Corporate Activism: Freedom of Association?

An interesting dilemma.  On the one hand, there is the famous Friedman thesis, that corporations need not, and perhaps should not, engage in "civic duty" actions.

If you think that's wrong, then you in effect enable corporations to act on their own social agendas.  Which gives you the Koch Foundation.  I happen to admire the Koch Foundation, but many of my colleagues BOTH say Friedman is wrong and yet CGKF should be prevented from having any say in social activity.  You gots to PICK, folks.  Those are the choices.

Radical Repertoires: The Incidence and Impact of Corporate-Sponsored Social Activism

Mary-Hunter McDonnell
Organization Science, forthcoming

Abstract: This article explores when and why firms participate in overt corporate-sponsored social activism. To shed light on this question, I empirically explore the emergence and implications of a new strategic phenomenon in nonmarket strategy - the corporate-sponsored boycott - in which firms voluntarily cooperate with contentious social movement organizations to sponsor boycotts that protest the contested social practices of other companies or entities at higher orders of market organization, such as industries, transnational regulators, or states. Using a longitudinal database that tracks the social movement challenges faced by 300 large companies between 1993 and 2007, I provide evidence that overt corporate-sponsored activism is used by companies that are chronically targeted and losing ground to activists, especially when those companies are facing a reputational deficit. Furthermore, I find that participation in overt corporate-sponsored activism is associated with significant decreases in the number of activist challenges targeting a firm in the future, suggesting that the tactic may effectively defend a firm from contentious threat by allowing firms to co-opt allies within the activist population. I discuss implications of these findings for social movement research, nonmarket strategy, and the study of corporate social responsibility.

Let's Nationalize Salon

I occasionally worry my contributions here at EE are excessively preening or self-congratulatory. Regular readers will recognize an element of smug satisfaction when I write of the analytic superiority of Smithian sympathy, when I go out of my way to take others' arguments at face value, to assume sincerity.

I assure you that this is not part of a tiny campaign to demonstrate my moral superiority. I find this habit useful for the singular reason that I absolutely, resolutely refuse to believe that the large bulk of humanity, and more specifically, the loud intellectual elite that rouse their rabble, are in the regular habit of uttering craven lies all the live-long day. It flies in the face of even a moment's reflection to conclude that ordinary citizens bear vituperative intent in their notions of what's best for civil society.

With this in mind, I beg of you to refrain from assuming of me too much conceit when I attempt to lend Fred Jerome the benefit of the doubt when he forwards a proposal to nationalize the media.

Imagine a world without the New York Times, Fox News, CNN, the Wall Street Journal, and countless other tools used by the 1 percent to rule and fool.

Easier done than said. State media is an actual thing that actually exists. The USSR, Mao's China, and the Cuban press are but a few examples. Naturally, I assume that when Mr. Jerome invokes the "1 percent" he means the top observations of the GINI curve for wealth and not for political authority. Otherwise, statements like this strain credulity:

In a socialist society run by and for the working people it represents, the mega-monopolies like Walmart, Halliburton, Exxon-Mobil, and the corporations that run the tightly controlled "mainstream media” will be a thing of the past.

 Replaced instead by a vision of the "democratic media", where presumably all voices can be heard on an equal footing. That's pretty good for me. Salon.com has 8,000 subscribers on Feedly (I still miss my Google Reader), but we've got 72. I'd be thrilled to have Mr. Jerome's readers sent my way. But that's obviously not what he means. Instead:

But what will the media be like in a socialist USA? There is no blueprint, but in a society that has erased corporate control, the articles in newspapers and magazines and online will not be filler between ads for teeth whiteners and weight-loss pills. There won’t be TV commercials for Coke, cars, or million-dollar condos. There will be no private corporations to create and sponsor the news.

Agents of the state will have the authority to silence "private corporations" who "create and sponsor the news." I assume that in Mr. Jerome's imagination, this censorious authority will munificently refrain from exploiting their privileged position for their own ends. Instead, we shall enjoy a flowering of multiple voices sponsored by the various "labor unions, tenants’ organizations, or citywide parent-teacher associations" of our fair nation. Evidently, these voices are now silenced, my own humble counterexample here at EE notwithstanding.

