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Married to the mob

About the author
Deborah Doane is Head of the Corporate Accountability Programme at the New Economics Foundation.

This article responds to Diane Coyle and John Micklethwait.

If only it was as simple as painting the world in terms of black and white, good and evil. George W. Bush tries to define the world this way, but most wise people are wary of such distinctions. Even when personal relationships break up it is never as easy as “his fault” or “her fault” – not in the case of the more serious ones, anyway. So too in our love/hate affair with capitalism. In this complex relationship, we all have a role to play, and we are all culpable to some extent for the outcomes, both good and bad. The question is, whether or not the relationship can work. Are we all prepared to make some big compromises to keep it afloat?

Recently I had lunch at a lovely French restaurant talking about the future of corporate social responsibility (CSR). CSR has been the business-led response to what John Micklethwait calls the “anti-global crew”, a way for business to ‘do well by doing good.’ Yet the very meal itself, which I have to admit was a pleasure, was a perfect example of much of what is unsustainable in society, from the way in which the food was produced, like the scallops we ate, which are becoming part of a species at risk of extinction, to the strong espresso that followed our meal, produced off the backs of workers who are paid well below a reasonable living wage. To top it off, the bill must have come to about £80 – relatively affordable for central London, but beyond the annual salary of many third world citizens. My companion kindly paid for the meal as he can simply write it off as a ‘business expense’ and avoid the tax – yet another unsustainable practice that is embedded in the way we live, work, and even eat.

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What Diane Coyle and John Micklethwait fail to acknowledge is that we are caught in a system that sees limited levers of control at any end of the spectrum – from producers, to consumers, to regulators. Yet we are all complicit in maintaining this complicated web of control. I make a conscious decision about certain purchases, like Fair Trade coffee, but I am fairly passive when it comes to others. I invest in an ‘ethical pension’, but have little influence over the fact that half the stocks in the fund are actually in the banking sector, whose own investments can be anything from oil, to dam building, to Nestle – all investments that I initially shunned. And as I am watching the value of my ethical pension rapidly decline, I speak to my financial advisor, who in turn passes information onto the fund manager, who in turn, forces the companies to cut costs and make bigger profits. The company in question cuts programmes without an immediate return, like environmental programmes, and later blames the government for over-taxing the economy, and reducing the productivity of business...and on it goes.

Living in a complex world

The arguments are not as simple as business is bad; governments are good (or vice versa). Yes, there have been some successes over the past half-century. Global economic output is eight times what it was in 1950; we now have longer life expectancy and lower infant mortality, overall, than at any other time in history. But globalisation, and by extension – big business – can also lay claim to causing increased vulnerability in some parts of the world and the growing sense of disparity between the ‘haves’ and the ‘have-nots’ in the globalisation game.

“Some problems stem, not from ‘big business’ per se, but the way in which financial markets have been managed.”

Some of the problems stem, not from ‘big business’ per se, but actually the way in which financial markets have been managed. Diane Coyle talks about the success of countries in South East Asia, such as Indonesia. But investment in that region during the growth spurt of the 1980’s was coupled with trade and industrial policies, the types of which would not be allowed under today’s World Trade Organisation (WTO) rules. And Indonesia, along with other South East Asian countries, fell into difficulties when they opened up their financial markets in the late 1980’s and early 1990’s. Foreign investors rushed in with huge amounts of capital, but rushed out just as quickly when things looked shaky.

In Latin America, the past few years have seen the region suffer from the effects of a massive binge – both on foreign direct investment, and on foreign borrowing. It is interesting to note that the International Monetary Fund (IMF) has recently said per capita incomes in Latin America have now just reached the level they were 25 years ago. Yet Argentina was hailed as the doyenne of this era by global institutions only months before the roof came crashing in. Any benefits from foreign direct investment in the 1990’s were stripped away through debt-servicing payments over the same period. With no control of capital flight, the amount that left the country was almost equal to its total public debt of $150 billion, a loan defaulted on at the end of 2001. And Argentina, like many of its Latin American counterparts, is paying the price.

