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Intellectual Bankruptcy – How the Left Doesn’t Get Economics

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I get a copy of Foreign Policy now as a Christmas present from last year (yes, I asked for it). Each issue comes in and some of the stuff is good… some of the other stuff is just intellectually bankrupt. In the May/June issue, for instance, it had a two-page little montage on the disease distribution of the world and where the pharmaceutical companies send their medicines. The conclusion they want you to draw is clear– the companies do little/nothing about disease in say, Africa and they should.

One problem with that philosophy is who pays for it? Businesses in capitalistic environments have costs that they pass on in the form of prices. Companies can’t simply send products to non-paying customers without reimbursement. FP seems to think they should just suck it up and flip the bill themselves. They don’t understand simple economics.

1) Companies have limited funds to work with.

2) Companies produce products. Those products have costs, usually defined.
They pass those costs on in their entirety to the consumers of those products. Companies that cannot set their prices to cover costs have a technical name: bankrupt.

3) When artificial costs are imposed on companies they have two choices, cut other costs or increase prices. The easiest cost to cut is obviously payroll.

4) Every tax, every fee, every regulation, every law, and every obligation is passed on and on and on to the only entity not able to pass on costs–the consumer, specifically the middle-class to poor consumer.

If a business just sucks up a cost, the result will be either layoffs, increased prices (with an attendant increase cost of living), or more likely both. In the pharmaceutical industry, this does nothing but raise the cost of medical care on everyone.

In the July/August issue, there is a debate on the best way to move forward with environmental policy between Carl Pope and Bjorn Lomborg. Bjorn takes a more priority-based pragmatic approach, and Carl Pope seems to say businesses and governments are stupid and should wise up.

Carl’s first sign of silliness came with this comment:

Instead of pursuing new solutions such as hybrid cars, the United States invades Iraq, bullies Venezuela, and rattles its sabers at Iran.

First, in the largest economy in the world in the most powerful nation in the world, there are never choices as simple as do we go to war or do we build hybrids. There are waiting lists and crazy money to be had with hybrid cars. Every car manufacturer is playing catch up and no amount of government prodding will help. The incentives are there, and they’re making them as fast as they can because they want the money now, not later.

Later he suggests there should be a carbon tax on pollution emitters to make the businesses pay for the damage they cause. Hint: the businesses won’t pay because they can’t be made to pay. They will either lay off employees, increase prices, or both. When dealing with this sector, you are talking about power which everyone pays for, or manufacturing which consumers eventually pay for. It will entail an instant increase of cost-of-living and increase poverty.

This kind of naive thought that you can make businesses pay for anything is nothing less than intellectually bankrupt. It has the feel-good effect of “making the rich pay,” but in reality only pays the obligation straight on the heads of the poor like an anvil from the sky. It’s time to get past the corporate/rich bigotry that only leads to punishing the poor and get some real solutions.

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About John Bambenek

John Bambenek is a political activist and computer security expert. He has his own company Bambenek Consulting in Champaign, IL that specializes in digital forensics and computer security investigations.
  • http://www.elitistpig.com Dave Nalle

    Carbon tax? Just tax petroleum imports. Bingo, carbon tax. Good for the economy and technological development too. But, of course, it doesn’t shut down businesses liberals don’t like the way an arbitrary carbon tax would do.

    Dave

  • http://xraystyle.blogspot.com Bryan McKay

    When articifcal costs are imposed on companies they have two choices, cut other costs or increase prices. The easiest cost to cut is obviously payroll.

    This is only a bad thing when the already-underpaid workers are the ones hit with the salary cuts. You never here of the corporate fat cats cutting anything out of their six-figure incomes in order to pass any benefits onto the consumers.

  • http://www.elitistpig.com Dave Nalle

    If the head of the corporation is only taking a six-figure salary then he’s one of the good guys, not one of the really exploitive fat-cats. The six-figure CEOs are the ones who probably WOULD take a pay cut if the workers had to.

    Dave

  • http://xraystyle.blogspot.com Bryan McKay

    You’re right, Dave. Most major CEOs are pulling down much larger salaries. Sadly, the majority of big business owners aren’t the six-figure CEOs who are willing to take those pay cuts.

