Gold Standard: America’s Future as Well as its Past?

Photo By Daniel Suchenski

As part of the recent political debate for the presidency as well as the overall party platforms of the Democrats and the Republicans, an idea that has only provoked mild interest since 1984, again saw light. At the Republican National Convention in Florida back in August of 2012, the decision was made to set up a “gold commission” as part of the official platform to examine the feasibility of returning the US to a gold standard, a system by which the US dollar would be fixed to some quantity of gold. The United States, has been off a “gold standard” since 1971 when U.S. President Richard M. Nixon, “facing huge budget and trade deficits, and a plunging dollar – enacted a series of economic moves, including the unilateral cancellation of the direct convertibility of the U.S. dollar into gold”[2] According to a recent CNBC article, the RNC’s recent shift “shows how five years of easy monetary policy — and the efforts of congressman Ron Paul — have made the once-fringe idea of returning to gold-as-money a legitimate part of Republican debate.”[3] Despite its recent resurgence in the media and in the Republican Party, what would a return to the gold standard mean for the country?

Largely absent from public discourse for decades, the last time a return to the gold standard was mentioned in the Republican Party’s platform was back in the 80’s. The Republican platform in 1980 references a “restoration of a dependable monetary standard," while the 1984 platform states that “the gold standard may be a useful mechanism” for national stability.[4] Ron Paul and his supporters in the Republican Party are not the only ones pushing for this idea. Indeed, Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of the platform committee, said the gold commission was not adopted merely to placate Paul and the delegates that he picked up during his campaign for the party’s nomination. “These were adopted because they are things that Republicans agree on,” Blackburn told the Financial Times. “The House recently passed a bill on this, and this is something that we think needs to be done.”[5] In addition to prominent politicians on Capitol Hill, some in the business community are also taking up the banner. In a recent interview with Steve Forbes, Chairman and Chief Executive Officer of Forbes Media and Editor-in-Chief of Forbes magazine, said “I try to promote free-market economics every chance. In addition to chucking our tax code, one of the key issues in the next few years will be getting this country on a gold standard. That's just beginning but, sadly, I think circumstances are going to propel this happening.”[6] Clearly there is a growing interest in the US to returning to the gold standard. Right? Satyajit Das, a former banker and author of Extreme Money and Traders Guns & Money, states that the revival of interest in gold in general is “underpinned by debate of a return to the gold standard. Advocates as varied as Libertarian US presidential candidate Ron Paul and the Islamic Liberation Party (Hizb ut-Tahrir) have argued that the gold standard is a solution to the deep problems of the global economy.” He goes on to say that “the gold standard, it is argued, would foster economic stability and prosperity, primarily by creating price stability, fixed exchange rates and placing limits on government deficit spending as well as trade imbalances. It will also limit credit driven boom bust cycles through constraints on the supply of money.”[7]

To make some sense of what returning to the gold standard would mean for the country, it's first important to have some background on our current financial system of money referred to as "fiat" currency. Instead of having currency pegged at a fixed rate against a tangible good, i.e. gold, the fiat system is largely influenced by the actions of the government. Since government actions largely determine the value of the currency, these “currencies aren't backed by commodities, but rather by the reputations of their governments.”[8] According to Bruce Watson, writing for DailyFinance.com, the fiat system allows a government to “control the flow of money into the economy. When prices are dropping too fast (think of the housing bubble burst, for example), the government can "print" more money, slightly inflating the currency and steadying prices. Conversely, when prices are rising too rapidly, the government can decrease the flow of money, making the currency slightly more valuable and steadying prices again.” He goes on to state that “in the U.S., the Federal Reserve controls this ebb and flow by regulating banks, adjusting the flow of money into the economy, and lending capital to banks when necessary. Chartered to prevent and temper the sorts of massive financial panics that were once regular occurrences.”[9]

Because a return to the gold standard in the US would significantly limit the government’s ability to use monetary policy to temper highs and lows in the global markets, many opponents of the gold standard argue that the limited “flexibility of governments and central banks in managing economies, restricting the ability to adjust money supply, government budgets and exchange rates”[10] are ample enough reasons to stay with the fiat system. Additionally, a return to the gold standard would “confer a natural financial advantage to countries that produce gold, such as the US, China, Russia, Australia and South Africa.” And that current geopolitical considerations and global competition would make this an unlikely, if not untenable situation.[11]

Paul Krugman, a prominent economist in the US and professor at Princeton University, in an article in the NY Times this summer stated in no uncertain terms that a return to the gold standard is a “very bad, no good, truly awful idea.”[12] To make his point Krugman noted that under a gold regime, the US had financial panics in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933.[13] Matthew O'Brien, associate editor at The Atlantic covering business and economics, detailed in a recent article “Why the Gold Standard Is the World's Worst Economic Idea, in 2 Charts” His first chart shows the volatility of the Consumer Price Index (CPI) during June 1919 to March 1933.

The second chart shows the Consumer Price Index (CPI) from 2008 to today.

