Saturday, November 11, 2006

Corporate Social Responsibility?

From today's NY Times, an article about CSR (corporate social responsibility) and the annual Business for Social Responsibility conference in NYC this week.

OVER 35 years ago, the economist Milton Friedman wrote a famous article for The New York Times Magazine entitled, “The Social Responsibility of Business Is to Increase its Profits.” It’s not hard to find critics of corporate social responsibility who still take that hard-line view.

“C.S.R. is a misguided attempt by a subcategory of business managers to deal with the crisis of corporate legitimacy,” said Isaac Post of the Competitive Enterprise Institute. Russell Roberts, an economist at George Mason University, said: “Doesn’t it make more sense to have companies do what they do best, make good products at fair prices, and then let consumers use the savings for the charity of their choice?”

Their essential point is that companies are simply not equipped to “save the world” — nor is it their mission. That’s what governments are supposed to do.

And that is why corporations pay taxes, almost $1 trillion in corporate income taxes over the last three years, so the government can "save the world."

Whenever a corporation has money available (say $50m) at the end of the year to give/donate to charitable causes and be socially responsible, doesn't that really mean its prices were too high all year, or its wages too low all year?

That is, couldn't Target "give money back to the community" by lowering its prices or having huge sales to increase the standard of living of all of its shoppers by giving them $50 million in cost savings? Or couldn't Target give wage increases or annual bonuses totalling $50 million and "give money back to the communities" where it operates?

And what if I am a Target shareholder, maybe I would prefer $50 million of dividend payments, instead of a $50 million donation to the Boy Scouts? Or maybe I would prefer a $50 million donation to the Girl Scouts or Salvation Army instead of the Boy Scouts?

Friedman: "But the doctrine of 'social responsibility' taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collective doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means. That is why, in my book Capitalism and Freedom, I have called it a "fundamentally subversive doctrine" in a free society, and have said that in such a society, "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, engages in open and free competition without deception or fraud."


At 11/11/2006 11:23 AM, Anonymous Anonymous said...

Your argument about Target year-end profit is flawed!! What that means is the Target lobby in Washington bribed a few politicians (and we have seen many of them lately, e.g., Tom DeLay) and avoided paying thier fair share of tax. Look at whst has happened to the oil industry under this administration. They are gettting tax breaks and subsidies in an environment of huge industry profits.

At 11/11/2006 11:26 AM, Anonymous Anonymous said...

One more thing - it is the corporate America that is fighting against minimum wage increase. So, giving a wage increase to Target employees is not gonna happen.

At 11/12/2006 6:13 PM, Anonymous Anonymous said...

I agree that companies are solely designed to make as much money as legally possible. Then they return the profits to the stockholders and reinvest the rest in the business. That's their reason for existence.

That's why organized labor unions are so essential for the workers. The government looks out for the public. The company looks out for the stockholders. And, the union looks out for the worker.

So, why are labor unions so maligned? Aren't they just a part of a natural checks-and-balance system?

If it’s OK for people to organize governments. If it’s OK for capitalists to organize corporations. It should be OK for workers to organize so that their interests are protected, too.

Since money is power, and the capitalists have the money, the only hope for the workers to have a middle-class life is to organize individuals into an organization with their power wielded through numbers.

Any company that pays their workers anymore than they can get away with cheats their owners; the corporation exists for the stockholders and not directly for the workers. Labor is nothing more than an expense to be minimized. Accordingly, labor unions do nothing more than protect the workers’ interest while seeking a better standard of living for all.

With the drastic changes in the US economy, unions and corporations will have to seek common ground if they hope to survive. It's in everyone's best interest. It may be difficult, but with enough hard work and mutual respect it can be successfully accomplished. We really have no choice.

At 11/13/2006 11:13 AM, Anonymous Anonymous said...

I agree with Walt g.

But union membership should be voluntary. Corporations are organized voluntarily. Governments are organized voluntarily (or should be).

Likewise, people should have the choice as to whether or not they join a union.

Too often, union leaders want to force workers to join their union.

I suggest labor unions are maligned for their use of coercion and their lack of transparency.

Unions are not the only hope for workers to have a middle class life. Unions are simply one of the means to this end.

Education, the development of a skill, and entrepreneurialism are three more means to this end that come to mind.

At 11/13/2006 2:17 PM, Anonymous Anonymous said...

Bob Wright makes some good points.

