Editor’s note: The findings, interpretations and conclusions expressed herein are those of the authors and do not necessarily reflect the view of the World Bank Group, its Board of Directors or the governments they represent.
For business, the conversation around tax and sustainable development can be tough. Yet
Corporate social responsibility
Now there’s a guy who really puts the full-scale dismal into “the dismal science” of economics – spurring optimists to quickly seek out more hopeful visions of the future.
Those seeking a glimmer of hope about the economic future were well-advised to keep their expectations low as they awaited the gloomy analysis by Prof. Robert J. Gordon, the esteemed economic historian from Northwestern University, who spoke at the World Bank Group’s Macrofiscal Seminar Series on March 31. As anticipated, Gordon’s expertly documented but relentlessly downbeat scenario, based on his latest book, “The Rise and Fall of American Growth,” persuasively made the case for a future of chronically sluggish growth in the world’s advanced economies.
Gordon’s chilling projections combine some of the darkest aspects of Lawrence Summers’ worries about “secular stagnation,” Christine Lagarde’s lamentations of a “New Mediocre” and private-sector leaders’ struggle to strategize for the “New Normal.” Gordon’s bleak thesis foresees “little growth” – although, significantly, not zero growth – as the developed world’s weary economies endure perhaps decades of drift.
Policymakers in the world’s largest economies are surely exasperated by the painstaking crawl out of the global financial crisis – yet they don’t have much positive news to look forward to, asserts Gordon. With “declining potential productivity growth” compounding the impact of declining population growth and a declining labor-force participation rate, there’s probably no technological deus ex machina that can soon propel the world’s advanced economies toward restored prosperity.
That viewpoint defies the techno-utopian visions that have been so eagerly peddled to anxious Western voters, who can only dream of a return to brisk late-1990s-style growth. Quipped the Macrofiscal seminar’s discussant, Deepak Mishra: Gordon “has made a career of busting the technology hype.”
Yet Gordon’s logic need not trigger total despair among the Bank’s poverty-fighting professionals and their counterparts at other development institutions. Gordon emphasized that his analysis is about the American economy, and, to some extent, about the mature economies of Western Europe. His book’s foreboding predictions, he said, do not extend to developing economies, which enjoy “great potential for growth.”
For can-do pragmatists who strive for stronger growth and sustained progress in developing economies, there’s a ready antidote to Gordon-style macroeconomic gloom. By happenstance, immediately after Gordon delivered his grim analysis in the Bank’s J Building auditorium, optimists seeking inspiration needed only to cross the street to the Bank’s Main Complex to hear an energetic appeal for greater hands-on activism.
With an update on the movement for Community-Led Development (CLD), a seminar sponsored by the Bank’s Community-Driven Development Global Solutions Group learned of the promise that CLD offers for inspiring inclusive, sustainable solutions that enlist citizens’ engagement and build community-level confidence in strong governance standards.
Moving from macro to micro – dispelling the dread of inexorable global forces and embracing positive citizen-centric action – the CLD leaders leapfrogged Gordon’s macro-level angst to highlight micro-level opportunity.
To get the pulse of an institution’s financial management and its room for growth, we must first look at its financial statements. The information in these statements is, of course, essential but often provides only a partial picture focusing on short-term returns.
To understand the true value created by an organization, we need to look more broadly. This necessitates going beyond traditional financial reports and spending time understanding how the institution manages its non-financial resources.
The global apparel industry has been forced to face some tough and unpleasant realities in recent years, and has been criticized for engaging in a “race to the bottom” especially as it relates to the conditions under which some garments are manufactured.
These questions might not be the typical things you would contemplate when eating a salad, but rapid urbanization and changes in climate, agricultural, and food production patterns are raising a host of alarming questions for many. How is the world going to sustainably feed more than 9 billion people by 2050, when farm lands are being converted into industrial and commercial use, and extreme weather events are jeopardizing our future resources?
This is a more daunting problem for China, where under-investment in the food industry and environmental pollution have aggravated the situation. A recent official Chinese government report issued by the Ministry of Environmental Protection and Ministry of Land and Resources shows that more than 16% of China’s soil and 19.4% of farm land is polluted, according to the state news agency Xinhua.
