Corporate Social Responsibility: Altruistic private goods v public goods

Corporate Social Responsibility (CSR) is something I’d like to do some more work in. I haven’t because I’ve not been able to get a consulting gig for Lateral Economics on the subject (hint, hint, if you know anyone who wants some consultant to go boldly where no consultant has ever gone, I’ll tell them you sent me.) Anyway, I’ve offered a few posts bearing on some of the issues.

Right now from what I have read, CSR is in a pretty parlous intellectual state. One the one hand you have the Milton Freedman view which is that the business of business is business. This has the advantage of intellectual coherence and in that regard it’s way ahead of what I’ve seen of the CSR movement which seems to be a kind of rhetorical arm waving. It’s rare that there’s much rigour about what it is or why firms should worry about it.

However CSR is a serious thing.  I think it should focus on the interface between business as the kind of ethically anorectic profit maximising entity one finds in neoclassical economic models and the three dimensional ethical beings that populate the workforce, firms and polity. One of the main drivers of existing CSR initiatives is the desire to attract and hang onto employees who want to think of themselves and their job as ‘making a difference’ for the better in the world.¹

Often CSR is pretty arbitrary, and involves a firm committing to (for instance) reducing its carbon footprint, or raising some money for a local charity.  And the reason for doing so is that CSR helps give the firm a ‘licence to operate’ from the community it serves.

Well that’s all fine, I guess. But it seems to me that there are two powerful ideas that can be brought to the table, but which rarely are:

  1. The firm seeks profits in a specific domain in which it has possibly unique and certainly valuable knowhow, and there may be things that it can do that it has a very specific knowledge about which mean that it can make a unique contribution. Many things that firms do in their normal course of action are highly beneficial in more than just economic terms. Thus an insurance company might have campaigns or link its insurance to incentives in various ways to improve safe driving or reduce house fires. But the (neoclassically motivated) firm will generally do this only up to the point where the effort continues to make a commercial return. Making it CSR would take it beyond this point.  In fact one of the findings when firms do this out of the goodness of their hearts, is that many such things start out looking like they might lose money but end up serving the company’s commercial interests in various ways – engaging employees more deeply, involving the community, PR etc etc.
  2. These ideas take on a new power within the context of the new information architecture of the world – the internet. With global public goods just a click away, firms will be able to do great good at minimal cost to themselves just by releasing data and otherwise asking themselves how they might build information goods of general social value. If they can build them they may be creating spectacular value, and the more that do it the more each may be able to contribute to the incremental value of these collective goods.

All this is has been written by way of an introduction to what was intended to be a brief post which was about this. Aa workshop in DEEWR where I am – don’t laugh – thinker in residence – we were talking about indigenous employment and the involvement of firms that are or might become employers of aborigines.  I proposed a concept that shows how my stuff about public goods built privately can be useful in thinking about practical things.

Discussion turned to the various firms seeking to employ indigenous people. Now they’ll be doing this as part of CSR, and if they’re doing it in the traditional way as a ‘licence to operate’ then chances are that what they’re doing is building what I’d call an ‘altruistic private goods’. That’s to say that the cost minimising option might be to fly non-indigenous people in to work in the mines or whatever they’re working in. But the company decides in the goodness of its heart that it wants to develop these jobs for aborigines. But it also does this for its value as a potential future competitive advantage.

On the other hand, given the progeny of the idea, and these firms’ motivations, they might not be thinking this way, or if they are, they may be persuaded to think of this endeavour of theirs as having a public good component. If so, then the process of learning to manage indigenous employees – which, it is said, is a difficult one – may be able to take place more efficiently because firms can pool their (knowledge) resources and learn more easily from each other.

So the idea would be to get out there and find out what firms might be prepared to consider their skill building in employing aborigines as a public good and see how they could encourage and support it, not just within their own workforces, but within each others’ workforces. Thus a firm which was mainly focusing on building private goods, would understand itself to also be building some public goods. And this idea of the coexistence of public and private goods is one that the science commons movement focuses on. It is inherent, or was inherent in the philosophy of intellectual property until the IP maximalists tried – pretty successfully  so far (and very unfortunately) – to tilt the intellectual playing field towards focusing virtually exclusively on the analogies between intellectual and real property.

¹ See eg, this link (pdf), p. 23.

