say the biggest obstacle to hiring is the “Code du Travail,” a 3,200-page labor
rulebook that dictates everything from job classifications to leave for training to the ability to fire.
President Francois Hollande has called on unions to allow companies greater labor flexibility -- while
strengthening worker protections against firing.
That rigidity helps explain why Europe’s ranks of the young and unemployed remained high while
America’s stabilized after the early-1980s global recession. The fluidity in the U.S. job market today
maintains room for young workers’ prospects to bounce back, said Simon Johnson, a professor at
Massachusetts Institute of Technology in Cambridge and a contributor to Bloomberg View.
Jobless Graduates
“It’s still too early to call this a lost generation in the U.S.,” said Johnson, formerly chief economist at the
International Monetary Fund in Washington.
Despite those differences, few examples are as foreboding for newly graduated and jobless Americans
such as Wright as those in the analysis co-authored by Dartmouth’s Blanchflower in Hanover, New
Hampshire.
In a 2011 paper that followed the British who came of age during the 1980s recession, Blanchflower
found that people who had been unemployed by the time they were 23 in 1981 continued to report
both lower wages and happiness than their counterparts over the decades -- even when they turned 50
in 2008-2009.
“It’s a cautionary tale,” said Blanchflower. “It’s really important for a young person to make the
transition from school to work -- and in Europe, what you see is people who never made that
transition.”
In Italy, 12 years of rejections have persuaded Oliva to let go of her dream of working in art or tourism.
She’s settled on the life she’s had for two years, bartending for the summer, then waiting for the next
summer to roll around.
Now that Wright in New York is considering a similar tradeoff, he’s far from alone.
“None of my friends are really comfortable in their positions, doing something they want to do,” said
Wright. “I don’t want to say give up your hopes, but you have to resign yourself to the fact that this is
how it is.”
Analysis
1. Identify what “youth underemployment” influences and what influences it. Quantify the
variables identified.

Case 9 Amazon Wins Dismissal of Apple’s False Advertising Claim
By Karen Gullo on January 02, 2013
http://www.businessweek.com/news/2013-01-02/amazon-wins-dismissal-of-apple-s-false-
advertising-claim
The Amazon.com Inc. app download page is displayed on a computer monitor. Photographer: Andrew Harrer/Bloomberg
Amazon.com Inc. (AMZN) won dismissal of Apple Inc. (AAPL)’s claim that the online retailer’s use of the
term “app store” for Android device software is false advertising.
U.S. District Judge Phyllis Hamilton in Oakland, California, today granted Amazon’s request to throw out
one claim in Apple’s lawsuit alleging trademark infringement and unfair competition over the Amazon
Appstore for Android, a service begun in March that sells applications for the Kindle Fire and devices
running Google Inc. (GOOG)’s Android software.
Apple is seeking a court order to block Amazon from using the term. Amazon has argued the words are a
generic term that Apple doesn’t have exclusive rights to use. A trial is scheduled for Aug. 19.
The iPhone maker, which started its APP STORE in 2008, said Amazon’s use of the term was false
advertising because it deceives customers into believing that Amazon’s service has the qualities of
Apple’s applications store, Hamilton said in her ruling. Apple maintained this could divert its revenue to
Amazon.

Apple hasn’t shown that Amazon’s advertising attempt to mimic Apple’s, failed to show that Amazon
made any false statement, and presented no evidence that customers were misled by Amazon’s use of
the term, Hamilton said.
Judge’s Finding
“The court finds no support for the proposition that Amazon has expressly or impliedly communicated
that its Appstore for Android possesses the characteristics and qualities that the public has come to
expect from the Apple APP Store and/or Apple products,” Hamilton said.
She ruled only on Amazon’s request to eliminate the false advertising claim.
In 2008, Apple applied to the U.S. Patent and Trademark office to register APP STORE, according to the
order. Microsoft Corp. (MSFT) opposed the registration, saying the term is generic. Last year the
Trademark Trials and Appeals Board put an opposition proceeding on hold pending the outcome of the
lawsuit before Hamilton.
Kristin Huguet, a spokeswoman for Cupertino, California- based Apple, declined to comment on the
ruling. A call to Seattle-based Amazon’s media line seeking comment on the ruling wasn’t immediately
returned.
The case is Apple Inc. v. Amazon.com Inc., 11-01327, U.S. District Court, Northern District of California
(Oakland).
Analysis
1. Identify what “trademark infringement” influences and what influences it. Quantify the variables
identified.
3. Create two (2) balancing loops on top of the existing loop. Evaluate its significance.

