Friday, January 06, 2006

The IPA and Economic Libertarianism

The extreme form of advocation of market capitalism that in the 80s was associated with "economic dries" and in the 90s promoted the title "economic rationalism" is a variant I refer to as "economic libertarianism". David McKnight calls it neo-liberalism, which I think does a discredit to the word "liberal" - which in the US sense is associated with the idea that Government has a valid economic role.

A variant of it can be seen in today's AFR by John Roskam in an article on CSR. I don't have time for the full critique now - suffice to say the article fails to recognise the consequences of the corporation having achieved the status pf "natural person". It also fails to acknowledge that in the real world "the firm" draws on a number of inputs - all of which expect compensation. The shareholders do not deserve to get all the "upside" over and above the return they expected.

The focus on "shareholder value" has resulted in a degree of managing in the short run that makes it easier for management to externalise costs.

But the most telling point is how his two concluding paragraphs are self-contradictory. He first claims that firms need to confront the underlying assumption that without regulation companies will ignore social, environmental and ethical consequences - but then that the second task is to re-establish the principle that the single best contribution a firm can make is to be profitable (i.e. in a choice between profit and the environment, profit must win).

The IPA item can be found here

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