Economics and Ethics

Chick-fil-A, Corporate Social Responsibility, and Ethical Consumption

Mark D. White

I've read an enormous amount of what's been written on the Chick-fil-A controversy the last couple weeks, although I'm sure I haven't scratched the surface. But I was fascinated by Will Wilkinson's recent post at The Economist's Democracy in America blog, titled "Feathers Flying," in which he casts the fast food company's stance against same-sex marriage as an example of corporate social responsibility (CSR), though not the typical social justice concerns usually associated with CSR.

It's my view that this sort of skirmish in the culture wars is an inevitable consequence of trends in "ethical consumption" and "corporate social responsibility". Conservatives sceptical of the corporate social responsibility (CSR) movement have often charged that CSR is a stalking horse for liberal causes that have failed to get traction through ordinary political channels. This charge finds some support, I think, in the fact that few in the media seem to see Chick-fil-A's Christian-influenced culture and business practices as an example of CSR, though obviously it is. Doesn't the demand that corporations act responsibly in the interests of society, in ways other than profit-seeking, directly imply that corporate leaders who find same-sex marriage socially irresponsible should do something or other to discourage it?

Rather than comment on Chick-fil-A's position itself, I want to point out Mr. Wilkinson's perceptive comments regarding the politicization of the marketplace itself:

Matters of moral truth aside, what's the difference between buying a little social justice with your coffee and buying a little Christian traditionalism with your chicken? There is no difference. Which speaks to my proposition that CSR, when married to norms of ethical consumption, will inevitably incite bouts of culture-war strife. CSR with honest moral content, as opposed to anodyne public-relations campaigns about "values", is a recipe for the politicisation of production and sales. But if we also promote politicised consumption, we're asking consumers to punish companies whose ideas about social responsibility clash with our own.

Those opposed to a particular company's moral or political position may consider their actions to exemplify corporate social irresponsibility (or worse) rather than just a different type of CSR. The issue for ethical consumption then becomes not just a matter of choosing companies who actively support the "right" causes rather than those who don't, but more important, staying away or boycotting companies that support the "wrong" ones. (This is not new: for examples, labor union members have long refused to patronize nonunion businesses, whether out of solidariry or some other principle.)

Wilkinson's proposed remedy is elegant, and on first blush seems to make perfect sense:

I'd suggest the best arena for moral disagreement is not the marketplace, but our intellectual and democratic institutions. We hash out our disagreements, as best we can, in public deliberation. The outcome of this deliberation becomes input to official policymaking, which in turn determines the rules of the game for business. Businesses then seek profits within the scope of those rules (and the consensus rules of common decency), and consumers buy the products that best satisfy their preferences.

That would be the ideal, I agree. In unpublished work on CSR, I draw a distinction between internal and external actions: internal CSR would cover the operations of the business itself, such as treatment of employees and environmental production methods, while external CSR involves actions not directly related to the business, such as charitable giving--or political positions. My conclusion based on this distinction can be considered a restatement of Milton Friedman's oft-caricatured position that business should focus on maximizing returns to owners within the legal and ethical standards of their industry. The italicized phrase refers to the importance of internal CSR--which still leaves room for controversy, such as whether benefits can be extended to same-sex partners or the extent of environmental safeguards--and cautions against external CSR, either because profits can be devoted to social or political causes by the owners just as well as by the company, or because the business wants to avoid endorsing a controversial position and politicizing its product.

I think that corresponds fairly well to what Wilkinson recommends, but I fear the horse has left the barn on that one. CSR and ethical consumption together comprise a vicious cycle that we will find it very difficult to extricate ourselves from at this point. Consumers have adopted the mindset of making a moral statement with their purchases--with good intentions--and they expect businesses or business leaders to reveal their positions. Businesses are more than happy to comply, sincerely or otherwise, even at the risk of alienating a segment of their customer base. Even companies that remain neutral on heated social issues may be accused of "if you're not with us you're against us"--and certainly with some issues, there is no neutral position. A company can refuse to take a public stand on same-sex marriage, but they either provide same-sex benefits or they don't.

I'll finish--as I often do--with Kant. Often caricatured himself as a rigid demanding moralist, he ridiculed as "fantastically virtuous" any person "who allows nothing to be morally indifferent and strews all his steps with duties, as with mantraps... Fantastic virtue is a concern with petty details which... would turn the government of virtue into tyranny” (Metaphysics of Morals, 409). We can take his comments one step farther and argue that, given our limited attention, the more attention we pay to "petty details," the less we pay to more serious issues or more effective ways to deal with them. Equality for gays and lesbians is no petty detail, of course, but no matter which side you're on, there must be a better way of supporting your position than choosing whether to eat a chicken sandwich.