  • http://adamantsun.blogspot.com Steve S

    Carl’s first sign of silliness came with this comment:

    Instead of pursuing new solutions such as hybrid cars, the Unisted States invades Iraq, bullies Venexuela, and rattles its sabers at Iran.

    first, are the misspelled nations intentional? (rhetorical)

    second, I don’t know the context of which he is speaking, but from this sentence alone, it’s clear he’s talking about oil. With that in mind, he’s not talking silliness but perfect sense.

    Your rationale that the U.S. big 5 auto makers are playing ‘catch up’ with hybrids and that there are waiting lists, is laughable.

    There aren’t more hybrids because it isn’t profitable for the oil industry for there to be hybrids. If the market REALLY called for hybrids, trust me, there would be hybrids all over the place. They aren’t that hard for American capitalists to create. We can put a man on the moon, you know, we can build a motor that runs on something besides gasoline if we really wanted to.

  • http://www.elitistpig.com Dave Nalle

    >>Your rationale that the U.S. big 5 auto makers are playing ‘catch up’ with hybrids and that there are waiting lists, is laughable.<<

    Except that he’s actually correct on this. US car makers are all introducing hybrids in the next two years, and some of them are expected to be huge hits. I know I’m planning to get on the waiting list for the new Dodge RAM Hybrid. It’s absolutely awesome. I would expect virtually all cars to be hybrids or alternative fuel by 2010. There’s not going to be any reason to buy anything else.

    Dave

  • http://adamantsun.blogspot.com Steve S

    They are putting them out now, because there’s starting to be money behind it now, not because they are catching up. That’s what I’m saying.

  • http://www.elitistpig.com Dave Nalle

    Well sure, because that’s the way the economy works. Money drives change.

    Dave

  • http://www.blogforarizona.com michael

    Carbon taxes in the form of tradable emissions allotments are an innovation first adopted by a Republican President: GHW Bush. They are an efficient means of price signaling, recovering into the price function what would otherwise be turned into an externality that governement, using taxes having little or nothing to do with the source points of the pollution and thus inherently unfair and politically unpopular, would have to clean up. What you call an uneconomic and destructive tax on business, more sophisticated economic thinkers (who got beyond undergraduate introductory macroeconomics and Ayn Rand) call an efficient means of placing environmental burdens where they belong in rationalized terms; upon the pockbooks of consummers who wish to buy products which use carbon emmissions inefficiently and consequently on those who produce them. That is what markets do best – punish inefficiency.

  • http://www.landofthefreehomeofthebrave.org/wp/ Margaret Romao Toigo

    Yes, Economics 101 is a pretty easy subject to understand, its all numbers, balance sheets and arithmetic, very dry, dull and boring.

    So let’s talk about economic morality and how it is immoral to leave your fellow man by the wayside, cold, hungry and sick, even if helping him might cut into some profits.

    Free market capitalism is the only economic system that can work in a free nation, but all of that greed and coveting that is part of our nature as human beings and our rights as Americans must be tempered with our prudence and charity so that we do not lose our souls as we go about the very natural business of building our wealth.

    It is intellectually dishonest and morally bankrupt to deny the responsibilities that come with wealth.

  • Nancy

    Margaret, do you seriously think the overcompensated, greedy-gut corporate CEOs of megaconglomerates give a rat’s ass about anybody except themselves? Most of these guys would even sell their own wives & kids if they thought they could get something out of it. Interesting study recently – reported in the W. Post – reflects that the majority of CEOs of big corporations are in fact “successful” psychopaths. I.e., they don’t actually kill anybody – except economically – but they have no empathy, no pity, no concern, no feelings, for any one except themselves. They are as conscienceless & soulless as Stalin or the BTK killer, they just act out in a different sphere. And they are killers, in a way – in fact, mass murderers – because they have no concern how many people’s lives they destroy in the process of making profits, mainly for themselves, & if the corporation they’re supposedly working for also does well, that’s a bonus, but not the core issue. They generally regard themselves as outside the law – not above, but not applicable to themselves, which is why B. Ebbers, K. Lay, and so many of these fiscal rapists refuse or fail to issue any kind of statements of regret: they can’t, because they don’t feel any. To them, financial devastation of millions of employees, stockholders, or (in the case of pharmaceutical companies) literal devastation of millions of dying persons is a non-issue. You’d as soon expect compassion or decency from a block of wood, because they’re not capable of it.

