TheMarketForIdeas

“Profit to the People!”. But not by taking from (i.e., taxing) Peter in order to give to (i.e., to spend on) Paul (or putting it more bluntly, “robbing Peter to pay Paul”), but by letting Peter being Paul’s partner, employer or employee, supplier or customer and, if there is no other way out, benevolent benefactor in times of hardship. The American economics-&-business way of thinking mirrors the second part of the phrase. Except for the periods when the Democrats take over the power from the Republicans at the White House and/or the Capitol. At the National Museum of American History, there is an 8,000-square-foot space covering the role of business and innovation in building America as we know it today in the last 300 years. Called “American Enterprise”, it hosts, besides exhibits amongst the most prominent practical offshoots of the US-borne ingenuity and inventiveness, some billboards covered with condensed tribulations reflecting the competing narratives grouped under the heading “Debating Enterprise”. This reminded me of an article published two years ago, entitled “«Mens Sana in Sound Corporations»: A Principled Reconciliation between Profitability and Responsibility, with a Focus on Environmental Issues” (authors: Octavian-Dragomir Jora, Matei-Alexandru Apăvăloaei, Vlad I. Roșca, and Mihaela Iacob), where we argued that corporate social responsibility (CSR) and the creation and running of for-profit organizations are not two distinct objectives that are at odds with one another, but complementary, even co-generative ones. Briefly put (for the detailed expose see the article here), we found (at least) three lines of defense in the attempt to rediscover (not to “re-invent”!) the common-sense (“wheel”) that moves forward a basic truth: “the generous have to be let to generate (wealth)”. 

Debating enterprise in the American society until present days  

Relation #1: Strategic use of CSR transforms socially responsible behavior into a means for higher future profit.

This first characteristic, whose implications we must draw out, is also the most intuitive. Strategic CSR is about companies engaging in CSR practices only to add to their bottom line. That means that they spend more now (or invest, we may say) in actions that touch the hearts (and the pockets!) of their present and potential customers, in order to ripe profits, larger profits, later on. Some critics might even deem such an approach as cynical, since it views CSR as nothing but another way of making a profit, thus rendering it a mere marketing ploy, not a disinterested preoccupation on the part of the company’s owners and management for the welfare of third parties. But the intentions of the entrepreneurs and managers have no bearing on the final outcome, as long as they have to take into consideration the values of consumers in order to prosper. We concede to the critics of strategic CSR that it is a morally debatable outcome, as long as those reaping the profit had other intentions at heart than the “pure” welfare of other members of society. Howbeit, this is informative with regard to the functionality of the profit-seeking institutional establishment. The “profit and loss” system requires business decision-makers to take into account the compatibility of the corporate entity they own/manage with the values held by its customers. The workability of this system becomes evident precisely because entrepreneurs do not have to be altruistic so that CSR objectives can be pursued. Strategic CSR tells us that markets discipline entrepreneurs and incentivize them to pay attention to both the economically and morally proper results. Therefore, precisely for the profit motive, CSR practices would be pursued even by those that are not morally inclined to adhere to philanthropy. Charity is a fortunate by-product of greed. 

Relation #2: Even the sacrifice of financial profit, in favor of CSR targets, still delivers psychological dividends

The main drawback of the strategic CSR argument is that it allows for CSR objectives to be pursued only as long as consumers put a value on such practices. Nevertheless, what if consumers do not care for anything but paying the lowest possible price for the goods/services they purchase? Is CSR, in this case, a pure waste for the corporate owners, which once acknowledged would curb such useless (if not financially dangerous) philanthropism? However, the plea for the compatibility between the profit-motive and CSR can be further strengthened, even in such a case, by taking a closer look to the very notion of profit. This economic concept should not be viewed exclusively as a purely monetary expression, but also, in a broader sense, as a psychological state of satisfaction. Besides the very fact that profits and the price system already incorporate a social dimension, regardless of the (selfish or selfless) motives that drive entrepreneurs (as Mises and Hayek emphasized in their calculation/information arguments in favor of capitalism and against socialism), there is another way of marking profit. There are entrepreneurs (or, technically, corporate managers, mandated by shareholders’ social ethos) that “sacrifice” present profit not because they cunningly want to see it increased later on, “strategically”, but because they add to their intimate psychological revenue. Despite CSR adding to costs, from a financial accounting perspective, it is worth the sacrifice. Psychic profit is a valid motive, being (in a sense) more than the narrow concept of monetary profit. It makes them “feel good” and this gives them a sense of meaning that stimulates them to keep on doing business, responding critically and creatively to the needs of the consumers, and, eventually, acquire even more profits, why not? 

Relation #3: The point is to sustainably consolidate profit-making for the sustainability of CSR endeavors, too

Monetary profit may not be the ultimate end in the life of an entrepreneur. It is only a basic requirement that allows higher goals to be pursued. Although squeezing the highest possible profit is not necessary, aiming for some profit, while also considering moral objectives, is needed if one wants to sustain the undertakings he gets engaged in. Except for morally biased characters who view business life as some chain of “big shots” or proclaim “after me, the flood”, sound business persons do not plan for some sudden “stopping-point” of their affairs. They design them to “keep walking” beyond the horizon of their own life, since their businesses are to be bequeathed or shares of them (stocks) are successively sold for profit (if not for other higher reasons). Thus, they devise “ecosystems” that inherently aim for “sustainability”, even if not mentioning it textually. In order to prevail, they rather need as balanced as possible “economic relations” among both internal and external stakeholders – i.e., with respect to the prevention of the immediate environmental hazards, as well as the prolongation of the disposition of critical natural resources. In a free market institutional framework, based on voluntarily assumed moral values and material valuations, contrary to popular belief, social information (and money prices calculation) and incentives (as efforts-results link) can better deliver sustainability objectives than public policies. Regulations, taxation and spending, monetary loosening and tightening, all distort time-preference schedules of economic agents because they represent, despite their “legal” and “democratic” character, unconsented redistributionist measures, growing the level of social uncertainty. Ironically, the main enemy of sustainability is the public confiscation of private responsibility. 

Corporate profit-making, with socially responsible ingredients 

(August 22, 2022 – Washington, D.C.) 

Photo source: author’s snapshot at the National Museum of American History, Washington, D.C.

Note:

CAPITOL LETTERS is a series of articles occasioned by the author’s presence in Washington, D.C. as Romanian Cultural Institute Fellow, studying industrial revolutions’ imprint on the cultural sector.
The opinions hereby expressed by the author remain his exclusive responsibility and do not engage, in any manner or measure, the organizations to which he is affiliated or with which he collaborates.