If the public really wants the supposed benefits offered in the Corporate Social Responsibility agenda, in the sense of being prepared to pay for them, then the market will, before too long, provide.
Corporate Citizenship: A Tax in Disguise
Richard Teather, Ludwig von Mises Institute, August 5, 2003
Corporate Social Responsibility is the new field that has united a variety of campaigning groups, including environmentalists, poverty campaigners, third world charities, and unions in a collective call for business to support their agenda. More unusual, it even has prominent supporters within the business community.
Charitable giving by business has a long history, although in the case of large corporations with a diffuse shareholding it carries the moral hazard of executives buying social respectability (in England, even knighthoods) with their shareholders' money. The morally, and socially, superior position would be for shareholders to receive their full dividends and themselves support charitable action.
However Corporate Social Responsibility is said to be about more than this; linked to the concept of "Corporate Citizenship," it calls for a company's whole actions to be carried out with an eye to their social impact; on the environment, employees, and "communities" at home and globally.
"Corporate Citizenship" is of course a false concept; a company is a legal entity not a natural person, and cannot have the beliefs or morals to make it a citizen in any meaningful sense. Instead these reside in real people; the company's shareholders, employees, customers and, most influentially, senior management. Corporate Citizenship therefore carries the same moral hazards as corporate charitable giving; that it is a process by which a company's directors impose their morals on others.
In contradiction, a new argument has been raised to support Corporate Social Responsibility, which accounts for much of its support in the business sector. As companies compete to raise capital, attract and retain staff, and sell products, those who are seen to support the beliefs and objectives of investors, workers and consumers will gain a commercial advantage.
Some of this has been seen already (Ben & Jerry's in the U.S.A., the Body Shop [a cosmetics chain that marketed itself as environmentally-friendly] in the U.K.), but the proponents of Corporate Social Responsibility claim that the increased public awareness of environmental and social issues will bring this niche practice into the mainstream.
As a good whig and supporter of enlightened self-interest, I can support Corporate Social Responsibility on this basis. I can even accept that there is a role for pressure groups to help provide the enlightenment (provided company executives do not forget their obligations to satisfy themselves that the demand really exists).
However, the campaigners, backed by governments (particularly in Europe), go further than this. If companies are not seen to act in a sufficiently enlightened manner, then they will be forced to (what a colleague, the late Bill Maugham, used to call the "co-operate or else" school of government).
This force may come from "hard" law (legislation or legally binding regulation) or soft law (such as voluntary codes of conduct), but even soft law is usually only adopted under the threat of legislation. The effect is the same; companies are forced to take actions that they do not believe to be commercially justified.
It is often said by supporters of Corporate Social Responsibility that it is merely a 21st century version of opposition to slavery or the pollution of waterways supposedly beloved of 19th century capitalism. This is incorrect, as all of these would be (and were) stopped by enlightened self-interest operating within a basic rule of law with protection for property rights (i.e. within a free market as properly defined).
The persons and property of others have been protected fully from harm since at least the middle of the nineteenth century (in England the case of Rylands v. Fletcher in 1866 stands out).
Even slavery was denounced by Adam Smith on rational economic grounds, and (although this may be more of an issue in the U.S.A.), in England slavery was declared to be invalid in the eighteenth century because it did not meet the common law conditions for a contract.
The denial of fundamental liberties, or the causing of provable harm, is therefore prevented by rules that have long been accepted as underpinning the free market. (The specific issue of companies operating in countries without a rule of law or protection of fundamental property rights is a separate issue that I intend to address in a later article.)
Economic inefficiency
The first problem with enforced Corporate Social Responsibility is that it is economically inefficient. In a free market, companies maximize profit by moving resources from a low to a high value; providing what consumers want. In contrast, if action has to be forced by regulation then governments mandate that resources be spent on services that the public does not value, or does not value highly enough to voluntarily pay the full cost.
Resources are therefore diverted into lower-value outputs, leading to a reduction in overall welfare. This is done for the benefit of politicians, bureaucrats or their supporting pressure groups.
But this is about more than economics; there is a fundamental democratic principle at stake.
The market is essentially a fully participatory direct democracy, in the true Athenian sense. Almost all citizens are involved in the market, and their choices and preferences influence the products offered. If the public really wants the supposed benefits offered in the Corporate Social Responsibility agenda, in the sense of being prepared to pay for them, then the market will, before too long, provide.
By contrast, modern governments are at best representative democracies, open to undue influence from special interest groups, and their participation rates are derisory (in a recent article in the London Salisbury Review I showed that, in the last UK general election, abstainers were the largest group in nearly 80% of constituencies).
The choice is therefore between a market-based approach that provides what the people want, and a government directive under which the beliefs of a minority are imposed on the general public. Even worse, many of the issues that surface in the Corporate Social Responsibility debate, particularly the environmental points, are ones where a relatively wealthy and influential middle class imposes the high costs of its agenda on a working class that does not want and cannot afford it.
