The Market for Virtue

Below is an excerpt from an interesting discussion in ZENITH of a book by Berkeley's David Vogel,THE MARKET FOR VIRTUE (Brookings).  Vogel raises the possibility that changes in the law might be a an appropriate response to the underproduction of virtue in market capitalism. He seems tp recognize, however, the sharp tension between that idea and the prevailing shareholder wealth maximization norm in American corporate law and theory, and believes that we may have to rely on those companies who adopt socially responsible policies voluntarily to the extent that they can do so and continue to survive in highly competitive markets with less responsible companies.

Date: 2005-11-19

Virtue and the Market

Corporate Social Responsibility Under the Microscope

BERKELEY, California, NOV. 19, 2005 (Zenit.org).- Ethics and corporate conduct continue to be hot topics. A book published earlier this year gives a succinct oversight of the main issues involved in the concept of corporate social responsibility.

Written by University of California professor David Vogel, "The Market for Virtue" (Brookings Institution Press) starts off asking what it means, in fact, to be a virtuous company. There is a vast amount of literature on the subject and thousands of diverse policies among companies regarding ethical conduct.

A multitude of matters falls under the heading of corporate social responsibility: working conditions in factories in developing countries; child labor; guaranteeing fair prices for agricultural producers; environmental concerns; and human rights.

Vogel observes that companies can have differing motivations for following virtuous policies. Some can be defensive, to ward off hostile publicity, while others can stem from a genuine commitment to social goals. In any case, he adds: "The supply of corporate virtue is both made possible and constrained by the market."

There is a market for virtue, he notes, but it is limited. From a market perspective, businesses can justify social-responsibility policies, under some circumstances. But there are limits to this, and there is also a large space available for less-responsible competitors.

This is due to the advantages, and limits, of market capitalism. On the positive side, firms are free to innovate and citizens have the possibility to influence corporate practices through their decisions about what to buy and where to invest. On the negative side, because ethical policies are voluntary and companies are subject to market discipline, firms will only follow them when it makes good business sense. So, corporate social responsibility can remedy some problems, but are not a complete solution

-------

The Zenith discussion of the book ends with the following observation: "Combining business with ethics is addressed in the Compendium of Social Doctrine of the Church. The economy has a moral dimension, explains No. 322, which means the growth of wealth should be accompanied by a concern for solidarity and a spirit of justice and charity.The effort to create projects capable of encouraqging a more equitable society and a more human world is difficult, acknowledges the following numbers [of the Compendium]. But such effort is needed to preserve the moral quality and meaning of economic activity."

I suspect most of us here on MOJ would agree with the last sentence, but I imagine the divide between us would be over the question of whether there is a place for law in creating, or in creating incentives for virtuous companies, or whether virtue is something that can be produced only voluntarily (as by the many economy of communion businesses). Would our positions be different if we replaced the word "virtuous" with "just"?

--Mark