    The bottom line of the article was both horrifying & amusing: the developers of the test are not wanting to market it, not because it will ensure psychopathic CEOs are fired, but because they are fairly certain from inquiries already received that on the contrary, it would HELP corporations find such psychopathic personalities – and HIRE them to increase their profits!

  • http://xraystyle.blogspot.com Bryan McKay

    Here’s the link to the article Nancy is talking about.

    (You can get a login to the site from BugMeNot.com if you don’t feel like registering.)

    Margaret: What precisely do you mean when you say “Free market capitalism is the only economic system that can work in a free nation”? Do you mean a market that is enencumbered by government regulations (i.e. laissez-faire capitalism, free trade, etc.) or are you referring to the form of capitalism currently practiced in this country? If it’s the former, I think you’re terribly wrong. If it’s the latter, I think you should reconsider your phrasing.

    It may be dishonest to deny the responsibilities that come with wealth, but people are going to do it anyway, whether we like it or not. Does that mean we shouldn’t put restrictions in place that prevent them from doing this to the best of our abilities?

  • http://www.elitistpig.com Dave Nalle

    “It may be dishonest to deny the responsibilities that come with wealth, but people are going to do it anyway, whether we like it or not. Does that mean we shouldn’t put restrictions in place that prevent them from doing this to the best of our abilities?”

    Some people may ignore their responsibilities, but the vast majority do not. And truthfully the main responsibility that comes with wealth is to spend more money, and the rich are quite good at doing that.

    The concept of government restrictions which prevent people from accumulating wealth is truly frightening. I can’t think of a better way to destroy our economic system.

    Dave

  • http://xraystyle.blogspot.com Bryan McKay

    I’m not suggesting that the government place restrictions on an individual’s accumulation of wealth. If you want to have more money than God, then be my guest. The government should, however, place restrictions on how corporations can function within our economy. Corporate responsibility often feels like an oxymoron, and I do think it is up to the government to regulate that. The corporate fat cats certainly aren’t looking out for the working class, so shouldn’t somebody?

  • http://www.elitistpig.com Dave Nalle

    Yes, the working class should look out for the working class, by working hard, educating themselves, advancing in their chosen field and accumulating wealth. No government program can ever do all of that for them.

    Dave

  • http://xraystyle.blogspot.com Bryan McKay

    You’re right, the government can’t do that for them, but it can provide regulations that provide for fair treatment and wages for laborers. Just shrugging it off and saying that they should look out for themselves is denying any sort of social responsibility you might have towards your fellow citizens.

  • http://www.elitistpig.com Dave Nalle

    Last I checked we already had more than enough regulations protecting workers in every conceivable area they might need it.

    The main social responsibility of the wealthy is to start and run businesses, employ people and spend money. That generates more jobs, economic growth, opportunity for advancement and all the things the rest of the population needs.

    Dave

  • http://www.elitistpig.com Dave Nalle

    “‘In our industrial and social system, the interests of all men are so closely intertwined that in the
    immense majority of cases a straight dealing man who by his efficiency, by his ingenuity and industry, benefits himself, must also benefit others.” – Theodore Roosevelt

  • http://xraystyle.blogspot.com Bryan McKay

    I agree that we have a lot of regulations protecting workers. My comments were a response to Margaret saying that “free market capitalism” was the only economic system that works in a free nation. In my experience, a “free market” generally means the government is entirely hands-off when it comes to business. I’m not arguing that we don’t have good regulations in place, just defending their existence. To say that the regulations couldn’t get better is just wrong, however. Perhaps workers in America might have good protection (although in many cases they don’t), but we do next-to-nothing to protect workers overseas who do a large portion of our labor. Free trade, for example, while it may sounds like a good idea to help build a “global society” or “nation without borders” or some bullshit, just ends up exploiting the poor laborers in third-world countries.

  • http://www.elitistpig.com Dave Nalle

    One might argue that if you asked those third world workers if they were being exploited by being paid a decent salary and actually having a job in a society where others are paid less or have no work at all, they wouldn’t think of that as exploitation. They’d think of it as earning a good living.

    dave

  • Nancy

    Thanks, Bryan! I don’t know how to do those links, & have a memory like Swiss Cheese anyway.

