Sunday, August 12, 2012

Corporate and Consumer Responsibility

I had hoped to avoid being topical with these Sunday sermons, but I have three good links all about the same thing that together need more room than the Monday blurbs would provide. So I will link the three articles up here and then hold forth.

The first article is the Economist blog discussing Corporate Social Responsibility in the context of Chick-Fil-A.

The second article is Freakonomics discussing the invention of "Chicken Offsets" for gay marriage supporters who also enjoy Chick-Fil-A sandwiches.

The third article is Mark Perry implying that the Target corporation is behaving irresponsibly for donating money to charity.

The central conflict in all three of these is two interrelated questions. The first question is whether it is appropriate or desirable for firms to undertake activities not directly related to profit and loss. The second question in how responsible consumers are for the moral or immoral actions of a business and under what circumstances.

I typically dislike engaging in moral reasoning about what "Other People" should do. I tend to suspect that the odds that I am wrong are fairly high. Therefore, I will avoid passing moral judgement on the actions of businesses and only discuss what I as an individual consumer feel obligated to do.

A firm necessarily makes moral decisions

The three examples above are all of a corporation giving money above and beyond the course of daily business practices. However, even in the day to day course of business a firm must make decisions that many people would regard as ethical or immoral. In the normal course of business, it is necessary for Starbucks to get coffee from somewhere, and their choice to use high-wage suppliers has a variety of effects which Starbucks judges to be, on net, positive. Similarly, Nike has to build their shoes somewhere and they have historically chosen the low-wage route in developing nations. To be clear, I do not believe there is any inherent moral value in these decisions, but many people do, showing that the ordinary course of business necessarily interacts with the moral values of someone, somewhere. Perhaps a firm chooses to unionize (or not), perhaps they pay minimum wage (or not), perhaps they "buy American" (or not), moral activity is unavoidable.

Mere Profit and Loss is an insufficient metric

Still, we can say when a firm is faced with these choices that they do have an objective metric for making these seemingly moral decisions. At the end of the day, a firm can make their choices purely on a profit and loss basis, selecting only those options which generate the largest bottom line.

And yet, this is clearly insufficient. While there have been studies showing that Starbucks does end up with a higher quality product because of its "fair trade" practices, this is not why they do it. What's more, even if they do lose a few pennies per cup (not an insignificant amount) from ethical sourcing, we can reasonably expect that Starbucks would lose a substantial number of customers if they announced a "pro-exploitation" corporate policy.

In this notion we can see the seed of Target's donations policy. In many people's mind Target is defined as an upscale, ethical Walmart. The fact that they donate a few million to charity each year can be stripped of ethical connotations if we call it a form of branding. Perhaps there is, a Mark Perry points out above, a more efficient way to philanthropize, but there are certainly fewer visible ways that directly tie the corporation to the values they are affiliating with.

Chick-Fil-A, similarly, makes a big deal of being a Christian business, from closing on Sunday to donating to anti-gay charities. This is because they wish to be seen as a particularly ethical fast food place (as opposed to their more morally neutral competitors) and they believe as a business decision that the money they lose by being closed on Sundays is less than the good will they generate from being so visibly Christian.

Can a firm go too far?

If we can thus justify a firm donating profits to charity, is there anything that a firm, in its nature as a profit generating entity, cannot do? Setting aside illegal acts, and setting aside the fact that a firm engaging in this sort of ethically weighted branding risks affiliating incorrectly and alienating too many customers, I would say that the answer is no. The most important asset that a firm has is its reputation, and while a firm may decide that certain reputation boosting activities are undesirable in a given context, one cannot categorically shut off any such avenue for all firms in all times.

Purchase is the same as endorsement

It is a fundamental conclusion of economics that when something makes a profit, then that thing is encouraged. A key challenge for businesses, however, is figuring out when they have a successful something what parts of that something made it so successful. After all, every purchase is a purchase of a bundle of things. For example, I purchased a chicken sandwich from Chick-Fil-A this Friday. I knew that I was motivated principally by the taste interaction of the delicious chicken and the pickles. However, the only signal I gave the Chick-Fil-A corporation was a small amount of profit on a "number 1 meal". Included in that meal was a chicken patty (cooked and breaded a certain way), a bun, pickles, waffle fries (with both interesting taste and texture), soda, and ketchup, as well as all the fixed costs (since I may not have come in if the structure was unsound or unattractive), the in-store business practices (perhaps I am endorsing the wage/benefit schedule), the courtesy and efficiency of the employees, the fact that some of the profits would go to anti-gay groups, the fact that the establishment is nominally run on Christian principles, and hundreds of other things I may not have even noticed.

