Promoting corporate social responsibility

The author is coordinator and member of the Management Collective of Action for Economic Reforms.

In his syndicated column titled “Reckonings,” Paul Krugman quoted the
now-classic statement of Gordon Gekko, the cunning corporate raider in
the movie Wall Street: “Greed is good. Greed works, greed is
right…and greed, mark my words, will save not only Teldar paper but
the other malfunctioning corporation called the USA.”
That statement is real-world stuff. Wisely unstated (as befits shrewd
business), such greed lies at the core of the behavior of many
corporate executives who aggressively pursue super-profits for
themselves and for the companies they run. Although Gekko’s line has
punch and has become very quotable, its message is not new. It merely
echoes a basic creed of liberal economics that the “unrestrained
rivalry of egotism” is good not only for the individual but for society
as well.

But the unregulated pursuit of selfish interest has led to an
increasing number of brazen business abuses (the Enron scandal being a
prime example) and the widening gap in incomes between the super-rich
and the poor. The public has also demanded that the private sector
conduct business in a way that is sensitive to the environment, core
labor standards, human rights, and the provision of other public goods.
In short, the private sector is facing strong public pressure to become
socially responsible. Corporate social responsibility (CSR) has become
a new buzzword.

STATE regulation AND voluntary action

Some corporations exercise CSR to gain advantage over their
competitors. Perhaps because a growing number of consumers, especially
in developed countries, seriously take into account CSR concerns.

But it is naive to think that corporations by themselves can reform and
exercise social responsibility. And though CSR should be driven by
voluntary action, public policy is instrumental in shaping corporate
behavior. As Mary Robinson, United Nations High Commissioner for Human
Rights, once said: “Voluntary initiatives are no substitute for
government action.”

This is not to say that voluntary action and government regulation are
poles apart. Public policy can create conditions for self-regulation to
flourish. Similarly, voluntary action can lead to the
institutionalization of best practice in the public realm. The
challenge is to bring out the “complementary synergies” of voluntary
action and government regulation.

The common perception is that corporations are greedy. But we can also
grant that corporations (and individuals) have “fellow feeling.” Adam
Smith in The Theory of Moral Sentiments points out that rational man
has two sets of propensities: The first is that of “fellow feeling,”
which is the propensity to be social. This however is constrained by
the propensity to be selfish. In the Philippine context, a “socially
irresponsible elite” (a term fondly used by columnist Calixto
Chikiamco) predominates the entire social fabric. Such propensity
requires the creation of the “rules of justice and the rules of
morality.”

Limited State Agenda

Under present conditions, setting the rules to make corporations
socially responsible is bound by a “limited state agenda.” We can cite
three factors, off the bat, that account for the “limited state
agenda.” The first is globalization. Tension exists between economic
integration on the one hand and national sovereignty and social
cohesion on the other hand. For example, intensified global competition
predisposes the National Government to think twice before it upgrading
social and environment standards lest these be seen as disincentives by
current and would-be investors.

The second is a recognition of some objective or intrinsic problems
concerning collective action. Arguably the biggest obstacle is the
inadequacy of information together with the high cost of obtaining the
relevant information. Interestingly, market mechanisms and outcomes are
also hindered by the information problem.
The third factor is country-specific: The Philippine state is weak.
Elite factions dominate the state to serve their narrow interests. In
the process, the rules of the game are broken and enforced without
fairness.
That the Philippines is a soft state should not mean that we should
just give up and forget about overhauling the Philippine state. Some
have offered a seemingly appealing argument that liberalization (as
well as its corollary of a minimalist state) is the preferred strategy
since the state is hopeless. But this makes things worse: The state is
left to deteriorate even though liberalization makes it imperative that
we have strong regulatory institutions.

Putting in place competent and fiercely independent regulatory
institutions is a necessary condition to induce responsible corporate
behavior. This will continue to be a protracted process, for many
regulatory agencies are either captured or immobilized by the elite.

Moving away from a soft state to a hard state will pass through stages.
It is politically feasible in the immediate term for the state to play
a facilitating role in strengthening private sector self-regulation.
The advantage of self-regulation (or, to use the jargon, market
endogenous regulation) is it suits the environment of dynamic change,
innovation and learning by doing.

The State as Facilitator and Enabler

But with an entrenched “socially irresponsible elite,” self-regulation
can become effective only if the state shows its credibility and
capability to check private sector abuses. To put it another way, even
within the context of self-regulation, the state must always be ready
to summon its powers, including coercive ones, to punish bad behavior
and civilize the market.

At the minimum, a necessary condition for effective self-regulation is
an environment of enhanced rules on corporate information disclosure.
The companies should, for instance, be required to report on their
implementation of social (including labor) and environmental standards.
Barriers to citizens’ access to relevant information must likewise be
dismantled.

Building a strong consumer movement is also urgent, but this is mainly
the responsibility of civil society. We should however guard against
“civil society failure.” Recent experiences have shown that a few civil
society organizations are themselves guilty of political partisanship,
rent seeking and/or populism. What is alarming is that consumer
advocacy on a few critical occasions has been hijacked by vested
interests.

The scope of the “limited state agenda” is not that rigidly defined. It
can be the minimalist paradigm as first articulated by the classical
liberals and now pursued by the Washington Consensus. But like a rubber
band, it can be stretched to include activist types of intervention
such as reducing income inequality, creating safety nets, promoting
technology and protecting the environment. A state agenda on CSR should
take into account the types of interventions enumerated above.

Policy Tools

Economic policy instruments also serve CSR goals. In this regard, the
government must pay more attention to incomes policy and industrial
policy. Incomes policy is an appropriate means to address CSR concerns,
especially on protecting labor and consumers. Also under the rubric of
incomes policy is the state’s role in facilitating social dialogue,
even forging a social contract, involving business, labor, and civil
society in general. A well-crafted industrial policy can create
backward linkage that will benefit small and medium enterprises. It can
have a decisive impact on the generation of employment and the
promotion of social equity.

Incomes policy and industrial policy are integral parts of managing the
economic fundamentals. Yet, the government no longer uses them in a
conscious and coherent way to meet macroeconomic and development
objectives. Apparently, the neo-liberal model has made incomes policy
and industrial policy unimportant.
Fiscal policy appears to be the least controversial instrument in
promoting CSR. Specifically, fiscal incentives are given to private
entities that contribute to positive externalities.

But even here, the government needs to exercise caution. Giving
generous tax incentives can upset the government budget and lead to
fiscal degradation. Not all socially responsible actions of the private
sector have to be reciprocated with material awards. The government
must always appeal to the private sector’s propensity to “fellow
feeling.” Business has to be reminded that it is the driver of CSR.

This brings to mind the story of a former director-general of the
National Economic and Development Authority (NEDA) who was approached
by a business club that proposed to provide basic education in exchange
for tax credits. The former NEDA head was appalled since this
association maintains the public image of “enlightened business.”
Quietly, he concluded – based on that one and other similar experiences
– that so-called enlightened business is just another variant of the
socially irresponsible elite.

The path of true CSR in the Philippines – an uphill one at that – must
be relentlessly built, even if incrementally. This paper has surveyed a
wide range of policy options to promote CSR. The danger with a long
list is that it can overwhelm and confuse the policy makers and the
reformers among them. One should desist from using simultaneously all
the approaches and instruments in a limited time frame.

In practice, the required set of policies is narrow. The challenge is
to identify the key link, and the rest will be a matter of sequencing.
On a general plane, what we know is that the right mix of regulation,
incentives, voluntary action and even direct state action will shape
the “rules of morality, justice and other virtues” to impel the
Philippine elite towards genuine social responsibility.

No comments yet.