I admire Bill Gate's attempt to put a human face on capitalism and make it work for the social good. But to the extent the project requires that capitalists sacrifice profits, it's doomed -- as it should be in a democratic society.
In recent years, "corporate social responsibility" has become the supposed answer to the paradox of democratic capitalism. It is now a hot topic in business schools, which proudly avow the importance of it. As of 2006, more than half of all master of business administration curricula required students to take at least one course on it. Over 80 percent of corporate recruiters say business school graduates should display an awareness and knowledge of the subject. Hundreds of corporate conferences are held on it annually. Tens of thousands of corporate executives listen attentively to consultants who specialize in it explain its importance and how companies can evince it. The world's top CEOs and officials, gathering annually at the World Economic Forum in Davos, Switzerland, solemnly discuss it and proclaim their commitment to it.
Most of this is in earnest. Much is sincere. Some of it has had a positive impact. But almost all has occurred outside of the democratic process. To view it as a new form of democratic capitalism is to fail to understand the logic of supercapitalism. As a result, the commitment to corporate social responsibility also diverts attention from the more difficult but more important job of establishing laws that protect and advance the common good.
Since the late 1970s, a fundamental change has occurred in democratic capitalism in America, and that change has rippled outward to the rest of the world. Capitalism has triumphed, and not simply as an ideology. The structure of the American - and much of the world's - economy has shifted toward far more competitive markets. Power has shifted to consumers and investors.
Meanwhile, the democratic aspects of capitalism have declined. The institutions that undertook formal and informal negotiations to spread the wealth, stabilize jobs and communities, and establish equitable rules of the game - giant oligopolies, large labor unions, regulatory agencies, and legislatures responsive to local Main Streets and communities - have been eclipsed. Corporations now have little choice but to relentlessly pursue profits. Corporate statesmen have vanished. In this way, the triumph of capitalism and the decline of democracy have been connected. Democratic capitalism has been replaced by supercapitalism.
1. Cynicism about politics and false hope in the private sector
The upsurge of interest in "corporate social responsibility" is related to the decreasing confidence in democracy. These days, reformers often say they find it easier to lobby corporate executives than to lobby politicians; they contend they can be more effective pushing certain large corporations to change their ways than altering public policy. "Government is failing to provide leadership on environmental concerns, and industry has grown more willing to address them," says Jonathan Lash, president of World Resources Institute.
Cynicism about politics is perfectly understandable, but this is a curious proposition. A major reason why government is failing to provide leadership is because, as we have seen, big corporations have become so effective in recent years at preventing government from doing much about the environment or any other issue that may require corporations to change in ways they'd prefer not to. Why would industry have grown more willing to address the very concerns it has worked to block government from addressing? Of course, the specific people in a corporation most committed to making it more socially responsible are not likely to be the same people who are lobbying effectively against laws and regulations requiring the firm to be so, but this doesn't change the overriding reality: In supercapitalism, the corporation as a whole must, for competitive reasons, resist doing anything that hurts - and will place a very low priority on anything that doesn't help - the bottom line.
It is easy to understand why big business has embraced corporate social responsibility with such verve. It makes for good press and reassures the public. A declaration of corporate commitment to social virtue may also forestall government legislation or regulation in an area of public concern where one or more companies have behaved badly, such as transporting oil carelessly and causing a major spill or flagrantly failing to respect human rights abroad. The soothing promise of responsibility can deflect public attention from the need for stricter laws and regulations or convince the public that there's no real problem to begin with. Corporations that have signed codes of conduct promising good behavior appear to have taken important steps toward social responsibility, but the pressures operating on them to lure and keep consumers and investors haven't eased one bit. In supercapitalism, they cannot be socially responsible, at least not to any significant extent.
Politicians are simultaneously let off the hook. They can applaud some seeming act of corporate virtue - they may even take credit for pushing corporations to sign pledges or promise change - while not having to take any action that might cause negative reaction in board rooms or among corporate fundraisers. They don't have to take sides, or take a stand, while appearing to be in favor of virtuous corporate behavior.
Commitments to corporate social responsibility are also conveniently reassuring to talented or privileged young people who want both the sky-high financial rewards of fast-track executive careers and the psychological rewards of doing some good in the world. They can thereby do well and do good at the same time, or so they tell themselves.
