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Stop Corporate Charity

December 29, 2010 2 comments

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There are many reasons to oppose corporate charity. It is deceptive, immoral, and border-line criminal. It hinders economic growth for the wealthy as well as the impoverished, and promotes a culture of ambiguity, pompous grandstanding, and anti-productivity.

Under a strict construction of the ethics of contractual agreements, corporate charity is an act of theft against the corporation’s stockholders and other investors. This is obviously so because a corporation is by definition a for-profit entity, and its investors lend their capital to the corporation ostensibly to receive a return on investment in proportion to the corporation’s profits. Investment carries risk, of course, and if a corporation fails to produce a profit by the honest inadequacies of its executives, that is business. On the other hand, if it fails to produce a profit – or fails to produce as much of a profit – because the executives made a decision to donate some portion of revenue to charity, however small a portion it may be, the investors have been cheated out of returns they were owed under their agreement with the corporation. This is exactly the same crime as occurs when executives defraud investors by embezzling company funds into their personal accounts. It is only treated differently because of differing public attitudes about perceived greed and perceived charity, which, right or wrong, should have no bearing on whether theft is a crime.

An argument can be made that the situation is not so clear-cut because corporate charity has gained widespread acceptance, or at least widespread acknowledgment. Since almost all corporations engage in at least some level of charity, it could be argued that investors understand at the time they decide to purchase stocks that some portion of their funds will be given away rather than used for real investment purposes. That’s not a totally invalid point, but it’s extremely shaky. If a consumer buys a sealed box labeled “a dozen eggs”, but knows at the time it probably only contains ten eggs because a short dozen scam is widespread and typical in his town, the fact that he knew he was most likely getting scammed doesn’t make the scam okay. This is what is happening with corporate charity: investors are being scammed out of a portion of their investment, but they expect they probably will be. That doesn’t justify it.

Furthermore, even if we accept the argument that an expected scam is not truly a scam, that leaves open the question of precisely what is expected. Maybe investors only expect that the corporations in which they choose to invest will donate one percent of their money, but the corporations actually donate two percent! Maybe the investors expect that each corporation will steal whatever the average amount of stealing is, but in fact some corporations by definition must steal more than the average. Clearly there is no way to reason out of the reality that deliberately non-profit actions by an explicitly for-profit institution is a criminal act of theft against investors. This alone should be sufficient to compel any honest person to oppose all corporate charity.

This is nowhere near the end of it, though. As with almost all criminal acts, the damage done by corporate charity really extends far beyond the simple breaking of an abstract principle. The principles of contracts exist for a reason, and the violation of them has severe negative consequences for everyone. When executives steal from investors to donate to charities, they decompartmentalize the economy, blurring the lines between production and consumption, and making it harder for investors as well as consumers to make informed choices. Compartmentalization and specialization are necessary in a productive society, because they allow for the greatest success for the most productive entities and the most immediate failure for the unproductive ones. Both production and charity are made more efficient when they are handled separately.

Consider an entrepreneur who innovates in automobile technology, reducing the costs of high-speed transportation sufficiently that millions of families who were previously too poor to afford it now have access. Good for him. His company will likely make a very large amount of money selling these cheaper automobiles, and it should, because that profit is the incentive that brings about innovation. It’s a reciprocal relationship – the entrepreneur is wealthier precisely because he made poor people wealthier. The more people to whom he is able to provide transportation affordably, the more money he will have. In this way he has done a great service to himself as well as to others around him.

Now suppose this entrepreneur donates huge portions of his money to charity, or worse, steals from the investors in his company and donates their money to charity. No matter what sociology professors may say, this is economically a bad idea. It is known that the entrepreneur is talented in production. There is no reason to believe he is talented in charity. He has an inarguable eye for opportunity in investment. He may very well be no more competent than any other bloke when it comes to giving aid. In reality, it is almost assuredly true that he would do a far greater service to the poor – which is to say, would raise their standard of living by a far higher amount – if he would use this money to reinvest in research and development to continue to make his automobiles more affordable, or to add new safety features, or to market a line of trucks, or whatever else he discerns is a wise productive investment. Remember that, if he sells a million automobiles a year, then for every dollar by which he is able to reduce the price of his automobiles the poorer people save a million dollars. Simultaneously, his sales will increase, so he will become richer, and have more money to reinvest. That’s economics, and it works.

When entrepreneurs reinvest accumulated capital and thereby lower the cost of consumer goods, they have another effect which is even more profound. By raising the ratio of value produced to labor required, investors raise real wages for just about everyone. This means that while people need to pay less money at the store to get the things that they want, they also take home more money from their standard day job. That’s a compelling argument against corporate charity and for corporate investment from the standpoint of the working class people. As for those who are too uneducated, disabled, or disinterested to labor for a living, the argument is – believe it or not – even stronger. That’s because it is an empirically demonstrable fact that donations by ordinary people to private charities actually rise super-linearly with income. This means when people make more money, they give even more of the money they make to charity. Thus, a successful investment in research and development will in the long run raise charitable donations more than if the same amount of money were simply given directly to charities – and yet it will do so without the need for criminal deception and the taking of other people’s money. So why don’t these do-gooder corporate executives who want to help the poor start by helping their employees and stockholders, and let people donate to charity with their own money?

