As the social, political and commercial spheres become more intertwined, firms are increasingly finding incentives to look beyond the bottom line
When the Czech president Václav Klaus declared that he wanted “the market, without adjectives”, he was expressing the widespread desire of many businesspeople and neoliberals for a simple world in which social, political and generally public affairs do not get in the way of commercial activities. (His obvious immediate reference was to the German idea of a ‘social market’.) The fact that this desire is doomed to be frustrated can be readily seen in the progress of the idea of corporate social responsibility (CSR).
During the past three decades, the business world, aided by neoliberal political ideology, has convinced much of the public that firms are more competent than governments at doing many things, and that government should retreat from certain areas of activity to make way for corporations. For some, seeing off government would see off the social issues that politics brought to the agenda, getting in firms’ way. But that debate has ended up standing on its head. If governments left the scene, they left behind them many of those irritating issues, which were not mere whims of the political class and which now became the responsibility of firms themselves. Or, looking at it in a different way, if corporations were so much more competent than governments, they could take on many of the tasks historically associated with the state. In this way, the idea of CSR, which had been lying around for a longer period, started to acquire a new salience.
There is much in the above that is inaccurate. During Klaus’s two terms of power, his governments, like many others inspired by neoliberalism, did not in practice create ‘markets without adjectives’. The original German idea of the social market did not have the meaning it carries today, but referred to a competitive order guaranteed by law. In general, governments have not retreated far from the terrain of post-war regulated capitalism and welfare states. By no means do all major corporations take CSR seriously. Nevertheless, there are some basic truths at the core of the argument: profit-making corporations have been vaunted as the most competent organisational form known to humankind; a wide range of social issues beyond the reach of normal commercial activity have refused to go away; and corporations have found themselves increasingly, and with varying degrees of enthusiasm, taking responsibility for them.
Globalisation and the environmental crisis drive much of this agenda. The former, in particular global supply chains, has brought complicity with slavery, child labour and other gross forms of exploitation to the everyday operations of many leading western brand-name companies and, by extension, their customers. The same goes for environmental damage. Many customers do not like this complicity; there is therefore pressure on corporations to show that they have clean hands. Furthermore, by rising to this challenge, firms are able to strengthen the view that they rival governments in their competence. Often this is no more than a superficial public relations exercise. Yet once firms have made claims to be acting in the arena of social responsibility, they can be investigated and harried by citizens’ organisations and accused of hypocrisy to the point where they have to go beyond PR.
We can make sense of CSR in terms of economic theory through the idea of externality, and in terms of political and social theory through the idea of governance. An externality is a product of economic activity that is not captured in the producer’s market transactions. Externalities can be positive: bakers are unable to charge you for enjoying the smell of fresh bread as you pass their shop. But it is negative ones – bad smells, if you like – that are of most public importance. Pollution is the most obvious example, but there is also a negative externality when, say, a logistics firm’s truck drivers spread Aids through a part of Africa.
A rational firm might be expected to ignore the negative externalities produced by its operations; why should a profit-maximising corporation take into its market calculations things that it can simply ignore? We therefore normally look to government action, whether direct regulation, fiscal incentives or the provision of opportunities for civil actions by affected persons. Much of this state activity is what neoliberals have in mind when they complain about the state hampering business, and much successful corporate lobbying goes into ensuring that governments’ responses are weak.
But what if civil society groups draw attention to neglected externalities, leading many customers to become disgusted at their complicity by association in them? Then firms might feel a need to do something about the problem even if government does not require them to do so. What if leading investors regard a firm’s sensitivities to such customer concerns as evidence that it is in touch with its markets, and therefore likely to be a smart firm? Then CSR might even become profitable, even though in the first instance it constitutes an increase in costs that could have been avoided by taking a hard-nosed stand. This is what firms mean when they speak of becoming a ‘social brand’.