When I purchased that meal, I cast seven dollars worth of votes in favor of every single one of those things. Most of them I do not particularly care about, but I have no way of communicating that to the corporation. All they see is that another number 1 meal was purchased and that everything from the highway sign to the final price "worked".

Digressing briefly, this is why there are so many movie sequels. Hollywood sees that a movie does well, but has no reliable way of disentangling the effects from each other. Was it the actors, the characters, the plot, the effects, or more likely a combination of all of these? While Hollywood can notice the broadest trends, such as bigger explosions make more money, there really is no way to disentangle the relationship between actor, character, and plot, so when they find a good combination then the surest way to do well is milk that combination for all that it is worth. Hence "Night at the Museum 4".

Because the corporation is blind to consumer intent at the sort of level which would allow someone to purchase a chicken sandwich without endorsing an anti-gay message, we must necessarily conclude that, for the most part, purchase is an endorsement of every level of the business's practices. While you may be ignorant of these practices, or actively disapprove of them, you have helped fund every single thing the corporation does.

Conclusion: Voice, Competition, Entry, and Exit

How, then, can we enjoy our Starbucks coffee while still opposing the moral framework of fair trade? There are four possible answers to this (that I can think of) and two of them are wrong.

"Only what is in our hearts really counts", or I am not actually supporting fair trade, because though I make these purchases I don't actually like it in my heart. This is rank hypocrisy, and fairly obviously bull.

"My contribution is tiny, and rounds to zero". This is especially convincing since most of the money goes to the building and workers and base cost of coffee. It is possible that I am not paying a whole cent for the fair trade aspect of my coffee. And yet we know that it does not, in truth, round to zero, meaning that we are to some degree engaging in unethical activity. Further, if we undertake this action we cannot reasonably urge others to refrain from it for ethical reasons, and it is only in the aggregate that enable such morally dubious enterprises as fair trade.

A slightly more attractive version of this is that my contribution in a bundled purchase is very small, and I can counteract the evil I commit by purchasing indulgences, or "offsets" as they are now called. If I support gay marriage, the thinking goes, I can cancel out the villainy of eating at Chick-Fil-A so long as I donate as much or more to pro-gay causes. And yet this is clearly a second-best solution, and if you believe as I do that good deeds cannot be compared to evil deeds (a fine topic for a later post) then it still leaves your soul stained. After all, if you were truly pro-gay, you would donate that money anyway and boycott Chick-Fil-A so that you enable absolutely no intolerance. It is for this reason that I consider offsets to be fundamentally childish displays, and believe that people who purchase offsets (outside of legally mandated markets, like pollution offsets required by law) are profoundly unserious about the thing they claim to support. (As an example, both PETA and the Catholic Church are totally committed to their causes, and can you imagine PETA selling bacon offsets, or the Catholic Church saying that adultery is OK if you donate enough to the church?)

"Too many behaviors have been placed in the ethical realm". This is half of my answer and it eliminates a large number of seemingly ethical quandaries that would otherwise paralyze my shopping. This answer can come from apathy, since if you neither know nor care about fair trade then it doesn't matter to you if you end up supporting it or not. This answer can also come from a place of profound philosophical humility (another fine future post), admitting that while I as an individual must make choices for myself, I have neither the wisdom nor the desire to decide and enforce ethical decisions on others except in the most extreme of cases (murder is bad, etc.). Thus, while if I were to start a restaurant, I would not give money to tradition marriage lobbying groups and would avoid sourcing fair trade products, I am in no position to tell others what to do.

"You can't". This is the other half of my answer. At the end of the day, every dollar you spend is an endorsement of everywhere that every fractional penny goes, and it goes a whole lot of places. There is no way to escape this fact. You can either boycott everything you think is immoral (and likely find a great deal of respect for the previous answer in the process), or you can accept that you are inconsistent and do bad things even when you do not mean to. People are complex, and do all sorts of stuff that they rail against, Conservatives, Liberals, and Libertarians all. After all, being morally pure, for any given definition of the term, has costs and benefits and perhaps a given increment of moral purity is worth less than a delicious chicken sandwich. If you go this route, does it make you a bad person? Yes, yes it does. Once you have found your moral code, you either need to give up those things which are immoral or accept that you are doing the wrong thing.

Perhaps next week's post will be titled "How do I live with myself even though I am a terrible person?"

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