One can speculate further that there is yet another mechanism by which corporate charity ultimately reduces charitable contributions, and that mechanism is uncertainty and lack of information. It is assuredly true that, when people donate to charity, they value knowledge of where their money is going, and want to know that it is being used effectively. They want to know how much of their income they donate, and smoke and mirrors surrounding charity will cause skepticism. It is therefore very likely that corporations which engage in charity using money taken from investors without their direct knowledge or consent really discourage other people from donating explicitly and thus reduce total donations. In much the same way that people tend to avoid taking it upon themselves to help the unemployed and homeless when governments claim to provide protection, so also they probably scale back charitable donations when corporations claim to do it for them. This reduction in charity is perception-based, not results-based. So when governments and corporations fail to provide the benefits they claim, and the downtrodden are left to suffer, nevertheless members of the community do not respond, do not take up the burden of charity themselves, because they are told someone else is taking care of it, so it must be someone else’s fault. A mixture of pathological blaming and self-righteous grandstanding takes the place of real work by individuals to help their fellow men, and everyone is worse off.

Finally, corporate charity is used as a rationalization for bad corporate policy, rent-seeking, interference with public policy and government officials, and generally poor quality of products and services. It tends to be a last-ditch effort by inefficient executives to avoid the progress inherent in a free market. Suppose one company is able to sell a product for ninety dollars, while another sells it for the slightly higher price of one hundred dollars, but has a better reputation due to engaging in more charitable programs in local communities. That sounds nice, but almost certainly the latter company’s contributions really do not constitute ten percent of its revenue. Therefore, consumers would do better to buy the cheaper product from the less charitable company and donate just some of the money they save. Some of them will do this, but others will make the mistake of falling victim to feel-good reputation-building that obscures real market efficiency. A greater good is done for a greater number of people by pursuing the most efficient, not the most heartwarming economic goals.

Thus the executive who commandeers funds entrusted to him by others and uses them for his own purposes – even ostensibly charitable ones – is presented with an incentive structure which rewards grandstanding and hollow self-promotion, while the executive who commits the investors’ funds to their intended purpose is required to produce real benefits for the consumers in order to stay afloat. This leads us to a final and critical point which those of you who know me well may have realized was coming from the beginning: So-called corporate “charity” is not charity at all. It is avaricious crime which damages the people it claims to help and helps the people it claims to damage. Executives who presume to achieve moral superiority by being sacrificial with other people’s money are not generous; they are vicious. The particular charities which they happen to favor are deemed worthy of everyone else’s support. So if an executive happens to feel especially strongly about one kind of cancer because of a death in his family, others who suffer from a different cancer must see a loss in funding because the executive is quite happy to steal from the populace and redirect contributions to his favored cause. As a result, charity organizations focus less on creating real results which they can demonstrate to the average person and more on befriending the higher-ups. So-called corporate “charity” robs the investors who risked their money to support entrepreneurship, raises costs to consumers, lowers employee wages, corrupts charities, empowers executives to an even greater extent, and ultimately does exactly the opposite of its purported goal: getting money to charities to help people in need.


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How to Stop All Oil Spills – And Why the Government Has Never Done It

May 25, 2010 3 comments

To listen to the audio version, play the video below. To read the transcript, simply scroll down.

All right, friends. I’m supposed to be running a level-headed show here, but tonight, I am mad. I am very mad, because once again the demagogues are creating a racket by touting themselves as defenders against a real problem that Americans face and instead creating more of the same problem. It has now been 36 days since the Deepwater Horizon oil spill began, and there is no end in sight. Dozens of millions of gallons have already entered the Gulf, which is probably about how many dollars the news media and lawyers are making right now complaining and failing to produce any solution. Of course no solution has been found, because the government’s policies towards drilling ignore philosophy and human nature.

At every turn, at every new spike in pollution of the air and the sea by some careless mega-corporation, the federal government has responded by issuing greater regulation and tightening controls on industry in a racketeering attempt to say they did something. Better to pass an imperfect law than no law at all, right? But their strategy has never worked. There’s a million and ten ways for a company to pollute, accidentally or otherwise, and the nature of legislation is to be reactive. To stop pollution, we need policies that are proactive. We need to be able to anticipate catastrophic environmental damage before it occurs – not yell and legislate about it afterwards. The government cannot accomplish this. For the past century, it has been passing progressively more and more laws regulating businesses that deal directly with the environment, and yet oil spills keep happening, each one seemingly worse than the last. The polar ice caps are still melting, and the only response the feds have ever conceived is more barriers to entry in industry, more government-mandated inspections of rigs, and more taxing and spending. This has gradually increased the real cost of oil for middle class Americans and has never stopped corporations from inflicting collateral damage on the environment through misuse of communally-owned resources.