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paul frijters
paul frijters
11 years ago

what you describe above really sounds like window dressing and wishful thinking.
The enlightenment thinkers saw a far bigger and visible role for private entreprises in the moral life of our societies, born directly from their material self-interest. Most importantly, business has something to gain from stable governments that do not punish people ex-post from getting rich. The monarchs who robbed the coffers of their successful subjects when in need of money went directly against business interests. Businesses are hence a strong line of defense in favour of a political system that is stable and where the level of appropriation is within bounds. They are upholders of a democracy, precisely because they know unelected rulers are just like themselves and cant be trusted. Their morality follows their purse, which in this case is a good thing.

Other moral influences of business also come directly from their own self-interest: they want obedient employees who can be on time, dont make trouble with clients and co-workers, are flexible in terms of tasks, etc. They want clients who behave, public goods that help their businesses, and a stable international order. Businesses enforce these desires both within their firms, indirectly via role models, and indirectly in terms of what they tell other actors to do. In many ways, corporations are a pacifying force in this world for no other reason than that they can make more money from peaceful interaction.

By the same token, some businesses thrive on causing disruption. Illegal arms traders do not thrive on peace and pharmaceuticals cannot sell to healthy populations. Their interests are hence often to cause disruption and fear, whatever their ‘Corporate Social Responsibility’ mission statements might say.

Sure, morality can be a business opportunity and, sure, individual entrepreneurs are also humans with their own moral agendas. But the moral effect of these are but snow flakes compared to the ice-berg of effects borne from sheer self-interest.

Ken Parish
Admin
Ken Parish(@ken-parish)
11 years ago

Paul

Much of Nicholas’s thinking revolves around exploring technological and other methods for tweaking or optimising the workings of governments and enterprises (e.g. “opt-out” defaults to maximise the making of socially desirable choices).

Thus it may well be that promoting self-conscious altruism by whatever means is just generating snowflakes alongside the beneficent invisible icy hand of brute self-interest. But snow is a much more congenial surface to ski on than bare ice, and the aggregation of snow over time is what makes the ice.

Moreover, this sounds a little like some of those extreme libertarian rants of people like Rothbard and Nozick (or Gordon Gekko). Those people typically assume that private enterprise arises and sustains itself spontaneously through rugged self-interested individualism, ignoring the the fact that modern society is a complex organism which has arisen in significant part by deliberate design (e.g. the modern legal system, the limited liability corporation with anti-trust and other laws to restrain its excesses). The rugged individualists are fooling themselves if they imagine that they could exist and thrive without those evolved design features. What’s wrong with musing about developing new design features that would more directly encourage increased altruism/social responsibility?

MikeM
MikeM
11 years ago

Responsible business practice is the recognition of, and response to the interconnectedness and interdependence of business within our world of which the global financial crisis and climate change are consequences.

Responsible business practice advocates that the true costs and obligations of business and organisational activity are accounted for – both financial and non-financial and require a process of accountability, transparency and comparability…

the HUB

D W Griffiths
D W Griffiths
11 years ago

There’s a lot of talk about CSR, in part because most business people want to be able to both believe and represent that their business actions are morally right. But I have some sympathy for Paul when he talks of “window dressing and wishful thinking”.

Nick is surely right that there are times when a company’s “social responsibility actions” have positive spin-offs for their public image. The classic example is the indigenous initiatives of many mining companies, undertaken largely as part of an embrace-your-enemies industry strategy to make the mining companies more acceptable to the groups that would otherwise cause them PR and policy trouble and constrain their profits.

Nick’s also surely right that CSR can tangibly help to raise companies’ status in the eyes of their employees. Indeed, “employee engagement” now seems the most popular justification for CSR initiatives.

The case is weaker, however, that CSR is something that the state needs to encourage.

Nick’s probably right that firms can sometimes make important contributions to public debate because of their expertise. But I’ve been surprised to find over the years that these cases are extremely rare.

The reality is that mostly companies involved in public debate end up talking their own book. And even when they’re probably not, you can’t help wondering whether they are.

On top of that, I have never seen much evidence that companies are very good at making judgements about what is socially or environmentally good. It’s not their special subject. (I have heard this point powerfully made by John Roskam, which surprised and impressed me.)

From a policy point of view I end up at this view: Let governments set the rules and companies operate inside them.

And when individuals within companies find the rules are creating anti-social or environmentally damaging results? There are plenty of ways to blow the whistle. (Try a blog post, for starters.)

The interesting case is the one where a company’s officers feel they have an opportunity to lastingly profit by doing something that is anti-social or environmentally damaging, but not illegal. Corporate law suggests they have a duty to do it. Good conscience suggests they have a duty not to. CSR would be more impressive if it addressed this case, but it rarely does; instead it tends to stress those untroubling cases where profit and good deeds go hand-in-hand.

