A few days ago, I received a mailing from Amazon that was probably sent to all postal addresses in the Washington DC area. Amazon is building it second headquarters in Arlington VA, across the Potomac River from the District of Columbia, but not everyone in the DC area is delighted by this development. It is driving up rents and property prices, for example.
So, Amazon wants residents to know that it’s doing a lot of good things in the area. This mailing boasted about the support it is giving to more than 150 non-profit organizations in and around DC. It amounted to more than $88 million over the past four years.
It is this Amazon mailing that has prompted me to write about why CSR is a rip-off. But it’s not just Amazon. Walmart recently bragged about donating more than $3 million to NGOs in the Washington DC area.
A quick Google search reveals that the term “corporate social responsibility” was coined by an American economist in 1953. Thus, CSR is another great contribution to human life on Planet Earth made in the USA!
The same search reveals that CSR started taking off in the USA in the 1970s. But I didn’t get seriously interested in CSR as a policy issue until I was analyzing the economic opening of Myanmar/Burma after 2010. I was struck by how foreign investors were under considerable social pressure to make donations to monasteries, orphanages, hospitals, etc., in the name of CSR.
I started investigating the CSR activities of the French company Total, the major operator (along with US-based Chevron) of Myanmar’s offshore natural gas fields that are a major source of energy supply for Thailand. This exported gas was (and remains) Myanmar’s single largest source of export earnings and budget revenue. Total’s profits from this business were substantial and its expenditure on philanthropic activities in Myanmar seemed paltry by comparison. Furthermore, these activities were not addressing systemic weaknesses, such as education and infrastructure. They looked to me like a kind of whitewashing: gestures to make the company look good in a country where so much bad stuff was happening (e.g., the world’s longest uninterrupted civil war).
Then in October 2011 an op-ed by Kishore Mahbubani published in the Financial Times bore the heading “To become rich is great but to pay taxes is glorious”. Mahbubani is a Singaporean diplomat, educator, and writer. He was keying off of Deng Xiaopeng’s famous quip: “to get rich is glorious” to make the point that Asia’s explosive economic growth over the preceding 50 years had created a region in which the rich were too greedy and were undertaxed.
These two observations led me to a simple conclusion: the first social responsibility of profit-making corporations is to pay taxes.
Now ask yourself: how good at paying taxes are corporations in the 21st century? My answer is: terrible. What I see is corporations hiring lobbyists to write legislation to lower their taxes that will be enacted by politicians whose election campaigns they have financed. The extent to which multilateral corporations like Apple and Facebook have avoided income taxes is mind-boggling. It is what led the G-20 countries last year to adopt a global minimum corporate tax rate of 15 percent, more than ten times what corporations taking advantage of Ireland’s tax laws have been paying.
There is another very important fundamental point about CSR: it reflects the inability of governments to provide social services to their citizens at a satisfactory level. Much of this inability results from lobbying by the business community, especially in the USA, to lower the rate of income taxes they must pay.
In 1970, the New York Times published an op-ed by Milton Friedman with the title “A Friedman Doctrine—The Social Responsibility of Business is to Increase Its Profits”. I don’t disagree with his argument, as far as he took it. And he does qualify the doctrine to require respect for laws that constrain business activity, such as prohibiting the employment of children.
I wonder how Friedman would make his argument today. The era of deregulation began around the time he wrote that op-ed. The economic system in the USA has evolved almost beyond recognition since then, producing a society so divided by income inequality, and a government so dysfunctional, that some kind of crisis seems inevitable in the near term. Profit-making has gotten out of hand: with executive compensation grossly exceeding levels that exist in Europe, for example; with billion-dollar buybacks that only benefit stockholders; with corporate monsters like Meta and Microsoft gobbling up competitors.
In conclusion, all Americans will benefit from tweaking our economic system in a way that reduces pressure on businesses to engage in CSR “tokenism” in favor of concentrating on growing their profits. But this will only be sustainable if we start taxing corporate (and individual) incomes at a rate sufficient to enable our federal, state, and local governments to deliver the social services required to ensure household wellbeing for all law-abiding citizens.
Incidentally, the U.S. corporate tax rate was 49.2 percent in 1970. Since 2018 it’s been 21 percent.
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