May 17, 2009

Social Responsibility and the Profit Motive

My favorite teacher was Mr. Napoli, whose class I attended in the fourth grade. He was a stocky, dark-headed man, who loved baseball, singing, and all things Italian. There was much to admire about him, but perhaps the thing we loved most was this: For half an hour each day he would read to us from wonderful books that instilled in us a love of stories. But that’s not all. Once finished with some delightful yarn, he would lead a discussion about the issues it had raised. After listening to a Jackie Robinson biography, for instance, we talked about racism in a manner that was wonderfully adult-like and life-changing. In that way, we considered topics as important and varied as personal responsibility and the 60’s counter culture.

One day, Mr. Napoli finished a story set in war-torn Germany and began to question us on a subject of curiosity to me—the idea that we lived in a free country. After hearing our teacher and several students make that assertion, I raised my hand and expressed as best I could a question that had bothered me for quite some time.

“If we live in a free country,” I asked, “why can’t I go outside and pull down my pants?”

To my fourth grade classmates, that was an incredibly bold and hilarious question that caused a minor disturbance as my friends guffawed and nearly fell out of their seats. After quieting us down, however, Mr. Napoli smiled and said something I’m sure I didn’t understand at the time. As best as I can recollect, he spoke of how freedom comes at a cost and that a free people, of necessity, will choose to restrict their actions and agree upon laws that restrict the actions of others.

That idea finally fell into place in 1991 when I read a Wall Street Journal editorial written by Peter Drucker. In it, Drucker talked about visiting Russia, which at the time was struggling with the meaning of open markets. He was asked to speak to a classroom of management students, where he quickly discovered a misconception shared among the young people. The students there, it seemed, thought capitalism required prices to be set artificially high so that all businesses were able to survive. It was difficult for them to believe a free economy could survive otherwise.

In response to this notion, Drucker said the following:
There is no such thing as ‘profit.’ There are only ‘costs’: costs of doing business and costs of staying in business, costs of labor and raw materials, and costs of capital; costs of today’s jobs and costs of tomorrow’s jobs and tomorrow’s pensions. There is no conflict between ‘profit’ and ‘social responsibility.’ To earn enough to cover the genuine costs which only the so-called ‘profit’ can cover, is economic and social responsibility— indeed, it is the specific social and economic responsibility of business. It is not the business that earns a profit adequate to its genuine costs of capital, to the risks of tomorrow and to the needs of tomorrow’s worker and pensioner that ‘rips off’ society. It is the business that fails to do so.
By including the costs of social responsibility in the ideal profit motive, Drucker teaches something insightful and powerful. Free enterprise—and by extension, life in a “free country”—must reward socially responsible choices. In short, freedom is a balancing act that is not possible without personal restraint and acceptance of responsibilities. Perhaps the irony in this statement is obvious, but let me try to articulate it: For freedom to work, no one may exercise it to its fullest extent, since that will invariably impinge on the freedom of others.

I believe that God’s greatest wish for us is that we be truly free—free of all varieties of bondage: physical, spiritual, and even economic. In this sense, Christ said in John 8:32 the following about His gospel:
And ye shall know the truth, and the truth shall make you free.
At the time of the Savior’s earthly sojourn, the Jewish people were waiting for a Messiah who they mistakenly believed would free them from the political bondage of life under Roman rule. Yet, by Christ’s own admission, His freedom was a very different animal, which—based upon knowledge of the truth—held the power to free men and women in a way Emily Dickenson must have understood when she wrote her poem, Emancipation.
No rack can torture me,
My soul’s at liberty.
Beneath this mortal bone,
There knits a bolder one
You cannot prick with saw,
Nor rend with scimitar.
Two bodies therefore be,
Bind one and one will flee.
The eagle, of his nest,
No easier divest
And gain the sky,
Than mayest thou,
Except thyself be thine enemy.
Captivity is consciousness,
So is liberty.
What is the truth Christ mentioned? It was, of course, His higher law that leads to a liberty greater than freedom from theft and murder, but emancipates the spirit from the bondage of unquenchable appetite and desire. It’s a variety of liberty based upon self-interest tempered by neighborly love and compassion. Do we experience this freedom today? Of course not. As Christ once said: By their fruits ye shall know them. And by the fruits—or the results—of our freedom, it’s clear we live lesser laws. These are standards more concerned with protecting what is ours (thou shalt not covet) than in service to those who truly need our succor (love thy neighbor). Until we fully incorporate the costs of social responsibility into the profit motive, we will fall short of Christ’s hope for us. As I’ve mentioned in earlier blogs, we can do this, in part, by encouraging corporations and other public enterprises to make their employees—as well as other insiders—shareholders.


Anonymous said...


It is not clear to me that Drucker was claiming that one of the costs of doing business is funding a businesses social responsibilities. I think he was repeating Milton Friedman's view that sole responsibility of business is to maximize profits.

In a famose piece titled "The Sole Responsibility of Business is to Maximize its Profit" (I love it when the conclusion of an article is also the title), Friedman was attempting to refute the idea that business should sacrifice profits in order to be "good corporate citizens" or to meet some kind of social responsibility. His view became known as "the canonical view" due to its influence.

You should read the article, if you haven't already. I'm sure you can get it on line - and its pretty short. At first glance it is a persuasive sounding argument. But I think it fails in a number of important ways. At any rate, I think that was what Drucker was saying (he's not very clear in the passage you quoted.

By the way, here's a funny story you'll appreciate. I used to teach business ethics courses at the University of Utah. When we read Friedman's article and discussed what the word "canonical" meant, I used to tease the students that the big advantage of being a protestant was the size of the canon. I'd argue, "the new testament, after all, fits in your pocket, whereas you need a large back-pack for the LDS canon."

Sometimes a few would laugh, but most of the time I would have to add sheepishly, "I'm joking."

Joe H.

Alan Bahr said...

Thanks for the information, Joe. I think you're right that I overextended the argument. I plan on looking for the Friedman piece.

It's interesting that you taught business ethics, as that was one of my favorite classes. I don't think my professor ever used the word business. His required reading was "Eichmann in Jerusalem," which is a work I've returned to multiple times.