Tuesday, July 10, 2012

Finding Balance between Profit and Geopolitical Social Responsibility

Generally speaking western organizations are geared towards one main goal and that happens to be making profit regardless the cost. This shareholder driven lust for profit can have a significant and detrimental impact on the world at large and on the organization itself. This leads us to an important question, is there another way? Could companies maintain good profit while at the same time focusing on sustainability and social responsibility? Do organizations need to chase profits recklessly and often at the expense of the people that they are supposed to be serving? In my opinion this is not the only way; this is a very narrow minded and short sighted means of conducting business that inevitably leads to unsustainability.

When we think of social responsibility we think of tangible aspects that we can see and touch. Ones that have visible results and are geared at maintaining better brand images aimed at sustainability. One great example of this is organizations making a dedicated effort to go green or become eco-friendly. After all when an organization reduces it greenhouse gas emissions it is highly visible and can be shown to the public. 

This paper is aimed at addressing a less tangible aspect of Corporate Social Responsibility. That being geopolitical social responsibility aimed at creating sustainable business environments. It is based on better business practices that allow the natural progression towards the equilibrium of free market capitalism and socialism.

As we learned in economics there is a concept called equilibrium and unless the market is manipulated in an unethical fashion there is a self-correcting push towards this equilibrium. This is also evidence that there is this same self-correcting push towards equilibrium in the balance between capitalism and socialism. There is also evidence that striking this balance creates a more sustainable organization.

There exists one major issue in regard to the natural push towards equilibrium, human self-interest. In western society we are taught from a very young age to be polarized. We are taught that there is only good and evil, right and wrong, and that perfection is found by being the one over the other. Needless to say the majority of people that are brought up under this climate eventually realize that there exist many shades of grey and end up leaning one way or the other with varying intensity. It is not the people that fall towards the middle of the spectrum that are a barrier to equilibrium it is the people that lean farther to the right or left that create the real barrier towards natural equilibrium. At the same time the further from the center ones personality falls the more challenging it becomes to accept concepts that lean towards the other end of the spectrum creating a form of moral conflict.

First I would like to point out one piece of evidence that supports the claim that there is a natural tendency for society to push towards equilibrium between capitalism and socialism. This evidence exists in the United States as lobbying and campaign finance. According to thehill.com and opensecrets.org the record setting year for lobbying was in 2009 and amounted to $3.49 billion dollars. Now, one might ask the question, how is lobbying evidence that there is a natural push towards the equilibrium between capitalism and socialism?

This $3.49 billion dollars is ties into a certain scenario that we must explore if we want to understand the relationship between specifically US based corporations and social responsibility. In the United States businesses believe that it is the role of the government to regulate social responsibility. The general concept of Corporate Social Responsibility is deemed as a need to maintain a decent image and is geared at protecting an organizations brand image. When it comes to serious regulatory issues that could be deemed a more serious attempt at social responsibility, Corporations prefer to go the route saying that regulation is a rule of law. This usually revolves around the very simple fact that it will affect their bottom line. This is the typical sense of corporate business and is based on one stakeholder and that happens to be the organizations shareholders.

Now since US firms believe that it is the role of government to impose legislation that regulates corporate social responsibility they have effectively washed their hands of any real responsibility in regard to sociological needs of the community and placed it effectively in the hands of the US governing body. That is all well and good and without further influence the balance would eventually shift to a more balanced form of socialism and capitalism. The government would regulate the organizations and impose stricter measures to insure corporate social responsibility. Corporations would then have effectively allowed the natural progression to occur. Needless to say this is where lobbying come in.

Now as dictated by the corporations when it comes to any real and truly costly social responsibility the government is tasked with the regulatory aspect of CSR. Now as dictated by nature the shift occurs towards equilibrium and the government begins the process of regulating certain industries such as the pharmaceutical industry. This could in effect damage the profits of an industry and force social responsibility on the industry. The response is that the corporations in the industry join forces and begin the lobbying process. By contributing large sums of money they effectively drive the legislation in the direction that they desire. There is an added benefit here in the sense that it is generally an industry that is behind the process and the individual organizations can still manage to maintain an individual brand image that is untarnished. This process is designed to allow self-interest to halt, slow, or even reverse the natural push towards equilibrium between social responsibility and profit driven capitalism.