Paul, as I read you, you are raising some other issues: why businesses might support democracy and the rule of law; how law supports business; the cases where certain businesses might benefit from disorder; and particularly, the role of business in creating a good and moral society.

I’d argue this last is actually far more important than the CSR debate. Paul Seabright is right to argue that business is a vast social co-operation system, nothing less than a remarkably powerful way to organise joint activity between strangers without the normal familial or tribal ties to each other.

This is what Friedman omitted when he said that the “the social responsibility of business is to increase its profits”. He made it sound morally empty, when it is not. Business is a remarkably morally powerful activity in that it encourages people to work together. But business is not thoroughly moral; there are great benefits to imposing certain types of rules upon it – from outside.

Corin
Corin
11 years ago

CSR has often become as much about marketing a firm as it is about about genuine actions out of altruism. I accept that philanthropy is a real concept and companies (as well as individuals) can also be philanthropic but there are often whole sections of a PR machine devoted to making a firm look more ‘warm and fuzzy’. In some ways it is chicken and egg with say battery egg farming, has it nearly ceased to exist due to consumer pressure or is it more due to large supermarkets acting through CSR principles that have made such products less available to the market. Probably both things at work.

The benefits of CSR (and there must be some for the bottom line) seem to be in producing a better brand identity and also encouraging (perhaps) a more dedicated workforce. It is certainly the case that employers in times of high labour demand are more willing to place contractual handcuffs on staff through paying for an MBA or a Masters say. This is not to say that the funding of this study is not a genuine CSR act but there is a complex set of parameters promoting such altruism.

It is like reading about a platypus without having ever really seen it, when you see it it is obviously the platypus but it is still remarkable it exists at all.

Paul Frijters
Paul Frijters
11 years ago

Ken,

I have no problem with the idea of using technology to make another buck for business or society (depending on who funds your lunch), and I of course agree with you that businesses arise in a social environment. My point remains that the CRS industry pretends to be driven by higher moral values than self-interest. Whilst I understand the absolute importance of this fib to get mileage out of it, its a fib.

Nick,

all the examples you drag up just underscore my point. Toyota treating its employees differently to make better cars more cheaply? Well-mart doing something for the common good though not letting it cost more than a ‘drop in the ocean’ (your words)? Trying to engage aboriginal communities in a way something productive can be gotten out of them? Hello? This is not higher morality costing the world. This is by and large either well-understood self-interest or else ‘altruism that doesnt cost too much’.

DW,

you and I seem in agreement about all this. Business is indeed a vast social-cooperation system and as such has a far stronger effect on morality than the small-fry made up by CSR plans, and yes, it wouldnt work as a self-contained system and thus works only in conjunction with other structures.

D W Griffiths
D W Griffiths
11 years ago

Nick, I’ll plead guilty to reacting more to the comments on the CSR concept than to the last third of your original post.

For what it’s worth, the big firms are now doing a lot of information-sharing on indigenous employment. And it’s driven by a genuine concern amongst senior executives to help improve the lot of indigenous Australians. But I think the circumstances are pretty unusual. It’s interesting, but not easily generalisable to a wider range of circumstances.

Gladbach
11 years ago

what you describe above really sounds like window dressing and wishful thinking.
The enlightenment thinkers saw a far bigger and visible role for private entreprises in the moral life of our societies, born directly from their material self-interest. Most importantly, business has something to gain from stable governments that do not punish people ex-post from getting rich. The monarchs who robbed the coffers of their successful subjects when in need of money went directly against business interests. Businesses are hence a strong line of defense in favour of a political system that is stable and where the level of appropriation is within bounds. They are upholders of a democracy, precisely because they know unelected rulers are just like themselves and cant be trusted. Their morality follows their purse, which in this case is a good thing.

Other moral influences of business also come directly from their own self-interest: they want obedient employees who can be on time, dont make trouble with clients and co-workers, are flexible in terms of tasks, etc. They want clients who behave, public goods that help their businesses, and a stable international order. Businesses enforce these desires both within their firms, indirectly via role models, and indirectly in terms of what they tell other actors to do. In many ways, corporations are a pacifying force in this world for no other reason than that they can make more money from peaceful interaction.

By the same token, some businesses thrive on causing disruption. Illegal arms traders do not thrive on peace and pharmaceuticals cannot sell to healthy populations. Their interests are hence often to cause disruption and fear, whatever their ‘Corporate Social Responsibility’ mission statements might say.

Sure, morality can be a business opportunity and, sure, individual entrepreneurs are also humans with their own moral agendas. But the moral effect of these are but snow flakes compared to the ice-berg of effects borne from sheer self-interest.