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Arthur Laffer: Corporate Social

Responsibility Detrimental to
Stockholders
http://www.nysun.com/blogs/out- Eradicate extreme poverty &
and-about/200a/07/orchestra-of-
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Worldwide
THE j\IAN WIDELY RAII.ED AS THE "FATHER OF SUPPLY SIDE
economics," Arthur Laffer, yesterday bitterly denounced what has
become a fashionable notion in the business world - corporate social
responsibility, or CSR - as being detrimental to stockholders' interests
and hannful for corporate profitability.

"What corporate social responsibility really means, in my view, is


irresponsibility," Dr. Laffer said at a news conference that was
organized by the Washington-based Competitive Enterprise Institute
at the Marriott Financial Center on West Street in Manhattan. "The 'Lengthening Childhood' Has A Downside,
modern corporation is meant to be a vehicle to create wealth for its Study Says
shareholders, and that is what CEOs must always keep in mind."
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But he acknowledged that corporate chief executives are under Upper East Side Church Hosts a Holocaust
increasing pressure from mainly left-of-center lobbies - often Denier
consisting of well-funded nongovernmental organizations - to
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concerns as much as they did to their institutions' bottom lineS. Snch
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pressure often puts corporations on the defensive, Dr. Laffer said,
I when, in fact, they should be "realizing that corporations are
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legitimate entities whose prime responsibility is to make profits for Fencing Captain Brings New Perspective
those who have invested in them." to His Third Olympics
Depart
IMt4/DD/YYYY Unveiling a study that he undertook with two other economists,
Return: Andrew Coors and Wayne Winegarden, Dr. Laffer said that his
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research into the performance of 28 companies cited by Business
Ethics magazine as being among its top 100 "Corporate Citizens"
between 2000 and 2004 showed "no significant positive correlation Testing Firm Under Fire Over Delays
between CSR and business profitability as determined by standard Rescuers Search Off Guam for Crew of
measures." Crashed B-52
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Indeed, he added, "there are some indications from our study that
Warchest
CSR activities lead to decreased profitability."
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The 65-year-old Dr. Laffer, who lives in San Diego, said that a
Weakening Tropical Storm Cristobal Hits
profitability comparison of compound annual net income growth, net N.C. Coast
profit margin, and stock price appreciation showed that "only a
minority of the 28 CSR-leading companies in each comparison
outperformed their peers."
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"Being a CSR-leading company was negatively or not correlated with The Beckettian Sleeper Hit at Lincoln
compound annual net income growth, net profit margin, and stock Center Festival
price appreciation," Dr. Laffer said.
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His study is intended to generate public discussion of CSR at a time
when many top business organizations are under growing pressure to On Trumpet and Vocals, Unclassifiable
demonstrate more transparency and accountability. Nongovernmental Talent
organizations, often taking their cue from Maurice F. Strong - a left- The Three-Ring Circus of 'Czar'
leaning Canadian businessman and environmentalist - have tried to
force corporations into supporting environmental and social justice The Missing Years: Sam Taylor's 'The
Amnesiac'
movements as a way of expatiating perceived corporate malfeasance.
This NGO strategy drew fire yesterday from the Competitive
Enterprise Institute's president, Fred L. Smith Jr.

"Modem businesses have sought to apologize, appease, and buy off


criticism," he said. "It's what I like to call the Captain Hook theory:
You feed a crocodile your leg in the hope that it will become a Helping Relieve Poverty Though
vegetarian. " The Provision of Solar Energy.
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Moving on from the metaphor of crocodiles, Mr. Smith said that NGOs
''have become modem-day mandarins."

"And like the mandarins of yesteryear, these NGOs would love to see
the expansion oftheirmandarinate."