Case 10 Kodak Files for Bankruptcy as Digital Era Spells End to Film
By Dawn McCarty and Beth Jinks on January 25, 2012
http://www.businessweek.com/news/2012-01-25/kodak-files-for-bankruptcy-as-digital-era-
spells-end-to-film.html
The Eastman Kodak booth during the 2012 International Consumer Electronics Show (CES) in Las Vegas.
Eastman Kodak Co., the photography pioneer that introduced the Brownie Camera more than a century
ago, filed for bankruptcy after consumers embraced digital cameras, a technology Kodak invented and
failed to commercialize.
The Rochester, New York-based company, which traces its roots to 1880, listed assets of $5.1 billion and
debt of $6.8 billion in Chapter 11 documents filed in U.S. Bankruptcy Court in Manhattan.
“They were a company stuck in time,” said Robert Burley, an associate professor at Toronto’s Ryerson
University who has photographed shuttered Kodak facilities in the U.S., Canada and France since 2005.
“Their history was so important to them, this rich century-old history when they made a lot of amazing
things and a lot of money along the way. Now their history has become a liability.”
The company’s credit deteriorated as revenue tumbled from traditional film, and the inventor of the
Instamatic cameras was slow during the past decade to compete with Canon Inc. and Hewlett-Packard
Co. in digital cameras and printers.
Moody’s Investors Service on Jan. 5 cut ratings on about $1 billion of Kodak debt with a negative
outlook, citing “a heightened probability of a bankruptcy over the near-term.”
NYSE Regulation Inc. today said it would suspend trading of Kodak stock after determining the company
is “no longer suitable for listing,” according to a statement.

Citigroup Loan
Citigroup Inc. agreed to provide a $950 million debtor-in- possession loan to help Kodak operate during
bankruptcy, the photo company said today in a statement. The loan must be approved by a bankruptcy
judge.
“Kodak is taking a significant step toward enabling our enterprise to complete its transformation,”
Antonio M. Perez, chief executive officer, said in the statement.
The company plans to sell “significant assets” during the bankruptcy, Chief Financial Officer Antoinette
McCorvey said in a court filing. She didn’t elaborate.
As it watched digital dissolve its high-margin film business, Kodak has shed 47,000 employees since
2003, closing 13 factories that produced film, paper and chemicals, along with 130 photo laboratories.
The restructuring has already cost $3.4 billion, because it was done “in a socially responsible” way, said a
spokesman, Christopher Veronda.
“The announcement that Kodak is filing for bankruptcy is difficult and disappointing news for the city
and people of Rochester,” New York Governor Andrew Cuomo said in a statement. “This is a time for all
of us at all levels of government to come together and work with the private sector to support
Rochester’s growth,” Cuomo said.
Annual Loss
Kodak, headed for its sixth annual loss in the past seven years, tried to sell more than 1,100 digital-
imaging patents and pursued royalties to fund a shift to modern commercial and consumer digital
printers.
Kodak’s cash and equivalents fell to $862 million at the end of its third quarter from $1.4 billion a year
earlier. The company is scheduled to report fourth-quarter results Jan. 26.
Kodak’s revenue has fallen by half since 2005 to $7.2 billion last year, with further declines predicted
this year and next after film and photofinishing unit sales sank by 14 percent in the second quarter. The
company’s losses since 2008 exceeded $1.76 billion.
Bonds Fall
Kodak’s $250 million of 7.25 percent senior unsecured notes due in November 2013 fell 3.5 cents to
29.5 cents on the dollar as of 10:06 a.m. In New York, according to Trace, the bond price reporting
system of the Financial Industry Regulatory Authority. The notes fell as low as 27 cents today and have
plunged from 100 cents on the dollar, or face value, in April and 48.5 cents in November.
Shares of Kodak slumped 35 percent to 36 cents at 12:55 p.m. New York time. The Rochester, New York-
based company’s stock symbol changed to “EKDKQ” from “EK.”

