Big business

I’ve been following the views of Tyler Cowen for almost 30 years now, since he spent some time in New Zealand doing a review for the Business Roundtable of the (then) new Reserve Bank of New Zealand Act.    These days he is a prolific and prominent writer –  columnist and blogger –  and a professor of economics at George Mason University, all supported by (apparently) voracious reading.   There is almost always something stimulating and fresh in what he has to say.

But he doesn’t always get it right.  Back in the very early days of the Trump presidency, he ran a column on parallels between Donald Trump and our own Sir Robert Muldoon. I begged to differ, and mostly I reckon my argument looks stronger now than it did in early 2017.

A few days ago he had a column in the Washington Post (extracts here) drawn from his recent book “Big Business: A love Letter to an American Anti-Hero”.  In his column he argues that (so-called) progressives in the United States should embrace big business and see it as an ally in the causes they champion.   On some of the specific issues he lists, there is probably something to what he says (and I’m with him in pushing back against the Elizabeth Warren approach to capitalism and business), but as a general proposition (which is what he makes it out to be) what he claims –  that companies are a source of social and political good, going beyond merely the production they facilitate – is at very least arguable.

Thus, we are told that various large US companies “offered health care and other legal benefits for same-sex partners well before the Supreme Court legalized gap marriage”, and that these moves “put a mainstream stamp of approval on the notion of same-sex marriage itself”.   Some will have regarded all that as a good thing – certainly (which is Cowen’s specific point) the so-called progressives will have.   And in that case, one person’s additional remuneration doesn’t directly impinge on anyone else’s.

One could take the argument further.  There are papers around illustrating the way in which companies operating buses or street cars in the segregated American South championed the cause of bus desegregation.  That wasn’t because the owners were necessarily any more “enlightened” than the rest of the white populace, but because having segregated facilities cost them money.  Desegregation was cheaper and more profitable.

More generally, one of the arguments against the idea that there is some sort of meaningful gender pay gap, arising out of discriminatory practices, is that economic incentives are pretty powerful and should contribute to eliminating any such substantial differences –  if equally productive female workers can be had more cheaply than male ones, there are expected returns on offer to firms that focus on recruiting those women.  In the process, wages for women are bid up and, over time, any excess returns are eliminated.   In apartheid South Africa, it was the white unions not the mining companies that had a compelling interest in preventing the employment of blacks in skilled or supervisory positions.

So a competitive market economy probably is quite good at taking out any differences in remuneration based on employee characteristics that are irrelevant to the production process itself (the relentless tendency towards wage=marginal product), and it is also good at chipping away at regulatory and other barriers that impede the ability of shareholders to maximise risk-adjusted returns.    Street-car segregation might be a positive example of the latter, but it isn’t hard to think of less-positive examples (and as someone who favours low taxes on business and light-handed regulation of the financial system I’m not even going to those “progressive” favourites).  One could think of all manner of corporate welfare programmes that many firms fall over themselves to champion and defend (and which anyone who rejects using them can find themselves pushed beyond the margins of profitability), or incentives around environmental regulation, or financial system bailouts, firms that attempt to portray their corporate interest as the same as the national interest (eg those championing tariffs), or whatever.

And we could revert to Tyler Cowen’s example around attitudes to homosexuality.  He argues

The larger the business, the more tolerant the institution is likely to be of employee and customer personal preferences. A local baker might refuse to make a wedding cake for a gay couple [celebration of a their “wedding”]  for religious reasons, but Sara Lee, which tries to build very broadly based national markets for its products, is keen on selling cakes to everyone. The bigger companies need to protect their broader reputations and recruit large numbers of talented workers, including from minority groups. They can’t survive and grow just by cultivating a few narrow networks as either their workers or customers.

And yet it is Rugby Australia, pressured by large corporate sponsors, which is attempting to sack Israel Folau for quoting the Bible on his own social media accounts on matters quite unrelated to the production of rugby services.  The idea that large firms are generally tolerant of employee preferences and views seems hard to credit these days –  perhaps, on average, they are individually more tolerant of some differences than individual small firms, but individual small firms have much less market power (more places for employees to choose to work).

