What Does Financial Capital Owe Society? Corporate Social Responsibility Is a Worthy Goal, but It's No Substitute for Regulation, Subsidy, and Government Sponsorship of Social Institutions

By Zigas, Barry | The American Prospect, July-August 2009 | Go to article overview

What Does Financial Capital Owe Society? Corporate Social Responsibility Is a Worthy Goal, but It's No Substitute for Regulation, Subsidy, and Government Sponsorship of Social Institutions


Zigas, Barry, The American Prospect


The idea that private enterprise should be harnessed to the creation of social capital is an old claim given new resonance by the financial crisis. After beggaring millions of people and threatening the global economy with ruin, banks and other credit providers surely have an obligation both to run their businesses soundly and to meet a higher standard of social responsibility. While some argue this could hobble, distract, or damage corporate focus on the bottom line, let's be clear. It was not an excess of attention to social needs that caused the near total collapse of the world's financial system but almost every other kind of excess.

Milton Friedman defined the classic position against corporate social responsibility in an oft-quoted 1970 New York Times Magazine article, where he stated flatly that a corporate executive's responsibility is "to conduct the business in accordance with [shareholders'] desires, which generally will be to make as much as possible while conforming to the basic rules of the society." Friedman continued that "there are no values, no 'social' responsibilities in any sense other than the shared values and responsibilities of individuals."

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Companies, in other words, should stick to their business. Any diversion erodes shareholder value, diminishes focus on what capitalists do well, and arbitrarily bends private investment to pursue public goals, often without accountability for either the choice of goals or the efficacy of their pursuit.

But corporations are creatures of public legislation and regulation. They enjoy limited liability, certification by the Securities and Exchange Commission (SEC), which helps them float stock, and a variety of other public investments that help them do business. Banks, as specialized institutions, have an even more extensive other layer of public benefits in ordinary times, as well as emergency aid in a crisis. These include access to credit from the central banking system, examination and certification of soundness, and deposit insurance. And in the current crisis, government has also used trillions of dollars of public funds to prop up banks' shaky balance sheets and guarantee the institutions' debt, while the Federal Reserve has opened its spigots to provide liquidity as necessary.

THE CONTENTION THAT a corporation owes society something in return requires closer analysis. Some of the benefits that society expects are relatively cost-free or are spread so uniformly across business sectors that they do not impose noticeable costs. But in other cases, pursuing social goals may turn out to be less profitable or to take a measurable bite out of the company's total return.

Many of business' reciprocal obligations to society are fairly basic. As beneficiaries of government's basic civil-society functions, like national defense, corporations are expected to pay taxes and follow norms of good behavior. They may not commit fraud. We do not allow them to deny employment, credit, or other benefits on the basis of race, gender, national origin, age, or sexual orientation. Labor's right to organize and negotiate in its own interests generally is well established, though often breached in practice. Market forces alone cannot be left to assure safety in automobiles or in the air. More narrowly, the Community Reinvestment Act requires banks that take deposits out of communities to give something back, in the form of credit to low- and moderate-income as well as affluent borrowers.

Corporations didn't always accept that these citizenship responsibilities were theirs. Some still chafe at them. But they largely are accepted, at least in broad principle. Some, although not all, of these benefits impose costs on corporations. But they are the necessary cost of doing business in a civil society.

President Barack Obama has made clear that his administration will rely heavily both on broad business regulation and on exhortation to seek an increased level of social investment and responsibility from private interests. …

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What Does Financial Capital Owe Society? Corporate Social Responsibility Is a Worthy Goal, but It's No Substitute for Regulation, Subsidy, and Government Sponsorship of Social Institutions
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