Can Businesses Do Well and Do Good?

Two of my favorite scholars, Richard Posner and Lawrence Summers, channel the spirit of Mr. Friedman in the Kinsley volume. Mr. Summers pithily sums up the case against Mr. Gates:

It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.

Mr. Summers reminds us of the problems created by hybrid institutions like Freddie Mac and Fannie Mae, where profit maximization and public support came together to cost taxpayers plenty.

[…]

In econ-speak, a sense of doing good is a luxury good. Journalists like to think that they serve truth as well as their newspapers’ owners. Doctors like to think that they have a duty to patients as well as to the H.M.O. that employs them. Firms cater to this human taste by frequently telling workers that they are doing both well and good, and sometimes that talk is more than just empty employee relations.

[…]

Does it make sense to consider hybrid organizations that have an obligation to earn financial returns, for some of their investors, and social returns for others? In a sense, the world has long had such hybrids in the form of profit-making subsidiaries of philanthropies and companies, like Ikea, that are owned by foundations.

Such hybrids will always be messy and may end up being unworkable. Perhaps the Friedman-Posner-Summers distaste for them is correct. I certainly agree with Friedman that traditional corporations have one overriding moral obligation — to fulfill their fiduciary duties and maximize shareholder wealth. Yet I’m also a fan of organizational innovation, which makes me a little more enthusiastic about the idea of experimenting with new legal entities with more complex objectives.

via Can Businesses Do Well and Do Good? – Economix Blog – NYTimes.com.

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