Laffer: Corporate Social Responsibility Is Voodoo

Discussion
Jan 26, 2005
George Anderson

By George Anderson

Arthur Laffer, the so-called father of supply-side economics — or voodoo economics if you happen to be a former President of the United States — says if you’re looking for fake magic, you only have to look at companies that say corporate social responsibility (CSR) is good for the bottom line.

In a speech before the Competitive Enterprise Institute, Dr. Laffer said CSR amounts to irresponsible behavior on the part of corporate management.

He pointed to a study covering four years between 2000 and 2004 that he and economists Andrew Coors and Wayne Winegarden conducted of 28 companies selected by Business Ethics magazine for their social responsibility. The research, he concluded, found no clear connection between a company’s social activism and profitability.

Dr. Laffer urged companies to resist lobbying by social activists and remember they are “legitimate entities whose prime responsibility is to make profits for those who have invested in them.”

Not all agree with Dr. Laffer’s assessment. The cover story, Holy Grail Found, in the current issue of Business Ethics, cites research analyzing 52 studies conducted over a 30-year period, Corporate Social and Financial Performance, which found a “statistically significant association between corporate social performance and financial performance.”

The research conduced by Marc Orlitzky of the University of Sydney, Australia, and Frank Schmidt and Sara Rynes from the University of Iowa found the financial impact of corporate social responsibility ranged “from highly positive to modestly positive” on the companies studied.

Moderator’s Comment: Does corporate social responsibility have a positive or negative impact on bottom line profitability? Which companies in the retail
industry would you use to support your view?

Lawrence Mitchell, John Theodore Fey research Professor of Law at George Washington University, said Dr. Laffer doesn’t get it. “Social responsibility is
not necessarily to increase profitability — it’s to increase profitability responsibly,” he told EthicalCorp.com.

George Anderson – Moderator

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