Why the Carbon Tax is good for business


Economy, Environment street signsEconomist Milton Friedman said back in the 1970s that all we should ask of corporations is that they make as much money for their shareholders as possible. Forget 'corporate social responsibility' or a 'social license to operate'; the sole objective of the corporation is profit-maximisation.

According to Friedman, corporations shouldn't be required to 'give back', because by pursuing profits at all costs they are already doing their very best for society.

But those were different times. The 'pure' capitalism underpinning America's neoliberal expansionism has since given way to a more nuanced understanding of the interdependent relationship between corporations and the marketplaces in which they operate.

'Sustainability' is the new corporate mantra and directors go to sleep with a well-thumbed copy of Good Corporate Citizenship under their pillows. At least that's what they would have us believe.

Peruse the websites of any of the companies that make up the ASX 200 and you will find a seemingly endless stream of 'our commitment to the community' and 'our vision for a sustainable future'. It is clear that savvy corporations and their senior executives and managers understand the reputational value-add that flows from positive exposure.

The problem is that corporate social responsibility has become a moniker for window-dressing and 'greenwashing'. Corporations talk the talk, but when it comes down to it, they aren't walking the walk.

This isn't some lefty conspiracy theory. In a recent survey of Australian senior managers published in the Asia Pacific Business Review, 82 per cent of respondents said a commitment to corporate responsibility was outside their corporations' core products or services.

In a similar study by McKinsey Consulting Group, almost nine in ten executives agreed their companies' corporate social responsibility programs were motivated by public relations or profitability.

Where did it all go wrong?

The view that acting in a socially or environmentally responsible way is a 'trade-off' for financial success is based on the idea that private economic goals like profit maximisation can be neatly distinguished from public social goals, like the reduction of greenhouse gas emissions. But as any economist will tell you, the simple demarcation of public and private concerns just doesn't hold up.

The most basic understanding of a healthy marketplace reveals as much. Demand for products and services increases when the social and natural environment in which consumers find themselves is a healthy one. The increase in demand leads corporations to produce more and, of course, to grow.

It stands to reason that if consumers suffer, so too does the relationship between corporations and the societies in which they operate. Approaching responsible corporate conduct and profitability as a zero-sum game threatens this relationship, and therefore the sustainability of the corporation itself.

At a time when our natural environment is feeling the strain, one might expect such logic to hold sway in boardrooms across the country. The endless upwards trajectory of carbon emissions coupled with international environmental catastrophes such as the oil spill in the Gulf of Mexico ought to have created a corporate climate open to new ways of engaging in sustainable enterprise.

But nothing could be further from the minds of those trusty Friedmanite executives.

The business community's vitriolic objection to the Carbon Tax is a perfect example. The Tax's goal of reducing carbon pollution will benefit society in a holistic sense. Corporations, consumers, and anyone else for that matter, will be better off if we confront the challenge of climate change.

And if treasury modelling is to be accepted at its word, the scheme is also designed to encourage efficiency outcomes that will enable senior executives to keep profits front and centre.

Unsurprisingly, Australian executives, locked in the old 'CSR as marketing mindset', resist even this well-constructed regulation.

If only they'd take their cues from the international corporate arena, where the idea that corporate responsibility means more than just marketing cloaked as philanthropy has started to catch on.

The International Finance Corporation for example has recognised the importance of a commitment to enhancing 'the sustainability of private sector operations and the markets they work in'. Even the traditionally conservative Harvard Business School is in on the act, with feted economists Michael Porter and Mark Kramer arguing for a new approach to business enterprise they call 'shared value'.

Perhaps hoping for a more enlightened understanding of sustainability is idealistic. Then again, corporations speak the language of money and ultimately money is what is at stake. If corporations were willing to create economic value that also created social and environmental value, they could ensure the long-term health of the marketplace as well as a healthier natural environment. 

Tom DreyfusTom Dreyfus is an Arts/Law student at the University of Melbourne and a freelance journalist. His work has previously appeared in Crikey and the Melbourne Weekly Magazine. 


Topic tags: Tom Dreyfus, Carbon Tax, Corporate responisbility



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Existing comments

Folks, when people like the Greens start telling you what's 'good for you' and start re-organising your life, economy and society, just head for the hills as quickly as you can and vote these hyper-controllers of Labor - and Labor - out.

They will say in unctuous tones that 'look, the sky has not fallen in' as they take your money and give it to polluters overseas and ruin our economy.

This is a deluded policy based on uncertain facts and introduced on the basis of a lie to the electorate. If you thinking lying is ok, enjoy your temporary victory. It will not last long.
Skye | 09 November 2011

A carbon tax on business will ultimately be passed on and paid for by the consumer, which will add to the daily cost of living which is becoming unsustainable for many lower paid workers and pensioners.

The Climate Alarmists will make all of us pay for their beliefs and be the cause of a major lowering of our standard of living, especailly for families and the poor.
Trent | 09 November 2011

One of the more crucial unargued assumptions here is that there's a fundamental opposition between profit making and creating social benefits: that businesses must somehow atone for their evil wealth-creating activities with counterbalancing gestures of a social and environmental nature.

