Can Government Make a Business Work "For The Good of Society"?Tags Big GovernmentLegal System
Earlier this year, Starbucks corporation settled a lawsuit with Simon Property Group of the closure of many of Starbucks's Teavana stores. As the The New York Post reported in late 2017, a judge in Indiana had barred Starbucks from closing 77 Teavana stores that were failing because "the very profitable Starbucks could absorb the financial hit."
Industry experts said the ruling will send a chill down the spines of distressed retailers, and with good reason. The prospect of not being able to shut down an outlet that is bleeding the rest of the business dry may have countless unintended consequences that will affect not just owners, but consumers in general. Firms are likely to take this as a signal to be more cautious about opening up new stores, and become reluctant to invest, take risks, and employ people in the first place. Customers stand to lose.
Amidst the debate over the decision, some observers took the position that businesses have a social responsibility to the public at large, and ought not to be able to make decisions based solely on what's most profitable.
This is nothing new. Throughout history, of course, many governments have believed they were "serving society" (rather than the business community) by forcing companies to fix prices, continue operations at a loss, or even subsidizing or bailing them out with public funds. Many have believed this is in the interest of "the greater good."
Could it be that government forcing Starbucks to maintain unprofitable stores — in some circumstances — would be good for society?
What is "Society"?
First we should examine the use of the word "society" itself. Rather than bring clarity, it obscures the issue, making it more difficult to apprehend the facts of the matter. Who exactly is society and how do we measure what is and isn't good for it? Society is made of a whole bunch of different individuals and groups with different interests, and what is good for one might not necessarily be good for another.
It's not that keeping a Teavana open despite the owner's desire to close it won't be good for anyone; clearly the proprietor of the shopping centers is willing to fight hard for what they stand to gain, and certainly regular patrons will be happy to be able to get their regular cup of chai before leaving a hard-days-shop. However, the point is the move privilege a few individuals who want to continue going to those outlets at the expense of everyone else in the area who has demonstrated that they would rather something else opens up in that space instead. Starbucks then will need to recuperate the loss somehow or other, perhaps by increasing prices slightly at all other locations. If the locality can only sustain the demand for three tea houses and the unprofitable Teavana happens to be the fourth, then they are also taking revenue away from the other three, and so on. We can continue counting negative consequences to other parties.
Customers and Stockholders Are Also Members of "Society"
If Starbucks are deprived of however many millions it costs to operate 77 unprofitable stores that is less money they have to invest in stores that are wanted by other customers. It also means less cash for shareholders who will take it out to the shops to spend it or reinvest it in other businesses. It's less for Starbucks customers who have to pay slightly more for a cup of coffee and therefore don't have to spend on something else. It's less for Starbucks employees who might have to forego a raise because there is less to go around.
Clearly the effect of this policy is not something that can be broken down into whether it benefits "society" or not. All we can say is that it benefits some groups and harms others.
It seems ironic that some of those who will cheer judicial rulings and bureaucratic regulations forcing a company like Starbucks to keep stores open for the "good of society," will then turn around and complain that Starbucks is "driving out" locally owned competitors' tea houses. If anything you'd think this crowd would be cheering on the closures! As they carry with them a certain prejudice that whatever vexes big business is necessarily good for the rest of us, we can only conclude that supporting rulings and regulations like these is less about what is good for society and more about what is bad for "Big Business."