Corporate Social Responsibility (CSR)

I worked 2 months in the Egyptian National Competitiveness Council (The ENCC). During this period I noticed that The ENCC Chairman was trying to promote the concepts of ‘Corporate Citizenship’ and ‘Corporate Social Responsibility’ in his company (Sekem Group) and in the EJB. Corporate social responsibility (so famous it has become abbreviated now to CSR) is a term that has become very popular and fashionable nowadays, a term that has many of the characteristics of the philosophies of our era.

For those of you who are not familiar with such an important term, it means, according to Klaus Schwab (the founder of the World Economic Forum, and a well-respected man in the ‘global’ community): the commitment of business to address the wider financial, environmental, and social impact of all that a company does.

Now, as you can see, on its face value this term looks benevolent, righteous, or in the worst cases: harmless. This is one of the things that term has in common with many of the philosophies of today.

There is a theory behind this term, called: The Stakeholder Theory. This stakeholder theory of corporate social responsibility stipulates that instead of working for the profit of shareholders, corporate managers are directed by this doctrine to act in the interests of a diverse group of "stakeholders," with the shareholder considered to be merely one of these stakeholders. And if you are not familiar with the implications of that concept, you might nod happily in agreement with its noble intentions.

This is why I think we need three things to know where we stand in this world:

1. We need a clear-cut value system that is ours,
2. we need good reasoning skills that can weed-out any illogical inconsistencies presented to us so matter-of-factly,
3. And finally we need facts supported by our observations.

I do not have time to discuss all 3 now! But I’ll show you—as an example—how this term challenges all 3 bases for me and how therefore I wish I could triple reject it.

I will try to be as concise, and as simple as possible, but to cover this subject fairly, more needs to be said which, unfortunately, I cannot squeeze into the next few lines. In a nutshell:

· Basis 1 Facts:

1. In the US, corporate management has gained in recent years a lot of power and discretion apart from shareholders’ wishes due to new law provisions, called the poison bills[1], lobbied for by major corporate managers, and approved by the Congress despite obvious disadvantage to shareholders (who of course could not lobby as fiercely.) in the US hostile takeovers do not happen anymore, consequently corporate managers are less likely to be fired now.

There should be a lively market for corporate control, where corporate managers are subjected to: mergers, acquisitions, hostile or friendly takeovers. This prospect is what insures that the best person is always in the best position and that managers do not have any harmful power.

2. We have all seen governments bend the law to make them more favorable for big businesses and prohibiting for smaller business.[2]

So, it seems like corporate managers (and not corporations per se) occasionally have illegal powers, endowed upon them by the power monopolists, a.k.a.; Governments.

3. I cannot think of any case corporate mishap where government provisions or support was not involved.

· Basis 2: Logic

What is a corporation? The Corporation is not an independent entity. It is merely the aggregation of the will of shareholders who are willing to take the risk of putting away some of their savings into an enterprise hoping for a decent profit. They are you and me.

Managers should merely ‘manage’ our money, in a manner that is in our best interest, motivated by: reputation, credibility and—in some cases—losing their jobs due to bad performance.

The stakeholder theory implies:

a) There is going to be a conflict of interest between what shareholders want and what other desired ‘stakeholders’ want.

b) This conflict should be resolved in favor of stakeholders other than the real ‘owners’ of the company, the shareholders

c) If no conflict is assumed by this theory, and shareholders’ interests are the same as the stakeholders’, it wouldn’t have been necessary to make this distinction between the two, to begin with. [3]

d) I cannot see how this is empowering to ‘us’. It looks to me like something that will empower governments and special interest groups, and it will give more discretionary power to corporate managers who are no longer accountable to their shareholders, but they will have their own bureaucratized agenda to follow.

· Basis 3: the Value System

It wasn’t moral when some corporate managers were given special privileges by the government, at the expense of other companies or at the expense of their own consumers and shareholders. Corporations should be answerable solely to their owners; the shareholders, and it is immoral for companies to use the capital entrusted to them by the owners in any other purpose other than profit-maximization. No outside interest group should have the power or the moral sanction to impose its will on the management of someone else’s property. This is outright stealing.

Should you find it ethical that people protect the environment or preserve the wild life or consume less frivolous, you are advised to tell them that they should do just that. Legislating morality is a contradictory term. Once you force morality on people, not only does it cease to be ‘morality’—since it did not stem from people’s own choices—but the act of enforcement itself is the worst evil, since not only do you strip people from their rights to choose, but you also claim a higher moral ground while doing so!