All of that, though, I have learned to begrudgingly accept. What has gotten me so enraged tonight is the fallacious sense of inevitability with which the whole ordeal is discussed. As soon as the extent of the damage of the spill came to light, the liberals immediately responded with their demands to punish the big, mean corporations for damaging our environment. They said we need more regulation and more government action against big business to show British Petroleum that they can’t just pollute our waters without some accountability. Then the conservatives replied with their predictable economic concerns. “Wait!”, they said. If you try to punish the oil companies by fining them and restricting their business, the cost will just roll over to consumers, raising the price of gas! Barriers to entry will reduce competition in the industry even further, and it will be more difficult for average Americans to maintain their standard of living. That’s the argument you hear – and you here it day in and day out. Take your pick, they say – either allow the corporate big wigs to wreak havoc on society and the planet without any accountability, or cripple the oil industry in regulation and let the American middle class take the hit anyway. And they give you those choices as if it is just natural – As if that’s just how things are supposed to be!

I am here to tell you that I don’t buy it. I don’t accept this dichotomy. The Republicans scream to protect the industry and the Democrats scream to protect the planet, and the result is that neither achieves any success. Government swoops in and does what it does, and when all is said and done, we keep having oil spills and the price of gas keeps going up. It is time for a philosophically different approach to drilling for oil. It is time to implement freedom and responsibility – to allow businesses to compete with one another in a free market to drive down the cost of oil while at the same time placing upon them the responsibility to maintain their own resources, free of pollution. Over the past century, we’ve had plenty of Democrats and plenty of Republicans take office and enact their plans to absolutely no avail. It is time for a new solution – the Libertarian solution.

In a Libertarian’s perspective, the Gulf oil spill is just one of millions of examples of what’s known as “The Tragedy of the Commons.” The tragedy goes like this: When individuals use resources that are owned by the community, it is in the interest of each individual to use the resources in a manner that is not in the interest of the community as a whole. The Commons gets depleted, because each person takes from them recklessly, conserving nothing for the future lest the others should get it first. To a Libertarian, the solution is self-evident: Do not have a Commons. When every individual actually owns a certain portion of the resources, it is in each person’s interest to conserve his own property, and he does not have the right to damage or intrude upon another person’s property.

What I am telling you here is that the only way to prevent oil spills is to privatize the oceans and release all government control of the oil industry. It isn’t hard to achieve. Simply auction off the waters in sections to whomever will develop them. Let the proceeds help pay off the federal debt. Each company or person that buys a section receives a deed to it just like land owners do. Then the protocol for polluting someone else’s waters is just as it would be dumping oil in your neighbor’s backyard: You can’t. If you do, your neighbor will sue you in a civil court.

In essence, what this will achieve is the complete freedom of the oil companies to compete amongst themselves to find the most efficient way of delivering oil to Americans cheaply while also internalizing 100% of the costs associated with pollution. By disincentivizing pollution instead of yelling about it, we will put an end to oil spills. No longer will companies be able to undertake careless practices and make tax-payers and their neighbors accept the consequences. There will be no more discussion of a “cap” for collateral damages; there will simply be no collateral damages. Anyone who commits an act of pollution will be taken to court by a complainant who will actually own property that suffered demonstrable damage. This contrasts sharply with our current system in which British Petroleum is essentially on trial against the government for crimes it allegedly committed against the whole planet. When all resources are in the hands of well-defined owners, there will be no more ambiguity of finger-pointing, no more argument about who hurt whom and how. Pollution will be unprofitable, plain and simple.

Perhaps you wonder, if this solution is so simple and effective, why it has not been tried before. The answer is just as obvious as freedom itself. Neither the government nor the corporations have any interest in adopting a policy of freedom and responsibility, so no such policy is ever considered. The concern that government regulation will harm big business is in itself a racket and a false source for angry punditry – government regulation is the source of big business. Does anyone know when was the last time that a new oil company was started? Of course you’ve never heard of a start-up in the oil industry making it big. The barriers to entry are insurmountable. The more the government legislates to try to save the environment, the more impossible they make it for anyone to get approved to start a new drilling project to compete against existing corporations. Through environmental demagoguery, they systematically reduce individual freedom. In doing so, the government creates an oligopoly through which all American industry is dependent upon a select few oil companies. These companies are in a position to demand whatever they want, because the American lifestyle cannot persist without oil. As such, they are never held truly accountable because to punish them as they deserve would cripple society – and so, there is no responsibility, either.

To privatize the oceans and regard them as resources to be used freely without causing damage to other people’s property would break the intimate relationship that corporate lobbyists have established with legislators. When legislators no longer interfere in business, corporate lobbyists no longer have any reason to win their favor. The billions of dollars spent on maintaining large legal departments and publicizing court cases to pressure legislators and raise public concern would no longer be necessary. The savings would roll over into lowering gas prices for you and me. The racket would end. We would stop seeing Congressmen and business executives speaking on the news every day about the ongoing controversies and the need for taking some unspecified action to calm everyone’s anger. Instead of shouting at bad behavior, we’d be disincentivizing it. True freedom and responsibility is the only way to end the tragedy.

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