Stealth tax?
The political landscape has recently been characterized by a beneficial unwillingness of electorates to accept increases in taxation. However, politicians obviously still seek to increase their power and influence, and this needs money, so recent tax raising has been by way of hidden methods, whether the introduction of new targeted sales taxes or technical changes to tax law.
The socialist Blair government in the U.K. has been particularly skilled at this, and its efforts have been attacked by the conservative opposition as "stealth taxes" (presumably like the stealth bomber they do not show up on the electorate's "radar").
The danger is that the Corporate Social Responsibility agenda, if it moves away from the voluntary 'enlightened self interest' model, becomes another form of tax.
Governments can achieve their objectives (and satisfy their clients) by raising taxes and paying for the changes that they desire, or alternatively they can achieve the same result by regulation. If there is resistance to increased taxation, then politicians are likely to turn to the latter approach.
This raises further economic arguments as to the correct, and most efficient, places for this burden to fall, but that will have to be the subject of a further article.
Conclusion
Business, and the society within which it operates, faces a choice. It can follow the market principle of enlightened self-interest within the rule of law, which best ensures that the real objectives of the populous (i.e. those that they want enough to be prepared to pay for) are met. Alternatively it can be forced down the regulation route, whereby politicians and the loudest special interest groups impose their views on others.
No matter how learned and disinterested those special interest groups may be, I know which society I would prefer to live in.
-----------
Richard Teather is Senior Lecturer in Tax Law at Bournemouth University, U.K., and is currently co-authoring a book on Corporate Governance for the publisher Pearson.
Richard Teather, Ludwig von Mises Institute, August 5, 2003
Corporate Social Responsibility is the new field that has united a variety of campaigning groups, including environmentalists, poverty campaigners, third world charities, and unions in a collective call for business to support their agenda. More unusual, it even has prominent supporters within the business community.
Charitable giving by business has a long history, although in the case of large corporations with a diffuse shareholding it carries the moral hazard of executives buying social respectability (in England, even knighthoods) with their shareholders' money. The morally, and socially, superior position would be for shareholders to receive their full dividends and themselves support charitable action.
However Corporate Social Responsibility is said to be about more than this; linked to the concept of "Corporate Citizenship," it calls for a company's whole actions to be carried out with an eye to their social impact; on the environment, employees, and "communities" at home and globally.
"Corporate Citizenship" is of course a false concept; a company is a legal entity not a natural person, and cannot have the beliefs or morals to make it a citizen in any meaningful sense. Instead these reside in real people; the company's shareholders, employees, customers and, most influentially, senior management. Corporate Citizenship therefore carries the same moral hazards as corporate charitable giving; that it is a process by which a company's directors impose their morals on others.
In contradiction, a new argument has been raised to support Corporate Social Responsibility, which accounts for much of its support in the business sector. As companies compete to raise capital, attract and retain staff, and sell products, those who are seen to support the beliefs and objectives of investors, workers and consumers will gain a commercial advantage.
Some of this has been seen already (Ben & Jerry's in the U.S.A., the Body Shop [a cosmetics chain that marketed itself as environmentally-friendly] in the U.K.), but the proponents of Corporate Social Responsibility claim that the increased public awareness of environmental and social issues will bring this niche practice into the mainstream.
As a good whig and supporter of enlightened self-interest, I can support Corporate Social Responsibility on this basis. I can even accept that there is a role for pressure groups to help provide the enlightenment (provided company executives do not forget their obligations to satisfy themselves that the demand really exists).
However, the campaigners, backed by governments (particularly in Europe), go further than this. If companies are not seen to act in a sufficiently enlightened manner, then they will be forced to (what a colleague, the late Bill Maugham, used to call the "co-operate or else" school of government).
This force may come from "hard" law (legislation or legally binding regulation) or soft law (such as voluntary codes of conduct), but even soft law is usually only adopted under the threat of legislation. The effect is the same; companies are forced to take actions that they do not believe to be commercially justified.
It is often said by supporters of Corporate Social Responsibility that it is merely a 21st century version of opposition to slavery or the pollution of waterways supposedly beloved of 19th century capitalism. This is incorrect, as all of these would be (and were) stopped by enlightened self-interest operating within a basic rule of law with protection for property rights (i.e. within a free market as properly defined).
The persons and property of others have been protected fully from harm since at least the middle of the nineteenth century (in England the case of Rylands v. Fletcher in 1866 stands out).
Even slavery was denounced by Adam Smith on rational economic grounds, and (although this may be more of an issue in the U.S.A.), in England slavery was declared to be invalid in the eighteenth century because it did not meet the common law conditions for a contract.