The Bank of New York Mellon Corp. is listed as Kodak’s biggest unsecured creditor as trustee for about
$670 million of unsecured notes. Other unsecured creditors include Sony Studios, which is owed $16.7
million, Warner Brothers, with $14.2 million, and Alcoa Inc., with $2.8 million.
Bank of New York Mellon is also listed as the biggest secured creditor with a claim of $776 million,
backed by all of Kodak’s U.S. assets except for those exempted in a 1988 agreement, according to the
filing.
Inkjet Printers
Perez, a former Hewlett-Packard executive who took charge at Kodak in 2005, tried to rescue the brand
by cutting costs and winning shelf space for inkjet printers at Wal-Mart Stores Inc. and Staples Inc. He
pushed its commercial digital printers into publishing and packaging, touting their flexibility over old-
school printing plates.
Kodak was five years too late to accelerate its shift to the digital age, Perez, 65, said in an interview in
August.
Kodak hasn’t sold enough printers and presses to create sufficient demand for replacement ink and
supplies and service contracts to end losses in those units. In February, it projected operating profits in
consumer and commercial inkjet printing by the end of 2013.
“Essentially they’re moving away from a very profitable model that generated multiple sales -- most
everyone got double prints -- to one that’s awfully difficult to make a profit in,” said John Ward, a 20-
year Kodak veteran who is now a lecturer in Rochester Institute of Technology’s college of business.
Few Options
“Perez had a clear understanding that change had to happen and it had to happen quickly,” said Ward,
49, who met Perez shortly after he joined Kodak as president and chief operating officer in 2003.
“Clearly they could have made some changes faster, but there just weren’t a lot of options to replace
the film business.”
“Out of the bankruptcy proceedings, a much smaller company can emerge,” Don Strickland, a former
Kodak vice president for digital imaging, said in a Bloomberg television interview. “But I really don’t
believe that there’s going to be another Kodak moment.”
The process to sell Kodak’s patents out of bankruptcy will start now and it might take a couple of
months, said a person with direct knowledge of the situation.
Kodak recently stepped up its campaign to extract more cash from its patent portfolio. The company
yesterday sued Samsung Electronics Co. in a case that claims the Galaxy tablet infringes technology for
capturing and sending digital images. Last week the company sued HTC Corp. and Apple Inc. and also
has cases against Research In Motion Ltd. and Fujifilm Holdings Corp.

Samsung Dispute
Samsung in 2010 agreed to pay Kodak $550 million to settle another patent dispute in which the Suwon,
South Korea-based handset maker had been accused of infringing a patent for a feature that lets users
preview images on their cameras using less processing power and storage.
Kodak was founded by George Eastman, who developed a method for dry-plate photography before
introducing the Kodak camera in 1888, according to the company’s website. It went on to invent film,
enabling Thomas Edison to develop the motion picture camera, as well as Brownie cameras selling for
$1 and Kodachrome film.
Paul Simon immortalized the film in his 1973 song “Kodachrome.” The single, which praised
Kodachrome’s “nice bright colors,” peaked at No. 2 on the Billboard Hot 100 chart. Kodak stopped
producing the film in 2009.
Hollywood
“Everyone in the 20th century has been familiar with the Kodak name and its products,” said Burley of
Ryerson’s School of Image Arts. “We’ve not only used them to memorialize our families and their
histories, but also for diagnostics in hospitals, producing books and newspapers and police investigative
work. And then the whole world of Hollywood is based around Kodak products.”
The company also invented the first digital camera in 1975, which it shelved because it would threaten
its lucrative film business, Perez said in an interview in March.
“Like many other companies on the East Coast, Kodak has been phenomenal in research and patents
and not so good commercializing things, actually terrible commercializing things,” Perez said.
Chief Operating Office
The company said Jan. 10 it had adjusted its management structure and created a chief operating office
to reduce costs. The new commercial and consumer segments replace a previous business structure of
three divisions: graphic communications; consumer digital imaging; and film, photofinishing and
entertainment.
The digital business has accounted for about 75 percent, or $4.5 billion, of Kodak’s revenue last year,
McCorvey said in her filing today.
The company employs about 17,000 people, 9,100 of whom are in the U.S., compared with the 63,900
that it employed in 2003, she said.
The chief operating office will be led by Philip Faraci and Laura Quatela. Faraci, president and chief
operating officer since 2007, will focus on the commercial segment and sales and regional operations,
and Quatela, the company’s former general counsel who was named as a second president in
December, will focus on the consumer segment and certain corporate functions, Kodak said.

