On the Creative Capitalism website, Brad DeLong attacks Milton Friedman's position on the social responsibility of business as "weak toast"--an expression I was unfamiliar with, but a good one which I intend to start using. Friedman famously argued that it was better for shareholders to decide what good causes to support than have managers of the companies they own decide for them. Brad asks, why?
This is weak toast. This is thoroughly unconvincing. What reason is there not to turn this around? What reason is there not to say, instead:* If customers don't want to pay higher prices and so buy from corporations that pursue social responsibility, they are (as long as product markets are competitive) free to do so at their option.
* If workers don't want to receive lower wages by working for corporations that pursue social responsibility, they are (as long as labor markets are competitive) free to do so at their option.
* If investors don't want to receive lower profits by investing in corporations that pursue social responsibility, they are (as long as capital markets are competitive) free to do so at their option.If workers, customers, and investors expect that the executives of the corporations they deal with will pursue social-responsibility objectives, where's the foul? The executives aren't doing anything wrong at any level -- they are in fact performing a valuable function by as workers', customers', and investors' trusted and honest agents by pursuing social-responsibility goals. They are helping them pool their resources to achieve what they want to see happen. This pooling-of-resources agency function is an important one--it is, after all, why we have large organizations in the first place. So why limit it to narrowly profit-maximizing goals?
I've posted a quick reply.
I don't know what Friedman would have said to that, but my reply is "no foul"—in the sense, anyway, that nobody is being cheated. There would also be no foul, in that same sense, if a company said it intended to dedicate itself exclusively to good works, and had no intention of making any money at all—again, so long as everybody, including investors, was content with this. And for that matter there would also be no foul if a company said it would dedicate itself to making its workers miserable, asking its customers to pay double what they needed to, and bilking investors of every last cent—no foul, as before, so long as all interested parties were in the picture and thought it was fine. Caveat emptor, by all means.The question is not "where's the foul?" but "where's the harm?" What counts is which of this potentially limitless set of no-foul organizing principles is likely to produce the best results. Friedman believed that the profit motive was hugely underrated as an organizing principle tending to produce socially beneficial results. In my view, he was surely right about that. Ordinary profit-seeking capitalism gets a terrible press. Even capitalists who have done as much as Bill Gates to advance social welfare aren't willing to defend it. And this is where corporate social responsibility comes in. It is a response, in substantial part, to a widely held misconception about the profit motive. I think that Friedman mainly wanted to correct the misconception, and draw attention to the unintended consequences of adopting organizing principles different from, and supposedly more enlightened than, the profit motive.
If the views of workers, customers and investors are influenced by a misunderstanding about the social value of profit-seeking enterprise, it is not enough to say that nobody is being cheated by CSR. Would the wide adoption of a broader corporate goal than seeking profits really make us better off? As I argue in my previous post, if Gates had been a CSR enthusiast right from the start, I doubt that there would ever have been a Microsoft or a Gates Foundation.
Brad DeLong attacks Milton Friedman's position on the social responsibility of business as "weak toast"
This sounds like a malaprop of "milquetoast" (sometimes spelled "milk toast" and the like), which means "a person who is timid or submissive : [as adj. ] a soppy, milquetoast composer."
According to the New Oxford American Dictionary bundled with OS X: "ORIGIN 1930s: from the name of a cartoon character, Caspar Milquetoast, created by H. T. Webster in 1924."
Ordinary profit-seeking capitalism gets a terrible press. Even capitalists who have done as much as Bill Gates to advance social welfare aren't willing to defend it.
I agree, in part because the alternatives aren't very good, even within capitalism. My only comment to Creative Capitalism so far came in response to the first post, and it deals with some issues regarding the alternative.
I've been using "Hard cheese, old chap!" since coming across it in Orwell's great essay, "Inside the Whale." I bet hard cheese would whomp weak toast any day of the week.
"Corporate Social Responsibility" (CSR) can be like the ‘friend’ some kid chats to on the internet but who turns out to be an axe-wielding pedophile. And just like that kid, business can been duped. Recently, 88% of Australian executives surveyed said CSR was ‘central’ or ‘important’ to their corporate decision-making.
There are two key reasons for this, the first bad and the other worse. The first derives from the cunning fact that most of CSR’s broad ambit claim is no more than good business practice, what most of us are doing already. So it’s tempting to just shrug our padded corporate shoulders and pay lip service to the rest of it so we can get pats on the back and enjoy a quieter life. Tell that to the poor boiling frog. (If you drop a hapless frog into a pot of boiling water, it will leap out immediately. But, if you put it into a pot of cool water, and gradually heat it to boiling, the frog won’t notice until it is too late.)
The second reason businesspeople embrace CSR is most of us hate being hated. So spending money to popularise business — especially other people's (shareholders’) money — is attractive. But it’s also foolish.
If we dissect CSR into two parts, we expose its insidious trap. If you slice away the word ‘Social’, what you’re left with is plain old Corporate Responsibility. It’s a well-understood term that’s been around a very long time; even before Bhopal though, scandalously, Union Carbide seemed unable to translate it into the local language. (Clearly, not all modern companies get it, but most do.) The problem with the word ‘social’ is it can happily justify almost anything as publicly desirable, and thus necessary.