The denial of fundamental liberties, or the causing of provable harm, is therefore prevented by rules that have long been accepted as underpinning the free market. (The specific issue of companies operating in countries without a rule of law or protection of fundamental property rights is a separate issue that I intend to address in a later article.)
Economic inefficiency
The first problem with enforced Corporate Social Responsibility is that it is economically inefficient. In a free market, companies maximize profit by moving resources from a low to a high value; providing what consumers want. In contrast, if action has to be forced by regulation then governments mandate that resources be spent on services that the public does not value, or does not value highly enough to voluntarily pay the full cost.
Resources are therefore diverted into lower-value outputs, leading to a reduction in overall welfare. This is done for the benefit of politicians, bureaucrats or their supporting pressure groups.
But this is about more than economics; there is a fundamental democratic principle at stake.
The market is essentially a fully participatory direct democracy, in the true Athenian sense. Almost all citizens are involved in the market, and their choices and preferences influence the products offered. If the public really wants the supposed benefits offered in the Corporate Social Responsibility agenda, in the sense of being prepared to pay for them, then the market will, before too long, provide.
By contrast, modern governments are at best representative democracies, open to undue influence from special interest groups, and their participation rates are derisory (in a recent article in the London Salisbury Review I showed that, in the last UK general election, abstainers were the largest group in nearly 80% of constituencies).
The choice is therefore between a market-based approach that provides what the people want, and a government directive under which the beliefs of a minority are imposed on the general public. Even worse, many of the issues that surface in the Corporate Social Responsibility debate, particularly the environmental points, are ones where a relatively wealthy and influential middle class imposes the high costs of its agenda on a working class that does not want and cannot afford it.
Stealth tax?
The political landscape has recently been characterized by a beneficial unwillingness of electorates to accept increases in taxation. However, politicians obviously still seek to increase their power and influence, and this needs money, so recent tax raising has been by way of hidden methods, whether the introduction of new targeted sales taxes or technical changes to tax law.
The socialist Blair government in the U.K. has been particularly skilled at this, and its efforts have been attacked by the conservative opposition as "stealth taxes" (presumably like the stealth bomber they do not show up on the electorate's "radar").
The danger is that the Corporate Social Responsibility agenda, if it moves away from the voluntary 'enlightened self interest' model, becomes another form of tax.
Governments can achieve their objectives (and satisfy their clients) by raising taxes and paying for the changes that they desire, or alternatively they can achieve the same result by regulation. If there is resistance to increased taxation, then politicians are likely to turn to the latter approach.
This raises further economic arguments as to the correct, and most efficient, places for this burden to fall, but that will have to be the subject of a further article.
Conclusion
Business, and the society within which it operates, faces a choice. It can follow the market principle of enlightened self-interest within the rule of law, which best ensures that the real objectives of the populous (i.e. those that they want enough to be prepared to pay for) are met. Alternatively it can be forced down the regulation route, whereby politicians and the loudest special interest groups impose their views on others.
No matter how learned and disinterested those special interest groups may be, I know which society I would prefer to live in.
-----------
Richard Teather is Senior Lecturer in Tax Law at Bournemouth University, U.K., and is currently co-authoring a book on Corporate Governance for the publisher Pearson.
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The neo-liberal ivory tower
03.10.2003 13:54
In essence, Richard Teather argues that the consumer system is the ultimate democracy since everyone 'votes'. Most of us, however, hold equality to be fairly crucial to democracy - not just everyone having votes, but everyone having ONE vote. In the consumer economy, even if you count pounds or dollars as 'votes' (and I'll come to why they're not in a moment) some people have 100 'votepounds' a week and some have 200,000. Not only that, but in a political democracy only human beings can vote, whereas in an economic context many of the 'votepounds', much of the time, are held by non-human entities such as those legal fictions known as corporations. And by governments themselves, come to that.
So only the rich get to 'vote' in any numbers. Also, only the rich are in a position to actually see themselves as having 'votes' - for the poor, their options are circumscribed to such an extent that the concept of choice is almost irrelevant - the choice of whether to put money in the electric meter so you can be warm (but hungry) or buy food to be satisfied (but cold) is no choice at all, and no sane person would perceive that as an acceptable level of participation in a democratic society.
Mr Teather is so far gone in his neo-liberal fervour that he transfers this inequality to democracy - 'Even worse, many of the issues that surface in the Corporate Social Responsibility debate, particularly the environmental points, are ones where a relatively wealthy and influential middle class imposes the high costs of its agenda on a working class that does not want and cannot afford it.' This is precisely what happens in a consumer economy - those with the 'votepounds' get what they want, those without get what they're given. And to suggest that the working class don't want the effects of governemnt regulation is sheer patronising drivel. When did you last hear any working class body object to the minimum wage, workers' health and safety, pollution controls etc?