Corporations that respond in this way pass from objects of regulation to regulators themselves, from governance takers to governance makers. The idea of governance, which implies the range of ways in which behaviour is monitored and regulated, including but not limited to formal government, is useful here. The market is a form of governance; so are strong communities; so too can be corporations. We see this most clearly when global firms assert, for example, minimum labour standards in their supply chains, but it is present in all cases of voluntary externality control. The ‘external’ is part of the public realm; when firms start operating in that realm, they are exercising governance.
How important is all this really? It is not easy to organise civil society groups, and any campaigns they do organise can be easily drowned out by the hugely superior resources of firms’ publicity machines. Is anyone in a position to monitor what firms claim to be doing in their CSR strategies? What if they trumpet their achievements in, say, selling only dolphin-friendly tuna while keeping quiet about buying their shellfish from Thai fishing firms that man their fishing boats with Burmese slaves in order to keep labour costs down? Obligations voluntarily chosen and self-monitored by powerful interests might seem more like a modern form of noblesse oblige than behaviour appropriate in democratic societies. We are right to be sceptical and to demand evidence and transparency, but wrong to write it all off with total cynicism. One important reason for this is that we have no right to assume that people in business are motivated solely by profit making and are devoid of moral sense. The world is not so replete with moral purpose that we can afford to disregard its potential appearance anywhere.
The problem of moral scarcity enables us to take the debate further. CSR threatens the separation of spheres of institutional competence that is fundamental to modern – indeed, Enlightenment – ideas of the good society. Keeping religious, political, judicial and economic powers separate from one another was fundamental to the original liberal struggle against absolutism and in favour of freedom. Freedom exists in the space between institutions, so it is important that they do not overrun their boundaries and obliterate those spaces. That is why, for contemporary liberals, CSR carries unwelcome echoes of noblesse oblige. For market liberals, it is important that managers do not allow their moral hang-ups to interfere with the maximisation of shareholder value. For social democrats and French republicans, it is the job of democratic governments to safeguard social and public interests, so corporate leaders should not be meddling in this field.
The insistence of these various children of the Enlightenment that institutions must keep themselves to themselves did not mean neglect of general, public issues, but confidence that particular institutions would protect these without endangering liberty, because of the way they were constructed. The market was seen as a device whereby pursuit of self-interest was required to serve the general good; the state within a market economy could be entrusted with high moral purpose, provided it was democratic and operated according to the rules of rational impartiality. In both cases, a rational system would prevent us from relying on that fragile force, human goodness, to maintain a good society. But markets cannot cope with externalities; democracy is a blunt weapon. We have learnt that we need highly complex interdependencies among states, markets, corporations and other forces, rather than rigid separations among them, even though such arrangements are fraught with difficulty and require a maze of regulation, auditing, transparency rules and scope for contestation. Hence the interest in several modes of governance, rather than just government and markets.
In an ideal world, we would be confident of the power of either markets or government regulation to prevent women in Bangladeshi clothing factories from working an 18-hour day to keep the price of jeans below £5, or to ensure that oil companies do not frequently pollute beaches and rivers because their eyes are trained steadfastly on the bottom line. If this were the case, we might be able to wrinkle our noses at both corporate social responsibility and the bold little campaigns that try to keep us informed of corporate irresponsibility, but we cannot.
In a storm, all hands to the pump. And we are in a number of moral storms. That is the problem that the idea of institutional separation has to face. Furthermore, we cannot be confident that our institutions function so well that public life can be placed on a moral automatic pilot. Untrustworthy, hypocritical and conflict-ridden though human pretensions to ethical behaviour may be, we cannot afford to write them out of the script of public life. While it is partly about long-term corporate self-interest, there is an undeniable moral strand to many corporations’ CSR strategies. These have to be encouraged, not written off. On the one hand, we are learning to take this seriously and see at least some corporate leaders as driven by more than profit. On the other, new public management theories encourage us not to take account of the claims of the public-service professions to pursue a professional ethic, but instead to tie them to bottom-line incentives only. But that is another story.
Colin Crouch is professor of governance and public management at the University of Warwick Business School. His book, The Strange Non-Death of Neoliberalism, was published by Polity Press in June.
Photography: Nick Veasey
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