NPR Listeners Are Brainier

Jonathan B. Wight

A recent survey by Fairleigh Dickinson University's "Public Mind" finds a notable gap between where people get their news and what they know about current events. Not surprisingly, NPR listeners scored highest on a set of four international and five domestic questions.

Fox News listeners answered correctly only one out of four international questions, and only one out of five domestic questions. People who watched no news scored higher. The questions ranged from upheaval in the Middle East to the unemployment rate in the U.S. NPR listeners got about twice as many answers correct (still not great scores).

Liberals often claim that public radio and public TV should be supported with tax funds because these stations provide positive externalities to society. This survey could support that conclusion. Of course, only correlation has been established, not causality. People who listen to NPR are likely better educated and wealthier than the average citizen.

Still, this kind of investigation is significant for what it reveals about the education of adults—and the lack of accountability in some media outlets. A related question is, do some adults even want to know the right answers? Ideology may be a more satisfactory media purchase than truth. Hence, there is no guarantee that competitive markets will generate more truth if consumers want to buy falsehoods. That may be the key concern raised by this study.

UPDATE (5/25/2012): James Fallows offers some interesting criticisms and caveats about the survey. I think the main criticism is the one mentioned above, that education and income levels are not being controlled for.

Forum on Michael Sandel, markets, and morality at the Boston Review

Mark D. White

Thanks to Jennifer A. Baker, I can bring you this link to a marvelous forum in the Boston Review on the relationship between markets and morality, leading off with an essay from Michael Sandel based on the argument in his recent book, What Money Can't Buy: The Moral Limits of Markets. The other participants include some very heavy hitters: Richard Sennet, Matt Welch, Anita Allen, Debra Satz, Herb Gintis, Lew Daly, Sam Bowles, Elizabeth Anderson, and John Tomasi.

 

Nancy Folbre on corporate social responsibility

Mark D. White

In today's Economix blog in The New York Times, Nancy Folbre comments on the recent Journal of Economic Literature survey of the economics of corporate social responsibility by Markus Kitzmueller and Jay Shimshack (which is open access, for the time being). Folbre nicely summarizes the complex and often strategic interaction between financial and ethical motives on the part of corporate leaders, shareholders, and consumers alike.

On Barry Schwartz's "The Danger of Too Much Efficiency" in The New York Times

Mark D. White

In the New York Times, psychologist Barry Schwartz (author of The Paradox of Choice: Why More Is Less) warns us of "The Danger of Too Much Efficiency," in which he argues that, while efficiency is generally a good thing and enables increases in standards of living, more efficiency is not necessarily better. The first half of his piece is an excellent summary of the benefits of efficiency, which he illustrates using the concept of friction:

...firms compete to become more efficient, and we as consumers, along with Bain and its like, benefit from this competition.

What stands in the way of efficiency is friction. When automobile manufacturers struggle to squeeze as many miles per gallon as possible out of their car designs, friction is the enemy. Their aim is to design a vehicle that uses every ounce of fuel to move the car forward.

And so it is in the world of finance. As the historian Niall Ferguson reminds us in his book The Ascent of Money, hard as it is to imagine, people didn’t always have money. The invention of money went a long way toward reducing the friction, the inefficiency, in financial transactions. No longer did the farmer have to bring sacks of potatoes to the marketplace to trade for eggs and milk. Money was a medium of exchange that greatly reduced what some have called the financial coefficient of drag.

But Schwartz recognizes that increasing efficiency by reducing friction is not the only important concern to individuals or society. After summarizing the efficiency gains from securitizing mortgages and increased access to consumer credit, he turns to the downside:

All these examples tell us that increased efficiency is good, and that removing friction increases efficiency. But the financial crisis, along with the activities of the Occupy movement and the criticism being leveled at Mr. Romney, suggests that maybe there can be too much of a good thing. If loans weren’t securitized, bankers might have taken the time to assess the creditworthiness of each applicant. If homeowners had to apply for loans to improve their houses or buy new cars, instead of writing checks against home equity, they might have thought harder before making weighty financial commitments. If people actually had to go into a bank and stand in line to withdraw cash, they might spend a little less and save a little more. If credit card companies weren’t allowed to charge outrageous interest, perhaps not everyone with a pulse would be offered credit cards. And if people had to pay with cash, rather than plastic, they might keep their hands in their pockets just a little bit longer.

Rather than focus on his policy recommendations (with which I have much disagreement, as regular readers of this blog can easily imagine), I want to address his normative analysis of efficiency, which with I have much sympathy. I do think, however, that the particular way in which he criticies the emphasis of efficiency is strange, and obscures his greater point to some extent--a point with which, again, for the most part I agree.

