Battlepanda: Becker: brilliant economist -- weird ideas


Always trying to figure things out with the minimum of bullshit and the maximum of belligerence.

Friday, October 14, 2005

Becker: brilliant economist -- weird ideas

Do Corporations Have a Social Responsibility Beyond Stockholder Value? Economist Gary Becker argued 'no' on his blog a while ago. At the time I read it I found his argument rather cold and unsatisfactory. The gist of it is: deviating from the most profitable mode of operation, no matter how socially negative, is only acceptable if the customer goodwill thus generated makes it the most profitable mode of operation. Thus, Becker approves of Ben and Jerry's charitable givings because it burnishes the company's crunchy granola image to profitable ends, but he would not approve the raising of wages for sweatshop laborers above the market wage if it does not provide value for the stockholders.

It is true that if you have a number otherwise identical companies in perfect competition, it is moot to exhort individual companies to raise their moral standards. The companies who behave in an altruistic manner would swiftly be driven out of business as long as there is even one unscrupulous company. This is exactly why as consumers, we should not stop at exhorting companies to be good but to reward or punish them appropriately by applying or withholding our purchasing power. Our approval or disapproval (or Becker's, for that matter) of a company's practices is nugatory without being backed by exercising either our purchasing power (or more indirectly, through the legislations we push through with our voting power). Becker ends by saying "I am bothered only when managers, founders, or others in control of corporations that behave in a "socially responsible" manner try to pass the cost of behaving in this way on to others rather than bearing the costs themselves." Let's see...environmental degradation and child labor did not bother him. But altruistic behavior that does not fatten the bottom line does. "

Even stranger is Becker's views on crime, as quoted by John Kay's very absorbing "The truth about Markets". I would write more on the book itself, but I am afraid that this blog is fast becoming "Angelica's periodic book review depository". Anyhow here's Becker in his Nobel lecture, as quoted by Kay(186):
In the early stages of my work on crime, I was puzzled by why theft is socially
harmful, since it appears merely to redistribute resources, usually from richer
to poorer individuals. I resolved the puzzle by pointing out that criminals
spend on weapons and on the value of their time in planning and carrying out
their crimes and that such spending is socially unproductive.

Yes...that must be why theft is frown upon...because it wastes the thief's precious time and gun-money. Implausability is not the word.