In search for a new paradigm for Social Responsibility

by Paolo D’Anselmi, Athanasios Chymis and Nikolaos Georgikopoulos*

According to the Austrian economic school of thought the origin of the credit-financial crisis of 2008 which sparked economic and debt crises in many other developed countries is not an inherent malfunction of the free market.

Rather, the crisis is a result of the centrally planned, artificially low interest rates of central banks initiated by the Federal Reserve Bank of the USA. In the modern economy where almost 50% (in some cases more) of the GDP is government at large, CSR literature needs to address the social responsibility of all organizations funded by tax-payers money. The recent credit-financial crisis as well as the following economic and debt crises in many European countries are but one more instance of the inherent irresponsibility of governments and public administrations. Consequently, they raise the question of responsibility and accountability of government regulated/supervised organizations.

Central Banks, Governments and Public Administrations are organizations that are not subject to competition. They are inherently monopolistic. Economics has established that competition is a necessary condition for the existence of efficient markets. Competition is the driving force behind responsible behavior. This is why M. Friedman urged for free and open competition. If competition is free and open then, indeed, the “business of business is business” as Friedman said in 1970. It is not that Friedman dismissed social responsibility. He just assumed it in the operation of free and open competition.

It is interesting that competition is sometimes seen as a negative element and as a source of anxiety for workers as well as for corporations. Consequently, businesses spend valuable resources to lobby governments in order to restrict competition through government regulation whereas what businesses should really ask from governments is more accountability and transparency on government spending of tax-payers money (a great part of which is corporate taxation money)! In fact what is needed is that the business associations and the trade unions of industry workers ask the government workers to be as efficient as and as accountable for their work as they (the industry workers) are!

We need more competition in the economy particularly in the inherently monopolistic government providers of goods and services. In order to infuse competition government should relinquish many of its direct production functions in favor of multiple public and private institutions, to work under the supervision of government itself and subject to the free market forces (i.e.: competition).

Data shows that nearly 75% of the employed population work in organizations (for profit and non-profit) which are subject to competition. They are tamed in their egoism by competition, but they make a decent living and serve their customers with great care, a behavior which is seldom observed in government and other monopolistic organizations. Workers subject to competition are not aware of their value to society, they bear all the difficulties of working in a competitive environment, but they do not leverage their social value of being subject to competition when they vote nor when they negotiate with government. They are like “unknown stakeholders”.

Among the public administration organizations, a central role is taken by the effectiveness of the judiciary system, which is crucial for businesses and foreign investors and it has been proven to be the most important element in the economic and social development of countries throughout history. A crucial factor here is the availability of data on the length of lawsuits and on the effectiveness of the rulings.

Ineffective rulings are de facto in favor of the debtor and create an anti-business environment. Availability of data however is a necessary, but not a sufficient condition for the improvement of the system. “Name and shame” only works in advanced contexts, where we have the data and the reports that certify the level of ability of government and the judiciary system. If citizens, workers, businesses –i.e.: organizations subject to competition– understand the importance of the flow of information and the data needed in order to infuse competition among inherently monopolistic organizations they should ask their governments and public administrations to perform and use those data that are available to apply meritocracy and responsibility within government organizations. There is need for those who are subject to competition to come forth and ask those who are not to be accountable anyway.

In the current turbulent times private businesses can have a significant role in the so much needed public administration reform and in overcoming the crisis by asking governments and public administrations for higher responsibility and transparency. It is useless for the private sector to produce wealth –and pay taxes accordingly– only to be wasted by inherently monopolistic, government regulated, opaque, unaccountable and ultimately irresponsible organizations, which funnel over half the GDP in our modern economies. Likewise the spending review that is taking place in the most distressed European economies needs to have a strategy behind it and a theory of governmental action. The vision is one of a broader and deeper exercise of individuals’ responsibilities in society. Like Irish poet William Yates said: “In dreams begin responsibilities”, an invitation for everyone’s responsibility in any accomplished democracy.

Paolo D’Anselmi is a policy analyst from Rome, Italy and the author of a) Values and Stakeholders in an Era of Social Responsibility and b) SME’s as the Unknown Stakeholder.

Athanasios Chymis, Ph.D., is an economist at the Centre of Planning and Economic Research, Athens (KEPE), Greece and the author of Reconciling Friedman with Corporate Social Responsibility.

Nikolaos Georgikopoulos, Ph.D., is a financial economist at the Centre of Planning and Economic Research (KEPE), Athens, Greece and visiting research Professor at New York University - Stern School of Business, NY, USA.