Strategic CSR - Economics

The article in the url below is a review of a book titled, Cents and Sensibility: What Economics Can Learn from the Humanities. As the subtitle suggests, the goal of the book is to point out that economics (the study of human exchange) loses much of its predictive value without an understanding of the humans it is trying to study:

 

"Covering such topics as university admissions, child-rearing, organ harvesting and economic development, the chapters each analyze public questions first through economics, and then through literature. The conclusion is that economics—a hugely influential approach to studying human societies—isn't worth all that much without first understanding what it means to be human."

 

This duality is demonstrated excellently by Adam Smith's massive contribution to the field of economics:

 

"They exhort students of economics to grasp that the author of The Wealth of Nations also wrote The Theory of Moral Sentiments. The real Smith observes that human beings summon qualities of sympathy balanced with their self-interest. People are not merely economic maximizers: They are ethical creatures from the get-go."

 

An excellent example illustrates the intuitive nature of the book's argument:

 

"You can't measure gross domestic product or unemployment without first saying what they are, qualitatively, as categories of interest to humans. If we were to decide that a society were best judged using the number of houses of worship erected—or, for that matter, the number of M&M candies consumed—such a measure, not dollar-value output, is what we would study. There is no God-term telling us from the outside what categories humans care about. Economics, physics, biology, history—all need the first, humanistic, categorizing step."

 

The book's authors build on this fundamental point to critique the current focus of education in many Western societies. Concerned about the West's declining prowess in math and science subjects, reformists are calling for the pendulum to swing too far in the opposite direction:

 

"… most of what actually goes on in STEM's 'M' and 'S'—and even a good deal of the 'E'—is, like the humanities, an inquiry into the artistic or intellectual products of humans."

 

The message here is great, I think. The Financial Crisis of 2008 shows us many things, not least of which is that an over-reliance on economic models that incorporate unrealistic assumptions about human behavior are destined to lead to poor public policy decisions. While this is very true, however, the opposite is also true—there is much that the humanities and social sciences can learn from economics. Models of corporate social responsibility that make unrealistic assumptions about human behavior have little of value to offer contemporary debates about economic and social life. As this book reveals, it is essential to incorporate ideas from across the intellectual spectrum in order to have a mature discussion of where we are and how we got here and, of course, set a reasonable path to changing the situation (if that is what we decide to do).

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

A Human Face For Economics

By Deirdre N. McCloskey

September 14, 2017

The Wall Street Journal

Late Edition – Final

A15

https://www.wsj.com/articles/economics-with-a-human-face-1505343242

 

Strategic CSR - T-shirts

Modern supply chains are highly evolved systems. Think of almost any product and its supply chain will be more complex than we can imagine. In my class, I find it difficult to convey this point to students in a way that re-creates this complexity, but also marvels at the intricacies of the markets that evolved to produce even the seemingly most simple of products.

 

Two resources I have picked-up along the way help in this process. The first, is a video by the Planet Money team at National Public Radio (NPR) who set-out to make a t-shirt and follow their product from design board to store in order to fully understand the process:

 

http://apps.npr.org/tshirt/#/title

 

The second is a quote from Adam Smith’s The Wealth of Nations. It is amazing that Smith was able to comprehend the complexity and beauty of the market and its ability to aggregate the effects of the millions of micro decisions that get made every day in the process of generating products that people demand:

 

“The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. . . . Let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brick-maker, the brick-layer, the workmen who attend the furnace, the mill-wright, the forger, the smith. . . . Without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.”

 

As noted in the article in the url below from The New Yorker that reviewed Smith’s ideas, it is the combined effect that is truly amazing:

 

“… all these people working together, absolute harmony among anonymous individuals, motivated not by the will to cooperate but by the pursuit of their own interest … that's what makes the coat.”

