Thursday, January 26, 2012

Corporate Citizens Can Do Well by Doing Good

by Richard H. Thaler


January 26, 2012

Although the phrase is now somewhat out of fashion, the issue of corporate responsibility is at the heart of many of the debates on economic policies around the world. Should corporations simply maximize profits and let the invisible hand do its wonders, or do they have some obligation to be good corporate citizens as well?

As with many politicized debates, this one has been captured by two extreme positions, neither of which are, to my mind, particularly sensible.

At one extreme are “pro-responsibility” advocates. This camp is often pro-free-lunch, too. They think that companies have a responsibility to pay their workers higher wages, offer better benefits, yet still keep prices down. Good luck with that.

At the other extreme, is the “pro-profit” gang. These folks think that a company’s only responsibilities are to their shareholders. The pro-profit group worships at the shrine of Milton Friedman, the both deified and vilified former professor at the University of Chicago. Friedman called the concept of corporate responsibility a “fundamentally subversive doctrine.”

“In a free society,” he said, “there is one and only one social responsibility of business -- to use its 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.”


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