Dirt Diggers Digest

Wal-Mart Stores has put out a press release patting itself on the back for promising the equivalent of about $430,000 for disaster relief and reconstruction for the area of China hit by a massive earthquake this week. The gesture was laudable but the amount was less than impressive.

After all, the giant retailer would be nowhere today without the countless Chinese workers who toil in sweatshops so that American consumers can be offered the cheap goods that are at the core of the company’s business model. Last year those largely Chinese-made goods brought Wal-Mart profits of $12.7 billion, or about $1.4 million every hour of every day. The $430,000 contribution thus represents less than 20 minutes of profit.

Wal-Mart also profits from Chinese consumers. The company operates more than 200 stores in China (through joint ventures and minority-owned subsidiaries), several of which have been shut down because of the tremblor. Wal-Mart was so eager to operate stores in China that it agreed to let its employees there be represented by unions (though of the government-dominated variety).

Wal-Mart has a history of using relatively inexpensive amounts of disaster relief to boost its reputation. After Hurricane Katrina hit the U.S. Gulf Coast in 2005, Wal-Mart maneuvered to get maximum exposure for its prompt delivery of relief supplies. A fairly routine operation for a company possessing the most advanced logistics infrastructure was seen as nearly miraculous, given the ineptitude of federal and state public officials.

The company made an initial faux pas (quickly reversed) in announcing that employees at its stores shut down by the storm would be paid for only three days. It also started out offering a measly $2 million in relief but soon overcame its parsimonious instincts and upped the figure by $15 million, thereby winning wide praise. The wave of favorable coverage went on for several months, thanks at least in part to the efforts of its army of p.r. operatives from Edelman and a conservative blogger who was paid to tout Wal-Mart’s hurricane work in the blogosphere.

Wal-Mart may have to part with more than $430,000 to get a similar public relations bonanza from China’s suffering.

A feature article by two academics in today’s Wall Street Journal provides further evidence that the concept of corporate ethics is an oxymoron—or at least is a far cry from human ethics. The piece, by Remi Trudel and June Cotte of the University of Western Ontario’s Ivey School of Business, is headlined: “Does Being Ethical Pay?”

The authors don’t seem to think there is anything odd about discussing behavioral norms exclusively in terms of the material payoff. They unself-consciously refer to corporate social responsibility as a “big business” and thus don’t have any problem analyzing it in the same terms used for any investment.

Trudel and Cotte start out asking the question: “How Much are Ethics Worth?” What this means in practical terms is: how much extra can companies charge for products that are advertised as having been produced in an ethical manner. They ignore the question of how much more such goods actually cost to produce and consider only how much consumers are willing to pay. Based on experiments with a random group of adults, they found that people are willing to pay significantly more for the ethical goods, which suggests that consumers are a lot more ethical than companies.

Amazingly, the authors then address the question: “How Ethical Do You Need to Be?” Here they found that consumers would, for example, pay a differential for a shirt advertised as 25 percent organic but not much more for one said to have a higher organic content. The lesson Trudel and Cotte seem to draw from this is that companies should make some effort to give their products an ethical patina but need not go too far, since there will not be a proportional return for the additional effort.

The analysis of Trudel and Cotte is at the same time appalling and refreshing. It cuts through the social responsibility hype that permeates so much large-company marketing these days and shows that corporations will do the right thing only if it somehow enhances their bottom line. Lenin famously said that capitalists would sell the rope with which they would be hanged. Today’s corporate executives are happy to sell us the appearance of social responsibility—and, if we are lucky, the real thing.