Oh Manne!

When I saw the op ed by Henry Manne below, I thought Rick had stumbled on something that Henry Manne wrote in 1976, not 2006. To my surprise, it was an op ed he had published very recently. Manne, the former dean at George Mason, is one of the founders of the law and economics movement, and was particularly influential in its application to corporate law. He was particularly disdainful of the notion of corporate social responsibility, which had only just begun to make a splash in the '70s. He elaborated Milton Friedman's old saw that the corporation's social responsibility was to make a profit. His new op ed shows that he is at least consistent. But that's about the best thing I can say it.

Where to begin? Let's start with his claim that the idea of "corporate social responsibility" (CSR) is being pushed by those "who do not like or appreciate the genius of corporate success stories." Apparently all of us who think that the idea has some traction are lefty ex-hippies who hate anyone who knows how to make an honest buck by starting a business. To be sure, there are plenty of reflexively anti-business lefties; probably about as many as there are reflexively pro-business rightwingers. But there are plenty of people like yours truly, who have spent plenty of time on corporate boards and representing entrepreneurs (and probably more then Dean Manne), who find his (and Friedman's) approach to CSR reductionist and, at least, incomplete. Manne's canard, which is one also used often by Michael Novak, is a way of (inaccurately) attacking the messenger rather than the message.

Another reason I thought this was an old piece was his claim that all this CSR stuff was the "essence of socialism". Is "socialism" still a dirty word?  Are there still "socialists" around? I know there are still "socialist" parties around in Europe, though of a watered down type, but is anyone who talks about the CSR in the US really talking about state ownership of enterprise? I imagine that Manne's definition of socialist is so broad as to encompass any attempt to constrain private property through anything other than a minimalist conception of obeying the law.

But let's get to his real argument. According to Manne, the public corporation is private property that exists to make a profit for its owners. It must obey the law (misguided as those laws may be), but it has no moral responsibility to be "socially responsible" beyond that. Imposition of any legal obligation to be "reponsible", in that sense, is an attempt to undermine the sanctity of private ownership of private property, which he regards as the "essence of socialism." There is an intuitive sense in which Manne/Friedman are correct. There is strong philosophical support for the notion that a thing should be what it is, in this case a profitmaking entity, and not something else. And the private public distinction in business is an important one. The dismal failure of most state-owned business entities in Europe shows one of the reasons why. But even if there is an element of truth in the lapidary Friedman/Manne formulation, and an elegant simplicity that makes it appealing, it misses all the nuances that make the question of CSR more complicated than they believe.

First of all, there is a bit of a straw man in his argument. Manne seems to suggest, although he is not very clear, that government is imposing substantive requirements for CSR. If he is, I am not sure what he means. Most companies who choose to do things as a matter of CSR, do so not because required by law, but voluntarily. They usually adopt CSR programs not out of altruism, or even because they believe what they want to do is good, but because they believe that doing it will be good for business. Sometimes this is cynical pandering for publicity's sake; other times it is a sincere effort to build good will, to establish a reputation as a responsible citizen in the relevant community or because it will have positive internal effects on its work place. Hardly socialism, and hardly inconsistent with Manne's insistence on the primacy of the profit motive. Indeed, much of the current CST movement, especially in Europe, rests specifically on the CSR=Good Business equation. Hence there is a market for such things as "social accounting" and management techniques for determining the appropriate focus of CSR activities and assessing their impact. Actual government imposition on corporate governace of CSR requirements is quite rare, at least in the US. Those should not be confused with regulatory imitations on what corporations do -- environmental regs, OSHA requirements, antitrust laws etc. Perhaps Manne would like to get rid of them as well, but that's a different argument. This argument is about whether public corps should have a state-imposed legal obligation to pursue a " social good"  unconnected to profit maximization. To be sure, there are a few instances of that sort of thing -- perhaps the community reinvestment requirements imposed on bank mergers -- but that is definitely not the legal norm.

Second, the Friedman/Manne "minimalist "law compliance" modelm of CSR is more than a little simplistic. A public corporation is not like a big dump truck that obeys the red light or not. First of all, thru political influence (remember your public choice theory), large public corporations influence what the law is. They try to decide what is "good" as a matter of policy. However, their conception of the good can be, in a word, narcissistic. I have written elsewhere about how Enron (just to use a well known example) affirmatively shaped federal law to insure that virtually all of its activities would escape any type of meaningful regulation. I am not arguing here about whether that is good or bad (it is inevitable, anyway), but to suggest that the corporation should be understood as passive subject of the laws is a bit naive. Second, the psychology of law compliance is extraordinarily complex, especially in institutions. As Robert Jackall as shown in his classic "Moral Mazes: The Moral World of Corporate Managers", an institutional culture of minimalist law compliance breeds a cynicism and opportunism that undermines the possibility of real compliance. The absence of any kind of ethos of social responsibility will exacerbate that risk. In other words, a CSR ethos may in fact facilitate law compliance, making it less necessary to rely on expensive regulation and enforcement efforts to constrain corporate illegality.

Third, Manne lists a number of CSR concerns that he seems to feel are being thrust upon corporations. From the list, he seems to be talking about the kinds of things that are the subject of shareholder proposal that SEC regs may require to be presented in the corporation's proxy statement. The government is hardly forcing the corporation to actually do anything about those concerns; they merely require them to be brought to the attention of all shareholders, who then, theoretically, might use their votes to require the corporation to do something about them (although they usually don't). We can argue about whether the SEC concept of shareholder democracy makes sense in terms of the proper economic roles of shareholders and managers; we cannot argue that they reperenent an SEC endorsement, and hence imposition,  of any shareholder's concept of social responsibility.

Fourth, and perhaps most important, Manne implicitly but utterly rejects the vision of the corporation implicit in Catholic social thought, which cannot be reduced (pace Steve Bainbridge and Michael Novak) to the liberal  (in the classic economic sense) vision of the public corporation as a species of private property, defined exclusively (or essentially)  by contract and devoted to shareholder wealth maximization. Recent work has produced linkages between CST and CSR that are incompatible with Manne's "law compliance" approach.  This new movement goes beyond the CSR=Good Business approach mentioned above; It would justify CSR not because it is potentially profitable, but because it helps corporations ahieve solidarity and serve the common good in the CST sense. I can hear Manne laughing about those concepts, but that only shows the profound philosophical gap. In any event, I've written about much of that elsewhere, so will end this response to Rick's invitation to a smackdown here.

--Mark