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Blessings of Liberty

Monday, July 1, 1996
        By anyone's definition, Jerome Lemelson is a great philanthropist. Lemelson has donated tens of millions of dollars over the years to organizations ranging from the Massachusetts Institute of Technology to local charities across the country. He has devoted much of his philanthropy to extolling the virtues of technological innovation. He has given millions of dollars to universities and the Smithsonian Institution, in Washington, D.C., to create programs to teach and promote invention. The first annual Lemelson--MIT Prize (a $500,000 "Nobel" of sorts for American inventors) was awarded in 1995. At his death, his foundation is expected to be worth at least $300 million.

        By honoring invention, Lemelson's philanthropy merely reflects his life's work. Jerome Lemelson holds more patents than any living person. Since 1949, when he created a typewriter eraser as an undergraduate project at New York University, Lemelson has patented some five hundred inventions, from video telephones, audiocassette players, and videocassette recorders to spark plugs, ice skates, and Silly Putty.

        We associate inventors with gadgets and "gee whiz" discoveries to such an extent that we often forget how important their innovations are to daily life. No matter how hard Lemelson tries, the value of his charitable work could not possibly match the value of his contributions to American society as an innovator and entrepreneur.

        Take just one of his inventions, an automated system for reading bar-code labels. Without this seemingly modest technology, which Lemelson helped pioneer, much of modern industry simply would not exist. Manufacturers such as automakers and computer companies rely on bar codes to track the flow of parts in factories and the movement of finished goods in the distribution chain. Most Americans encounter bar codes every day in retail stores, where their use speeds up checkout lines and reduces errors.

        Such information helps firms adjust production and distribution to the changing desires of consumers. This commonplace technology supplies new retailers with daily information about consumer demand and inventories, allowing them to cut prices, increase product offerings, and serve customers better. Wal-Mart, Toys 'R' Us, Blockbuster, and Home Depot all owe part of their success to the revolutionary impact of bar-code readers. Measuring the value that the bar code has added to the economy would be virtually impossible, but it must be billions of dollars, at least. Lemelson's praiseworthy philanthropic activities pale by comparison.

        Lemelson understands the social value of entrepreneurship. "Innovation and invention have helped build the greatest industrial economy the world has ever known," he once told Entrepreneur magazine. "But inventors have always been left on their own. My goal is to make Americans more conscious of innovation." Meanwhile, however, the debate over the responsibility of business to society will continue to focus on noncommercial activities deemed socially beneficial, rather than on what firms actually make and sell.

        So Vermont-based Ben & Jerry's Ice Cream is regarded by many as the prototype of a "socially responsible" corporation because it gives away 7.5 percent of its profits to charity (the average for U.S. corporations is a little over 1 percent), limits the salaries of its top executives, and conspicuously supports social causes. Yet its main enterprise is making and selling premium ice cream, a luxury good (unlike rice or shoes or electric power) that, one could say, harms the health of many Americans by filling their bellies with fat and sugar.

        Most businesses exist to make or sell things, not to engage in political or social commentary, act as a philanthropic foundation, or even, it should be noted, to employ people. Focusing solely on the means by which businesses carry out their basic mission--such as their employment practices, their participation in community or cultural life, or their waste management--distracts us from the benefits that businesses confer on society. To satisfy the ever-changing needs of consumers, successful firms must constantly invent new products, new services, new ways of doing business more efficiently. This they do better than other social institutions, such as governments or charities. And the impact of such innovations on our society is massive, often far exceeding the benefits of governmental or charitable action.

        Of course, journalists and politicians thrive on bad news. They continue, for example, to decry the inequality of men and women in the workplace, and blast American companies for unfair hiring and compensation practices. Yet business innovation historically has helped liberate American women. Technological advances have promoted greater equity in pay by reducing the value of physical strength and increasing the value of mental acuity and social skills, which are distributed more evenly between men and women. At the same time, labor-saving devices in the home have given married women more freedom to pursue education and employment.