I believe we are all guilty of distorting philosophy, economics and political science. But I find intellectuals and philosophers to be the guiltiest ones of all, because they are the ones who were supposed to build a strong base beneath our feet to stand on, instead they failed us all with sophistry instead of philosophy and apologetic excuses instead of sound logical arguments.

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[1] a variety of takeover defenses, most authorized by statute, that make corporate takeovers difficult for one who wants to acquire a corporation whose directors and managers decide to resist. The result: There are fewer corporate takeovers than there were in the 1970s and 1980s, before such statutes were passed, and before the poison pill was invented by the inventive corporate defense attorney Martin Lipton. The takeovers that succeed today are "friendly" ones, of which the target corporation's board of directors approves.

[2] In Egypt, we have prohibiting capital requirements for insurance companies, price ceilings for steel companies, outright monopoly on phone landlines, etc.

[3] See if you can find this question stated clearly and candidly in any of the glossy brochures on the wonders of corporate social responsibility — you will not.

NeoSocialism

The Minutes of the Technical Committee Meeting

Of the National Competitiveness Council

From the point of view of a libertarian

Venue: A nice place most likely funded by the European Union Government.

Date: 2008/1998/ 1988…1708, etc…history will endlessly be repeated (by us) unless we choose otherwise.

Attendees: fake intellectuals who show no interest in finding the truth because they—admittedly or not—enjoy and benefit from the current state of ignorance and they display an air of righteousness.

Agenda:

1. Settle which economic policy appeals to most of them based on whims and a mix of ideas, doctrines, emotions, and personal experiences.

2. Sketch out how to channel the power necessary to inflict their pious verdicts on the non-thinking, non-influential majority.

3. Find a way to share their confusion with the biggest number of people; to show them how much they needed this unique variation of darkness and to take credit for this certain improvement.

MINUTES OF THE MEETING:

· Mrs. Government-paid Intellectual (who works for the ministry that was, for no clear reason, chosen to be the one on the hot seat this time around) was fiercely defending her ministry, explicitly saying at one point that the message of the chapter she’s writing in the report is: it is not fair! However, she ascertained repetitively that she will not be naming her chapter: ‘it is not fair!’, nor will she even state it directly in her chapter, but, like only a fake intellectual can, she will manipulate the pliable statistics enough that the naive citizen will automatically draw the conclusion that: ‘the World Government has been unfair to our national Government. We must be more complacent with our national government.

· Mr. Government: made a huge effort to convey the same message that Mrs. Intellectual was saying in quiet the same manner, which is:

a. Something is seriously wrong with the World Government data collectors and statisticians.

b. That doesn’t mean that nothing is wrong with us, it just means that it is not that big a deal and that it mostly isn’t the government fault.

· Mrs. College Professor: had a slightly different version of our social and economic reality than the government people. Her profound message (interrupted by few phone calls from her daughter which she didn’t hesitate to take nor to share with the rest of us) was: There is almost nothing wrong with the current system, except the bad culture, the lazy labor and the system of subsidies that spreads the national income ‘too thin’ among a vast amount of people, so at the end of the day, everyone will get a few pennies. (There must be a proverb that says the same thing as that last bit, but I can’t remember it).

· Another Mrs. Government-paid intellectual (works for the ministry of finance): had another point of view which, like all other different opinions on the table, was different on the surface but underneath it was identical to all the others [1]. She thought that the national government strategy of focusing on ICT and manufacturing was wrong, because we need a more agriculture-based strategy. She ignited a debate among Egyptian intellectuals in the room about whether the secondary and tertiary sectors central strategy was indeed the reason behind our unemployment problem. Sadly the controversy was around the sectors (and whether a strategy should focus on her favorite sector, the others or, as the American expert preferred, all sectors at once.) No one questioned the idea of a national governmental strategy manipulating and altering ‘growth’ as the national government and its hired staff of intellectuals please. There was no controversy there!

· The last Mrs. Government-paid intellectual (works for the National Economic Research Institute): spoke very little, and did not stray from the mainstream like Mrs. College professor or Mrs. Ministry of Finance dared to do. She will do freshman year work of describing the World Government stats in the first chapter.

· Mr. Business Man/Government Supporter: This individual totally eludes my understanding. He strikes me as a sincere person who learned that ‘this’ is the right way to do things in 'this' world. I think this man has set off looking for the truth, he did not give up on doing the honest right thing yet. I just hope they do not break his inquiring spirit, filling his mind with lies about how relative the truth is, how important it is to survive in this jungle by compromising, and how bad his productive honest business would be to the society, if he does not have the network of people, and does not cooperate with different government and government-supporting bodies. His remarks sounded honest. I believe he was the only one on the table who genuinely thinks there is some hope left for Egypt. I am not sure he can keep this thought with them as his companions.