Directors Resigned
Three directors resigned from Kodak’s board in December, two of them from KKR & Co., two years after
the private-equity firm helped the company refinance debt.
Adam H. Clammer and Herald Y. Chen quit Dec. 21. Both were elected in September 2009 after a
refinancing deal that included KKR investing in $300 million of senior bonds and warrants for 40 million
shares with an exercise price of $5.50. Kodak refinanced KKR’s bonds in March 2010 via a private
placement to other investors.
By agreeing to hold the warrants for at least two years, among other conditions, the private-equity firm
run by Henry Kravis and George Roberts was entitled to nominate the two board members.
Laura D. Tyson was the third director to leave. Tyson, 64, a director since 1997, notified the board of her
resignation Dec. 29, according to a Dec. 30 regulatory filing. Tyson is a professor at University of
California, Berkeley’s Haas School of Business, has been an adviser to the Obama and Clinton
administrations and sits on the boards of at least five companies, including Morgan Stanley and AT&T
Inc.
The bankruptcy case is In re Eastman Kodak Co., 12-10202, U.S. Bankruptcy Court, Southern District of
New York (Manhattan).
Analysis
1. Identify what “net loss” influences and what influences it. Quantify the variables identified.

Case 11 J&J Again Recalls Thousands of Faulty Hip Implants
By Linda A. Johnson on February 14, 2013
http://www.businessweek.com/ap/2013-02-14/report-j-and-j-recalls-thousands-of-hip-
implants
Photograph by Daniel Acker/Bloomberg
Johnson & Johnson has again recalled thousands of its hip implants, 2 1/2 years after the problem-
plagued health care giant issued a recall of two other types of its artificial hips.
Spokeswomen for J&J's DePuy Orthopaedics unit said Thursday that the company recalled the "Adept"
brand all-metal total hip replacement system starting last month because a higher-than-expected
percentage of them had to be replaced. Such replacements, called revision surgeries, usually are needed
when an artificial joints starts causing pain, difficulty walking or other problems.
The recall involves only the top part of the hip replacement system, the ball at the top of the thigh bone
that fits into the hip's socket.
New Brunswick, N.J.-based J&J said it's recalled all 7,500 Adept implants shipped worldwide between
2004 and September 2011. That's when it sold the product back to the company that had developed
Adept and had sold the rights to it to the DePuy business in 2009.
According to J&J, the implants were sold in Germany and 20 other countries, but not in the U.S.
J&J said it notified surgeons and hospitals about the recall on Jan. 14 after reviewing data from national
registries on joint replacements in two countries. A registry in the United Kingdom found that 12.1
percent of patients needed their implants replaced within seven years, while a registry in Australia
found 7.1 percent of patients needed replacements within three years.