But viewed this way, "corporate social responsibility" is as meaningful as cotton candy. The more you try to bite into it the faster it dissolves. One popular argument is that "socially responsible" companies do better by their consumers and investors. Dow Chemical reduces its carbon emissions so it can lower its energy costs. McDonald's employs more humane slaughtering techniques, which prevent costly worker injuries and yields more meat. Wal-Mart has adopted "green" packaging for its fresh produce - transparent plastics from corn sugars - because it's cheaper than petroleum-based packaging. Starbucks gives its part time employees health insurance because that reduces employee turnover and helps its bottom line. Alcoa estimates annual savings of about $100 million from reduced energy use and related environmental improvements.
All these steps may be worthwhile but they are not undertaken because they are socially responsible. They're done to reduce costs. To credit these corporations with being "socially responsible" is to stretch the term to mean anything a company might do to increase profits if, in doing so, it also happens to have some beneficent impact on the rest of society. Taken to the logical extreme is the textbook economics argument that whenever a company increases its profits it has a positive effect on society because it thereby utilizes assets more efficiently, releasing those that are no longer needed to be used more efficiently elsewhere. In this sense, all profitable companies are socially responsible.
For many years I have preached that social responsibility and profitability converge over the long term. That's because a firm that respects and values employees, the community, and the environment eventually earns the respect and gratitude of employees, the community, and the larger society - which eventually helps the bottom line. But I've never been able to prove this proposition nor find a study that confirms it. More important from the standpoint of the modern firm, the long term may be irrelevant. Under supercapitalism, the "long term" is the present value of future earnings. There is no better measure of this than share price.
Logically, when the extra benefits of some product accrue to consumers individually, they may be willing to pay more for it. This doesn't make the product "socially responsible," either. …. Similarly, companies that pay good wages and offer good benefits in order to attract and retain high-caliber employees are not being "socially responsible"; they are merely practicing good management. … In general, corporate initiatives that improve the quality of products without increasing their price, or increase efficiency and productivity so that prices can be lowered, or otherwise generate higher profits and higher returns for investors, are not socially virtuous. They're just good management practices that should -- and, given the competitive pressures of supercapitalism will -- be undertaken regardless of how much or how little they benefit society.
Economist Milton Friedman argued several decades ago that the business of business is to make a profit, not to engage in socially beneficial acts. Friedman made his argument at a time when many companies still had sufficient discretion to be socially responsible. As noted, big companies tended to be oligopolies with some power over their prices and markets. His point was companies should not seek to accomplish social ends because companies are not the appropriate vehicles for social benevolence. Whether or not you agree with Friedman, companies under supercapitalism no longer have the discretion to be virtuous. Competition is so intense that most corporations cannot accomplish social ends at a cost to their consumers or investors, who will otherwise seek and find better deals elsewhere. Even if individual consumers or investors believed in the virtuousness of a particular sacrifice, absent laws requiring all companies and therefore all other consumers and investors to forebear as well, the individual's action would have to effect.
2. Consumer Indifference
As the economy has moved toward supercapitalism, companies that in Friedman's day were known to be the most socially virtuous have been punished by investors. Cummins Engine, one of the pioneers of the corporate social responsibility movement, had to abandon its paternalistic employment policies and its generous contributions to its communities when its investors demanded higher returns. Dayton-Hudson, another notably socially responsible company, came close to being swallowed up in a hostile takeover during the 1980s, and has since then paid exclusive attention to its customers and investors. Levi Strauss, also once on everyone's list of America's most socially responsible companies in part because of its commitment to source its clothing from domestic manufacturers, faced plummeting sales in the 1990s and had to eliminate its remaining domestic production.
By the same token, investors don't punish profitable companies or industries notably lacking in social virtue. In the early and mid-2000s, Exxon Mobil had the highest return on equity of any oil company. Shareholders flocked to it despite its being named an "outlaw" by environmental groups for its highly visible campaigns against non-fossil-based fuels and the reality of global warming. Wall Street analysts and investment bankers concern themselves only with the bottom line, as do most of those whose retirement savings they manage. "I don't see investors refusing to buy because they think the chief executive is overpaid, and I don't see union members boycotting nonunion stores that sell attractively priced foreign goods," says Anthony M. Maramarco, a managing director at Babson Capital Management.
Social offensiveness is not necessarily financially offputting. … It is of course possible that noxious firms must outperform the norm in order to attract capital. Perhaps there is a sleaze premium analogous to a risk premium. But it seems more likely that investors don't know or care. They have instructed the managers of their pension or mutual funds to maximize the value of their savings, regardless. Insulation from the social effects of our market decisions is, again, an essential aspect of supercapitalism.