There is a great example of this that also explains why 2009 saw record spending in regard to lobbying. In 2009 the Obama administration conducted a serious push to regulate healthcare availability in the United States. One of the drivers for this push was the unaffordable nature of pharmaceuticals for average citizens in the United States. By regulating healthcare the United States would be able to push the costs of medication down and make it affordable for the masses in the United States. There is an example given in an article by Time Magazine that shows how significant this cost can be compared to the rest of the world. It stated that one pill in Canada cost $500 compared to the same drug in the US which cost $1900. As you can see there is a serious disparity between the price of drugs in the US and the rest of the developed world and although the article is a bit dated it is common knowledge that this is still the case. Pushing down the price of these drugs and making them affordable in the US is a serious problem and one would think that it would be a part of the CSR plan for a pharmaceutical company in the United States. Needless to say this CSR would have a significant impact on the bottom line for these organizations and when the current administration began the process of implementing healthcare reform that included controlling the price of pharmaceuticals the pharmaceutical industry and the healthcare products industry responded by spending close to $266.8 million dollars on lobbying in an attempt to prevent regulation.

Another area that we can see evidence of this natural push towards the equilibrium of profit vs. social responsibility has started becoming evident in society around the world. This was the occupy movement that took the world by storm in 2011. The growing disparity in wealth has created a climate that is a forecast of what may come if countries do not begin to understand the natural need between the free market and socialistic tendencies. This movement arose from the housing crisis and the recession that followed when average middle class Americans began losing their homes and then their lively-hood in the recession that followed due to a lack of social responsibility in the banking industry.

Following the burst of the housing market bubble the banking industry was left holding vast amounts of bad debt. This led interestingly enough to the banks pushing for a more socialistic standpoint. In this instance the banks were in favor of the natural progression towards the middle in the case of a bailout. This was of course not driven by social responsibility but in the self-interest, if they took the stance that we are capitalists and need to push further towards the right they would have effectively driven themselves out of business.

According to the Occupy Wall Street movement’s website you can see evidence of that directly relates to the claims made in this paper. Here is an excerpt from their website that I would like to quote: “OWS is fighting back against the corrosive power of major banks and multinational corporations over the democratic process”. This statement alone supports my claim that by not focusing on healthy geopolitical social responsibility and allowing the natural progression towards a balance between capitalism and socialism organizations create a risk to their own sustainability. Civil unrest in most cases leads to an unsustainable business environment. 

Now if we go to the other end of the spectrum and look at countries that have embraced a more socialistic leaning you will also find evidence of a natural push towards equilibrium. For this example, I will be using the former Soviet Union as my primary cases. During the Soviet era the evidence existed in the form of a shadow economy that made up a large percentage of the GDP. According to research the exact percentage of GDP was difficult to pinpoint it is estimated to be somewhere between 10% and 50% of the Soviet GDP. Considering the stories that recited to me by people living in the region I would surmise it being on the upper end of that spectrum.

This is also a good opportunity to understand where sustainability comes into the picture because we have historical proof that if you journey too far to the left the system becomes unsustainable, as was the case in the former Soviet Union. We can also look at Cuba in this same regard. Cuba has managed to hold on to its traditional socialist society to the point where it is basically an impoverished country waiting for the day it can modernize. We also see evidence that this is unsustainable from the stance that some modern communist countries have displayed towards the concept of capitalism such as China and its heavily controlled capitalism. China has pushed towards the center as a means of creating sustainability the challenge is has it moved far enough and has it moved other sociological needs such as human rights far enough to the center to become sustainable.

The evidence is at least in my eyes apparent that to create sustainable business environments organizations need to address their geopolitical corporate responsibility stance and allow the natural process of regulation to occur. If organizations continue to strive for deregulation so they can conduct self-regulation they need to be aware that a balance needs to be struck between their need for pure profit and the social responsibility required to create a healthy business environment.

Can any organization handle this level of responsibility? The answer is simple most certainly not. This leaves one avenue open to industries and that is an equally challenging proposition. Can organizations, most often directed by the proponents of free market capitalism, address the opposing need for geopolitical social responsibility? When you look at the US model of lobbying and campaign finance you must understand that this is a legal practice even though it basically equates to legal bribery. To be quite honest there is not much difference between using lobbying to influence policy and just paying a bribe in a different part of the world to influence policy. After all the aim in both cases is the same, it is to steer policy in a direction that benefits the organizations bottom line. Problems arise by being involved in this process organizations are preventing or often reversing the natural push towards equilibrium between free market capitalism and socialism. At its core this not only affects the civil sustainability but also many other areas of sustainability such as environmental. In the end one way or another, organizations that are involved in steering political policy with a target of making their industry more sustainable are actually working towards creating unsustainable business environments. After all there is a saying in the US “You can’t have your cake and eat it too”, in this case you can’t dictate that it is the role of governments to regulate business practices and then steer the policy away from regulation in hopes of creating a business environment that promotes sustainability.


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