Based on these charts, it seems that the gold era is characterized by deeper price swings, and more crises. According to O’Brien, the gold standard “should guarantee price stability in the long run, but you know what they say about the long run -- we're all dead. In the short run, prices can change violently under the gold standard, as the balance of trade changes or the physical stock of gold changes. Remember, price stability isn't just about avoiding inflation; it's about avoiding deflation too. The gold standard wasn't good at either -- especially compared to our modern inflation-targeting system.” [14]

So if stability is not a likely goal what is the appeal of a return to the gold standard? For Joe Weisenthal, “It's actually pretty simple. The ability to create fiat money out of thin air is a stealth form of taxation, because the creation of more dollars diminishes the value of those already in existence. Conservatives have a constitutional opposition to taxation, ergo a system of money that makes it hard to create more money is pretty logical.”[15] Add to that the fact that a recent survey conducted at the University of Chicago Booth school of business, concluded that  exactly zero economists (of those surveyed) endorse a return to the gold standard,[16] and that it may be impossible to actually acquire enough gold bullion to once again fix the price of the US dollar, and the reality of the situation starts to sink in.

 Under the gold standard, the government must have enough gold on hand to redeem every single dollar in circulation. According to John Waggoner writing for USA Today, there is 170,000 metric tons of gold in the world. This translates into about “5.5 billion troy ounces. (Troy ounces are 1.1 ounces.) All that gold would be worth roughly $9 trillion at $1,639.10 an ounce. U.S. gross domestic product is about $15 trillion. Even if the U.S. had the entire world supply of gold, the gold standard would run into practical problems” For Waggoner, the only way this deficit could be bridged would be if the “price of gold would have to soar to accommodate U.S. trade in goods and services.”[17]

While the rhetoric and the prominent personality fervor over a return to the gold standard has ignited interest and passion among some in the US. It seems clear that a return to the US dollar being pegged against a commodity is doubtful. Putting aside the challenges of actually acquiring enough bullion to make it possible, there is little evidence to support that a return to the gold standard would actually stabilize the national or international markets. Indeed, a return to the gold standard actually has the ability to further destabilize the American dollar and the world in general. To borrow the concluding remark of Matthew O’Brien from his article, “Whether it's 1896 or 2012, it doesn't make sense to crucify our economy on a cross of gold.”[18]

---

[1] http://www.telegraph.co.uk/finance/personalfinance/investing/gold/8117300/Bring-back-the-gold-standard-says-World-Bank-chief.html

[2] http://etfdailynews.com/2012/11/05/the-secret-return-to-the-gold-standard-gld-iau-sgol-slv/

[3] http://www.cnbc.com/id/48770752/Republicans_Eye_Return_to_Gold_Standard
[4] http://www.cnbc.com/id/48770752/Republicans_Eye_Return_to_Gold_Standard

[5] http://www.cnbc.com/id/48770752/Republicans_Eye_Return_to_Gold_Standard

[6] http://www.rightsidenews.com/2012112517457/editorial/rsn-pick-of-the-day/steve-forbes-on-the-future-of-the-gop-obamas-next-four-years-and-the-advent-of-a-gold-standard.html

[7] http://www.abc.net.au/unleashed/4404080.html

[8] http://www.dailyfinance.com/2012/08/30/gold-standard-return-how-it-affects-you/

[9] http://www.dailyfinance.com/2012/08/30/gold-standard-return-how-it-affects-you/

[10] http://www.abc.net.au/unleashed/4404080.html

[11] Ibid.

[12] http://krugman.blogs.nytimes.com/2012/08/26/golden-instability/

[13] http://www.businessinsider.com/why-conservatives-like-the-gold-standard-2012-8

[14] http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/

[15] http://www.businessinsider.com/why-conservatives-like-the-gold-standard-2012-8

[16] http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw1nNUYOXSAKwrq

[17] http://usatoday30.usatoday.com/money/markets/story/2012-04-23/return-to-the-gold-standard/54493710/1

[18] http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/

5 things international cities could learn from Philadelphia’s Mural Arts Project.

Photo By Daniel Suchenski

Graffiti, community dysfunction, violence, economic distress, and poverty are just some of the issues that face major cities around the world. Philadelphia, America’s fifth-largest city, prides has come up with an uncommon solution, public art. The mural capital of the world, Philadelphia’s Mural Arts Program is the largest public arts program in the United States. Responsible for the creation of over 3,000 murals throughout the city, the program was founded in 1996 as an outgrowth of the Philadelphia Anti-Graffiti Network which was established by the City in 1984 to work with youth arrested for graffiti or other minor crimes. The vision of the Anti-graffiti network was to channel the abilities of graffiti artists into projects that would elevate rather than deface the community.

According to the Mural Arts program website, there are a host of benefits that the program has been able to add to the city in the 25 years that it’s been operating. A sampling of five of those benefits include:

1. 66% of ex-offenders return to prison within three years of their release. Through 2011, only 10% of re-entry workers employed by Mural Arts re-offended within a year of their release.
2. Mural Arts provides more than 1500 under-served youth with a positive learning experience every year and boasts a 100% graduation rate among those in the program.
3. Each year Mural Arts employs more than 250 artists, as muralists, assistant artists and instructors, contributing $2.2 million to Philadelphia's creative economy.
4. Mural Arts Projects are one of the top five investments the city can make on commercial corridors, reducing blight, increasing retail sales, and raising property values (Econsult Corporation 2009).
5. Philadelphia’s murals have become big business, with books, audio tour narratives downloadable via cell phone or podcasts, and a variety of themed guided public tours.