Investors deeply concerned about corporate morality can park their savings in what are called "socially responsible investment" funds, which screen out certain offensive industries. But few investors do. In 2004, total shares under the management of such funds comprised less than 2 percent of mutual fund shares outstanding in the U.S. stock market. In Europe, socially responsible mutual funds account for an even lower portion - about a third of one percent. If such funds outperformed regular mutual funds more investors would be drawn to them, but their record is decidedly mixed. Besides, most "socially responsible" fund portfolios include just about every large company featured in a typical mutual fund portfolio. In 2004, thirty-three socially-responsible funds held the stock of Wal-Mart, twenty-three held Halliburton's, forty held Exxon Mobil's, and almost all held Microsoft's, its antitrust peccadillos notwithstanding. At the start of the 2000s, many held Enron, WorldCom, and Adelphia stock, and none of these companies went on to distinguish themselves for public service.
Yes, investors are interested in better corporate governance. But better governance makes a firm more responsive to its investors -- not to its employees, communities, or society as a whole. …. When shareholders have more say in electing company directors, when top executives have to sign off personally on company audits, and when executive compensation is more fully disclosed, executives presumably will have more incentive to do what they have a fiduciary responsibility to do in the first place.
These initiatives will not make CEOs more responsible to society, however. To the contrary, as we have seen, the more beholden CEOs and other top executives are to investors, the more likely they are to slash payrolls in pursuit of higher profits, uproot themselves from their traditional communities and rely on global supply chains instead, pander to whatever vulgar desires their customers may harbor, subject workers in developing nations to unsafe or unhealthy conditions, and pillage the environment - if these and other such anti-social techniques increase profits and share prices.
Evidence suggests consumers, like investors, do not care enough about social responsibility to make financial sacrifices for it. After an exhaustive review of the data, my colleague, Professor David Vogel, of the Haas Business School at the University of California at Berkeley, concluded that "the social and environmental practices of the vast majority of companies have not had any demonstrated effects on their sales."
3. “Corporate social responsibility” can mean anything
Social reformers have long exposed abusive corporate practices as means of mobilizing political support for new legislation or regulation aimed at curbing them. Progressive-era muckraker Ida Tarbell's History of the Standard Oil Company, published in 1904, inspired the antitrust case that broke up the company. Upton Sinclair's 1906 classic The Jungle, exposed the meatpacking industry and generated the nation's first health and safety regulations. Ralph Nader's 1966 book Unsafe at Any Speed, revealed the automobile industry's indifference to safety, leading to the creation of the National Highway Safety Administration. The purpose of these and other exposes was not to pressure individual companies to change their ways but to incite political action so all companies would have to. These efforts were not substitutes for political action but preconditions for it.
These campaigns were designed to change the rules of the game. Consumers or investors as a whole may have ended up paying slightly more for, say, gold since it was no longer available from South African mines when Congress imposed economic sanctions, or North Sea oil that had to be disposed of more expensively. But these small price increases were presumably worth the overall social gains, as determined in the democratic process. Labor organizers also pressure large companies to permit votes on whether workers should form a union - but here, too, the goal is specific and political in the sense of altering the balance of power between owners and employees.
Without a specific political goal, "corporate social responsibility" is simply a function of a group's organizing heft relative to a particular company or industry - and therefore can mean anything. Should a socially responsible investment fund screen out companies engaged in nuclear energy, as some anti-nuclear advocates urge? Environmentalists who think nuclear energy is the best alternative to fossil-based fuels would disagree. … Absent any political process for deciding questions like [this], the answers are completely arbitrary. Electoral democracy is messy and difficult at best. As has been noted, it's now so dominated by large companies that citizen values can barely be heard. Yet there is no means for determining the social obligations of the private sector other than through the democratic process. Making companies more "socially responsible" is a worthy goal, but it would be better served by making democracy work better.
Pressuring companies to be more virtuous is an unaccountable mechanism for deciding complex social issues better left to legislators. Consider America's gut-wrenching controversies over gay rights, abortion, and guns. Congress and state legislatures have struggled over them for years; some battles have been waged in state and federal courts over them. But even if no consensus is possible, the democratic process and courts at least provides means for weighing and balancing claims. Not so in the private sector.
