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Corporate Social Responsibility Movement Is an Attack on Everyone’s Freedom

Attacks on corporate entities are not just about big business. They’re coming after you, too.

The worst of the voices among the participants in the recent New York Times symposium of critics of Milton Friedman’s 1970 article about “The Social Responsibility of Business” is, without a doubt, Columbia University economist and Nobel Prize recipient Joseph Stiglitz.

Not only does Stiglitz disagree with Friedman’s argument for profit-maximizing as a primary goal in business (in the process calling Friedman a mere “conservative ideologue”), he rejects the very idea that markets work at all.

Stiglitz insists that everything that economists have said since Adam Smith about the “invisible hand” of self-regulating and self-coordinating markets is false. If people have imperfect knowledge and if less than perfect markets for risk exist in society, then markets will fail because people will make mistakes and be able to take advantage of situations that may not ensure perfect “social welfare” outcomes benefiting everyone, Stiglitz claims.

Stiglitz is a captive of what is known as the “perfect competition” model of a market economy, in which everyone is presumed to possess perfect knowledge or at least sufficient knowledge to never make mistakes in their roles as consumers and producers, and in which every conceivable market fully and perfectly exists to cover any and all forms of uncertainty and contingency.

Stiglitz looks around the world and is shocked to discover that people do not possess perfect knowledge and either do not or cannot guard themselves against every conceivable contingency in their contractual arrangements. He proceeds, therefore, to shout, “market failure.”

Stiglitz’s response follows immediately: government must regulate, restrict, direct, prohibit, or guarantee seemingly almost everything. Why? Because in ways that he never fully explains or justifies, he has absolute confidence that those in government—advised, of course, by people like himself—can successfully make all the right decisions on “fair” wages, “optimal” production, and “rational” uses of resources to satisfy “socially necessary” needs, while “saving” the planet and overcoming all the injustices of everyday life.

How it is that those in political power somehow overcome the “knowledge problems” that the rest of humanity seems unable to solve and sufficiently handle is something that Stiglitz chooses to gloss over. Of course, government can do harm, but that is reserved for those instances in which government fails to do what Joseph Stiglitz considers best for all of humanity. Thank goodness that we have among us at least one person with such magnanimous generosity in his heart, combined with the extraordinary wisdom to know what is right for all of us.

Stiglitz as Adam Smith’s ‘Man of System’ Who Wants to Plan Society

Perhaps Stiglitz’s slighting of Adam Smith is in part a result of seeing too much of himself in Smith’s warning observation in The Wealth of Nations ( Canaan ed., [1776] 1937):

“The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which can safely to trusted, not only to no single person, but to no council or senate whatever, and which would never be so dangerous as in the hands of a man who had the folly and presumption enough to fancy himself fit to exercise it” (p. 423).

We see in Stiglitz’s mindset what Adam Smith referred to in his earlier work, The Theory of Moral Sentiments ([1759] 1853), as “the man of system,” or what today we would call the social engineer or the political paternalist, who believes he knows how society should be arranged:

“The man of system, on the contrary, is apt to be very wise in his own conceit, and is often so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. . . . He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon the chess-board; he does not consider that the pieces on the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it. . . . It is to fancy himself the only wise and worthy man in the commonwealth, and that his fellow-citizens should accommodate themselves to him, and not he to them” (pp. 342-343).

Markets and Prices Overcome Human Imperfections

The fact is, as Friedrich A. Hayek (1899-1992), also a Nobel Prize recipient, demonstrated 75 years ago in his famous article on “The Use of Knowledge in Society” (1945), it is precisely the fact that each of us inescapably has imperfect knowledge about so many others and their activities in the wide world, including what they might want as consumers and their potential as producers, that competitive market prices serve as the communication device that summarizes the minimum amount of information about relevant demands and supplies that enables each of us to have a reasonable and often successful chance to coordinate all that we might do with the plans and actions of all the billions of others participating in the now world-encompassing market system of division of labor. (See my articles on “Capitalism and Asymmetric Information,” “Capitalism and the Misunderstanding of Monopoly”, and “Capitalism and How Expectations Coordinate Markets”.)

With amazing effectiveness and efficiency, markets “do their job,” in bringing the talents, abilities, knowledge, and creative discovery and innovative imagination of humanity into the service of all of us each and every day—at least as long as those markets are left sufficiently free of government’s intervening and disrupting hand.

When markets seem to “fail,” almost always it has been due to the regulating, manipulating, and redistributing policies of the government. The financial crisis of 2008-2009 and the recent government lockdown-decreed response to the coronavirus with the resulting recession are among the most damaging examples of this. (See my articles, “Ten Years On: Recession, Recovery, and the Regulatory State” and “Tragedies of Our Time: Pandemic, Planning and Racial Politics”.)

If the paternalistic policies and the ideological arrogance and intolerance behind these counterrevolutionaries against freedom and the free market fully prevail, whatever liberty we still possess will be even more greatly curtailed than at present, as those who call for the “social responsibility” of business restrict our remaining freedom to choose.

The New York Times symposium and other such assertions of corporate social responsibility are not just a renewed attack against corporate or business decision-making guided by the profit motive. They represent an onslaught against the liberty of each and every one of us to direct and manage our own lives as we think best in peaceful and voluntary cooperation with all others inside and outside of the marketplace.

Richard Ebeling
Dr. Richard M. Ebeling is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel.

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