Markets in truly *everything*

by on May 15, 2007 at 1:06 pm in Education | Permalink

The University of Nottingham Business School is now offering an MBA in corporate social responsibility.

Here is more.

Chris May 15, 2007 at 2:07 pm

The McIntire School of Commerce (UVA’s undergraduate business program) now requires everyone to take a class that is basically CSR. Next year they will be offering non-profit management as a major.

squik May 15, 2007 at 4:02 pm

An MBA in CSR is peculiar. CSR is a misguided attempt to force business ethics where government has lost its teeth.

As an economist might say, people respond to incentives. If you want ethics and social responsibility in business, then make the penalties for unethical and socially irresponsible behavior high.

Our present CSR practice of trying to publicly shame people and companies last only the 15 minutes mass media can spare. Some people may repent and it makes for great press, but nothing changes.

Jacob May 15, 2007 at 5:40 pm

Interesting. Seems the costs associated with corporations not being other people’s personal never ending piggy bank are exceeding the benefits of not.

jp May 15, 2007 at 6:04 pm

CSR = the science of using “community relations” to justify spending company funds on charities and the arts when the company doesn’t have Ben & Jerry governing documents.

MiltonFriedman May 15, 2007 at 6:23 pm

indiana jim,

Thanks for pointing that out. However, if you follow the link in my previous post you’ll see that 1) that is the title of “my” 1970 NY Times article. and 2) that your quote is included in the article, but it too doesn’t do justice to the lengthy explanation “I” illustrated in the article.

My apologies for not pointing out that my entire previous post was a link to an article. Hopefully people will read it and not just the title.

Dave May 15, 2007 at 10:54 pm

The market in deception is, as always, cyclic. Surprising to see it given such an academic gloss, but then it’s only an MBA.

Bernard Yomtov May 16, 2007 at 5:39 pm

I think Friedman’s principle is very poorly thought out.

First of all, why stay within the rules? Suppose the expected gain from breaking the rules is positive, that is, the expected extra profit exceeds the expected penalties. If you say that there is still an obligation to stay within the rules then you are conceding that business has obligations over and above profit maximization, and you should explain why those obligations exist, and others do not.

Second, suppose the rules are such as to permit behavior that most would agree is immoral or unethical. Let’s say you have a plant operating in a country with lax or non-existent anti-pollution laws, for example. You can dump your waste in the river without breaking any laws, but this will seriously damage the health and economic wellbeing of people living downstream. Is that OK? I don’t think so. I think there is an obligation to avoid doing such damage, even if it means spending money on waste treatment or the like. To claim otherwise is to claim that it is OK to kill people for money.

happyjuggler0 May 16, 2007 at 9:47 pm

Bernard Yomtov,

I hope after that post you don’t own a combustion engine motor vehicle, nor get on a bus with one, nor use electricity that comes from sources that emit GHG’s. Nor own any products made from, or transported by, such inputs. According to the “scientific consensus”, if you did so you are in effect killing the planet.

Is that OK? I don’t think so. I think there is an obligation to avoid doing such damage, even if it means spending money on waste treatment or the like. To claim otherwise is to claim that it is OK to kill people for money.

Or is it that corporations have responsibilities where we as real humans don’t?

Alternatively, perhaps it is instead up to governments of the people to set up laws and institutions so that such killing (or other harm) doesn’t occur. Certainly there is ample literature on the free rider effects of the commons that would make one think it essentially 100% impossible to not have such environmental degredation without some sort of explicit mechanism to abate such tragedies of the commons.

Bernard Yomtov May 16, 2007 at 10:38 pm

Indiana Jim,

I simply do not agree that reputation effects are strong enough to deter the kinds of behavior I discuss. On what do you base this? Do you honestly believe that a manufacturing company polluting a river in a third world country is going to suffer greatly from reputation loss? I don’t. I’m sure you can cite a few examples of compnaies changing behavior, but that doesn’t prove your “subtle, powerful and pervasive” description.

You should also look up “goodwill.” It’s an accounting term that really doesn’t mean what you seem to think.

What makes corporate misbehavior newsworthy when it happens is that it
happens so infrequently;

Oh really? How do you know how often it happens? Do you think that just maybe all of it doesn’t show up in the news, despite the reputation effect that you are so confident prevents it?

Happyjuggler0,

You do have a point about cars, etc. But there are questions of degree here. I think there are limits on the damage I am allowed to do, and that I need to take that damage into account in my decision-making. Friedman allows no such thinking. Just make a profit. That’s it.

Certainly it is up to governments to prevent harm. But some governments are corrupt, others are ill-informed. My point dealt with the situation where the government had done a poor job of dealing with this responsibility. Do you believe that in such a case the business (or its managers if you prefer) has no obligations beyond money-making?

By the way, I’m familiar with Coase, and am by no means advocating for an MBA in CSR. I just think that Friedman’s statement does not stand up well to examination.

Bernard Yomtov May 17, 2007 at 9:59 am

Indiana Jim,

My opinion is as good as yours. I’d say it’s better, since there clearly are cases of corporate malfeasance that obviously not deterred by reputation, and I think it is safe to say there are some undiscovered ones as well. Besides, we’re not necessarily talking just about massive Enron scale misconduct. There are lots of small things businesses can do that are harmful that will never be exposed.

John Lott’s record does not inspire trust in the validity of his work. Sorry. But even if he has a few stories to tell, so what? Reputation matters? In some cases, yes. But why does that mean it’s strong enough to overcome all else?

I don’t much like the reputation argument, frankly, because it is a sort of standard libertarian fallback argument when someone worries about corporate misconduct. “Oh. They would never do THAT (shock). It would hurt their REPUTATION.” A nice all-purpose magical defense. It solves everything.

Barbar May 17, 2007 at 11:21 pm

First off, companies should simply maximize their profits without breaking any laws. What about morality, you ask? Morality is ensured through (1) the setting of proper laws; (2) reputation effects.

Secondly, the government should not interfere with business. Laws should be set as loosely as possible. Regulation is bad and hampers growth (not to mention freedom). The market can be relied upon to achieve the desired optimal results (see Adam Smith and the invisible hand).

Thirdly, silly people who want to buy “fair trade” coffee, or make a big stink about the wages of the security guards who work at their university, or who want to boycott companies that use sweatshop labor — they should be scorned and ridiculed, because obviously they do not understand any economics. What good can any of this “feel-good” activism do? They can’t change the laws of supply and demand.

I hope this was helpful. Are there any questions?

Mary Rosh May 17, 2007 at 11:25 pm

I’m sorry, I misspelled my name.

Chris MacDonald October 12, 2010 at 4:59 pm

The real problem, I think, is that the term CSR tends to be used as the label for a particular *view* of what corporations’ social responsibilities are. CSR ought to be a question, not an answer. Why would anyone want to name a degree program after a particular view? People get degrees in Economics, not in Keynesianism, and they get degrees in Philosophy, not in Utilitarianism.

Chris MacDonald
http://www.BusinessEthicsBlog.com

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