But here's the moral intuition, right here. Old school socialism:

To be sure, there will be no shortage of economic news in a socialist society. Some news will still come from local and national governments that set product-distribution quotas or help to negotiate them, sponsor trade and international exchange with other countries, and—if the world is still partly controlled by capitalist powers—organize defense against economic (as well as cultural, and possibly military) assaults. But most news reports in socialist media will come from working people themselves.

It's not clear to me that this author has spent much time talking to "working people themselves," because if a factory worker is especially good at filtering, sorting, editing, and creating compelling content, she may well be in the wrong line of work. Let's not focus on that though. Let's even ignore the murderous undertones of organizing defense against military assault.

Actually, let's not ignore that. I think that's actually where the moral intuition is. According to Mr. Jerome's model of private production, concentrated wealth is de facto coercive. And furthermore, it's coercive in a way that the ability to strip individuals of their possessions, deprive them of their liberty, and ultimately execute capital (pun not intended) punishment is not. In Mr. Jerome's political economy, BATNA disparity is a worse offense than the insoluble problem of production in a socialist economy.

I do vanity searches for "euvoluntary" pretty regularly, and the term shows up from time to time. Once in a while I'll come across a sentiment along the lines of "if it ain't euvoluntary, it ain't voluntary." This is fascinating on many levels, not the least of which is that communist-leaning folks read Munger (and hey, maybe me too, who knows?). If you ask me, the Jerome model is consistent with this sentiment. Because of the editorial process, journalism is not especially euvoluntary.

It takes a special kind of reasoning to move from that mundane observation to "therefore our duly elected representatives owe the constituency the duty to muzzle the paper hounds of the popular press." I too take great issue with the venom spewed by large news organizations. My solution is to share my thoughts with you here rather than silencing the analytically vapid dirty laundresses on cable news channels. I endeavor to practice euvoluntary exchange to the best of my limited ability. I seek neither dominion nor violence. By my estimate, the finest answer to the hogwash on TV and in print is to offer better content. If I'm a good enough writer, the readers will come. If I fail the market test, so long as no one is forcing your eyeballs elsewhere, it's infantile to assign the blame to organizations who are better than I at attracting attention. Shutting them down by force is institutionalized envy. I have little enough interest in encoding virtue into the function of the state. I have no interest whatsoever in wedding the coercive authority in society with one of the more base vices.

h/t to FiSH for the link




Happy birthday, Lysander Spooner! When the dead rise from their graves, yours'll be the last corpse I torch with my homemade flamethrower!

Pit from Payola

Way back when lil' Mungo was still in diapers, that most munificent body the US Congress held a series of investigations spearheaded by the House Subcommittee on Legislative Oversight into the grievous immorality of "payola", an investigation that nearly derailed the career of the Dickensian vampire most of us know as Dick Clark.

To make sense of this investigation, it helps to know what "payola" is and why it works. Put simply, it's a direct payment from an artist (or an agent thereof, usually) to someone (a radio DJ with a large audience) in exchange for playing their record. That's it. That's what prompted the "greatest deliberative body in the world" to drop its socks and grab its subpoenas. Trading money for airplay.

Now, the Public Choice of this is trivially obvious. Incumbent music industry elites had rents to preserve and this upstart rock and/or roll music threatened these rents. What dost thou when thine rents are besieged? Hie thee to Parliament and beg thy Lord exchequer for relief of course. But this dog won't bark without at least some appeal to popular moral sentiment, says I. The median voter theorem for all its flaws still has teeth in its head. Congress can't just up and flaunt the will of the people and not expect a modicum of comeuppance.

So what misery lurks in payola? Two things I think. Both are predicated on an asymmetry of attention. DJs are specialists in their field. They do the hard, unpleasant work of screening the kelp-festooned, brine-shrimp-encrusted seawater that is musical artistry before it floods your burning ear holes. They have sort of a BATNA disparity, only it's a disparity of knowledge rather than money or political power. Think of it as a drop D tune down of the BATNA disparity enjoyed by university professors: mere specialization gives them dissemination power over the worldview of their audience. The simple act of selecting what material to present gives an edge to which ideas thrive, which wax platters folks think of picking up.

And that points to the other EE violation: uncompensated externalities. The ultimate scarce resource is attention. A catchy earworm consumes a large part of your attention. Don't believe me? You are now silently humming Dexy's Midnight Runner's classic hit "Come on Eileen" and you will be all day unless I let you off the hook. Too-ra-loo-rai-ay.