In a recent published article entitled ‘The Art of Recovery in Philadelphia: Murals as Instruments of Personal and Community Healing’, authors Evans, Heriza, and White, declare that “Philadelphia, through its Mural Arts Program, is discovering the power of art as an expression of community resilience and a vehicle of personal and community healing. In images that honor the past, freeze present moments, and excite future possibilities, Philadelphia is celebrating the resilience and character of its people and of the City itself. The murals that fill the city of Philadelphia are artifacts of a process of community resilience and recovery.”

The success of the Philadelphia Mural Arts Project has already had lasting effects on other cities in the US. In June 2011, Trenton the capital city of New Jersey completed its first mural as part of its own newly started Trenton Mural Arts Project (TMAP). According to an article from TMAP’s website, “TMAP is led by ArtWorks Trenton and the Trenton Downtown Association/Destination Trenton, with the support of the Capital City Redevelopment Corporation and the City of Trenton, and the assistance of Princeton University and Philadelphia MAP”.

Guided by the philosophy that “Art Saves Lives,” MAP has been extremely successful and serves as a model for similar programs around the world. The Mural Arts Program has essentially created a huge outdoor, geographically distributed museum with the entire city as its canvas. MAP has also become an international training center for mural artists.

References:

http://www.facesandvoicesofrecovery.org/pdf/White/2011_The_Art_of_Recovery_in_Philadelphia.pdf http://philadelphia.about.com/od/attractions/a/Murals-In-Philadelphia.htm http://muralarts.org/ http://trentonmuralartsproject.org/

Gold Standard: America’s Future as Well as its Past?

[1]

As part of the recent political debate for the presidency as well as the overall party platforms of the Democrats and the Republicans, an idea that has only provoked mild interest since 1984, again saw light. At the Republican National Convention in Florida back in August of 2012, the decision was made to set up a “gold commission” as part of the official platform to examine the feasibility of returning the US to a gold standard, a system by which the US dollar would be fixed to some quantity of gold. The United States, has been off a “gold standard” since 1971 when U.S. President Richard M. Nixon, “facing huge budget and trade deficits, and a plunging dollar – enacted a series of economic moves, including the unilateral cancellation of the direct convertibility of the U.S. dollar into gold”[2] According to a recent CNBC article, the RNC’s recent shift “shows how five years of easy monetary policy — and the efforts of congressman Ron Paul — have made the once-fringe idea of returning to gold-as-money a legitimate part of Republican debate.”[3] Despite its recent resurgence in the media and in the Republican Party, what would a return to the gold standard mean for the country?

Largely absent from public discourse for decades, the last time a return to the gold standard was mentioned in the Republican Party’s platform was back in the 80’s. The Republican platform in 1980 references a “restoration of a dependable monetary standard," while the 1984 platform states that “the gold standard may be a useful mechanism” for national stability.[4] Ron Paul and his supporters in the Republican Party are not the only ones pushing for this idea. Indeed, Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of the platform committee, said the gold commission was not adopted merely to placate Paul and the delegates that he picked up during his campaign for the party’s nomination. “These were adopted because they are things that Republicans agree on,” Blackburn told the Financial Times. “The House recently passed a bill on this, and this is something that we think needs to be done.”[5] In addition to prominent politicians on Capitol Hill, some in the business community are also taking up the banner. In a recent interview with Steve Forbes, Chairman and Chief Executive Officer of Forbes Media and Editor-in-Chief of Forbes magazine, said “I try to promote free-market economics every chance. In addition to chucking our tax code, one of the key issues in the next few years will be getting this country on a gold standard. That's just beginning but, sadly, I think circumstances are going to propel this happening.”[6] Clearly there is a growing interest in the US to returning to the gold standard. Right? Satyajit Das, a former banker and author of Extreme Money and Traders Guns & Money, states that the revival of interest in gold in general is “underpinned by debate of a return to the gold standard. Advocates as varied as Libertarian US presidential candidate Ron Paul and the Islamic Liberation Party (Hizb ut-Tahrir) have argued that the gold standard is a solution to the deep problems of the global economy.” He goes on to say that “the gold standard, it is argued, would foster economic stability and prosperity, primarily by creating price stability, fixed exchange rates and placing limits on government deficit spending as well as trade imbalances. It will also limit credit driven boom bust cycles through constraints on the supply of money.”[7]

To make some sense of what returning to the gold standard would mean for the country, it's first important to have some background on our current financial system of money referred to as "fiat" currency. Instead of having currency pegged at a fixed rate against a tangible good, i.e. gold, the fiat system is largely influenced by the actions of the government. Since government actions largely determine the value of the currency, these “currencies aren't backed by commodities, but rather by the reputations of their governments.”[8] According to Bruce Watson, writing for DailyFinance.com, the fiat system allows a government to “control the flow of money into the economy. When prices are dropping too fast (think of the housing bubble burst, for example), the government can "print" more money, slightly inflating the currency and steadying prices. Conversely, when prices are rising too rapidly, the government can decrease the flow of money, making the currency slightly more valuable and steadying prices again.” He goes on to state that “in the U.S., the Federal Reserve controls this ebb and flow by regulating banks, adjusting the flow of money into the economy, and lending capital to banks when necessary. Chartered to prevent and temper the sorts of massive financial panics that were once regular occurrences.”[9]

