“Giving back” is a slippery slope: Pro

Giving Back to the Community?
By Joseph Newhard

When a phrase is repeated often enough, and its loudest advocates are those who are most careful to never define it, common misapprehensions have a way of festering into facts. Case in point: most people do not seem to question the notion that companies accumulate wealth at society’s expense, and so are obligated to return a portion of it. Yet placing the nature of this socialist doctrine under scrutiny reveals it as patently illogical and with no basis in economics whatsoever.

Recently, Google founders Sergey Brin and Larry Page announced plans to donate 1% of Google stock towards a $1 billion charitable effort to target poverty, the environment and energy worldwide. Such acts of philanthropy invariably invoke the alleged corporate obligation to "give back to the community." While Brin and Page are free to spend their shares of Google stock as they wish, acquiescing to notions of "public responsibility" only serves to propagate the popular misconception that successful companies accumulate earnings at society's expense and should give some of it back to us.

Note that the socialist argument is not simply that corporations benefit from society, as they do, but that they do so at society’s expense. Or in other words, the value of goods and services rendered by these companies is exceeded by monetary value their customers pay in exchange. And how do the socialists make this determination? Since value is a wholly subjective and personal appraisal of utility, the fact is they cannot. This does not prevent them from trying.

The very phrase "give back to the community" implies that a company's earnings were unjustly acquired and should be rightfully returned to the community. Advocates of this "zero-sum game" worldview probably imagine an Ebenezer Scrooge-like figure getting richer as the poor, dependent on his services, continue to get poorer. However, this premise is false simply by what is meant by the word “exchange.”

To simplify what is deliberately obfuscated behind the socialist’s rhetoric, let’s imagine a hypothetical scenario involving The Coca-Cola Company. Coca-Cola sells their product in Market A, where there are two kinds of individuals. The first are individuals who have purchased Coke products and in doing so have added to Coca-Cola’s earnings. The second are those who have never bought a Coke product in their lives.

Even according to the moral standards of the socialists, by no stretch of the imagination has Coca-Cola benefited at the expense of those who have never bought a Coke product. Since their argument is that Coca-Cola receives its “excessive” profits at the expense of consumers, they must concede that Coca-Cola is not benefiting at the expense of those who are not consuming. So, let’s eliminate that segment of the population altogether.

Regarding those who have purchased Coke products, for the sake of clarity we must examine the market on an individual rather than on the aggregate level (Only individuals participate in the market, not abstract entities like “communities”). If any given consumer deems that the market price for Coke is too high (exceeds the value of Coke to him), then he will not purchase any. If he does choose to buy Coke, he thereby demonstrates that Coke’s value to him exceeds that of his monetary payment, and that Coke's value to him exceeds the opportunity costs of his spent dollars. In the latter case, then, by what brand of dementia does Coca-Cola gain at his expense? And by what twisted form of logic is he entitled to a rebate, ex post facto?

The fact is that whenever money is transferred from consumers to Coca-Cola, Google or any other company, the value of services consumers receive in return does not merely equal, but exceeds the value of their payment. If they equally value their payment and the services, they would remain indifferent between the two and no transaction would take place. If their valuation of the monetary price exceeded that of the services, again, no transaction would take place. By the same token, the revenue generated by Coca-Cola’s operations necessarily exceeds the value to Coca-Cola of the opportunity costs of its capital, labor and production.

This is what economists refer to as reverse valuations between buyers and sellers. In every free and mutual exchange, both parties attach greater value to what they are receiving to what they are giving up to obtain it. So not only is the “fair price” the one determined by the market -- that is, the price consumers and producers agree to -- but the revenue generated by each company is directly proportional to the extent that they satisfy the wants of consumers (or "the community" in left-wing lingo).

It would make just as much sense -- and be equally valid -- if a corporate advocacy group condemned consumers for benefiting from the labor and capital of corporations, and demanded that they “give back” something to these exploited producers of our age. The reason so-called progressives never make this argument is probably because it’s easier to attack one entity that has accumulated great wealth than to attack the many beneficiaries of goods and services of an equal monetary value spread out across the entire population.

Alas, their misguided concern for “social justice” is motivated, not by a sincere desire to somehow “equalize” the costs and benefits to buyers and sellers in all transactions, but by a desire to penalize and punish producers for the great crime of producing a good or service desirable to their customers. The man who creates a superior good that benefits his customers expects to be rewarded for it with their voluntary payments, not to be punished by having his very achievement labeled a vice and turned into the instrument of his own destruction.

Those who echo demands that successful businesses “give back to the community” are in actuality opposed to the mechanism of the market price. They reject the ability of buyers and sellers to determine for themselves their valuations of the goods they are exchanging. Yet those who reject the market price as fair have in mind an alternative system where they themselves, or the parade of idiots that frequent our legislative bodies (anyone but buyers and sellers) will impose prices of the most capricious and arbitrary nature.

Joseph Newhard is a freelance writer and an economist. He holds degrees in Economics and Political Science from The Ohio State University.