Saturday, July 16, 2011

Buying and Selling Philanthropy

I was galvanized by the headline: Philanthropy can’t be outsourced to the profit motive.

Wow! It is so obvious. How could anybody think otherwise?

But as I read a blog post by Felix Salmon I was reminded that a fair number of conventional economists think that "free markets" are a kind of philanthropy so the claim becomes a truism. Here is the claim:
maximizing profits companies also maximize social welfare
That's the claim. But as Salmon points out, there is reason to think that the source of this claim, Adam Smith, did not in fact believe it:
The realization that business has the capacity to create as well as destroy social value is known as “economics,” and goes back at least as far as Adam Smith. There’s nothing new about it, and nor is there anything new about economists using this insight to assuage the guilt of the rich. ...

Here’s [Joan] Robinson 41 years later, making the same point in a different way:
Freedom is the great ideal. Along with the concept of freedom goes freedom of the market, and the philosophy of orthodox economics is that the pursuit of self-interest will lead to the benefit of society. By this means the moral problem is abolished. The moral problem is concerned with the conflict between individual interest and the interest of society. And since this doctrine tells us that there is no conflict, we can all pursue our self-interest with a good conscience.
Robinson makes a strong case that Adam Smith himself did not actually believe this — but certainly many of the orthodox economists who followed him did.
The idea that self interest somehow comes to serve society's interest is bizarre. I can accept that you can harness self interest to deliver value to the larger society, but completely unregulated self interest is only going to benefit the one person. Any wider benefit would be purely accident and most unlikely. Harnessing self interest will get you a dynamic economy, but without regulation you get monopolies and market crashes.

If you had a pile of money and wanted to do good, you can't outsource it. At best you can set up a trust to manage it, with a board to invest and distribute, but you would have to cross your fingers that nobody on the board will be tempted to indulge in nepotism or decide that the proceeds should be spent on providing bigger salaries for the board and more perks commensurate with their "responsibilities". And you are off to the races of watching the money be frittered away. Philanthropy will never be an industry. Any pile of money is going to attract morally questionable people with all kinds of self-interested plans for "putting it to good use".

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