Dow manufactured the napalm used to bomb Vietnam. Photo by Associated Press.
Americans have been taught by persistent experience to expect great and growing wealth from their economic system—even our paupers are richer in goods than most of the elites of history. Americans are now beginning to ask more of the corporate leaders of the economy: that the economic system make life pure, safe, and sweet—that it provide man with all the manufacturable components of happiness.
During the past academic year  there was a concerted drive for proxies to instruct General Motors to mend its ways. Almost all major electrical utilities became deeply embroiled in pollution controversies. Financial institutions have been vigorously urged to lend for urban renewal and minority businesses.
An important legal decision on July 9, 1970, tells us a good deal about whence the wind blows. Several stockholders in Dow Chemical Company requested that the annual proxy statement allow a vote on whether the company should make napalm. The Securities and Exchange Commission supported the management’s refusal to allow the referendum. The Federal Court of Appeals in Washington, DC, unanimously held for the several stockholders:
We think there is a clear and compelling distinction between management’s legitimate need for freedom to apply its expertise in matters of day-to-day business judgment and management’s patently illegitimate claim of power to treat modern corporations with their vast resources as personal satrapies implementing personal, political, or moral predilections.
The demand that corporations “voluntarily” serve social and political goals is not completely new. Contributions to charitable and educational institutions have been an approved expenditure of corporate resources for about half a century.
The proliferation of demands, however, is accelerating at an awesome pace. Consider the recommendations to the business community in the July 20, 1970, issue of Time magazine, the time that waits for most men:
1. Concentrate on promoting black employees as well as hiring and training them.
2. Reexamine “strictly business” decisions. Defined by example: extend business credit as freely in slums as elsewhere.
3. Sell more nutritious food to the poor.
4. Bring people and jobs together.
Perhaps four such ideas are all one is entitled to for 50 cents, but I timidly suggest a fifth:
5. Publish intellectually more nutritious fare for the poor businessman.
Now let us retrace our steps and begin again.
1. The members of a society possess sets of values of all possible degrees of acceptance. The incest taboo and an aversion to the settlement of disputes by murder are shared by almost every person—in fact, rejection of the basic moral code is the operational content of insanity. These widely held views are imposed upon every person in the community, and criminal sanctions are commonly imposed upon a detected violator of the conduct required by the moral code.
A wholly free society is one that allows the pursuit of all values held by individuals and small groups where they do not impose large costs upon the remainder of the society. I assume without argument that you and I wish to live in a free society. This governing assumption tells us little about what to do. It does not imply that the state should refrain from regulating any specific kind of behavior. For example, no thinking person believes that sexual freedom should extend to the use of force or fraud, or involve people incapable of judging the consequences of their behavior.
The original tasks of government were to win wars and maintain domestic order. Our society has not been conspicuously successful recently in performing either of these most ancient of governmental functions. Yet now we are pursuing frighteningly difficult goals such as progress, tolerance, and education. To try for what one cannot achieve is not simply gallant or quixotic, for the attempts interfere with the government’s performance in areas where it is unquestionably competent to act.
2. If there are rules that we wish every business to obey, they should be formulated by appropriate democratic political procedures and enforced by the state. The attempt to thwart the production of napalm by Dow Chemical now appears in a different light. The stockholders who asked for the proxy vote wished, failing to change the law of the land with respect to what weapons the armed forces could employ, to eliminate the sheer availability of napalm. If a second chemical company produced napalm (as is in fact the case), they would sooner or later seek to vote also that company out of production.
The minority is seeking to achieve by commotion what it cannot achieve by legislation. My own view is that they should not be assisted in any way, and in particular have no privilege of inclusion of votes on proxy statements. The very vote is a form of harassment.
There should be a single objective criterion for inclusion of referenda on proxy statements, say, petition by 1 percent of the stockholders or 1 percent of the stock. If appointed to the Supreme Court, I promise to reverse the Court of Appeals on the Dow Chemical case.
I should add that of course this method of drying up the supply of napalm will not work. If the military services want napalm enough to pay a handsome price for it, there will be adequate supplies forthcoming. In fact, if the price is high enough, the leaders of the fight against napalm will start making it for the US Air Force.
