The Business of America

...Even if one company tried to ignore a highly publicized issue for long, the "socially responsible" responses of other companies almost inevitably became mandated by law for everyone...

...And it is also not too difficult to surmise how much of this situation came to be...

...There are good economists and excellent textbooks available for accomplishing this purpose, and many public relations officials would come out of such a course pleased with their new knowledge of what the capitalist system is all about...

...It should be emphasized that the real test is not of the various public affairs officers' knowledge of economics, but of their ability to impart persuasive answers in public to the critics' charges...

...the relationship between profits, investment, and productivity...

...Consider, for instance, these profundities published in recent months in influential discussions of the topic: "Public opinion is the final humanpower in the free world...

...6.) Show that specialized pricing schemes, like tie-ins, price discrimination, or price leadership may be strong evidence of competitive, not monopolistic markets...

...It had previous incarnations in the Jacksonian and populist eras, among the progressives and the New Dealers, and it even had a specialized, arts-and-culture flurry shortly after World War II, before the subsequent shift to primary concerns with race, environment, and safety...

...The bloated arrogance of many CSR activists could have been almost as easily deflated...

...5.) Explain the relationship between competition and advertising, and beThe Alternative: An American Spectator December 1975 27 tween advertising and free speech...

...While it may be true that none of this could have happened without widespread public ignorance, it seems useless to harangue about that in terms of CSR...

...It is a two-party, zero-gum game, and the only real issue is who will manage the corporation's assets...

...Thus the incidence of CSR expenditures must ultimately fall upon shareholders, laborers, consumers, managers, or other suppliers of goods and services...

...3.) Explain why most problems of pollution, overutilization of resources, and congestion represent failures of governmental policy, and not so-called "market failures...

...Yet a former senior vice-president of a large New York bank (now, almost predictably, a professor) wrote as recently as this year, in the March-April issue of the Harvard Business Review, that, "To avoid enforced regulations, business will have to start making more voluntary changes before issues become inflammatory...

...Much more disturbing, however, is that this particular strategy strengthens theanti-market belief that large corporations are fundamentally political entities that should be "democratized" by having "representative" boards...

...And if chief executives begin to appreciate more fully the remarkable powers of human freedom as expressed in the marketplace, other officials in the corporate pantheon would more quickly begin explaining to the public what the real function of corporate enterprise is...

...After all, it is not the job of corporate officials to publicize anti-business arguments just because they are easier to locate than their opposites...

...No amount of actor training of executives by the J. Walter Thompson Company can ever cure the problem that comes from not knowing the correct answer to the fallacious or venal statements being offered to the masses every day about the free-enterprise system...

...Thus, greater industrial concentration, which has often served as the basis for the CSR arguments of Ralph Nader and other business-baiters, may be instead a necessary consequence of their prescription...

...That is, there is no longer a difference between what is private and what is public, so far as corporations are concerned...

...People are not listening, and they won't listen until we get on their wave length...

...For one thing—and this is sufficient to make the point—no CSR proponent or activist has ever analyzed the ultimate incidence of the costs and benefits of corporate altruism to see who was gaining and who was losing by it...

...Public relations officials undoubtedly discovered that their own professional interests were least jeopardized by proclaiming the doctrine of corporate social responsibilityand, for that matter, accepting the critics' standards of what constituted correct behavior...

...And, it might be noted, no company which was the first to bear these costs was likely to discourage this "equalizing" government intervention...

...Still, the fact that the standard response by the American business community to CSR attacks has been largely determined from a public relations view of the matter is not difficult to understand...

...Note and explain the differences in behavior between top executives in private corporations, rate-regulated companies, nonprofit organizations, and government agencies...

...Some of these positions are controverted to be sure, but the pro-freemarket answers are powerful and persuasive...

...The public relations official's job should always be to find and publicize answers that help the company and the free-market system—and nothing else...

...And even if that were not a significant inhibitor, the presence of the Antitrust Division could always be felt lurking in the background when collective action was considered...

...It is businessmen's ignorance of economic realities that may be far more significant, for their ignorance of the economics of market forces means that some of the most important and potentially influential people in the country count simply as intellectual ciphers in the world of ideas where political action is bred...

...2.) Explain the relationship between monopoly, inflations, and wage and price controls...