The DePuy spokeswomen did not know how many of the recalled implants were implanted in patients.
Any who have the implants and are having problems with them should contact their doctor.
The recall was reported Thursday by the German newspaper Handelsblatt.
J&J noted the recall does not involve a product called Adept Hip Resurfacing Femoral Components.
Johnson & Johnson, the world's biggest provider of health care products, has issued more than 30
product recalls since 2009. Most have involved nonprescription medicines such as adult and children's
Tylenol and Motrin, but other recalls were for prescription drugs for conditions such as epilepsy or for
contact lenses. Reasons have included wrong levels of active ingredients in medicines, glass or metal
shards in liquid medicines and nauseating packaging smells.
The company is operating under increased scrutiny from the U.S. Food and Drug Administration, while it
completely rebuilds one nonprescription medicine factory from the ground up and upgrades other
factories. The recalls and lost product sales have cost J&J well over $1 billion.
In August 2010, the company recalled two types of DePuy ASR metal hip implants after they were linked
to high failure rates. Those recalls have led to thousands of lawsuits by U.S. patients.
In the first of those cases to reach trial, a jury in Los Angeles three weeks ago began hearing testimony
in a lawsuit brought by a former North Dakota prison guard who got one of the implants to relieve
arthritic pain, but had to have it replaced.
Lawyers for Loren Kransky told jurors that black pieces of metal flaked off the implant and caused a type
of metal poisoning that could have killed him if the material had not been removed. But a Johnson &
Johnson lawyer said the 64-year-old Kransky had many pre-existing medical ailments.
J&J shares rose 15 cents to close at $75.81 on Thursday after rising as high as $76.09 earlier in the
session. FactSet said that was an all-time high for the stock.
Analysis
1. Identify what “faulty product” influences and what influences it. Quantify the variables
identified.

Case 12 Arch Coal Laying Off 750 Workers in Appalachia
By Bruce Schreiner on June 21, 2012
http://www.businessweek.com/ap/2012-06-21/coal-official-says-arch-coal-plans-layoffs-in-ky-
dot
Forty percent of U.S. energy will come from coal this year
One of the world's largest coal producers said Thursday it would lay off about 750 workers in the
Kentucky, Virginia and West Virginia coalfields, the latest setback for an industry struggling to sustain
market share as utilities switch to cleaner and cheaper alternatives to generate electricity.
The bulk of the cuts by Arch Coal Inc., almost 600, are in Kentucky. The disappearance of high-paying
mining work heightened anxiety in hardscrabble Kentucky towns where officials worried declining
demand for coal would result in leaner budgets and more people on unemployment rolls.
"This is just a start, I think," said Dennis Ray Noble, the judge-executive of Perry County, which he
estimated has lost about 30 percent of its mining jobs in the last year and the jobless rate is 12.4
percent.
The St. Louis-based company said its subsidiaries would close three higher-cost mining complexes and
associated preparation plants: two in Kentucky and one in West Virginia. It will temporarily idle another
complex in Kentucky and curtail production at other facilities in the three states. The company
accounted for 16 percent of the coal production in the U.S. in 2010.
The layoffs come amid forecasts that the share of U.S. electricity coming from coal will fall below 40
percent for the year — the lowest level since the government began collecting data in 1949. Four years
ago, it was 50 percent. By the end of this decade, it is likely to be near 30 percent.