 

Take care

David

 

David Chandler & Bill Werther

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/

 

Market Man

By Adam Gopnik

October 18, 2010

The New Yorker

http://www.newyorker.com/arts/critics/books/2010/10/18/101018crbo_books_gopnik

 

Strategic CSR - Free markets

The article in the url below highlights the inefficiencies of markets—in particular, the market for energy and the government subsidies that distort it to such a great extent. A more enlightened approach to government support for this market, the article claims, would help correct federal deficits as well as begin to address important social challenges, such as climate change:

 

“The International Monetary Fund, in a comprehensive critique of the subsidies released Wednesday, wants to change that. Energy subsidies, it says, aggravate budget deficits, crowd out public spending on health and education, discourage private investment in energy, encourage excessive energy consumption, artificially promote capital-intensive industries, accelerate the depletion of natural resources and exacerbate climate change. Other than that, there is nothing wrong with them.”

 

Governments use subsidies to placate their citizens and the large businesses that produce energy:

 

“The most obvious way that governments subsidize energy is by charging households and businesses less than it costs to produce and distribute gasoline, cooking fuel and electricity. Taxpayers, now or later, pick up the tab. The IMF says these subsidies added up to $481 billion in 2011. Globally, this amounts to 2% of government revenues, but about 22% of revenues in the Middle East and North Africa. … Globally, holding down energy prices increases consumption of fossil fuels. Eliminating those direct subsidies, the IMF estimates, would reduce energy consumption enough to bring the world one-fourth of the way toward the goals set at the climate-change conference in Copenhagen in 2009.”

 

This graphic that accompanies the article demonstrates how these subsidies, on a global scale, add up to $1.9 trillion a year:

 

http://si.wsj.net/public/resources/images/NA-BV653_CAPITA_G_20130326180304.jpg

 

Ultimately:

 

“‘The question is whether a country should choose to let someone buy something for $1 when the total cost—both of producing it and the costs imposed on society—are $1.25,’ says David Lipton, the IMF's No 2.”

 

This conversation feeds into the idea of lifecycle pricing (Chapter 8, Case-study: Lifecycle Pricing, p473). What should be clear from the example above, and others cited in the third edition, is that markets do not currently do a good enough job of accounting for the true costs of production in the prices that are charged to consumers. The reason for this is that the markets we have created are riddled with inefficiencies (what economists call externalities and politicians call subsidies, tax breaks, loopholes, etc.). These inefficiencies introduce costs into the system that prevent the final price reflecting a product’s true value (i.e., its total costs).

 

As such, we need to reform our market system. The goal should be to work towards a model in which all inefficiencies are eradicated and all costs are included in the price that is charged for each product and service. In other words, the price of a product should not only include the cost of production, but also include the costs associated with replenishing the raw materials used and disposing/recycling of the waste after consumption. Attempts to put a price on carbon reflect this process (either through a carbon tax or cap-and-trade program), while firms’ efforts to develop carbon footprints (Chapter 8, Figure 8.4, p538) provide a possible means of implementation.

 

An economy where externalities are internalized, and embedded within a moral framework (see the CSR Filter, Chapter 4 and Conscious Capitalism, Chapter 5) moves us closer to the economy Adam Smith envisioned and wrote about in his classic treatise The Theory of Moral Sentiments—truly free markets filled with values-based businesses and vigilant stakeholders (see: Strategic CSR: Free ‘free markets’).

 

Take care

David

 

David Chandler & Bill Werther

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/

 

 

Rethinking Energy Subsidies

By David Wessel

March 28, 2013

The Wall Street Journal

Late Edition – Final

A2

http://online.wsj.com/article/SB10001424127887323361804578386033482868260.html

 

Strategic CSR - Adam Smith

The article in the url below by Jeffrey Sachs critiques Adam Smith’s concept of the ‘invisible hand’ (“self-interest, operating through markets, leads to the common good”). While the invisible hand works in principle, Sachs argues, in terms of maximizing social welfare:

“… the paradox of self-interest breaks down when stretched too far.”

