Is this a blip or a deadly blow? Can CSR be a partial replacement for the welfare state's diminishing role? Shall we discourage, incentivize, or even oblige corporations to fulfill certain civic duties?
Corporations shall principally seek to please shareholders by producing goods and services for a profit, satisfying customer demand, and raising shareholder value. But beyond that, the company - for its own good - must also be mindful of its wider circle of stakeholders: employees, the environment, and the state.
The most fundamental form of corporate social duty comes from paying taxes. The state is ultimately responsible for social protection and provides those services through tax revenues. The state, then, cannot tolerate tax evasion, but in turn it must set strict and competitive tax rules.
Next, companies shall provide employment: job creation is a key pillar of their social responsibility. Layoffs and pay cuts can be justifiable in times of crisis to restore competitiveness and improve costs, but economic and political sense dictate that companies try to avoid losing skilled labor. Efforts by governments and companies to preserve jobs during downturns, like the successful Kurzarbeit schemes in Germany, Austria, and Hungary, were critical.
The nightmare scenario of a double-dip and decade-long Great Depression II is very real. Developed and, increasingly, developing economies are heavily reliant on the demand created by middle-class employees. Eliminate that demand by otherwise needed but mistimed and badly calibrated austerity and pay cuts, and you kill economic growth for the foreseeable future. The prolonged slide of the middle classes would lead to political instability, populism, extremism and conflict.
It is equally important that poor working conditions, human health and safety concerns, and labor standards be improved, ensuring a level playing field in international competition. Companies must be held more to account in that respect globally.
The environment must also be preserved, preferably by putting incentives in place like Europe's carbon price. The oil spill in the Gulf of Mexico last year illustrated the huge discrepancy between requirements and practice, and highlighted the real risks caused by irresponsibly behaving companies. The economic crisis might induce more of that recklessness. We must fight against environmental degradation by strict enforcement of regulations already in place.
Only if core objectives are fulfilled shall a company commit to other social tasks. Additional good will is morally commendable and couldn't hurt sales, but mixing up the fundamental roles and motives of the private and public sectors usually brings problems and distortions. Coercing companies into undertaking more social responsibility to ease the state's burden would be a mistake. Encouraging it with the right incentives could be a boon, but only if that does not jeopardize the underlying pillars of consumer satisfaction, shareholder value, employment, environmental protection, and tax collection.
Gordon Bajnai is a former prime minister and minister of development and the economy of Hungary and has been CEO of several businesses.