Because a return to the gold standard in the US would significantly limit the government’s ability to use monetary policy to temper highs and lows in the global markets, many opponents of the gold standard argue that the limited “flexibility of governments and central banks in managing economies, restricting the ability to adjust money supply, government budgets and exchange rates”[10] are ample enough reasons to stay with the fiat system. Additionally, a return to the gold standard would “confer a natural financial advantage to countries that produce gold, such as the US, China, Russia, Australia and South Africa.” And that current geopolitical considerations and global competition would make this an unlikely, if not untenable situation.[11]

Paul Krugman, a prominent economist in the US and professor at Princeton University, in an article in the NY Times this summer stated in no uncertain terms that a return to the gold standard is a “very bad, no good, truly awful idea.”[12] To make his point Krugman noted that under a gold regime, the US had financial panics in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933.[13] Matthew O'Brien, associate editor at The Atlantic covering business and economics, detailed in a recent article “Why the Gold Standard Is the World's Worst Economic Idea, in 2 Charts” His first chart shows the volatility of the Consumer Price Index (CPI) during June 1919 to March 1933.

The second chart shows the Consumer Price Index (CPI) from 2008 to today.

Based on these charts, it seems that the gold era is characterized by deeper price swings, and more crises. According to O’Brien, the gold standard “should guarantee price stability in the long run, but you know what they say about the long run -- we're all dead. In the short run, prices can change violently under the gold standard, as the balance of trade changes or the physical stock of gold changes. Remember, price stability isn't just about avoiding inflation; it's about avoiding deflation too. The gold standard wasn't good at either -- especially compared to our modern inflation-targeting system.” [14]

So if stability is not a likely goal what is the appeal of a return to the gold standard? For Joe Weisenthal, “It's actually pretty simple. The ability to create fiat money out of thin air is a stealth form of taxation, because the creation of more dollars diminishes the value of those already in existence. Conservatives have a constitutional opposition to taxation, ergo a system of money that makes it hard to create more money is pretty logical.”[15] Add to that the fact that a recent survey conducted at the University of Chicago Booth school of business, concluded that  exactly zero economists (of those surveyed) endorse a return to the gold standard,[16] and that it may be impossible to actually acquire enough gold bullion to once again fix the price of the US dollar, and the reality of the situation starts to sink in.

 Under the gold standard, the government must have enough gold on hand to redeem every single dollar in circulation. According to John Waggoner writing for USA Today, there is 170,000 metric tons of gold in the world. This translates into about “5.5 billion troy ounces. (Troy ounces are 1.1 ounces.) All that gold would be worth roughly $9 trillion at $1,639.10 an ounce. U.S. gross domestic product is about $15 trillion. Even if the U.S. had the entire world supply of gold, the gold standard would run into practical problems” For Waggoner, the only way this deficit could be bridged would be if the “price of gold would have to soar to accommodate U.S. trade in goods and services.”[17]

While the rhetoric and the prominent personality fervor over a return to the gold standard has ignited interest and passion among some in the US. It seems clear that a return to the US dollar being pegged against a commodity is doubtful. Putting aside the challenges of actually acquiring enough bullion to make it possible, there is little evidence to support that a return to the gold standard would actually stabilize the national or international markets. Indeed, a return to the gold standard actually has the ability to further destabilize the American dollar and the world in general. To borrow the concluding remark of Matthew O’Brien from his article, “Whether it's 1896 or 2012, it doesn't make sense to crucify our economy on a cross of gold.”[18]

---

[1] http://www.telegraph.co.uk/finance/personalfinance/investing/gold/8117300/Bring-back-the-gold-standard-says-World-Bank-chief.html

[2] http://etfdailynews.com/2012/11/05/the-secret-return-to-the-gold-standard-gld-iau-sgol-slv/

[3] http://www.cnbc.com/id/48770752/Republicans_Eye_Return_to_Gold_Standard

[4] http://www.cnbc.com/id/48770752/Republicans_Eye_Return_to_Gold_Standard

[5] http://www.cnbc.com/id/48770752/Republicans_Eye_Return_to_Gold_Standard

[6] http://www.rightsidenews.com/2012112517457/editorial/rsn-pick-of-the-day/steve-forbes-on-the-future-of-the-gop-obamas-next-four-years-and-the-advent-of-a-gold-standard.html

[7] http://www.abc.net.au/unleashed/4404080.html

[8] http://www.dailyfinance.com/2012/08/30/gold-standard-return-how-it-affects-you/

[9] http://www.dailyfinance.com/2012/08/30/gold-standard-return-how-it-affects-you/

[10] http://www.abc.net.au/unleashed/4404080.html

[11] Ibid.

