More Praise for Corporations

A lot has been written lately on the role of business in development (a little more here). Mostly because this has been underused. Even the neoliberal synthesis of the last several decades focused efforts on reforming government (admittedly to improve the business environment) rather than on directly improving the opportunities for businesses in developing countries.

Multinationals are reducing gender discrimination in South Korea by hiring women who are paid less than their male counterparts. This lowers their costs relative to domestic firms, giving them a competitive advantage. The way to level the playing field? Stop domestic discrimination.

IBM is leading the way by training management for international work by organizing volunteer international service projects that are accountable to the firm for success. On the other hand, there's the difficulty of getting out of social businesses or separating the profit and not-for-profit parts.

Rojas argues that the reason contemporary classical music sounds so terrible is that it is funded by subsidy and mandate rather than as a business that has to appeal to its consumers. Fedako would like to claim that the reason India and many African countries have many cell phones and few toilets is that the former are produced by companies and the latter by government... but who says businesses can't provide toilets? or electricity? They can, they do, and it's by far not enough. Companies are better suited to providing some goods than others.

The Economist's Schumpeter addresses importance of companies doing what they do best (earn profits by providing better goods and services at lower prices, generating employment and economic growth in the process) rather than focusing on corporate social responsibility. Excerpt below the fold:

In South Africa, where more than a third of the workforce is jobless, the problem is not that corporations are unethical but that there are not enough of them. One reason is that South Africa’s leaders blithely heap social responsibilities on corporate shoulders. Strict environmental laws cause long delays in building homes. This is nice for endangered butterflies, but tough for South Africans who live in shacks. Such laws also slow the construction of power plants, contributing to the rolling blackouts that crippled South Africa in 2008. South African labour laws make it hard to fire workers, which deters companies from hiring them in the first place. And a programme of “Black Economic Empowerment”, which pressures firms to transfer shares to blacks, has made a few well-connected people rich while discouraging investment. Ms Bernstein ducks this last topic, which is highly sensitive in her home country. ...

Anti-corporate activists sometimes claim that big companies are mightier than governments. This is absurd. Governments can pass laws, raise taxes and declare war. Companies have virtually no powers of coercion. If people do not voluntarily buy their products, they go bankrupt. Business is thus extremely sensitive to public opinion.