A Firm’s Social Responsibility Is to Make a Profit

(p. B1) Milton Friedman, the Nobel laureate economist, blasted the very idea of corporate social responsibility four decades ago, calling it a “fundamentally subversive doctrine.” Speaking for many capitalists then and now, he said, “there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”
Companies shouldn’t spend profits on unrelated job creation or social causes, he said. That money should go to shareholders–the owners of the companies. Pronouncements about corporate social responsibility, he added, are the indulgence of “pontificating executives” who are “incredibly shortsighted and muddleheaded in matters that are outside their businesses.” And that indulgence can lead to inefficient markets.
. . .
(p. B2) “Jobs are an input, not an output; they’re a cost of doing business, not a goal of doing business,” says William Frezza, a Boston-based venture capitalist and fellow at the Competitive Enterprise Institute.
“From the perspective of defending capitalism, if you accept the premise of your opponent that business has to give back to society, you’ve already lost,” he says. “To put sack cloth and ashes on–you’ve delegitimized capitalism, which is the goal of the protesters. Businesses give back to society every day by pleasing their customers and employing their employees. There’s nothing business owes other than selling the best product at the best price.”

For the full commentary, see:
JOHN BUSSEY. “THE BUSINESS; Are Companies Responsible for Creating Jobs?.” The Wall Street Journal (Fri., October 28, 2011): B1-B2.
(Note: ellipsis added.)

Diversity of Sources of What We Consume in a Free Market

Matt Ridley’s wonderful riff below reminds one of Leonard Read’s classic essay “I, Pencil,” made even more famous by Milton Friedman’s rendition of it.

(p. 35) As I write this, it is nine o’clock in the morning. In the two hours since I got out of bed I have showered in water heated by North Sea gas, shaved using an American razor running on electricity made from British coal, eaten a slice of bread made from French wheat, spread with New Zealand butter and Spanish marmalade, then brewed a cup of tea using leaves grown in Sri Lanka, dressed myself in clothes of Indian cotton and Australian wool, with shoes of Chinese leather and Malaysian rubber, and read a newspaper made from Finnish wood pulp and Chinese ink. I am now sitting at a desk typing on a Thai plastic keyboard (which perhaps began life in an Arab oil well) in order to move electrons through a Korean silicon chip and some wires of Chilean copper to display text on a computer designed and manufactured by an American firm. I have consumed goods and services from dozens of countries already this morning. Actually, I am guessing at the nationalities of some of these items, because it is almost impossible to define some of them as coming from any country, so diverse are their sources.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Manuel “Muso” Ayau, RIP

AyauManual2010-10-23.jpg

Manuel “Muso” Ayau. Source of image: online version of the WSJ article quoted and cited below.

(p. A21) Lago Amatitlán, Guatemala

High on a hill overlooking this picturesque volcanic lake, Manuel “Muso” Ayau–arguably Latin America’s most influential champion of liberty in the second half of the 20th century–was laid to rest last month.
. . .
Ayau and his colleagues read voraciously and debated vociferously. “All of us were self-taught in these subjects, which would come to absorb much of our time,” he recalled. Over the next half century CEES would publish over 900 pamphlets in defense of the market. Ayau’s many contributions (98) had titles like “On the Morality of Government,” “Planning: Rational or Absurd,” and “Robinson and Friday Invent the Common Market.” In October 1978 he wrote an essay in a CEES pamphlet called “Price Controls,” while Milton Friedman penned “In Defense of Dumping” in the same publication.
Those pamphlets went all over the region. Peruvian Enrique Ghersi, one of the co-authors of the 1986 best-seller “The Other Path,” says that one called “Ten Lessons for Underdevelopment” was “key to awakening in me the vocation and commitment to defend liberty.” CEES brought to Guatemala such intellectual giants as Ludwig von Mises (1964), Friedrich Hayek (1965) and Ludwig Erhard (1968).

For the full commentary, see:
MARY ANASTASIA O’GRADY. “Manuel Ayau: Champion of Liberty; He opened Latin America’s eyes to the true source of prosperity.” The Wall Street Journal (Mon., SEPTEMBER 20, 2010): A21.
(Note: italics in original; ellipsis added.)
(Note: the online version of the article is dated SEPTEMBER 19, 2010.)

IMG_2452-2.JPGOn the left is a photo autographed by Ayau and Hayek. On the right is a bust of Hayek. Source of photo: taken by Art Diamond on April 4, 2009 at the APEE meetings held at Francisco Marroquín University (UFM) in Guatemala City.

