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The Lighthouse is the weekly email newsletter of the Independent Institute.
Subscribe now, or browse Back Issues.

Volume 7, Issue 23: June 6, 2005

  1. New Fund to Defend Corporations from Harmful Social Activism
  2. Third World "Sweatshops" Good for Foreign Workers?
  3. Putin's Prosecution of Oil Tycoon Makes Freedom Less Likely

1) New Fund to Defend Corporations from Harmful Social Activism

The rise of "socially responsible investing" and "ethical" mutual funds has put corporations on the defensive against activists who hope to temper their focus on maximizing profits for shareholders and encourage them to promote a host of social or environmental goals. The recently launched Free Enterprise Action Fund hopes to counterbalance such activism by lobbying corporate managers to resist inappropriate activist initiatives that would harm the company, explains Research Fellow Pierre Lemieux in a new op-ed for Canada's FINANCIAL POST.

"The Fund's 'Free Enterprise Guidelines,'" writes Lemieux, "contain criteria like, 'Is the business making or considering decisions that tend to ignore individual liberties relevant to the businesses' products?', or 'is the business willing to aggressively challenge unfounded government action that threatens its interests?'"

The fund's prospectus favorably quotes a 1970 statement by Nobel laureate economist Milton Friedman -- "The social responsibility of business is to increase its profits" -- and chides corporate behavior "that circumvents public debate and the American political process." The fund's website states that it is not against all "socially responsible investing" (SRI) or "corporate social responsibility" (CSR), because some businesses were formed to pursue both profits and social values. Rather, the fund's founders oppose only "the anti-business movement -- CSR and SRI activists who target companies for appeasements and concessions that are bad for business, bad for investors, and bad for the free enterprise system."

Although the fund is still very small, Lemieux writes, it "may be part of a contrarian movement against politically correct investing. Another politically incorrect fund, the Vice Fund, created in 2002, has $US32 million very profitably invested in alcohol, gambling defence, and tobacco. These funds are little compared to the [first SRI mutual fund] but are a step in reclaiming corporations for the only thing they do well: producing goods and services efficiently for the people -- not for the social activists."

See "A Fund for Profit Activists," by Pierre Lemieux (FINANCIAL POST, 5/26/05)
http://www.independent.org/newsroom/article.asp?id=1519
SPANISH TRANSLATION:
"Un Fondo para los Activistas con Fines de Lucro"
http://www.elindependent.org/articulos/article.asp?id=1519

Also see, "An Appropriate Ethical Model for Business and a Critique of Milton Friedman’s Thesis," by Richard W. Wilcke (THE INDEPENDENT REVIEW, Fall 2004)
http://www.independent.org/publications/tir/article.asp?issueID=39&articleID=458

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2) Third World "Sweatshops" Good for Foreign Workers?

A new "anti-sweatshop" movement is afoot on American universities, and its campaign to discourage universities from investing in companies that rely on sweatshop labor will harm the workers it ostensibly intends to help, according to Research Fellow Benjamin Powell, director of the Independent Institute's Center on Entrepreneurial Innovation, and intern David Skarbek.

"Admittedly, sweatshops have abhorrently low wages and poor working conditions by western standards," write Powell and Skarbek in a new op-ed. "However, economists point out that alternatives to working in a sweatshop are often much worse; oftentimes scavenging through trash, prostitution, crime, or even starvation are the other choices workers face."

Drawing on their forthcoming article in the JOURNAL OF LABOR RESEARCH, the most thorough comparison of living standards and sweatshop wages throughout Asia and Latin America, Powell and Skarbek argue that sweatshops often provide an above-average standard of living for their employees.

"While more than half of the population in most of the countries we studied lived on less than $2 per day, in 90 percent of the countries working a ten hour day in the apparel industry would lift a worker above, and often far above, that standard," they write. "For example, in Honduras, the site of the famous Kathy Lee Gifford sweatshop scandal, the average apparel worker earns $13.10 per day, yet 44% of the country’s population lives on less than $2 per day."

If Western activists wish to raise the wages in the apparel industry in the developing world, they should advocate the policies that would increase the demand for their products, Powell and Skarbek argue.

