Adam Smith’s Invisible Brain
I was watching BBC’s Daily Politics on Monday to catch the latest on the RBS bonus affair that I had just blogged on, and, lo, there was an item on responsible capitalism. They focussed on B&Q, an excellent example of responsible business, but fell into the old trap of thinking the scope of corporate social responsibility begins and ends with supporting the local community. But then, in the interests of balance, up popped a chap from the Adam Smith Institute to declare that CSR was “a tax on the consumer.”
Count to ten.
This is the economics of Milton Friedman – that the only responsibility of an business is to maximise profits for shareholders. Well, we’re still living with the consequences of that sort of thinking – the sub prime bubble, Ponzi-style financial “products”, bank crashes, debt crises, the age of austerity etc, etc. Throughout history, unrestrained markets – in this case financial markets – have bubbled and burst with painful consequences – not least to the shareholders that Friedman claims should be put first, second and last. Left to itself, Adam Smith’s famous invisible hand sometimes punches us in the face.
Let’s face facts. Business operates in society, society exists in the environment. To state the bleedin’ obvious, businesses – and therefore the supply side of the economy – are made up of people. The demand side of the economy is made up of people. Business is a social issue, people delivering value to people in return for financial reward. You can’t get away from that.
And even from a narrowly financial point of view, CSR is good business. Marks & Spencer has made a tidy profit on Plan A, doing the “heavy lifting” on environmental and social issues on behalf of their customers who clearly see that as added value rather than an added cost. B&Q is the fourth largest home improvement chain in the world, so their environmental and social projects have hardly held them back. Procter & Gamble is the highest ranked consumer goods company on the Forbes Global 2000 list, yet they give away their water purification product for free to people in developing countries.
As a consumer I buy from all three because of that added value. And would you rather have shares in a responsible, successful business like these as opposed to worthless shares in an irresponsibly crashed bank?
The title of this post is tongue-in-cheek, by the way. I’m not saying the guys at the Adam Smith Institute are stupid, in fact they are possibly a little too clever to fully understand the real world around them. A little less IQ and a little more EQ (emotional intelligence) might set them in better stead.