Becker Believes the Fight for Liberty Can Be Won

(p. A13) My last question involves a little story. Not long before Milton Friedman’s death in 2006, I tell Mr. Becker, I had a conversation with Friedman. He had just reviewed the growth of spending that was then taking place under the Bush administration, and he was not happy. After a pause during the Reagan years, Friedman had explained, government spending had once again begun to rise. “The challenge for my generation,” Friedman had told me, “was to provide an intellectual defense of liberty.” Then Friedman had looked at me. “The challenge for your generation is to keep it.”

What was the prospect, I asked Mr. Becker, that this generation would indeed keep its liberty? “It could go either way,” he replies. “Milton was right about that.”
Mr. Becker recites some figures. For years, federal spending remained level at about 20% of GDP. Now federal spending has risen to 25% of GDP. On current projections, federal spending would soon rise to 28%. “That concerns me,” Mr. Becker says. “It concerns me a great deal.
“But when Milton was starting out,” he continues, “people really believed a state-run economy was the most efficient way of promoting growth. Today nobody believes that, except maybe in North Korea. You go to China, India, Brazil, Argentina, Mexico, even Western Europe. Most of the economists under 50 have a free-market orientation. Now, there are differences of emphasis and opinion among them. But they’re oriented toward the markets. That’s a very, very important intellectual victory. Will this victory have an effect on policy? Yes. It already has. And in years to come, I believe it will have an even greater impact.”
The sky outside his window has begun to darken. Mr. Becker stands, places some papers into his briefcase, then puts on a tweed jacket and cap. “When I think of my children and grandchildren,” he says, “yes, they’ll have to fight. Liberty can’t be had on the cheap. But it’s not a hopeless fight. It’s not a hopeless fight by any means. I remain basically an optimist.”

For the full interview, see:
PETER ROBINSON. “‘Basically an Optimist’–Still; The Nobel economist says the health-care bill will cause serious damage, but that the American people can be trusted to vote for limited government in November.” The Wall Street Journal (Sat., March 27, 2010): A13.
(Note: the online version of the interview is dated March 26, 2010.)

Housing Crumbles Under Portugal’s Rent Control Laws

Stigler and Friedman’s only co-authored paper showed the flaws in rent controls. Although excellent, the paper apparently is seldom read in Portugal (or New York City).

(p. B3) LISBON — José Gago da Graça owns a Portuguese real estate company and has two identical apartments in the same building in the heart of Lisbon. One rents for €2,750 a month, the other for almost 40 times less, €75.

The discrepancy is a result of 100-year-old tenancy rules, which have frozen the rent of hundreds of thousands of tenants and protected them against eviction in Portugal. Mr. Gago da Graça has been in a lawsuit for a decade over the €75-a-month apartment, since his tenant died in 2000 and her son took over and refused to alter his mother’s contract, which dates to the 1960s.
“We’re the only country in Europe that doesn’t have a free housing market and that’s just amazing,” Mr. Gago da Graça said.
Rules like these, which economists also blame for contributing to Portugal’s private debt load, help explain why this nation of 11 million has followed Greece and Spain into investors’ line of fire.
. . .
The . . . rules helped protect tenants, but also led to a chronic shortage of rental housing. This, in turn, persuaded a new generation of Portuguese to tap recently into low interest rates and buy instead — often in new suburbs — thereby exacerbating the country’s mortgage debt and leaving Portugal with one of Europe’s lowest savings rates, of 7.5 percent.
“This system of controlled rents is a major problem for the Portuguese economy, but we will probably be waiting for a generational change to have room for institutional reform,” said Cristina Casalinho, chief economist of Banco BPI, a Portuguese bank. Beyond fueling housing credit, she added, the system “basically stops flexibility and mobility in the labor market because you can perhaps find a new job in another city but it will then be very difficult to rent a house there.”
. . .
“Nobody has had the political courage to change something like these rental laws and I don’t see the situation changing in the short term, even if I don’t think the Portuguese tend to react as dramatically as the Greeks,” said Salvador Posser, who runs a family-owned company renting out construction equipment.
Besides distorting pricing in the housing market, the tenancy rules have left physical scars. Portugal’s historic city centers are dotted with abandoned and crumbling houses that are either subject to a court dispute or have rental income that cannot cover repair and maintenance costs.
“This economic crisis is clearly keeping our very slow courts even more occupied because of the amount of conflict that it is creating between landlords and tenants,” said Menezes Leitão, a law professor and president of PLA, a property owners association.
Mr. Posser cited a recent estimate that 8 percent of the buildings in central Lisbon were deserted, in large part because of rent-related obstacles. In Porto, the second-largest city, less than 10 percent of inner-city housing is available for rent, which has helped shrink the population by a third over three decades.
“We’re still losing about 30 inhabitants a day,” said Rui Moreira, president of the Porto Commercial Association.

