Robert Reich gets it all wrong

The January 2008 issue of Conde' Nast Portfolio has two very interesting articles that are in the general vicinity of one another. The first is No Obligations by RWhy companies should forget social responsibility—and why we should let them," which at face value sounds like an uncharacteristic laissez faire statement by the liberal economist. As you read on, you see that his point is that companies should not worry about social responsibility because consumers have shown that they aren't willing to pay more for such activities, and companies should justifiably work to be profitable. Again, strangely capitalistic of him. Then all again becomes right in the world...

"Unfortunately, improving the bottom line doesn't always make the public better off, of course. Polluting, stiffing workers on health care, and encouraging kids to eat junk food are often better for profits than taking the opposite approach...That's why we need government. It's not the job of private enterprise but our representatives in Washington and state capitals to tackle public policy issues...The answer isn't to push companies to be more socially responsible; it's to get corporate money out of politics so we as citizens can decide what the rules of the game should be. Condemning companies for not giving their employees better pay and health benefits may be emotionally gratifying, but it's a sideshow. What we really ought to be doing is condemning large corporations for polluting our democracy."

Nobody wants big companies ruling government, I agree. But Reich states a fundamentally different world view than that of a capitalist. He doesn't trust the market to agree with his views, so he calls for government to mandate those views. And one thing he failed to mention...for every government mandate on business, there is a cost to that business. More costs equal higher prices. That doesn't sound like a consumer-friendly idea to me.

Now, juxtapose that article with the second by Roger Lowenstein, The Wild Blue Yonder of Markets. In this article, Lowenstein talks about a new book, The Blue Way: How to Profit by Investing in a Better World about how companies who back Democrats and populist causes outperform those that do not. I'll let you read the whole article, but the point Lowenstein makes, which is 100% correct, is that they have their causality backwards. Strong companies happen to be led by Democrats, its not their Democrat views that make the company successful.

"Google's cushy employee benefits are not the reason its stock has soared; its search engine is. Indeed, if ample employee benefits were their own reward, wouldn't GM's be a hot company instead of one on the verge of going broke?"

Why do I praise Lowenstein? Because he is the only one of the two that is giving proper credit and respect to the real drivers of the economy AND the government...the consumer. We get what we ask for, on the shelf and in our government. Reich insultingly thinks that price is the sole driver of consumer preference. Tell Toyota that, as they sell the Prius in big volume for well over market value. Tell that to Method, who is selling safer, cleaner, environmentally better cleaning products like hot cakes. Tell that to Patagonia, who leads the apparel world in social causes as well as outdoor wear.

Why are these companies successful? Not simply because they are more socially conscious, but because that social consciousness is coupled with great design, great quality, great service and a reasonable price. In other words, these companies (and others) provide VALUE to the consumer. Value is the comparison of perceived benefits to price. Didn't they teach you that in Econ 101 Mr. Reich?

For all you companies out there, be socially responsibile to the degree that you can, be innovative, and make sure that when you do it its wrapped around a great product that has more to it than simply being responsible. Do that and we will all win.

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