Many of my posts (present and future) discuss the “insidious” things that those in the industry do. This gives the impression that everyone in the industry will only act in their own interests and there seems to be little hope out there for humaneness.Â From an economic perspective, each companyÂ should do whatever is in its better interest. This is especially important for them becuause it is a matter of survival. If they don’t behave selfishly, and potentially insidious to others, they’ll be put out of business by another competitor. This is what happens within industries and the consequence is that industries are full of companies that keep pushing their own interests even if it harms others.
Here is a simple example that drives home this point. Suppose there are two companies manufacturing a certain good. SupposeÂ Company A is can make their product with lesser cost to themselves, but it pollutes a river (or exploits foreign land, or uses child labor); Company B refuses to be so heinous, and thus has a higher price to its product. Company A will likely be more successful than Company B, and in the high stakes of business, all companies like Company B will be put out of business while only Company A types will remain.
It is futile to try to convince companies to act outside of their interests. However, there is still a way to persuade companies to act differently. The key is to shift their cost-benefit ratio so that acting in the interests of others is also acting their own interests.Â One way is through enforceable laws. A strict punishment, like for polluting the river or exploiting others, imposes a cost on the company and thus the company’s best self-interested strategy is to not break these rules.Â Another is by social economic enforcement. A company can punished by its consumers if they do not agree with the manner by which it operates. This works well when reputations are very important (they usually are) and it’s especially crucial that there is transparency to the company’s actions. It’s difficult to punish a company when we’re unaware of its awful tactics.
I believe most companies out there really want to do the morally conscious thing. Unfortunately, this often does not bode well for survival in the economic world and companies are left with the choice to either stand by its principles (and suffer great economic consequences) or to play along with the immoral game. Do you see other ways we can persuade companies to act in the interests of our global world?