Two oft-repeated assumptions about big companies in market economies:

  1. Corporations pursue profit by all means without regard to concerns for ethics, the environment, diversity (racial/gender/socioeconomic), and community externalities.
  2. Corporations consistently underpay minorities and women for doing the same work that white men do.

I see these as contradictory. A vast amount of literature shows that diversity at a company is good for its bottom line. Having more women and people of color in an office is good for everyone’s productivity and increases the likelihood of good ideas that are essential for keeping a company strong. Furthermore, if a company was only concerned about its bottom line, it’d only employ women and minorities (much cheaper!). The obvious reality is that companies do pursue profit, they do discriminate against women and minorities, but they engage in behavior that is not always profit-maximizing.

Consider an alternate proposition:

  • Corporations pursue profits in an environment that is constrained by the prevailing culture and ethical norms; sometimes that culture leads to discriminatory behavior and sometimes it means putting ethics over profits.

This means that if the higher-ups at a corporation come from a culture that gives them implicit bias towards men, white people, or those that went to their alma mater, hiring decisions will be made that reflect those biases even when it is against the self-interest of the company. At the same time, culture can also influence business decisions that put ethics over profits. Price-gouging during a natural disaster, for example, might not happen (even if profit-maximizing) because cultural norms shun such behavior.

Essentially, prudence is not the only thing guiding human behavior, even if economic models often suggest so. What’s interesting to me is the overlap of people who a) attack the utility-maximizing framework of mainstream economics as being oversimplified; and b) say that people in a “capitalist” economy are purely self-interested.

 

 

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