Profits And Social Responsibility

In a book review, the Economist hits the nail on the head.

``In poor countries the problem is not that businesses are unethical but that there are too few of them.”

More from the Economist, (bold highlights mine)

Ann Bernstein, the head of a South African think-tank called the Centre for Development and Enterprise, thinks that advocates of corporate social responsibility (CSR) tend to miss this point. In her new book, “The Case for Business in Developing Economies”, she stresses the ways companies benefit society simply by going about their normal business. In a free and competitive market, firms profit by selling goods or services to willing customers. To stay in business, they must offer lower prices or higher quality than their competitors. Those that fail disappear. Those that succeed spread prosperity. Shareholders receive dividends. Employees earn wages. Suppliers win contracts. Ordinary people gain access to luxuries that would have made Cecil Rhodes gasp, such as television, air-conditioning and antibiotics.

These are not new arguments, but Ms Bernstein makes them fresh by writing from an African perspective. Citizens of rich countries often fret about the occasional harm that corporations do, yet take for granted the prosperity they create. People in developing countries do not have that luxury.

If you pay heed to the mainstream, you’d have the impression that “labor costs” ultimately determines economic activities. Hence, the undeserved fixation towards currency values.

Of course in real life this is only fractionally true.

Economic activities are mainly about business enterprises seeking to serve consumers in return for the prospects of profits, where labor costs signify as one of the many factors or inputs necessary to produce a service or a good.

What ultimately determines profitability are respect for property rights and the rule of law which serves as the cornerstone for free trade to exist.

While the Economist article assails the issue of corporate social responsibility, the implied message is that poor countries have not sufficiently been exposed to competition for the anti-business environment reasons mostly out of the prevailing political or legal regime.

On the other hand, what needs to be understood is that profits are not necessarily “selfish”.

Since businesses are mostly established towards achieving long term relationships, profits have inherent social responsibility aspects such as maintaining or enhancing social relationships via charitable actions (donations and charities) or even addressing environmental concerns.

As Murray N. Rothbard wrote, (bold emphasis mine)

Whereas the opportunity for voluntary charity acts as a spur to production by the able, coerced charity acts as a drain and a burden upon production. In fact, in the long run, the greatest “charity” is precisely not what we know by that name, but rather simple, “selfish” capital investment and the search for technological innovations. Poverty has been tamed by the enterprise and the capital investment of our ancestors, most of which was undoubtedly done for “selfish” motives. This is a fundamental illustration of the truth enunciated by Adam Smith that we generally help others most in those very activities in which we help ourselves.

Hence, capitalism equates to mutually beneficial actions.