I agree without data that some economic systems could perform better than others. It seems implausible that all would perform the same under all circumstances.

You raise the issue of time scales – how many years do you want to look at?

A century would be enough. Maybe sixty years would be enough. Average out some business cycles at least.

Do you think that GDP is part of the things we should be looking at?

No, GDP measures the wrong things. GDP measures how busy we are buying and selling things we decide have been created. It has some use as a quarter-to-quarter measure, deciding what the governmeny should do to finer-tune the economy’s performance, but it’s useless for comparing different economies.

Incidentally, how does GDP get measured? If I have a share of stock andI sell it to you, that isn’t part of GDP. Nothing has been created, something already existing has been sold. If I create an option and sell it to you, is that part of GDP? A brand new financial instrument has been created and sold, and it will eventually come to fruition and be destroyed. It isn’t exactly a tangible good that’s created but then neither is a piece of software. If I write a piece of software and sell it a million times and you’re the million-and-first, what has been created by that sale? If I sell you the right to log onto my private website, is that GDP? Does it become GDP if I charge you by the minute while you are actually logged on? If we sell each other membership in our websites instead of providing it for free, has GDP gone up?

Surveys about satisfaction with life?

You could look at that, particularly if you can control for culture. Compare north and south korea? Historical data comparing north and south vietnam? I’m afraid there are very few examples where we can control for culture well at all.

We need to consider how trustworthy the data is. Large US companies occasionally wind up with management and their auditors in court for fraud, roughly equivalent to the old soviet practice of shooting managers when it is found that they have systematically forged their production stats. In a good economic system there is no incentive for managers to keep their data secret; many people can find out about mistaken or lying claims. But under capitalism it’s important to keep secrets to keep competitors from using the data. This is a fundamental flaw of capitalism, that a better system would correct—if there was a better system. Unfortunately, with so many secrets and so much lying it’s hard to collect the data that would tell you how well the system is working.

There’s a lot of reason to believe the system does not actually work the way you think it does. So maybe we would do better to look at mathematical models instead. Run computer simulations of economies and look at how well they work and why. We wouldn’t be talking about reality then, but we would be seeing the consequences of our assumptions. That’s better than looking at reality and hoping that our assumptions about it are correct.

So what sort of data when studied in detail would convince you that some economic systems could perform better than others? You raise the issue of time scales – how many years do you want to look at? Do you think that GDP is part of the things we should be looking at? Surveys about satisfaction with life? Gini indexes? Immigration patterns? Do you have some index of environmental quality you like?

The trouble with studying systems in detail is that it generates lots of data, but not necessarily information that can be used to compare two systems as a whole.

John Quiggin: The argument about the superior performance of capitalism is usually something of a bait and switch.

Can we agree on the Index of Economic Freedom as published by the Heritage Foundation (http://www.heritage.org/Index/) as a guideline to what is capitalism?

Then you use that to argue either that one specific form of capitalism (the US form) should be preferred or (even more unreasonably) that some pure form of capitalism defined by you should be preferred to the actual successful forms on which you have based your case.

Can you please tell me the occasions on which I have used either of these two arguments? Please provide references to comment numbers or other specifices. Because I don’t recall making any such argument, and if I did make such an argument I’d like to see what it was precisely so I can avoid it in the future.

In the present case, the post made the point that Germany (among others) requires firms to consider stakeholder interests. Unless you want to claim that the German economic system is a failure, your argument doesn’t stand up.

Germany ranks 23 in the world in terms of economic freedom on that index – its score in terms of levels is 71.2. According to the Heritage guys, its labour freedom rating is low, as is size of government, but it has good protection of property rights, it’s low on corruption, it has a lot of business and trade freedom. (http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP_PPP.pdf).

However, in terms of the UN’s Human Development Index (http://hdr.undp.org/en/statistics/), Germany rates 22 in the world. According the Economist’s Quality of Life Index, Germany rates 26 in the world (http://www.economist.com/media/pdf/QUALITY_OF_LIFE.pdf)
According to the world map of happiness, Germans are about 3oth in the world (if I can count right) in terms of satisfaction with life index. http://www.le.ac.uk/users/aw57/world/sample.html. Germany has an unemployment rate of 8.4% in 2007 according to the OECD (http://stats.oecd.org/wbos/Index.aspx?QueryName=251&QueryType=View&Lang=en), not terrible but it does make it the third highest unemployment rate in the OECD.

