Milton Friedman's Initial Article from the NYTimes
Becker's Post
Posner's Post
Posner's Response
The above are just a few links on what those much smarter than me think about the subject. A note: all of them are generally conservative and most take a very practical efficiency-theory approach to the subject (at least those linked to, others who hold similar opinions hold them for other reasons, but the efficiency-theory is, in my experience, the most logical reason for the opinion these folks hold). All of them conclude that it is not appropriate for corporations to intentionally engage in un-profitable charitable activity (is it possible for charitable activity to be profitable? I guess that's kind of the point of this post though, eh?).
Anyway. I don't know what the answer is. But I think those who espouse what is generally labeled "corporate social responsibility" have a personal belief that charitable activity (beyond mere donation) is a generally good thing. Handing money over to a charity is fine, but personally, I think it's a waste of money. Even the best charities use over half of the donation for purposes other than funding the activity of the charitable organization (paying salaries, etc.) I believe that donation of time (or tangible things more useful than money, like computers) is much more useful. Having that as a background, now on to the discussion.
If I donate my time to a charity, my firm doesn't really see any benefit out of that directly. And, to the extent I do anything for the charity during work hours, it takes away from the profitability of my firm. However, if I work for the charity long enough, or put in good enough work, or have some interesting, or particularly novel idea there may be a position on the board of directors for the charity. This ultimately is a useful networking opportunity with all of the attendant benefits that are typically associated with networking. Moreover, to the extent that my services for the organization are concomitant with the activities of my firm (or corporation), my work acts as an advertisement for the company - showing others that my firm is good at x service that I am providing. To the extent that this gets advertised (I use the word "advertised" in a very loose sense, beyond the strict "newspaper"-type advertising) me and/or my firm/company see benefits. So, for this reason alone, it would be incumbent on corporations to encourage their workers to perform charitable activity outside of the workplace and in their free time - it's free advertising.
As for proper corporate donation, I think it can be useful. Look, for instance, at the Bill and Melinda Gates Foundation (okay, not donations by Microsoft proper, but close enough). Most of the donations from the foundation to charitable organizations are not just money, but also computers. This provides enormous benefit to the organizations that they are given to (especially the children's organizations who can never get enough computers). It has the side-benefit that all of the computers are loaded with Microsoft Windows and other Microsoft products. The users get accustomed to using the Microsoft (and have the goodwill of having been a beneficiary of the charitable donation) and they buy and use Microsoft products at home and tell their friends and family how great Microsoft is. In this respect, there is direct and indirect benefit to the charitable giving.
I'll concede that straight charitable cash donation is generally a money-losing investment (especially if you give it to United Way). However, there are many ways to make charitable donations, such as giving of time and services and tangible goods, that are can be profitable, or at least not as much of a sink.
The reason I wrote this post is because most firms like mine "strongly encourage" community participation and charitable work because of the massive goodwill and attendant network opportunities presented by that activity. In light of the strong disfavor by those whom I typically regard as extraordinarily intelligent and well-reasoned folks, I felt that I needed some sort of justification for this demand by my firm. This is what I've come up with.
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2 comments:
You make a good case for the value of charitable giving, one that points to some of the difficulties in measuring the cost/benefit of action in terms of shareholder value.
I want to comment on what I see as a key weakness in the efficiency-theory that you are trying to accommodate. While benefit is always measured (I assume) in terms of shareholder value, two key features of cost are glossed over by reference to "net cost." The first is the nature of the cost, and the second is its diffusion.
With regard to the first feature, the nature of the cost, the cost may be such that, though compensation may be determinable by legal or market action, some costs are not interchangeable with monetary value (the sole measure of benefit). For instance, to take a real case, for an automaker to determine that, given a flaw that can lead to severe injury or death, it is cheaper to compensate victims than to perform a recall and so choose not to perform a recall is indefensible. This is because certain kinds of cost (loss of life, loss of limb, etc.) are not commensurable with any amount shareholder value. The use of "net cost" glosses over this fact.
Second, it is important to consider how diffused the cost is. Given an action that will lead to a net gain in shareholder value, if no one party has too much of a burden with regard to the cost, then great, but if the cost falls heavily on one party (an individual, a community, a local ecosystem, etc.), then the action may be indefensible from practical considerations of justice, though perfectly fine from the point of view of net cost. My concern here is that the party that bears the brunt of the cost may well not see any of the benefit. This kind of consideration is again glossed over by the rubric of net cost. For instance, consider the decision to move a factory overseas. Let us say that the costs of closing down and rebuilding overseas will be more than made up for over time by the cheaper labor available in the new location. This talk of "net cost" completely leaves out the fact the costs are going to be borne disproportionately by a single community (in which the old factory resided). While this consideration may not mean that the move shouldn't happen, I think that simple justice would require that some effort is made to soften the blow to the local community. Though this may happen in practice (or not), I don't think that it is captured by the efficiency-theory (except perhaps in some second- or third- hand way), and so, given the above two concerns, the efficiency-theory is fatally flawed.
I finally just want to point out that a theory that makes it hugely difficult for us to justify acting in ways that we know we ought to, without adding great complexity to it (like adding epicycles to pre-Copernican theories of planetary movement), probably just isn't a good theory. I think the reasoning in your post is good, but it is a failure of efficiency-theory that forces your reasoning to be so convoluted.
I think in terms of the "net cost" rubric, the two issues you've raised, obviously present the largest hurdles. First, how to justify net cost benefit in the face of a clearly "unjust" result, and second, how to justify net cost benefit where the costs are borne by a single party, not the decision-maker.
I think the efficiency-theory answer to the first issue is "market inefficiency" - in a perfectly efficient market we wouldn't care that the result of our decision may be a cash-for-life trade because the 'numbers' show that person's life to be worth $X, and therefore it is a measurable cost. The fact that society places a "priceless" cost on life is a market inefficiency that efficiency-theorists often gloss over because it rarely makes a difference in terms of "strategy" and instead plays itself out in "tactics."
The second issue is more problematic because it factors in to both strategy and tactics. The general answer is that it doesn't matter, in terms of where to re-locate, to use your example, because the cost-benefit analysis shows the foreign jurisdiction to be the more efficient production location. period. If the displaced workers want new jobs, they can move to where the new jobs are. Of course, real-life doesn't work like that; it can be difficult to pick up and move an entire family just on the hope of finding a job somewhere else (nor, would I argue, is it desirable because it would lead to overcrowding and high density in low-rent low-cost housing because the fact of the matter is, the manufacturing facilities get moved long before the headquarters moves - and it is often easier, as in relatively less expensive, for the white-collar folks to move than the factory workers because of the high cost of moving).
Anyway, the result is, as you've pointed out, that the lower-middle-class communities are hit the hardest and they rarely have input on the decision and are least able to bear the costs. What needs to happen is to exand the cost analysis of the location decision to incorporate the cost to subsidize transition costs or unemployment/re-education benefits. I think this is starting to be done more frequently as more and more first-tier manufacturers are generally incorporating general education as part of their training and the relative cost to provide that training for a time after the move is now lower than it may have been in the past.
I guess my justifications are the exorcisms a purely internal argument that I've had within myself. At heart I'm an efficiency theorist. But, I can also see the need for charity, particularly as it relates to action, over monetary giving.
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