· Mr. American Expert: a sophisticated person. He was the best-indoctrinated, and the most consistent person in the room. I noticed how attentive yet indifferent he was to all the conversations and arguments, like he heard them all hundreds of times before, and like there was absolutely nothing different about this situation from all other situations he’s been in. He looked very secure about where he stands, like he does not need to explain his position. He was so sheltered and unconcerned[2]; he looked like he could fall asleep any minute now, not from exhaustion, but from boredom.

He made the most seemingly-consistent arguments[3], his message was clear and consistent: the Global Government’s stats are sound enough to show an approximate estimate of the country ‘rankings’ and ‘scores’.[4] What Egypt needs to do, instead of criticizing the scores accuracy, it needs to work on its performance, because all countries face the same inexact teacher.

the end

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[1] I heard an argument once that built on that exact observation, claiming that this was a some kind of sign of approaching the truth, or being closer to the mark. This could be true in some cases, and in others, it is a sign of something else, one that starts with a D, and spells D.O.G.M.A, We need to examine other ‘signs’ before we conclude which of these we’re dealing with.

[2] Looking at the different characters sitting at the table, one cannot help but wonder: how did the least interested people and the least capable of achieving anything that amounts to development or growth end up at the table where only real intellectuals and enlightened supporters of mutually-beneficial growth should be present. These people have spend hundreds of thousands of Egyptian money to do a poor job of what a real economist would have done in one week, for free, because he can only speak the truth.

[3] Only seemingly so; because it would take an economist (or an economics major in a good school) to spot the flaws in his arguments. For others on the table, it would only take someone with some reading in history or watching the news to realize they are selling delusions.

[4] We are all students in the Global School: scored, ranked and punished for bad conduct. I wonder what the future may hold, when the school wields more power and less resistance.

Be practical!

“Are you going to be impractical as that?”

“The evaluation of an action as ‘practical,’ Dr. Ferris, depends on what it is that one wishes to practice.”

Ayn Rand: Atlas Shrugged, 1957

‘Just do the practical thing,’ they all tell you. But what is the practical thing? Is it that which costs less time and effort? Or is it that which has more likelihood of being approved and supported by other people? I guess they are both the same thing, since in communities—and in some communities more than others—the fact that something is supported by others makes it less costly in time or effort.

I am not trying to sophisticate things here, but really think about it, in the most ‘practical’ way possible. Isn’t doing something just because it’s common, without having a clue why you are doing it, costly too? Aren’t there may be some costs other than the cost of having to live with people’s disapproval, or the cost of time, or energy? Isn’t it something that you feel in your life too? Now, wouldn’t that make it ‘practical’ to avoid this unnamed cost as well?

In my life I observed that people talk about different costs all the time; they talk about the cost of standing out and having to face the music, and they also talk about the cost of living in a country where everyone is ready to stab you in the back if it will put them in a more favorable position with their bosses. They talk about the cost of doing something that you really like and to make a living out of it, and they also talk about the cost of just doing the same mundane job that you do not like one bit.

Well, I think we should make up our mind and figure out which is more costly. People view this paradox in amazingly different ways. Some people will tell you: ‘it’s inevitable!;’ we have to choose according to our programming, conditioning, conditions, childhood history, status, ‘the political game we find ourselves in’, race, nationality, etc... (You can fill in with any cause of variation among people you have in mind).

Personally—and there is a bunch of people who would agree with me—this is how I perceive my options; it’s either watching the world around you being shaped by forces outside your will, and shaping you too in their aftermath, or watching the world being shaped by forces outside your will, and slightly influencing your life as well, which might just be fair, because you might be slightly influencing the world too.

Is socialism the right answer?

"The common people of England," once wrote Adam Smith, "are very jealous of their liberty, but like the common people of most other countries have never rightly understood in what it consists."

I always find it very difficult to make myself read the newspapers, ironically enough, it is more difficult to do, the closer to Economics – which is my field of study – the article is.

I am really overwhelmed by what they write in the financial, business and economic newspapers and magazines. It is a confused rhetoric, with no clear vision of either the reality of our current situation, or worse – how the future ought to be like.

Enough complaining about the status quo. What we need here in an intellectual debate that will be the first step on our journey towards civilization, that is; to reason, and to form our own independent concepts.

