There’s a movement going on for companies to go beyond their regular duties. That in addition to providing goods and services they must also spend on social responsibility. Free marketers like Milton Friedman call this hogwash. Charitable contributions and furthering the public good aren’t suitable territories for business. Plus it’s your money, so John Q Public is being overcharged for undemocratic causes. A good question that’s only now coming to light.
Competition
Let’s start with the way it’s supposed to be, according to theory. Without a doubt, the coolest term in economics is creative destruction. It describes the role of competition. It says if company A makes a better widget, it will attract more customers and profits, then Company B must either adapt to this new condition or perish. Net result: better value for the consumer and greater efficiency for the system.
The competition model works well because business, in its quest for survival and profits, will always try to outmaneuver the other guy. Take for example what Costco has done to traditional retail. Their model, along with that of Amazon, reworked the way we receive goods. By providing similar products at lower prices, thousands of classic retailers have been destroyed because of diminishing market share. But this theory no longer works in some places. Take for example our big six banks. They’re technologically so adept that as soon as one gains any sort of advantage, the others quickly catch up. It’s like competition is only one step behind. So in reality, no big bank in Canada is going to fail. (And if so, just one.)
The business world has matured and its landscape has changed. In many sectors, this paradigm has secured a number of players success and guaranteed gain. For example, Tesla can enter the car market but the other 6-7 organizations are there for good. One may drop off, but based on Tesla’s results the others will simply adapt. So many of the enterprises you know today in industries like, oil and gas, power generation, materials, automotive, banking, transportation, and insurance are here for good. Bottom line: creative destruction doesn’t always get to do its thing.
History
Before continuing with our new system, let’s take a look at the past. Back in the day, corporations had to compete for their dough. There wasn’t room for excessive profits because everyone had to sell for as low as they could. People didn’t have the money to overpay for anything and emotional quality hadn’t yet been invented. It was a different time.
But as things progressed, people stopped caring about absolute price and wild-style competition. Together this all but guaranteed certain industries gains. Customers started to pay crazy amounts for designer t-shirts and the number of actors in certain spaces started to shrink (i.e., mergers and acquisitions). So in certain markets, a limited number of players now charge higher than required “market prices.” Prices that people are now willing to pay.
Without full competition and money sensitive consumers, no one is pressuring down price. So if you don’t care, they don’t care — and some establishments are really raking it in. All of which has led us to social business warriors calling for a cut.
Co-opolies
In certain industries, dominant players now act as cooperative monopolies. Formerly known as oligopolies, these huge corporations perform in mature industries protected from destruction (thereby guaranteed above appropriate returns). This is the current state of capitalism. So here’s the issue: should banks be able to bill you an extra nickel every time you incur a charge and then donate it away; or should they offer the lowest possible price and let you decide what to do with the savings?
Milton says lowest possible price. It’s not the bank’s money nor is it their position to choose. New economic thinking says that extra nickel isn’t there for the sake of some cause. It’s the consequence of operating without full competition so they were going to overcharge you anyway. As a result, why not take a piece of the profits.
Social responsibility
New economic thinking has won and certain organizations had to agree. New rulers then laid down the law. We’ll continue with the current system as long as you agree to the following:
- Pay your people well, to ensure a middle class (see Unions)
- Create a charitable foundation, to direct money where governments can’t go
- Align your corporate message with the established social direction
Pretty serious stuff. As a result, Amazon has raised its minimum wage to $15/hour, Costco is at $14, and Walmart’s on its way past $11. All without public intervention. And don’t forget white collar wages. Second and third, every big company now has a foundation and the universal message in advertising is consistent. (Everywhere!)
Summary
Free market theory should always be respected, even when it doesn’t apply. But the business scene has changed and ol’ Milton is dead. He’s right that charity is not the natural disposition of commerce. Business is designed to make money (and destroy). We don’t like to think about the other guy. But in an economically advanced system, certain organizations are no longer justifiably self-serving units. They need to play a larger role in the world.
Corporations have been given social responsibility and are now in charge — just as much as governments. And they’re superseding government in many ways. Business controls wads of cash and is loaded with talent. What a great idea to merge efficiency and practicality with the emotions of do-gooders? Better approach against problems and it’ll teach companies to love. (Not a bad plan, when they have all the money.)
There’s a saying “the quickest way to profits is to overcharge customers or underpay staff.” It’s a tradition well known. Woke corporations are now undertaking their post. Gracefully run a co-opoly with all the responsibilities that entails. The new forward. And don’t worry, they’ll never build an army, administer legalities, or take control of currency. Governments will always play their part. One that’s dutifully defined. (As long as we keep an eye on them.)