Assigning causality is of course difficult. It is possible that if German firms weren’t required to consider stakeholder interests then Germany would be doing far worse compared to other OECD countries. But, it is also possible that if they weren’t required to consider stakeholder interests they would be doing better compared to other OECD countries. You are of course welcome to use the German example to bash anyone who argues that requiring firms to consider stakeholder interests will cause the economy to collapse. But I am afraid that the German example does not convince me that imperfect competition in credit markets, imperfectly efficient capital markets, and managers having discretionary powers makes it sensible for managers to both pursue profits and charitable goals.

In the present case, the post made the point that Germany (among others) requires firms to consider stakeholder interests. Unless you want to claim that the German economic system is a failure, your argument doesn’t stand up.

(Of course, as JT points out, claims of unique success have been made on behalf of quite a few variants of capitalism over the years, most recently for the US, but none have stood up past the next severe recession in the country concerned).

Before we go any further, is there any evidence that could possibly convince you that some economic systems perform better than others? Because if there is nothing that can change your mind, I don’t see any point in arguing with you about it.

First off, I’ve seen evidence that some economic systems perform worse than others. I’ve read that there is data showing that plantation slavery was less productive than sharecropping, for example. I haven’t seen the data myself but I’m open to believing it.

I’ve read many claims that soviet systems were particularly ineffective because they tended to rely on top-down control, where administrators decided what their subordinates ought to be able to do and assigned them that, without much feedback about what was actually feasible, and then sometimes they lied about the results. That is, they operated just as many of our own military contractors do, with the same resulting problems.

Many corporations tend to fit the soviet model internally. There’s a difference that they must compete on a market with other corporations like themselves, and the worst of them are unprofitable and are likely to get sold off piece by piece or even closed down.

Corporations are not usually built on a free-market pattern. Employees are usually on fixed salary or fixed wages, and they don’t get a higher price for widgets constructed to a better quality or for a higher quantity produced per hour. The competition among employees for each other’s jobs is subtle.

On a higher level, computer models of economies built as free markets tend to be unstable. They cycle into patterns of extreme booms and busts. There are possible explanations—maybe in reality managers tend to be very conservative and react minimally to market information, and so they moderate the extremes. Maybe managers tend to base their market decisions on the basis of social connections, so they stay with the same suppliers for long times despite the ups and downs of prices. Maybe unknown methods of control have evolved that work better than any of the ideas free-market enthusiasts have invented.

But we’re left with the problem—when you look at the system in detail, free-market theories do not work. They do not work in theory nearly as well as they work in reality. And existing hypotheses about how that happens require that managers for one reason or another ignore price signals except in the long run. Market theory is utterly inadequate to describe what it claims to describe.

To do the job well, you need to actually study alternative economic patterns and look at the data. And this mostly has not been done.

So for example there used to be a lot of speculation that the japanese system was better than the US system. Individual workers were hired for life, and they were paid by seniority. They worked hard because they were japanese and they wanted to excel. They did not spend much effort making themselves irreplaceable, because they had no worry about being fired. An american who had a specialized job hesitated to teach it to anyone else, because when somebody younger who’d work for less could do the work he might be fired and replaced. The japanese system got the skills transferred easily.

But then the japanese fell onto hard times and they started firing people. It turned out that the protection they gave their workers depended on their having stability in their own larger economy, and when that was gone they couldn’t maintain those strengths.

So to decide that one system is better than another, you really ought to study both systems in detail when you see them operating. And it’s important to note that we hardly understand how the american system works.

Before we go any further, is there any evidence that could possibly convince you that some economic systems perform better than others? Because if there is nothing that can change your mind, I don’t see any point in arguing with you about it.

And of course the habit free-markets have of giving the best results compared to every other economic system I know about is why I argue that free markets are the way to go. For all the problems with markets, every other economic system people have tried has worked worse.