"Current market pressures and a challenging regulatory environment have pushed coal consumption in
the United States to a 20-year low," Arch President and CEO John W. Eaves said in a news release
announcing the layoffs.
Eaves said the company regrets the impact on its employees and their families and communities, but
said the decision was necessary "to weather the current downturn and to position the company for
long-term success."
Arch said the reductions would trim its thermal coal production by more than 3 million tons annually. It
said it continues to expect thermal coal sales volume in the range of 128 million to 134 million tons for
2012.
Meanwhile, the company said it is putting more emphasis on higher-margin metallurgical coal
operations in the region.
The job losses come as utilities increasingly switch from coal to natural gas, which has become cheaper
as supplies grow. Natural gas' advantages over coal include producing fewer emissions of toxic
chemicals and gases that contribute to climate change.
From Kentucky courthouses to Congress, officials blamed tougher environmental rules for coal's woes
and the resulting job losses.
"I think they saw the writing on the wall that it's getting too difficult to operate at a profit," Knott
County Judge-Executive Randy Thompson said of the Arch layoffs.
He said about 250 jobs will be lost from his county, which had a 12.5 percent jobless rate in May.
Meanwhile, coal severance tax revenues are dwindling, putting more strain on the local budget to keep
up with demand for services.
Republican U.S. Rep. Harold "Hal" Rogers, who represents the eastern Kentucky coalfields, said a mild
winter, low demand for thermal coal and cheap natural gas prices have factored into the coal industry's
struggles. But he said President Barack Obama's administration is also culpable because of deadlocked
mining permits, rule changes and "crippling" regulations on power plants.
"The Obama administration has continually kicked the industry while it's down and shown total
disregard for the people of our region," Rogers said.
Power plants that burn coal produce more than 90 times as much sulfur dioxide, five times as much
nitrogen oxide and twice as much carbon dioxide as those that run on natural gas, according to the
Government Accountability Office, the regulatory arm of Congress. Sulfur dioxide causes acid rain;
nitrogen oxides cause smog; and carbon dioxide is a so-called greenhouse gas that traps heat in the
atmosphere.
A pair of clean air rules enacted by the Environmental Protection Agency over the past year tightens
limits on power-plant emissions of sulfur dioxide and nitrogen dioxide, and place new limits on mercury,
a poison found in coal. This will force between 32 and 68 of the dirtiest and oldest coal plants in the

country to close over the next three years as the rules go into effect, according to an AP survey of power
plant operators conducted late last year.
In what could be an even bigger environmental blow to coal, the EPA in March issued guidelines that
could limit greenhouse gas emissions from new power plants.
Robert Ukeiley, an environmental lawyer in Berea, Ky., said it's ridiculous to blame environmental
regulations for the coal industry's struggles. He said those rules are "completely reasonable," have been
decades in the making and are a "moral no-brainer."
"The fact is that cheap coal in central Appalachia has been mined out," he said. "That's just a fiscal fact.
There is no politician who can change that or scapegoat anybody."
Remaining coal supplies tend to be more expensive to extract and aren't as profitable, he said.
"Central Appalachia would be experiencing almost as much decline in coal mining even if we had the
most anti-environmental president of our history in place," Ukeiley said.
The EPA said in a statement that coal is still expected to generate more of the country's electricity than
any other fuel source. It pointed to low natural gas prices, low electricity demand and rising coal prices
as factors in reducing demand.
"Market conditions in the power sector are driving business decisions that are completely independent
from these long-overdue toxic pollution standards, which power plants do not need to meet until 2016,"
the agency said in the statement.
Analysis
1. Identify what “miner layoff” influences and what influences it. Quantify the variables identified.

Case 13 The Philippines Astounds the Skeptics
By Bruce Einhorn May 03, 2012
http://www.businessweek.com/articles/2012-05-03/the-philippines-astounds-the-skeptics
Maulik Parekh, chief executive officer of Philippine outsourcing services company SPi Global, has a
message for local workers accustomed to looking for work overseas: There are jobs at home. Manila-
based SPi Global’s 18,000 workers handle customer support, technical problems, and other tasks for
overseas clients. SPi last year started hiring local health-care professionals to help U.S. hospitals get
payments from insurance companies. SPi’s doctors and nurses “are pursuing careers in the Philippines
instead of moving to other countries,” says Parekh. The outsourcing growth is giving a boost to the local
economy, he says. Philippine outsourcing firms took in $11 billion last year and are on track to hit $25
billion by 2016.
The Philippines has long stood out in Southeast Asia as a consistent underperformer, its economy
weighed down by a legacy of graft and instability dating back to the bad old days of Ferdinand and
Imelda Marcos. The economy grew just 3.75 percent last year, while China expanded 9.2 percent and
India 7.3 percent. What growth the Philippines has enjoyed has often come from its army of
construction workers, domestic helpers, and others who have left the country to find work. Remittances
from Filipinos living overseas grew 5.8 percent in February, the central bank announced on April 16.

