Corporate Social Responsibility, Take 2

Nick Gillespie | October 5, 2005

In our October ish, we had Whole Foods CEO John Mackey duking it out with Milton Friedman and Cypress Semiconductor CEO (and Blessed Nun Basher) TJ Rodgers about the social responsibility of business. In today's Wash Post, columnist Steve Perlstein namechecks that "spirited debate" and then weighing into the fray thus:

While some employees tell pollsters that they prefer working for socially responsible firms, there is no hard evidence that socially irresponsible ones suffer from a lack of talent or must pay more for it....

And consumers say they prefer tuna caught in dolphin-proof nets, coffee grown by fairly paid farmers and products made from recycled materials -- but retailers find that most are unwilling to pay extra for it....

Some [environmental] gains were achieved through new products or processes that also are cheaper or better. Think of computer chips that use less energy, or new clean-coal electric generating plants. In theory, however, the free marketplace should eventually have produced those advances without the [corporate social responsibility movement]. In other cases, the gains have come at relatively modest expense, such as improving the working conditions at Nike plants in Asia or the environmental practices of Latin American banana growers....

But when it comes to reducing greenhouse gas emissions or raising wages in developing nations -- tougher problems that result in lower returns for investors or higher costs for consumers -- the market for corporate virtue remains limited. In competitive markets, even well-meaning companies don't provide such "public goods." If we want them enough to pay the price -- and that's always a question -- the only fair and reliable way to get them is still through old-fashioned government regulation.

Whole thing here.

Comments

|10.5.05 @ 11:57AM|#

I was getting more and more excited until I came to the last sentence of just above.

theOneState|10.5.05 @ 12:05PM|#

I gagged on "In theory, however, the free marketplace should eventually have produced those advances without the [corporate social responsibility movement]."

Eventually???

I guess w/o the csr movement only the lucky few would be using electric typewriters by now....

R C Dean|10.5.05 @ 12:27PM|#

But when it comes to reducing greenhouse gas emissions or raising wages in developing nations -- tougher problems that result in lower returns for investors or higher costs for consumers -- the market for corporate virtue remains limited. In competitive markets, even well-meaning companies don't provide such "public goods."

The magic word here is "public goods," of course.

I don't see how higher wages are a public good such that government is justified in mandating them. Higher wages for thee means higher prices for me and lower returns for investors, not to mention that (on a bigger scale), higher wages may mean higher unemployment, or shifting of employment to other markets.

As for whether lower greenhouse gases are a public good, well, that rather assumes the conclusion of the whole Kyoto debate, doesn't it?

People are all in favor of "public goods" that are free or are paid for by other people. Not very many people will pay extra for politically correct products, or will take a pay cut to work for a politically correct company.

Which reflects well on people, in my opinion. Bug chunks of the soft-left "socially responsible" agenda ranges from inane to actively harmful, and certainly doesn't warrant a subsidy.

drf|10.5.05 @ 12:39PM|#

"Public good: A good or service that can be consumed simultaneously by everyone and from which no one can be excluded"
(you can throw in nonrivalry, too, if you'd like. or how one more consumer gains utility from the p.good but with no additional cost - RC nails that part perfectly!)


yes, it was in quotes.... but faux econobabble probably sounds as dumb as faux law-babble. (attorneys on this site might confirm).

|10.5.05 @ 1:10PM|#

"If we want them enough to pay the price" ... we'd pay the price, and no regulation would be necessary.

Sounds more like an accurate statement would be "If I want them enough for you to pay the price the only way to get them is through old-fashioned government regulation."

|10.5.05 @ 1:10PM|#

Vice Fund

Because "socially responsible" investing is for hippies and losers.

|10.5.05 @ 1:42PM|#

Vice Fund

I cannot tell you how much that lifts my spirits this morning!

|10.5.05 @ 2:07PM|#

I think the whole thing boils down to "talk is cheap". Sure, let's save the planet, let's be socially responsible. What's that? It's actually going to cost me? Oh, well, forget it then.

|10.5.05 @ 2:16PM|#

I think JD and DaveJ are forgetting the "free rider" and "cumulative impact" dynamics here.