What is probably true is that big corporates don’t care who they sell to (there is a dollar in it) but are –  and perhaps always were, but on different issues –  quite intolerant of employees with a mind, or conscience, of their own.  The Colorado baker managed to get the backing of the Supreme Court for not being willing to bake a cake explicitly for the celebration of a gay “wedding”, but if an employee of a major chain had attempted to exercise the same freedom of conscience, most likely they’d have been out of a job.   Again in the US context, Brendan Eich was forced out as CEO of Mozilla for having made a modest donation to a campaign against legalising same-sex “marriage”.    In the last few weeks, a major tech company sent out a message to all staff, apparently cautioning that if staff weren’t totally onside with the corporation’s “diversity and inclusion” programme, it could affect their pay or even their future employment.

Now, in many respects those examples go to Cowen’s point: much of US big business is very much of the same ideological hue as the political “progressives”, at least when it comes to social issues.

But here again there is another side to the issue.   When Wilberforce was leading the fight to abolish the slave trade in the British Empire in the early 19th century, it wasn’t big business interests that were right behind him –  indeed, when slavery itself was finally abolished, it was only possible with large compensation payouts to those who had enriched themselves on maintaining in slavery their fellow human beings.

Or nearer to our time, take attitudes to the People’s Republic of China and the way that evil regime represses its own people (generally) and systematically persecutes various minorities (Muslims in Xinjiang, Falun Gong, Christians, human rights lawyers and so on).  It is business interests that quake at the very thoughts that political “leaders” in countries like our own might even speak up and speak out against such evil, business interests that sully themselves (but presumably don’t see it that way) by continuing to trade with the regime.  Fund managers continue to buy shares in Hikvision and similar companies.  And none of this is new –  foreign companies operating in apartheid South Africa might have wanted to be able to use labour more efficiently, but they had no interest in upsetting the regime; various US companies remained actively involved in Nazi Germany right up to December 1941, and few German companies displayed any great moral courage or leadership either.

This isn’t intended as an anti-corporate or anti-business post.  Private businesses are the form through which much or most of the staggering material wealth we enjoy today is realised.   But businesses are owned, staffed, and run by human beings, and are unlikely to be consistently any better than those human beings.   If anything, and around the limits and taboos that societies might seek to establish and maintain, they will often be worse –  even as they remain very narrowly efficient in marshalling inputs and generating outputs.  Why?  Because of the impersonality of the (widely-held) corporate form and the impersonality of the pressures on them. Widely-held firms are prone to pressure from the mob – on issues that mob has focused on in that particular moment – and, on the other hand, people near the top of a firm can detach from any strong personal ethical sense –  having perhaps a lot to lose individually –  under the guise of excuses like “everyone else is doing it”, or “fiduciary responsibilities”, or a focus on the share price.  Widely-held firms have no particular interest in any values or interests that don’t work to lift the firm’s own bottom line (thus no particular commitment to democracy, or transparency, or whatever, or about the character of those with whom they trade, so long as they honour contracts).   That can have positive elements to it –  the firm just gets on and uses resources efficiently – but stops doing so when firms themselves become political players.  We don’t let firms vote, but we do allow them to donate to political parties, and (more importantly) we give their bosses and boards access and influence in the corridors of power, in ways that aren’t always aligned that well at all with the values and interests of citizens.

So count me sceptical of paeans to big business.  We probably need to be almost as sceptical of them in many circumstances as we should be of big government.

 

 

 

11 thoughts on “Big business

  1. Apparently 70 years ago a CEO of Coca Cola said “We are not selling a sweet fizzy drink, we are selling a way of life”. That would be Australian Rugby’s argument – they are a professional organisation making profits by selling seats at rugby matches and TV rights to the game. So they exert rights over their employee’s public statements where they may impact sales.
    You may point out the same financial pressures were in place when the USA had separate black and white leagues for Basketball and Baseball and when the record companies published pictures of Chuck Berry that left his skin colour ambiguous. It continues to this day with Maori rugby teams not being welcomed in South Africa and I think they are right to do so since selection by race is a very touchy subject in South African society whereas in NZ it is seen as an assertion of pride of origin.
    The issue of the rights of organisations over staff is rather fuzzy – all the schools I went to had school rules and they insisted that those rules were still in place while you were wearing school uniform outside of school hours.

    I agree with your conclusion.

    You may be interested in https://www.spectator.co.uk/2019/03/what-happened-when-an-innocent-christian-preacher-was-accused-of-islamophobia/
    I wonder if the police would have been so heavy handed if he had been either wealthy or white? Clearly the Bible is now seen as a dangerous book. Someone said modern diversity is a room full of people all looking different but sharing a single set of opinions.

    Liked by 1 person

    • That linked article is certainly sobering – and only reinforces my distrust of Police.

      I have wondered what the reaction to the Folau situation would have been were he a white evangelical Anglican (of whom there are plenty in Sydney, many of whom will probably share Folau’s views).

