Helene Finidori

The Survival of Capitalist Democracies

Capitalism and democracy, can the two co-exist? The question I answered on another forum is indeed provocative.

I believe capitalism and democracy can successfully coexist in the long run only if economic actors become mature enough to police themselves in the way they conduct business, in “exchange” for freedom of market and reduced regulation.

In a democracy the people entrust a government to defend their individual freedom & rights and their interests as a society or nation, and to preserve a social order in a long term perspective.
Capitalism is based on the inalienable right to ownership and profit, and on the principle of a free market.
Conflict between capitalism and democracy occur when the exercise of freedom jeopardizes the rights and interests of the people and the interests of society at large.

In the past 30 years, many economists and management theorists have pushed the concept of freedom of enterprise and free market to a point where any intervention of the state or attempt to regulate the economic, social or environmental field is qualified as “socialism”. At the same time the world has seen more and larger frauds, scandals, crisis, and yoyo bubbles than ever, all in the name of free markets – including wars for democracy-, far from bringing the “equilibrium” expected.

Capitalism and free markets are not to blame here, but rather the behavior of economic actors. A free market does not confer the right to do anything at any cost, regardless of the impacts on people, societies or the generations to come. It can’t be a free ride to grab everything you can as fast as you can. In a democracy, freedom comes with duties and responsibilities. What is true at the individual level is also true for corporate economic actors. For democracy and its social contract to survive in a free market, the economic actors, whether individuals or corporations, must assume their social role (i.e role in society, not “socialistic” role) and take their part of duties and responsibilities. The counterpart of a free market and absence of regulation is the adoption of self imposed rules and principles for the conduct of business as an actor of society, and the accountability thereof. This proactive approach is what I believe Corporate Social Responsibility is ultimately about. When economic actors are not able to police themselves, they misuse the freedom they have been granted, and “the people” will legitimately want to impose more rules, or topple the system.

Proactive Corporate Social Responsibility is the safeguard that will prevent capitalist democracy to fall into socialism, anarchy or the reign of plutocracy…

Sweden -that I had the opportunity to observe for a few years- is probably ahead in its approach of capitalist democracy and practice of proactive CSR. The Swedish democracy is monitored and nurtured. It is the object, together with the cohesion of society, of continuous attentions though a long term engagement in democracy policies, because  nothing is ever to take for granted.

To conclude, I would like to share a quote of Jean Jacques Rousseau that I particularly like:

“What man loses by the social contract is his natural liberty and an unlimited right to everything he tries to get and succeeds in getting; what he gains is civil liberty and the proprietorship of all he possesses. If we are to avoid mistake in weighing one against the other, we must clearly distinguish natural liberty, which is bounded only by the strength of the individual, from civil liberty, which is limited by the general will; and possession, which is merely the effect of force or the right of the first occupier, from property, which can be founded only on a positive title.
We might, over and above all this, add, to what man acquires in the civil state, moral liberty, which alone makes him truly master of himself; for the mere impulse of appetite is slavery, while obedience to a law which we prescribe to ourselves is liberty.”
Jean Jacques Rousseau -The Social Contract - Book I, Chapter VIII                                              

Defining Responsibility in CSR

People tend to make business cases for Corporate Social Responsibility or debate the validity of CSR without realizing that each individual probably puts a different meaning behind the words, especially when it comes to defining what this responsibility actually is, and which values it proceeds from… 

One of my respondents on another forum suggested that there was no actual shared and universal definition. He quoted a 2006 white paper by Norwegian academic Dahlsrud who analyzed a total of 37 definitions and found out that none of those actually defined the social responsibility of businesses, but rather described its operational dimensions. While trying to find this paper, I came across the following fundamental principle:

“that a company is responsible for providing more benefits than just profits for shareholders. It has a role to play in treating its employees well, preserving the environment, developing sound corporate governance, supporting philanthropy, fostering human rights, respecting cultural differences and helping to promote fair trade, among others. All are meant to have a positive impact on the communities, cultures, societies and environments in which companies operate.”

Such a loose definition does not serve CSR in my opinion, as it enables its detractors to benefit from the confusion and concentrate their attacks on the elements that are the easiest to dispute. I think in particular of Milton Friedman and his followers who associate CSR initiatives to philanthropy, and restrict responsibility to compliance. By doing so, they obliterate from the discussion what I believe is at the core of CSR: accountability for the impacts corporations may have on societies and environments. 

In my personal view, CSR has a lot more to do with the consequences of doing business freely, and the duties that come with this freedom than with charity and philanthropy…

Wikipedia defines CSR as:

"A concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the environment. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large."

The real challenge is how to get from a compliance approach (compliance to law or pressures) to a voluntary approach (self imposed code of conduct).
Some cultures -I think of Scandinavia that I know quite well- rely as much on the "collective" sense of responsibility and "conscience" as they do on the strict application of the law, and they are already close. Others, where a belief that anything that is not forbidden by law -or subject to risk of litigation and rising insurance premiums- can be done is ingrained, have a longer way to go. The response to external stakeholders' pressure is a step in the voluntary direction. I believe education -from kindergarten to university- has a tremendous role to play, but this is another topic...

What other definitions and views do we have out there?