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The Case Against Corporate Responsibility

Jeffrey Ballinger meet Aneel Karnani.

Ballinger is the father of the movement to tame Nike.

In 1992, he wrote the first expose of Nike’s abusive labor policies.

Ballinger believes that the corporate social responsibility movement undermined Nike contract workers’ demands for a decent wage.

Aneel Karnani is an associate professor of business strategy at the Ross School of Business at the University of Michigan.

Last month, the Wall Street Journal published a long article by Karnani titled – “The Case Against Corporate Social Responsibility.”

In short, Ballinger is a labor activist.

And Karnani is a capitalist.

They come at the issue from different angles – but they end up at the same place.

“Nike did a remarkable job of reversing its sweatshop image at a relative bargain basement price compared to having contract sweatshops pay its workers a living wage,” Ballinger told us recently. “They did this through corporate social responsibility hoo-ha costing maybe $15 million a year.”

I read the Ballinger quote to Karnani.

And amazingly, he agrees.

“Corporate social responsibility has been used by companies to ward off both the activists and to reduce the probability of more onerous government regulation,” Karnani told Corporate Crime Reporter in an interview last week.

“It’s greenwash. The United Nations has something called its Global Compact. It’s their version of corporate social responsibility. Many people call that bluewash, because blue is the color of the United Nations.”

“And companies pretend to be socially responsible, but they really don’t do very much. This keeps the activists at bay. And it might serve to keep government regulators at bay by saying – see, we are doing it on our own.”

“We should not expect companies to be socially responsible on their own if it is going to reduce their profits.”

“And that’s always the case in market failures. And there we need government intervention.”

The famed economist Milton Friedman argued in a seminal paper that “The Social Responsibility of Business Is to Increase Its Profits.”

Aneel Karnani agrees with Friedman – unless the market fails.

When the market fails, Karnani would impose government regulation.

“Milton Friedman underestimates these situations where there are market failures,” Karnani said.

“So, I would diverge from Milton Friedman. There are many situations where markets fail. And when markets fail, we cannot rely on the invisible hand to provide social welfare. We need to intervene – we meaning the government. We need to intervene to achieve social objectives.”

So, you like Ralph Nader? Crack down on corporate crime and violence?

“I wouldn’t go that far,” Karnani says. “Ralph Nader is too far left. I don’t want to intervene that much. I am a capitalist. Many of my colleagues think I’m too far to the left because I see market failures. But I don’t see them everywhere.”

“Food is an interesting example. There are market failures in food. And we do need regulation. But I don’t want the government to ban McDonald’s. There are people who choose to eat at McDonald’s. Knowing that eating burgers everyday is going to make you fat is no secret. And I don’t see that a law is necessary to prevent people from eating burgers.”

What about increasing the budget to crack down on health care fraud from one tenth of one percent of health care expenditures to one percent?

“I think that’s a good idea. I’m not familiar with the numbers on health care fraud,” Karnani says. “But the government needs to play a larger role. Free markets by themselves are not going to work. That’s where Milton Friedman and his followers underestimate market failures. In the modern society, market failures have increased.”

“There is more potential for market failures and therefore a larger role for the government. But we need to make the government more competent. We cannot continue with the same inefficient, corrupt, incompetent government.”

“The dumbest thing to do is to have laws that we don’t enforce.”

I read to Karnani a strategy put forth by the public relations spy firm Mongoven, Biscoe and Duchin (MBD).

MBD works to divide and conquer activist movements, MBD believes that activists fall into four distinct categories: radicals, opportunists, idealists, and realists. MBD outlines a three-step strategy: isolate the radicals, cultivate the idealists and educate them into becoming realists, then co-opt the realists into agreeing with industry.

“This seems even more cynical than I am about corporate social responsibility,” Karnani says. “This is good grounds to be even more cynical. Companies have figured out how to isolate the activists.”

RUSSELL MOKHIBER is the editor of the Corporate Crime Reporter.

[For a complete transcript of the Interview with Aneel Karnani, see 24 Corporate Crime Reporter 34(10), September 6, 2010, print edition only.]

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