Commentary

Altruism? Bah, Humbug

This article appeared in Apple Daily, December 22, 2004.

In the United States, the post-Enron professional and political world buzzes with phrases like “corporate governance,” “corporate citizenship,” and “social responsibility.” The same, I am sad to hear, is becoming true of Hong Kong. Corporations today are regularly scolded by consumer activists and politicians who implore them to eschew profit-seeking every now and then for more conscientious endeavors. The implication is that there is something cold and inhumane about the raw and rugged free market — that the profit motive alone isn’t sufficiently altruistic to turn loose on polite society.

Nothing could be further from the truth. The mid-20th century American writer Isabel Paterson put it best in her book The God of the Machine when she wrote, “Most of the harm in the world is done by good people, and not by accident, lapse, or omission … Innumerable speculative thinkers, inventors, and organizers, have contributed to the comfort, health, and happiness of their fellow men — because that was not their intention.

In the 1990s, a corporate executive named Aaron Feuerstein quickly became the darling of the American media. Feuerstein oversaw a Massachusetts-based textiles company called Malden Mills. In 1995, three of Malden Mills’ factories burned to the ground. Feuerstein was pronounced a corporate hero when he promised his workers that he would continue to pay their salaries out of his own pocket while he rebuilt the factories, even though his workers wouldn’t be producing.

As a result, Feuerstein was invited to speak at colleges and universities all across the U.S. He was given honorary degrees, and was the subject of a flattering profile on the television program 60 Minutes.

Contrast Feuerstein with former General Electric CEO Jack Welch. During his tenure, Welch was considered by many to be the epitome of the ruthless, cold-hearted, profit-minded corporate executive. He laid off thousands of workers in his efforts to streamline and change the focus of the company. Wall Street loved him. Newspaper editorial boards and activists hated him. To make matters worse, as Welch was preparing to step down from General Electric a few years ago, a divorce trial revealed him to be the recipient of extravagant benefits paid for by GE stockholders.

But here’s where the tale gets interesting. Feuerstein’s pledge to continue paying his workers eventually cost them their jobs, and cost Feuerstein his company. Feuerstein ran out of money, and Malden Mills was forced to declare bankruptcy.

Welch, on the other hand, turned GE from a sleepy home-appliance company into an international mega-corporation that today is a leader in several industries. For every job he slashed, he eventually created dozens of new ones. For all the praise heaped on Feuerstein and scorn heaped on Welch, it is Welch, not Feuerstein, whose “cold-hearted,” capitalist management style did the most good for the most people.

There’s also a delicious twist in the tale. After its bankruptcy, Malden Mills was dangerously close to going out of business completely. Only the last minute heroics of a group of corporate lenders saved the company from going under. Want to guess who the chief stakeholder of those lenders was? It was GE Capital Corporation, a group that likely wouldn’t exist were it not for the leadership of Jack Welch.

A corporation’s only duty is to its shareholders. Corporations must abide by the law, of course. But a company that breaks the law and incurs the fines, bad press, and compensation that will follow is not acting in the interest of its shareholders.

Certainly, there’s room for a large corporation to invest in its community, to sponsor local arts, education, and charity programs. But community investment plays into “ruthless profit-seeking” too. A company that is seen as a good “corporate citizen” is a company more likely to win favor and patronage from members of the community.

Today, anti-corporatists want corporations to put some vague notion of altruism ahead of profit, innovation, and investment. That’s terribly shortsighted. Capitalism has proven to be the best way of creating wealth because it trusts that the collective wisdom millions of people voluntarily engaging in millions of mutually-beneficial transactions every day is the best way for an economy to allocate its resources.

When we’re free to pursue what’s best for us individuals, we inevitably create the kind of order and produce the wealth that is best for us as a society.

We need to get away from the notion that unfettered capitalism is amoral or, worse, immoral. As the Welch-Feuerstein example shows, if we define moral corporate practices as those practices which create the most good for the most people, “ruthless profiteering” is not only not incompatible with morality, it brings about a great deal more morality than altruism does.

Radley Balko is a policy analyst for the Cato Institute.