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The Free Market
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May 1995
Volume 13, Number 5

The Ethical Corporation?
James Kee

"Business ethics" is mostly used to promote social policy that is incompatible with the profit and loss system. The argument of the business "ethicists" is simple. They say corporations neglect their social obligations because they are focussed on making money for selfish stockholders. Government must prod businesses to give back to society what they have taken. It is the corporation's penance for capitalist sins.

But the argument is flawed at its core. In the market, the distinction between the social good and private gain is illusory: profits come only through serving society within the matrix of voluntary exchange. With free enterprise--unlike with government bureaucracy--public interest and private interest coincide.

But this truth has been lost in the bog of collectivist demands made on the modern corporation. Even as early as 1970, Time magazine said that business must do more than pursue profits. It must concentrate on promoting goals like social equality (e.g., granting credit to poor people), a diverse staff (through voluntary affirmative action), and goods that are "safe" and "healthy" according to Ralph Nader. Much of this agenda is now written into law.

Today the list is much longer and even more socialistic. Corporations are to defend "workers rights," pay wage and benefits based on the "comparable worth" of employees, give everyone "job security," give a portion of profits to liberal policy groups, contribute to the arts, clean up the environment, provide lavish vacations and pensions, submit to politically correct monitors, provide therapy for mental maladies, pay for drug and alcohol counseling, conduct public education campaigns, and, of course, impose quotas at every level.

What's missing from every list of corporate responsibility is the basic purpose of enterprise: to profit by providing goods and services that people want. If private property were truly respected, shareholder interest would be the primary, or even better, the sole purpose, of the corporation.

Many of the socialistic practices of modern corporations are imposed by law. Others are adopted as defensive measures against legal harassment. What about producing good products, competing, and making profits? These concerns drop out of the picture.

Thanks to this theory, we endure media sermonizing about "companies with a conscience." Benjamin Cohen and Jerry Greenfield ("Ben & Jerry's") lecture us about "caring capitalism." Yvon Chouinard, founder of Patagonia, says corporations should "tithe" (give 10%) to left-wing environmental groups.

These and the other activists of the "compassionate corporation" are distinctly unsympathetic to the institutions of property, exchange, and profits which give rise to free enterprise in the first place.

The market eventually punishes all forms of inefficiency, including that of companies that waste stockholders' money on anti-capitalist agitation. If we want to enliven stagnant living standards, we need to go back to the old understanding of the social responsibility of corporations: they should serve consumers and earn money for their owners. Those who feel differently can purchase the stocks of these "companies with a conscience" and hold them as smart investors sell.

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James Kee, PhD candidate in Economics at Auburn University, is a fellow at the Mises Institute

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