For the full story, see:
RAPHAEL MINDER. “Like Spain, Portugal Hopes to Make Cuts, but It Is Mired in Structural Weakness.” The New York Times (Fri., May 14, 2010): B3.
(Note: the online version of the article is dated May 13, 2010 and has the title “Portugal Follows Spain on Austerity Cuts.”)
(Note: ellipses added.)

The original source of the Friedman and Stigler article (in pamphlet form) was:
Friedman, Milton, and George J. Stigler. Roofs or Ceilings? The Current Housing Problem. Irvington-on-Hudson, New York: Foundation for Economic Education, 1946.

School Choice “Lifts the Performance of Public-School Students”

(p. A15) There is . . . clear evidence that many private schools outperform public schools academically. The first children to enter the Washington, D.C., voucher program, for example, now read more than two grade levels above students who applied for the program but didn’t win the voucher lottery.

Researchers from Northwestern University will soon release a study on how competition from Florida’s education tax-credit program is impacting the performance of children who remain in public schools. The preliminary evidence is that school choice lifts the performance of public-school students significantly.
Florida’s scholarship program appears to be the first statewide private school choice program to reach a critical mass of funding, functionality and political support. As an ever increasing number of students in Florida take advantage of the scholarship program, other states will find it hard to resist enacting broad-based school choice.

For the full commentary, see:
ADAM B. SCHAEFFER. “Florida’s Unheralded School Revolution; A scholarship program could produce a new era of choice.” The Wall Street Journal (Fri., APRIL 30, 2010): A15.
(Note: ellipsis added.)

Liberal Democrat Hesburgh Condems Obama Administration’s Killing School Vouchers

My Chicago professor Milton Friedman proposed educational vouchers in Capitalism and Freedom, a great book based on lectures that Friedman delivered several decades ago at Wabash College at the invitation of my first economics professor, Ben Rogge.
Friedman’s belief was that parents generally care about their children, and will seek a good education for them, if provided the means to choose among credible alternatives.
Special interests are arrayed against this idea, but that does not mean that Friedman was wrong.
Another distinguished educator who supports vouchers (see below) is Father Hesburgh, who for many years was President of Notre Dame in my hometown of South Bend, Indiana.

(p. A19) If Martin Luther King Jr. told me once, he told me a hundred times that the key to solving our country’s race problem is plain as day: Find decent schools for our kids. So I was especially heartened to hear Education Secretary Arne Duncan repeatedly call education the “civil rights issue of our generation.” Millions of our children–disproportionately poor and minority–remain trapped in failing public schools that condemn them to lives on the fringe of the American Dream.

. . .
. . . , I was deeply disappointed when Sen. Richard Durbin (D., Ill.) successfully inserted a provision in last year’s omnibus spending bill that ended one of the best efforts to give these struggling children the chance to attend a safe and decent school.
That effort is called the Opportunity Scholarship program. Since 2004 it has allowed thousands of children in Washington, D.C., to escape one of the worst public school systems in the nation by providing them with scholarships of up to $7,500.
Despite its successes, it is now closing down. On Tuesday the Senate voted against a measure introduced by Sen. Joseph Lieberman (I., Conn.) that would have extended the program. Throughout this process Mr. Duncan’s Education Department and the White House raised no protest.
. . .
I know that some consider voucher programs such as the Opportunity Scholarships a right-wing affair. I do not accept that label. This program was passed with the bipartisan support of a Republican president and Democratic mayor. The children it serves are neither Republican nor Democrat, liberal or conservative. They are the future of our nation, and they deserve better from our nation’s leaders.
I have devoted my life to equal opportunity for all Americans, regardless of skin color. I don’t pretend that this one program is the answer to all the injustices in our education system. But it is hard to see why a program that has proved successful shouldn’t have the support of our lawmakers. The end of Opportunity Scholarships represents more than the demise of a relatively small federal program. It will help write the end of more than a half-century of quality education at Catholic schools serving some of the most at-risk African-American children in the District.
I cannot believe that a Democratic administration will let this injustice stand.

For the full commentary, see:
THEODORE M. HESBURGH. “A Setback for Educational Civil Rights; I cannot believe that a Democratic administration will let this injustice of killing D.C. vouchers stand.” The Wall Street Journal (Thurs., MARCH 18, 2010): A19.
(Note: ellipses added.)
(Note: the online version of the article was dated MARCH 17, 2010.)
Reference to the Friedman book mentioned above:
Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 1962.