        Similarly, automation and computers have improved workplace safety far more than has government regulation or union activists. Computers allow employers to track accidents carefully and devise solutions to systemic problems. More generally, it now takes fewer employees to manufacture goods in America--and that means fewer chances for injuries, illnesses, and accidental deaths as more workers move into services.

        Advocates of "corporate social responsibility" spend a lot of time talking about what they perceive to be the wasteful or destructive properties of goods and services, while ignoring their value to consumers. They can applaud Ben & Jerry's or the Body Shop as exemplars of responsibility, because ice cream and cosmetics do little "damage to the ecosystem." On the other hand, they rarely save lives, alleviate pain, or feed the hungry.

        Critics of free enterprise denigrate plastic for being nonbiodegradable and polluting. Yet plastic is the essential ingredient of many of the products and services that make our standard of living possible, such as medical devices, telecommunications, wastewater treatment, transportation, safe and tasty food, and computers.

        Even where activists concentrate their attention--such as the relationship between employers and employees--they get the story wrong. They allege that in the absence of government regulation or a sense of responsibility beyond the profit motive, companies will inevitably mistreat their workers. But in most American workplaces today, employers are constantly mindful of the well-being of employees. If workers are not competent, healthy, and motivated, businesses will fail.

        Social-responsibility analysts usually employ flawed measurements of responsibility. They gauge the fairness of employment decisions by whether a firm's work force reflects the racial and gender composition of the surrounding community, not by whether the firm actually discriminates unfairly. They measure responsibility towards families by the number of workers covered by company health insurance, or by the presence of on-site day care. But in many cases, such benefits are not worth as much to an employee as are higher wages, flexible benefits plans that allow workers to choose the nonwage compensation most valuable to them, or the freedom to work part time rather than full time.

Doing Well, Doing Good

        On a more fundamental level, social-responsibility activists barely understand how the search for economic return on investment can motivate companies to "do good." When downsizing, for example, it is almost always in the interest of companies to treat their workers with respect and to help them find new jobs. For one thing, layoffs affect not only workers being let go, but also those who remain. Retained employees watch how their former coworkers are treated and wonder what will happen to their own livelihood.

        Poorly handled layoffs can cripple employee morale and so hurt productivity. After the breakup of the Bell System in 1984, AT&T was forced to reduce its work force by more than 100,000 employees. To head off morale problems, the company created a "safe landing" program to help laid-off workers find other jobs.

        Also, firms can save money in severance payments by getting their former workers re-employed. One study by Washington State University professor Duane E. Leigh found that job-search assistance was an effective tool for re-employing people, because it "allows for quick intervention before workers disperse after layoffs and plant closings; and, given their modest cost per worker, the evidence suggests that [job-search] services are cost-effective" by reducing severance and unemployment insurance costs. Health One Corp. discovered this after deciding to close Metropolitan-Mount Sinai Medical Center, in Minneapolis, Minnesota. Instead of just handing pink slips to 1,200 employees, the company found jobs for 90 percent of them. Health One actually saved more in unemployment and severance expenses than the $500,000 it spent on job training and placement.

        The corporate social-responsibility movement harbors an unrealistic, ahistorical view of commercial activity. Critics of corporations zero in on the Exxon Valdez oil spill or the Bhopal chemical-plant disaster because they are well known. All too often, we take for granted what goes right and dwell on disasters and villains--which are notable precisely because they are exceptional. The revolutionary ways in which corporations have improved the everyday lives of Americans over the past half-century are rarely recognized.

        In our search for heroes, we lionize political leaders or military commanders or make-believe TV characters. Yet the real heroes of our age are the innovators who raise our standard of living and overcome the fundamental problems of humanity. It's a pity that, with few exceptions, those who create the amenities we enjoy and the innovations that make our lives safer, healthier, and happier toil in relative obscurity.

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