A Needed Tutorial on Business and Capitalism

Recently the Indiana Policy Review reported some uninformed anti-business comments by university professor Gary Gutting (N.Y. Times, Oct. 12):

Corporations are a particular threat to truth. . .The corporate threat is most apparent in advertising, which explicitly aims at convincing us to prefer a product regardless of its actual merit.

Such rhetoric only abets the class-warfare hysteria suddenly infecting our nation, literally from the top down. I can offer straightforward correction:

There is a natural marketplace disincentive to engage in deceptive advertising. Customer satisfaction is a function of product performance relative to expectation. If expectation is inflated too high via false advertising, it only causes dissatisfied, and former, customers, with corresponding loss of revenue. False advertising does not generally pay off because almost all businesses depend on satisfied, repeat customers to stay in business-not to mention the value of favorable word-of-mouth.

Moreover, to deal with any exceptions, laws against deceptive or even misleading advertising are very strict.

The fatal weakness in Mr. Gutting's position is the logical error of "begging the question," or an unsupported premise. Beyond the above bald assertion, Gutting declares that business should deviate from its basic task of lawfully earning a profit and engage in "responsible action" or "social responsibility." Thus, a term not in evidence is introduced. Specifically, how do we know what "responsible action" is? Who decides what is socially responsible? How is a business executive to know what action truly serves society?

To rebut, explain, and instruct on this broader question, and begin to overcome the misunderstanding of those unfamiliar with the appropriate economic role of business, first recognize that the public interest or a business' social responsibility is never exactly handed down from the heavens on tablets of stone. Business managers can only act in the public interest as they perceive it, as they judge it, as they decide it, as they define it—subjectively. Managers cannot know with certainty what course of action is genuinely in accord with "the public interest," so they can only make their best guess and act upon that subjective judgment. This scenario truly amounts to an inappropriate locus of public policy decision making as usurped by unelected representatives—in effect an oligarchy, plutocracy, and dictatorship by executives. Although both reader and author may feel viscerally that a benevolent dictatorship by the business executives of the world could prove superior to the political process as observed daily, such an abdication and virtual coup would be a philosophical anathema in a free society. Is that what we want? Maybe Mr. Gutting, the Wall Street occupiers, and their soul-mate, our demagogue President, should think about that.

To dramatize with a close-to-home example, a major Indiana firm is renowned for its "corporate conscience," for giving much money to charity and supporting so-called social causes—in accord with the preceding "responsible action" canard. And every time I hear of that company laying off hundreds or thousands of workers I wonder: Are that firm's executives sure our society really wants money thrown at those chosen social causes more than we want a few hundred or a few thousand more jobs? Now how socially responsible has that company really been?

No, the social responsibility of business is to stick to its business, and leave the social engineering to the appropriate groups—namely the public through its elected representatives. Not to worry, whenever business conduct deviates from what society really wants, mechanisms are already in place to bring about adjustment, primarily via regulation. That is the way it works, and should work. But after four decades of "dumbing down" by the public education establishment, fewer and fewer in our populace seem to have the slightest idea of how capitalism works, or the proper role of business in our economy. We now see this tendency in the streets, as well as the New York Times.