Let us check last Sunday financial and economic newspapers. One very controversial paper – and provocative, to me at least – is Alam Almal (the financial world). One of the first page headlines goes a little something like this: The Monetary Subsidy is a Lie!

The article goes

“These dangerous facts reveal that there is a possibility of a government conspiracy behind shifting to a monetary subsidy, since the government is looking for ways to lower the amount of subsidy that burdens the government Treasury. Therefore it would not apply the monetary subsidy if it was going to increase its subsidy burden.”

I will now skip to the part where economic experts comment on this outrageous prospect.

“ Dr. Mohamed Farghali the Dean of the faculty of commerce, Cairo University, ascertains that it is a Big Risk if the gover nment thinks about shifting to monetary subsidization, even if it was a partial shift. This is because of the economic rule of thumb that says that the more monetary units available for the individuals, the more purchasing power they will think they have, and they will demand a higher level of consumption. Therefore supply will not be able to meet demand.

And he adds that the best policy that the government should adopt, regarding the issue of subsidies, is to fix prices…If the monetary subsidizing means that the government will provide extra funds to compensate citizens for the increase in prices, and to help them buy at the higher prices, why not fix the prices instead? In this case a monetary subsidy will not be needed. The government is adopting a flawed financial approach, since not all employees and workers are subject to the same labor and economic laws.

Dr. Salah Al-Desouki the economic expert and the head of the Arab Center for management and development sees that it would be a huge mistake to shift from in-kind subsidies to monetary subsidies, because in this case the amount of subsidy will not necessarily go to satisfying the basic nutritional needs, therefore it will lose its role in guaranteeing the minimum level of calories that each individual needs…This kind of subsidy does not fix the real problem, and that is the big discrepancy between the wage levels and the price level.

Dr. Fat’hy Nady the economic expert and management professor in the Arab Academy for science and technology assures that the government is heading toward gradually withholding subsidies all together…Government should either choose a free-market approach where supply and demand and people’s needs are organized based on the market supply (whatever that means!), or it should follow the directed market approach and intervene through organizing prices. But what the government does now is mixing both approaches…this will only lead to chaos…

Finally someone is saying something decent. For all the wrong reasons, but still! Thanks Dr. Fat'hy!

Dr. Abd-Al-Rahman Alyan the economic expert and the costs professor ascertains that any monetary shift will be an intervention into the subsidization issue, and is considered to be definitely a crime against the citizens…He ascertains that the way the government is considering to shift from in-kind subsidies to monetary subsidies is a rejected approach by all economists, because it will lead to a violent surge in prices, and the citizens will be conned into what we call a spiral increase in prices, that is a continuous increase in prices.”

First of all, I do not appreciate that Dr.Abd-al-Rahman claims to talk on behalf of all economists. I do not remember giving him my vote. But, again I have a very bad memory, so let’s not grill him because of something that insignificant. Let’s also ignore the non-rigorous rhetoric rampant here.

Subsidies, What Are They?

I will count on the above newspaper piece to inspire me with a good argument against subsidization. An argument that might sound new for a non-economist, but will certainly make perfect sense to him.*

What is a government subsidy? It takes two forms: it is either a direct transfer of purchasing power, or a resource using subsidy. The transfer subsidy (the type of subsidy the government might be shamelessly promoting) takes the form of directly transferring money to a particular group of people. I will not discuss the difference between both types of subsidies now. I will discuss the concept in general.

Now, how can people acquire wealth? There are only two ways of acquiring wealth: the economic means, and the political means. On the free market, only the economic means can be used, so you earn only what other participants in the market are willing to pay for your product. On the free market there is no separate ‘distribution’ process. There are only 2 processes that take place in the free market: production and exchange. Therefore, on the free market wealth is the resultant of 2 things: the extent to which man serves the needs of others, and the voluntary choices of individuals. Let government intervention enter the scene, however, and the situation changes. Now the political means to wealth become available. This possibility opens the way for an allocation of wealth according to the extent to which an individual can gain control of the state apparatus.

Government subsidy therefore creates a separate distribution process (not ‘redistribution’ as some would be tempted to say). For the first time earnings are severed from production and exchange and have become separately determined.

Should We Have A Subsidy Program?

Now the rightful question is: is it desirable to separate earning from production and exchange? To find out the answer of this question, we need to understand first at least the very basics of how people earn the money they do in a free market. On what basis are prices set? And, subsequently on what basis do people earn the money they earn?

I believe most of you will agree with me that if every piaster a man earns/doesn’t earn is proven to be his rightful share of income- or its lack thereof-, then it will be inefficient AND unfair to forcibly change that.