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  2. Hi Michael

    You have covered a lot of ground in this post. Yes, businesses provide a ‘social good’ beyond the goods and services they produce. Meaningful employment and tax revenues would be two obvious examples. Very often (but not always) they provide a social context for employees as well.

    The video clip below contains a very good interview with Thomas Sowell, who argues powerfully the points you make regarding businesses engaging in choices that help minorities in ways that can never be matched by ‘affirmative action’ programs or other forms of government intervention. He argues that blacks have made fewer economic gains in America since the government sought to proactively help them. I’m sure it’s the same for minorities here.

    So that’s the redemptive side of business.

    There is a dark side also, and you allude to it in your post, in as much as they set themselves up to be high priests and enforce the current religious orthodoxy of ‘inclusion, diversity and tolerance’. Folau is presently being excluded by his employer in the name of inclusion. The delicious irony appears to be lost on Rugby Australia.

    They engage in this practice to their own hurt. I was pleased to note that my bank decided this year to withdraw its financial sponsorship of the gay pride parade in Auckland, no doubt embarrassed by the divisiveness and intolerance displayed by its organising committee. Engaging in sponsorship with shareholder funds is always a dubious process at the best of times, and even more so when the CEO and board appears to have the discernment of a teenage social justice warrior.

    If you are engaged in the sale of ethical products and services, then I think to a great extent you have to be very cautious about not serving everyone who wants to be a customer. As a Christian, I’m not sure that refusing to serve someone because of their sexual orientation is particularly valid. Would we be comfortable with Muslim bakers refusing to serve Jews, or Atheist service station owners putting up a sign saying ‘people of faith not welcome here’?

    Internationally, if we only traded with nations we completely aligned with, then the number would be very small indeed.

    The size of social media companies like twitter, facebook, google etc are cause for increasing concern, particularly as they have begun to exercise censorship over who may, or may not publish on their platform. I note recently several libertarian commentators were dumped on the same day from facebook, most of whom were vocal supporters of Trump. In the end, it may be large corporates and not Governments who become the greatest arbiter of free speech and represent the greatest risk to open democracy.

    Liked by 2 people

    • Thanks Brendan. Probably too much in the post and not fully synthesised (sometimes posts are to help me sort out my thinking).

      I suppose my bottom line is that the widely held companies have a profit-maximisation imperative. That often leads to good results, as does me looking out for the best econ interests of my family. But an individual can’t divorce moral and ethical considerations from their choices – values are revealed by their actions – whereas widely-held companies can and do (“whose values”, “whose ethics”,) unless it suits some whim of the CEO. That, often, singular focus can become quite dangerous.

      On serving people of different beliefs, I agree in part, but recall that the Masterpiece bakery example wasn’t about a Christian refusing to serve homosexual people, but being asked for a specially commissioned cake to celebrate a same sex “wedding”. I think people should be free to refuse such services, just as (say) a Jewish baker might reasonably refuse to bake a cake daubed with “Drive Israel into the sea” or some such. I would not expect the Kilbirnie mosque to hire out their hall to the local white nationalist group, and so on. And yet, of course, from the Christian perspective there is the injunction to go the extra mile, and not look to take offence.

      On foreign trade, the issue isn’t whether we are completely aligned, and the choice should be with the individual firm. There is never a country NZ will be completely aligned with, but there are regimes that are pretty demonstrably evil. Decent people would think hard about whether to choose to deal with them
      , and decent govt leaders wouldn’t be hobnobbing with the leaders of such countries. Purely profit-maximising companies – running a “who am i to judge” mentality – might go on, as those US companies did in Nazi Germany.

      In the end, the only real test of values is whether/when they cost something

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      • Thank you Michael, we should indeed be sceptical of big business pursuing “moral” imperatives, the appalling James Damore case at Google for example.
        It seems to me that we have a society completely un-moored, without even an appreciation of what morality means and is substituting emotion. The feeling of compassion is foolishly conflated with a moral good, the highest moral good even.
        Morality is making the best decision on how to act regardless of emotions -compassion, anger, envy etc. Your kid hurts themselves doing something they were warned not to and begins to cry; “you poor darling, let mummy kiss it better. Let me get you a lollipop” is not the moral response; it’s an emotional reaction that will likely have bad, even dangerous consequences. The angry “You little xxxx” and a clip round the ear isn’t morally right either.
        There is a widespread inability to distinguish emotion from morality, ideally two parents, or the left and the right politically, will arrive at a balance, through dialogue, so that emotional responses are diluted and a reasonable balance will result. The political/societal balance between collective and personal responsibility for example.
        That is not happening; the left presume that the right is inherently amoral and that morality is the preserve of the compassionate. It’s naive and dangerous for this to happen, particularly at a time when genuine moral guidance (such as the biblical stories or contact with the old and wise) is missing and the urge to shut down genuine discussion is strong.
        Jacinda Ardern; emotionally compassionate but imbalanced and naive and definitely not a good leader as a consequence.
        PS most of this copied from a post of mine elsewhere. Hope that’s OK.
        Regards,
        David.