In 2006, the American Family Association, a non profit advocacy group based in Tupelo, Mississippi, attacked Wal-Mart for joining the National Gay and Lesbian Chamber of Commerce, and urged a boycott of the company. Wal-Mart apparently held fast and resisted the boycott. But when other religious groups urged Wal-Mart's pharmacies not to sell the emergency contraceptive commonly referred to as the "morning-after" pill, Wal-Mart caved. When several women's groups then demanded the company offer the pill, Wal-Mart partly reversed itself - stocking the pill but excusing any pharmacist who objected for personal reasons to dispense it. Women's groups continued to push Wal-Mart to require its pharmacists to fill prescriptions for the pill. What is the socially responsible position for Wal-Mart to take? It has no means for weighing and balancing claims, except by assessing which hurt Wal-Mart's bottom line least.
In these and many similar instances, companies get caught in a crossfire. Because these battles take place outside normal political channels and are aimed at specific firms, they cast corporate executives in the unenviable roles of politicians seeking to broker compromises among competing visions of the common good. Yet executives have no special expertise for doing this. They were hired to give consumers and investors better deals.
That's why, no matter how intense or irritating the advocates for one side or the other may be, in the end the corporation must do whatever is necessary to minimize its costs. If a company were to cave in to a demand that imposed an extra cost on the firm, a rival that isn't party to the agreement could profitably step into the breach. …
Finally, not only are corporations unfit to decide what is socially virtuous, but under supercapitalism they are often unable to deliver services that are inherently public. Pushing them to do so begs the question of whether the responsibilities would be better undertaken by the public sector. The campaign against Wal-Mart charged in full-page advertisements that "Wal-Mart's low pay and meager employee benefits force tens of thousands of employees to resort to Medicaid, food stamps, and housing assistance. Call it the 'Wal-Mart Tax.'And it costs you $1.5 billion in federal tax dollars every year." The problem with this logic is that America had already decided to provide Medicaid, food stamps, and housing assistance to the poor - even if the poor are also working. It seemed more efficient for these benefits to flow from government, and for employers to alert their low-income employees of the availability of them, than for the private sector to provide them as conditions of employment. If we wish to change the rules and require private employers to pay wages and provide health benefits sufficiently high that no employee has to rely on government largesse, we should seek to do that through the democratic process. But it makes little sense to chastise one employer - even one as large as Wal-Mart - for playing by the rules.
Should the rules be altered as Wal-Mart's critics advocate? That would be a worthy political debate, but we're not having it. I, for one, think the minimum wage should be raised to be about half of the average worker's hourly pay. That was the ratio in the Not Quite Golden Age -- the period when, between 1945 and 1975, America struck a remarkable accommodation between capitalism and democracy by combining a hugely productive economic system with a broadly responsive and widely admired political system -- and it still seems to me a reasonable compromise. But Wal-Mart's critics also want Wal-Mart to provide employees with good health insurance coverage, which, in my opinion, is no longer a responsibility employers should take on.
4. Ersatz politics vs. democratic conflict and deliberation
Although public relations wars over a particular company's virtue may utilize all the paraphernalia of political campaigns, their outcomes are not at all political. No one is elected or deposed, no programs or platforms are put into place, no laws or regulations are changed. The issue in such wars is not what is the best policy overall, but whether a particular company is morally good. It is an ersatz politics - a massive diversion from the real thing.
Participants in the campaign against Wal-Mart have described the battle in lofty terms. "This is an assault on a business model," said Carl Pope, a long-standing leader of the environmental movement who signed on in 2005. "We're not trying to shut Wal-Mart down." Andrew Grossman, executive director of the coalition, explained "[w]e're focusing on Wal-Mart because of the huge impact it has on each of the different parts of American life it touches." Grossman conceded Wal-Mart does provide many goods at the lowest price, but pointed out that this "sometimes comes at a high cost to society." The goal of the campaign was for Wal-Mart to "make more money, but responsibly." What precisely did this mean? What exactly were the organizers seeking?
The campaign has been run by people with direct experience in real politics. Paul Blank, one of its organizers, had been the political director of Howard Dean's presidential campaign…. In response, Wal-Mart has spent millions of dollars on a counter-campaign designed to depict the firm as worker friendly, environmentally conscious, and socially responsible The group was advised by Terry Nelson, who had been national political director of George Bush's 2004 campaign.
It has rolled out commercials showing black, Hispanic, and female employees touting their benefits and career opportunities. It ran Asian-language advertisements targeted to Asian shoppers, others to Hispanics, full-page advertisements in more than a hundred mainstream newspapers, and large ads in select elite media, accusing its critics of distorting its image. "When critics pervert the facts to serve their financial and potential interests, it's our duty to speak up," H. Lee Scott, Jr., is quoted as saying in an advertisement running across two pages of the New York Review of Books. Wal-Mart also ran ads bearing a striking resemblance to Bill Clinton's "A Place Called Hope" message during the 1992 presidential campaign, starting with a homey image of Sam Walton's first five-and-dime store. "It all began with a big dream in a small town," says a sonorous narrator. "Sam Walton's dream."