How many alternatives do we have double-blind comparisons for? You don’ t know what you’re talking about. Nobody knows what economic system would work well. We won’t know until we see one.

“Well, when the markets give you bad results, for example because of imperfect competition, then doing exactly what will maximise your profits is quite likely to give bad results too. Managers can do the right thing then by not responding blindly to the market.”

This argument is a non-sequitor. My question was “How does imperfect competition in credit markets, imperfectly efficient capital markets, and managers having discretionary powers make it sensible for managers to both pursue profits and charitable goals?” Your argument does not answer that question at all.

Oh my. I was giving you the benefit of the doubt as somebody who understood what you were saying and who could follow an argument.

If the market has important imperfections, particularly in credit markets and capital markets, those can lead to errors that get amplified throughout the economy. Read up on chaos theory. So when the market is giving you orders that are obviously in the worst interest of society as a whole (and your company, as a part of that society) you might find your company can help more than you can help by taking your personal profits and donating them to charity, or by building a parallel nonprofit organization to duplicate functions of your for-profit corporation.

Saying that the market will give you the right answers only works when the market gives you the right answers, and on average it probably does not.

Feel free to disagree. You might even be right, in the same way that christians who believe that Jesus will come back and create the Rapture and take the faithful to heaven might be right.

“So for example, competition doesn’t work well unless there are at least 5 major competitors. But often there aren’t. And when one major competitor fails, the survivors get a price jump, right? Everybody knows they will get more profitable as the competition dwindles away.”

And of course, the price jump for the survivors get makes it far more attractive for another competitor to enter the market, or for consumers to find alternative suppliers.

Do it! Let’s make a list of companies that could use some competition, and you go into business and compete with all of them. Let’s see. There’ Microsoft. Cox Communications. Hmm. Home Depot is the closest thing my county has to a hardware store, there are 3 Home Depot branches within 5 miles of my house and nothing else within 10 miles. Come build a hardware store and compete with Home Depot!

Well, that’s a start. I want you to build an operating system and market it, and build a cable network and market that, and build a hardware store so you can take advantage of the wonderful opportunity you get from the lack of competition in all these areas. Or—maybe—you might prefer to buy stock in companies that lack competition instead? Let’s compare advantages. If you build your own cable network, you get to put a whole lot of money into it and you might fail and lose everything. And if you succeed you provide a public service by providing competition, so your profits will not be that high. But if you buy stock in Cox you risk only the price of the stock, and Cox will stay profitable while the competition is lacking. What an awful dilemma, who could choose between those? If you were a manager with a big sum of money to invest, which would maximise your company’s profits?

“And then armed with our consensus, should we then trust the government to enforce the rules? Surely not. Governments are horribly inefficient at such things.”

Well firstly, it’s not enough to say that “governments are horribly inefficient at such things”. The useful question is what system could do better.

No, that isn’t good enough. Your system says that corporations should do whatever will maximise profits, and then government should enforce laws to keep them from doing horrible things as side issues while they maximise profits. If government fails to keep corporations from maximising their profits by doing horrible things, then your proposed system fails. You have the responsibility to propose a method to preserve our air, water, soil, groundwater, ozone layer, etc—things that don’t belong to anybody in particular, that could be poisoned on a timescale that far exceeds the lifetime of a single corporation or even a single government. If we can do that with property rights, propose a method. If we can’t decide who owns the ozone layer and how the owner can keep it safe, propose an alternative.

I have run across such arguments as you propose, with competing enforcers, before (I am a bit surprised to hear you advocating such a capto-anarchist position). I have never found them that convincing

Well, it was a try. If free markets are the best way, maybe we need a free market in justice and law enforcement. Only how can we do that? Police who work for the highest bidder? Multiple police forces who compete to investigate each crime, and somebody decides who did the best job? Huh?

You desperately need an alternative, your argument falls apart without it.

Given efficient free markets, and efficient systems to enforce property rights with property fairly distributed and everything important owned by someone who can protect it, we ought to do OK with your approach. But we don’t have efficient free markets, and we don’t have an efficient enforcement system, and lots of important things aren’t even covered by that enforcement system. So there’s no reason to think your approach would work.