As Clive Crook points out, CSR advocates criticise corporations for being solely devoted to making profits, letting all else go hang. They quote this, usually with a sneer, as a classic Milton Friedman dog-eat-dog formulation. But if you spend three minutes reading Friedman’s famous 1970 article in The New York Times you’ll find what he actually said:
“There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engage in open and free competition without deception or fraud.”
Translate that into a simpler prescription: a corporation’s fundamental responsibility is to increase its profits over time through worthy endeavour, free competition and honest practices.
For most companies today, telling the truth, selling reliable products for fair prices, and treating your people well are not virtues, they are duties. How can it be a company’s duty to poison their employees and condemn them to hardship and penury just to save a few bucks? Try explaining that to an investigative journalist, to a cross-examining class-action lawyer or perhaps more powerfully and directly, to your kids at the kitchen table.
What’s really lurking behind CSR is the insidious and false assumption that corporations are caricatures of rich white thieving bastards who yearn for nothing better than ripping off their customers with shoddy goods, poisoning the atmosphere with CO2, screwing their employees with lousy pay and working conditions, all so they can spend their afternoons sinking back in their soft leather armchairs and puffing on fat cigars while they count their ill-gotten greenbacks. Maybe that was a fair generalisation once, but it isn’t today. (For a start, you can’t smoke anywhere, even if you wanted to.)
Many of the true believers in CSR, if they're honest, see it as a tool to reign in the excesses of capitalism. But their brand of CSR has the potential to reign in the wrong excesses, and in particular, the excess that capitalism does best: creating wealth and lifting living standards.
Many CSR zealots do see capitalism as a zero-sum, just as Karl Marx did. But happily, as we know, capitalism’s earlier 19th and 20th century adversaries got it wrong. Sure, the rich got richer, as predicted, but the poor got richer, too.
Al Gore, the Nobel Prize-winning former US vice-president, once complained that “we are operating the Earth like it’s a business in liquidation.”
Some quick World Bank statistics about this world in supposed meltdown…
In 1981, a shocking 40% of the planet’s people lived in absolute poverty on less than $1 per day. But 20 years later, by 2001, that 40% had halved to 21%. Still far too high but an amazing reduction. But contemplate that fall as actual numbers of people, and it’s even more startling. Despite around 2 billion more people cramming into the world, the actual number of people in absolute poverty didn’t also balloon, as you might expect, it shrank. And not by a little, but by 400 million. 400 million individuals, more people than live in North America, escaped the clutches of absolute poverty at the same time as the world’s population exploded.
And what’s driven that? Globalisation and its chief financier and growth engine, the corporation.
So, since capitalism’s 21st century adversaries can hardly argue with a straight face that the poor are getting poorer — at least in places where trade is encouraged — they wrap themselves inside the warm fake-fur of their CSR cloaks, and preach that the real problem today is how capitalism is making people too rich and it’s not spending enough on what really matters, the environment and so on.
They want the law to force corporates to redistribute their fabulous wealth, before shareholders get their greedy mitts on it, so they can change the world for the better. (As if that wasn’t what governments were for.)
But haven’t these people been paying attention? Corporations are changing the world for the better, not because some law forces them or because governments asked them nicely, but because it is a natural by-product of what they do best: seeking to increase profits over time through worthy endeavour, free competition and honest practices.
A truly unsung motivator today for our corporations to do even better as "good corporate citizens" (what we used to call it, and a better term in my view) is the importance to long-term, sustainable profitability of a good corporate reputation, especially in the eyes of customers and employees. Increasingly, at least in the West, customers don't make buying decisions simply on price; they do keep a watch on a firm's behaviour. This is a good thing.
Firms also need to keep attracting and retaining quality employees who have global choices. Who really wants to work for thugs or thieves when there are plenty of firms who aren't?
Working to maintain a strong corporate reputation is an important component of sustainable profitability today. True competition, for our customers and our people, has enormous power to focus corporations on doing even more good. That's simple corporate responsibility.
John M. Green (Company director & writer, based in Australia. Former investment banker & lawyer.)
green@greenjohn.net
The problem here is that Friedman and the Chicago Boys expected government to be crooked and worked within it to make and keep it so for their own esoteric purposes, for instance, by providing support for criminalized businesses and extra-constitutional organs of government that supported the Social Darwinism underlying these arguments.
The narrow, "classroom", economic arguments were quite a deliberate distraction. There was a deeper -- "esoteric" -- philosophical and practical -- literally murderous -- whole to it.
That is more evident today than it was in the late 1960's, when what we call NeoCons today were much more marginal and quite surreptitious.
They started with the coup d'etat in Greece.
::JRBehrman
I'm fond of the phrase "weak sauce" myself, as in thin, or tasteless. Not sure how toast could really be weak, unless maybe it was cold and/or inadequately buttered/jellied.