[12] http://krugman.blogs.nytimes.com/2012/08/26/golden-instability/

[13] http://www.businessinsider.com/why-conservatives-like-the-gold-standard-2012-8

[14] http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/

[15] http://www.businessinsider.com/why-conservatives-like-the-gold-standard-2012-8

[16] http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw1nNUYOXSAKwrq

[17] http://usatoday30.usatoday.com/money/markets/story/2012-04-23/return-to-the-gold-standard/54493710/1

[18] http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/

Tom's of Maine: Business as Usual or CSR Champion - Examining Sustainable Niche Companies merging with MNCs

http://www.anderra.co.uk/blog/natural-body-care-takeovers/

Toms of Maine: History

Founded in 1970 by Tom Chappell and his wife, Kate, on their farm near Kennebunk, Maine. Tom, and his wife had moved to Maine from Philadelphia in 1968 after Tom quit his job as a benefits counselor at Aetna.[i] Intent on living closer to the land and raising their children in a more natural environment, “Tom Chappell worked for his father's industrial detergent manufacturing company, until he decided to explore an idea he had had for a non-polluting detergent.”[ii] Borrowing just $5,000 from a friend to start the new venture, the husband and wife team “soon began to manufacture the first phosphate-free liquid laundry detergent in the United States, which they called Clearlake.”[iii] Consistent with their philosophy that “their products would not harm the environment,”[iv] Packages of the detergent came with “prepaid return postage so that customers could send back the containers for reuse. The new firm, known as Tom's Natural Soaps, later added other products including a shampoo, cream rinse, and lotion.”[v]

By 1975 the small company had expanded into toothpaste as well. Created in “conjunction with a chemist friend, his toothpaste was free of chemical additives or artificial sweeteners including the suspected carcinogen saccharin, and was markedly different from the products made by industry leaders Crest and Colgate.”[vi] In keeping with the philosophy of the company, the flavoring for the toothpaste was derived from herbs and spices. According to the International Directory of Company Histories[vii]. “Chappell's new product soon found acceptance within the post-1960's era anti-corporate, natural foods movement, and Tom's toothpaste became a staple item on the shelves of health food stores and food cooperatives, particularly in the New England area.”[viii]

In 1978 a line of fluoride toothpastes were developed. While potentially a risky move in the natural foods marketplace at the time, the new toothpastes, like its other products were made with natural ingredients and without animal testing. Ultimately the new toothpastes were a success and “sales of fluoride toothpaste eclipsed those of the original formula within two years, during which time Tom's toothpaste sales doubled.”[ix] In 1981 the company's name was officially changed to Tom's of Maine, Inc.[x]

Tom’s Natural Soaps continued to gain exposure and by 1983 the firm's “annual revenues were approaching $2 million. Recognizing that sustained growth would require new outlets for its goods, the company began to seek distribution to chain stores. The first one to take on Tom's products was Rhode Island-based CVS/People's, and others soon followed.”[xi]

In 1986 Tom enrolled in Harvard Divinity School, to which he would make a “twice-weekly, 90-mile commute. After five years of study, he earned a master's degree in Theology. Chappell, a frequent public speaker, went on to publish a book in 1993 called The Soul of a Business: Managing For Profit and the Public Good, which outlined his ideas on running a company with a strong set of personal ethics.”[xii] This search during the 80’s for a more values-based approach to business also led to a new look at the company's mission, which was examined over a year's time beginning in June 1989. “One unusual byproduct of the new mission was the decision to "tithe" 5 percent of Tom's of Maine's profits and donate the money to environmental, arts, and human needs causes. This figure soon became 7 percent, and then 10. In addition to public giving, the company also looked after the welfare of its employees, offering them retirement savings and profit-sharing programs, childcare benefits, and parental leave, and even free fruit to eat on the job. Factory workers rotated stations every hour to avoid fatigue and boredom, and all were encouraged to perform volunteer work in the Kennebunk community on company time.”[xiii]

In 1995, “after a seven-year effort, Tom's became the first natural toothpaste to win the approval of the American Dental Association (ADA), allowing it to put that organization's seal on its products.”[xiv] A crucial endorsement in its bid to compete against major competitors, the process “had taken far longer than usual because the ADA had no standards for natural products, and also because Tom's did not allow testing on animals, which meant new methods of testing had to be devised and certified… Sales for 1995 reached a record level of $20 million.”[xv]

In 2000 “Tom's raised $6 million for herbal product development and advertising by selling 12 percent of the company to a group of 15 outside investors, including Goldman, Sachs Chairman John Whitehead. Tom and Kate Chappell remained majority shareholders. The market for herbals was proving to be as difficult to crack as some critics had predicted. Sales for the company, which had been growing 20 to 30 percent annually, increased by only 7 percent during 2000, and a loss of $1.5 million was posted, only the second case of red ink in the previous 25 years.”[xvi] Despite this less than ideal outcome in the field of herbal products Tom’s continued to beat expectations. Indeed, the company's flagship line of toothpaste was the “dominant natural brand in the United States, and many other Tom's products were well-established with consumers who sought alternatives to chemical-laden, mass-marketed personal care goods.”

