THE ESG/CSR/OLIGOPOLY COMPLEX.

It used to be businesses made widgets. If they made good widgets and sold them at a fair price, that was considered their social contribution. Yes, they'd make a profit from the widget trade — they'd have to if they were going to stay in it for the long run — but, if markets were competitive, they'd only make enough profit to keep them supplied in capital and entrepreneurship.

But now, in addition to providing whatever good or service is their specialty, businesses are expected to make a “social contribution,” in the form of who knows what good deeds — it seems almost anything will do — whether connected or not with whatever widgets the firm is in the business of providing. The overall rubric for such concerns is ESG/CSR (Environmental, Social, Governance/Corporate Social Responsibility).

So the question arises: assuming markets are still competitive, where does the money come from to finance these add-on activities and the new vice-presidents in charge of this or that good cause? In the old way of doing things, widget-makers used all the funds they could raise to make widgets, including better widgets as time went by. But now they're doing widgets + ESG/CSR. Who pays for that?

One possibility is that it's all self-financing, that all these activities are actually profitable for the company. They raise the company's profile, which leads to greater public affection for the company's widgets as consumers decide they're not just buying the widgets, they're buying the widgets plus the good things the company does.

In fact, business involvement in social causes used to be criticized for being mainly self-interested. Critics would compare what companies were spending on good causes with how much they were spending advertising their good causes. “Aha!” they would conclude, when the advertising expense was discovered to be several times the do-gooding expense, “capitalism's deep cynicism revealed.” But now corporate critics seem OK with self-interested spending — so long as their favourite cause gets a share, I guess.

If ESG/CSR really is self-financing, in the sense of being profitable for firms, that raises the second-order question of why there's so much haranguing of businesses to conform to the new norms as defined by bien-pensants in Davos or at the summit of BlackRock or Goldman Sachs or other such epicentres of benevolence. It doesn't speak well of ordinary business folk that they don't on their own recognize the profit opportunities in non-profit activities.

Of course, it's possible ESG/CSR good deeds aren't really self-financing, that they do cost real money not paid back by their effect in burnishing the corporate image. So, again: where does the money come from?

Owners, lenders, workers, suppliers and customers cover the possible sources of corporate revenues. In theory, customers will pay more if they value the glow that comes from buying their widgets from ESG/CSR companies. Maybe CBC Radio listeners do but I fear they're badly outnumbered by the rest of us who want the best widget going at the most competitive price.

Workers? Will they accept less compensation in order to work for a company that has a good reputation in society? Maybe. But if labour markets are competitive and workers have kids to feed and educate, I'm thinking many will go for the bucks.

Lenders? There is a new school of finance that urges lenders to take into account all sorts of non-widget, non-financial aspects of a firm. And maybe there are folks out there who will take a couple of hundred fewer basis points on their loans if the firm they're lending to is making the world a better place. But I'm guessing there are even fewer of them than there are CBC listeners.

Owners? Yes, owners could spend the money out of the goodness of their hearts. But if the business they're in is truly competitive, they're not going to be making much more money than they need to keep doing what they're doing instead of going on to try something else. That's the economic definition of competitive. The same logic holds for the firm's suppliers.

Which brings us back to the assumption markets are competitive. If you're a business that wants to spend real money on altruistic projects — i.e., projects that don't pay back in higher revenues — it would be very handy to be making excess profits. Being a monopoly would be best. Being a big monopoly would be perfect, since world-changing ambitions require lots of money. Sir John Hicks, 1972 economics Nobelist, once said “the best of all monopoly profits was a quiet life.” Or, these days, a reputation for benevolence.

If you can't have monopoly, oligopoly will do. The resulting corporate surpluses come from lower costs or higher prices. Lenders, workers, suppliers and owners seem unlikely to volunteer for lower costs. So consumers end up paying more. Is it just a coincidence that some of Canada's most conspicuously altruistic firms are banks and telcos?

So the dirty little secret of ESG/CSR is that the most forceful advocates of good corporate behaviour are implicitly — the accounting says they have to be — the most ardent supporters of putting the screws to consumers. Who'd have thought?