In particular, Sachs identifies four ways in which “Self-interest promotes competition, the division of labor, and innovation, but fails to support the common good”:

“First, self-interest fails when market competition breaks down. Second, self-interest can easily turn into socially unacceptable inequality. Third, self-interest leaves future generations at the mercy of today’s generation. Fourth, self-interest leaves our fragile mental apparatus, evolved for the African savannah, at the mercy of Madison Avenue. Today there is evidence of both hopelessly addictive consumerism and brain numbing cultural forces.”

He concludes:

“For these reasons, successful capitalism has never rested on a moral base of self-interest, but rather on the practice of self-interest embedded within a larger set of values.”

There is a lot going here. First of all, I am not convinced Sachs’ “four ways” are really four ways, but more likely two ways. The second seems to be an outcome of the first, and the third is not specific to capitalism—however we decide to organize things in this life, future generations will bear the consequences of those decisions.

It seems to me, however, that the conclusion Sachs draws from the ‘flaws’ he identifies in Adam Smith’s model is very important—the idea that capitalism can only ‘succeed’ when embedded in a larger value system. In other words, some form of individual restraint is crucial. In many societies, that value system is provided by religion. Without that or any other form of civilizing restraint, capitalism can degenerate into raw selfishness and deceit.

Later in the article, Sachs refers to Andrew Carnegie’s Gospel of Wealth, which I hadn’t read before and found fascinating. Here was Carnegie writing in June, 1889 (I wonder how he would have judged society today):

“This, then, is held to be the duty of the man of Wealth: First, to set an example of modest, unostentatious living, shunning display or extravagance; to provide moderately for the legitimate wants of those dependent upon him; and after doing so to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community--the man of wealth thus becoming the mere agent and trustee for his poorer brethren, bringing to their service his superior wisdom, experience and ability to administer, doing for them better than they would or could do for themselves.”

This work, together with the reviews and excerpts I have been reading from Charles Murray’s excellent new book (Coming Apart: The State of White America (1960-2010) e.g.: http://online.wsj.com/article/SB10001424052970204301404577170733817181646.html), suggest systemic deficiencies with our dominant economic system that generate significant (and presumably, at some point, irreversible) social consequences.

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

Instructor Teaching Site: http://www.sagepub.com/strategiccsr/

The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/

Self-interest, without morals, leads to capitalism’s self-destruction

By Jeffrey Sachs

The Financial Times

January 18, 2012

http://blogs.ft.com/the-a-list/2012/01/18/self-interest-without-morals-leads-to-capitalisms-self-destruction/

Reprinted here: http://theoligarch.com/capitalism_justice.htm

Strategic CSR - Adam Smith

The article in the url below is a review of a book titled SuperCooperators: Altruism, Evolution, and Why We Need Each Other to Succeed. The review is by David Willetts, currently Britain’s Minister for Universities and Science, but someone who rose through the political ranks via Margaret Thatcher’s policy unit when she was Prime Minister.

Essentially, Willetts is using the review to advocate on behalf of the current UK Prime Minister’s push for a “Big Society,” an idea which softens the right-wing emphasis on the preeminence of markets by incorporating the importance of the social relations in which we are all embedded and rely on (think George W. Bush’s “compassionate conservatism” or a 21^st century version of George H.W. Bush’s “1,000 points of light”).

Rather than summarize the book’s (and review’s) arguments, which are complex (focusing on the “nexus of evolutionary biology, game theory, and neuroscience”), I quote the first paragraph as the framing of the article and encourage all who are interested to read further:

“Adam Smith’s Wealth of Nations outlines the logic of modern capitalism; a world of competition in which benevolence is irrelevant. But in The Theory of Moral Sentiments he gave an account of morality resting on empathy and conscience as an impartial spectator observing our actions. The Adam Smith problem – how to reconcile these two great books – is also the challenge of how to order a society in which competition and ethical sensibility are combined.”

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

Instructor Teaching Site: http://www.sagepub.com/strategiccsr/

The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/

Book Review: The invisible hand that binds us all

By David Willetts

April 25, 2011

The Financial Times

Late Edition - Final

8

http://www.ft.com/intl/cms/s/2/f3e5965e-6e9a-11e0-a13b-00144feabdc0.html