When Reputation is not Enough: Justifying Corporate Social Responsibility

Abstract

In a survey on corporate social responsibility (CSR) published in 2005, The Economist issued a series of articles that were sternly critical of the idea that firms should commit themselves to explicit codes of ethics. One of the main arguments, repeated on several occasions in the survey, is the familiar one based on the invisible hand, which was originally proposed by Friedman (1970). According to this argument the market economy has proved to be an extremely efficient mechanism for producing and allocating resources. Although advocates of CSR rarely contest this point, they seem to believe that this success has been obtained despite the fact that the market’s actors, for example large corporations, usually consider only their own profits when making their decisions. The Economist believes that quite the contrary is true: markets achieve such astonishing performances just because each agent only minds his own business. Which implies that if firms take ethical codes seriously, as opposed to merely paying lip service to them, the capacity of capitalism to generate wealth could be severely impaired.