Has Wal-Mart, as a result of all this, been born again as a socially responsible company? Immediately after the devastation caused by Hurricane Katrina, Wal-Mart pledged $15 million in cash to the Bush-Clinton Katrina Fund, and also gave a million dollars each to the Salvation Army and the American Red Cross. …. The company has also set out to be - or appear to be - a better employer and citizen in the communities where it does business. It has set up an office of diversity, and expanded health insurance to children of part time workers. It has announced a plan to help local businesses near its proposed urban stores. And it has become - or appeared to become - a dedicated environmentalist. It has launched a program to recycle shrink wraps, shopping bags, and other plastic items that its consumers normally sent to landfills; it has begun testing the use of trees and grasses in parking lots to absorb carbon dioxide emissions and tainted water; it has committed itself to wind and solar energy to generate electricity, and recycled materials to make its outdoor pavements. CEO Scott declared in 2006 that the firm would rely on 100 percent renewable energy sources "that sustain our resources and environment."
All these efforts are commendable, but even when added together, their costs still constitute a tiny fraction of Wal-Mart's yearly revenues. Some, like the firm's new-found commitment to renewable energy, have come without a timetable; even Scott admits he is "not sure how to achieve" them. And it remains unclear to what extent the firm will continue to strive for "social responsibility" if and when the heat is off and the anti-Wal-Mart campaign has ended - as, presumably, it will end, someday. …. To the extent the firm has been pushed to be more virtuous, it seems doubtful the tactics for achieving this result are transferable to most other firms.
The fact that a modern corporation can spend its way out of most public relations problems suggests that campaigns to make companies more "socially responsible" are unlikely to establish new norms of corporate conduct. This is true even if the standard they are seeking is precisely drawn, and even if rivals don't jump into whatever lower-cost breach opens up. Political techniques may be employed by both sides, and some candidates for public office may even criticize a company for its irresponsible ways. But in such contests real politics - the stuff of democratic conflict and deliberation - is nowhere to be seen.
5. The preemption of politics
The eagerness with which corporations themselves have embraced social responsibility can dull the public's sense that there exist troublesome issues deserving of public attention. Vivid displays of corporate goodness can mask problems a democracy should grapple with - would grapple with - if the public understood their true dimensions. And because public attention spans are short, such temporary displays can preempt permanent solutions.
In light of rumblings from the Federal Communications Commission and from conservative legislators concerned about the sex and violence cable companies were pumping out to their subscribers, cable operators in early 2006 announced plans to offer packages of family-friendly channels so parents could shield their children. "There's no need for legislation now," said Senator Ted Stevens (R-Alaska), chairman of the Senate Commerce Committee, after being reassured of the cable companies' plans. "We have to give it a chance to work." But cable companies had made similar promises before that had never been fulfilled. Presumably, cable companies will continue to pump out sex and violence until Congress or the FCC stops them, because sex and violence makes money.
Displays of corporate virtue can also obscure conditions that would otherwise generate political heat for reform. Recall the flurry of media attention directed at sweatshop abuses during the mid-1990s. Apparel manufacturers and big retailers avoided any new laws or regulations by promising they would voluntarily clean up their acts. They developed voluntary codes of conduct and began monitoring their overseas factories, especially in China where most were located. But according to an investigation of internal industry documents by Business Week in late 2006, the codes are being widely violated. Many Chinese factories keep double sets of books to fool auditors and distribute scripts for employees to recite if they are questioned. Factory managers in China complained in interviews that pressure from American firms to cut prices creates a powerful incentive to cheat. Yet American companies continue to tout the codes as evidence of their social responsibility. And, according to Business Week, the codes "have been important to maintaining political support in the U.S. for growing trade ties with China."
The preemption of politics often works because the public's memory - and the attention span of the media - is conspicuously short, as I said earlier. The public forgives because it so easily forgets. It can even be persuaded by a clever media campaign that a company once disdained for disregarding the common good is heroically achieving it. Recently, GE has been hailed as an environmental leader for its self-imposed restrictions on greenhouse gases. But the public - and the media - seem to have forgotten GE's role in polluting the Hudson River and its related tributaries with PCB, the company's tenacious fight with federal regulators against cleaning up the mess, and its insistent lobbying against regulation that would force it to foot more of the bill.