Using the Aristotelian language he adopted in his more recent book (written with Kenneth Sharpe), Practical Wisdom, Schwartz recommends finding the "golden mean" of efficiency rather than simply purusing its maximum level. While I don't disagree with this in principle, I do think it is an odd way to put the problem, since it suggests that we can find the optimal level of efficiency without consideration of other values. If there is a golden mean of efficiency, the only way to find it is to determine how much efficiency is consistent with other values we want to promote (such as justice, dignity, and equality). This is really no different from the Aristotelian determination of the golden mean of characteristics like courage, in which the extremes of foolhardiness and cowardice offend other values and ends, as opposed to being internally inconsistent.

But I find the golden mean analysis to be misleading in a deeper sense when applied to efficiency. The reason we can't determine the optimal level of efficiency is because it is an empty value--it's a mean to an end, not an end in itself. And as such, it should be maximized in order to provide the means to pursue valuable ends, except insofar as it conflicts with those ends themselves. In other words, the pursuit of efficiency must be limited, but out of recognition that other values are more important, not that there is something inherently bad about a certain level of efficiency. The only "danger with too much efficiency" is that it implies that important values have been neglected in its name.

To a large extent, this all cashes out the same way; my disgreement with Schwartz on this issue is largely rhetorical rather than substantive. He emphasizes the excessive attention given to efficiency, and then recommends that it be frustrated (by increasing frictions through regulation) in order to correct the resulting problems. But as I said above, the issue is not an excessive focus on efficiency, but on neglect on other values which should temper it. It is as if we said that, if people neglect their families to spend time at the gym, then we should discourage gym use by raising membership fees or reducing hours of operation. But exercise--also a good thing in general, though it can be taken too far in many ways--is not the problem here. The neglect of family is the problem, and it is that neglect that should be addressed. In general, our focus should be placed directly on the neglected values (justice, equality, and so forth) rather indirectly on limiting the threat to them (too much efficiency).

Indeed, Schwartz does emphasize the importance of corrective norms, although he resorts to regulation to bolster them:

Perhaps we can use the criticism of Bain Capital as an opportunity to bring a little friction back into our lives. One way to do this is to use regulation to rekindle certain social norms that serve to slow us down. For example, if people thought about their homes less as investments and more as places to live, full of the friction of kids, dogs, friends, neighbors and community organizations attached, there might be less speculation with an eye toward house-flipping. And if companies thought of themselves, at least partly, as caretakers of their communities, they might look differently at streamlining their operations.

True, increased observance of these norms would increase friction and reduce efficiency, but that shouldn't be the goal--the goal should be increased observance of the norms themselves! Again, the result is the same, but I worry that focusing on efficiency as the "target variable" risks obscuring the more important issues behind it.

I think Schwartz would agree with me that, in the end, the best way to conceptualize of efficiency is as a means to an end, in which the values we hold individually and collectively are promoted by it at the same time that they temper its pursuit.

Kantian economics, business leadership, and social responsiblity

Mark D. White

In the latest issue of The European Finance Review (June/July 2011), I have an invited article in which I present the essential points of the Kantian-economic model of choice that I develop more fully in Kantian Ethics and Economics: Autonomy, Dignity, and Character. I also apply the model to business decision-making, and then sketch some preliminary thoughts on the implications of the model--and of Kantian ethics in general--for social responsibility, thoughts which I will elaborate on in January as a participant in the Association for Social Economics program at the ASSA meetings in Chicago (organized by Martha Starr).

A Bright Side of American Capitalism

Jonathan B. Wight

I wrote a few weeks ago about social marketing and networking. On one level social marketing is shamelessly shallow, leaving many people cringing at the chutzpah of near strangers. Why are you "friending" me on Facebook? Are you networking to get a job or because we actually share genuine moral sentiments?

After two weeks meeting with folks in the Bay Area—the Left Coast—I am more convinced than ever that young Americans, who in many ways drive American culture and hence business marketing, are rejecting shallowness in favor of genuine connectivity and community. Of course, there are lots of exceptions. But the social gestalt does seem to be shifting, so that the standard neoclassical view of "enlightened self interest" is giving way to "authentic selfhood." That is, people are striving to understand how to be true to ideals and virtues.

One manifestation of this might be reflected in the termination of Glenn Beck's show on Fox (ending June 30). Van Jones, who earlier left the Obama White House under the withering criticism of Beck, had this to say:

Good American businesses make a decision about who they want to associate their brands with," he said. "And if you violate the principles of good discourse and fair play in America, good American businesses will not stay with you and you won't stay in the public square very long.

"So it's not just a triumph of American capitalism," Jones said. "It's a triumph of American values."

Another way to say this is: markets are essential for the expression of human interests and to promote change. However, markets are no guarantee that you'll have the right consumer values that will promote human rights or anything else. Hence, markets—by themselves—need complementary institutions in order to create the incentives and values that lead to a desirable society.