But some of you might find this point arguable still, some might argue that sometimes a certain individual might have all the potential in the world to earn income but for some very extraordinary circumstance he was prevented from doing so and therefore is entitled to some boost from an outside source. Very well, I find this to be a very legitimate argument. In this case the question should be: does intervention from an outside source that forcibly alters the outcomes of the market exchange process help that individual?

In a nutshell, everybody is both a producer and a consumer at the same time. In our capacity as producers we try to produce things that others will be willing to buy. But how can producers stay in-touch with consumers’ wishes? Price is the numerical valuation of our product by others. When prices go up this means that more people want the product or that people value it more now than they did in the past. This presents an incentive for the producer to produce more of that product- in accordance with the consumers’ valuation. When prices go down; this means that either more people want to buy the product or that people value this product more now than they did before. This presents a disincentive for the producer to produce the product – again in harmony with the consumers’ wishes. Prices are the barometer that obliges producers to always stay in touch with consumers demand. It provides incentive for producer to either look for more resources to produce the same product, to research the potential of producing more innovative products, or to direct current resources to other more efficient uses.

In this manner the earnings gained through the production and exchange process are a reflection of the productivity of individuals. If we try to severe this connection two problems will definitely occur: the efficient producers (the providers or subsidy money) will have less incentive to produce, the inefficient producers (the recipients of subsidy) will have less incentive to be more productive.

Therefore, overall there will be less production, less innovation and much less transparency in the economy. On the long run, there will be less to consume by anybody including the group that was supposed to benefit from the subsidy program in the first place. This mechanism is called ‘the price mechanism’. It is a spontaneous and continuous process that is behind all economic progress anywhere on this planet. Taxes, subsidies, and all forms of government intervention ‘distort’ this price mechanism, making it impossible for the market to produce whatever it is that consumers need.

This mechanism cannot be simulated by a government institution, and luckily so, if I might add. This is very fortunate because it is not only economically impossible to produce efficiently in the absence of a free market, it is also morally wrong to initiate the use of force against others to achieve ‘noble social goals’. I will write about the immorality of government intervention in other articles.

If There Are No Subsidies, What Will Happen To The Poor?

Now, how about less-privileged groups who might not have the good fortune of producing something that other people want? and how about minorities and people with disabilities and women and children? Having compassion is a human trait that is entrenched deep in our genes and existence. It is not even exclusively human; we apparently received it from our ancestors in the animal kingdom.

But let me tell you this; from an economic point of view there has been no social model applied or even constructed that can provide for those seemingly less-privileged ones on the long run. There is no system that can make them better off, without making the whole economic system worse off, and therefore they too will be worse off on the long run. On the long run, only a free-market system increases the possibility of everybody being better off. This means that on average less people will have to suffer. I will discuss that matter more elaborately in the coming articles.

This only shows the economic impossibility of providing for the havenots through a forced distribution of income - whatever form this distribution takes. What if we did not even need to deliberately distribute wealth at all? What if all we think to be flaws in the free market system are flaws in the ‘mixed economic system’ we have everywhere not because of the free-market component but because of the socialist component added to the mix? Would that not make much more sense? After all, the free market system did develop naturally – unlike any other statist or socialist system.Think about that.

But how about the moral point of view? Ethics are essential after all. I have a question for you. How safe would the world be for you if you know that the moral value of your co-citizens is to take from him who has to give to him who needs? Or how fair would it be if you know that regardless of how much effort you make or how productive you are, it does not really matter because, at the end of the day, you can only have as much as ‘the society’ – represented in whoever is in control at that time- deems just for you?

My message is this: we do suffer from dozens of problems. You are right, there are forces that push us off track continuously and more so here than some other countries. Sometimes the hurdles can seem insurmountable. But I am optimistic, because life is stubborn, it has a tendency to withstand more troubles than we can imagine. The problems we have here are caused by a strong state and a socialist system that we inherited from the Nasser era. The only wonder is that we still have some economy going despite all of this.

If some economic life could survive all of this, then I have a reason to be optimistic.

*I will direct my speech to the layperson, and I will assume that all my readers know absolutely nothing about economics. If my logic is clear enough for a non-economist to understand, hopefully so-called economists will have no excuse when they claim that these questions are subject to ‘value judgment’ or that they do not belong to the arena of economics. Although the economic arguments can stand on their own, I decided to discuss both the economic and ethical aspects of the subject.If someone wishes not to follow what is logical, it’s their decision. But what is not up to them is to declare that this argument is illogical without refuting the logic behind the argument recoursing to sound reasoning.