Who Profits from War?

Source

Do corporations have any responsibility besides the maximization of profit?

Diplomat Without Portfolio in Davos, by William J. Holstein, NY Times: Dr. Daniel Vasella, chief executive of Novartis, the Swiss pharmaceutical giant, attracted attention in Europe when he questioned Secretary of State Condoleezza Rice ... at the recent World Economic Forum in Davos, Switzerland. He asked whether the United States was "playing into the hands of enemies" through its tactics in fighting terrorism. Here are excerpts from a recent conversation with him:

Q. Are there winners and losers in the process of globalization? A. The concept of winners and losers is wrong. If one looks at economic growth, child mortality and other factors, which you can take as the measure of a country's health, you can see that the number of people living on less than $1 per day has declined steadily, from 38 percent of the world's population in 1970 to 20 percent today. But there has been a very different evolution of various parts of the world. ... The advanced countries have benefited more. If you look at Latin America, East Asia and South Asia, their average income per capita has increased significantly. There is one remarkable exception, where we see stagnation, which is Africa. In sub-Saharan Africa, there has been very slow and poor development.

Q. Do you think the distribution of wealth needs to be improved? A. There is a maldistribution in the sense that we have about 20 percent of the richest 6.1 billion people in the world getting 74 percent of the income... If you take the poorest 20 percent, they only have 2 percent of the income. So there is no way we can say it is well distributed.

Q. Why would you, as a chief executive, raise these issues with Secretary Rice and other world leaders? A. The first responsibility of a C.E.O. is to run his company successfully and generate products which are useful to your customers, resulting in economic value creation. We also have to act responsibly, respecting not only the law, but also fulfilling legitimate expectations that society has of us. Today these expectations in most instances go beyond short-term profit maximization. What people want is that businesspeople behave in a responsible way in communities in which they live, that they treat employees fairly, respect the environment and demonstrate sensitivity to the problems of other, disadvantaged people in the world. I think corporate social responsibility has taken a much more important role than it used to.

Q. What did you say to Secretary Rice about the war on terror? A. It is not a question of whether one should fight terror or not fight terror. Terror is absolutely unacceptable. What we have to stand for is to create and maintain a free and open society. With terror, you destroy open societies.

But in an open society, there must be a place for expressing one's opinion. Critiquing is in some ways an expression of respect. If you do not respect somebody, you do not bother to critique them. Having said that, I do believe that if you are economically, politically and militarily a superpower, then you have to be a role model for the world. If you talk about values and you stand for democracy and respect for human rights, then you have to act accordingly. The world will look very closely to see if there is consistency between what you say and how you act. You will empower your enemies and weaken your supporters if you deviate from your values and principles.

Q. What do you mean specifically? A. You cannot fight a war without casualties and without taking prisoners. But other questions remain, like, Do you torture? We, the open societies in the world, have to apply the strictest standards. We need to treat people with respect. We need to be very thoughtful about not offering ground for anybody to be against us. We have to be thoughtful about the fact that poverty and the lack of education are excellent breeding grounds for terrorists. They can indoctrinate children. That's what's happening in many countries. The perception in people's minds about who we are gets very distorted.

Q. So you're suggesting that there is a connection between poverty and terrorism? A. No question. You are more willing to risk one's life and one's family when you have nothing to lose. People become more thoughtful when they have something to lose. ...

Q. Why do you think American chief executives are so reluctant to talk about poverty and the roots of terrorism? A. I don't know. You will have to ask them. I know that some of my fellow C.E.O.'s believe they should not express themselves on political issues at all. They should just do business. I think that is not the right attitude. First of all, we are citizens of whatever country we are from. We have a citizenship responsibility. Secondly, I do believe we have to examine our own beliefs and value systems regularly. We cannot act in a void. I think there is very clear responsibility.

Q. Might expressing your views hurt your business in America? A. I don't believe so. I believe the Americans are tolerant and self-assured enough to stand up to these questions. ...

Q. But do you think any American chief executive would publicly confront Secretary Rice on these issues? A. Why not? It depends on the understanding of your role as a business leader. Do you just have responsibility for your business and just your people?

Or if you are given this kind of job as a result of fate, your skills or whatever circumstances, do you have also to take stands on subjects that are not directly linked to your business but are important? Many think that politics have supremacy over business, but does this also imply that business is just a tool for government? On this, history teaches us some interesting lessons.

See here for more on the povery-terror connection from Alan Krueger.

Comments

[DD]

Mark you ask "Do corporations have any responsibility besides the maximization of profit?"

One of the best things I've read on this topic is Mark Kleiman's post from October 27, 2005.

