Rob Stavins helps us understand the limitations of corporate social responsibility in his Jan/Feb 2006 "An Economic Perspective" piece for The Environmental Forum (Some Straight Talk Needed About CSR):
The time is ripe for critical thinking about corporate social responsibility, because there are few topics where discussions feature greater ratios of heat to light. ... At issue is the appropriate role of business with regard to environmental protection. Everyone agrees that firms should obey the law. But beyond the law — beyond compliance with regulations — do firms have additional responsibilities to commit resources to environmental protection? How should we think about the notion of firms sacrificing profits in the social interest?
Here is my take: one criticism of corporations is that they aren't nice. "Corporations are soooo rich that they should reduce their emissions beyond what the law requires." The problem for business firms that want to do good is that if they operate in, even a somewhat, competitive market they'll get hammered by the enemy. If you do good then costs rise and your competition can charge lower prices and grab market share. Only monopolies and firms in niche markets can reduce emissions more than they must.
To summarize the role of the various players:
- Business firms maximize profits.
- Government regulates firms to the point where marginal benefits of pollution equals the marginal costs of pollution (and the net benefits of pollution reduction is maximized).
- Business firms do what the government tells them.
- Critics of corporations hush up.
