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July 17, 2013

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Anonymous

With increasing automation, capitalist firms are sowing the seeds of their own destruction unless consumers of their products can be found/created.

Hence firms need to produce consumers, either as an explicit goal or as a by-product,if they are to realise their imputed profit-maximising goals.

The business of business is business, said Friedman. True, perhaps, provided the business of business is also to create un-leveraged demand for its produce.

It's not so catchy, though.

WNY-WJ

The statist solution pursued weakly during the New Deal, then strongly from WWII entry into the 1960s, required a collective understanding of interests that is not likely to be forthcoming today. American society is too fractured - whether by design or accident - to allow for collective action.

The results of collective action in WWII - victory and economic recovery - sadly remained ingrained only among the then-living generations. A successful counterrevolution against the lessons learned during this time frame occurred at the earliest opportunity: as the "boomers", with no living memory of the Depression or WWII, began to dominate society.

Anonymous

" To think that power can be restrained by social norms, as Jesse does.It's a good conservative position, to think that free markets are welfare-enhancing if they operate within a particular moral code."

Surely, a Marxist riposte to this is that the social norms derive from the economic base and mode of production? If the moral code and social norms are set by capitalists, whose only objective is to accumulate, then the idea that welfare maximising social norms will exist within unbridled capitalism seems fanciful under a Marxist hypothesis

Errol

The trouble with presenting a Marxist approach to business is that... it's easily discreditable nonsense.

Marxism is a failed philosophy that cannot exist in the modern world.

The politician is wrong in how they view the role of the company. It is a statist, backward view to leap on a bandwagon of tax and waste.

Companies exist to make money return investment to their owners. A part of this growth is to create jobs. Those simple processes encourage the correct behaviour of the owners. The attempt to penalise business does not work. These are passed on to customers and employees. The only way is to incentivise by considering the sole purpose of what business is for.

greg

Companies have too much power for their own good. In the absence of countervailing powers, they are free to drive wages to a minimum, even subsistence levels. While good for each company, this is bad for all companies, since labor is the ultimate market for all production, and driving wages to a minimum destroys that market. It is a failure of composition.

Milton Friedman was simply wrong, See: http://anamecon.blogspot.com/2012/06/milton-friedman-social-responsibility.html and was instrumental in creating a culture of leadership which, by pursuing its narrow self interest and externalizing all costs, is destroying the economy that provides its wealth, and our wealth, also.

Social responsibility merely means including social costs in the corporation’s calculation of profit. In the present of Milton Friedman’s world, social norms are inappropriate for corporations to exercise this restraint, and force of law is required. But corporations have co-opted government, the law is rendered ineffectual in this, and so, until and unless this is remedied, we are all screwed.

Kate Jackson

Also, in regards to "moral" constraints on firms - capitalism, as Schumpeter stated so well, has a way of breaking down historical, traditional values. It tends to encourage us to view the world through the lens of a balance sheet - costs and benefits, quantitatively measured. This may be why, for example, big banks feel free to break laws willy nilly, and to pay the fines as a normal part of business operations.

"Morality" under capitalist ideology requires us to accurately measure and account for "externalities" - social costs (as set forth above). SEC fines need to be REAL. And we need to start holding actors responsible for risk, pollution, etc.

Kate Jackson

One problem with Friedman's theory is that it presumes that "profits" are earned in the normal sense - a company creates a product for which there is a demand, maybe builds a factory or an office, hires workers. In this way, jobs lost through creative destruction are replaced; the public arguably has its "rational" will fulfilled, and the world keeps churning ever on upwards.

But when profits amount to nothing more than the transfer of value (by exploiting market power, favorable legislation, etc) then it breaks down. E.g., when wage cuts aren't used to fund new investment, but instead used to finance hedge fund takeovers. "Rent seeking," for example. Then capitalism turns into something like a game of monopoly when all the hotels have been built already - we go round and round, trading properties.

When combined with the obliteration of unions, globalization's wage arbitrage, etc., this phenomenon's downward pressure on wages cuts into the consumer demand necessary to encourage new investment. So profits have no where else to go but -- back into the financial markets that exacerbated the problem in the first place.

Miiockm

I don't think a business should ever be expected to do anything other than seek profits. This is why regulation is so important.

Frederic Mari

My take on this:

http://theredbanker.blogspot.com/2013/07/profit-versus-corporate-social.html

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