The approach we have now is somewhat better. Whenever the system is obviously breaking down, people can choose to take individual initiative and do something about it. That includes corporate managers. Sometimes you do what needs to be done and worry about the details later. This is society’s last-line defense, that sometimes prevents catastrophes when everything else has failed.

No. Communist countries were countries where the rulers did their best to destroy markets for ideological reasons. Markets did not fail, instead people were dragged kicking and screaming onto collective farms.

The same things will happen when markets fail for whatever reason. You can only argue that free markets are the only way to go, when free markets actually give the best results.

And of course the habit free-markets have of giving the best results compared to every other economic system I know about is why I argue that free markets are the way to go. For all the problems with markets, every other economic system people have tried has worked worse. The way people criticise capitalism now is to compare it to some perfect ideal, and then think they have contributed something.

Well, when the markets give you bad results, for example because of imperfect competition, then doing exactly what will maximise your profits is quite likely to give bad results too. Managers can do the right thing then by not responding blindly to the market.

This argument is a non-sequitor. My question was “How does imperfect competition in credit markets, imperfectly efficient capital markets, and managers having discretionary powers make it sensible for managers to both pursue profits and charitable goals?” Your argument does not answer that question at all.

So for example, competition doesn’t work well unless there are at least 5 major competitors. But often there aren’t. And when one major competitor fails, the survivors get a price jump, right? Everybody knows they will get more profitable as the competition dwindles away.

And of course, the price jump for the survivors get makes it far more attractive for another competitor to enter the market, or for consumers to find alternative suppliers.

If you can buy up the other companies, or pay big bribes to their managements to mismanage them, your company does better.

And of course if you are doing this, then everyone else has a massive incentive to create more companies for you to buy up or bribe the management of, and eventually you run out of cash.

So, it’s only in a perfect free market that market signals will always tell you the right thing to do.

And in an imperfect free market, market signals will often tell you the right thing to do.

We are never going to have a perfect free market. We are never going to have a perfect economy of any sort. The useful question is “how good can we do?”

And then armed with our consensus, should we then trust the government to enforce the rules? Surely not. Governments are horribly inefficient at such things.

Well firstly, it’s not enough to say that “governments are horribly inefficient at such things”. The useful question is what system could do better.

Secondly, I have run across such arguments as you propose, with competing enforcers, before (I am a bit surprised to hear you advocating such a capto-anarchist position). I have never found them that convincing, and I note you have provided absolutely no evidence that your proposed system will be more efficient than a democratic governments’ efforts (and you have also provided absolutely no evidence that it would be more efficient than any other system of government). There are also several problems I can see with the scheme you outline. For example, who precisely will charge each company for each innocent victim they wrongly charge if we do like you recommend and do away with government?

I suggest that you take your doubts seriously. For all its messiness, the current western economic and government systems mix of capitalism and democracy does do well to pull in immigrants from all around the world. Yes, it could probably be better. But it could be a hell of a lot worse. Going off on ivory-tower schemes like you propose is a very risky approach. I think a far better approach is to look at possible ways of improving our current government.

I have no idea what this has to do with my argument that CO2 emissions are not the direct result of corporate greed, guile, etc.

So, communist countries were countries where the markets didn’t work because of monopoly conditions. When the markets failed to give the best results, the economy drifted into various inefficiencies.

The same things will happen when markets fail for whatever reason. You can only argue that free markets are the only way to go, when free markets actually give the best results.

I missed something. How does imperfect competition in credit markets, imperfectly efficient capital markets, and managers having discretionary powers make it sensible for managers to both pursue profits and charitable goals?

Well, when the markets give you bad results, for example because of imperfect competition, then doing exactly what will maximise your profits is quite likely to give bad results too. Managers can do the right thing then by not responding blindly to the market. This is a stopgap measure—better to improve the market. But individual managers have no power to reform the market, not usually.

So for example, competition doesn’t work well unless there are at least 5 major competitors. But often there aren’t. And when one major competitor fails, the survivors get a price jump, right? Everybody knows they will get more profitable as the competition dwindles away. The closer to monopoly a company can get, the more profitable. If you can buy up the other companies, or pay big bribes to their managements to mismanage them, your company does better.

