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A woman sewing at Sari Bari (Handout)

Business

Steps toward freedom

Building businesses to fight modern-day slavery 

Kolkata (once known as Calcutta) is infamous for Sonagachi, one of the largest red light districts in Asia. About 10,000 women, trapped in the sex trade, live within a labyrinthine tangle of streets. Many are victims of human trafficking, young village girls lured to the city by false promises of a job or marriage, then sold on the doorstep of a brothel. Others enter the pain factories out of desperation and poverty.

Each night, thousands of men flood into “the Gach.” The women crowd the doorways and line the streets, smiles and makeup pasted on. Yet right in the middle sits an unassuming building where women sew saris into blankets and stitch hope into their lives. This is Sari Bari, a business founded in 2006 by Sarah Lance—formerly a volunteer at Mother Teresa’s Home for the Dying—and Kristin Keen.

Lance and Keen aimed to build a self-sustainable business that could provide freedom and alterative employment to women trapped in the sex trade or at high risk of being trafficked. “I was profoundly afraid of being a hypocrite,” Lance explained. “I really wanted my faith to be active. … We’d been visiting [Sonagachi] for about five years, listening to the women and what their needs were. And what we heard over and over again was: ‘I want a different job.’”

Kolkata’s pervasive “shame culture” means that the families of trafficked girls will often not accept them back for fear of becoming outcast themselves. Most trafficking victims have little or no education or skills: Left with no alternative, they stay in brothels just to survive. A viable business that hires these women is an opportunity to escape. Lance and Keen wrote up a business plan, did market research, and developed a product line—bags and blankets made from saris. Sari Bari began with three women learning to sew in Kolkata’s smaller Kalighat red light district.

In the years since, Sari Bari has opened two production units in Sonagachi and a prevention unit in Canning, a major trafficking source area. It now employs around 110 women from the red light areas, and also operates a nonprofit trust. A social worker provides mental health and medical support. Employees receive preventative care checkups, health insurance, and three-fourths of schooling costs for their children.

The business has struggled but stayed afloat. Instead of employing the best-qualified people, Sari Bari intentionally employs women with no skills, no literacy, small motor skills challenges, and trauma—and still tries to pay well and make a quality product people want to buy. Normal (but tough) business decisions, such as firing an employee, take on enormous weight, since jobless women are likely to return to the sex trade.

‘God created us for work. Whether it’s [sitting] at a desk or stitching a cloth, there’s something empowering about it. It’s important.’—Sarah Lance

It’s not a business model for the faint of heart, yet it is possible. And the potential for transforming women’s and children’s lives is remarkable: Lance says, “After 13 years, we’re now seeing kids in college.”

Sari Bari and other Kolkata social entrepreneurs call their companies “freedom businesses.” Freeset, the largest and oldest of the bunch, has operated a factory in Sonagachi since 2001. It now employs more than 250 women from the red light area, printing T-shirts and making bags and scarves from jute and used saris.

The newest freedom business, Loyal Workshop, opened in 2014 and employs 18 women in Bowbazar, Kolkata’s second-largest red light area. Two years ago Lou and Andy Gane, with their two kids, left comfortable suburban life in New Zealand to live and work in Kolkata. Lou runs Loyal’s sales and marketing. Andy does the accounting: “We wanted to reorient our lives towards people on the margins,” Lou says.

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Associated Press/Photo by Mark Lennihan

(Associated Press/Photo by Mark Lennihan)

Business

Bad influences

Changes in investment banking have created strong temptations to sin

On March 14, Goldman Sachs executive Greg Smith sent the investment bank a very public resignation letter-in the form of a New York Times op-ed. Unlike the bank he had joined 12 years earlier, Smith complained, Goldman no longer "revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients." Now, the only thing that matters is how much money can be made off the clients.

Wall Street insiders immediately dubbed Smith's jeremiad "the shot heard round the world." Although there is more than a little hyperbole (and self-importance) in the label, Smith's resignation has highlighted a very serious moral crisis on Wall Street. This is the latest blow to Goldman's reputation: It comes after a Rolling Stone article denounced the firm as a "vampire squid" and the SEC sued it for failing to tell clients they were purchasing mortgage-related securities selected by a hedge fund that was betting they would fail.

The jolts to Goldman's reputation have mesmerized Wall Street precisely because Goldman always claimed to be, and seemed to be, different than the dog-eat-dog banks around it. It claimed to be immune from the trends that have transformed investment banking in the past generation. The key difference is structural: In the old days, investment banks were all partnerships; in the 1980s, they became corporations.

The change was important for two reasons. First, investment banks were desperate for funding because they increasingly were making money by trading for themselves, rather than by providing advice for clients. Selling its own stock was a great way for an investment bank to raise the money it needed for this trading. Second, becoming a corporation meant that the bank's executives were not personally liable for its obligations, as the partners of a partnership are. This meant that executives could take on more risk, and possibly make a great deal more money, without being personally responsible if their bets went bad and the bank failed.

Goldman held out longer than any of the other big banks. When it finally took the plunge and converted to a corporation in 1999, Goldman insisted that its unique culture would survive the shift. For a time, many people thought it had. But Smith's op-ed is the latest evidence that it didn't. Many argue that Goldman needs changed hearts, and must shift its focus back to making profits without taking advantage of clients.

Surely this is right, but it's also important to remember how Goldman and the other banks got here. The changes in investment banking have encouraged the change in behavior. Catholics call an environment that puts a person in the way of temptation the "near occasion of sin." This is what investment banking has become.

It's probably not possible to go back to the days when investment banks were partnerships whose partners put their reputation and their own bank account on the line every day. But regulation-or the absence of regulation-that encourages bankers to roll the dice should be revisited. As bad as they are, the recent financial reforms could help by adding more oversight of the complex financial contracts that have caused so much trouble.

