Strange Bedfellows

December 01, 2001

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

Corporate Citizenship Briefing, issue no: 61 – December, 2001

Roger Cowe is a freelance journalist, writing regularly for the Financial Times, The Guardian and other leading journals

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