The U.S. government has not increased automobile fuel-economy standards in several decades, nor made any major move to increase gas taxes to better reflect the true social cost of oil. Part of the reason is every time the public shows any broad interest in more fuel-efficient cars, major automakers declare themselves born-again environmentalists and commit themselves to fuel efficiency - until the public's interest flags. In 2000, Ford was the largest producer of SUVs and light trucks in North America, and they were among the nation's most notorious gas guzzlers. (When the Sierra Club sponsored a contest to give a name and advertising slogan to Ford's newest SUV - which used one gallon of gas for every twelve miles it traveled - the winner was "The Ford Valdez -- Have You Driven a Tanker Lately?" ) But that year Ford effectively preempted political pressure to force it and other automakers to do more by promising to voluntarily increase the fuel economy of its SUVs by 25 percent. Two years later, when Ford's profits began to drop and consumers still wanted big gas guzzlers that were highly profitable to the company, Ford revoked its pledge. It even went so far as to initiate an intense lobbying and advertising effort that successfully defeated a Senate proposal to raise fuel-economy standards. In 2005, when oil prices shot upward and consumer interest in gas-guzzling SUVs and pickups began to wane, Ford with great fanfare announced its newfound interest in fuel efficiency. It pledged to voluntarily increase production of hybrid vehicles ten-fold by 2010.
6. Disappointments from government
In recent years, politicians have got into something of a habit of publicly shaming companies that have acted badly in some way. Offending executives are typically hauled before congressional committees, where members of Congress berate them. But little legislation emerges to force the companies to behave any differently in the future.
The notion that such public scoldings and the temporarily unflattering publicity that accompany them will alter corporate practices is another diversion from the work of creating rules that balance the interests of consumers and investors with broader interest of the public. It also, conveniently, allows politicians to maintain good relations with the same companies and industries - collecting campaign donations, enjoying rounds of golf with their executives, tapping their corporate lobbyists for miscellaneous favors - while showing the public they're being "tough" on the wrongdoers. Here again, the public is led to believe that democracy is working when all that's really working is public relations.
When oil prices soared in 2005 and early 2006, oil companies reaped extraordinary profits while millions of Americans had to pay more to fuel their cars and heat their homes. This prompted calls for Congress to enact a "windfall profits tax" on the oil companies, but not even a debate took place. Instead, Congress simply scolded oil company executives and publicly berated the companies. As oil prices and profits approached record levels, Senator Charles Grassley, an Iowa Republican, and chairman of the Senate Finance Committee, issued a public letter reprimanding the oil and gas industry and instructing its companies to make charitable donations - 10 percent of that quarter's profits - to help poor people pay their heating bills that winter. "You have a responsibility to help less fortunate Americans cope with the high cost of heating fuels," Grassley said.
Grassley's admonition made the headlines but obviously had no effect. Why would the oil companies voluntarily give away their profits? The only practical effects of the public scolding were to make Grassley and his colleagues seem compassionate, and to reassure some portion of the public that Congress was "doing something" about record oil prices and profits. But because any real debate about a tax on their windfall profits was deflected by Grassley's moves, the public never had an opportunity to decide whether using the resulting revenues to help low-income oil consumers was worth the risk that oil companies, forced to disgorge some of their profits, might do less exploration and development - leading to higher prices in the future.
Corporate executives are not authorized by anyone - least of all by their consumers or investors - to balance profits against the public good. Nor do they have any expertise in making such moral calculations. That's why we live in a democracy, which is supposed to represent the public in drawing such lines.
Consider Yahoo's decision in 2005 when it surrendered to Chinese authorities the names of Chinese dissidents who had used Yahoo email, thinking their email addresses would shield their anonymity. One, a journalist, was sentenced to ten years in prison for sharing with foreigners a message his newspaper had received from Chinese authorities, urging it not to overplay the fifteenth anniversary of the Tiananmen Square disturbances. Another whom Yahoo helped Chinese authorities trace down was sentenced to eight years, and a third, to four years. It remains unclear how many more dissidents are in Chinese prisons because of Yahoo's cooperation with Chinese authorities.