I think there's something to the claim that DJs are partly reflectors and partly creators of the affections of the audience. They make their bread and butter by catering, which includes giving folks what they want, but also giving them what they didn't know they wanted. And much like the hidden menu at In-N-Out Burger, people may not know what they want until someone shows them. That person is a kingmaker for Animal Style fries.

So, we've got well-entrenched record executives protecting old rents against upstarts and Congress justifying an inquiry into the matter on curious moral grounds. See, someone still has to make programming decisions, and I guess everything else is still under consideration, like retaining a fickle audience and yet more fickle advertisers, but cash payments are out. You can give it away, but you can't sell it. Sex, drugs, and rock-n-roll. How about that.

Okay, okay. Here. I'm not a monster.



Now the only thing you've got left rattling around in your head is an image of a baby Munger crawling around  a Florida bungalow, an oversized safety pin securing a cloth diaper. You're welcome.

Slurm: It's Highly Addictive!

Op-ed in the NY Daily News by one Marion Nestle on how Bloomberg has yet to go far enough with his big-soda ban.

Here.

Please take your time and read it carefully, because it's not quite the Thaler/Sunstein position. There's some mention of consumer irrationality, but when it comes to soda bans it's old-timey prohibitionism. "If we want Americans to be healthy, we are going to have to take actions like this - and many more - and do so soon."

"If we want Americans to be healthy." Not, "if Americans want to be healthy."

As you might expect, the externality argument appears: "Poor health is expensive for both individuals and society." As any economist will tell you, the more that costs move from the individual to society, the more we should expect to see. Demand curves do indeed slope down. I wonder if Nestle is working hard to lobby for the repeal of medical subsidies.

Much of the rest of the op-ed is vitriol hurled at soda companies (though, amazingly, none at ADM or the US sugar lobby), accusing these large firms of drumming up demand for their product when none would have otherwise existed (puzzling why kohlrabi and pomegranate juice firms have been unable to reproduce this heroic feat). Underpinning this seems to be an old-school temperance movement mien. You'll regret being a [drunk/slob/junky/fatso] later, so it's my duty to save you from yourself. Even if you don't end up regretting it, you should end up regretting it, and by socializing your health care, you can be sure I'll make it my business.

People, "public health" is not synonymous with "the health of the public". A public health problem is one that can threaten individuals' health regardless of their willingness to participate in the causal activity. Scarlet fever is a public health problem. Typhoid is a public health problem. Tuberculosis is a public health problem. Until Munger starts cramming fistfuls of ham salad down my throat against my will, the diameter of my posterior is my responsibility. Even if there are millions of people like me who have to let out our belts a notch or two once in a while, it beggars belief that advertisements are somehow coercive.

But perhaps that's too uncharitable. Perhaps there really is a tyranny of soda [pop for you weirdos]. It's not immediately clear to me that swapping one tyrant for another is necessarily an ideal move. There's a nasty utilitarian calculus problem to solve, exacerbated by the cheap talk problem and imperfect or non-monotonic discount rates. We don't know, indeed we can't know what the ideal obesity rate is without market prices. Further distortions of price information sure aren't going to help matters. Granting political elites the kinds of diktat powers enumerated in Nestle's column ends where exactly?

It's one thing to show that a particular transaction is not euvoluntary (and I'm not convinced that's been done in the case of carbonated beverages laden with high fructose corn syrup), but it's another thing entirely to show that political elites possess the wisdom to remediate troubling outcomes. And what happens as efforts prove ineffectual? Are benevolent paternalists more likely to recant or to redouble?

Corporate Social Responsibility

There are plenty of ways to raise economists' hackles. Price controls, trade barriers, subsidies, taxes, regulation, if the state has a hand in it, you can bet some economist somewhere has something to say about it.

Corporate social responsibility efforts are another kettle of fish however. Here we have private firms picking up the banner of charity and "giving back" to the community (under the assumption that they've earned their profits illegitimately, perhaps?). Freshwater economists point to firms' fiduciary duty and cry "foul": the responsibility of a firm begins and ends with maximizing share value. Profits are a signal that the firm is producing consumer surplus, that is, delivering value to the customer. This is what the firm specializes in: it is what they do best, and we are all made better off through specialization and trade. If shareholders are interested in charity, it is more efficient to convert dividends into donations to those organizations that specialize in the business of charity.

