This post is part of an aid blogging forum, started by J. at Tales From the Hood.
As with most development jargon, the term Corporate Social Responsibility (CSR) is absurdly vague. In the broadest sense, I hold it to mean any action taken by a private corporation, for a perceived social good, that it would not otherwise have cause to perform. The specific actions described as CSR appear to fall into two camps: philanthropy and altering existing practices to do no harm (or even do some good). The former is most often donations to charities, including development organisations; I am concerned more with the latter. This type of CSR is seen in certain industries voluntarily creating standards of best practices that do less harm to society (and in this I include the environment), though at greater cost. This type of CSR is self-regulation, but by another name.
Corporations are rational actors that seek to maximize their profit within the prescribed rules of the game. Some may disparage corporations for practices that harm the environment or 'exploit' poor third world farmers. In the case of environmental harm, these practices may be industrial processes that pollute the atmosphere, or even processes that consume too much electricity; in the case of the farmer, the so-called exploitation may be paying the farmer the legislated minimum wage. In both these examples, corporations are seeking to maximize their advantage over competitors while still obeying the law. However, corporations are often condemned by people who view their lawful practices as harmful to society. Civil Society Organisations (CSOs) organise boycotts, protests and letter writing campaigns with the goal of shaming firms into changing their business practices (e.g. popular movements against sweatshops / whaling / Shell in Nigeria). These campaigns have been viewed as successes because the target company ceased its socially undesirable practice. But do not think that the firm has abandoned profit considerations: it has merely decided that the cost of maintaining the status quo has become too expensive, thereby making the practices proposed by the civil society organisations the profitable choice.
This type of regulation -- powered by mob mentality vice sober legislative debate -- causes market disequilibrium and does little to actually regulate the practices. When civil society picks up on a cause and organises campaigns for change, they direct their campaigns at the big MNEs that have global brand identities. The campaigns feed off the high profile exposure gained from outing a large MNE. If enough pressure is maintained for long enough, these campaigns can effect change on their targets. But the smaller entities are ignored by the campaigns: they are too small and are too many for the campaign to effectively target, and there is no incentive to do so since it would not galvanize the public into action. So while these campaigns may succeed in changing the practices of some MNEs, it does not outlaw the behaviour in the way a law would. This causes market distortion: the large MNEs with brand recognition are shamed into adopting practices that are more socially responsible (expensive), while the smaller players can keep to the old ways (cheaper). The result of these campaigns is that operating costs increase for the large firms and the small firms are handed a competitive advantage; the practices endure.
For the few large MNEs that are corralled into adopting new practices, the outcome is less stringent and less enforceable than a government alternative. When an industry gathers to self-regulate, their incentive is to adopt a policy that goes far enough to quiet civil society, but only just: regulate as little as possible. When a parliament considers legislation, its goal is enacting laws that strike an equitable balance between business concerns and social outcomes. Achieving this balance places a greater cost on business; thus, left to their own, industry will always choose less socially desirable regulation. Self-regulation is also less enforceable: it is by definition voluntary. There is no police or regulatory watchdog with any teeth. Firms are left to watch over one another. Psychology and basic economics tells us that free riders will game this system for advantage over rivals. But ultimately, once one firm (or even an entire sector) experiences an economic slump, the costly practices adopted under this self-regulation will be the first thing to cut. Voluntarily choosing to do nice things for society is great when profit margins are up, but if they are not required to do so by law, when the books hit the red that firm will immediately adopt more cost-effective practices.
Government is the great referee. It expresses the will of society in the form of laws and regulations. They are published openly for all to see. Government has a monopoly on the legitimate use of force, power it uses to enforce laws and ensure compliance. I am not advocating that government interfere in the economy where it is not required. However, when society decides that it will not tolerate certain behaviour by business, it is the sole responsibility of the government to enact laws that strike a careful balance between society and business. Business will push back, because they do not wish to adopt more costly practices, but that is to be expected. Like the hockey player who just elbowed someone in the head, he knows he belongs in the penalty box, but he's going to make a fuss anyway. Moreover, businesses prefer government to make the rules: they are clearly defined, universally applicable, and effectively enforced. But until that time comes, business will do all they can, within the rules of the game, to gain a competitive advantage.
No comments:
Post a Comment