Corporate Social Responsibility

I recently assigned Milton Friedman’s classic article “The Social Responsibility of Business is to Increase its Profits” to one of my more advanced classes, which got me thinking about Friedman’s argument for the first time in a while. Then, just the other day, Matt Yglesias wrote this:

[Friedman’s argument] implies that a business executive has not only the right as a citizen of a democratic country but a moral obligation to dedicate his energy and that of the firm he manages toward erecting regulatory barriers to competition and to begging for bailouts and subsidies…. [A]n entrepreneur who’s obsessed with creating great products is… guilty of some kind of ethical failing… my point is basically that for the system to work you need some kind of thicker ethics than “greed is good.”

From the very same article that Yglesias links to, Friedman makes it clear that he recognizes this. He concludes with this quote from his book Capitalism and Freedom: “there is one and only one social responsibility of business–to use it 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”.

Friedman may be partially to blame for the initial appearance of a disagreement on this point, since he chose to advance his position (in terms of what he emphasizes in this article and in interviews on the subject) by basically saying “businesses should try to be greedy and increase profits” without necessarily following up with the obvious caveat that this is only a tenable position if businesses are conforming to certain basic rules.

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Liberaltarianism Lives!

When I was an intern at the Cato Institute this summer, most of the Cato-affiliated people with whom I talked about liberaltarianism were very skeptical.  I remember one distinguished Cato scholar saying something like, “advocates of liberaltarianism are always pointing out potential common ground between libertarians and liberals like Matt Yglesias, but I only ever hear Yglesias arguing for bigger and bigger government.”

A few days ago, Yglesias wrote:

On economic policy, here are the main things I’m trying to accomplish:

— More redistribution of money from the top to the bottom.
— A less paternalistic welfare state that puts more money directly in the hands of the recipients of social services.
— Macroeconomic stabilization policy that seriously aims for full employment.
— Curb the regulatory privileges of incumbent landowners.
— Roll back subsidies implicit in our current automobile/housing-oriented industrial policy.
— Break the licensing cartels that deny opportunity to the unskilled.
— Much greater equalization of opportunities in K-12 education.
— Reduction of the rents assembled by privileged intellectual property owners.
— Throughout the public sector, concerted reform aimed at ensuring public services are public services and not jobs programs.
— Taxation of polluters (and resource-extractors more generally) rather than current de facto subsidization of resource extraction.

Which of these ten items would a typical libertarian disagree with?  The one about more redistribution, obviously, and perhaps the one about macroeconomic stabilization.  Eight out of ten is pretty darn good though, especially considering that these are specifically economic policy goals, and economic policy is usually where libertarians and liberals have the least common ground.

I think that it’s a testament to libertarians that fairly mainstream liberals like Yglesias accept market-based policies to such a great extent.  But why do libertarians seem to have so little appreciation for this, leading them to think about liberals like Yglesias the way the Cato scholar I mentioned above does?  I think it’s at least partly a framing issue.  Conservatives and libertarians both like to use a lot of rhetoric about shrinking government.  Yglesias, though he advocates for fairly free-market policies a lot of the time, doesn’t use this sort of language at all.  It’s a shame that this keeps people from recognizing the significant amount of substantive agreement between libertarians and the left.

 

Yglesias on Regulation

In addition to the post arguing against the mandatory licensing of barbers that W. Jerome highlighted last week, Matt Yglesias has gone on something of a liberaltarian rampage recently (see here, here, here, and here).  He’s taken some flack from his commenters for it.  His response:

A colleague mentioned to me the other day that I’m “pretty conservative” on some state and local government issues, with reference to some recent posts on occupational licensing…. I’m not. And I think that whole framing represents a bad way of understanding the whole situation.

I think it’s pretty clear that, as a historical matter of fact, the main thing “the state” has been used to do is to help the wealthy and powerful further enrich and entrench themselves…. The “left-wing” position is to be against this stuff—to be on the side of the people and against the forces of privilege… dismantling efforts to use the state to help the privileged has always been on the agenda. Don’t think to yourself “we need to regulate carbon emissions therefore regulation is good therefore regulation of barbers is good.” Think to yourself “we can’t let the privileged trample all over everyone, therefore we need to regulate carbon emissions and we need to break the dentists’ cartel.”

Our ideologies tend to encourage overly simplistic thinking on these issues.  Liberals make arguments about the existence of market failures to justify a pro-regulation stance, and conservatives/libertarians make arguments about the efficacy of free markets or the unavoidable ham-handedness of government intervention to justify an anti-regulation stance.  This ideological division makes it so that if a conservative allows that, in a given circumstance, regulation may be justified, it seems like she’s conceding something to the liberal, and vice-versa.  This makes people become increasingly entrenched in their ideological priors so that analysis of real-world issues involves little more than post-hoc justification of a forgone conclusion.