"Buying products made in sweatshops would do more to help third world workers than college protests," they write. "Wages are determined by a worker’s productivity and next best alternative employment. By purchasing more products made in sweatshops we create more demand for them and increase the number of factories in these poor economies. That gives the workers more employers to choose from, raises productivity and wages and eventually improves working conditions. This is the same process of economic development the U.S. went through and it is ultimately how third world workers will raise their standard of living and quality of life."

"Third World Work in the Apparel Industry: No Sweat?" by Benjamin Powell and David Skarbek (6/2/05)
http://www.independent.org/newsroom/article.asp?id=1517
SPANISH TRANSLATION:
"El Trabajo Tercermundista en la Industria de la Indumentaria: ¿Sin Sudor?"
http://www.elindependent.org/articulos/article.asp?id=1517

Also see "Sweatshops and Third World Living Standards: Are the Jobs Worth the Sweat?" by Benjamin Powell and David Skarbek (Independent Institute Working Paper #53, 9/27/04)
http://www.independent.org/publications/working_papers/article.asp?id=1369

Center on Entrepreneurial Innovation
http://www.independent.org/research/coei/

Center on Global Prosperity
http://www.independent.org/research/cogp/

LIBERTY FOR LATIN AMERICA: How to Undo Five Hundred Years of State Oppression, by Alvaro Vargas Llosa
http://www.independent.org/store/book_detail.asp?bookID=55

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3) Putin's Prosecution of Oil Tycoon Makes Freedom Less Likely

The Putin administration's prosecution and harsh sentencing of oil tycoon Mikahil Kodorkovsky -- ostensibly for fraud, embezzlement and tax evasion -- is a bad omen for lasting freedom in Russia, according to Senior Fellow Ivan Eland, director of the Independent Institute's Center on Peace & Liberty.

"Clearly, [Kodorkovsky's] trial was an effort to intimidate other rich Russians who could pose a problem for the regime and reassert state dominance over a company in a 'strategic' industry that is a source of significant hard currency earnings for Russia," writes Eland in a new op-ed. "In fact, an aide to President Putin admitted that the trial was a warning to the Russian business community."

As a result of Putin's persecution of Kodorkovsy and high-ranking officers of his company, Yukos, many foreign investors have decided that investing in Russia would be too risky. "Even worse, capital flight has tripled in the last year into an $8 billion hemorrhage, and Russia's economic growth has become more sluggish," writes Eland.

Eland notes that economic freedom and subsequent prosperity have marked the path to political liberalization in Chile, Taiwan, and South Korea. Without economic freedom and a prosperous middle class, it therefore seems doubtful that Russia will become a full-fledged liberal democracy anytime soon.

Concludes Eland: "Russia will likely need to try political reform again when economic prosperity is more widespread. Unfortunately, the Khodorkovsky affair indicates that Putin’s regard for the sanctity of private property and the rule of law are very shallow. Thus, the bad business climate in Russia may well stifle the economic prosperity needed to eventually throw off the shackles of political tyranny. That will be a tragedy for the Russian people."

See "Economic More Vital than Politics for Lasting Russian Freedom," by Ivan Eland (6/6/05)
http://www.independent.org/newsroom/article.asp?id=1520
SPANISH TRANSLATION
"Fin de que Perdure la Libertad en Rusia, la Economía es Más Importante que la Política"
http://www.elindependent.org/articulos/article.asp?id=1520

To purchase THE EMPIRE HAS NO CLOTHES: U.S. Foreign Policy Exposed, by Ivan Eland, see
http://www.independent.org/store/book_detail.asp?bookID=54

To purchase PUTTING "DEFENSE" BACK IN U.S. DEFENSE POLICY, by Ivan Eland, see
http://www.independent.org/store/book_detail.asp?bookID=19

"The Way Out of Iraq: Decentralizing the Iraqi Government," by Ivan Eland
http://www.independent.org/publications/policy_reports/detail.asp?type=full&id=16

Center on Peace & Liberty
http://www.independent.org/research/copal/

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