One of the best ways to maximise profits is to destroy free markets. And the single most effective thing a company can do to increase competition—split the corporation into two independent companies that compete vigorously with each other—hardly ever happens. A manager who did that would badly damage his stock prices and profitability.

So, it’s only in a perfect free market that market signals will always tell you the right thing to do. How do we create perfect markets? We start with a societal agreement about all the evil things that should be discouraged, and what sort of penalties they should get. We might agree, say, that if you litter on the sidewalk you should pay twice the cost of cleaning it up. If you spread toxic waste that makes a stretch of land uninhabitable for 10 years you should pay the owner the maximum value of whatever he might have done with the land. If you spread nuclear waste that makes some land uninhabitable for 10,000 years you should pay the ancestors of the potential owners the maximum value of whatever might be done with that land for the next 10,000 years. If you drive a species extinct, a species that somebody might someday find a use for, something that took 3 million years to evolve, you should pay a lump sum of $2 million. Whatever.

And then armed with our consensus, should we then trust the government to enforce the rules? Surely not. Governments are horribly inefficient at such things. If it’s only a government enforcing the rules then the free market will be inevitably distorted and the market signals will be wrong. We should instead establish a free market in law enforcement. Get a collection of competing free-enterprise police, and pay them money for each criminal they successfully get prosecuted, and charge them for each innocent victim they wrongly charge.

Corporations will be much more careful about environmental laws etc when there are a lot of companies competing to see who can catch them breaking the law, knowing they can get millions of dollars for catching them. Far harder to bribe them, too—you have to bribe every single company that catches you.

Does this seem like a good idea? It logically follows, but I”m beginning to have some nameless doubts.

I should have more properly said: “It is entirely possible for managers or shareholders to pursue charitable goals as part of a group. I belong to several civil, non-profit-making organisations myself.”

If someone wants to pursue charitable goals as an individual, they should be able to do so. I guess we all do such things as individuals when we do things like drop food round at a neighbour’s who is having a family crisis. Just the formal organisations are more visible and I think my thinking was warped by the availability bias.

And are doing a lot of good in the 3rd world as well. See for example: http://www.fordschool.umich.edu/rsie/workingpapers/Papers476-500/r483.pdf

For example, the Foundation has money invested in chocolate companies which have been sued for using child labour; it has investments in tobacco packaging companies. Yet it funds child health schemes in the 3rd world. Do you get the inefficiency? It’s robbing Peter to pay Paul.

No. Firstly, the vast majority of parents will only send their children to work if the parents have no choice. So banning child labour by multinational companies has the effect of driving kids into other, less-regulated areas. See, for example: “In Bangladesh, for example, a boycott of garments made by child labour caused 50,000 children to loose their jobs. These children then took up even lower paid jobs in other industries, or other demeaning jobs, some even being pushed into prostitution.” http://www.angelfire.com/mi/libertyinstitute/trchlab.html

More generally, do a search on “child labour unintended consequence” or some similar search.

Secondly, smoking causes damage in the long-run. Child health schemes are good in themselves, with or without smoking.

You also seem to have twisted the arguments around so that you are no longer defending what you set out to defend. The whole discussion is about whether corporate leaders should be defended from legal action if they choose to consider more than just the maximisation of profits.

There were to arguments in John Quiggin’s post that I was originally responding to. One was that John Quiggin’s post gave me the impression that the only argument he could see for firms being obliged to maximise profits was that they had a fiduciary obligation. I was making the argument that it was economically efficient in a system with good property rights for a firm to focus on maximising profits.
I was also responding to this argument by John Quiggin:
“And there’s no obvious reason why socially concerned managers couldn’t conclude that the strategy that yielded them the best expected personal value, adjusted for the risk of corporate failure, was one in which the company pursued broad social goals.”

a) their profits would have been much less severely damaged by having their reputation spoiled than by having their product BANNED (which causes 0 sales and would have been the consequence of their not using their considerable lobbying power);

Banning other drugs has not worked out so well that I am eager to apply it to tobacco. If lobbying by tobacco companies has kept tobacco from being banned, and thus reduced the level of violence in society, I’m not too bothered. This is much of a muchness.

b) the damage to their reputation which you suggest occurred (due to their having lied) is nowhere near as great as the damage which they are now suffering due to the actual reputation of their actual product.