Colgate - Palmolive

In 2006 Tom’s of Maine made the controversial decision to partner with Colgate and allow them to have a 84% controlling majority in the company. According to a press release published on the Tom’s of Maine website for March 2006, “Colgate-Palmolive Company (NYSE:CL), as part of its strategy to focus on its higher-margin oral and personal care businesses, today announced that it has agreed to purchase Tom’s of Maine, the leader in the fast-growing Naturals market in the United States.”[xvii] Serving a niche market whose renown as a “socially responsible maker of natural products exceeds its market share -- is selling itself to Colgate-Palmolive Co. for about $100 million”[xviii] dollars. Concerning the acquisition, the Environmental News Network stated that, “Tom's of Maine has stronger gross profit margins than Colgate, making it an attractive prize. Colgate has narrowed its focus to highly profitable businesses such as oral care and personal care. However, with annual sales estimated at about $50 million, Tom's of Maine will be just a small addition to Colgate, which had $11.4 billion in sales in 2005.”[xix] Reuben Mark, Colgate's Chairman and CEO said, “"This strategically-important acquisition gives us access to a loyal, emerging consumer group and allows us to accelerate the growth of Tom’s of Maine by extending its reach in the U.S. and in Colgate's strong markets outside the U.S." Currently the US market for natural oral and personal care products, which is the most developed in the world, is valued at $3 billion and is growing at 15 per cent per year.”[xx] At the time, of the announcement the market responded favorably. According to Jessica Wohl “Shares of New York-based Colgate were up 61 cents, or 1.1 percent, to $57.61 on the New York Stock Exchange.”[xxi] Titled ‘an excellent fit’, the acquisition was portrayed by both sides as a win for both the consumer and the industry. Tom’s of Maine co-founders Tom and Kate Chappell said, “We chose Colgate as our partner because they have the global expertise to help take Tom’s of Maine to the next level. Just as importantly, we see Colgate as an excellent fit with our own cultural values. Colgate has a commitment to product excellence, to global efforts to promote oral health and has a 200-year history of caring for consumers and for giving back to the community. We are excited by Colgate’s desire to continue Tom’s of Maine leadership and heritage in natural care.”[xxii] Colgate President and Chief Operating Officer Ian Cook said in a statement that “Tom's of Maine has gross profit margins which are 10 percentage points higher than Colgate's margin, making it "a logical acquisition as we continue to prioritize our global oral and personal care categories." Colgate previously unveiled a target to reach gross profit margin of 60 percent by 2010. Its margin was 56 percent in the 2005 fourth quarter, excluding restructuring charges.”[xxiii]

Buying CSR

While the buying of niche companies that cater to the growing eco-conscience customer can certainly be attractive business acquisitions, some have argued that there is more than money behind the desire of MNCs to buy companies like Tom’s of Maine. Some analysts have viewed such acquisitions in recent years to be an attempt by corporations to ‘buy CSR[xxiv] These analyst’s cite other instances when major multinational corporations bought up smaller, model ethical corporations such as Unilever’s acquisition of Ben and Jerry’s, The Coca Cola Company’s buyout of Odwalla, Colgate-Palmolive Company’s takeover of Tom’s of Maine, and Dean Foods’ acquisition of Horizon Organics. Critics argued that these “model” corporations would find it difficult to continue the good work under their new parent.”[xxv] Additionally, authors Debapratim Purkayastha and Rajiv Fernando argue that, “The economic viability of an acquisition for such a reason is also a question mark, as generally, there is a public backlash after such acquisitions. As L’Oréal was not perceived to share the principles of Body Shop, Body Shop’s association with L’Oréal raised questions about the ethical standards of Body Shop itself. Its customer base was also affected.”[xxvi] Anderra, a website devoted to providing a guide to natural and organic living located in Farnham, UK compiled a list of the pros and cons of the partnership between Colgate-Palmolive and Tom’s of Maine. The pros according to Anderra are as follows:

“Pros

• Toms and Kate still have a minority ownership (16%) in Tom’s of Maine – Colgate Palmolive own 84% of the company rather than all of it
• Tom and Kate will continue to hold CEO and Vice President positions which means they still have a say in the way Tom’s of Maine is run
• Colgate-Palmolive are one of the leaders in oral care. Tom’s of Maine are the leaders in natural care, who also make oral care products. A winning combination?
• Ethical mainstreaming – Tom and Kate said that their decision to sell to Colgate was partly about broadening Tom’s of Maine’s reach,


”We chose Colgate as our partner because they have the global expertise to help take Tom’s of Maine to the next level.”
 Tom’s can use Colgate’s massive marketing and distribution network to sell their products in many more stores”[xxvii] Anderra lists an additional seven cons that offer a very different perspective on the partnership. They are:

“Cons

• So far in relative terms, Tom’s of Maine products are in small demand – increased demand could call for shortcuts which could impact on the quality of the products
• It will be difficult to maintain small town values and standards in a big corporation
• Colgate are company that do not have any natural oral care lines or use natural ingredients in their oral care products
• Colgate don’t have a very good track record with animal testing. I emailed them twice to ask if they still test their products or the individual ingredients on animals and they said,


“In 1999 we adopted a voluntary moratorium on all animal testing of our adult Personal Care products and the ingredients used in these products…Currently more than 99% of our safety clearance reviews are conducted without the use of animal tests”.


