"There is hardly an ethical problem, in fact, without its economic aspect. Our daily ethical decisions are in the main economic decisions, and nearly all our daily economic decisions have, in turn, an ethical aspect"
A conversation with The Obscurer turned to the environmental impact of business, and what's commonly refered to as "corporate social responsibility". I made a point that i'd also like to make here: pollution is inefficiency.
We all know that firms have an environmental footprint, and that measures are required to combat this. But note that it's a contradiction to assert that a. "corporations only care about efficiency" and b. "pollution implies resources are being wasted". At my apartment, I don't pay a fee for each bag of rubbish I discard - it's as if there's a big open field I can dump everything in. But just because the marginal cost of waste is zero, doesn't mean i'm going to (just) waste resources. Even though I can throw away as many chopped vegetables as I like, I still have to pay for the inputs.
The ability to dump doesn't necessarily mean that firms are going to over pollute - they're still paying for the energy used to create the pollution, and therefore have incentives to minimise it. It costs money to throw away things that we've bought, and it costs money to make things no one needs. Hence environmentalists overestimate the externalities of corporations.
Now, this point was a tangent to our conversation, and so don't think that this post is my attempt to "educate" The Obscurer. On the contrary, this post was prompted by an interesting discussion that challenged my existing beliefs, and has subsequently made me realise that the above example (whilst kinda valid) is unsound. Thanks to The Obscurer, I realised that I was rehashing Milton Freidman's position, which is flawed.
According to Friedman, the only responsibility of a CEO is to honour his contractual obligations as an employee of the shareholders. He should deliver profits, avoid lawsuits, and that's it. Although there may be market niches for "green" products, generally speaking they misrepresent the role of prices and profit and hence should be avoided.
That was the guiding logic behind my above example, and it is something I object to.
As Don Lavoie and Emily Chamlee-Wright point out*, this analysis is founded on the neoclassical assumptions that I - as an Austrian economist - find uneasy. Indeed there's no room for moral choices when:
- Perfect information implies that the path to profit maximisation is known
- Equilibrium means that "socially responsible" and "profit maximisation" are incompatable
- Preferences are given and directed toward single goals
As they eloquently point out:
"If successful business decision are less a matter of calculus, and more a matter of judgement, perception and persuasion, however, a socially responsible business agenda is not necessarily contrary to the goal of maintaining a successful business. The existence of slack means that business decision-makers are faced with not a single, mechanically profitable optimum but a range of possibly profitable ones, a range from which more or less moral ones might be selected. Thus acting morally is fully consistent with fulfilling the contractual obligations they have to their consumers, employees, and stockholders."
(By the way, I just realised that I used a copy of Milton Friedman's "Free to Choose" to hold open my copy of "Culture and Enterprise" to copy that passage.... Sorry)
So where does that take us? I think it means economists should treat culture, ethics, and consumerim seriously; and environmentalists and other activist consumer groups should treat economics seriously. My (alleged) expertise as an economist should be welcomed as a productive input by the fairtraders, and their knowledge of their subject matter should be welcomed by me. We should trade, via open, honest dialogue.
Finally, Lavoie and Chamlee-Wright:
"To be open to another point of view means to be able to take its truth-claims seriously, to dare to risk one's own point of view against the point of view of others"
Touchet, and the reason I blog is in the hope that I have readers that will hold me to that. In this instance, thanks are due to The Obscurer.
* (2000) "Culture and Enterprise", Routledge/Cato. Buy it here