Yahoo's decision ignited a firestorm. Its executives explained the firm had no choice but to comply with Chinese law if it wanted access to China's huge and growing market - and Yahoo said it needed to be in China to move China toward democracy. "I've always taken the attitude that you're better off playing by the government's rules and getting there," Yahoo's chairman told attendees at a Web conference in San Francisco. "Part of our role in any form of media is to get whatever we can into those countries and to show and enable people, slowly, to see the Western way and what our culture is like, and to learn." Yahoo's role? The firm was never anointed the vessel of Western culture, nor the arbiter of how best to present it to China. That's not the business of any global company. Indeed, most global companies do everything in their power to avoid the appearance of representing any particular culture, nationality, or ideology - unless such representation helps them sell their products.
Yahoo is not a moral entity, and no one authorized it to undertake any ethical balancing between sending dissidents to prison and exposing the Chinese to American culture and democracy. Yahoo's executives have only one responsibility under supercapitalism - to make money for their shareholders and, along the way, satisfy their consumers. In this instance, one of Yahoo's key "consumers" was the Chinese government, because it was the gateway to all other Chinese consumers. Unless barred by legislation in the United States, Yahoo will continue to do whatever the Chinese government demands of it because the competitive stakes are too high and the potential profits too great to do otherwise. China is the second-largest Internet market in the world after the United States. As of 2006, more than one hundred million Chinese had already logged on. At the rate Internet usage is growing there, within a few years there will be more Chinese on the Internet than Americans.
Any decision about Yahoo's … "social responsibility" was and is best left to the democratic process in the United States, where the firms are headquartered and whose citizens have a presumed stake in human rights around the world. Hence, one appropriate forum for sorting out these firms' duties is Congress, before whom their executives were summoned to appear. The question that body needed to address was whether American high-tech companies should be barred from cooperating with dictatorial governments to abridge human rights, even if this means losing business. That didn't happen, however.
If the U.S. government wanted to make Chinese human rights a priority, it could pass a law tomorrow barring American companies from helping the Chinese government hobble the free speech of its citizens - just as it once barred trade with South Africa and still bans commerce with countries like Cuba and Burma, and has managed to force most of the world's major banks to eschew business with North Korea. Don't hold your breath. Despite all the self-righteous indignation emanating from Congress, and despite all the talk by the Bush administration about spreading democracy around the world, international human rights don't rank very high in Congress or the White House. First and foremost, American business wants access to China's huge market without interference.
All the while, as expected, consumers and shareholders of these firms remained unconcerned. A consumer boycott was threatened (booyahoo.blogspot.com urged "freedom-loving citizens of the Internet to discontinue their use of Yahoo services as a result of their oppressive policies") but nothing came of it.
None of these companies broke American law when they helped Chinese authorities suppress human rights in China. All obeyed the prevailing rules of the game. In supercapitalism, that's all we can and should expect companies to do. Framing the issue in moral terms -- citing the shameless behavior of these companies and their executives -- diverted attention from the harder but more important question of whether the rules of the game should be altered.
7. “Voluntary” responsibility?
Politics is also diverted when politicians ask corporations to take some action voluntarily in the public interest, as Senator Grassley asked the oil companies to do. Early in the Bush administration, the White House embarked on an initiative dubbed "Climate Leaders," in which the President, with great fanfare, asked the nation's major industrial polluters to commit to reducing their greenhouse gas emissions by at least 10 percent within the decade. The event suggested the Administration was taking action on global warming, but it was doing no such thing. By January 2004, only fifty of the thousands of American firms with major greenhouse gas emissions had agreed to become Climate Leaders and reduce their emissions, and of these only fourteen announced specific goals. Although energy utilities are the nation's major polluters, only six of these fifty were utilities. Within a few years the Climate Leaders initiative had died a quiet death. A 2004 report by the World Economic Forum at Davos applauded the efforts of some forward-looking multinational companies to reduce greenhouse gas emissions but concluded that voluntary actions were inadequate to counter effects of climate change.
Of course they're inadequate. Supercapitalism does not permit acts of corporate virtue that erode the bottom line. No company can "voluntarily" take on an extra cost that its competitors don't also take on - which is why, under supercapitalism, regulations are the only means of getting companies to do things that hurt their bottom lines. As Professor David Vogel concluded after surveying so-called "voluntary" corporate environmental initiatives in the United States and Europe, few companies undertake them in the absence of regulations or the impending threat of them. To suggest that a vast, untapped reservoir of corporate benevolence is available for the asking is to seriously mislead the public - and once again divert attention from the important job of deciding what such regulations should be. In fact, the outpouring of "voluntary" corporate initiatives on global climate change is deflecting public attention from the necessary work of enacting tough laws and regulations to deal with it.
