I Can See Subsidies and Import Restrictions

If a corporation generously gives to charity, is it socially responsible? Most people would say yes. But economist Dwight Lee, in “Socially Responsible Corporations: The Seen and the Unseen,” Econlib’s Featured Article for February, says “not so fast.” Reminding us of Frederic Bastiat’s famous distinction between the seen and the unseen, Professor Lee reminds us to look at the unseen. Is the corporation lobbying for and receiving subsidies, special tax breaks, and protection from foreign imports? If so, then its visible charitable contributions are a tiny fraction of the costs the corporation imposes. And that is socially irresponsible.

Professor Lee highlights two corporations. One, ADM, thinks of itself as socially responsible. But Lee probes and finds something quite different. An excerpt:

Of course, to do a cost/benefit analysis, one would need to account for the benefits of government support of ethanol. These benefits are in the form of higher prices for corn. Who gets these benefits? The people who owned farm land when the government’s ethanol program began. There are two points to be made, though. First, few advocates of social responsibility would applaud a company for persuading a government to, in essence, tax consumers in order to make wealthy landowners even wealthier. Second, even taking account of the benefits to landowners, the deadweight loss from higher prices is likely to be at least 5 percent of the $6 billon noted above. That would be a loss of $300 million, which still swamps the $15 million in ADM donations.

Lee’s second example may surprise you. Although no one now thinks of it as being socially responsible, that wasn’t always true. And when people did think it was socially responsible, it really wasn’t, as Lee shows.