    My point, and that of most others who advocate some sort of controls, is that it is insane to treat corporations as legal individuals, when prosecution and/or control of them is not even par. Furthermore, to quote the bible, “what avails it if you say to your brother, ‘eat well & keep warm, take care of yourself’, yet do nothing to help him do so?” Failing to mandate some spark of ‘humanity’ for these soulless corporate entities, as well as the equally soulless monsters who run them, is a farce as well as an insult to the employees being deprived of just wages & benefits while the CEOs at the top roll in obscene levels of overcompensation, and make a mockery of the concept of justice and/or humanity. No, no one is arguing they should give away their products for free; but I AM arguing that their lust for profits should be held in check against standards of basic decency if they themselves are not willing to implement same. Letting corporations & psycho CEOs run riot and do what they will w/people’s lives and with national resources – which belong to the public, NOT to private, profit-making businesses – is not the same as encouraging free enterprise. That is encouraging free piracy & total lack of responsibility, either moral or fiscal, something, Mr. Nalle, you seem to be unable to comprehend in favor of the tactics of your obvious heroes, Jay Gould & his band of merry corporate criminals. Doubtless you regret mightily that Enron, MCI, and the others were subjected to law instead of being allowed to continue lying, stealing, and generally doing what corporations do best in the name of the great American tradition of free enterprise?

  • http://www.landofthefreehomeofthebrave.org/wp/ Margaret Romao Toigo

    Nancy asked, “…do you seriously think the overcompensated, greedy-gut corporate CEOs of megaconglomerates give a rat’s ass about anybody except themselves?”

    Probably not, but Mr. Bambenek, the author of the article in question often writes about American morality and I was curious about the moral implications of his assertions with regard to economics.

    Corporations are only one aspect of economics. The purpose and responsibility of corporations is to make a profit for the benefit of their shareholders.

    The human factor is a separate issue because corporations are ultimately made up of a lot of people from the boards of directors to the executives to the managers to the supervisors to the IT departments to the clerical and accounting staff to the mail room to the forepersons and factory workers to the janitorial and landscaping departments. All of whom will be out of work if the corporation fails to make a profit.

    But Mr. Bambenek was not discussing domestic business practices, but rather our foreign policies with regard to the poorer nations on this planet we all share. And, as a nation, unlike a corporation, we have a moral responsibility that goes way beyond the seeking of profits for shareholders.

    Free market capitalism is not a black and white issue of regulations or no regulations, a balance that protects our civil and human rights and our environment as well as the profitability of our businesses and investments must be carefully struck because the right to conduct business and make a profit can sometimes conflict with the rights of workers (to be treated fairly in matters of pay, hours, responsibility and safety) as well as the right to clean air and water, which belongs to all of us.

  • http://xraystyle.blogspot.com Bryan McKay

    Dave: What you described is exploitation. We take advantage of the fact that many of these poor farmers, factory workers, etc. can’t get work anywhere else and use this as an excuse to pay them piss-poor wages. If the only way to earn a living is working long hours at low pay for an American corporation, we can leverage the situation to our benefit. It’s like some twisted theory of supply and demand, except here it’s human worth that’s the commodity being traded.

    Margaret: Free market capitalism is (at least, in theory) a laissez-faire system with (ideally) no tariffs, subsides, regulations, etc. That being said, in practice, a free market is generally more like what you described. I don’t mean to pick at words here, I just wanted to be clear as to what exactly we were discussing.

  • http://teamstealmoney.zoomshare.com Paul Herrington

    Frankly neoclassical economics need to be kicked to the curb.

  • http://www.landofthefreehomeofthebrave.org/wp/ Margaret Romao Toigo

    Bryan, “a laissez-faire system with (ideally) no tariffs, subsides, regulations, etc.” is not free market capitalism, its anarchy.

    Our government exists to protect and defend our rights, which includes the right to make a profit. But the right to make a profit does not include the right to engage in business practices that deny and/or violate civil and human rights, either of workers or the whole of the people who drink water and breathe air.

  • http://xraystyle.blogspot.com Bryan McKay

    The Wiki entry for “free market” would beg to differ with you, Margaret.