How are you measuring the damage caused by the two problems?

This damage is what they tried to put off by lying and lobbying, a legal but immoral activity which you claim maximizes everyone’s welfare.

In a system of good property rights. I don’t know how to change the law to make it so that people only lobby for good stuff, but the problem is far more general than corporations. For example, religious organisations have been known to lobby to make offending them an offence, which is also bad.

Your arguments rely on naive assumptions about a) what corporations do now, and b) what “a system of effective property rights” can actually prevent corporations doing.

This is an interesting line of attack. Personally I am amazed at the commentators on this thread who talk like corporations are the only ones who ever do evil stuff, who never consider that people who are not part of corporations may lobby for bad laws, or may kill people in the pursuit of non-profit-maximising goals, etc. I am also amazed by those people who think that just because someone can run a profit-making corporation they can thereby be expected to tackle any number of other social problems.

I think that that line of analysis, that only looks at the harm done by corporations and by capitalism, and never considers the alternative, is likely to lead to incredibly bad policy design.

They also are increasingly aiming at a skewed version of the original argument, which is simply that corporate leaders shouldn’t be sued for choosing to behave morally.

I fear you and I have desperately different readings of John Quiggin’s post. I think mine, however, is right. For example, in comment 115, John Quiggin said: “As I said at the end of my post, the argument that corporations should focus on profits, and leave managers or shareholders to pursue charitable goals as individuals doesn’t appear to be valid in general. ”

I take from this that my original reading was correct, John Quiggin was not making such a narrow argument as you say he was.

In a system of good property rights. The qualification is vital.

Now, regardless of what kind of silly arguments you come up with to show how this is the case, in the real world, companies pursue extremely immoral ends frequently enough that coming up with well-known examples is hardly challenging. So it seems that asking companies to pursue a profit motive alone has proven problematic in many cases.

Your analysis is limited. There are very many non-profit-maximising organisations that have pursued extremely immoral ends. Al-Qaeda is apparently pursuing a political end, as are multiple other terrorist groups. There are many governments that have killed millions with the intent of staying in political power. Communist parties when they have gotten into power have caused massive suffering, despite their intent being to usher in a state of human happiness. The Catholic church let its priests go on molesting children in pursuit of saving face. How many women died of illegal abortions due to anti-abortion laws motivated not by the pursuit of profit but by religious concerns?

To criticise profit-maximising goals without noticing that non-profit-maximising goals are often also bad leads to a wrong understandinf of the world. It implies that if only we could stop those nasty people from pursuing profits, life will be far better as no one will want to do anything bad.

I would argue that we have achieved these substantial levels of wealth in spite of the substantial levels of corruption and unfairness in our economic system.

In our economic system compared to which other economic system? Capitalist countries are less corrupt than non-capitalist countries. If you look at the 2008 Economic Freedom Index as a measure of the level of capitalism, (http://www.heritage.org/Index/), and the 2007 Corruptions Perception Index http://www.transparency.org/policy_research/surveys_indices/cpi/2007, there’s a positive correlation between economic freedom and lack of corruption. The least corrupt country on the list, Denmark, has an economic freedom score of 79.23. The most economically-free country (90.25), Hong Kong, rates 14th on the world when it comes to less corruption. The USA is 20th in the world on the corruption perception index and has an economic freedom rating of 80.56. Go down the scale, and Haiti, 177th in the world in terms of perceptions of corruption, has an economic freedom rating of 48.95.

So, on a relative basis, capitalism as measured by the Hertitage Foundation, is associated with relatively low levels of perception of corruption, as measured by Transparency International.

This of course does not tell us the direction of causation. A relative lack of corruption could cause capitalism, capitalism could cause a relative lack of corruption, or both could be caused by some third factor, or by some even more complicated mess. All we can say confidentally is that in relative terms at least the capitalist countries are the non-corrupt ones.

