Chapter 1: The Flipping of the Corporate Narrative

In this section, Peter Foster challenges a widely accepted narrative regarding the detrimental nature of large corporations. The resulting concerns have sparked a movement advocating for Corporate Social Responsibility (CSR), which stems from a fundamental misunderstanding of business operations.

CSR posits that businesses should prioritize more than just profit; they should also consider the interests of stakeholders over shareholders. Economist Milton Friedman asserted that the primary function of a business is to generate profits for its shareholders, but within the bounds of ethical and legal standards. I have previously explored his views and the misconceptions that surround them in an earlier blog.

Capitalism does not require CSR to correct itself. Companies must already comply with environmental regulations, labor laws, and maintain a positive public image to retain customer loyalty.

One prevalent worry is that large corporations may exploit their wealth to manipulate governmental power for their own gain. However, Foster argues that this isn't the complete picture. He begins by challenging the assumption that wealth equates to power. Adam Smith addressed this notion, which Thomas Hobbes introduced long before. While Smith recognized that wealth could buy political influence, he emphasized that it does not inherently mean power.

Smith identified the root issue as the existence of a powerful state, rather than the presence of affluent businesses. Only a strong state could allow a wealthy corporation to corrupt the market; in its absence, businesses must earn their profits by providing value to customers.

States wield coercive power, while corporations possess purchasing power, which are fundamentally different. The state often seeks to co-opt the wealth-generating potential of corporations for its own purposes.

A notable example is when larger chains tout their adoption of a higher minimum wage to attract customers, while simultaneously supporting legislation that raises wages universally, inadvertently disadvantaging smaller competitors.

Another illustration is the prohibition of incandescent lightbulbs, which was less about environmentalism and more about manufacturers favoring the more profitable LED bulbs over the traditional options preferred by consumers.

Foster highlights that a common fear of large corporations arises from a misinterpretation of market dynamics that fosters anti-capitalist sentiments. He has previously discussed some of these misconceptions. The belief that larger entities will always overshadow smaller ones leads to the assumption that "big" will inevitably eliminate "small." However, when larger businesses do outcompete smaller ones, it is typically because they offer something consumers prefer.

For instance, it wasn't the rise of supermarkets or big-box stores that drove butchers, bakeries, or local shops out of business; rather, it was the customers' voluntary shift in preferences. Niche businesses like artisanal bakeries and craft breweries have begun to thrive again, catering to consumers' desire for uniqueness and quality.

This observation raises significant points relevant to our current economic landscape. While there are legitimate concerns about the decline of small businesses due to the proliferation of large chains, it is essential to recognize that this is a natural outcome of the market's allocation of scarce resources. The larger enterprises benefit from economies of scale, enabling them to offer more products at lower prices, ultimately improving living standards.

Instead of focusing solely on the loss of small businesses, we should consider the increased purchasing power of consumers, especially those with lower incomes. Any resource reallocation will inherently create both winners and losers.

Foster also notes that small businesses can still thrive by providing offerings that larger corporations cannot match. Competing on price may be unrealistic for them, but they can excel in quality, uniqueness, or customer service.

Classism also permeates the critiques of large corporations. Retail giants like Walmart are often derided, while customers of specialty stores are labeled as hipsters or out-of-touch elites. Instead of perpetuating negativity, Foster points out that the free market is optimizing our scarce resources to deliver affordable goods to those in need, while also providing specialized products for those who can afford them.

Much of the negativity surrounding these issues stems from an inherent anti-capitalist bias. Interestingly, this bias is not solely propagated by intellectuals; businesses also contribute to it by adopting CSR initiatives.

Economist Joseph Schumpeter emphasized the entrepreneur's role in the economy, which you may recognize from his theory of "creative destruction." This concept acknowledges that innovation often displaces older businesses, thereby reallocating resources to newer ventures.

This process is crucial to capitalism; otherwise, society would still rely on outdated technologies like horse-drawn wagons instead of modern vehicles. Consider the wagon makers and buggy whip manufacturers who went out of business when automobiles emerged. Yet, the advent of cars also paved the way for countless new businesses to flourish.

Foster references Schumpeter's three reasons for capitalism's potential failure. He warned that innovation would eventually become institutionalized within corporations, individual ownership would succumb to the diffused power of corporate management, and that wealth would fund anti-capitalist intellectuals.

While the first two points are somewhat surprising, they are not unfounded. Innovations typically evolve into large corporations that resist outside competition. However, I believe that creative destruction will persist in other sectors, even when certain industries become established norms. Entrepreneurs constantly seek new opportunities, ensuring that innovation remains alive.

The third point is particularly intriguing. Foster notes that the emergence of Global Salvationism and its acceptance by corporations would not have shocked Schumpeter. He observed that the bourgeoisie, while creating their own opposition, often allows themselves to be influenced by it.

This tendency for businesses to adopt self-destructive behaviors should not be surprising, given the prevalent anti-capitalist sentiments. Entrepreneurs tend to be less influenced by these biases, while those who aspire to work in corporate settings may be more inclined to support planned economies and resist the unpredictability of market dynamics.

Conclusion

Both Corporate Social Responsibility and Global Salvationism fundamentally misinterpret the essence of business power. A core assumption driving the vilification of corporations is the belief that control over economic resources equates to oppressive political authority. Critics often portray corporations as greedy entities that amass wealth by exploiting others and harming the environment.

According to "stakeholder theory," which embodies a zero-sum perspective, management is deemed to prioritize shareholders at the expense of other stakeholders. However, Foster argues that businesses cannot pursue profits without considering their reputation; actions that alienate customers will ultimately jeopardize their survival.

Moreover, we already have an existing framework of laws and regulations designed to safeguard employees and the environment, indicating that these "stakeholders" do not require additional intervention from the so-called "scribbling set."

In reality, the push for CSR often stems from the "scribbling set" itself, as it amplifies their significance while undermining the capitalist system they criticize. This unhealthy amalgamation of corporate power and anti-capitalist sentiment has taken on a green hue, which is where Foster directs his attention next.

Indeed, one of the major challenges for corporations in the early 21st century is the exaggeration or outright fabrication of externalities. Nonetheless, some "enlightened" business leaders are willing to bear, promote, or even exaggerate accusations of environmental exploitation that have become central to the anti-capitalist narrative.

The first video titled "IMPACT OF CORPORATE SOCIAL (IR)RESPONSIBILITY ON VOLUME AND VALENCE OF ONLINE EMPLOYEE REVIEWS" delves into how CSR initiatives influence employee perceptions and online reviews.

The second video, "Can Corporate Social Responsibility Be Profitable?" explores the potential profitability of CSR initiatives and their long-term impact on businesses.