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Ethical Consumerism, Part 3: The Corporation

In part 1 of this series of posts on the topic of Ethical Consumerism I mentioned the story of how Henry Ford was blocked from doing good things because of the structure of the Ford Motor Company. Well, here it is:

In 1916, Henry Ford was paying workers generous wages and had cut the price of the Model T car to less than half the original price. He reportedly said that, “A reasonable profit is right, but not too much.” However, two major shareholders, John and Horace Dodge, took Ford to court for his plan to make further price reductions on his car. In court, Ford argued that “business is a service, not a bonanza,” but the judge ruled with the Dodge brothers (who went on to form their own car company), stating that “a business corporation is organized and carried on primarily for the profit of the stockholders” and that companies could not be run “for the primary purpose of benefiting others.”

The Corporation (book and documentary, 2003)

This story is told in The Corporation, by Joel Bakan (Prof. of Law at the University of British Columbia) – a book that I recommend reading. There’s also a documentary based on the book, featuring Noam Chomsky, Naomi Klein, Michael Moore, and others. You can watch the entire thing here:


(I’ve skipped to a relevant bit – around 10:52, in case the link doesn’t direct you properly.)

The implications of Dodge v Ford are enormous and they still stand today: that the duty of the corporation is always to maximize profits for shareholders, and any activities contrary to this are illegal.

Milton Friedman: profit is the only goal.

Prof. Bakan met with Milton Friedman (who won the Nobel Prize for Economics in 1976 and advised Reagan and Thatcher during the height of the sociopathic Greed is Good era) to discuss Corporate Social Responsibility (CSR). Milton argued that executives who choose social and environmental goals over profits are immoral. He qualified it to say that the one case where CSR is warranted is when it’s insincere (i.e., “greenwashing” to maximize profits). He likened it to “putting a good-looking girl in front of an automobile to sell an automobile.”

(A side note about The Corporation: limit your reading doses if you are prone to anxiety or high blood pressure.)

Henry Ford (left) versus John and Horace Dodge.  A landmark case in corporate history. (Images: Wikipedia)

Should we rely on regulations to save the planet?

Robert Reich (Professor of Public Policy at UC Berkeley) published a paper in 2008 called The Case Against Corporate Social Responsibility, in which he argued that corporations must focus on profitability and politicians must impose regulations to protect the planet and its inhabitants. I will deal with some of the other ideas in Prof. Reich’s paper in a later post because I want to stick to the main point here. Basically that:

  1. Waiting for regulatory changes is a dangerous game, particularly as time runs out on issues like climate change and habitat loss and many governments are not making fast enough progress.
  2. This is particularly true in the US right now, where policy is regressing. Regulations are being undone at an alarming rate and many politicians act as servants to corporations rather than to the public.
  3. For many corporations that are owned by shareholders or investors, proposed changes that benefit society or the environment are sometimes blocked (like in the seminal case of Ford, above).
  4. The EXCEPTION to the point above is where the change provides an advantage to the company (e.g., larger market share).
  5. Therefore, ethical consumerism (supporting a larger market share for companies that act responsibly) is the key driver for corporate positive change.

That’s worth repeating:

Ethical consumerism is the main driver of corporate responsibility

The choices you make (either for a particular type of product, like a bamboo toothbrush over one with a thermoplastic handle, or a particular corporation, such as Theo over Hershey’s, or both together, such as Counter Culture coffee beans over Nespresso pods) will dictate which kind of products will take off and which kind of corporations will thrive.

Think of it as a consumer loophole 😉

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