Sunday, January 23, 2005


Corporate Social Responsibility (CSR) is the focus of the current Economist survey. Do yourself a favor and read it, although it is lengthy.

The key section is Profit and the Public Good. The magazine points out that the first responsibility of a business is to make a profit. In the process of making a profit, a business produces social good in specific ways. (This assumes a business is ethical to begin with and not in drug-dealing or other destructive behavior.)

There is room for regulation where the pricing of products does not account for the full effects of the manufacturing on the environment -- e.g., global warming and air pollution. But, the idea that a firm should reduce profits to raise social welfare is foolish in that it is an attempt to "borrow virtue," as the magazine says. In fact, the magazine provides the traditional four-box matrix to show where CSR makes sense and where it doesn't. Where CSR both raises profits and social welfare is termed "good management." Where it reduces profits and social welfare is called "delusional CSR."

While there are businesses that are able to do good and make a profit at the same time, the magazine is frank about the fact that most businesses are using CSR cosmetically -- "borrowing virtue."

The survey is worth your time, especially sections where the magazine states that many CSR economists misunderstand economics. That's good for argument.


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