The shift in fortunes is most obvious in the $6 billion in foreign direct investment the country attracted
last year—low by Chinese standards but a 15-year high for the Philippines. Powered by demand for
electronics made locally by Toshiba, Texas Instruments (TXN), and others, exports in February jumped
14.6 percent, to $4.43 billion, the government announced on April 12. Foreign reserves, just $37.5
billion in 2008, are now at $76 billion.
President Benigno Aquino’s government has made progress getting the Philippines’ fiscal problems
under control, with the budget deficit as a percentage of gross domestic product shrinking from 3.7
percent in 2009 to just 1 percent last year, according to Bloomberg Brief economist Tamara Henderson.
That puts the Philippines budget deficit at the same level as Germany’s and far better than India’s
alarming 7.3 percent.
Investors have taken note of the progress. Ratings companies have upgraded the country’s sovereign
debt, and the stock market is just behind Thailand in Asia so far in 2012. The Manila exchange’s
benchmark index is up 19.6 percent, versus 12 percent for the MSCI Emerging Markets Index.
Much of the credit for the good feeling should go to Aquino and his efforts to tackle corruption and
improve the country’s infrastructure. His administration has worked to make the bidding process for
public works more transparent. For instance, the government announces winners immediately, which
prevents others from quietly and quickly paying officials to change horses. Last December the
government even took to Twitter to get the news out right away that Ayala (AC:PM) had won the bid for

a Manila highway project. When Aquino’s administration started in mid-2010, “everything changed,”
says Henderson. “This starts to create a virtuous cycle.”
Economists praise a $16 billion program to improve the country’s railroads, airports, and highways as
well as programs to provide vaccines and build more elementary and high schools. The Philippines is
benefiting from “a popular government that is seen by many as committed to improving governance
and reducing poverty,” the World Bank said in a March 19 report.
To see just how much difference a government can make in an emerging-market economy, compare the
Philippines under Aquino with the region’s—and the world’s—largest democracy, India. The coalition
government of Prime Minister Manmohan Singh is struggling after a series of corruption scandals and
legislative failures weakened Singh’s coalition. The trade deficit rose to a record $184.9 billion for the
fiscal year ended in March 2012, and exports fell in March for the first time in two and a half years, the
Indian government announced on May 1. Standard & Poor’s (MHP) said on April 25 that it had revised its
outlook on India’s long-term rating—which had been stable—to negative. According to S&P, there’s a 1-
in-3 chance of a downgrade to India’s BBB- sovereign credit rating. “India is all about homegrown, self-
inflicted injuries,” says Rajeev Malik, senior economist in Singapore with CLSA Asia-Pacific Markets.
The Philippines could yet succumb to homegrown problems, too. Expected GDP growth of 4.2 percent
this year and 5 percent in 2013 is nice but still lags behind many of the country’s neighbors.
Unemployment, above 7 percent, is high by Asian standards, and even with the recent upgrades, the
ratings companies still keep Philippines debt below investment grade status. As wages rise in China, the
Philippines has a chance to attract investment from companies looking for low-wage alternatives, but
the country’s notorious culture of bribery remains a major obstacle to growth, says Rajiv Biswas, chief
Asia economist for IHS Global Insight (IHS) in Singapore. Right now, though, the government seems
determined to change that culture.
The bottom line: With tame inflation, higher foreign exchange reserves, and a $16 billion infrastructure
program, the Philippines’ economy is picking up.
Analysis
1. Identify what “local unemployment” influences and what influences it. Quantify the variables
identified.

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Principles of Systems Thinking Cases

Principles of Systems Thinking Cases

Photograph by Daniel Acker/Bloomberg

Principles of Systems Thinking Cases

The recall was reported Thursday by the German newspaper Handelsblatt.

Principles of Systems Thinking Cases

Principles of Systems Thinking Cases

Principles of Systems Thinking Cases

Principles of Systems Thinking Cases

Principles of Systems Thinking Cases

Principles of Systems Thinking Cases

Principles of Systems Thinking Cases

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Principles of Systems Thinking Cases