Sharp business practices will never disappear altogether in a fallen world. But the Smith op-ed is a reminder that character matters, and so does the environment in which our financial transactions take place.

-David Skeel Jr. teaches corporate law at the University of Pennsylvania

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Photo by Daniel James Devine

(Photo by Daniel James Devine)

Business

Up to code

Despite housing slumps, DOE and the Obama administration are bullish on raising energy standards-and costs of construction

LAPORTE, Minn.-On a biting December morning, a flatbed stacked with logs chugged up County Road 39 in Laporte, Minn., past standing Norway and white pines freshly plastered with snow. Between the pines a driveway dead-ended in a cluster of log homes. They were built by Northwoods Log Homes, the oldest log home manufacturer in the state, according to 44-year-old company president Bryan Kerby.

One house had three floors and a bonus "bunk room" above the garage. Inside was all wood-from the log rafters to the paneled walls to the Australian cypress floor. Beams upheld a vaulted ceiling, framing large windows that overlooked frozen Kabekona Lake. Selling price: $650,000 for 6,000 square feet.

Minnesotans have a nostalgic attraction to log home living, but the construction style could be eliminated or drastically altered if northern states adopt new building codes meant to conserve energy. In exchange for billions in federal stimulus dollars, all 50 states pledged in 2009 to adopt energy efficiency codes in spite of the risk to the construction industry and small businesses like Northwoods.

Back in his office, Kerby showed me cross-sections of his company's product: Walls are built with 8-inch-diameter logs, stacked and compression bolted together, while roof and gable cavities are filled with insulating foam board and sprayed-in foam. If Minnesota adopts the newest codes recommended by the International Code Council (ICC), a nonprofit association of building code officials from throughout the United States, the log walls have to double in thickness. In order to meet the ICC code's wall insulation "R-value" for northern Minnesota, where Northwoods is located, the logs would have to be at least 14 inches wide. Northwoods, like many log home manufacturers, uses milling equipment designed to handle 6- to 8-inch logs. The larger trees are scarcer and more expensive to purchase.

"This is the kind of material that is typically available in Minnesota," said Kerby, standing over his 8-inch-log display. "I don't know that I can stay in business with a 14- to 16-inch log."

States write their own building codes but take guidance from model codes developed by region by organizations like the ICC. Not every group makes it a priority to reduce carbon emissions and fossil fuel use, but some local and federal officials do: Every three years the ICC publishes the "International Energy Conservation Code," and the U.S. Department of Energy (DOE) asks the states to either adopt it or explain why they cannot. In practice, a handful of states have avoided updating their energy codes, while another handful zealously meet or surpass the latest model versions.

When the ICC voted in October to approve its newest energy code-the 2012 edition-DOE and a nonprofit advocacy group called the Alliance to Save Energy pushed hard for code changes to increase efficiency requirements. For the most part, they got them: The 2012 code is 30 percent more efficient than the edition published for 2006. DOE's goal is to raise that number to 50 percent by 2015.

Jeremy Bertrand, a national sales manager for Log Homes of America, said a recession is an odd time to be ramping up energy regulations. The 2012 ICC code calls for insulation improvements to ceilings, walls, and foundations; reduced heat loss from windows, ductwork, and hot water pipes; and blower-door testing to ensure homes are completely airtight. Those requirements will broadly impact a depressed construction industry, not just log home builders. Bertrand thinks efficiency is great, but buyers will find that in exchange for those improvements, "houses are flat out going to be increasing in cost," he said.

Monica Schneider, who works to help states adopt efficiency codes through the Alliance's Building Codes Assistance Project, said buyers would willingly pay a little more up front if they knew what they could save in energy bills later. According to a study of the 2009 ICC energy code by Schneider's organization, new homes that integrate the code would add just over $800 on average to construction costs and save the owners $243 annually. The building industry, though, claims the costs of compliance will be much higher.

Kerby and the Log Homes Council, an industry group that Northwoods is part of, have lobbied the states in hopes their code writers will recognize the unique constraints of log construction. They've had mixed success: Minnesota, for instance, agreed to allow Northwoods to continue building 7-inch log walls if it upgraded efficiency elsewhere in the building, say, by installing better windows. That allowance could disappear if Minnesota incorporates the 2012 code.

Some states have refused to consider such tradeoffs for fear of losing federal money. The American Recovery and Reinvestment Act of 2009, commonly referred to as the stimulus bill, required states to adopt the 2009 ICC energy code in order to get a slice of $3.1 billion in State Energy Program funds to make efficiency improvements in public buildings. In exchange for the federal money, all 50 states have agreed to meet stringent codes by 2017. But as the costs of compliance become more apparent, whether all will follow through is another matter.

That could make the next six years even tougher for builders, who are crawling out of a construction collapse. Housing starts rose slightly by year-end, but residential investments (made up of construction, remodeling, and commissions on real estate) composed only 2.23 percent of the U.S. economy in the third quarter of 2010-according to Bloomberg, the lowest amount since records began in 1946.

Minnesota housing starts were only a quarter of their pre-recession levels last year. As various states incorporate the 2009 code, Kerby believes the upgrade requirements will be like a "boot on your neck" for builders trying to sell: "Nobody's buying homes, so how can we fully understand the impacts of these additional costs?"

Log builders are uniquely impacted because "we can't just go throw a few more inches of insulation in the wall." Kerby said he is "still fighting for traditional log construction," but in the meantime Northwoods is developing a hybrid log wall that uses insulating foam to increase R-value. If energy code writers continue to tighten requirements, Kerby won't be the only one adapting to a nontraditional approach.

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