Corporate Social (Ir)responsibility

Here is a new study on corporate social responsibility that will feed cynicism about CSR in general:

Corporate Social Responsibility for Irresponsibility

by Matthew J. Kotchen and Jon Jungbien Moon

Abstract:

This paper provides an empirical investigation of the hypothesis that

companies engage in corporate social responsibility (CSR) in order to

offset corporate social irresponsibility (CSI). We find general

support for the causal relationship: when companies do more "harm,"

they also do more "good." The empirical analysis is based on an

extensive 15-year panel dataset that covers nearly 3,000 publicly

traded companies. In addition to the overall finding that more CSI

results in more CSR, we find evidence of heterogeneity among

industries, where the effect is stronger in industries where CSI

tends to be the subject of greater public scrutiny. We also

investigate the degree of substitutability between different

categories of CSR and CSI. Within the categories of community

relations, environment, and human rights--arguably among those

dimensions of social responsibility that are most salient--there is a

strong within-category relationship. In contrast, the

within-category relationship for corporate governance is weak, but

CSI related to corporate governance appears to increase CSR in most

other categories. Thus, when CSI concerns arise about corporate

governance, companies seemingly choose to offset with CSR in other

dimensions, rather than reform governance itself.

George Monsma and others on the debt ceiling

Our own George Monsma, and our neighbor economist Todd Steen have weight in on the controversy surrounding the debt ceiling. Both appear in Capital Commentary, published by the Center for Public Justice. Both provide well-reasoned arguments and good economic sense in the midst of an increasingly ugly national debate.

Here are some gems. First Todd explains the long term importance of the debate, without resorting to the end-of-world rhetoric that is too common:

As we examine the implications of public justice regarding the negotiations over the debt ceiling, we must be careful not to define justice solely with regards to the situation of our current generation. This mistake has led us to overemphasize current conditions at the expense of the future. We have come to believe that we can justify limitless borrowing to provide additional health care, defense spending, retirement provision, and lower tax rates. Running a budget deficit every year, however, whether the economy is growing or in recession, steals possibilities from those in the future, especially from the poor. Interest payments become an ever increasing part of future budgets, crowding out choices for future generations.

And here is George giving some basic principles to frame the debate:

Governments are called, where possible, to establish conditions in which other institutions in society can fulfill their God-given callings, and in which this can continue in the future. Families should be enabled to support themselves through their work and have access by other means to what is necessary to fulfill their callings in society when they cannot support themselves by work. Government should provide this now, as well as enable this to continue in the future, e.g., by giving families access to education needed for earning in the future, by preserving the environment and natural resources so that society can flourish in the future, and by not burdening those living in the future with debts in excess of what is passed down to them in assets from such a productive infrastructure.

Parallels between the right and the left

At the recommendation of multiple colleagues, I have been reading Craig Gay's (1991) With Liberty and Justice for Whom? The recent evangelical debate over capitalism. This book has been an excellent read. I will highlight a paragraph here that I found particularly entertaining, in which he is drawing parallels between conservative defenders of capitalism and those on the left who view capitalism as oppression (pp. 114-115):

Both left and right address essentially the same American evangelical audience. Both insist that a correct understanding of the present situation requires a certain amount of abstraction. They differ only concerning which elements of our experience it is safe to ignore - about whether what we are really seeing is the invisible hand of market coordination of that of capitalist oppression. Both left and right tend to understand the present situation as one of crisis, but they disagree as to whether capitalism or stateism precipitatetd the crisis. Both fear the concentration of power in modern society, but they differ as to whether this concentration is most acute among the business elite or the bureaucratic political elite. Both left and right insist that the true social relevance of the Christian faith is only now being rediscovered after having been lost, but the differ on whether its relevance is anticapitalist or not. Both feel that american evangelicalism is moving in the wrong direction at present, but they disagree on the matter of which is actually the wrong direction. Both argue that their opponents are either ideologically blind or evil or both. At their extremes, both left and right insist that salvation is essentially economic, but they differ on whether the kingdom will be populated by social workers or entrepreneurs. Both fear that the faithful exercise of Christianity's social relevance will elicit persecution from a powerful anti-Christian cultural elite, but they disagree about who constitutes this elite. Finally, both left and right fail to appreciate fully the character of modern capitalism. The left fails to appreciate the remarkable ability of capitalism to create wealth and hence to alleviate material poverty, and the right fails to appreciate the ability of capitalism to dissolve the traditional culture and hence to exacerbate spiritual poverty.

"Punishing the wealthy"

In a column published in yesterday's Grand Rapids Press, Cal Thomas repeated some misconceptions about taxes and tax policy that seem to be fairly commonly held. I think they deserve specific refutation.

1) Taxes are not punishment. Taxation is a constitutional means we use to decide how we are going to pay for the expenses of government, expenses that are our common obligation as a community.

2) The time-honored principles of ability to pay and reimbursement for benefits received govern most of our taxation decisions. Those with high incomes have the ability to pay, since their discretionary incomes are disproportionally higher. They also benefit greatly from the programs of the government: transportation infrastructure, international relations, criminal justice, higher education, basic scientific research, food safety, financial regulation, and so on. Furthermore, the incomes of the top 40 percent or so of the population have grown greatly over the last 30 years, while incomes of the rest of the population have stagnated.

