On Corporate Altruism-Becker

In the past few decades, economists have analyzed the competition from companies motivated solely by the desire for profits against companies truly motivated in part by other considerations. These considerations include altruism toward consumers, discrimination against minority employees, and a desire to help the environment by using carbon offsets to own carbon emissions. A main message from this analysis is that companies that forego some profits to pursue other goals have trouble competing against profit-maximizing firms. An example is the competition between firms that hire workers solely on the basis of their productivity and cost, and companies that give up profits to avoid hiring African-Americans or other minorities because they are prejudiced against these types of workers. Since firms only interested in profits will hire minority workers when that is profitable, and prejudiced firms will not, discriminating firms will be under a competitive disadvantage (for the details of the analysis, see my The Economics of Discrimination, 2nd Ed.,1973). Companies that combine the profit motive with environmental and other concerns can thrive in a competitive environment only if they are able to attract employees and customers that also value these other corporate goals. Then the added cost of pursuing non-profit goals would be partially, if not entirely offset, by having customers who pay more for their products, such as fair-traded coffees. Or these companies may be able to attract high level employees relatively cheaply perhaps because the employees are excited by the prospects of spending some of their working time developing vaccines that can treat diseases common in poor countries. These appear to be the types of companies that Bill Gates wants at the forefront of his "creative capitalism" since he is encouraging companies to pursue recognition as well as profits. How successful can this form of capitalism become? Gates quotes with approval the opening discussion in Adam Smith's great 1759 book The Theory of Moral Sentiments on the importance of altruism in human motivation. While this book does deal with motives like concern for others, and the desire for recognition and acclaim, Smith was skeptical not about the strength of altruism, but about its scope or reach. For example, he uses an example in this book that is highly relevant to the present and to Gates' quest. He asks "how a man of humanity in Europe: would respond to hearing " that the great empire of China… was suddenly swallowed up by an earthquake…"? His answer was that "If he [this man] was to lose his little finger tomorrow, he would not sleep tonight; but, provided he never saw them [i.e, the people of China], he would snore with the most profound security over the ruin of a hundred million of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him than this paltry misfortune of his own" (Part III, Chapter 3). Globalization has brought the situations in China, India, Africa, and other poor parts of the world much closer to the concerns of men and women in rich countries than they could ever have been in Smith's time. Still, essentially for the reasons given by Smith, it would be quite difficult to get many companies in richer countries to be highly motivated by the desire to find cures for diseases that are not profitable because they only afflict persons living in Africa and other poor countries who cannot pay much for the cures. It would not be any easier to get companies to spend significant resources to help lower carbon emissions, unless these expenditures were forced by governments, or compensated by governments and private philanthropies. Nevertheless, unlike the well-known negative position on corporate responsibility taken by my great teacher and close friend, the late Milton Friedman, and apparently also by Posner, 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. The real test is how viable such motives are in a competitive market environment where the competition also includes companies motivated only by profits. My own belief is that there are far more effective ways to help poor nations of Africa and elsewhere speed up their rates of economic development and reduce the impact of malaria, Aids, and other devastating diseases. Probably the single most important step is to encourage much more market-friendly policies by African and other governments in poor countries. In addition, it would help to reduce, better still eliminate, tariffs by rich countries on the agricultural and other exports from developing countries, encourage more widespread use of DDT and mosquito netting in combating malaria (see my post on deaths from malaria on Sept. 24, 2006), and provide private and perhaps public subsidies to the development of new drugs that help fight diseases mainly found in poor countries.

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