Essay

CAPITALISTS TO THE RESCUE

Why are we asking corporations to solve our social problems?

ALLAN R. GREGG July 29 2002
Essay

CAPITALISTS TO THE RESCUE

Why are we asking corporations to solve our social problems?

ALLAN R. GREGG July 29 2002

CAPITALISTS TO THE RESCUE

Essay

ALLAN R. GREGG

Why are we asking corporations to solve our social problems?

WHEN MARX PROPHESIED the withering away of the state, I doubt he could have imagined the vacuum would be filled by the private sector. Yet as governments have recoiled from their traditional activist role, the private sector has assumed ever more responsibility, not only for economic prosperity but also for “the social good.” McDonald’s is now one of the world’s main providers of playground space. Coca-Cola has emerged among the largest benefactors of scholarships for Hispanics in the U.S. Business figures like Anita Roddick have taken on iconic status as a model of modern-day virtue, by merging the interests of her Body Shop chain with the welfare of Indians in the Amazon rain forest.

In fact, over the past two decades, we have witnessed the systematic blurring of the traditional roles of the public and private sectors. Today, governments are primarily consumed with facilitating initiatives needed to spawn more private-sector productivity, competitiveness and expansion. In the process, the public becomes convinced of government’s irrelevance as it seems to be little more than the handmaiden of business.

At the very time that public expectations of the efficacy of government declined, businesses felt they had no option but to maximize shareholder value and exploit expanding capital markets. The transnational corporations, however, saw their efficiencies of globalization being undermined by conflicting, inconsistent regulatory regimes. Business needed, and got, a new regulatory climate and sympathetic global institutions. A weakened domestic state, offset by a codified set of transcontinental rules and agencies, has been an essential bedfellow.

At the same time, it has been to the corporations’ advantage to step in and provide community services as the government stepped back. Far from avoiding social responsibilities, in almost all cases it has been

in the multinationals’ best interest to set exemplary standards in the conduct of their affairs. But let’s be clear: this behaviour is neither venal nor philanthropic; neither moral nor immoral. Rather, the assumption of community service has been a rational response by business to the realities of modem times. It is at best pragmatic and at worst amoral.

Nike, for instance, knows that if it wishes to remain competitive by shifting its costs to offshore labour, it must be a good employer (at least by domestic standards) or risk its brand investment as a quality, highend manufacturer. And Anita Roddick preaches corporate ethics because it motivates her consumers and gives her a more appealing product to sell than foot cream.

This may be interesting but in the end unimportant if it were not for the fact that, with its expanded role, the private sector faces gargantuan, and often conflicting, expectations. Business, still viewed as the engine of the economy, is more prepared than ever to provide services traditionally deemed within the purview of the state. And increasingly, the worth of a business is being measured according to its willingness to take on this dual role.

Over time, however, it is becoming apparent that this blurring of private and public sector roles poses serious dangers to the health of both sectors. By withdrawing from their traditional role, governments not only undermine their own legitimacy, in the end they diminish their capability to create an environment where even business can truly thrive. Trade and competitiveness may contribute to pros-

Corporate community service is neither venal nor philanthropic; neither moral nor immoral

perity in the short term, but not as much, long term, as an educated population, a high standard of public health or efficient transportation and communications. Enlightened business leaders know that, and they would be wise to advocate a revitalization of government’s social role.

Conversely, the expansion of the private sector into the public domain puts business in the cross-hairs of social disaffection. As expectations of fulfilling social responsibilities have risen, the standard by which business is measured becomes nearly impossible to meet. Global activists blame business for world ills ranging from child labour practices and environmental degradation to human rights abuses. Consumer advocates boycott products using the same criteria. For businesses, these demands create a lose-lose situation. They can divert their energies into social pursuits that ultimately undermine their productivity, or they can invite even more citizen disfavour by abandoning those initiatives when they no longer serve their (bottomline) interests.

Here’s how that works.