Jerry Evensky on Adam Smith, trust, and the Great Recession

Mark D. White

In the latest issue of Journal of the History of Economic Thought (33/2, June 2011) is a new article by Jerry Evensky (author of Adam Smith's Moral Philosophy: A Historical and Contemporary Perspective on Markets, Law, Ethics, and Culture):

ADAM SMITH’S ESSENTIALS: ON TRUST, FAITH, AND FREE MARKETS

ABSTRACT: When trust is shaken, individuals pull back and the market system contracts. Where trust grows, individual energy and creativity are unleashed and the system grows. In Adam Smith’s vision of humankind’s progress, trust is the central theme.

The Great Recession represents a classic case of a crisis of trust. Looking back to the work of Smith offers insight into the role of citizens and the State in creating an fruitful market environment based on trust, and the challenge of this process, given the human frailty of individuals (unfortunately, we are not angels) and the potential for State power to be captured and abused.

Liberalism and Capitalism (in Social Philosophy and Policy

Mark D. White

The theme of the latest issue of Social Philosophy and Policy (28/2, July 2011) is Liberalism and Capitalism, and the line-up of authors and topics is very impressive:

THE PARADOX OF JOHN STUART MILL (Alan Charles Kors)

CAPITALISM IN THE CLASSICAL AND HIGH LIBERAL TRADITIONS (Samuel Freeman)

FOUNDING LIBERALISM, PROGRESSIVE LIBERALISM, AND THE RIGHTS OF PROPERTY (Ronald J. Pestritto)

THE PROPERTY EQUILIBRIUM IN A LIBERAL SOCIAL ORDER (OR HOW TO CORRECT OUR MORAL VISION) (Gerald Gaus)

JUDICIAL LIBERALISM AND CAPITALISM: JUSTICE FIELD RECONSIDERED (Michael P. Zuckert)

LIBERTY AFTER LEHMAN BROTHERS (Loren E. Lomasky)

A LOCKEAN ARGUMENT FOR UNIVERSAL ACCESS TO HEALTH CARE (Daniel M. Hausman)

EUVOLUNTARY OR NOT, EXCHANGE IS JUST (Michael C. Munger)

RULE CONSEQUENTIALISM MAKES SENSE AFTER ALL (Tyler Cowen)

LIBERALISM, CAPITALISM, AND “SOCIALIST” PRINCIPLES (Richard J. Arneson)

ARE MODERN AMERICAN LIBERALS SOCIALISTS OR SOCIAL DEMOCRATS? (N. Scott Arnold )

Does Historical Knowledge Have Intrinsic Value?

Jonathan B. Wight

Elizabeth Blair reports that the Smithsonian Institution is mired in an ethical battle over its pending display of Chinese artifacts from the 9^th century, "Shipwrecked: Tang Treasures and Monsoon Winds." 

The objects were excavated from an Arab dhow boat sunken off the coast of Indonesia more than a thousand years ago.  Fisherman discovered the site in 1998 and had been making money from its unofficial salvage. 

According to Blair’s interviews, "This shipwreck is one of the most significant shipwrecks to be found in modern times… It is the only shipwreck to date that we have found which has direct archaeological evidence of trade between the Arab world and the Chinese world."

But who—if anyone—should profit from the act of discovery?  The article notes that “The Smithsonian is a member of the Council of American Maritime Museums, which has an ethics statement that specifies that members ‘shall not knowingly ... exhibit artifacts which have been stolen ... or removed from commercially exploited ... sites.’"

The reason for the ethics code is that without it, “looters” – otherwise known as entrepreneurs—would hastily grab up the objects and sell them, and permanently destroy any chance of doing archeological research on the site. 

Blair reports: “Kimberly Faulk of the Advisory Council on Underwater Archaeology (ACUA) says the Smithsonian should not show the objects. ‘They were not excavated properly. They are indeed looted artifacts that were sold for profit….’”  The ACUA website states that their general objection is to “the destruction of our heritage for commercial reward. [The looters’] work is driven by profit rather than by legitimate research needs and they are destroying information and knowledge about our maritime past in the process.”

There is the unfortunate presumption that selling something for profit is intrinsically bad, and that only the search for information is ethical. 

The Smithsonian counters that it will display objects “officially” removed from the site, using the Indonesian government’s German subcontractor salvage firm. 

What can we conclude?

(1)   Objects have market value that can be privatized;

(2)   Archeological knowledge about such objects is a common property resource that will not be appropriately valued by the market because of free-rider problems.

When economists and philosophers think about the “moral limits to markets,” one argument used for regulation is that markets sometimes corrupt intrinsic values.  Selling sex degrades the sanctity of marriage, selling votes degrades democracy, and selling grades debases the academic enterprise. 

Is cultural understanding imbedded in maritime wrecks an “intrinsic good” whose preservation and educational value out-weighs the arguments for private markets?  Once the project became “official,” lots of people made money from the salvage, even though it was now officially sanctioned as educational.  My moral sympathy is with the fishermen who discovered the site, and who are now likely frozen out of the proceeds.