Paul Holmes 12 Dec 2012 // 12:34PM GMT
Nobel Prize-winning economist and New York Times columnist Paul Krugman is fond of discussing—in the context of Europe’s against-all-evidence enthusiasm for austerity—the notion of “zombie ideas,” which he defines as “policy ideas that keep being killed by evidence, but nonetheless shamble relentlessly forward, essentially because they suit a political agenda.” The business world has its own version, most famously articulated by Milton Friedman and repeated this week by columnist Janan Ganesh at the Financial Times, who would like you to remember that “business exists to make a profit within the law. It contributes to society by employing people and producing goods and services.” Just to be clear, he wants you to know that “the purpose of the sector is not corporate social responsibility,” which he describes as a “modish fad.” (Is there some other kind of fad?) The first problem with Ganesh’s piece is that no one is suggesting that CSR is “the purpose” of business. There are lots of things that are not “the purpose” of business, but which business does anyway. For example, the purpose of business is not to produce entertaining 30-second films, yet many businesses choose to do this. Why? Because it helps them sell products. It’s not entirely clear how behaving responsibly is different. If it helps companies sell more products—or attract better employees, foster a more favorable regulatory environment, make more profits—then companies should do this. Arguing, as Ganesh does, that Starbucks should not be “harassed into munificence” is simply arguing that businesses should not be responsive to the expectations of their customers and other key stakeholders. If a company makes a product that nobody wants to buy, should it allow itself to be “harassed” into changing that product? Would doing so be “not merely absurd but dangerous?” And if we accept that companies have to deliver the kind of products that people want to buy, how is it more controversial to argue that companies should behave in such a way that people want to do business with them? Ganesh goes on to castigate politicians for “providing official cover” for protests against the company and supporting a policy of “naming and shaming.” He then insists acknowledges that “unchecked, [the] thirst for profit can inflict harm on society and cause extraordinary economic inequity, which is why government must subject it to the formal trammels of regulation and taxation.” Ganesh appears to be arguing that government is entirely within its rights to impose new regulations and impose higher taxes when it sees companies misbehaving, but that “moral exhortation” is an “insidious precedent.” This seems to suggest that Ganesh would prefer to see harsher regulation or a more rigorous tax code, rather than a robust public debate that allows market forces—in this case, stakeholder pressure—to work. I thought Freidman’s acolytes preferred to see business respond to the free market rather than to government regulation. Am I missing something?