It's Dangerous When Corporations Give Away Your Money

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Do you believe food guru Anna Lappe when she quips, "Every time you spend money, you're casting a vote for the kind of world you want"? Wealthier consumers might relish the notion that they get more votes to change the world under Lappe's maxim. Lazy givers might also find this sort of consumer philanthropy attractive as it suggests that doing good for others is as easy as shopping in a different place. They may not stop to consider how difficult it is to make lasting political change while thinking like a consumer. Nor might they be disciplined enough to discover exactly where their money is going. Are those extra funds really helping? Or are they being funneled to some obscure cause you would never support politically?

A 2012 Nielsen report on the emerging socially conscious consumer noted that two-thirds of the people in this customer segment prefer to purchase products and services from companies that "give back" to society. Nielsen also noted that a surprisingly large number of these consumers are willing to pay higher prices in their quest to "give back" to society through their purchases. Maybe the consumers are trying to assuage some vague guilt that a small crime occurs with every purchase made in a free market economy. Somehow, somewhere, someone is suffering injustice because of my purchase and that "giving back" a little of the purchase price helps make the world a better place - or at least make me feel less complicit.

Socially conscious consumers remain a surprisingly small slice of the marketplace and they are younger rather than older. Nevertheless, more and more companies are embracing strategies to capture their dollars. Some companies give from their bottom line while others give from their top lines. For example, Target announces to all shoppers that they give away 5% of their bottom-line (or almost bottom-line) profits to charitable causes. In contrast, Amazon's new Smile charitable giving program takes a more top-line approach donating 0.5% of the purchase price of eligible products to charities of the consumer's choosing.

Financially illiterate consumers might think that corporations are giving away significant percentages of their annual wealth. However, it doesn't appear that corporate charity is spiraling out of control. All evidence indicates that the average church member is more generous than the average corporation on a percentage basis. Steve Jobs correctly noted in a 1985 interview that it takes an enormous amount of time to give away money - and this was one of the primary reasons he put Apple in the business of creating wealth rather than giving it away. Socially conscious consumers would be advised to heed Jobs' warning: Money that is easily and quickly given away stands the greatest chance of being wasted by other people on programs that are important to them rather than the consumer.

Two of America's earliest and greatest philanthropists provide a positive, alternative model to socially conscious "give back" by consumers. Both John D. Rockefeller and Andrew Carnegie used their companies to create wealth, then gave it away via personal generosity rather than corporate charity. Further, each focused much of their giving toward building human capital. Carnegie funded more than two thousand libraries many of which function to this day. Rockefeller generously gave part of his fortune to build universities and eradicate pests like the hookworm and the boll weevil. Theirs were grand projects with significant social impacts.

Socially conscious consumers who give Rockefeller and Carnegie's undertakings even a cursory review might reconsider the supposed impact of paying extra for a premium chocolate bar. The majority of philanthropists from the Gilded Age to the Digital Age earned the bulk of their wealth through businesses they started or were major investors in. Further they impacted the world through the products and services that many consumers wanted rather than the social consumption that fewer desire.

In his classic essay, "The Social Responsibility of a Business is to Increase Its Profits," Milton Friedman warned managers about the dangers of giving away other people's money. He argued that corporate charity ultimately comes from the pockets of either workers via lower wages, shareholders via smaller dividends, or customers via higher prices. In a world of sharp-eyed labor unions and clear-thinking shareholder activists, it appears that only certain segments of the consumer population might be gullible enough to embrace this sort of taxation without representation. One has to wonder -if left to themselves - whether individual Target shoppers would donate money to art museums with the same frequency that Target donates money to art museums. Probably not. Further, these same consumers are probably not coming to grips with the clear disclaimer in the Amazon Smile FAQ's: "Donations are made by the AmazonSmile Foundation and are not tax deductible by you."

Friedman also warned about those who blend economic institutions with political mechanisms in a call to action. Along those lines we offer these possibilities:

"Every time you spend money, you're rewarding someone for the imagination and hard work that created the product or service you enjoy."

"Every time you give money to your preferred charity, you're investing in an institution to create the kind of world you want."

"Every time you vote, you're using political institutions to create the kind of world you want."

Consumers can pay a premium price for a premium product that multiplies their talents and abilities and possibly increases their wealth. Or they can pay the lowest possible price for a less differentiated product. Then, if they so choose, they can give away their wealth and even keep the tax deduction. Consumers should be more suspicious of firms whose value propositions include doing some sort of ill-defined good to people or institutions that the consumer might never meet. Giving is rarely that easy. Further, the consumer can choose to give away their wealth secretly, never announcing it to Amazon or anyone else.


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