    Most respectable anarchists would also probably resent that description, as generally anarchy disregards capitalism altogether in favor of small, self-reliant communities governed by the collective.

    I agree with you about the role of the government in our economy, but the words you’re using to describe it are inaccurate. The idea of a “free market” is a neoliberalist one and not particularly in line with worker’s rights or anything of that sort.

  • Nancy

    There’s another name for paying people minimal wages, no benefits, when they have few if any other options, Dave: it’s called slavery.

  • http://jcb.pentex-net.com John Bambenek

    This is another problem with the left, the make silly analogies. Paying someone nothing, beating them, their wives, and their kids and using their wives as sperm recepticles (i.e. slavery) is nothing like paying someone minimum wage.

    As far as morality goes, the problem with corporations is that the PEOPLE responsible for the actions are not held accountable for those actions, the BUSINESS is.

    In all put one type of corporation, the board members and officers of the company face no PERSONAL liability for any business decision they do (save some very few ones). As a trivia point, the only corporation that has PERSONAL liability of the board and officers is a not-for-profit. Go figure. As long as you are making money you are shielded from your bad decisions.

    Moving along, take any company that has intentionally done something bad to the environment… has a board member or officer PERSONALLY paid? Nope. They simply pass the costs down to the consumer.

    In order to have any sense of morality there first needs to be accountability.

  • http://www.landofthefreehomeofthebrave.org/wp/ Margaret Romao Toigo

    Thank you for the Wikipedia link, Bryan.

    I learned that “Colloquially and loosely, a free market economy is an economy where the market is relatively free, as in an economy overseen by a government that practices a laissez-faire, rather than either a mixed or statist economic policy.”

    Which means that I was using the colloquial definition of free market capitalism rather than its formal, theoretical definition. Sorry for the confusion.

    And I also learned that there is a difference between anarchy and anarcho-capitalism.

    Thank you for helping me to keep my terminology straight as proper semantics are essential to understanding.

  • http://xraystyle.blogspot.com Bryan McKay

    This is another problem with the left, the make silly analogies. Paying someone nothing, beating them, their wives, and their kids and using their wives as sperm recepticles (i.e. slavery) is nothing like paying someone minimum wage.

    You’re right that these labor practices we’re discussing aren’t slavery. On the other hand, they certainly aren’t paying anything remotely amounting to minimum wage to the third-world laborers. As far as the analogy goes, however, it may have been slightly hyperbolic, but probably not too far off by many accounts. The “left” aren’t the only people making silly analogies though, John, so get down from your pulpit. Both sides have been known to stretch the boundaries of reality a bit.

    I (surprisingly) agree with the rest of your comment, however. Often individuals are not held for their accountability and people forget that there are actual people making the decisions behind the large corporations. There should still undoubtedly be restrictions placed on the corporations themselves, but I do believe that ultimately the punishment should fall on the individuals. There are plenty of things that a corporation can get away with that an individual would be condemned for.

  • Nancy

    Where/when did the concept of a corporation as a person get going? Is this something the US came up with, or has it been around since the Magna Carta? I admit to total ignorance @ this. Thanks.

  • http://xraystyle.blogspot.com Bryan McKay

    Margaret: Semantics can be a tricky point to argue, and sometimes it feels like nitpicking, but sometimes a lot of messages can be lost due to one ambiguous word choice. Thanks for understanding where I was coming from! Also, your link to the anarcho-capitalism entry was interesting. There seems to be a big difference between that and anarcho-socialism, which is more or less what I was describing. Anarchy is really a fascinating concept. Whether it would work outside of a theoretical setting surely remains to be seen (and may never be explored), but there are some basic ideas there which could be effectively applied to improve a capitalist, democratic society.

    Nancy: Where/when did the concept of a corporation as a person get going?

    Corporations are simply a conglomeration of various people working together to achieve a common economic goal. The people at the tops of these corporations are the ones making the decisions. More often than not, the corporation itself is punished, but this can have little to no bearing on the actual decision-makers. Hopefully this cleared things up a bit, but I can explain what I’m trying to say more thoroughly if you need anything further.

  • Nancy

    Oh, I meant in a historical sense: have corporations always been considered to be ‘persons’? If not, when did they? Was this something that originated in europe, or is it something J. Gould & co. came up w/to avoid being hanged drawn & quartered?

