TCS Daily

Corporate Social Irresponsibility

By Johnny Munkhammar - July 28, 2005 12:00 AM

Corporate Social Responsibility is a buzzword with growing implications. These days, more or less everyone is in favor of it; the standard position is "yes, of course, but how?" But the real questions are: should the state decide what, how and where companies produce and invest? Should interest-groups decide the future direction of companies?

In recent years, the CSR trend has become very strong. Political decisions and public opinion are building momentum behind the concept. Since companies are the route to prosperity, the debate is essential. And since companies are the core of capitalism - the expression of man's creativity protected by private property and freedom - it is also a discussion about principles.

A basic starting-point for a discussion of CSR could be a famous quote which states a principle for a free society and its effects:

"...every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. ...He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."
--Adam Smith, The Wealth of Nations, 1776

What has this led to? Another famous quote:

"It has accomplished wonders far surpassing Egyptian pyramids, Roman aqueducts, and Gothic cathedrals; it has conducted expeditions that put in the shade all former exoduses of nations and crusades. ...(It) draws all, even the most barbarian, nations into civilization. ... The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of nature's forces to man, machinery, application of chemistry to industry and agriculture, steam navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalization or rivers, whole populations conjured out of the ground -- what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?
Karl Marx and Friedrich Engels, Communist Manifesto, 1848

The point is that Adam Smith was right, and in describing reality at the time so were Marx and Engels. It is when you work to pursue your self-interest, to create a profit from producing the best goods or services -- in free competition with others -- that you actually create development and push society forward. They agreed on that, but today's CSR advocates do not.

The pursuit of self-interest creates wealth. That is what changed after thousands of years of misery and poor conditions for people. Today, the average person in the US or Europe lives better than the kings and queens of the Middle Ages. The wealth of the average Swede increased ten times between 1870 and 1970. The entrepreneurs and innovators who created the small businesses that grew to large exporting firms wanted to produce great products and make a profit. ABB, Volvo, IKEA, Ericsson, SAAB -- there are many examples. And the living standard increased; we now live decades longer, child mortality has dropped and literacy is total. Companies, focusing on their main aim, promoted the general interest.

In recent years, we have seen this phenomenon played out even more dramatically in South East Asia. Hundreds of millions of people have been brought form poverty to reasonable living standards. The reason? Companies such as Nike have gone there to promote their self-interest. They want to produce good shoes at competitive prices - and make a profit. And, without making it their explicit intention, they reduce poverty. They pay lower wages than in the US or Europe, but considerably higher than companies based in those countries do.

What does this have to do with CSR? To me, CSR is about making companies and their owners focus on other things besides their self-interest. They should not only concentrate on producing the best clothes, for example, but also on social matters. And they should not be allowed only to seek profit, if that is what they wish, since that is not "responsible".

Sometimes showing your customers that you are a "good company" can increase profits. But that is just a fraction of the CSR issue. To a large extent it is about the state trying to force companies to do things the politicians want. And to an even larger extent, it is about pressure groups trying to force companies to do what they want.

But companies should do what their owners want. If that is just profit (which you can only get by providing the best products to consumers), then so be it. Owners should not be dragged into believing that their company is no good if it does not fit someone else's definition of social responsibility.

All the goods and services, all the jobs and all the prosperity in the world, come from companies. If companies try to give more by being less focused on their self-interest, they could end up giving less. In that case all of society loses. The defense of companies and their right to pursue their self-interest is not only the defense of capitalism. It is also the defense of a society in which there is constant progress - and that includes social progress.

The author is Director of Timbro, a free-market institute in Sweden.


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