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Thursday, January 31, 2008

A Change in the Social Contract?

The intro to this article says that "A sea change may be afoot in how American business views its role in society":

A gentler capitalism, by David Callahan, Commentary, LA Times: Every few decades, America's business leaders change their minds about what obligations corporations and the wealthy have to society. This happened 100 years ago, when ex-robber barons like Andrew Carnegie invented modern philanthropy to address social ills, and in the mid-20th century, when leading executives stopped fighting unions and backed more generous wages and benefits. It also happened in the 1970s, when big business rejected that compact with labor, leading to the harsher free-market ethos of the 1980s and 1990s.

Now, corporate leaders are shifting their thinking once more, calling for a gentler form of capitalism.

The latest evidence came last week from two titans of business, H. Lee Scott Jr., chief executive of Wal-Mart, and Bill Gates, the retiring chairman of Microsoft. At an annual meeting of thousands of Wal-Mart employees and suppliers on Jan. 23, Scott pledged that the company ... would promote energy-efficient products and improve labor conditions in its supply chain. Scott even said that Wal-Mart stores might one day generate electricity with windmills and solar panels. The very next day, Gates ... used a speech at the World Economic Forum in Davos, Switzerland, to call for a new "creative capitalism" in which "more people can make a profit, or gain recognition, doing work that eases the world's inequities."

Signs have long been mounting that corporate leaders are looking beyond the bottom line. Last year, nearly two dozen top U.S. companies ... joined to call for faster action on climate change. ... Scores of chief executives have hired "corporate responsibility officers" -- a position that didn't exist a few years ago -- to monitor their companies' records on environmental, labor and diversity issues.

It is easy to be skeptical of such moves and talk. ... Still, there's good reason to think that we are at another historic pivot point. Corporations, and the people who lead them, do not exist in isolation. When society adopts new values, as Americans broadly have on issues such as climate change and sweatshop labor, executives tend to go along. Sometimes the coercive pressure of unions or government forces their hand; other times (as may be the case today with Wal-Mart) they may fear falling out of step with consumers, tarnishing their brand and gradually losing market share. ...

A sea change like this among the far-upper class doesn't happen often. Such a shift, if truly underway today, will have enormous political consequences... If the consensus in the executive suites is that economic inequality has risen too much, or that too many social needs like healthcare are going unmet, or that the polar ice caps might really melt, the next president and Congress will have more success tackling these problems. ...

The very mission of corporations could change. If a focus on social responsibility begins to nudge aside the bottom-line orthodoxy, we can expect voluntary steps to raise wages, improve health benefits (as Wal-Mart has promised) and adopt environmentally sustainable practices.

None of these outcomes is a given. Global competition is fierce, making it harder than ever for business leaders to think beyond their balance sheets. But as more corporate leaders proclaim their commitment to social responsibility, and as politicians, unions and activists demand that they live up to this rhetoric, a new era of a gentler capitalism may truly begin.

To the extent that there is a big change happening, it seems to me that the shifts in the past described above were driven in large part by economics, e.g. corporations giving in or promoting particular legislation to avoid solutions that would be much more costly to them. Thus, it really was concern about the bottom line that was the driving force behind the change. In that respect, you have to wonder how much of today's corporate and philanthropic concern over global warming and and other such issues is really an attempt by corporations to avoid potentially more costly solutions being imposed upon them, or an attempt by the wealthy to avoid a political backlash that would result in much higher tax rates. But, maybe I'm too cynical and there really is a different type of corporation or powerful individual beginning to emerge in response to a shift in social values. In the end, though, count me as skeptical. I'll be happy to be wrong, but I'll believe it when I see it as a general phenomena rather than just through a few high profile cases.

    Posted by on Thursday, January 31, 2008 at 02:44 AM in Economics | Permalink  TrackBack (0)  Comments (110)


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