...the argument that big business runs the country and buys off politicians while the little men and women (like schoolteachers and union members perhaps...

...A system of voluntary payments for national defense is most commonl) 26 The Alternative: An American Spectator December 197.1 cited to illustrate the free-rider problem, and, come to think of it, it does not provide a bad analogy to the CSR case...

...Here then is one suggested set of examination topics: 1.) Explain the concept of mutual benefit from voluntary exchange and relate it to the theory of economic growth ("profit" is not a four-letter word...

...To vary the test occasionally, some other nice issues can be discussed, such as the charge of maldistribution of wealth in American society...

...are underrepresented in Washington...

...The executives themselves should, of course, be aware that there exist strong, respectable, and convincing free-market positions on each of these issues even if he cannot articulate them himself...

...This too seems odd, because the CSR ideas, was originally invented and has been most widely proclaimed within the business community by some of the leading practitioners of the public relations arts...

...Why not...

...28 The Alternative: An American Spectator December 1975...

...It has been overwhelmingly clear for years now to anyone watching that every effort to quiet the critics by concessions has only encouraged them on to greater efforts...

...Notable among the special characteristics of the the public relations approach to CSR is the large number of platitudes used to discuss the topic, even by some of the most respected figures in the public relations field...

...These appointments occurring in the last few years tell us much more about the public relations style of thinking than they do about what will best generate social fairness for all individuals, or what criteria should be and have been used in selecting corporate directors...

...As the economic and political ruffians mounted a surprisingly successful campaign (aided greatly by uninformed media reporting and a strongly biased intellectual community), top executives turned most frequently to the only corporate aides who seemed capable of proffering any kind of strategic solution, their public affairs specialists...

...7.) Explain the relationship between production costs and short-run prices (a little hint: there is none...

...Another notion that too few businessmen seem to have grasped is the logical impossibility of a concept of corporate social responsibility...

...a positive correlation between high concentration ratios and monopoly profits...

...and there can be no meaningfnl partnership...

...When it comes to social responsibilities, we can only talk about real costs and who pays them...

...There is no middle ground between these two worlds...

...Officials, particularly those responsible for corporate public relations, who cannot convincingly articulate arguments onthese issues need a rigorous course in what the American free-enterprise system is really about...

...the many and varied studies showing the undesirable effects of specific kinds of government regulation...

...How in good conscience anyone, much less an experienced businessman, could publicly offer such counsel in April 1975 is a mystery...

...Perhaps the oddest thing about all these movements has been their total lack of any coherent intellectual justification, whether economic or moral...

...4.) Explain why most welfare programs and all consumer safety requirements have perverse wealth effects on the least affluent members of society...

...For this purpose, they should seek out convinced, vigorous exponents of freedom in the marketplace and not halfhearted apologists seeking social or academic acceptability or the detached technicians who have not addressed themselves carefully to these issues at all...

...The strategy of listening to business critics in order to foreclose even stricter federal legislation on the subject is rather like a bicyclist pedaling ever faster to avoid a dog that believes it is succeeding in frightening the intruder away...

...8.) Deal with the following popular economic misconceptions: administered pricing...

...the inherent economic problems of governmental allocation of resources...

...This scenario is not without its economic ironies as well...

...And that presents a real issue of conscience—not a phony issue of a corporation's conscience, but a real one of how intellectually honest an individual should be with himself and his fellow citizens...

...By correcting its errors now, the argument goes, the corporation can stave off more onerous and burdensome government regulation later on...

...and, that favorite of the late 1940s but still alive today, "The times call for business statesmanship...

...The counsel they received was consistent with both the intellectual background nd the traditional techniques employed by these functionaries...

...With only the rarest exceptions can any of these executives explain to their critics, to the public, or to a college classroom most of the economic concepts vital to a well-reasoned defense of a free-market, corporate system...

...And yet, many corporate officials, sounding themselves oddly like Ralph Nader, cherish the myth of a collective, substantive existence for corporations, as though the companies themselves could bear costs without passing them along to real live human beings...

...Public relations officials who cannot explain the correct free-market-oriented answers to at least fifty percent of these issues to relevant audiences are probably doing more harm than good to their corporations and to the free-enterprise system...

...The answers should not be credited for their "balance" nor for their clear statement of any prevailing anti-corporate views on these issues...