My former boss, Phil Bloomer is now running the Business and Human Rights Resource Centre (check out its smart new multilingual website). Here he sees some signs of hope that the debate on corporate responsibility is moving beyond trench warfare over voluntary v regulatory approaches. Fingers crossed.
‘Mind the gap’ is a refrain that any visitor to London’s Underground trains will have had drilled into their brains. In development and human rights, one of the most controversial issues is how to deal with the dangerous governance gap that has opened up between the powerful globalising forces in our economies, often led by large companies, and the often weak capacity of societies to cope with the problems and damage these forces can create.
A fortnight ago came a seismic shift in this debate. The UN Human Rights Council adopted a resolution to create an international binding treaty for transnational corporations. This comes three years after the adoption, by consensus, of the more voluntary, UN Guiding Principles on Business and Human Rights. Most observers put this major tremor down to rising frustration at the apparent glacial pace of implementation of the Guiding Principles by governments (only the UK, Netherlands and Denmark have so far agreed National Action Plans), and few companies are stepping up. The age-old, and sometimes theological, divisions between opposing panaceas of state-regulation v voluntary codes may be returning.
These are some of the views and reports relevant to our readers that caught our attention this week.
“Attention in the development sector has shifted sharply towards two areas over the past couple of years: youth and employment. While the huge increase in some countries' 15-24 year old population offers an opportunity for catalysing change and bringing in fresh ideas and new energy, many are grappling with the challenge of providing young people with meaningful work opportunities and concerned about the growing number of youth who are disillusioned about their futures.
The ILO reported that 74.8 million youth between 15 and 24 years were unemployed in 2011, an increase of more than 4 million since 2007. Globally, the youth unemployment rate is almost 13%, and youth are nearly three times as likely as adults to be unemployed. In some countries there are no jobs. In others, there is a skills mismatch and with some quality soft and hard skills training and support, young people could be ready for existing, unfilled jobs.” READ MORE
What if your shopping sprees could make both you and society happy? That every time you bought your favorite clothes, you also benefitted the poor and the environment? Some Japanese companies are indeed making this happen.
As part of their Corporate Social Responsibility (CSR) activities, Felissimo, a Japanese direct marketing and product design company funded the planting of trees in Orissa and West Bengal in India, where they source their materials from. By charging an extra dollar on every sale in Japan, they collected more than $4,850,000 over 15 years and used the funds to transform a degraded landscape into a forest, bringing elephants back into the area.
In a similar manner, the company also helped cotton farmers in Orissa switch to growing organic cotton to save their land, their workers, and their children from harm caused by fertilizers and pesticides. Between 2010 and 2012, about 5,900 farmers switched to organic farming in 5 villages. Consumer donations were channelized through a local NGO to help farmers make the transition. The money was also used to give scholarships to local children. In 2012 alone, around 250 students in 5 villages received scholarships. While the scale is still small, Felissimo has successfully created a funding mechanism to transform responsible purchasing behavior in one part of the world into social impact in distant lands through its CSR activities.
Corporate Social Responsibility (CSR) has attracted significant discussion and controversy since the times of Milton Friedman’s famous 1970 NYT article stating that the only social responsibility of firms is to maximize profits. However, the conclusion that CSR automatically is in conflict with profit maximization or strategic firm behavior and therefore should be reduced either to a market failure or some form of altruism turned out to be incorrect. Quite the opposite: my article in the Journal of Economic Literature jointly written with Jay Shimshack not only shows that CSR constitutes an economically important phenomenon that may well be strategic (i.e. profit maximizing), but also argues that, when concisely defined1, CSR can be efficient. In other words, it can be a viable private channel of public goods provision and a formidable complement or even alternative to classic government intervention.
Development institutions such as the World Bank Group stress that the private sector has an important role to play in the development of an economy, however, the supply of environmental, social or other goods (or the curtailment of bads) with public character is believed to be government and rule rather than market-driven. But what happens when governments and rules fail to provide these goods and services? While, it appears that markets and corporate behavior won’t be able to reach a social optimum e.g. when it comes to pollution or renewable energy levels, they often can do better than governments. In the short and middle term, CSR can be welfare optimal. Eventually improved public politics and CSR may even be mutually reinforcing elements in the longer run.