But I also believe we could do better. The system of ‘good property rights’, is a farce, in my view, b/c of the tight interconnect between lobbying, business law and business practice. For many large corporation, rent-seeking is an important part of your tool box for beating your competitors and extracting more from your customers and suppliers.

Quite possibly we could do better. But just looking at corporations again leads to misunderstanding the problem. It’s not just large corporations that look to rent-seeking – most humans do it. Farmers are notably for their lobbying machines, doctors, lawyers, artists, scientists, religious organisations, even hiking organisations (I belong to a hiking club that in turn makes me a member of the Federated Mountain Club, who determidly lobbies the government to improve tramping facilities, never mind anything else. I really like the club and do also think the FMC does some important stuff about search and rescue and safety in the bush, but the one-eyed attitude of the club’s politics does bother me). It’s the nature of humans to lobby the government for special privileges for themsleves. Whatever we can do to improve the political decision-making process will need to be rather more general than just blaming “big business”.

The theories that we only want things because companies can brainwash us into them are silly. If advertising was that good, every book would sell as many copies as the Harry Potter series. Every movie would be as popular as The Titanic was. Everyone would be spending their money on books and movies and other items with very low marginal costs of production, which of course are the most profitable to produce en-mass, and have none left over to spend on SUVs.

If you’re going to insist those consumer demands and transactions are naturally arising and no more than an expression of spontaneous material desire you’re egregiously dishonest.
And your foot is hemorrhaging.

Ah, the strawman fallacy. Personally I am capable of complex thought processes, that don’t fall into either/or. For example, I can believe that the idea of a “naturally arising” belief is incoherent, given that humans almost entirely grow up surrounded by cultures. I can simultaneously believe that advertising can work, and also that advertising can only cause run-away successes if it taps into some deep human need. I find this sort of complex theorising useful to explain why not every book is a Harry Potter. Occam’s Razor doesn’t say “chose the simplest theory”, it says “choose the simplest theory that is compatible with the facts”.

No. A manager can, even given all the difficulties in measuring it, try to focus on long-term profit maximisation. Or they can try to focus on something else. Amnesty International does very different things to Microsoft, and they differ in ways that make sense given their different goals.

I missed something. How does imperfect competition in credit markets, imperfectly efficient capital markets, and managers having discretionary powers make it sensible for managers to both pursue profits and charitable goals?
Also, I have never argued that managers or shareholders should pursue charitable goals as individuals. I belong to several civil, non-profit-making organisations myself.

My objections to having one organisation pursue two or more goals is that: – it makes it even harder to monitor management performance – people who agree with the company’s direction towards one goal but think it’s bad at achieving another have harder time expressing their opinions (be that by donations or by buying and selling shares) – running a profitable business does not mean that management has the skill sets to solve different sorts of problems.

I don’t see how any arguments that credit markets are inefficent, etc, make these issues go away. It’s a bit unfair to expect me to address an argument that you haven’t actually supported in the first place.

J Thomas: What is the difference between a communist country and a libertarian nation that has one monopoly running the whole economy?

An economy in which one monopoly ran the whole economy would be a communist country. It wouldn’t have the price signals that a market economy relies on as private property wouldn’t exist. The information problem would be overwhelming, and I suspect it would drift the same way communist countries did – into using prices, even artificially determined ones, and separate organisations doing separate things, and a black market.

I have no idea what this has to do with my argument that CO2 emissions are not the direct result of corporate greed, guile, etc.

Me: Secondly, if there is a trade-off between maximising profit and serving some other value, how does a company know what is the best to choose?

J Thomas: Somebody has to make the choice. You seem to be saying that they should not make the choice at all, they should ignore the trade-off and maximise profit unless there are legal restraints that impose the other value.

Yes. The trade-off between profit and some other value is the correct area for democratic processes. Of course I believe in freedom of association, so I don’t think anyone should be obliged to work for, invest in, or purchase from a company they really dislike. But I also think that making good ethical decisions about the proper trade-offs between different values is generally a really really hard problem. Yes, you can think of easy cases like “dumping toxic waste in a river”, but there’s a far vaster area of grey cases. How much special privileges do people living by a factory deserve? What’s the right trade-off between safety and enjoying life?