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02/10/2008

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A student of Economics

"I do not see anything counterproductive with Gates and others giving encouragement to corporations to be more concerned with goals like distinction along with an interest in making profits."

Interestingly, this advice can be, to some extent, self-fulfilling. If people think it is legitimate and reasonable to care for other people and make business decisions based on them, then more people will do so, and that, in turn, will make it more profitable to do so -- a virtuous circle.

Brn2Run

Very thoughtful post. Important to keep in miond that maximizing shareholder value and doing the "right" thing are not mutually exclusive.

Jim Leitzel

A little more context for Adam Smith and the Chinese earthquake might be helpful. Smith was trying to sort out the role of conscience. While the impending loss of our little finger might not allow us to sleep as soundly as we would in the wake of an immense but distant catastrophe, would we be willing to trade our little finger to prevent the catastrophe? Of course, Smith says -- our "active principles" are generous even as our "passive feelings" are selfish.

Diversity

A corporation that is, or is likely to be, subject to regulatory or other political risk will minimise this risk if it builds up political goodwill. The larger the corporation and the longer its planning horizon, the more it is likely to be aware of the point. The goodwill of individual political leaders is notoriously unreliable, The result is "corporate altruism" as an instrument for maintaining long term profit levels.

Some time ago, when I worked for Shell, I analysed their corporate policies, with the conclusion above. The only corporate altruism that I have seen since which does not fit that model is Google-type; where acting altruistically attracts lively minded employees who are unlikely to concentrate on screwing the last dime out of the company.

It has always seemed to me that the market has aligned these commercial incentives quite nicely with my notion of benefits to society.

Thomas B.

The call to reduce "tariffs by rich countries on the agricultural and other exports from developing countries" surprised me. The US and EU tariffs are basically nuisance rates at this point, typically around 3%, while developing nations maintain tariff rates closer to 50%. (Thus the recent emphasis on harmonizing rates in the WTO, rather than simple flat rate reduction. The wealthier countries have reduced their tariffs so drastically over the past decades, they now have little left to give.) Subsidy reductions are the new hurdle in this area, and are currently the most fertile ground for clever workable solutions.

One of the biggest puzzles remaining for tariffs is why developing nations do not explore lower tariff arrangements with each other.* Some sort of "emerging nations tariff reduction agreement" could greatly benefit many nations around the world. It would allow participating nations to experiment with the benefits of free trade while side-stepping fears of undue influence from the EU and US. Any resulting trade diversion might be the kick in the pants the EU and US need to start seriously considering subsidy reduction.

**While the WTO's general principles prohibit lower tariff rates to select members, there are any number of exceptions that would permit such an arrangement.

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