Henry Manne has a great op-ed at Friday’s OpinionJournal.com (may require free e-mail registration) that is ultimately about how cancerous the notion of “corporate social responsibilty” has been, not only to the corporation, but to the economy and society as a whole.
Here are his key paras (bolds are mine throughout this post):
(Friedman) was absolutely correct about the significance of proposals for socially responsible corporate behavior, whether they emanated from within or outside the corporation. These proposals reflect, as well as anything else happening today, the inability of many commentators to distinguish between private and public property–in other words, between a free enterprise system and socialism. Somehow large-scale business success, usually resulting in a publicly held company, seems mysteriously to transform the nature of numerous individuals’ private investments into assets affected with a public interest. And once these corporate behemoths are “affected with a public interest,” they must either be regulated by the state or they must act as though they are owned by the public, and are therefore inferentially a part of the state. This attitude is reflected not merely by corporate activists, but by many “modern” corporate managers.
(Today’s corporate social responsibility advocates require no) arguments, weak as they are, about natural monopoly, market failure, government creation of corporations or the alleged government gifts of limited liability and perpetual existence ….. to justify the demands now regularly placed on business entities. (They believe that) Any large enterprise, no matter how competitive its industry and no matter how successfully it is fulfilling the public’s desires, has a social responsibility–a term that makes mockery of the idea of individual responsibility–to use part of its resources for “public” endeavors. Today’s favorite causes are environmental protection, employee health, sales of goods at below-market prices, weather modification, community development, private enforcement of (not merely abiding by) government regulations and support of cultural, educational and medical facilities.
….. The origins of this transformation lie in the minds of people who do not like or appreciate the genius of capitalist success stories, including always politicians, who will generally make any argument in order to control more private wealth. Of course, the social responsibility of corporations is always tied to the proponents’ own views of compassion or justice or avoidance of a cataclysm. But the logic of their own arguments requires that essentially private corporations be viewed as somehow “public” in nature.
….. The illusion of great and threatening power, the superficial attractiveness of the notion, and the frequent repetition of the mantra of corporate social responsibility have made this fallacy a part of the modern corporate zeitgeist. Like the citizens who were afraid to tell the emperor that he was naked, no responsible business official would dare contradict the notion publicly for fear of financial ruin, even though the practice continues to cost shareholders and society enormous amounts.
There are myriad examples of people who really should know better who have fallen into the muddle. One is business columnist Leon Gettler (HT Gettler’s Soxfirst Blog), who clearly doesn’t catch the irony of his observations:
For example, Health Minister Tony Abbott’s accusation last week that Coca-Cola was fuelling Australia’s childhood obesity crisis should be put in the context of calls around the world for controls on the marketing of fast foods.
The tobacco, oil, mining, banking, forestry and pharmaceutical industries have all felt the long-term impact of social issues when they were caught out by society’s changing expectations.
With an issue such as obesity, for instance, the public’s view once upon a time was that the responsibility lay with the individual. Now the blame has shifted to the way companies are marketing fattening foods. The same applies to the tobacco industry.
You see? Corporate social responsibilty (CSR) has become necessary because personal responsibility is soooooo “once upon a time” — with obesity, tobacco, video games, and any number of other causes and items.
To the extent that societies have abdicated personal responsibility as a core belief, they have attempted to have governments and business fill in the breach. The problems with government involvement are that it takes unpopular tax increases for it to “take responsibility,” and that the government isn’t particularly good at doing much of anything beyond using brute force.
That leaves corporations as the deep pocket of last resort. Getting at their money is the bottom line of the CSR movement. Unfortunately, it has achieved some success at this.
As Manne notes above, it will be a very rare corporate manager who publicly defies the orthodoxy that corporations have social responsibilties beyond getting the best returns for their shareholders. Earlier this week, Wal-Mart, in the course of responding to a threatened post-Thanksgiving boycott, came as close as I’ve seen any big company get to open defiance of the CSR mantra when it said, “Wal-Mart will not make corporate contributions to support or oppose highly controversial issues unless they directly relate to our ability to serve our customers.” Hear, hear; the only thing they didn’t dare say is that they didn’t want to jeopardize shareholder returns.
At least three generations of Americans have been taught “Business is bad; government is good; people are entitled to help and protection from government and businesses” in schools, by the news media, and by the entertainment industry. They have succeeded in moving the line of demarcation businesses face between acting in the best interests of owners and shareholders and wasting their resources on CSR. The problem now is to decide what level of CSR is appropriate to get keep the activists off their backs.
At the Soxfirst blog post, Gettler asks: “So is this corporate social responsibility, or is it about the bottom line? Does it really matter?”
Yes. A lot.
We are all poorer for CSR’s “success.” To the extent that companies must spend time and money feeding the CSR monsters, they inevitably shortchange the time and money they could have devoted to research, innovation, and business-building if a more favorable societal climate had existed. But, as noted, they must play the CSR game, if only to fake it, as none other than George Soros recommends. It’s the playing field they’re on. Economic growth is lower than it could be, as, ironically, is the ability of individuals and social organizations to marshal the resources to solve the very problems they are so concerned about. The foregone growth is the most “enormous amount” Manne is so very right to be concerned over.
CLARIFICATION: Manne does go a bit overboard when he seems to imply that private corporations shouldn’t be considered “public” in any way. That’s obviously wrong. When you decide to incorporate, and to receive the limited-liability benefits that accrue to being incorporated (i.e., you can’t be forced to personally pay for debts incurred by the corporation), you have to get the permission of the state you wish to incorporate in. By doing so, you have become “public,” in the sense of agreeing to abide by and obey all laws, regulations, and reporting requirements that apply to corporations.
Going further, if a corporation decides to raise money in the equity markets, it “goes public.” In addition to the obligations of any chartered corporation just mentioned, the corporation now agrees that it will abide by all of the rules and regulations relating to federal and state securities laws.
This brings out another interesting aspect of the CSR movement, which is its success in forcing companies, through clever use of the media and peer pressure, to do things that in a more honest world they (the CSR advocates) would have to achieve by working to pass legislation, most of which they know full well would be laughed out of state and congressional committees before getting anywhere. Successfully creating the expectation that a “good company” simply must be strong in CSR is an easy way around all of that dirty work.
UPDATE for Previous Links:
- Friedman’s original essay from 1970.
- Tuesday’s post on Wal-Mart’s response (though not stated as such) to American Family Association’s pressure.
- Oct. 6 — BizzyBlog – Milton Friedman on Hong Kong
- Aug. 22 — BizzyBlog – Friedman’s Timeless Essay on â€œCorporate Social Responsibilityâ€
- July 14 — BizzyBlog – Friedman on “Self-Interest”