3) There are growing doubts about whether in our society wealth is indeed "a sign of achievement." Pay for top executives and talented entertainers seems increasingly out of proportion to the amount and quality of their work, or the beneficial impact they have on society. Pay for people in the business community seems less and less related to their actual achievements, as leaders of failing businesses are rewarded handsomely. Business leaders seem to have a lot of control over their own pay, while they increasingly fight to have unilateral control over the pay of their employees. Many also have advocated repeal of the estate tax, a move which would further weaken the link between achievement and wealth.

4) While in some cases wealth is "a reward for risks taken," this sort of income has traditionally been viewed with suspicion by the Western religious and philosophical tradition, while income from work has been honored. For instance, the Bible forbids interest on loans (e.g. Lev. 25: 36-7), but requires the prompt payment of wages (e.g. Deut. 19:13). This suggests at the very least that income from investments should not be given the preferential treatment it is given under our current tax laws.

5) Nobody's motives are completely unmixed, so envy may play some role here. It is only fair to point out that on the other side, greed may be a factor as well. But impugning the motives of others is not a way to move the discussion forward.

I think it would be a great step forward in the ongoing deficit-reduction talks to agree that the Bush tax cuts should be allowed to expire, as they are scheduled to do under the current law. Remember, the law was written this way because at the time everyone recognized that the cuts would eventually contribute to the deficit problem. The tax structure of the 1990's coincided with vigorous economic growth and four years of budget surpluses. We could do a lot worse.

More on unemployment

Both All Things Considered (NPR) and Nightly Business Report (PBS) on Tuesday were selling this idea of structural unemployment, with the Business Report suggesting that we should get used to a "new normal" of seven percent unemployment. So the campaign continues.

I think there are two sources of this push to normalize excessive unemployment rates:

1) The business community likes the idea of government taking over more of the funding of worker training programs. It saves them money, straightforwardly. It also means they don't have to worry as much about turnover. They don't have to put in place expensive programs to promote worker retention and loyalty. (By the way, David Leonhardt's column in today's Times suggests that business opposed a payroll tax holiday because they want to get the money without having to hire more people.)

2) Politicians of both parties have reached the conclusion that there is no popular support for additional fiscal stimulus, so they are making the best of a bad situation. Convincing people that nothing can be done about unemployment removes any responsibility they might bear for not doing everything they can, particularly the thing that might be effective.

This is the opposite of leadership, of course. Rather, it is rank opportunism. A few lonely voices in the media are making the case, notably Paul Krugman, but it's a long wait for the politicians or business leaders to take it up. The language itself has been poisoned by all the talk of "failed stimulus," as if that had anything to do with the truth.

Current unemployment

The President (in his NBC interview today), his Jobs and Competitiveness Council (in yesterday's Wall Street Journal), and the media generally seem fixated on the idea that the current unemployment is structural rather than cyclical. The President cites automation, and gives ATMs as his example. The Council talks about a lack of workers with "advanced manufacturing skills", whatever they are. Others have cited offshoring as part of the problem.

Surely this is not the case. ATMs have been around for at least 20 years. (The President's use of this example recalls Pres. Bush Senior's amazement at supermarket scanners, a good 10 years after the rest of us were used to them.) Advanced manufacturing skills have always been needed by industry, and industry has provided the training when it was profitable to do so. People have been complaining about offshoring and competitiveness since the 1980s at least. None of this accounts for the huge increase in unemployment since 2007, or its stubborn refusal to improve.

This unemployment is cyclical. We have (by the Council's count) two million unemployed construction workers who are victims of the housing collapse. This won't change until all the foreclosed, underwater, and short-sale properties are cleared from the market. The financial industry doesn't want to put in the work necessary to restructure mortgages, stage foreclosed properties, and approve short sales. They need to change their attitude. State and local governments are laying off large numbers of teachers, police officers, firefighters, park rangers, and others, and that won't change without more federal stimulus money or a general recovery. Retail stores and restaurants are closing every day, and those workers are stuck too. Measured productivity increases in manufacturing, retailing, health care and elsewhere are often the result of overworking a limited number of employees. This is not a sustainable strategy, and needs to change. Training workers in job-specific skills is a business responsibility, not government.

The Council's recommendations have some merit, but they will not make a big difference in the basic numbers. Speeding up construction permits and tourist visas doesn't buy you much demand. Overall decline in unemployment requires additional fiscal stimulus, in the form of federal aid to local governments and spending on infrastructure and public works. Too bad our politicians don't get it.

Positive versus normative

The Economix blog at the NY Times carried a post on May 10 by Edward Glaeser, an economics professor at Harvard. Glaeser discusses the positive/normative distinction in economics, which he views as valuable. He never comes out and says that positive economics is value-free, which is a thoroughly discredited position, after all. But he does say that positive economics "attempts to understand the world as it is; normative economics describes how the world should be."

But then he gives away the game by pointing to the normative assumptions at the basis of his so-called positive analysis: a high value placed on individual freedom as opposed to human community, a dim view of the democratic political process, a bias in favor of formal mathematical models, and heavy reliance on statistical evidence. Change these assumptions and you get an alternative approach to positive economic analysis that often produces much more interesting insights, and very different policy conclusions.

Glaeser seems to think his assumptions are obviously true, and should be accepted by everyone. In fact, they are the product of a particular worldview that is not universally accepted, nor should it be. I for one believe in the importance of community, democracy, informal or heuristic reasoning, and the validity of all kinds of evidence in social science, including both statistics and historical narrative. And yes, I therefore hold different normative positions from Prof. Glaeser on a lot of issues.