The article is a sermon for the cult which has taken over much economics teaching and is the darling of corporations (since it justifies their behaviour) the world over. Its arguments are no more coherent than those of a creationist claiming the literal truth of the Book of Genesis in the face of all scientific evidence.
laura
A rant
03.10.2003 20:55
Also, two more points.
Firstly, as Teather would be aware had he any familiarity with Modern Economic Theory, the market functions inadequately on its own because participants in the economy do not have perfect information. This applies to many aspects of the market but insofar as this particular debate is concerned I'd point out that people do not have (anywhere near) full awareness of the unethical practices of companies. There must be many people who'd be willing to boycott [insert company name] if only they knew more about the harmful practices it gets up to out of the public's gaze.
Secondly: continuing with this line of thought, I concede that even if the public was better informed there would still be people who just don't give a shit. However, I'd argue that just because (hypoethically) the public doesn't care that (for example) Nestle kill third world babies doesn't mean that corporations should carry on killing them. Shit like that is just immoral and should be stopped regardless of whether shareholders and consumers are enlightened and principled enough to give a fuck.
Well, expanding on that last point...
I've heard it argued before that environmental regulations should not be adopted if they don't have public support. The principle of democracy is cited in defence of this stance.
I don't buy that argument. There are people who see the world like this: they reckon that, regarding climate change, what the people of the world should do is all get together and decide what they want to do about it... AND that if they decide that they don't want to do anything about it, then the right thing to do would be to do nothing. After all, that would be the democratic thing to do wouldn't it.
But as I say, I don't buy that line of thinking. Put bluntly, IF we don't stop global warming, then we're fucked. Therefore we've got to stop it. I do believe in democracy, it's a great concept and I think it would be nice if one day democracy came into existence! However, arguments about the most democratic way to regulate pollution are rather academic when the global ecosystem has collapsed and the civilisation has crumbled.
People who argue as I've described above, don't seem to understand the seriousness of the problem. They seem to think that environmental protection is something sentimental and a matter of taste and hence something that should be respected only if a majority support it. They're wrong: it's something which is integral to our survival as a species. Also, we should preserve the environment not just because we need it for our own survival, but because other species have just as much right to continue to exist as we do. Why should we have the right to "own" nature and decide its fate.
We've GOT to stop corporations fucking over the environment. But the environment is only half the story. The other half is all the social issues. Corporations should refrain from behaving in ways which harm people. Individuals are held to account by the use of law. Why should the same not apply to companies?
I'm repeating myself slightly here but he seems to believe that if consumers aren't willing to pay the extra money to give Indian tea pickers or Indonesian factory workers a decent living wage then it would be wrong for governments to force these companies to do so. He supports the concept of fair trade as a niche market. I don't aspire to a world where a minority of people who are into that sort of think can buy fairly traded goods. Rather, I think all goods should be fairly trade. I think unfair trade is wrong. We live in a society where stuff that's wrong is supposed to be forbidden through the use of law. If unfair trade is wrong then it should be banned and this should be enforced by the law.
I don't like his labelling of (hypothetical) regulations that enforce fair trade as "stealth tax".
It's just not a stealth tax is it, because it's not a tax!
In what sense is it a tax? Maybe it could be considered to be a tax if you think of it like this. The extra money that you'd be paying goes to the coffee growers (for example). This is equivalent to the money going to the government AS TAX and then this money being given by the government to the coffee growers as FOREIGN AID.
So according to this line of thought, regulations that enforce fair trade are equivalent to a tax and EVEN WORSE (for this neo-liberal fellow) a tax that is used to fund INTERNATIONALIST, SOCIALIST policies. (Yuk!, poor neo-liberal Teather, it's just too much!)
The thing is, fair trade ISN'T about redistritution. It's not about charging a premium (or a tax) that is used to subsidise the poor. Rather it's about paying the coffee growers / factory workers / whoever... paying them a fair price for the work that they're doing and the produce they're making.
The "market" price of coffee is articificially low. Fair trade is about paying them the proper price rather than the articifially low one. Likewise, a large proportion of the world's labour is priced artifically low. These are distortions of the market. Economists now understand that there are distortions in the market which should be corrected by the state. Neo-liberals prefer to ignore these advances in theory because they don't fit in with their quasi-religious belief systems.
As for his argument about companies not being people and hence they can't be citizens. Well that's just semantic bullshit. Corporations are meant to be good citizens is a "metaphorical sense". Don't tell me teather has never himself been guilty of anthropormism. But yes, if we're to be really pedantic, a coroporation is not a person and therefore cannot in the 100% literal sense of the word be an actual citizen. But what we're actually talking about here, when we use the term corporate citizenship is the fact that companies should behave ethically. They should do no harm to people or the environment. When it's clear that this is what is meant by corporate citizenship then the argument about corporations not being people is reduced to a belief that because they're not people they shouldn't be expected to behave ethically. Which is a load of bollox.
Well, that'll do for this rant.
Ozymandias