If there is even a slight cost to a corporation that acts responsibly, it will swiftly become extinct at the hands of the least responsible.

No one wants to be a sucker, sacrificing for the common good (ie, willing to pay the price) when other people, who pay no price, get the same good.

And finally, when you're talking about a public good like preventing catastrophic global warming, it isn't enough to say "let those who are willing pay all the cost." The level of effort necessary to address the problem requires a society-wide commitment. A lot of people who are willing to the pay the price if they think it will do some good lose that willingness when the harm done by free riders nullifies their efforts.

|10.5.05 @ 2:18PM|#

"Sounds more like an accurate statement would be "If I want them enough for you to pay the price the only way to get them is through old-fashioned government regulation."

Mediageek, it's just not quite that simple. Maybe when it comes to certain things like wages, etc., and most other government regs, but when it comes to environmental issues - issues that obviously and inevitably transcend private property boundaries - then it's little more than just "what I want". If someone pollutes the air on their property, and it in turn, after time, pollutes the entire area, then who exactly should be paying for it? Who should regulate it?

Put it another way: let's say that I release gases into the air that pollute a large area. The consequences of my actions are thus spread rather evenly among other people's property, without their permission. As such, the risk is disproportionately small compared to the reward, in my case. So, is that goes, why, other than coercion, would I have any incentive to clean up my act? When effects are externalized, it affects the delicate balance of incentives.

|10.5.05 @ 2:19PM|#

If we can't expect people to be responsible for their own financial well-being (as, judging by the huge amount of peronal debt, we can't), how can we expect them to be responsible for the rest of the world? I mean if people are willing to live way beyond their means but then start pinching pennies on tuna (how much more is a can of dolphin-safe tuna, anyway?) then we can't count on people to act rationally in their own interest.

Isn't Starbucks one of those socially responsible companies? Hasn't hurt their bottom line any.

|10.5.05 @ 2:29PM|#

No one wants to be a sucker, sacrificing for the common good (ie, willing to pay the price) when other people, who pay no price, get the same good.

No one wants to be a sucker, paying for something they don't want, just because someone else classifies it as a "common good".

|10.5.05 @ 2:35PM|#

when you're talking about a public good like preventing catastrophic global warming,

And my gosh, joe, could you have chosen a more far-fetched example of a public good than that?

|10.5.05 @ 2:46PM|#

Mark:

"If we can't expect people to be responsible for their own financial well-being (as, judging by the huge amount of peronal debt, we can't),"

It all has to do with incentives and consequences. That "huge amount of personal debt" that you speak of is not always in those people's worst interests. It depends on time horizons. It also depends on the consequences. In this country, you can declare bankruptcy with the gubmint, and it all goes away---at the cost of others, of course. Without that safety net, and the threat of having your entire life seized and being thrown into jail if you can't pay your bills, not nearly as many people would be so nonchalant about personal debt.

"how can we expect them to be responsible for the rest of the world?"

They're not and should not be responsible for the rest of the world...unless it's a problem that they contribute to, without paying the price.

"I mean if people are willing to live way beyond their means but then start pinching pennies on tuna (how much more is a can of dolphin-safe tuna, anyway?) then we can't count on people to act rationally in their own interest."

Again, it has to do with consequences and time horizons. Average lifespan of 21st century homo sapiens sapiens is less than 100 years. That time horizon means that many of the actions they commit will not bear recognizable consequences in their lifetime. It's not that they're not acting rationally; they're just acting relative to their perceived time horizons; couple that with the fact that different types of people in different lifestyles have different time horizons when it comes to money (for instance, whether they have other people depending on them); stating that obvious fact is what got Hans Hoppe in trouble with the PC police not long ago.

