Wayne Winegarden

Perhaps the Corporate Social Responsibility (CSR) movement of the late 1990’s and early 2000’s was simply a fad – an expendable corporate distraction that companies entertain during fat times. Now things are different. Economic growth is faltering, consumer expenditures are plunging, and corporate profits are in a free fall. In this bad economic environment, companies cannot treat their scarce profits so nonchalantly and the CSR fad will simply fade away like so many past management trends.

Then again, don’t bet on it. The incoming Obama Administration will provide regulatory support to CSR’s ideals. The historical influence of CSR has also shown that it ebbs and flows with the rise and fall of corporate profitability. When something is plentiful, the value people place on it diminishes. The same appears to be true with corporate profits. Consistently high corporate profitability diminishes the value many people place on corporate profits. The diminished value placed on profits creates a receptive environment for Corporate Social Responsibility.

Back in the 1960’s after-tax corporate profits (accounting for depreciation and inventories) rose from around 5.5 percent of GDP to a high around 8.0 percent of GDP in the mid 1960’s. Within this fertile profit environment, CSR principles were able to flourish. Similar to the CSR arguments today, the earlier Social Responsibility movement argued that businesses have a responsibility to do more: they must evaluate their total impact on society and take actions that improve the social good. The “social good”, of course, is defined by the CSR advocates themselves.

It was against CSR’s initial rise that Milton Friedman famously wrote: “That is why, in my book Capitalism and Freedom, I have called it [CSR] a "fundamentally subversive doctrine" in a free society, and have said that in such a society, "there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." (New York Times Magazine September 13, 1970)

Wayne Winegarden

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

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