...But, as most cyclists know, a sudden stop will usually send the bumptious canine running off to watch from a distance...

...Ironically, the typical public relations response to the CSR attack was guaranteed to cause business to lose the fight to which it was an unwitting party...

...For additional reasons, too, industrywide collective action had little personal appeal to those in charge of formulating each company's policies...

...These economic costs can only be borne by individuals, not by corporations...

...And they can be communicated convincingly if they are understood...

...Another characteristic of the public relations approach to accusations of corporate irresponsibility is the misguided, but often widely publicized confession of guilt—or, I should say, confession of the corporation's guilt, which is, after all, a little easier to live with than one's own...

...As we shall see, this strategy could only be expected to make matters worse...

...Perhaps it is late in the game to be making some of these observations, though they will undoubtedly create a shock of recognition in the minds of some businessmen for the first time...

...This leads in turn to advocacy of one of the most glaringly unsuccessful business strategies of all times, the notion that the corporation should follow the advice of its "concerned" critics...

...No one else was offering a substitute...

...This in turn, for reasons we have already seen, generates government interest in the field, and then the corporate official who might previously have languished far down the hall with the title of "Director of Public Relations" on his door often found himself "Vice-President for Public Affairs," hobnobbing with the power brokers of Washington, and acting like the important citizen we all secretly wish to be...

...But it is important too that the top executives themselves master this learning, since otherwise they will not know how to encourage or evaluate their public affairs officers...

...The result was that every response was protective of a single company and was thus likely to aggravate the overall situation and generate high costs for everyone else in the industry...

...Especially when large, fixed, capital investments had to be made to conform to ethical or legal mandates, high-volume producers would always experience a gain over smaller volume competitors in terms of their respective Average Unit Cost figures...

...there is no one else...

...We can no longer blink at the fact that few American corporate executives, and few of their public relations specialists, have been prepared to respond intelligently to the avalanche of insulting, ignorant accusations leveled at corporations in recent years...

...What might have constituted more effective responses to the CSR attacks were seriously beset with the economic problem of the "free rider...

...In some companies it must have been noticed that under the pressure of high-cost corporate responsibility plans, pesky, smaller competitors often could not survive...

...That list is exhaustive...

...there is no basis for compromise...

...This bromide is still being proposed by public affairs leaders, through rarely has any business theory been repeated so frequently without a 'shred of evidence to support it...

...the necessity and desirability of detailed industry regulation to control predatory monopolies—to mention a few more areas of popular misunderstanding of how the private enterprise system functions...

...Thus there naturally developed a strong "political" argument against voluntarism in corporate altruism...

...size as a barrier to market entry...

...The Business of America by Henry G. Manne Anyone familiar with the history of American business enterprise is aware that the concept popularly known today as "corporate social responsibility" is not new...

...Again this process is not difficult to understand...

...That is, each company tended to underinvest in truly effective, costly responses, hoping to get a free ride on the expenditures made by other companies...

...Responsible government officials" could not allow competitive forces to provide the socially "irresponsible" firms with the competitive cost advantage that resulted from their failure to meet social responsibilities recognized by other firms in their industry...

...Few promotions are given for ideas that do not provide some apparent competitive advantage...

...the double taxation of the corporate income stream...

...The chief executives of most large American corporations were not prepared for, nor personally able to cope with, the ferocious attacks made upon them and their companies, and upon their own view of their responsibilities...

...Few high-placed businessmen, for instance, seem to understand the basic and fundamental conflict that exists between privately managed, privately owned corporations and political power...

...Every chief executive of a large company might test his public relations specialists' ability to respond convincingly to the major charges or myths prevalent today about free-market economic systems and the government's role in regulating business...

...And the public relations style of most CSR arguments is apparent...

...9.) Produce a cost-benefit analysis, with the significant data, of the effects of consumer and environmental regulations on your own industry and its customers...

...For this, and a disturbingly long list of other reasons, the phrase "corporate social responsibility" has come to be recognized by many observers today as a mere euphemism for disparaging the American system of corporate capitalism...

...Another hallmark of a public relations approach to attacks on the free-enterprise system has been the window-dressing response, e.g., the frenzied search for blacks, women, and perhaps an occasional Chicano, to sit on corporate boards...