  • http://xraystyle.blogspot.com Bryan McKay

    Ah, got it. I apologize for my oversimplification then. I can’t really answer your question. I don’t know when we decided that people weren’t accountable for the things they did under the guise of big business, but it would be an extremely interesting thing to do more research on. If anyone else could answer this, I would love to hear a historical analysis.

  • http://www.diablog.us Dave Nalle

    >>Dave: What you described is exploitation. We take advantage of the fact that many of these poor farmers, factory workers, etc. can’t get work anywhere else and use this as an excuse to pay them piss-poor wages. <<

    Except that those wages which are ‘piss poor’ by our standards are enough to provide a decent living at or above the standards of the countries in question in many cases.

    Dave

  • http://xraystyle.blogspot.com Bryan McKay

    Except that those wages which are ‘piss poor’ by our standards are enough to provide a decent living at or above the standards of the countries in question in many cases.

    I didn’t even think that you would sink to make a claim like this. You have absolutely no evidence (or truth) to back this up. What do you consider to be “at or above the standards of the countries in question” anyway? Are these standards relative? Should our standards for living change from country to country? Maybe they are living above the “standards”, but if the standards are impoverished and disease-ridden, then that’s still not saying much.

  • http://www.usgaselectric.net Jay Draiman, Energy Consultant

    The Greedy Corporations and the Profit Hungry Shareholders

    Honesty and integrity went out the window – anything goes

    Corporate greed and the insatiable thirst to make a profit, to satiate shareholders share- holders’ profit expectations have changed American values, where anything is justified in order to derive enormous corporate profit and satisfy the expectations of the share-holders; maintain the image of profitable corporate America. It is a vicious cycle that feeds itself to ultimate disaster.

    These attitudes have brought corporate executives to exercise the drive and mentality that anything goes, no holes barred.
    Inflating earnings, hiding debts and liabilities, outright fraud and deception. Theft by executives, theft of corporate assets, graft, bribery, illegal contributions to politicians, trips, gifts and favors to politicians, crooked lobbying organizations.
    Where and when does it all stop? When are Americans going to wake-up and realize they are on the path of disaster of magnitude proportions that will bring our downfall?

    We still have honest ethical hard working people in America. Let us all rise and protest these money hungry actions and methods, before it is too late.

    Work hard to better America, institute honesty and integrity.
    It starts at the top – the politicians, the legal system, corporate America and progresses to the masses.

    The media is not exempt. Honest reporting is a must, the public expects no less.
    Exercising – Sincerity, honesty and integrity is a good beginning.

    If you work hard, perform your duties sincerely and honestly, you will be able to earn a better profit/living. You will not have to worry about covering up for your wrongdoing and you will be able to sleep better at night, look at yourself in the mirror.

    We should learn to respect each other.

    Bring back family values.

    Am I asking too much?

    Jay Draiman, Northridge, CA – Sept. 24, 2007

    PS
    An essay concerning the origins, nature, extent and morality of this destructive force in free market economies. Definitions. Paradoxes and omissions in Adam Smith’s original theory permit – encourage – greed without restraint so that in a very large society [USA] over two centuries it has become an undemocratic force creating precipitous inequalities; divisions in this society now approach a kind of wealth apartheid, and our values are quite unlike Smith’s: this is an immensely wealthy society but it is not a humane society. Wealth and poverty are connected, in fact recent sociological theory shows our institutions routinely design inequality in, but this connection is largely avoided in texts and in the media, as is the notion that greed is a moral wrong. Problems created by greed cannot be solved by technology. We are also distracted by already-outdated environmental rhetoric, arguments that scarcities and human suffering follow from abuse of our ecology. Rather, these scarcities are the result of what people do to people. This focus opens practical solutions.