Is not corporate charity euvoluntary? Investors aren't coerced into buying stock of Home Depot (well-known for building community playgrounds and refurbishing forgotten municipal parks) or Whole Foods (never one to shy away from posting the money they've raised for a hodge-podge of community projects). There's no hint of coercion anywhere, not from the customers, not from the business owners, and not from investors. Customers can just as easily frequent the classic, miserly firms. Owners are constrained by standard competitive forces and the limits of their imagination. And investors? There are plenty of stocks on the NYSE and plenty of no-load index funds available. What's to object to?

It seems there's a bit of a pickle here (just a lil' gherkin though, not a big ol' kosher dill) for Free-Market Euvoluntaryists. Freedom of association is an important virtue, but efficiency is also good; efficiency is an ingredient in material abundance and is necessary for the amelioration of poverty. We want to see resources finding their way to their highest value use and when voluntary transactions conducted within good institutions, well-defined property rights and the rule of law don't get us there, it can be a little flustering. For those of you taking (or teaching) upper-division econ courses, here is how I might approach the topic with my students.

Questions for discussion:

• Do modern Western states actually have free markets in charity or has the state effectively crowded out smaller community organizations?
• For the charitable assistance that the state does provide, is it sufficiently welfare-enhancing? Are there gaps in the provision of assistance? 
• If the state has crowded out private charity, and it does do a relatively poor job of making communities better off, is there a role for other organizations to fill the void?
• Specifically, is there an appropriate role for corporate charity: do corporations conduct de facto social responsibility experiments or are they feel-good vanity projects with no feedback and little or no accountability? Where is the substitute for profit and loss signals? How do corporations stack up against organizations that rely strictly on voluntary contributions?
• If state-run transfer programs were discontinued, would you expect specialized private charities to bounce back or is it likely that corporate entities would continue or expand their charitable activities?

I'm not sure I have good answers to all of these questions. Predicting general equilibrium conditions is tricky and we don't have much empirical evidence of how private charities operate in a modern setting absent any current or past state intervention. Institutions are persistent and if corporate social responsibility is already a trope, it may well be here to stay.

Roses Are Red

Violets are blue
Small businesses are the engine of the American economy
So let's subsidize them directly and through the tax code.

Mercatus Center scholar Veronique DeRugy writes on the misguided fetishism of small business favoritism. One reading of representatives' currying favor with small businesses is mere vote buying. Small businesses churn voters like spiked golf balls in a button flash tumbler (I used to work in a button factory, so at least I get this reference, even if no one else will). The idea is that by giving some sweetheart preference to small businesses, politicians can reap some political goodwill from employees and owners alike. I'm not convinced that's what's necessarily happening though.

I think people genuinely distrust large, anonymous organizations. Corporations routinely, as a matter of economies of scale, conduct non-euvoluntary trades. These trades are non-euvoluntary by dint of BATNA disparity: the individual customer is always worse off than the corporate seller if a trade isn't struck. One lost tire sale is piddling to Bridgestone, but it might mean an inability to get your wife to the maternity ward on time to the unfortunate dad-to-be. Corporations don't care any more than to set marginal revenue to marginal cost because it's not in their interest to do so.

Therefore, small businesses must be better, right? The customer has a chance to get to know the owner, maybe  explain his plight, maybe cut a good deal because the guy looks like a mensch you can trust. It's more euvoluntary when the business has a stake in making the sale go through.

I can actually buy that bit of reasoning, as far as it goes, but like anything else, ain't nothin' free. Small businesses suffer from scale economies. What you give up by scaling down from Home Depot back to the corner hardware store is selection, price, contingency inventory tracking (ever notice how snow shovel prices inexplicably don't skyrocket at Home Depot every time there's a giant surprise snowstorm and there's always stock on the floor?) and time economies? There are efficiencies to large-scale operations and there is indeed a happy baby splashing about in that non-euvoluntary bathwater.

Questions for discussion:

• Are all corporations (say, mid-cap and larger) necessarily non-euvoluntary?
• Are all small businesses necessarily euvoluntary (by BATNA)?
• Do regulations like Sarbanes-Oxley, Glass-Steagall and Dodd-Frank help move firms in the direction of euvoluntaryness?
• What are the costs and benefits to favoring a particular class of business based strictly on size? How do special favors influence firms' incentives to grow and produce more valuable products for customers?

Corporate Wellness

Are corporate "wellness" programs coercive?

A view, with some background.