Why you declare that someone who spends alot of money on clothes, but doesn't spend the extra 10 cents on dolphin-safe tuna, is being "irrational", it's incredibly condescending. Rational acting is determined relative to consequences and rewards - there is no real universal rationality when it comes to time horizons and finances.

"Isn't Starbucks one of those socially responsible companies? Hasn't hurt their bottom line any."

Just because a company is A) successful, and B) socially responsible, does not mean that there is necessarily a causal relationship between the two factors. Nor is your statement necessarily true. Maybe it HAS hurt their bottom line. Maybe it has helped it. The only way to prove your statement true or false would be to go back in time and have Starbucks execs try it both ways, being socially responsible, and being "irresponsible" and bottom-line-obsessed. Then, you could compare the two, and thus, make a statement like that. Until then, your declaration regarding bottom lines and social responsibility is nothing but a guess.

|10.5.05 @ 2:50PM|#

Nick,

We actually used that exchange during 2 of our Business Associations classes on the nature, duties, and roles of the corporation.

Granted, we here at GMU Law are probably more likely than all other schools in the country put together to use your material, but I thought you might like to know that it's been used.

|10.5.05 @ 3:11PM|#

Can someone give me a quick catchup on why Starbucks is socially responsible?

|10.5.05 @ 3:30PM|#

"Can someone give me a quick catchup on why Starbucks is socially responsible?"

Because they charge too much for? I think that is what socially responsible means when applied to coffee...

|10.5.05 @ 3:33PM|#

According to joe, I'm free-riding on Starbucks's corporate responsibility since I never go to Starbucks yet I'm benefitting fron whatever common-good causes they're trumpeting.

|10.5.05 @ 4:08PM|#

Socially responsible is usually code for a boutique marketing concept that seeks to charge inflated prices to a targeted audience who is willing to pay more for the feeling of doing good.

It seems to me that efficacy of the social expenditures are never looked at and are largely irrelevant. We determine how socially responsible a company is by looking at how much they give away, not by how much they reduce poverty or whathaveyou. Direct transfers don't seem to do much in the grand scheme of things, but they are the easiest way to connect with the targeted market's desire to quantify how much they care.

Its hard to put that on a tee shirt, though.

|10.5.05 @ 4:10PM|#

Jason,

A picture of Che Guevara's is worth a thousand words.

|10.5.05 @ 4:12PM|#

Why has no one taken socially responsible Ben & Jerry's to task for selling a product that causes obesity and heart disease?

|10.5.05 @ 4:29PM|#

If there is even a slight cost to a corporation that acts responsibly, it will swiftly become extinct at the hands of the least responsible.

Which is why Whole Foods went bankrupt years ago, right? Or is all their responsible behavior magically costless?

|10.5.05 @ 5:20PM|#

'No one wants to be a sucker, paying for something they don't want, just because someone else classifies it as a "common good".'

You can't always get what you want...you get what you need.

You're rhetorical efforts (...someone else classifies it...) to reduce everything to "just, like, your opinion, man" notwithstanding.

"Which is why Whole Foods went bankrupt years ago, right? Or is all their responsible behavior magically costless?" In their case, their social responsibility results not in a net cost, but a net profit. Those, of course, are the easy cases.

|10.5.05 @ 5:23PM|#

"Why has no one taken socially responsible Ben & Jerry's to task for selling a product that causes obesity and heart disease?"

This is a classic example of what I was talking about above. Ben and Jerrys is run by megacorp Unilever as a granola needs icecream concept.

fyodor|10.5.05 @ 5:28PM|#

Eric the .5b,

Yeah, interesting that that comment came from joe. It would seem to play into Jason Ligon's point that Whole Foods doesn't really incur any costs on behalf of stakeholders but rather use giving the impression of doing so as just their own way of padding the bottom line like any good business does.


