Wayne Winegarden

With these basic freedoms established, millions (or hundreds of millions) of citizens are empowered to leverage their own individual knowledge and initiative to better their own situation. In so doing, as Adam Smith illustrated over 240 years ago, the wealth of overall society grows in tandem. The wealth of the United States, Europe, Japan and much of East Asia stand as a testament to the universal power of economic freedom and capitalism to unleash the power of economic growth and lift hundreds of millions of people out of poverty.

In this realm, GE’s decisions to invest in wind power may be the right decision. Reading the energy consumer tea leaves, Jeffrey Immelt may have realized that wind power is technologically feasible and that consumers will prefer wind power over other alternatives. Thus, the investment is warranted. If he is correct, the marketplace will reward GE. GE’s sales will grow and their shareholders will make more money. As for society, we will have a more desirable power source and not just from GE as other competitor’s jump on the wind power bandwagon.

But, what if Mr. Immelt is wrong? What if wind power is not technologically feasible, or what if consumers will be unsatisfied with their power if it is delivered by wind technology. In this case, GE will lose money. Its shareholders will be unhappy and Mr. Immelt’s job will be less secure. As for the impact on society, it depends.

Capitalism is a process of creative destruction. For instance, the CD player was a great leap forward over record players. Because of the improved consumer benefits, consumers migrated away from records and toward the new technology, CD’s. In essence, the introduction of the CD destroyed the album.

From this perspective, a wasted investment in a promising technology is not necessarily a bad thing for society – if GE does not try we may never reap the rewards of wind power. Additionally, in a free market there are many other experiments with other technologies (some old, some new) occurring simultaneously. Through this experimental process, our scarce knowledge is put to its best uses and society benefits.

CSR’s policies endanger this process. As opposed to letting those people with the best knowledge experiment, CSR advocates presume they already know the answer. The CSR activists already know that investing in wind power will enhance GE’s profits. Their presumption thwarts the market process that is responsible for so many of the gains our society has made throughout the years.

It also raises a more fundamental question: if CSR activists already know how to maximize profits, why not “do well by doing good” themselves? The answer, to paraphrase Detouches: "Advocating is easy, business is difficult."

Wayne Winegarden

Wayne H. Winegarden Ph.D. is a partner in the firm Arduin, Laffer & Moore Econometrics.

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