It is much the same with what passes for corporate charity. Companies donate money to the extent - and only to the extent - it has public relations value, and thereby helps the bottom line. Shareholders do not entrust their money to corporate executives for them to give it away, unless the return is greater. When the 2005 tsunami devastated Indonesia and other parts of coastal Southeast Asia, President Bush asked American corporations to come to the aid of victims. After several companies contributed millions of dollars, Bush extolled CEOs for their generosity. "One of the less reported aspects of the U.S. business community is the tremendous amount of good they do, giving back to the communities in which they operate," he said. "[T]he tsunami has presented the private sector here in America with a genuine watershed moment. I believe it's ushered in a new era of corporate social responsibility." His words were greeted with loud applause, but they made no sense. The assembled CEOs had not been generous - they had not contributed their own money. They had donated their shareholders' money. Presumably they had done so in the belief their shareholders would benefit from the public relations value such contributions added to the firms' bottom lines. Otherwise, these CEOs would have violated their fiduciary duties and risked having their shareholders switch to other companies that didn't give away their money. Shareholders did not invest in their firms expecting the money would be used for charitable purposes. They invested to earn high returns. Shareholders who wished to be charitable would, presumably, make donations to charities of their own choosing in amounts they decided for themselves.
The larger danger is that these conspicuous displays of corporate beneficence hoodwink the public into believing corporations have charitable impulses that can be relied on in a pinch. An earthquake that hit Pakistan in October 2005 killed more than 87,000 people and displaced three times as many as those affected by the Indian Ocean tsunami. Yet the Bush administration initially pledged only $500,000 in aid - a sum so small as to be derided by many Pakistanis. Bush then pledged more, and also asked five prominent CEOs to mount a major fundraising effort from American corporations. General Electric contributed more than $5 million in cash and health care and energy equipment; Pfizer, $1 million to relief agencies and $5 million in medicines and health care products; Xerox, $1 million in cash; Citigroup, $3 million. In total, the CEOs raised about $100 million, moving the President to another effusive outpouring of gratitude. "If the international community had not stepped in," he told the assembled executives, "the door might have been opened for more radical Islamic influences."
Actually, the "international community" failed to step in as much as it should have. Pakistan needed billions of dollars, not hundreds of millions - and needed it quickly. While more than $3 billion in aid had been distributed to areas hit by the tsunami within two weeks of that disaster, a total of only $17 million had been distributed to Pakistan as late as six weeks after the quake. And according to the United Nations, total pledges to Pakistan still amounted to only a quarter of what was needed to cope with the devastation. The void was partly filled by radical Islamist groups. The Pakistani interior minister acknowledged that the radicals were "the lifeline of our rescue and relief work."
Corporations are not set up to be public charities. The world's biggest philanthropists, Bill and Melinda Gates, do not draw on Microsoft's profits; they draw on their own vast fortune. The only legitimate reason for a corporation to be generous with its shareholders' money is to burnish its brand image, and such a rationale will go only so far.
Corporations do some good deeds but corporate thank you rituals mislead the public into believing companies do these things out of selflessness - indeed, that there is a "self" there deserving commendation in the first place. But there is no corporate selflessness, and there is no corporate self. In supercapitalism, companies exist only to serve consumers and thereby make money for investors. This is how they serve the public.
8. Faux democracy on two levels
Democracy and capitalism have been turned upside down. As we have seen, capitalism has invaded democracy. Legislation is enacted with public rationales that bear little or no relation to the real motives of the corporations and their lobbyists who pushed for them and legislators who voted for them. Regulations, subsidies, taxes, and tax breaks are justified as being in the public interest but are most often the products of fierce lobbying by businesses or industries seeking competitive advantage. The broader public is not involved. Citizen voices are drowned out. The public rationales mask what's really going on - which companies and industries gain and which lose.
At the same time, a kind of faux democracy has invaded capitalism. Politicians and advocates praise companies for acting responsibly or condemn them for not doing so. Yet the praise and blame are disconnected from any laws and rules defining responsible behavior. The message that companies are moral beings with social responsibilities diverts public attention from the task of establishing such laws and rules in the first place. The praise or blame is soon forgotten, and barely affects the behavior of consumers or investors. Meanwhile, the real democratic process is left to companies and industries seeking competitive advantage.
The first step in turning democracy and capitalism right side up is to understand what's really happening.
http://creativecapitalism.typepad.com/creative_capitalism/2008/06/bill-gates-an-1.html
