by Johan Norberg - Head of Political Ideas, Timbro (Sweden)
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What's the role of Johan Norberg in society? How can I act
so as to best benefit society?
These anxious questions went through my mind during discussions
about the role of corporations and how they benefit humanity.
I think this discussion is too much guided by a centralising
instinct, it's actually too neo-classically authoritarian.
As if people and corporations were means to our ends, which
we could place where we think that they would most benefit
us. It is also a very inaccurate description of the real reason
that corporations exist, which is because they are made up
of people. No entrepreneur wakes up in the morning and thinks
"Today I will really work hard to be able to give a lot
of taxes to the government" or "lower the unemployment
rate" or "increase GDP", for that matter. Rather,
they do it because it's good to create, because it's a joy
to accomplish things, or because they want to support their
family, or perhaps to become rich or because they want to
change the world. Indeed, perhaps because they want to start
a 'Body Shop' to save the animals. But most importantly they
act because of their own multitude of interests and preferences,
not those of society.
John Kay believes that the argument that corporations exist
to maximise the profit of the shareholders is insufficient
because someone could ask "Why should we let them?"
He couldn't think of an answer to this question. I think there
is an easy answer: Their business is none of your business.
What would give you or anyone else the right to interfere
with other's creativity and voluntary forms of cooperation?
If they want to have a Body Shop, a huge profit or just a
great time, it's none of our business.
To say that it is difficult to answer why we should let them
be is a bit like saying that it's difficult to reply when
a burglar asks why he should leave someone's house in peace.
Because it is not his house, of course.
But there are things that we can demand from other people's
actions - that they don't hurt us in the process and that
they don't force us to cooperate with them. Thus we have the
rule of freedom of contract and voluntary exchange. Corporations
will only get the resources for their projects from us if
they offer us something, which we consider to be better, in
return - nice goods or the hope of good returns, perhaps.
Voluntary exchange is the basic moral rule of free-market
capitalism. Its consequence is that profits are a reflection
of how well a corporation responds to its consumers' needs,
because we wouldn't have given them our money otherwise. The
more profit a company makes, the better they have been at
giving more value to us, at less cost to them. In other words,
profit is evidence that they are putting society's resources
to an efficient use. This is not why corporations exist -
people have their own reasons to start them - but this is
why we should be happy that they exist.
Capitalism does not need an apology because some capitalists
are guilty of mistakes, deceit or fraud. We know that people
are prone to mistakes and ruthless short-term behaviour. That's
not a surprise. That's exactly why we have invented the rule
of voluntary exchange, so that we limit their power over other
people and only allow them to use people's resources if they
entrust them voluntarily. It also means that the moment we
get information on mistakes or fraud, the trust is broken
and investors and customers abandon the company. When things
like that happen, we shouldn't feel ashamed of capitalism.
On the contrary, we should feel proven right in choosing a
decentralised market system, instead of some sort of economy
which centralises a lot of decisions to the top.
Imagine if the executives at Enron governed the entire economy.
They could merely have taken taxpayers' money to continue
to finance their mistakes. This is precisely how every centralised
economy has been brought down throughout history.
The genius of capitalism is that we abandon the failed and
move on with the successes. Enron collapsed and the resources
were recycled into other corporations and even though many
people were hurt in the process, American energy consumers
hardly noticed the collapse.
CSR - responsible or irresponsible?
Where does this leave corporate social responsibility? Possibly
nowhere, at least not in its modern, ideological version because
if you agree that the best thing corporations do is to use
society's resources as efficiently as possible, everything
else they do will make them less productive and beneficial.
When CSR experts encourage corporations to improve the region,
the environment, and their staff or to build hospitals and
schools, they say that corporations have to "give something
back to the community".
Give something back to the community? Where have these people
been during the last few centuries? The innovators and entrepreneurs
built this community and took us out of the squalor and misery
that had always been the fate of mankind. During the last
50 years the income of the average human has been increased
by twice as much as it increased in the 500 years before.