3. Why do we wish an electrical utility to produce less noxious smoke than the law permits? Why do we wish employers to favor black employees more than the law requires? Why should it be asked to do more than the law or the market demands?The case for seeking a more reform-minded business community, as best I can formulate it, consists of two parts:
I. There is a set of essentially uncontroversial goals that the society should attain as fully and rapidly as possible. Cleanliness of air and environment, the raising of depressed citizens from poverty, ignorance, and vice, the elimination of cruel prejudices, the safety of products—what sane man can dispute a single one of these goals of our time?
II. Although all these goals are more than sufficiently widely shared to receive statutory support, a law cannot prescribe every possible method of achieving them. We enact into law that a child must be cared for by a parent, but we do not and cannot prescribe the full details of adequate care. So it should be with the civic responsibilities of the corporation.
The first point—the universality of acceptance of certain goals—seems to me subject to qualifications, whereas the second point is surely correct.
Of course, everyone wishes the fine things under discussion, but the popularity of these goals is largely illusory. No one will ask for an unsafe automobile, to take an obvious example, but it is not so obvious that we can agree upon a safe one. Suppose it has a maximum speed of 12 miles per hour, or is so padded that a driver is in mortal discomfort? Similarly, no one wants a row of slums in his city, but the arguments grow like yeast when the details of their improvement or replacement are raised.
Even when the specific nature of the goal is undisputed, the question of its price reintroduces dispute. Do Americans want pure air if electric bills are increased 40 percent and automobile operation rises $200 a year?
In fact, if the goals were really widely accepted, there would be no need to implore businessmen to implement them.
There are three main arguments against assigning a broad program of social responsibilities to businessmen. The first is that if businessmen can be persuaded to do good things, they can be persuaded to do bad things. If the business community can be persuaded to hire one race, it can be persuaded to fire another.
The second objection to corporate do-goodism is that it impairs the efficiency of the corporation in its main work. The great contribution of a company is to make a fine product and sell it for less, not to supplant the church as the social conscience of the community.
We come now to the third, and conclusive, reason for not plaguing the corporation to serve social goals: the corporation cannot in general do so. The primary discipline of the corporation is its stockholders and customers. If Noble Deeds, Inc., begins to spend 10 percent of its net income on social betterments, whereas other corporations find 2 percent sufficient, one of two things will happen:
1. Stockholders of Noble Deeds will agree to accept social betterment as part of their annual dividend, and the shares of Noble Deeds will hold their value.
2. Stockholders of Noble Deeds will find it a less attractive holding, and its price will fall as the demand for the stock falls. The assets of Noble Deeds will become cheaper and invite a takeover by investors with more traditional goals.
It is easy to guess which of these outcomes will take place.
Exactly the same choice arises if Noble Deeds seeks to recoup its benevolences by charging a higher price for its product. Consumers will then choose between paying $10 for Noble Deeds shoes plus $1 of social good, or paying $10 for other shoes and choosing their own charitable causes. It will be found that freely-choosing consumers usually consider themselves the premier charitable cause.
4. If we do not preach to corporations, how can we get nonpolluting automobiles and how can we advance the welfare of minorities? If we do not preach to both corporations and unions, how can we stop the flow of inflating prices and wage rates? The answer is that anything a corporation can do, and many more things it cannot do, we can do better—in other ways.
Enormous pressure is now being exerted upon the president to impose wage and price guidelines—rules of price and wage increases backed up by pleas of patriotism and threats of public vilification. The hard fact is that individual corporations and labor unions cannot stop inflation, which is due to basic monetary and fiscal policies completely within the control of the federal government.
Americans have a much-inflated view of the importance of individual businesses to America. Our repeated petitions to business leaders to solve our problems is giving them an illusion of power that they do not possess.
Let us not seek to transform the greatest economy in all history into a third-class welfare agency. Let the reformers address their schemes, whether noble or ignoble, to the real source of power, the public, and to the real administrators of that power in our society, the leaders of the political system. n
George J. Stigler was the Charles R. Walgreen Distinguished Service Professor of American Institutions at Chicago Booth. He died in 1991.
The long-running Selected Paper Series features notable work by University of Chicago faculty. This essay is an edited excerpt; the original was presented as a lecture at Northern Illinois University on December 9, 1970, and reprinted as Selected Paper No. 39 with the permission of its College of Business.