This article first appeared in the St. Louis Beacon, July 29, 2013: Other than obeying laws and being generally civil, are you obligated to ensure the economic success of others in society? Put another way, what determines your social responsibility? To answer that question, let’s first consider the issue of social responsibility at the personal level and then reflect on the social responsibility of business.
Tithing is giving 10 percent of one’s income to charity, though most often it is associated with donations to one’s church. Recent data from the Center on Philanthropy at Indiana University indicate that the average household in Missouri is short of meeting this threshold. In 2012 the average Missouri household gave less than 5 percent of its income to charity.
Even though there is nothing special about giving 10 percent, people often feel uncomfortable if you ask them “do you tithe?” The explanations offered range from “I do not make enough to give any away,” to “I give what I believe is my fair share” and the always popular “Charity begins at home.”
Suppose, however, that the state legislature, looking out for society’s less fortunate, passes a law that requires all Missouri households to donate to charity. For the sake of argument let’s adopt the tithing rule as the minimum amount. The legislators’ reasoning is that additional funds are necessary to guarantee some fellow Missourians some minimum level of income deemed adequate by elected officials.
How would you react to such legislation? Some of you are responding by saying “Have the rich pay the extra amount since they can afford it.” But who are the rich? Anyone with an income higher than mine is rich to me, so where is the cutoff? Isn’t the relevant response to ask whether the government has the right to decide your appropriate amount of charitable donation?
If 5 percent (or 1 percent or 20 percent) of your income reveals your valuation of your social responsibility, should the government have the authority to override that decision? I’ve asked this question to several people and, not too surprisingly, the standard response is no, the government should not establish a minimum level of charitable giving.
Consider now the related question of “What is the social responsibility of business?” Analogous to the issue of your charitable giving, should a business be required to pay its workers, regardless of their skill level, a wage that meets some politically determined minimum? Paying someone more than they are worth to the firm must be a form of charitable giving since it is a bad business decision.
In the competitive market, worker compensation is a key input cost that can determine whether the business succeeds or fails. If required to pay a wage that exceeds the worker’s value to the firm — paying someone $40 an hour to flip hamburgers probably is not cost-effective — a firm’s owner may reconsider the number of workers she can profitably employ. If the wage is too high, the business becomes unprofitable and closes its doors, thus depriving customers of the goods and services they want and reducing the incomes of those workers now unemployed.
An illustration of this effect is the recent decision by Walmart to scuttle plans to build several new stores in Washington, D.C. With the prospect of Walmart entering the area, the D.C. Council passed a bill requiring big-box stores to pay full and part-time workers a minimum wage of $12.50 an hour. Imposing this “living wage” made Walmart’s original business decision unviable. As reported in the Huffington Post, a 2011 study by several university professors (who were not pro-Walmart) showed that increasing the minimum wage of its labor force to $12.50 would increase Walmart’s annual wage bill significantly. Such a cost increase would lead to higher prices paid by consumers. One thing is certain: It reduced the number of new jobs that Walmart might have created if left to its own decision on how much to offer workers.
Operating within society’s legal parameters, the social responsibility of business is to stay in business. The objective of business, from the individual shop owner to Walmart, is to profitably provide customers with a product or service that they want, something they derive satisfaction from. Whether it is bakery goods, tax services, health care or your morning coffee, a successful business is one that arranges resources to satisfy the public’s desires, creating jobs in the process.
If you think that the government mandating how much of your income must be donated to charity would be wrong, why shouldn’t a business owner have the freedom to set the price she pays her workers?
R.W. Hafer is a distinguished research professor of economics and finance at Southern Illinois University-Edwardsville and a research fellow at the Show-Me Institute.