Not too long ago many Americans were complaining that corporations were making too much money at the expense of “working families,” the environment, and society in general. The oil companies were evil because they were too profitable. Wal-Mart was evil because it did not fund health care insurance for its employees.
Now that many companies are struggling and some are in bankruptcy, complaints such as these are not quite as common. It seems that most of us would be happy if American business would just shake off the recession and start hiring again. The reality that it takes profitable companies to hire people and pay taxes becomes even clearer in an economic downturn.
So what responsibilities do business firms have anyway? Do oil companies have a responsibility to sell gas at break-even prices if consumers are angry about rising oil prices on the world market? Does Wal-Mart have a responsibility to provide health insurance to its employees?
The answer is much simpler than some might think. When a company is successful, its owners are rewarded with dividends and increasing stock values. At the same time, customers get products they are willing to pay for, employees get jobs at wages they are willing to accept, and the government gets tax revenue. Everyone wins.
Unfortunately, this just isn’t good enough for some. They demand that companies “give back” to society, as if they took something from it in the first place. They demand that the rewards earned by wealthy executives and shareholders who made all of this possible be redistributed. They argue that business has a “social responsibility” beyond that of earning honest profits. In short, they miss the point.
There is nothing wrong with a firm offering health insurance to its employees or contributing to a worthy cause in the community. Doing so helps retain good employees and supports a good corporate image. The problem is the notion that companies have a responsibility to do any of this. The free market already helps solve society’s problems by prodding firms to create and sell solutions. This is done through the normal course of business. When we suggest that firms have an obligation to help solve various social problems beyond the normal course of business, we are requiring them to allocate their resources to problem areas they are not equipped to address.
Soft socialists usually struggle to define social responsibility and they often confuse it with managerial ethics. Almost everyone agrees that honesty and integrity are important, but problems in this area concern ethics, not social responsibility. The irony is that the notion of a social responsibility is arguably unethical itself because it is rooted in the belief that one’s need justifies the reallocation of another’s wealth. This is a complicated debate, but it is safe to say that those arguing for social responsibility do not necessarily occupy the moral high ground. There is nothing moral about demanding that another’s wealth be used to solve society’s ills.
Overcoming this confusion is not too difficult if we ask the right questions. The next time someone says that a company “ought” to do something to solve a social problem, ask him why he is not spending his own money to address the problem. Ask why he feels justified to dictate how shareholders of that company allocate their own resources. Point out that the company already contributes to society by meeting consumer needs, hiring workers, and paying hefty taxes. This might be his first exposure to the concept of economic liberty.