The Conscience of a Corporation

Doesn't Exist

Yesterday, new OpenAI board member and former Harvard President Larry Summers started tweeting about what he thought he could bring to the board

@OpenAI needs to be a corporation with a conscience. We need to be always thinking about the multiple stakeholders in the development of this technology. Watch my interview last night @BloombergTV @DavidWestin

Here is a link to the interview.

Mr. Summers is a highly respected and well-credentialed professor of economics. He comes at things from the neo-Keynsian side. He is highly intelligent. Sometimes people like that aren’t the best for a board room.

I disagree with Mr. Summers 100% about his opinion that OpenAI should have a conscience. It sounds all nice and rosy to the people who don’t understand business and they lap it up. The Bloomberg reporter should know better. He should have asked deeper questions.

It matters not that OpenAI is a subset of some lofty non-profit. I realize that even in Silicon Valley, the idea of bare-knuckle capitalism is dirty these days. If we are going to make boatloads of money, we ought to focus or at least virtue signal to the public good, right? That was the key character trait that Michael Lewis focused on with Sam Bankman Fried and why his novel about SBF falls way short of reporting the fraud that it was.

OpenAI is a for-profit entity.

OpenAI has accepted millions in investor money. It has a strict duty to engage in a business that returns that money, plus more, to its investors. It has a strict duty to operate a business so it retains, pays, and perhaps even hires more employees.

If it does not focus on those two things, it is an exercise in stupidity. It is a waste of time and money.

The only goal of a for-profit entity is to form, allocate, and use resources to generate outsize returns for risk-seeking investors. Risk-seeking investors take precious assets that could go into safer or risk-free investments and trust the company management with them. The investor’s goal is to receive a larger return than they could receive by putting the money in another asset. That’s called an opportunity cost which Mr. Summers is intimately familiar with.

If a company isn’t solving a problem that its targeted customers are willing to part with their scarce resources to purchase, then you are running a charity, not a business. Investors in charity receive tax deductions for their efforts.

There is no “conscience”. There is corporate culture which is how management organizes and motivates employees to achieve management goals. However, the mythical installation of a “human conscience” into a corporation does not exist at all.

It does not matter how noble, or pedestrian, the reason the business exists is.

Medical companies that are engaged in finding solutions to extend, or make human life better do not have consciences, despite the fact that they are providing solutions for the greater good.

Companies that figure out how to take toxic chemicals out of the earth’s atmosphere and contain or neutralize them are not doing it because they have a conscience. They do it to make bottom-line profits and return capital to investors.

Companies that make yoga pants do not care about anything except if you buy their yoga pants and are happy with them so you will return and buy more of them.

Companies that make fast food want to satisfy your hunger and make a good enough product that you will return over and over again to eat their fast food. They don’t care about your health despite the fact that they put caloric intake on the menu.

Hopefully, you get the idea.

Artificial Intelligence companies should do all they can to avoid having a lot of bias in their code. It is incredibly hard to do that. Currently, the algos contain bias but I bet the current narrative is okay with people like Larry Summers. Dilbert cartoonist, Scott Adams tried ChatGPT and found bias.

Corporations are legal organizations. It turns out that the corporate structure is the most efficient way to organize all assets, physical, monetary, and human, to solve problems that confront human society. Solving those problems efficiently makes life better for the humans that need it, and hopefully returns a lot of money to investors who invest in it.

Investors take that return and do with it what they want. Often, they invest in another company. Lather, rinse, repeat. Investors move the supply line of the economy out. This drives more business formation, more risk-taking, and more gains. Those gains are economic, and they are personal. Without the grease investors provide, nothing can happen so we need to value them and treat them well.

Since it’s the investor’s capital, they get to decide what to do with it the way they want to do things with it. Society doesn’t get a say. Conscience doesn't get a say. Whatever they decide individually to do with their money is the best outcome for all of society. The invisible hand works slowly sometimes, but it will guide investors. They aren’t always correct, and often they will lose their entire stake of capital.

But, in a capitalistic society, they earn the right to try again.

Only brazen competitive capitalism can do this. The government cannot. Neither can any of the other -”isms” which are the current thing.

The sooner we wake up to that fact in America, the sooner we will be more productive and grow our economy. When the economy grows, more people get to participate in it provided government policy doesn’t freeze out, limit, or prohibit, that participation.

We win with abundance. Limits kill.