December 12, 2005
Round-Up on “Giving Back is a Slippery Slope”: The Difference Between Business & Economics
By Joseph Newhard
In a recent article titled Giving Back to the Community?, I explain that the implications of that overused phrase are meaningless and unfounded in the logic of human action. I begin by citing one recent act of corporate charity: Google's $1 billion effort to, among other things, fund anti-poverty and healthcare programs. From there I explain that while businessmen are free to give their profits away as they please, they are under no obligation to do so, despite claims to the contrary made by the political left.
Robert Capozzi counters my argument in his article, Capitalism, Corporations and Charity; Another View, in which he offers a thoughtful and persuasive defense of Google's charitable effort as sound business practice consistent with the ideals of capitalism. While I do not dispute this, in extolling the business aspects of corporate acts of philanthropy, Capozzi's argument totally circumvents my main thesis; that there is no obligation on behalf of corporations to "give back to the community."
The purpose of invoking Google in my article was not to address whether or not its recent charitable act was a wise or ethical business decision, but to provide anecdotal evidence of the kind of acts of charity I would be discussing. In fact, the broad question of corporate obligations to society transcends any one individual act of corporate charity -- even $1 billion ones. My article renders no judgment regarding the merits of voluntary corporate charity in and of itself, and the fact that these merits seem to be Capozzi's sole concern makes his article an inadequate critique of mine.
In fact, private individuals and businesses that engage in altruism are not my concern at all. Capitalism, as Capozzi correctly enumerates, is about free choice for individuals, including the choice to give to the poor. Such desires are subjective and are not "good" or "bad" as far as the science of economics is concerned. On the other hand, decisions are either "good" or "bad" in a business context. Some actions further a business's goals, while others hamper them. Entrepreneurs like Sergey Brin and Larry Page are more well-equipped than almost anyone else to determine if their charitable actions will advance Google's best interests. This is a question I deliberately avoid in my article, though you wouldn't know it if you only read Capozzi's article.
The fact is that economics as a positive science can be a poor guide regarding proper entrepreneurship. Walter Block, Professor of Economics at Loyola University New Orleans, laments that he is sometimes asked, "If you are so smart, why aren't you rich?" Of course, the answer is that economics -- the study of the production and exchange of goods and services -- is wholly different from entrepreneurship -- the production and marketing of goods and services useful to consumers. While I can explain the principles of microeconomics rather easily, I'm hard-pressed to offer Google advice on whether or not adopting a policy of charity will help the company succeed and grow.
As Capozzi points out, Brin and Page have been hinting towards this venture for quite some time, a wise decision on their part considering the extent to which the market hates surprises. They are right to now make good on this promise. And as a matter of fact, such acts of charity can serve as excellent tools of self-promotion. The fact is that we live in a society that values altruism, in part because of the popular misconceptions bromides like "public responsibility" serve to propagate. Companies are partly to blame for these misconceptions every time they invoke "giving back" as the moral standard of their actions -- as Google has done in the past.*
Given Capozzi's article, our differences may be only nominal, and at most regarding only proper entrepreneurship instead of something more fundamental, like the nature of voluntary exchange. While he defends Google's charity as capitalism at its best, I continue to refrain from rendering any such judgment, concerned solely with the question of Google's charitable obligations -- obligations which I continue to assert to be nonexistent. The difference between a business evaluation of Google's charitable behavior, and my analysis of the valuations between buyers and sellers, is manifest.
My point is that only entrepreneurs like Brin and Page are in a position to determine if charitable acts are in a corporation's best interest. I therefore restrict my analysis to the matter of whether or not corporations have any obligation to give to charity. Whether Brin and Page should be commended or condemned for their acts, or whether capitalism needs more or fewer philanthropists, were not questions that concerned my investigation into the nature of voluntary exchanges. I make no judgment of whether or not individuals should freely give to charity, as that is an ethical consideration beyond of the scope of what I was attempting to accomplish.
* "As a company we are interested in giving back to the community." - Sheryl Sandberg, Google's Vice President of Global Online Sales and Operations.
Joseph Newhard is a freelance writer. He holds degrees in Economics and Political Science from The Ohio State University.
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