Who is at fault? To a certain extent, business is just as much at the mercy of markets as any of us. Investor pressure requires business to protect itself from risk – partially to pay for our own pensions and investments – and so they transfer risk to third parties wherever they can. This is particularly relevant when it comes to social and environmental impacts. When BP builds a new pipeline, it makes sure that any liability is passed on to the host government. British American Tobacco (BAT) has enough escape clauses in its contracts with farmers in developing countries to ensure that health and safety is not BAT’s problem. But if we as consumers are passive (and data on ethical consumerism would tell us that the bulk of us are), demanding ever-cheaper goods and services, then business has to find ways to deliver. And this generally means lowering standards, not raising them.

I am not letting business off the hook; not paying reasonable wages, employing child labour and tax avoidance are amongst a myriad of corporate crimes and misdemeanours that could be changed without having to bring in any new regulation. Strategies like these fall under the heading of ‘corporate social responsibility’ or CSR, the latest in the business armour for defending the status quo. But when we look at the real outcomes of CSR, we see further signs that business is hardly acting with courage. CSR, by and large, is little more than a PR exercise, implemented only when there is a business case to do so.

“We now see ‘the best of the baddies’ being rewarded for doing precious little.“

Yes, Nike has done much to improve labour standards in comparison to its counterparts without a brand image to protect. Nike had to manage their reputation, due to pressure from successful campaign groups. But perversely, we now see ‘the best of the baddies’ being rewarded for doing precious little. Oil companies are part of a socially responsible investment portfolio, because they engage in things like “stakeholder dialogue” but avoid reasonable investment in renewable energy. British American Tobacco has made it onto the Dow Jones Sustainability Index, while British Aerospace is aiming to be a socially responsible arms manufacturer by reducing the amount of chemicals in the paint on their guns.

But social responsibility should not be a matter of ‘competitive advantage’. And here I agree with John Micklethwait – the business of business is business. Let’s not put business in charge of the global commons, as the social responsibility agenda intends to do. That is the role of governments. But John misses the point that it is the business lobby that often prevents government from assuming its relevant role – by arguing in favour of things like CSR, rather than saying “hey, we can’t do it all”.

Making regulation work

“The WTO does not provide for social and environmental management of business within trade agreements; in fact, it does just the opposite.”

Diane Coyle argues that international institutions, like the World Trade Organisation (WTO) and the Organisation for Economic Co-operation and Development (OECD), are already fulfilling the governance role in globalised markets. But this is a matter of much public dispute. The WTO does not provide for social and environmental management of business within trade agreements; in fact just the opposite. Most challenges to the WTO argue that these types of national regulations can inhibit fair competition. The US has been claiming that the labelling of genetically modified food in the EU is unlawful and anti-competitive. This has implications across the social labelling spectrum, should the WTO rule in favour of the US – and threatens the one way that enables consumers to make decisions based on the environment or societal concerns.

As for the rich countries in the OECD club, there are a wealth of documents and guidelines proliferating amongst this 30-strong crew. The OECD’s own Guidelines on Multinational Enterprise being amongst the strongest. But the take-up and enforcement of the guidelines remain notoriously weak, with companies who have been challenged continuing to defend irresponsible and indeed malevolent practice.

My point is this: the current system has a tendency to keep standards low, whether we like it or not – but business is not solely to blame for the state of affairs. We all have a responsibility to act. Consumers need to be far more active than they are; business needs to acknowledge that there might just be a “business case” for regulation if they truly want to protect the public good (i.e. it should not be a matter of competitive advantage); and regulators need to have far more courage than they have now. And if I can add one last finger of blame: many of us who are concerned about the state of affairs are employees of these very institutions – we have to start seeing what actions we can take from the inside. It is fine for us to point fingers at the major multinationals – but what about the 60,000 people who work inside one?

In some ways, I side with John Micklethwait. I would rather see a world with ‘the company’ than without. But we should not use the institution as an excuse to avoid more proactive intervention. We should have the courage to ensure corporate governance rules make the company liable for its actions; to place the costs of the global commons (like the environment) onto companies’ books; and be prepared, in turn, to pay a higher price for our goods and get a lower return on our pensions. In short, we all have to change our behaviour and stop painting the world in shades of black and white if we are going to make the relationship work.

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