Creating global prosperity without economic growth


The Case for Connection

by Scott Gast on 28th September 2010

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Should business lead the way to social and ecological responsibility?

It’s a question that many in the greener parts of the business world have been nodding their heads to vigorously in the last few years—which is why a recent article in the Wall Street Journal condemning such leadership has kicked up so much dust. The article, by Dr. Aneel Karnani, a professor of strategy at the University of Michigan’s business school, is titled “The Case Against Corporate Social Responsibility,” and argues that CSR is irrelevant at best, and dangerous at worst. Here’s Dr Karnani:

Can companies do well by doing good? Yes—sometimes. But the idea that companies have a responsibility to act in the public interest and will profit from doing so is fundamentally flawed., an online community for social entrepreneurs, is hosting a lively debate on their forum in connection with the article, and, an increasingly important voice in this space, has posted responses here, here and here. They’re all worth reading, but the recurring nut of wisdom seems to be that 1) things are far less clear-cut than Karnani insinuates, and 2) that CSR has never been about promoting the public good—it’s always been about making smart, long-term business decisions. Also: Be wary of academics making theoretical claims about reality.

It’s important to note that Dr. Karnani is not against the notion of business promoting the public good. His argument is just that it’s not the responsibility of business—that’s up to citizens and government, who, by structuring the rules in the right way, ensure that the public good is a byproduct of business done well.

For Karnani, it’s always up to the market to lead the nose of business; leadership from corporations is backward, and will only end with companies spearheading activities that address concerns dreamed up by folks in a conference room somewhere—not real solutions proven desirable by a wider majority. For leaders of publicly-owned corporations, then, showing up everyday should be about one thing: profit-making.

Very simply, in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare.

Two industries are cited in which this overlap between private and public good is working: organic food and fuel-efficient vehicles. But it’s a mistake, he says, to think that the companies involved in selling these things, like Whole Foods and Toyota, are in it out of concern for our bodies or our atmosphere. There’s significant truth here. It’s unlikely that Toyota, for example, will run ads telling us to drive the car less and ride the train more.

To Dr. Karnani, then, the efforts of anyone to get corporations to operate more respectfully out of some sort of ethical mandate are ill-founded and pointless. It’s all about making the right thing profitable—which, in turn, should make “responsibility” irrelevant.

Just Economic?

But even if he’s correct—that corporations are, and always will be, about profit and nothing else—is that right? If it’s true that all we can expect from publicly-owned corporations is the “relentless maximization of shareholder value,” does that underline the basic illegitimacy of these organizations in a world where nature and communities are quickly circling the drain? What if, for example, it will never be particularly profitable to question consumerism? To pay a really good wage? To forgo building a new store on farmland? If it’s not, then it stands to reason that these guys are part of the problem. Or, more accurately, distant shareholders paired with this set of encoded, myopic motivations is part of the problem.

So what to do?

Dr. Karnanai seems to have a small disdain for activism, particularly the kind that arises from morals and ethics rather than economics. Whether this is true—or Karnani simply feels that corporations won’t pay attention to such frivolous things—doesn’t necessarily matter. What matters is that there is a whole world of meaning out there that operates outside of and in connection with economic calculations. It’s evident in the family-owned jewelry store in my neighborhood that sponsored my Little League baseball team; in the dentist down the block whose office donates to the Boys and Girls club every year; in the startlingly authentic and deeply sad look in people’s eyes when they talk about their kids and climate change. It’s evident in my Dad’s small family sculpture and memorial business, which sustains itself financially by expressing people’s memories in stone and art. Talk about blurring boundaries.

These things are real. And, frankly, a whole lot more meaningful than racking a few more quarterly figures up on the big board.

Dr. Karnani might respond by saying sure, but those are private businesses. They don’t have the same mandate to shareholders that corporations do. Besides, Little League is good advertising. Local philanthropy drives customer goodwill. And worrying about your child’s future on a hot planet could be an extended kind of personal economic calculation.

OK. Fine. But does it matter? Family, community and culture are entwined with economics like vines on a tree. The boundaries are and always have been blurry at a certain scale. So, I suppose Karnani’s piece, while inciting the ire of corporate social responsibility consultants, really does move an important ball forward: Should business models that divorce themselves from a context of ethics and relationships—i.e. corporations— exist?

A Question of Scale

Near the start of his piece, Dr. Karnani uses a somewhat curious metaphor:

It’s not surprising that this idea [profiting by doing the socially and ecologically right thing] has won over so many people—it’s a very appealing proposition. You can have your cake and eat it too!

What is he saying? That unrestrained profit-making is cake, while being seen as a corporate saint is to “eat it too”? I guess none of this cake, then, involves any kind of human respect for the wider world in which business operates. Evidently that’s not good economics.

Speaking of good economics, we here at often call attention to the concept of “uneconomic growth.” That’s the point at which further growth in GDP, say, becomes more expensive than it’s worth—in terms of ecosystems, communities, and maybe even mental health. From where we sit, that’s the big question operating behind the scenes of any discussion of corporate social responsibility: Is there an appropriate scale at which business should operate?

We suspect there is.

Even the greenest business uses energy and produces waste. Even the greenest business, if it grows big enough, can lose connection to the community it serves. So, if there is an optimal size, how do you find it—and stay near it?

I’m not entirely sure. But I have a feeling the answer has something to do with why Karnani’s cake metaphor feels stilted—and why local, privately-owned businesses can walk the line between cold economics and something warmly human. An important question lies at the tangled heart of all this: Where do we really find meaning in our lives? In money? In relationships? In coaching your kid’s Little League team? In doing business? All of the above are important parts—but only parts.

This post was written by

avatar Scott walks, bikes, reads, and lives in rural western Massachusetts. His day jobs have included stints at YES! Magazine, the City of Chicago's Waste to Profit Network, and The Nature Conservancy. He is a graduate of the Environmental Science program at Allegheny College, and Special Projects Assistant at Orion Magazine.

Scott has written 17 posts on Post Growth Institute. Contact Scott


avatar Ronanpeter September 29, 2010 at 14:24

You are exactly right about outlining the interelated nature of CSR, sustainability and profits. They are no longer mutually exclusive as Karnani attempts to stress. There is always a trade off between market forces and social legitimacy for businesses to survive.

avatar Pixie Gas October 23, 2010 at 09:29

Businesses are definitely responsible for making more sustainable, eco-friendly choices.

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