Starbucks will give me 10 cents off my next drink if I bring in a reusable tumbler and save a paper cup. Their advertising blurb encourages me to think of the effect on the environment if thousands of people traded their paper cups for Starbucks’ reusable mugs. Retailers are feeling increasingly charitable these days. The sale of ‘pink’ merchandise to benefit breast cancer research has become familiar to shoppers who immediately associate the branding with the Cure Global Breast Cancer movement. Southwest Airlines donated a dollar to the Make A Wish Foundation every time a passenger checked into a Southwest served airport. The Department store Kohl’s recently gave away $10 million to various schools decided by the votes of their fans on Facebook. Tim Cook, apparently responding to criticism that Steve Jobs was not known for his charitable donations, has started to turn Apple into a more charitably inclined business by promising to match employee charitable donations, dollar for dollar. The list goes on.
There is a sense in which all this is wonderful. The ‘harsh’ side of capitalism is being ‘softened’ by the realities of the market place. ‘Selfish’ entrepreneurs are being forced to act more ‘altruistically’. On the other hand, if you are of a more cynical frame of mind, you might argue that all that is happening is that entrepreneurs are being forced, under competitive pressure, to pander to the sensibilities of their customers. If charitable contributions make their customers feel better about their self-indulgent purchases then so be it. Market rules. An even more cynical view would be to question whether these charitable promotions actually do what they say they do. Presumably the environment would be even better if nobody bought any coffee at Starbucks? When Kentucky Fried Chicken decided to donate 50 cents to Susan Komen’s Global Cure For Cancer, for every bucket of chicken sold, it was rightly pointed out that fat is a known carcinogen, and that KFC, by selling fat-laden foods, was actually predisposing women to breast cancer.
There is another issue regarding these charitable promotions that is an even graver concern. In 1776 Adam Smith published The Wealth of Nations with the purpose of defending the natural system of liberty i.e. the rule of law, unobtrusive government, private property, specialization of labor, and free trade. He argued that, to prosper, a society needed little else than “peace, easy taxes, and a tolerable administration of justice”. Far from flattering the business class, Smith famously said that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Smith did not credit the positive outcome of trade and business to the virtues of business people. He said “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” He went on to say that, nevertheless, through the invisible hand of the market, the business person will “promote an end which was no part of his intention…By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.” This is undoubtedly Adam Smith’s greatest contribution to classical liberal thought – society uses private gain to bring about social good.
In the light of Smith’s insight let us re-examine the charitable promotions mentioned above. Isn’t it enough that Apple produces some of the best designed and most extraordinary consumer electronics products in the world today? Does it really have to ‘improve’ its image by building a reputation for philanthropy? Southwest Airlines is one of the best run airlines in the world and that is why it has been profitable every year since 1973. No other U.S. airline can say that. Why then, does it feel the need to run a charitable promotion? It cannot be that they believe customers will actually change their airport destination for the sake of $1.
I suggest that we are in danger of forgetting Smith’s insight that private gain can lead to social good. Children are no longer taught how markets convert private gain to public good. On the contrary, they are taught that public good is brought about chiefly by public and community service, by volunteering, by getting involved in politics and activist causes, and by acts of charity. Consequently corporations are no longer proud to talk solely about corporate profits and feel under pressure to create phony images and grand, but false social visions of a better world, where people eat fatty chicken to promote health and work at Apple, not because the company produces great products, but because fellow employees are charitably inclined. Consumers want to feel good about themselves and their purchases and since they no longer feel good about private gain they demand that their purchases somehow create an additional benefit not associated with corporate self-interest. Smith’s insight goes to the heart of how markets work. If we can no longer be proud of private gain, we can no longer appreciate the magic of markets. We lose this appreciation at our peril. The alternative to markets is not one any of us would seriously wish to contemplate.
“Companies are not charitable enterprises: They hire workers to make profits. In the United States, this logic still works. In Europe, it hardly does.” Paul Samuelson