How A California Corporation Creates More Social Good Than Any Government

Tuesday, August 27, 2019
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istock

There is growing pressure on corporations to stop prioritizing profits and to act in “the best interest of society.” Elizabeth Warren started the ball rolling last year with the Accountable Capitalism Act. If passed, this would dramatically change corporate governance and decision making. Its requirements include that at least 40 percent of board directors be elected by employees and that corporate decisions create a “general public benefit” rather than narrowly benefiting shareholders.

The largest, most profitable corporations, those that focus on profits with blinders on, are already doing this. And they are not just creating a vague “general public benefit” to satisfy political demands. They are fundamentally responsible for a tsunami of social good.

Take Apple Computer and the evolution of the smartphone. Today’s $1,000 smartphone has the equivalent computing power one of the world’s fastest supercomputers from the mid-1990s, which would cost nearly $70 million in today’s dollars.

The technological progress that made this possible was driven entirely by corporate profit motives, and the social benefits accruing from today’s profit-driven telecommunications technologies are nothing short of remarkable, particularly for the poorest people.

The smartphone has completely transformed life in Africa like no other government or nonprofit aid agency ever has. In 2000, the cell phone was literally unknown in Africa. By 2023, one billion Africans are predicted to have cell phones.

More than 700 million Africans now have reasonably reliable phone service where landlines were either nonexistent or nonworking. Africans can communicate over long distances. They can conduct banking services on a continent where few have a bank account and even fewer have a credit card. They can access the internet for education and entertainment. They can become informed about world events and become politically active. They can learn about how to manage their farms, increase yields, and reduce costs.

Cell technology is also dramatically changing the lives of African women by increasing independence, creating new entrepreneurial opportunities, and allowing them to learn much more about political and social freedom.

All of this came about because cell phone producers, and all the other companies who contributed to this technology, were out to do nothing more than make a profit. The World Bank calls the introduction of the cell phone “the most significant revolution in . . . how [African] people live their daily life.”

The rapid rise of cell phone usage in Africa coincides with dramatic economic growth. Since 2000, per-capita GDP has grown enormously in Africa, including increases of over 500 percent in Ethiopia, and over 300 percent in Kenya and Nigeria. While these countries are still poor in absolute terms, these growth rates are extraordinary and have lifted hundreds of millions of people out of extreme poverty. Not a bad philanthropic record from greedy corporatists, no?

The most remarkable aspect of this is that none of it was planned. No one set up a committee. No one thought, “Hey, let’s send a billion cell phones to Africa.” Even if someone had, very few of those hypothetical phones would likely have ever found their way into the hands of African consumers, as has been the case with so many other aid programs to poor countries with corrupt governments.

The introduction of the smartphone to Africa, and the remarkable transformation of African life, was the fortuitous outcome of what we call “the power of the free market.” Corporations who blindly tried to make a profit for their shareholders created a social good that overwhelms anything any government or foreign aid agency has ever done.  

The principal reason the United States is so wealthy today is our continuous record of permitting people and organizations to take risks and receive the returns from their investments. And economic success is not just concentrated among the highest earners, as Bernie Sanders has argued. Data compiled by the Bureau of Labor Statistics shows that per-capita consumer spending among the highest 20 percent of earners is only about twice as high as among the lowest 20 percent of earners.

This is why Elizabeth Warren’s Accountable Capitalism Act and related proposals are so uninformed. Corporations are already doing much more than what she could ever have hoped for, without any legislation. If you would like to see more African miracles—and who wouldn’t? —step aside and let innovative companies create value for their shareholders. This market process will deliver thousands of times more social value than will efforts to strong-arm companies into doing so.

We can’t predict the next technological breakthrough that will have as much of a social impact as the smartphone has had. But whatever it is, it will take longer to arrive, will be much more expensive, and will be much slower to diffuse to the poorest countries if we capriciously regulate the market process away from doing what it what it does best.

Capitalism and globalization are delivering a cornucopia of new goods and services to almost every country in the world. This is a golden age for the market process. But as fewer and fewer politicians understand the benefits of a free market, there will be more uninformed proposals like Warren’s Accountable Capitalism Act. And, as is always the case, the biggest losers from the passage of these acts will be those without money and political influence.