I had the same reaction many here did while reading the quoted text of yeah, yeah, yeah, GAG. But I think it comes down to valid regulations, which are just as purposeful as valid laws in general. Now, what regulations are valid may inevitably be a sticky issue, but when the actions of a business harm the rights of person or property of others, then punishing those actions (in some way, to some degree) is not only valid but the only reasonable long-term way to address those actions' rights-harming effects. Vague concepts like corporate social responsibility are wishful thinking.

|10.5.05 @ 6:42PM|#

erm...

what is a "net cost"?

|10.5.05 @ 7:06PM|#

If there is even a slight cost to a corporation that acts responsibly, it will swiftly become extinct at the hands of the least responsible.

"Which is why Whole Foods went bankrupt years ago, right? Or is all their responsible behavior magically costless?"

In their case, their social responsibility results not in a net cost, but a net profit. Those, of course, are the easy cases.

Two different things, Joe. First you said if it costs companies to be good, they'll go out of business. Then you said, but if they make enough money to stay profitable while being good, they won't go out of business. That's rather more accurate, but completely contradictory to your earlier, bluntly incorrect, point.

I mean, otherwise, any regulations imposed by the US government would utterly annihilate American businesses competing with foreign companies that suffer fewer costs imposed by their governments - and yet, I don't see you arguing that all regulations on businesses should be immediately scrapped.

(Personally, I think the business in question is better at assessing their ability to do good and how much they can afford to direct at doing so than, say, a government agency. But that's just me crazy-talking.)

|10.5.05 @ 8:26PM|#

I think most libertarians would agree that consumers have no moral obligation to spend their money on products that are "socially responsible." But what about companies that are actively socially irresponsible, such as big polluters, corporate welfare queens or even companies that use forced labor overseas (as several did during World War II)? Do libertarians have a moral responsibility to avoid these companies, even if they are breaking no laws?

|10.5.05 @ 8:45PM|#

C'mon Eric, JMoore, I know you can puzzle out the meaning of the word "net." You just need to have a little faith in yourself.

fyodor, "Now, what regulations are valid may inevitably be a sticky issue, but when the actions of a business harm the rights of person or property of others, then punishing those actions (in some way, to some degree) is not only valid but the only reasonable long-term way to address those actions' rights-harming effects." Does your responsibility extend only to not intruding on others' rights?

"(Personally, I think the business in question is better at assessing their ability to do good and how much they can afford to direct at doing so than, say, a government agency. But that's just me crazy-talking.)" My God, someone made a statement that suggested something might be better than something else! Quick, Robin, to the Bat-antiregulator!

|10.5.05 @ 8:55PM|#

I know what net means. Net cost is a term I'm unfamiliar with.

|10.5.05 @ 9:18PM|#

Evan -

Sorry, I'm not convinced that people who go into massive personal debt are thinking "what the hell, if I can't pay it off I'll just declare bankruptcy". Call it a hunch, but I think they're simply more concerned with immediate gratification.

Objectively, assuming that you have a reasonable chance of living for some length of time (i.e. you're not terminally ill), it's more rational to sustain a medium level of prosperity by living within your means, than splurging for ten years and then having to pinch pennies and do without for another ten years as you attempt to recover from your debt. Just as it's more rational to drink in moderation rather than endure a hangover the next day.

As for Starbucks (their social responsibility I believe lies in their "fair trade coffee" policy), my point was that their customers are willing to pay a premium for their product anyway, so they can afford to be socially responsible. I have no idea if it gains them anything, but since they're not marketing their product towards bargain-hunters to begin with, I'm pretty sure it doesn't cost them.

|10.5.05 @ 9:43PM|#

"Socially responsible is usually code for a boutique marketing concept that seeks to charge inflated prices to a targeted audience who is willing to pay more for the feeling of doing good."