During the last 50 years, global poverty has been reduced
more than it had been in the 500 years before. In the last
30 years, the average income in developing countries has been
doubled and child labour and chronic hunger has been cut in
Despite all our problems, we live in the golden era of human
improvement. And this is all dependent on wealth creation
and the scientific and technological breakthroughs that are
possible because of wealth creation. It is a result of corporations
continually shifting resources from less profitable and efficient
uses to the more profitable and efficient. Therefore, a corporation
in its normal activities is on the whole something good, something
fantastic, something worth encouraging. If the owners of an
individual corporation are interested in doing other things
apart from that, they should feel free. But don't ever suggest
that corporations who confine themselves to increasing production
and productivity and giving us more and better goods and services
are in some ways "irresponsible". That's not merely
wrong. It's an insult.
Listening to protesters
Some say that Corporate Social Responsibility is a way of
selling business, that customers will flock around a company
that is seen as responsible and socially decent. In that case,
CSR would be a way of giving consumers values and symbols
they value more, in exchange for money they value less.
I think there is something to this; people do not want irresponsible
companies. But that does not mean that they want the specific
behaviour that the CSR-ideologues promote. If it were, corporations
would be hoping that their competitors would forget about
CSR and ethical behaviour in order for them to gain a competitive
advantage. But they are not. Many corporations who go further
with CSR - for example Nike - complain that it is unjust that
they assume big costs for this whereas others are 'free-riders'.
They fight in business associations for self-regulation so
that others follow them and sometimes also government regulations
to force the others to comply. Why would they be doing this
- if they really thought that social responsibility was profitable,
a way of selling their goods?
I think they do it because social responsibility in this
strict sense is not what the customers demand. Please note
that advocates of CSR lobby corporations rather than consumers
- and they are more successful in lobbying corporations. Specific
forms of 'good behaviour' or putting an end to bad practises,
is certainly a result of listening to the community. It is
not a new thing that corporations take it into consideration
but the modern idea of CSR is not an answer to popular demand.
It is an ideology about how corporations should behave and
it is often developed by the enemies of traditional profit-seeking
businesses - people from environmental organisations and anti-globalisation
activists, who understand that they won't get their way in
politics but know that they can get timid corporations to
follow them. Especially if they are employed as CSR experts
Do you ever wonder what happened to the hundreds of thousands
of young people who protested against free trade and capitalism
in the streets a couple of years ago? Many of them are now
in boardrooms, wearing suits, telling corporations what to
do. The corporations opened their doors - and a procession
of demonstrators walked in.
A protection racket
So why are corporations listening? This is not an entirely
voluntary process. It is often led by a fear of the anti-corporate
political climate, which might result in a heavier burden
of regulations and taxes if the corporations do not act in
a more politically correct way.
Activists and many politicians act a bit like an old crime
boss. They visit a company, take a look around and remark:
"Nice little business you've got here. It would be a
real shame if something bad should happen to it, wouldn't
it?". And of course they can make sure that nothing bad
happens. Just follow the political whims of the day. This
is an offer that corporations can't refuse. Otherwise they'll
find a pile of new rules, standards and regulations beside
them in the bed when they wake up in the morning.
And then the whole process takes on a dynamic of its own.
The corporations who go the furthest, will devote a lot of
resources to help governments and NGOs to push for general
self-regulation, and in the end often government regulations.
Corporations like that don't sell out capitalism; they buy
the end of capitalism with their public relations budgets.
We have been living with do-gooders in NGOs, our governments,
the United Nations and other multinational institutions for
a long, long time. They regularly hold enormous meetings where
they say a lot of economically illiterate things about how
important it is to conserve our resources - instead of using
them to the benefit of us and the future of our planet. They
say that we should improve working standards in poor countries
radically - even though that would destroy the chance of poor
countries to compete. They say that it is ethically problematic
when corporations downsize and outsource - even though it's
precisely by doing more with less resources that a society
gets richer and so is able to increase its living standards.
But the good thing about the do-gooders in the United Nations
is that they are bureaucrats who talk and talk endlessly without
any real results - they always come away from the meeting
with a very long and very empty statement on how to improve
However, do-gooders are now being joined by corporations and
businessmen, who are actually able to produce results. They
are serious people who might take these words and statements
seriously - and in that case, we're in for some very deep
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