Wednesday, March 4, 2009

A Pro-Business Pathway to a Better World

“Competitive advantage” is a key concept for the success of any business in a free market economy. There are many factors that can give a business a competitive advantage, ranging from honest strategies to illegal ones. Honest ones include having a better product or service, having better marketing and advertising, or making efficient use of resources to keep costs down. Less honest factors include using political influence to get company or industry-specific tax breaks and subsidies, or waivers from compliance with environmental standards. And, too often, companies go over the edge into unethical and illegal activities like union busting, illegal dumping of toxic waste, bribing public officials, conspiring to fix retail prices, or—in the case of the Mafia—simply bumping off one’s competitors.

It is natural for any company to use all the advantages available to it by law, and most companies push the envelope a little about the exact letter of the law. In fact, company officials have a fiduciary obligation to their stockholders to maximize profit, so they are always looking for new ways to do that. But when federal law creates a certain standard to which all companies in a particular sector are held, then that factor gets taken off the table and none can use it as a way of gaining competitive advantage. For example, no automobile manufacturer is allowed to gain a competitive advantage by eliminating seatbelts or reducing air pollution controls. So society is better off and no individual company is harmed. This is an appropriate role for government.

But the government has fallen short in two areas where it could be a great deal more proactive in protecting society from corporate practices that are damaging. The first of these is the cost of labor. Corporations have argued since time immemorial that the cost of labor should not be dictated by government. But if all corporations were held to the same minimum standard, none would be able to use the cost of labor as a way of gaining competitive advantage. The same concept applies to environmental regulations. Forward looking businessmen could take the lead on this and engage with government to create uniform labor and environmental standards that would better serve society, pressing for a ‘living wage” (sufficient to lift all full time workers out of poverty) without giving a competitive advantage to any one company.

Uniform standards, however, are much more difficult to develop and enforce in a global economy, thanks in large part to President Clinton’s rush to pass global free trade treaties in which labor and environmental protections were almost completely ignored. Nonetheless, if we can ban the import of illegal ivory, we should be able to ban the import of goods manufactured by companies that exploit their labor force or trash the environment. The regulatory and enforcement infrastructure needed to implement such a program would be expensive, and the price of consumer goods would certainly rise, but the benefits to society everywhere would be well worth the cost.

Further, by having product prices reflect their true cost (rather than keeping prices artificially low by “externalizing” the costs of human suffering and environmental degradation), consumers would be encouraged to focus more on necessities and less on the trivialities that have so cluttered up our world. As a result, our collective quality of life would rise, even though our “standard of living”, as narrowly defined by how much stuff we can buy, would likely take a dip. It’s sometimes difficult to imagine a world where everyone could have a good paying job, where no one has to starve, and where society works collectively to protect the precious ecosystems upon which all life depends. But if labor and environment were taken off the table as factors by which companies gain a competitive advantage, we would make great strides in that direction. Will the new Obama administration have the vision and courage to do this?


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