Labor unions have a lot of problems that need to be addressed if they are to be a vital resource for workers in the future. But, you have to realize they exist in a cut-throat world of business where meekness would destroy them. The aim of business is to eliminate their competition and unions are, at least initially, perceived as competition. Sometimes you have to fight fire with fire and that includes somewhat dirty tactics that make a lot of people uncomfortable. Organizing workers has historically been a very dangerous profession where quite a few people have died.

If you really think about it, almost all groups are organized; very little gets accomplished by just one person. Insurance is used to spread individual risk among a group. Shoppers join buying clubs to receive lower prices. And condominium and homeowner groups join together for a common cause of housing.

Using your alternative examples to unions, associations are formed to make entrepreneurs stronger. Educators obtain tenure and often are represented by unions, too. I doubt seriously even free-market espousing professors refuse tenure when it is offered to them: Does tenure appreciably differ from the security offered by labor unions?

So, if you really think about it, there really are a lot of tacit union-like organizations in existence. A union is nothing more than people banding together who have common interests and goals. The key concept in labor organizations is representation. Consequently, labor unions are no different than any other representative group.

At 11/13/2006 3:00 PM, Anonymous Anonymous said...

I agree. But, the idea of making union membership "voluntary" is not practical. The reason is quite simple, the company management will favor those who are not members of the union and will directly or indirectly punish union members. Moreover, what will happen to the labor contracts? Will there be a need to have a separate contract for organized labor and one for non-union people.

Finally what is left out of this discussion is the great economic injustice that currently exists in corporate America. Consider the ratio of average executive pay rate to that of labor. This ratio is now in the order of several hundreds (i.e., the average executive pay is 300-400 times that of labor, if not more.) By comparison, this number in most of the rest of the industrialized world is much smaller (e.g., it is less than a 100 in Japan). The net effect is highly demoralized labor and eventual lack of commitment to the company. For the most recent case, refer to American Airlines where the CEO was getting major concessions from the labor while he was giving major severance pay packages and bonus pays to its top executives.

At 11/13/2006 4:38 PM, Anonymous Anonymous said...

Since I am a union representative, it might come as a surprise, but I don't have any problem with CEOs' pay. That's between them and the stockholders. If the stockholders decide it is in the best interest of the company to pay that kind of money, it's their business. Not everyone can be a CEO of a huge multinational corporation, it takes a special skill-set, so the supply will be very limited and the good ones will be very expensive.

If a CEO does his or her job well and increases the profits of the company, then the money "pie" is bigger and everyone can get a bigger slice. I wonder, though, why CEOs who do not perform well are given substantial raises in pay. Maybe they need to change the executive pay committee representatives and remove CEOs so that they are not actually voting for each others’ raises. I would like the United Steel Workers to vote on how much the United Auto Workers will make in their next contract and vice-versa as the CEOs currently do.

At 11/13/2006 5:12 PM, Anonymous Anonymous said...

walt g, says:

"Sometimes you have to fight fire with fire and that includes somewhat dirty tactics that make a lot of people uncomfortable."

Today, corporate CEOs are going to jail for the dirty tactics they employed in their book keeping departments.

Dirty tactics are not only uncomfortable, they are often illegal.

One cannot condone illegality in the name of doing good.

Kudo's to Walt g. for his position on CEO pay.

I have long believed that the union pension fund boards and union members through their 401(k)should buy shares of the companies they work for and get a seat on the board. If Kerkorian can do it, so can the unions. Then, the union could excert its influence on the board the old fashioned way.

Economic injustice is a very relative term.

Whos says your idea of what constitutes economic justice is more valid than my idea of economic justice?

How would you enforce your idea of justice? Confiscation perhaps?

How about this. We pass a law that says the minimum wage will be $70,000 per year and the maximum wage will be $70,000 per year. Everyone is treated equal; no injustice. No one makes more than the next guy.

At 11/15/2006 4:38 PM, Anonymous Anonymous said...

Try this out:

Corporations compete for labor.

Employees want to live in decent surroundings.

So perhaps some level of community involvement is in the best long-term interest of the corporation.


At 11/16/2006 1:25 PM, Anonymous Anonymous said...

I agree with you, Rusty. However, the problem with corporate America is that the CEO's compensation package is not linked to his/her level of community engagement or social responsibility. It is linked almost exclusively to the quarterly net profits - that is it. That is why we have a government and corporate as well as personal income taxes.


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