The Business of America
Clark, Lindley H. Jr.
Lessons in Free Enterprise (II) What follows is the second of four columns by the economic news editor of the Wall Street Journal on the practice of business in America. In recent years "the...
...It's partly a matter of competence...
...Fair-trade laws, now thankfully on the decline, work in the same direction...
...And customers may object, since an inferior work force is likely to produce inferior products and service...
...Soon a paternalistic government is likely to step in and ration out the available supply...
...Even if all business would adopt adequate regulation, it still would mean that private bodies were imposing public taxes...
...Hiring handicapped workers often can be very good business, since such workers frequently are not only highly qualified but highly motivated to make good on a job--and keep it...
...What many businessmen, as well as many members of the general public, seem not to recognize is that by embracing social responsibility in general they also are not serving the interests of a free society...
...If he doubts that, he should examine the performance record of the trained professionals who have devised and operated the multiplicity of social programs set up by federal and state governments in recent years...
...None of this should be read as an argument that business, if it concentrates on profits, will automatically serve the public interest to perfection...
...A few carefully selected gifts to charity may improve a corporation's image and win it friends among potential customers and stockholders...
...In these times when corporations generally have been having their troubles with their public image, a certain amount of this sort of advertising can be justified on a purely profit-seeking basis...
...In The Wealth of Nations he wrote: "I have never known much good done by those who affected to trade for the public good...
...In the first place, most intelligent businessmen know they are not to blame for inflation...
...There are limits to this business willingness to cast aside crass commercialism, however...
...Imperfect in design and execution, these laws need to be improved...
...Let us say, for instance, that a "socially responsible" businessman elects to hire only members of a minority group, whether they are qualified or not, instead of hiring qualified workers, regardless of race, creed, or color...
...The record has been sorry enough...
...Well, the owners of the business may object...
...They may even give the employees time off for such projects...
...The best known of these are probably the antitrust laws...
...Not so incidentally, labor unions are subject to the same restraint...
...In recent years many corporations have been subject to strong pressure from the public or from minority stockholders to support numerous public causes...
...If the public's representatives decide that pollution of the air and water must be combatted, they can and do pass laws that force businessmen to join in the fight...
...More than that: The project is likely to waste resources of capital, machinery, and management...
...He also saw the foolishness of the "social responsibility of business...
...In recent years "the social responsibility of business" has been a major cause urged by intellectuals and accepted, with charming naivet6, by hundreds of businessmen who ought to know better...
...If they possess monopoly power, government is to blame for inadequate enforcement of the antitrust laws...
...Yet there will be no democratic pressures to dissuade the businessman from his unwitting venture into socialism...
...No matter how well-intentioned the businessman may be, he's likely to be much more adept at running an assembly line than he is at planning and administering a social program...
...As supply rises, price will tend to fall...
...Business exists not solely to make a profit, intone many corporate presidents, but to serve the public good...
...In the inflation of the late 1960s and early 1970s, no businessman we've noticed has come forth to forswear forever all price increases, despite the fact that the public good surely would be served by stable prices...
...When corporations cave in under such pressure, they once again are levying a tax on their stockholders for a purpose that the stockholders, or at least the bulk of them, have not approved...
...No one is saying that the minority group should not be helped...
...does he think that he, an amateur, can do better...
...There are of course many legitimate reasons for corporations to do what superficially may appear to be only "good deeds...
...If the public does not like the programs or the taxes, it can throw out the representatives and get new ones...
...If a commodity is in short supply, a price increase encourages more production, both by present producers and often by new ones...
...The cases of corporate directors using the stockholders' money to support their favorite charities are far from rare...
...It is an affectation...
...Restrictions on imports surely work against competition and against the public interest...
...It's surely worth mentioning that an efficient, profit-seeking business establishment is the chief source of the tax revenues that support public social programs, good and bad...
...Both owners and customers are in effect being taxed by the businessman, who has actually elected himself as a sort of government official, to finance and administer his self-designed project to improve the public welfare...
...Government can help to make business more responsible by making it more competitive...
...If the product is something the public wants or needs, it soon finds it cannot buy as many as it needs or wants...
...More broadly, many businessmen presumably recognize that swearing off price increases serves neither the interest of their enterprise nor the true public good...
...If, on the other hand, the price is held down, the result is to discourage production...
...Adam Smith, that early advocate of free enterprise, recognized the need for rules...
...Pollution regulations are a tax imposed on business and, through higher prices, the general public...
...If a businessman produces the best products he can and provides the best possible service, he will serve his interests, the interests of the owners of the business, and the interests of the general public...
...If they push through excessive wage increases, they will only price some of their members out of the labor market--unless gowrnment validates the increases by inflating the economy...
...No one questions that the minority in the past has been subject to serious discrimination, so how can anyone object to the businessman doing his part to right past wrongs...
...But in a free society the aid should stem from a conscious decision of the body politic, not from the random whims of businessmen...
...It either pays the taxes itself or its employees pay them on the incomes that the businesses generate...
...The fact that these laws do not always result from a careful weighing of costs and benefits is surely no argument that businessmen should willy-nilly take on the fight themselves...
...The public's elected representatives have the power to devise programs and to levy taxes to finance them...
...If they possess no such power, competition will roll back any over-large price increases-unless the government is floating the whole economy upward by printing too much money...
...There must be rules...
...The do-good project is likely to cut sharply into company earnings and dividends...
...The primary responsibility of business still has to be business...
...They are in fact adopting a peculiar form of socialism...
...Unfortunately, it is all too easy for a company to slip over the line that divides profit-seeking from halo-seeking...
...If the company is honest about it--and many firms are not--it will admit that the overriding aim is to enhance the position of the corporation in the community where it operates...
...4 The Alternative December 1973...
...But government can and must see to it that businessmen don't combine among themselves against the public...
...The corporations once again are weakening their chances to survive and to continue to render efficient service to the public...
...Many corporations will encourage their executives and employees to take part in social-interest projects in the communities where the companies operate...
Vol. 7 • December 1973 • No. 3
