Monday, June 2, 2008

Socially responsible...government

[Kostigen, Thomas M. "Everything You Know About Water Conservation Is Wrong," Discover, 28 May 2008.]

The above article on water conservation provides an interesting jumping off point for a discussion of business and government social responsibility and the role of investors and citizens.

"Proper management and use of the world’s virtual water already save almost 5 percent of the water used annually in global agricultural production, according to Unesco. This follows a simple logic: Places with less water gain access to foods with high water requirements by importing them from areas with high rainfall or substantial water supplies. This allows water-scarce regions to use their own water resources more efficiently for other purposes—and create water savings. For instance, areas of southern China that have more water and are better equipped to grow certain water-intensive agricultural products can send them to northern China. This frees up northern water supplies for other uses, such as drinking and sanitation. Jordan saves 60 to 90 percent of its domestic water supply by importing water-intensive products."

What is striking about this paragraph (and the entire article) is the almost complete absence of any discussion of subsidies and trade restrictions. Perhaps too often, by focusing on the social responsibility of corporations, we miss out on the impact the government has on corporate behavior and the world economy. Agriculture is an excellent example of this.

As far back as Adam Smith and David Ricardo, economists have been making the case that it makes sense for areas with an advantage in one industry to supply the needs of another area, and vice versa. This is called the principle of comparative advantage. And, it is how markets would tend to operate if left to their own devices. These signals become distorted, however, when policymakers subsidize the production of a good or prevent the importation of another good into a region.

In the U.S., this means producing crops like sugar and rice in volumes that would be inexplicable in an unregulated setting. "The single largest check in 2003 ($69 million) went to Arkansas’s Riceland Foods," writes William Shughart in a recent column. We produce so much, in fact, that the rice industry even promotes its programs to dump excess rice on the world market. There are numerous resources on the role of subsidies and trade restrictions in agriculture - Wikipedia has a good entry on the total amounts, for instance, and the Environmental Working Group breaks down those totals to show how many of the richest agricultural producers receive the greatest aid.

These are important considerations in weighing the matter of water conservation in the U.S. and around the world. And they speak to the overlap between SRI and public policy. This is an important reminder that while SRI advocates should not lose their focus on corporate behavior, it is just as vital to maintain a broader perspective on the sometimes behind-the-scenes influences that play into the decisions companies make.

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