Samizdata

The late Milton Friedman was famous for many viewpoints but one that stands out for me was his admirably blunt statement that the purpose of a business is to make money for the people who own it, not to advance some social, environmental, religious or other agenda. Period. A publicly-quoted firm on the London Stock Exchange or Wall Street should focus on making money for its shareholders. In a competitive market – key proviso – such a purpose will tend to work, as Adam Smith said it would 230 years ago, in the interest of the consumer and worker:

Friedman wrote:

When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enterprise system,” I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free en­terprise when they declaim 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 re­formers. In fact they are–or would be if they or anyone else took them seriously–preach­ing pure and unadulterated socialism. Busi­nessmen who talk this way are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.

The doctrine of corporate social responsibility is very much on the march in Britain. Companies are increasingly encouraged to do things to help the environment and help local communities. My own firm encourages its staff to devote some time to voluntary work and sets aside time and resources for that end. Now, I have no trouble whatsoever with a firm that, with the consent of its owners – shareholders – decides to back certain causes so long as the shareholders realise that such activity could affect their shares either positively or negatively. So long as it is made explicit and the owners are allowed to decide yes or no. The problem starts to arise however when this doctrine is forced upon the business owners by state regulation. This is not simply a problem that can face listed companies; it can also potentially affect firms that are not publicly listed but owned, say, by a private equity fund or an individual.

One problem, I think, is limited liability laws. Such laws, one might argue, create a bit of a “moral hazard” problem in that the firm’s owners are less mindful of the harmfulness or riskiness of their decisions than if they were subject to the conditions that used to prevail under the old English Common Law. Might the reason that we have so much focus on the supposed social responsibilities of business stem in part from the idea that limitied liability is a privilege that carries responsibilities? Purist free marketeers might say that the logical step is to remove the privilege, but would the ability of firms to operate on a large scale, with all the advantages that can bring, come to an end without limited liability?

I am not sure about the answers to all these questions, which is why I ask them. I know that some libertarians and classical liberals, such as Sean Gabb, have posed the argument that limited liability is inherently contrary to a consistent free market doctrine, and that the creation of large corporations with certain immunities has actually created businesses that are increasingly indistinguishable from government. On the other hand, one might envisage how constraints on corporate liability might emerge without state legislation, although I confess I am not sure how this would work.

Related thoughts here and here.

This recent posting of mine here referred to the wonders of global divisions of labour and the consequent availability of cheap goods and services that would have once been luxuries. The posting quoted an example about something as simple and evocative as exports of flowers (aaahhhhh) but of course it applies to anything: computer software, underwear, books, automobile components and furniture.

The ensuing comments were interesting (one of the reasons I like blogs with comment threads is that they give me ideas to write about). One argument, which I have heard several times, went something like this: globalisation and free trade is obviously grand in many ways and gives us all manner of goods unknown to our ancestors. However, the people who do best out of this tend to be smart people who can handle the rapid pace of change that globalisation brings. But not-so-smart folk, who are used to manual labour but not much up to anything else, will end up on the scrapheap. This is a bad thing as it erodes the social fabric, destroys established communities (such as Yorkshire mining villages, etc), and in particular, means that the sort of folk – mostly men – who used to expend their energy and pride on producing ships and material goods lose purpose in life, turn to crime, etc, etc. If they get jobs at all they tend to be worse-paid, “McJobs” which are demeaning to perform. Conclusion: globalisation has big losers as well as winners.

Superficially, this sort of argument carries a certain amount of force, but only lasts until one realises that this sort of line could be used not just to stop cheap imports from China and inflows of Polish construction site workers, but could, for example, be used to ban people in California from importing stuff from neighbouring Nevada, or ban a guy living in Paris from moving to Bordeaux because he is “stealing” a job from people who live in the French coastal town. In other words, when one realises that national borders are lines on a map, the perversity of protectionist economic arguments is manifest. Taken to its logical extreme, I am “taking” jobs from people in East London because I work in Canary Wharf but live in London’s central area of Pimlico.

The other sort of problem here is that it reminds me of how people still view work that involves physical objects, such as manufacturing, as being in some way more “real” than service-based jobs. It demonstrates the lingering Marxian view that wealth is not wealth unless you can drop it onto your foot. It is a view that also, I think, reflects a highly gloomy, if not disdainful, view of one’s fellows. Despite the difficulties involved and the wrench of closures of factories, millions of jobs have been created in countries like the United States that have replaced the old jobs, and many of those jobs are not the supposedly-terrible “McJobs” but jobs that have long-term career prospects. (Although folk that poke fun at “McJobs” tend to ignore several things, such as that such jobs are good entry-level jobs and people then move on to something else).

Here is an admirable debunking of the idea that free trade encourages a “race to the bottom” in terms of incomes. Another admirable paper by the late Murray Rothbard here.

Readers may wonder why I am bothering to write about this, given that protectionism is pretty discredited (I have yet to meet anyone who, when sober, takes Lou Dobbs seriously). But the easy charms of protection continue to seduce lawmakers and even quite intelligent interloctors on blog comment threads. Like ivy threatening to throttle a young plant, protectionism needs to be ruthlessly cut back by argument, over and over again.