Starbucks and Corporate Social Responsibility

Posted: Oct 27, 2007 2:52 PM

On a recent road trip stop I noticed a pamphlet entitled, “Social Responsibility: How is My Starbucks doing its part?” Even though I had never lain awake pondering this question, I couldn’t help but grab the pamphlet. What follows are some choice excerpts and my admittedly cynical reactions.

• “Maintaining a strong level of independence and diversity among directors continues to be a priority… [O]f the 11 board members…one member is Latino, two are African American (one of which is female), and one other female also serves on the board.”

I think this excerpt vindicates the heartless conservatives who predicted that the goals of “diversity” and “affirmative action” would in practice result in demographic bean counting. In any event, is it really something to brag about, when 18 percent of the board is female? I’m pretty sure that isn’t representative of the coffee community.

• “Starbucks global purchases of Fair Trade Certified coffee totaled 18 million pounds in fiscal 2006, representing six percent of Starbucks total coffee purchases.”

A quick google search reveals that “Fair Trade” certification involves basic principles for farmers, including fair prices (minimum floor prices), fair labor conditions (including an absolute ban on child labor), direct trade (no middlemen if possible), and environmental sustainability.

I’m really ambivalent about this trend of certification. On the one hand, I applaud the fact that it’s technically private sector; Starbucks and other companies are voluntarily patronizing the appropriately certified suppliers, even though they are not legally compelled to do so. When free market economists decry paternalistic government regulation, one of our main points is that voluntary rating organizations can provide consumers with guidance on matters with much more expertise and accountability than bureaucrats.

On the other hand, as an economist I disagree with virtually every plank of the trendy movements. For example, why should Starbucks pay more than it has to for its coffee beans? If one group of farmers is willing to work for $7 per day, while another group is “organized” and insists on $10 per day, how does it help poor people by refusing to hire the first group? Market wages aren’t set by whim; they reflect productivity. It’s simply not true that workers in other countries are poor due to greedy corporations. No, those people are poor because their countries lack institutions of private property rights.

And what of the suspicion of “middlemen”? Starbucks itself is a giant corporate middleman! It does me no good as a consumer to have fresh coffee beans harvested thousands of miles away. It takes dozens, possibly hundreds, of middlemen and middlewomen to get those beans into the retailer’s hands, so that a surly teenager can hand me a steaming cup within seconds after I pull up to the window. Yes, I certainly pay more than if I directly dealt with the Brazilian farmer, but I don’t have a working relationship with any Brazilian farmers. That’s what I pay Starbucks for.

Even the ban on child labor isn’t so straightforward. Sure, it makes me uncomfortable to think of little children in distant lands toiling away so I can get a cappuccino, but does it really help them to refuse to give them money? For many families around the world, the children need to work to avoid starvation. Declaring ourselves righteous and hiring only adults doesn’t fix the problem.

• “Starbucks placed full-page advertisements in The New York Times that highlighted the need for collective action to address climate change.”

Regardless of one’s political views, surely we can all agree that we don’t need corporations taking our money and spending it to advance a particular agenda. I would be horrified if McDonald’s said it would use Big Mac proceeds to fund radio spots highlighting the need for a capital gains tax cut, even though I believe in that message. If something is controversial enough (such as how to address greenhouse gases or whether to cut taxes) that advertisements are necessary, then corporations shouldn’t be in the business of choosing sides. They can use the money instead to cut prices or give dividends to their shareholders, who can then donate to nonprofit advocacy groups if they so wish.

I know the proponents of corporate social responsibility will retort: “These practices make good business sense! So you should support them as an economist.” But if a certain policy makes a company more money, we don’t need to browbeat the company into adopting it. No, these Fair Trade and other principles only really matter when they are unprofitable. Wasting money on principles that are dubious to begin with doesn’t seem very “responsible” to me.