• Some consumers used Tom’s of Maine products because it was small brand with big values – selling to a multinational like Colgate may alienate a loyal consumer base
• Tom’s of Main’s profit margins are 10 percentage points higher than Colgate’s – it’s a no brainer…
• According to founder Tom Chappell, maintaining ethical standards such as bio-degradability of ingredients and staying in Maine were ‘deal breakers going into the process’. However Colgate agreed to keep the business based in Maine,

“Staying here is smart from Colgate’s perspective” said Kate Chappell, who founded Tom’s with her husband in 1970. “They are respecting the fact that we have a unique approach to creating efficacy with natural ingredients and a total values approach to doing business.”[xxviii]

Ultimately, the decision is summed up in this seemingly catch 22 that niche companies of this sort have had to face many times of the years.

“If you want to change what people consume on a grand scale, you have to penetrate mass markets. ‘And you can’t do that if you’re a small, specialist brand stuck in the organic or whole-food niche, even if that means you are on supermarket shelves. It is a familiar dilemma: stay pure and have a big impact on a small scale, or compromise and have a small impact on a grand scale.” -Roger Cowe[xxix]

The Next Chapter

As the pros and cons list from Anderra exemplifies, “corporate interest in natural companies is not a clear cut case of good or bad.”[xxx] Often times the fervor about such acquisitions dies down after a while and there is always the hope by many that large corporations will stay true to their word and leave the smaller niche company as independent entities. In the years following Colgate’s purchase of Tom’s of Maine one change sparked a backlash against Colgate and raised the question whether Tom’s was the same company it had always been or, as Andrea Whitfall calls them, just another cog “in the giant corporate wheel.”[xxxi] In an April 2011 article entitled, ‘Tom’s of Maine Ditches the Aluminum Toothpaste Tube’, author Jen Boynton discusses why Tom’s of Maine changed its long time packaging container. The much loved, and apparently, much maligned aluminum tube was changed to a more mainstream plastic laminate. While Tom’s of Maine had long maintained that “aluminum was the material of choice for toothpaste tubes because of its recyclability,”[xxxii] the author insists, “I’m pleased to report that Colgate-Palmolive had nothing to do with the change in materials. Rather, the decision came after a careful review of a decade of consumer comments and a reevaluation of the assumption that aluminum was the most environmentally friendly material available.”[xxxiii]When viewed in aggregate, “25% of packaging complaints about Tom’s products were related to the aluminum tube. Customers complained of cracks and splits that caused the product to leak. Parents complained that the tube was too hard for young toothbrushers to use; older customers had the same difficulties.”[xxxiv] While the author of the article seems convinced that the decision to change the toothpaste tube was purely a product of customer feedback and not overly significant, the decision by Tom’s of Maine to change the packaging ignited another debate about the new Tom’s versus the old Tom’s. One comment to Ms. Boynton’s article reads “Since the buyout by Colgate, the new changes to the toothpaste are revenue enhancements not product enhancements. The change from aluminum to plastic [has resulted in a further] reduction of quantity from 5.5Z(155.9g) to 4.7 OZ(133g) of product.”[xxxv] Another disgruntled commenter writes “The new tube is 14.5% smaller, for the same amount of money. This is [an increase of] 14.5% more revenue for the same cost.” And adds 14.5% more unrecyclable waste to the waste stream.[xxxvi] In response to the tube change, Harold Johnson posted an ‘open letter to Tom’s of Maine’ on Facebook. Disturbed by the toothpaste tube switch, Mr. Johnson decided to write the letter after discovering a half-decomposed aluminum toothpaste tube on the beach in Maine.

This is an aluminum toothpaste tube. It wasn’t littered by a beachgoer, or tossed out a car window. That’s not what happens to toothpaste tubes. It was thrown in the trash, and somehow managed to get into the ocean. That’s what litter does. Always has, always will. But notice: This aluminum tube is already disintegrating back to nature. It is becoming aluminum oxide, the stuff of soil that the world has evolved with over billions of years. In months it will disintegrate and be gone.

Your new plastic toothpaste tubes never do this. When littered into the environment -- as they will be -- they’ll persist. Nothing in nature knows how to return plastic to its building blocks. Your new tubes will run down gulleys, then rivers, eventually the ocean. There they will remain plastic. Even as they photodegrade into small bits, they’re still plastic. They will float, collecting in one of the massive gyres of plastic soup now swirling far from land. There, they will either get ingested by a sea animal, get stuck, and starve it to death... Or accumulate toxins to ~100,000 times background levels, killing more quickly... Or be spit back onto someone’s shore, perhaps distant, perhaps somewhere on the Maine coast, fouling it….