By that reckoning, Harley Davidson marketing is code for "independence and american values" when, arguably, all the customer is is overweight and tattooed & paying more for the product than it is worth. Likewise the iPod does not turn users into Nirvana. Nor are expensive sports cars "efficacious" at increasing the size of the buyer's penis but that seems to be the message in every commercial.
In short, you don't get to attack the CEO's marketing strategy as bad for shareholders OR FOR CUSTOMERS just because the man is a hippie. Oh, you can, but you need not be right.

|10.5.05 @ 10:58PM|#

C'mon Eric, JMoore, I know you can puzzle out the meaning of the word "net." You just need to have a little faith in yourself.

Joe, you said two different, contradictory things. One is untrue, the other undermines the other points you've made. It wouldn't kill you to say "oops, didn't mean that one, meant X" and go with it.

My God, someone made a statement that suggested something might be better than something else! Quick, Robin, to the Bat-antiregulator!

Er, wow. You now actually have in-jokes with the-libertarian-in-your-head.

|10.6.05 @ 6:27AM|#

We're going to take some things away from you, for the greater good.

|10.6.05 @ 8:29AM|#

SM:

Who said I was attacking the CEO for being a hippie? I agree with everything you said. I think boutique shopping is the way to go.

What I object to is the notion that we are talking about anything other than a marketing concept - that it is somehow a responsibility of all companies to participate in the niche.

Dave W.|10.6.05 @ 10:55AM|#

A lot of people who are willing to the pay the price if they think it will do some good lose that willingness when the harm done by free riders nullifies their efforts.

Which we saw very clearly when the Bush admin withdrew US from Kyoto, citing lack of sacrifice on the part of China and Indai under the treaty. Then Russia points to US withdrawal and free rider status and the whole thing collapses.

fyodor|10.6.05 @ 10:58AM|#

Does your responsibility extend only to not intruding on others' rights?

Hmm...well I guess there's good manners too. But generally speaking, for all intents and purposes, as it applies to this discussion, blah blah blah, yes. I'm sure we can find some particular hypothetical where I might say, oh yeah, that would be a nice thing to do, even if it's not a matter of intruding on others' rights, but generally speaking, etc, etc, yes, that's essentially what I require for responsible behavior. The rest's probably more accurately called tastes and preferences anyway. For instance, I like hiking in national forests. Does that mean a corporation is being irresponsible by logging in national forests? No, because they're satisfying others' interests by doing so. Just because I don't like it doesn't make it irresponsible. Now, in my personal life I may abstain from meeting some desire of my own in deference to someone else's, but that's a personal decision I make for my own reasons. I think that's an underlying fallacy of modern left-liberalism is being unable to see that it's no simple matter to apply that to macro situations. Would the corporation be "nicer" to defer to the interests of those who like hiking in pristine national forests? Well, only if you don't consider the interests of its consumers, investors, workers, etc. A business is there to make money, and you can't really make that analogy, you can only legislate rules that maximize justice, and I say that means punishing only people who intrude on others' rights. If you want to support a business that does "nice" things that you like, why by all means. But I would hesitate to call that "social responsibility" per se, because what passes for social responsibility (beyond not intruding on others' rights) will be different for different members of the society. It's not all one clear thing, it's a matter of tastes and preferences.

|10.6.05 @ 1:13PM|#

Does your responsibility extend only to not intruding on others' rights?

It's useful to remember that libertarianism is a theory of law, not a theory of morality. As far as your legal responsibilities go, the answer should be "yes."

You may have other responsibilities -- religious ones, family ones, friendly ones, and responsibilities to your own image of the kind of person you want to be -- but acts of friendliness, neighborliness, politeness or compassion that are performed at the point of a gun are not really acts of friendliness, neighborliness, politeness or compassion. A world of "May I help you, friend? Because I'll get a ticket if I don't" would be a totalitarian dystopia.

|10.6.05 @ 2:01PM|#

"What I object to is the notion that we are talking about anything other than a marketing concept - that it is somehow a responsibility of all companies to participate in the niche."

Fair enough, Jason. My point is that just because the CEO talks a great galt's gulch is no reason to believe that his firms PE ratio will be any good.