When Martin Wolf’s column in the Financial Times gave the oxygen of publicity to the CSR backlash in May, it provoked a storm of protest from the ‘CSR industry’. As usual, the controversy produced more heat than light – perhaps because its object was a publication by former OECD economist David Henderson, which none of the combatants except Mr Wolf had seen.
The publication of his booklet* in the UK in November allowed commentators a more considered response. The result is much more interesting, if not quite so entertaining. And it highlights some uncomfortable aspects of CSR which proponents often gloss over. Mr Henderson’s views were covered in three major articles. The Economist, as might be expected, printed a piece robustly supporting his main (economic) arguments. Interestingly The Guardian, in a special supplement on corporate giving, summarised the arguments in a way which many will have found surprisingly sympathetic. Typically, the FT published the most analytical article, analysing and challenging the argument, not just reproducing it.
Richard Tomkins talked about real business issues like brand value and environmental clean-up costs, not economic theory, writing: “companies have convincing reasons for adopting it [CSR] and it will take more than a few critics worrying about economic impairment to divert them from their course.” Unfortunately none of these articles exposed the serious flaws in Mr Henderson’s argument, e.g. the fact that companies are adopting CSR in response to market pressure; his claims (without any supporting evidence) that the world is not facing serious environmental issues, that people have not been marginalised by globalisation, and that higher labour standards in developing countries will cost jobs. Mr Henderson’s argument is couched in classical economic terms: businesses meet society’s expectations through the market, by responding to competitive pressures in the pursuit of profit. Any interference with the free market will damage business efficiency and leave society poorer (unless it is intervention to correct ‘market failure’). Mr Henderson suggests developing countries will price themselves out of jobs by responding to western demands for better conditions, while CSR will impose additional costs on businesses in the developed world – both directly and through unnecessary regulation.
The Economist was naturally best on this: “In their economic lives, people behave as though they had no regard for the public good. Yet the outcome, through the operation of the invisible hand, serves the public good better than any social planner could ever do.” The Guardian’s deputy economics editor, Charlotte Denny, also featured the Adam Smith heritage, quoting the great man: “By pursuing his own interest, he [the businessman] frequently promotes that of society more effectually than when he really intends to promote it”.
Of course, this classic position leaves a huge gap – whilst the profit motive frequently promotes the interests of society, it does not always. But this gets to the nub of the issue, where these two publications are curiously united. Who should promote society’s interests? As Ms Denny concluded: “That is a task for politicians.” This is Mr Henderson’s fundamental gripe: businesses slavishly follow NGOs’ demands, erroneously interpreting them as “society’s expectations”. As the Economist put it: “It is no advance for democracy when public policy is “privatised”, and corporate boards take it upon themselves to weigh competing social, economic and environmental goals. That is a job for governments, which remain competent to do it if they choose.” The Economist would want governments to be much less enthusiastic about this job than the Guardian would. But their agreement on the principle demonstrates an ideological element to CSR, and important questions about where corporate responsibility stops and government’s begins…
*Misguided Virtue, Institute of Economic Affairs, £12.50
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