It’s too bad that political discourse is so often conducted in this way.  The world is complex; sometimes regulation is justified, and sometimes it isn’t.  It’s nice to see somebody like Yglesias who is a sophisticated enough thinker to recognize this and move beyond the one-size-fits-all arguments that are favored by his political tribe.

 

Climate Change and World Poverty

Matt Yglesias is worried about what climate change will do to poor farmers in the developing world:

Farmers have particular land and particular crops they’re accustomed to growing. When the climate shifts, they’ve got a problem. Initially it won’t be an insurmountable problem for farmers in rich countries who’ll be able to draw on a lot of technical resources to try to adapt. But for poor peasants in the developing world, their livelihoods will be ruined quite rapidly.

My understanding is that, sadly, this is true: climate change will have its most damaging effects on countries that are closer to the equator.  The vast majority of these countries are poor.  Yglesias goes on:

[I]t’s worth attending to the problems of the third world and the ethical issues it raises. I doubt many members of the Chamber of Commerce would, if faced with a starving Namibian family on their front doorstep, just refuse to give them any food and say “hey, I’m greedy, get over it.” But when the climate shifts, there will be crop failures and famines and people will die. And the people preventing action to stop that outcome are doing it because it would be financially inconvenient. So how different is that?

The starving family on the doorstep example greatly understates the complexity of the ethical challenge that climate change poses.  Any climate change mitigation policy that actually succeeds in slowing climate change by enough to have a noticeable effect on the well being of subsistence farmers in the developing world will significantly retard economic growth around the world (global collective action is required for any climate change policy to work).  Unfortunately, this is bad for residents of developing countries because it reduces the export demand for their products, making it more difficult for them to rise out of poverty.

So the ethics of the effect of climate change on farmers in poor countries ends up hinging on a comparison of the cost of climate change with the cost of slower economic growth.  Because of all the uncertainties in the science (granting that there’s scientific consensus about the existence of global warming, the exact amount of warming and the extent of the future damages caused by warming are not clear), this is a difficult calculation to make.

Yglesias’s example does help to illustrate that there are moral demands upon the world’s privileged to help the world’s poor, even if the poor are far away.  But the best way to meet this demand is to donate money to charity, or perhaps to lobby for increased legal immigration and an end to farm subsidies (which indirectly hurt poor farmers).  There are just too many uncertainties for climate change action to be a sensible way of fulfilling our moral obligation to help the poor.

 

Government to Low-Skilled Workers: Drop Dead!

Matt Yglesias posted a few days ago lamenting the high rate of unemployment for low-skilled American workers:

The brunt of the burden of unemployment is being borne by the least-skilled members of the workforce. In part that’s because high-skill occupational categories haven’t been hammered as heavily as construction and manufacturing…. It’s perhaps a sign of a more efficient, more flexible economy that we’re getting “better” at shifting recession-related burdens onto the low-skill people who are probably worst-positioned (in terms of savings and social capital) to deal with economic distress.

Low-skilled workers, already disadvantaged relative to other Americans, have been hit particularly hard by the recession, as Yglesias points out.  In light of this, we should support pro-employment policies so that this group of Americans will have an easier time finding jobs.  But among all the media coverage of the job creation potential of the stimulus this summer, it was easy to miss the job-killing measure that went into effect on July 24: the 70 cent hourly minimum wage increase from $6.55 to $7.25.  According to UC Irvine economist David Neumark, the wage hike will kill about 300,000 jobs for worders aged 16-24.

Granted, the number of jobs destroyed by this minimum wage hike is probably small compared to the overall low skilled unemployment effects of economic structural changes that Yglesias discusses.  Certainly the reason that the United States is hemorraging low skilled jobs at the current rate isn’t because of our minimum wage laws.  But that doesn’t change the fact that our minimum wage laws are counterproductive and hurting the very people that they are supposed to help.  It’s unfortunate that the professed concern for the poor of influential progressives like Yglesias never leads to criticism of the minimum wage.

What’s especially frustrating for those of us who really care about helping low-wage workers is that there is a program that does what the minimum wage is supposed to do (increase pay for low-wage jobs) and avoids raising employment barriers for the same group it’s intended to help: Earned Income Tax Credits, which subsidize low-skilled workers without raising costs for the employer.  Rather than pushing for increases in the minimum wage, progressives should be clamoring to increase EITC.  If being progressive is about wanting to help the poor, then this should be the progressive position.

Progressives’ continued support for minimum wage increases shows that as a group, despite their populist rhetoric, they don’t care enough about poverty to take the time to learn which policies actually help the poor and which do not.  Instead, they choose to ignore the economic evidence and continue to engage in counterproductive altruistic signaling aimed at the economically illiterate.