    “The Social Responsibility of Business Is to Increase Its Profits.” The future Nobel laureate in economics had no patience for capitalists who claimed that “business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of re formers.”
    He wrote that such people are “preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting pup pets of the intellectual forces that have been undermining the basis of a free society these past decades.”
    He argues that corporations add far more to society by maximizing “long-term shareholder value” than they do by donating time and money to charity.
    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.” That’s the orthodox view among free market economists: that the only social responsibility a law-abiding business has is to maximize profits for the shareholders.
    I said. But we have not achieved our tremendous increase in shareholder value by making shareholder value the primary purpose of our business. In my marriage, my wife’s happiness is an end in itself, not merely a means to my own happiness; love leads me to put my wife’s happiness first, but in doing so I also make myself happier. Similarly, the most successful businesses put the customer first, ahead of the investors. In the profit-centered business, customer happiness is merely a means to an end: maximizing profits. In the customer-centered business, customer happiness is an end in itself, and will be pursued with greater interest, passion, and empathy than the profit-centered business is capable of.
    Many thinking people will readily accept my arguments that caring about customers and employees is good business. But they might draw the line at believing a company has any responsibility to its community and environment.
    This position sounds reasonable. A company’s assets do belong to the investors, and its management does have a duty to manage those assets responsibly. In my view, the argument is not wrong so much as it is too narrow.
    First, there can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors.
    That said, I believe such programs would be completely justifiable even if they produced no profits and no P.R. This is because I believe the entrepreneurs, not the current investors in a company’s stock, have the right and responsibility to define the purpose of the company. It is the entrepreneurs who create a company, who bring all the factors of production together and coordinate it into viable business. It is the entrepreneurs who set the company strategy and who negotiate the terms of trade with all of the voluntarily cooperating stakeholders—including the investors.
    The shareholders of a public company own their stock voluntarily. If they don’t agree with the philosophy of the business, they can always sell their investment, just as the customers and employees can exit their relationships with the company if they don’t like the terms of trade. If that is unacceptable to them, they always have the legal right to submit a resolution at our annual shareholders meeting to change the company’s philanthropic philosophy. A number of our company policies have been changed over the years through successful shareholder resolutions.
    The Theory of Moral Sentiments. There he explains that human nature isn’t just about self-interest. It also includes sympathy, empathy, friendship, love, and the desire for social approval. As motives for human behavior, these are at least as important as self-interest. For many people, they are more important.
    When we are small children we are egocentric, concerned only about our own needs and desires. As we mature, most people grow beyond this egocentrism and begin to care about others-their families, friends, communities, and countries. Our capacity to love can expand even further: to loving people from different races, religions, and countries—potentially to unlimited love for all people and even for other sentient creatures. This is our potential as human beings, to take joy in the flourishing of people everywhere. Whole Foods gives money to our communities because we care about them and feel a responsibility to help them flourish as well as possible.
    The business model that should be embraced could represent a new form of capitalism, one that more consciously works for the common good instead of depending solely on the “invisible hand” to generate positive results for society. The “brand” of capitalism is in terrible shape throughout the world, and corporations are widely seen as selfish, greedy, and uncaring. This is both unfortunate and unnecessary, and could be changed if businesses and economists widely adopted the business model that I have outlined here.
    To extend our love and care beyond our narrow self-interest is antithetical to neither our human nature nor our financial success. Rather, it leads to the further fulfillment of both. Why do we not encourage this in our theories of business and economics? Why do we restrict our theories to such a pessimistic and crabby view of human nature? What are we afraid of?
    Businesses such have multiple stakeholders and therefore have multiple responsibilities. But the fact that we have responsibilities to stakeholders besides investors does not give those other stakeholders any “property rights” in the company, contrary to those’ fears. The investors still own the business, are entitled to the residual profits, and can fire the management if they wish. A doctor has an ethical responsibility to try to heal his/her patients, but that responsibility doesn’t mean his/her patients are entitled to receive a share of the profits from her practice.
    Many probably will never agree with my business philosophy, but it doesn’t really matter. The ideas I’m articulating result in a more robust business model than the profit-maximization model that it competes against, because they encourage and tap into more powerful motivations than self-interest alone. These ideas will triumph over time, not by persuading intellectuals and economists through argument but by winning the competitive test of the marketplace. Someday businesses like these, which adhere to a stakeholder model of deeper business purpose, will dominate the economic landscape. Wait and see.
    The first is that running a profitable business requires using soft values. It’s easy to caricature the greedy profit-maximizing business owner as ruthless. But the best businesses are led by people who excel at soft values, who treat their customers and employees well. Business that treat customers and employees badly find it harder to thrive.
    Running a family like a business destroys it. Running business like a family destroys it and leads to tyranny.