        Liked by 1 person

      • In this vein one could cynically observe that not one of the male CEOs of large companies (and Governors) virtue signalling over gender equality has, for example surrendered their own position to an implicitly discriminated against female. No, but they are already discriminating against males in lower positions who in some cases may be the best one for the job. With climate change they can virtue signal happily knowing they are largely insulated from the higher taxes and increased costs that will burden the lower paid, and will they change their own lifestyle? Always (tragically) humorous to hear of entertainment elites flying half-way around the world in their private jets to promote climate change causes, and decry government action on such things.

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      • @ David George – your comment crystallises brilliantly my unformed sentiments on this point. Thank you.

        The traditional western political/cultural order has been replaced by a therapeutic model – to feel and to empathise is a good in itself. To judge another person in moral terms is wrong – we can only investigate their circumstances to explain their actions (e.g. a person was abused as a child, therefore they did XYZ as an adult).

        This worldview pervades everything, business included. The profit motive will not itself deliver a moral or fair outcome (anymore than it did under the previous moral normative narrative), The average consumer, raised and educated in this therapeautic worldview, will react with hostility towards another person making a classical moral judgment – e.g. Folau, and the sponsors must consider that…

        It is not enough today for a business even to say, what person X believes has nothing to do with our business. The economy, the workplace is everything today. One must actively distance oneself from the controversy, or risk attack (see for example the NZHerald covering a column in a hunting magazine critical of the government’s firearm restrictions – the journalist goes straight to the advertisers to name/shame them into dropping their support of the magazine).

        No one rings a bell when we move into a totalitarian state, but I truly believe we are in one now. What obscures this fact is we are not under a one party state, but rather a single ideology, metatised across all pillars of society.

        Liked by 1 person

      • While I substantially agree with what you say, I wonder if what you describe as a “totalitarian” state is not a fairly normal state of affairs for human societies (not saying it is good, just normal). Human societies don’t seem able to cope with too much viewpoint diversity, and transition periods (when such diversity seems to flourish) may be the exception not the norm.

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      • Totalitarian was the wrong term to use – going on a strict definition many states today, e.g. European civil law based ones, are “total” within their national boundaries insofar as everything happening within these boundaries is regulated, standardised or licensed in some form (albeit they are benign totalitarian states and committed to the rule of law).

        I opted for it as it is a pejorative term for governments – I guess it links to the former Communist states which I had in mind as these states, as with our present situation, are also governed by a kind of unwritten and shifting ideological code, which if transgressed (even inadvertently, via a joke) leads to arbitrary punishments, not only from the criminal law – but also via ostracism, public humiliation, denunciation by friends and family, adverse employment conditions. To get ahead one doesn’t have to truly believe in the elements of this code, but only to express the correct opinion at the right time.

        I respectfully disagree with your final bleak observation – I would like to think we are on a path of progress with the occasional deviation, the present situation being one. In the end these movements consume their own people as well (think now of the trans versus TERF debate going on). It links to economics because the servile toadies who pay tribute to these ideas to get ahead will eventually ruin the economy – ordinary people”s tolerance runs out when it costs them money….

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      • Re your final para, I really wish I could share your optimism. I suspect that 150 years ago anyone uttering today’s political/sexual orthodoxies would have been shunned, faced loss of employment, and perhaps in some circs imprisonment, and I don’t say much evidence that human nature has changed for the better now the other “side” is in the ascendant. Add in the greater technological reach of the state (aided and abetted by big business) and I am not at all optimistic about any sort of freedom. Optimists tend to emphasise process, but actually on all sides of these issues people are contesting for “truth” (as they each see it) and the latter seems a more powerful driver than the former.

        But I really hope I’m wrong, for the sake of my kids and their kids as much as anything.

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  3. By ‘who’ or ‘how’ are the “values and interests of citizens” set? Actions speak louder the words but words influence actions.

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