It is an idea that just refuses to die. Though long ago shown to be false, it continues to pop up in economic discussion, and has become increasingly popular with the rise of libertarianism - the notion that industries are self-regulating, and that government regulatory agencies are useless at best, harmful at worst.
Charles Koch, the famous libertarian billionaire, wrote an editorial last year asserting this idea, saying, “A truly free society is based on a vision of respect for people and what they value. In a truly free society, any business that disrespects its customers will fail, and deserves to do so.”
This belief rests on the important assumption that consumers are not only ethical, but also consume ethically and are always aware of which companies produce the products they see on a store shelf, and whether they are “respecting” them. The fact that a company like Koch Industries has its hands in countless products makes it extremely difficult for anyone one consumer to keep track. But lets just make the assumption that consumers do indeed have all of this information and know which corporation produces every single product they see at the store. Will consumers actively boycott products from companies they see as ethically dubious, even if their products are the most affordable and/or beneficial to them?
A parable given by one of the most influential thinkers in economic history, Adam Smith, who is deeply respected by libertarians, may help us in determining how concerned consumers tend to be. In the parable, written in his 1759 text “The Theory of Moral Sentiments,” Smith has the reader imagine that one day the empire of China, with hundreds of millions of inhabitants, was suddenly “swallowed up by an earthquake,” and considers how a European humanist would react to the news. He writes:
“He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment....And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or his pleasure, take his repose or his diversion, with the same ease and tranquillity, as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger to-morrow, he would not sleep to-night; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren.”
No doubt this paints humanity as a rather selfish species, and maybe with modern communication technology, a contemporary humanist would feel slightly more saddened and concerned, but the basic idea stands. Human beings tend to be very self-interested, and when something terrible happens in the world without effecting them directly, they may, as Smith said, “make many melancholy reflections upon the precariousness of human life,” yet sleep more soundly at night then if, say, they were recently diagnosed with a disease.
Lets take this parable into the world of consumption. Take the pitiful working conditions in Bangladesh for example. When news of the factory collapse that killed over one thousand workers came out a few years ago, there was outrage around the world, and in developed countries like the United States, where consumers buy cheap products made in Bangladesh. Yet, years later, conditions continue to be appalling, and another factory has recently collapsed, while many consumers have forgotten the disaster when it comes to shopping.
And what about the deepwater horizon oil spill, which effected millions of American’s. While the company has spent around $40 billion in clean up and claim costs, today the company is beginning to recover, and a favorable ruling recently saved the company billions in potential fines. While there were calls for BP boycotts at the time of the spill, nothing truly materialized. It is especially difficult to form a boycott of gas and oil, when consumers look at prices rather than brands.
Indeed, studies show that “ethical consumerism” is more of a hopeful delusion than an actuality. University of Leeds professor Timothy Devinney’s lead experimental polling studies over a ten year period, gathering social and ethical preferences of individuals, and then conducted 120 interviews with consumers from eight countries, including the United States. The study found that “when faced with a choice of good ethical positioning and bad product functionality or good product functionality and bad ethical positioning, individuals overwhelmingly chose the latter.” This does not necessarily mean that the consumers did not care, but they generally felt that responsibility laid elsewhere, with the government (regulation) and the companies themselves.
While this does not mean consumer activism is useless, it doesn’t look good for the idea that consumers as a whole will force corporations to self-regulate with their buying power. Consumers tend to look at prices and functionality before they think about how the company made the product, and whether the company is “respecting” them.
Of course someone like Charles Koch would never admit to this. In his world, the consumer is always rational, informed, and ethical, and therefore will force a company like Koch industries to always act ethically. Obviously this is not why he is really against regulations, but it does sound a whole lot better than "regulations hurt my bottom line."