As usual, it's rot. Wealth creation is itself a social benefit. Steve Jobs enhanced the lives of billions of people by the quality products he made and sold on the open market. So did Henry Ford. And the inventor of the ballpoint pen. And so on. As a result, societies that are run by capitalism have by far and away the highest quality of life (materially speaking) that any alternative models in history. Also, it's no accident that they are the most concerned with improving the environment, saving the whale, and so on. Because they can afford to be.

Milton Friedman was half right. Companies should indeed ditch the "triple bottom line" and concentrate on the core business delivering cheaper, better products that improve the lot of everyone, rich or poor. Not just so that shareholders can themselves then allocate the dividends they receive to causes that help them and society. But also because excelling at doing business is its own triple bottom line.
HH | 09 November 2011

Tax the coal power stations. The government gets the money and then gives it back to the low income people so that they can keep using electricity. How is that going to help??

Theo Verbeek | 09 November 2011

Surely the safest fuel for generating base load electricty is uranium which has a very small footprint, small amounts of waste products which are safe and easily disposed of, it is readily available and not too expensive expensive.
Peter | 09 November 2011

To Theo Verbeek: Creating a price at the source of CO2 emissions means that the coal power stations now have an opportunity to recover the new costs by reducing those emissions. Compensating the end-user means they can continue to use electricity without personal impact. (Of course, we should all remember that we end-users are the reason for the CO2 emissions).
Peter Horan | 09 November 2011

Terry McCrann has a very good article on the carbon (dioxide) tax and how it will affect business.

His best point is that China increased its emissions last year by more than our total emissions. What a useless, pointless tax this is. It will make not one whit of a difference to the climate, but a great deal of difference to our prosperity.


Here is the link
Patrick James | 09 November 2011

Now it seems that even the Greens agree with Labor and the opposition that over 85% of the carbon tax will be eaten up by massive promotion, administration and “compensations” cost. Being aware that the carbon tax has no direct positive environmental impact they claim that the carbon tax will “increase the awareness that global warming is an environmental issue”. This sound similar to the time during the French revolution when the guillotine “increased the awareness that a neck is a vital part of the human body”. Don't we have clever politicians these days!
Beat Odermatt | 09 November 2011

I've been reading articles on "Eureka Street" for a little while, and have noticed that 'Skye' seems a trenchant critic of any and all measures to decrease emissions of greenhouse gases. While I have no doubt that Skye means well, I must point out that Skye is clueless about our effect on the climate. Skye does not understand that, but for the earth's greenhouse gases, the earth would have a climate much like the moon. If Skye were to examine Pleistocene temperature and CO2 ice core records, Skye would start to understand that a prudent course would be to maintain atmospheric CO2 concentration between 300 and 350 ppm, so as to maintain climate conditions as they have been in recent centuries without undue sea level rise.
David Arthur | 09 November 2011

Thank you so much for articles like this in Eureka Street, that continue with a social conscience in the face of ill-informed reactionaries -- invariably found at the beginning of 'comments'. These writers, please ensure your names on comments remain the same so the effort to read them can be foregone.
Steve | 09 November 2011

The carbon tax has got purely nothing to do with collecting extra revenue for the good of the public. It has something to do with discouraging production practices that release carbon to the environment. However, the paradox of this maxim is that it ignores the assumption that one can release as much carbon to the environment as they wish as long as they pay for it!!!!!
Hillan Nzioka | 09 November 2011

It is good to remember where we live. Our planet has finite resources and it pays for every action we take whether that action be consumption of a non-renewable resource or the destruction of a fragment of a natural ecosystem. Evolution developed a suite of life over hundreds of millions of years - a time period quite beyond our grasp. We must become aware that we emerged from that extraordinary web of life as just another species and that we risk destroying the entire system, including ourselves. by the way business is being done. The carbon tax is an attempt to make us all take stock and to invest in energy systems which do not alter the quality of the global environment to the point that all higher species are stressed beyond survival. It is later than most of us seem to think. Innovation could save the day but the pressure to change, generated by the tax, seems to be needed to have us take it seriously enough.
Mike Foale | 09 November 2011

Steve, thanks for your respectful contribution to the debate. It is encouraging to know that you take time to look at the opinions of others that differ from your own. (Sarcasm off).
Patrick James | 10 November 2011

"Skye does not understand that, but for the earth's greenhouse gases, the earth would have a climate much like the moon."

Interesting DA, and a big call. Can you supply one direct quote from "Skye" which supports your thesis?

Coincidentally, I had only just been thinking in the car this morning about auditing ES blog articles by warmists and logging the number of times the authors falsely attribute to "deniers" the belief that 1. a greenhouse effect doesn't exist, and/or 2. that the earth hasn't warmed over the past 150 years or so.

But your allegation re. Skye falls into the slot beautifully, so: prove to this reader that it's evidence-based.
HH | 10 November 2011

Rather than express concern about the minimal (if any) effect that the carbon tax will have on the cost of living, Trent could perhaps reflect on the why 'the daily cost of living which is [already] becoming unsustainable for many lower paid workers and pensioners' while senior executive remuneration has reached obscene levels.
Ginger Meggs | 10 November 2011


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