(I hope it's ok if cut and paste the entire post here)

Why shareholder value maximization cannot be a complete business ethic

http://www.samefacts.com/archives/corporate_social_responsibility_/2005/10/why_shareholder_value_maximization_cannot_be_a_complete_business_ethic.php

Posted by Mark Kleiman

I distinctly remember the astonished outrage I felt, on first reading Capitalism and Freedom as a teenager, at Milton Friedman's calm assertion that corporate executives' duty to maximize returns for their shareholders ought properly to trump any personal ethical concerns they might feel about actions that didn't actually break the law.

Tyler Cowen [ http://www.marginalrevolution.com/marginalrevolution/2005/10/what_is_the_soc.html] reminds us that Friedman still believes that. Professor Bainbridge [ http://www.professorbainbridge.com/2005/10/cowen_on_csr_pa_1.html ] points out that Friedman's doctrine, which I thought and still think obscenely absurd, is an accurate statement of the legal duties of a fiduciary.

Friedman's argument is simply that corporate leaders are playing with (mostly) other people's money. Failing to maximize profits out of private moral concerns is like giving that money away. If corporate officers want to be charitable, says Friedman, let them do it out of their own bank accounts, not their shareholders'. After all, a trustee who made a charitable contribution out of a trust account would be justly criticized for that. How is a corporate officer -- a trustee of the shareholders' money -- any different? Since profit maximization points companies toward the socially most efficient uses of resources, says Friedman, maximizing profits is precisely the social responsibility of the corporation.

The problem with this argument, it seems to me, is that it proves much, much too much. For one thing, it must apply to omissions as well as acts. So by this standard a corporate officer must have an affirmative duty to seek out ROI-maximizing opportunities, no matter how morally disgusting, as long as they are not actually illegal. (That would include, of course, establishing, as necessary, subsidiaries in countries where the terrible activity isn't illegal, and using lobbying and campaign contributions to change the laws, if feasible.)

By this standard, engaging in the slave trade, back when it was legal, would have been not merely permissible but required. So would working children to death in mines and mills, or inventing and marketing any dangerous and addictive drug that wasn't (yet) illegal. So would financing munitions plants for the Nazis during the 1930s, or helping the Soviet Union during the Cold War, or Iraq in 2001, or Iran or North Korea today, as long as it managed to skirt actual illegality.

And of course, corporate executives would also have had, and continue to have, a fiduciary duty to lobby to keep any currently legal and profitable activity legal: so shipping companies would have had a fiduciary duty to oppose the abolition of the slave trade in 1808 and companies doing business with the Axis the same duty to oppose the Trading with the Enemy Act in 1941.

"When the time comes to hang all the capitalists," said Lenin, "the capitalists will compete to sell us the rope." Friedman would add, "As well they should." And Bainbridge would add to that, "The law of fiduciary duty requires no less."

Can you say reductio ad absurdum? I was sure you could.

And yet there is no sharp line between the obviously obscene cases and such ordinary actions as looking for a good pretext to fire an employee just before his retiree health benefits vest. Once we admit that there are some things too awful to do just to maximize shareholder value, then whether some particular thing is really that awful or just a little bit less awful than that is necessarily a matter for judgment, not for bright-line rules.

Unless we believe that the laws should embody a complete moral code -- a belief no liberal shares -- then it must be the case that there will be some actions that are immoral but should not be illegal.

If so, then surely an individual may justly be criticized for doing lawful but morally outrageous acts: for example, stiffing a waiter who has provided good service, or cheating someone in a business deal in some way that is not, technically, fraud, or driving an outrageously hard bargain with someone in need. That moral onus cannot be abolished by separating that individual into a shareholder and a fiduciary. "It might be legal, but it would be wrong," is a perfectly comprehensible sentence, and cannot be converted into a self-contradiction merely by creating a corporation.

Yes, it would be nice if corporate ethics could be reduced to simple rules. But what Einstein said of theories must also apply to moral maxims: they should be as simple as possible, but no simpler.

[Mark Thoma]

Not at all - Thanks.

[save_the_rustbelt]

Just watched 60 Minutes.

Apparently there is about $8B or so missing in Iraq.

A Bill here, a Bill there, pretty soon it adds up (apologies to the late Sen. Dirksen).

[calmo]

Hubert Herring needs to take a bow for that list poking it in our face like that.
Does it work? We get a clear statement that this war is profitable for a few companies, confirming most of our fears/suspicions.
Just look at the money machines these contractors have become as the war drags on.
And provoking some to ask about the larger social responsibilities corporations might have.
Now maybe Hubert got edited and he, too, provided a slightly longer article detailing the executives behind these companies and their Profits and Percent Changes.
That might have worked better, no? In some of those companies there are large shareholders who benefitted as well. Let's have a look at the political contributions and lobbying companies working on their behalf in more or less the same fashion as corporate structures work for a few to insulate them from this 'social responsibility'.
Or is Hubert encouraging us (not the few) with investment advice?:
Just look at the money machines these contractors have become as the war drags on.