Ahead of the Curve

An article in today's Wall Street Journal, The Case Against Corporate Social Responsibility, expands on some of what I said last week. Unfortunately, in an effort to soothe and persuade proponents of what was once called a "mixed economy," the article ends in confusion.

Aneel Karnani argues that private profits and public interests are sometimes compatible. When they are, corporate social responsibility is irrelevant. When they aren't, corporate social responsibility is ineffective. Either way, he says, corporate social responsibility delays development of better solutions.

Karnani claims that consumers are more likely to have choices when companies pursue profits. He points out that social responsibility adds cost: "Managers who sacrifice profit for the common good also are in effect imposing a tax on their shareholders..." Karnani suggests that by adding cost and inefficiency, government regulations may do more harm than good.

In the end, however, he suggests that industry should pursue government-defined goals through self-regulation, and concedes that when industry fails to police itself government should step in and impose regulations.

However, that's exactly where most statists say we are today. Namely, they claim that our biggest industries were built by robber barons, and that government was forced to act. Deregulation, they insist, brings back the injustices of the past.

Karnani should have taken a bolder position. A legitimate capitalist (i.e., someone not engaged in fraud) must serve genuine interests to be successful. To wit, the only way to grow a business is to deliver real value. Government regulation always reduces choices. Managers who sacrifice profit for the "common good" impose a tax on customers to the detriment of employees and investors. Government regulations should be used sparingly and only to prevent immediate harm (for example, polluting a source of drinking water).

Karnani ignores the elephant in the living room. Who decides which goals are socially responsible? Who decides the best way to achieve those goals? We can appoint a blue ribbon committee, but who decides its members? There is no escaping the fact that corporate social responsibility is all about politics.

History shows that the best way to meet not-for-profit goals is through philanthropy and volunteerism. If you force people to drive electric cars, then we will end up with fewer cars. If you persuade them to drive electric cars, then more people will drive electric cars, and entrepreneurs will work on developing better electric cars.