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ECONOMIC ANALYSIS: Social-responsibility movement has a dark side

July 7, 2008

Identifying corporate villainy is a delightful pastime that virtually all of us have reveled in at some point or another.

There are only two problems with this form of entertainment. A description of the first comes simply stated to us from the Gospel of John as "he who is without sin cast the first stone." The second problem is a general lack of intellectual rigor in the debate.

The heavily funded attacks on corporate America come primarily from organizations with their own spotty record of responsible governance. My favorite example comes from the anti-Wal-Mart crowd. It turns out that one union-financed, anti-Wal-Mart group hired folks to picket Wal-Mart stores at $2.50 an hour less than Wal-Mart was paying its own workers. These non-unionized temporary workers were protesting working conditions. Oh, how truly delicious this irony.

Second, the thought behind the criticism is also scant. This is especially true with the corporate social responsibility-or CSR-movement in all its forms. CSR is a heavily financed pretender to an intellectual debate over the role of commerce in general and corporations in particular. It comes from think tanks where management and marketing gurus provide strategies for companies to follow to a path of social responsibility. Their goals range from environmental concerns to working conditions to truth in advertising. The stated goals of CSR are laudable enough-who wouldn't like a cleaner environment? The problem is, the CSR movement probably stands in the way of such reforms. Here's why:

Companies are good at maximizing profits. That's why they exist. The profit motive stimulates investment, efficiently allocates resources, and makes the economy grow. Profit and the motivation to maximize them need no apologies.

To the CSR movement, that's not what companies should do. Rather, commerce exists to generate some other notion of the common good. The CSR movement cajoles, embarrasses and lobbies companies to reduce their profits to meet some other goal. Most CSR groups in America finance themselves through corporate donations. Today, almost every American firm of any size pays financial homage to a CSR consultant.

By hiring a CSR consultant, and endowing a CSR think tank, two bad things occur. First, profits are reduced. The big losers are retirement funds and investors (ultimately some 80 percent of U.S. households). The CSR movement also takes our eyes off the regulatory role of government. In the long run, this damages the environment, slows the improvement of working conditions, and leads firms to advertise their newfound "social responsibility."

The CSR movement is one of the least laudable inventions in the American political and academic movement.

Don't believe me? Robert Reich, secretary of labor in the Clinton administration, describes the descent into silliness that has become the CSR movement by noting Exxon Corp.'s recent listing as a top environmental steward.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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