More Manne

Bill Carney has a rejoinder to my response to his earlier comments:

Mark Sargent argues that a culture of “minimal law compliance” creates a culture of cynicism about law, an assertion I don’t get.  In today’s highly regulated society, minimally complying with the panoply of laws governing my behavior (much less that of business) is about all I can muster.  Mark misses the central point of Milton Friedman’s dictum – a business best serves society by making products people want to buy at prices they are willing to pay.  And they get capital at the lowest possible cost, enabling them to do this, when they maximize profits.

As for CSR, virtually all profit-maximizing corporations (o.k., Enron was an exception) recognize that they must treat their constituencies honestly and fairly if they expect to have repeat dealings with them.  That’s a normal cost of doing business intelligently.

Mark cites Peter Haslam of Cambridge to the effect that surveys show that the great majority of CEOs believe that corporations should balance their obligations to shareholders with “those” (obligations, I assume) to wider society.  He states that none of the most widely admired companies regard shareholder value as its main purpose.  Admired by whom?  CSR critics? Or investors?  My vague recollection is that CSR mutual funds have underperformed their competitors, despite Haslam’s assertion to the contrary.  Admittedly this is a lazy man’s sample, but here are the year to date performance numbers from TIAA-CREF:

CREF Variable Annuity Accounts
Stock	238.34	0.59	15.40%
Global Equities	98.66	0.46	16.23%
Growth	64.99	-0.07	5.79%
Equity Index	94.11	0.12	13.90%
Social Choice	125.29	0.18	9.94%

As a person looking to retire on some of these funds, give me the 15.4% return over the 9.94% every day.  I can’t afford for someone else to carry out their ideas of social justice with my money.  Besides, I prefer to choose the objects of my charity myself, rather than let some CEO choose them for me.

One more caveat about the Haslam report: Most serious economists are highly suspicious of survey evidence, preferring revealed behavior to people’s self-serving answers.

[Mark here]  A couple of observations here. First, with respect to Bill's not getting my assertion about culture's of minimal law compliance, I will merely cite him to Robert Jackall's ethnographic study of managerial behavior (including re law compliance) in his book MORAL MAZES. Second, somehow this has become a debate about "socially responsible investing," which was something I never mentioned, and was not advocating for in my comments on Manne. I regard that ( or Ave Maria type "morally responsible investing")as a type of investing for which some people have a preference that may be strong enough to overcome lower returns.Whether Bill (or anyone else) has a different preference is irrelevant to that -- it is just another preference. But that's not my point. My basic point is that thinking of any corporation exclusively in terms of shareholder wealth maximization is inconsistent with Catholic social thought's conception of the nature and purpose of property, the universal destination of goods, the meaning of human labor and the nature of community. Bill (and Manne et al) and I are using fundamentally different vocabularies.

--Mark