The Robber Barons of Social Change

I think I need to read this book: Small Change: Why Business Won’t Save the World by Michael Edwards. Read the review by Mark Engler and Arthur Phillips here.

Excerpt:
The Ben & Jerry’s story is but a small cautionary tale about the still-growing and already far-reaching field of “philanthrocapitalism.” This is the term that author Michael Edwards uses in his new book, Small Change: Why Business Won’t Save the World, to describe a wide range of activities. It includes Silicon Valley CEOs using “venture philanthropy” to fund new, business-minded nonprofits; stock market traders developing socially weighted investment funds; bankers extending microcredit loans to the poor; and “social entrepreneurs” aiming to simultaneously serve a “double bottom line” of positive public impact and shareholder return.

The activities covered under the umbrella of philanthrocapitalism are diverse enough to offer exceptions to any generalization about the category. But its practitioners would almost uniformly describe themselves as “results-oriented,” implicitly critiquing the ineffectiveness of existing nonprofits and voluntary organizations. Their unifying idea is that business is more efficient and outcome-driven than government and civil society, and that unleashing market forces is the best means of addressing entrenched problems such as poverty, malnutrition, preventable disease, and poor education.

In Edwards’ words, “the basic message of this movement is pretty clear: Traditional ways of solving social problems do not work, so business thinking and market forces should be added to the mix.” During his nine-year tenure as a director at the Ford Foundation, Edwards saw the popularity of this argument skyrocket. He writes, “if I had dollar for every time someone has lectured me on the virtues of business thinking for foundations and nonprofits, I’d be a philanthropist myself.”

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Scapegoating the Minimum Wage

Read the article here.
Excerpt:

What critics do do – in both good economic times and bad – is offer the usual bromide that the minimum wage is a “job-killer.” In reality, though, the most careful studies of state and federal minimum wage increases have found little evidence of job loss. For example, states that raised their minimum wages higher than the federal level between 1997 and 2007 (when the federal minimum wage was stuck at $5.15 an hour) enjoyed lower unemployment rates than states that did not. When Congress finally raised the minimum wage in 2007, the move was endorsed by more than 650 economists, including five Nobel laureates and six past presidents of the American Economics Association, who argued that the increase would significantly improve the lives of low-wage workers “without the adverse effects critics have claimed.”

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Do Market Libertarians Believe Their Own Hype?

Read the article here.
Excerpt:

But in summary, Becker’s view of corporate morality is that the only ethical responsibilities of business executives are to obey the law, adhere to contracts (really just a subset of the first rule), and, most critically, to maximize the price of their companies’ shares. The first coherent statement of this moral view came from the economist Milton Friedman in a full-throated defense of capitalism with the brilliantly blunt title, “The Social Responsibility of Business Is To Increase Its Profits.” Now the bogeyman of creeping socialism that Milton worried about 40 years ago is long gone, as is Friedman himself, who died in 2006, but his contentious and now ossified principles live on in the writings of Becker, his most faithful student.

The Friedman-Becker moral theory has three virtues. The first is its simplicity; it reduces the whole tangle of moral issues to a simple bright-line test. The second is that it is able to justify most miserable behavior and even turn the tables on anyone who suggests, for instance, that companies should worry about the treatment of workers in Chinese factories or the fairness of offering subprime mortgages with usurious terms. To care about things like this is not only unnecessary, the theory suggests, but actually wrong because it betrays the interests of the shareholders who are the executive’s ultimate employers.

The third virtue is that it combines supremely well with the idea that senior executives should have pay packages that rely mainly on stock options and reward them for a single-minded devotion to the share price. The combination of the “shareholder value” theory and stock- and options-based compensation creates a beautifully virtuous circle. The profits of the shareholders are the CEO’s own interests, too, so if acting in the best interests of the shareholders (that is, raising the share price) is the CEOs main moral responsibility … well, gee, acting ethically means acting in his own best interest is always the right thing to do.

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