There are an estimated 500,000 NGOs in the 191 member states of the
United Nations, with nearly 2,000 enjoying consultative status in the
UN's Economic and Social Council, or Ecosoc. Several informal studies
have calculated that Western foundations, mainly American ones,
typically give around $10 billion annually in grants to NGOs,
ostensibly for grassroots projects. But invariably the money gets
routed into large-scale demonstrations and protest movements against
Big Business, a bete noire of social activists, especially in the Third
World.

Dr. Laffer averred that he simply could not bring hinlself to share what
he characterized as the "deep pessimism" of social activists concerning
the motives and ability of contemporary corporations.

Being a realist, he said, he understood that the tussles between


corporations and social activists frequently flowed from political
exigencies. He said he well understood that politics made for both
strange bedfellows and stranger foes.

"Perhaps this social tension is exactly what the doctor ordered," he


said, adding, however, that "companies are now better run and better
organized than they ever were."

That was why he was dismayed by the relentless assault on corporate


integrity by social activists, Dr. Laffer said, stressing that such attacks
often overlooked the efforts made by CEOs to genuinely reform
internal management in order to avoid the sort of scandals that have
plagued the business world in recent years.

"What CSR means, really, is redistribution of wealth," he said. In fact,


he suggested that consumers who place money in the so-called socially
responsible funds often find themselves at the short end of profit-
making.

His research found that "those who invest exclusively in companies


deemed to be 'socially responsible' do not appear to receive financial
returns that are better than those of conventional investors," Dr.
Laffer said.

But he emphasized that his reservations concerning social activism did


not mean that he was opposed to protecting the environment and
pushing for clean air and water. "No one wants to lose on correct
environmental issues," Dr. Laffer said.

Although yesterday's news conference was intended to highlight his


study, titled "Does Corporate Social Responsibility Eullance Business
Profitability?" - the answer, of course, was that it doesn't - Dr. Laffer
used the occasion to promote the importance of the tax cuts advocated
and instituted by President George W. Bush.

"We are living in absolutely spectacular times," Dr. Laffer said. "This
world is fantastic."

Part of his enthusiasm for Mr. Bush's tax cuts seemed predicated on
the fact that the president's economic policy is based on trickle-down
economics, known as supply-side stimulus. One of Mr. Bush's
predecessors, the late President Reagan, was also a subscnber to this
economic theory. It holds that the best way to stimulate the economy
is to cut taxes on upper-income earners. According to Dr. Laffer, when
the tax rates on the wealthy fall, the rich will increase their
investments in the economy.

It was in November 1974 that Dr. Laffer drew a curve on a napkin in a


Washington bar, linking average tax rates to total tax revenue. That
crude drawing soon came to be known as "The Laffer Curve," and it
was quickly embraced by right-of-center economists and think tanks -
and by Mr. Reagan. Dr. Laffer has since savored the fact that his
"curve" became an icon of supply-side econoJIlics, drawing encomiums
from sources ranging from The Wall Street Journal in New York to
The Indian Express in New Dellii. The Laffer theory fell under the
rubric of "supply side economics" because the stimulus, or the tax cut,
was applied to the suppliers of goods and services from the business
sector.

According to one economic Web site, some economists said that "The
Laffer Curve" proved that most governments could raise more revenue
by cutting tax rates, an argument that was often cited in the 1980s by
the tax-cutting governments of President Reagan and Prime Minister
Thatcher of Britain. But Dr. Laffer also encountered criticism from
other economists that most countries were still at a point on the curve
at which raising tax rates would increase revenue.

The other main criticism of supply-side economics has been that


there's no certainty that when taxes on the wealthy are cut, they will
use the money to invest in new businesses. As one unidentified writer
on an economic Web site puts it, "since these tax cuts happen in bad
economic times, investors might decide that their money is safer if
they save it rather than invest it."

Yesterday, however, the "father" of supply side economic dismissed


such criticisms.

Comment By Date
The Western world as a whole has done a great job of William Jan 22, 2008 10:10
compartmentalizing life, to the detriment of the quality ... Gall
[MOREl

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