A company, let’s say Coke, determines it has an opportunity to increase its market share in the Hispanic community. Its response might be to set up scholarships for Hispanic youth, locate a new bottling plant in Mexico and create an advertising campaign to tout its achievements in all Spanish-speaking territories. All the stuff of responsible corporate citizenship. So what’s the problem? None—until Coke achieves its sales objectives in the Hispanic community. It then has to decide whether to continue its commitment to these initiatives (an erosion of shareholder equity) or abandon them, leaving a vacuum that no one—private or public sector—fills.

The private sector may gain short-term leverage through community-based activities. But businesses that perform publicsector functions will, over time, lose either

their competitive advantage or—as they lurch from one (marketing driven) good deed to the next—the very legitimacy they seek. When business takes its eye off its real value to society—creating quality products and services at competitive costs in order to maximize shareholder value and provide jobs—it loses its focus. An argument could even be made that a sharper focus—by business leaders, shareholders and regulators—could have avoided or drawn attention to the excesses of Enron, WorldCom and others that abandoned business ethics as they courted public favour.

Governments, meanwhile, by perpetuating the myth that the state is powerless in the face of global forces, may actually be eroding their capacity to engineer social change. When we look ahead to the kinds of issues well inevitably face—biological and reproductive technologies, an aging population, aboriginal land claims, global warming—we must ask ourselves two questions. First, do we really want to leave these challenges to market forces and the private sector? And second, if not, does the disgraced and enfeebled state we have come to know still have the energy, cre-

ativity and moral authority to resolve these thorny problems?

If the answer to both questions is no, the constituency that stands to lose the most is the citizenry. Not only is it unrealistic to expect sustained commitment to community goals from business, but in doing so, we let government off the hook for its failure to represent the public interest. The fact is, global activists and consumer advocates would be better advised to aim their protests for more “social good” at government rather than the corporate sector. Energized by a more engaged citizenry, government could effect real change. Instead of hounding McDonald’s to be a better corporate citizen, ask governments why they no longer support playground spaces.

With the proper will and focus, a rebalancing of publicand private-sector roles can easily be achieved. The corporate sector is nimble, efficient and creative when it comes to pursuing its own interests. It will find a way to maximize profits in virtually any circumstances that acknowledge its legitimate place in the economy. Governments, in turn, do have the power (if not

the resolve) to generate market-oriented public policy, which offers business a carrot and not merely the stick.

Witness but one initiative from business and government, in response to the challenge of reducing carbon monoxide emissions. Under the scope of the Kyoto protocols, Canada is seeking an accommodation that would let business earn “clean energy credits” by producing or investing in less harmful fuels. The accumulation of these credits by traditional fossil fuel producers would allow those businesses to maintain and, in some cases, even accelerate their existing operations. Short term, this trade-off may retard the achievement of Kyoto’s goals, but mid-term, it would lead to the transfer of vast sums of money from the fossil-based to the alternative fuel sector. The long-term result therefore would be more production and better prices for less harmful energy sources.

In this instance, government has stepped in to articulate the public good. It has held business accountable and implicitly acknowledged that business would not take these émissions-réduction initiatives if left to its own devices. But at the same time, government is giving the corporate sector an opportunity to find a market-driven solution to the demands of state-sponsored public policy.

The same model can be applied to other seemingly intractable problems. Take the epidemic of AIDS in Africa. Western countries could offer extended patent protection for new drugs in exchange for free drugs for Africa. Alarmed by the escalation of childhood (or for that matter adult) obesity? Again, instead of manning the ramparts beneath the golden arches to pressure McDonald’s into selling more nutritious food, why not demand that government levy a tax on fast food based on fat content?

In the end, separating the roles of the private and public sector in this way will be infinitely preferable to the current climate that puts public wants and private needs on a collision course. A realignment to more distinctive roles would give governments the legitimacy they need to galvanize consensus around emerging issues, while letting business focus on its strengths. And—who knows?—it could also rid us of the excess and obfuscation we have witnessed in recent times. f?]