This has happened in just a couple generations. Under our nose and on our watch. Environmental studies claiming plastic as a better alternative are fundamentally flawed. They don’t account for pollution or persistence. Or the poor recyclability. Aluminum is melted down; impurities are easily skimmed off, and the aluminum can be back on the shelf in weeks. A truly closed loop. Plastic cannot be superheated to sterilize. It must be clean to be processed, which is why major recyclers don’t accept plastic toothpaste tubes. Your take-back scheme, though laudable, only downcycles the waste. And as few consumers will spend money to return your tubes to you, most tubes you sell have a one-way trip to the landfill... or the ocean.[xxxvii]

While the toothpaste container controversy is not, by itself, indicative of malignant wrongdoing by Tom’s parent company, It does call into question claims by some niche companies that they look forward to a partnership with a larger company so they can rub some of its corporate responsibility and sustainability on to the parent company. Mr. Johnson’s letter to Tom’s is poignant and heart-felt. It reflects the lingering sense of betrayal by former loyalists to companies like Tom’s as well as skepticism that changes made in the Colgate years are consistent with the original philosophy of Tom and Kate Chappell when the company was started with five thousand dollars and a belief in better business and natural products. Ironically enough, the Chappells have started a new venture called Ramblers Way Farm. Dedicated to the manufacture and sale of light, comfortable woolen clothing in America, this entrepreneurial effort may one day be faced with the same catch 22 that Tom’s of Maine faced. Perhaps with a different outcome.

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[i]http://www.tomsofmaine.com/business-practices/heritage/early-history[ii] http://www.fundinguniverse.com/company-histories/Toms-of-Maine-Inc-Company-History.html[iii] Ibid.[iv] http://www.tomsofmaine.com/business-practices/heritage/early-history[v] http://www.fundinguniverse.com/company-histories/Toms-of-Maine-Inc-Company-History.html[vi] Ibid.[vii] International Directory of Company Histories, Vol. 45. St. James Press, 2002.[viii] http://www.fundinguniverse.com/company-histories/Toms-of-Maine-Inc-Company-History.html[ix] Ibid.[x] Ibid.[xi] Ibid.[xii] Ibid.[xiii] Ibid.[xiv] Ibid.[xv] Ibid.[xvi] Ibid.[xvii] http://www.tomsofmaine.com/press/releases/detail/colgate-purchasing-toms-of-maine[xviii] http://www.boston.com/business/articles/2006/03/22/colgate_will_buy_toms_of_maine/[xix] http://www.enn.com/top_stories/article/3915[xx] http://www.cosmeticsdesign.com/Business-Financial/Colgate-finalizes-Tom-s-of-Maine-deal[xxi] http://www.enn.com/top_stories/article/3915[xxii] http://www.tomsofmaine.com/press/releases/detail/colgate-purchasing-toms-of-maine[xxiii] http://www.enn.com/top_stories/article/3915[xxiv] Leipziger, Deborah. The Corporate Responsibility Code Book. Sheffield: Greenleaf Publishing Limited, 2003. Page 535.http://docs.google.com/viewer?a=v&q=cache:KT1Ct_CJH0wJ:www.oikos-international.org/fileadmin/oikos-international/international/Case_competition/Inspection_copy_ICFAI2007.pdf+the+body+shop+social+responciability+of+sustained+greenwashing&hl=en&gl=us&pid=bl&srcid=ADGEEShyLm7S1Dj71wtLP3aLxNbrotyQ4sGmIzCn7Dh6SbqtvaLUvaDAK7Z9YpdMp-d7g_UhuoGg9uwVz9I8MkRGvNjBO_dC9w9wjCJXC2JWLfqvwHOols9m9-62YoQx_aKwdrPub5TQ&sig=AHIEtbTHYzxNGJf0yFoZXSRfQA5ifsAIyg[xxv] http://docs.google.com/viewer?a=v&q=cache:KT1Ct_CJH0wJ:www.oikos-international.org/fileadmin/oikos-international/international/Case_competition/Inspection_copy_ICFAI2007.pdf+the+body+shop+social+responciability+of+sustained+greenwashing&hl=en&gl=us&pid=bl&srcid=ADGEEShyLm7S1Dj71wtLP3aLxNbrotyQ4sGmIzCn7Dh6SbqtvaLUvaDAK7Z9YpdMp-d7g_UhuoGg9uwVz9I8MkRGvNjBO_dC9w9wjCJXC2JWLfqvwHOols9m9-62YoQx_aKwdrPub5TQ&sig=AHIEtbTHYzxNGJf0yFoZXSRfQA5ifsAIyg[xxvi] Ibid.[xxvii] http://www.anderra.co.uk/blog/natural-body-care-takeovers/[xxviii] http://www.anderra.co.uk/blog/natural-body-care-takeovers/[xxix] http://theoldspeakjournal.wordpress.com/2011/06/18/kashi-burts-bees-toms-of-maine-naked-juice-your-favorite-good-natural-socially-conscious-brands-owned-by-the-corporatocracy/[xxx] http://www.anderra.co.uk/blog/natural-body-care-takeovers/[xxxi] http://theoldspeakjournal.wordpress.com/2011/06/18/kashi-burts-bees-toms-of-maine-naked-juice-your-favorite-good-natural-socially-conscious-brands-owned-by-the-corporatocracy/[xxxii] http://www.triplepundit.com/2011/04/goodbye-toms-maines-aluminium-toothpaste-tube/[xxxiii] http://www.triplepundit.com/2011/04/goodbye-toms-maines-aluminium-toothpaste-tube/[xxxiv] Ibid.[xxxv] Ibid.[xxxvi] Ibid.[xxxvii] http://www.facebook.com/notes/the-flotsam-diaries/an-open-letter-to-toms-of-maine-re-plastic-toothpaste-tubes/230362173641131http://www.entrepreneur.com/article/219286