CSR is dead: long live Pigouvian taxation

Abstract

Within economics there is a philosophical impasse that prevents humanity addressing the ethical quandary that is epitomised by the negative social impacts of the globalised corporation. This impasse has created a void which is being filled by corporate social responsibility even though corporate social responsibility does not exist to, and could not, solve this ethical quandary. Humanity can bridge this impasse by viewing the corporation in sociological terms as a functional system that can be manipulated for the purposes of humanity. Pigouvian taxation is a proven method of manipulating the corporation and may be useful in achieving this objective.

Keywords:

• globalisation
• corporate social responsibility
• human rights
• Pigouvian taxation

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Nicholas Connolly is a Research Student at the Institute of Commonwealth Studies. He is also Head of Corporate Development for the London based youth homeless charity Centrepoint. He previously worked for a global bank outsourcing back-office functions to India.

Notes

1. Nassim Nicholas Taleb, Fooled by Randomness (London: Penguin, 2007), 144.

2. Adam Smith was quite clear that the corporation as understood in the eighteenth century would not become an influential constituent of economic life.

3. Robert Heilbroner, The Worldly Philosophers, 7th ed. (London: Penguin, 2000), originally published by Simon & Shuster, 1953.

4. The Modern Corporation and Private Property, 9th ed. (New Brunswick, NJ: Transaction, 2007), originally published by Harcourt, Brace & World, 1932.

5. For the sake of clarity this article refers to corporations as businesses, the shares of which are traded freely on various global stock exchanges. These businesses in general have a fiduciary duty to provide profits in a consistent manner to shareholders who, theoretically at least, have the collective power to remove managers and reframe strategy. These businesses are often trans-national or multi-national and dominate the globalised economy. They not only own the majority of major consumer brands but they also operate substantial proportions of mining and farming operations and the infrastructure that facilitates globalised production. This infrastructure (e.g. containerised shipping lines, communications networking, standardised information technology and much more) is referred to within this article as a necessary superstructure without which globalisation and therefore the modern economy would not exist. The privately owned nature of this superstructure – much like the privately owned toll-roads, telephone, railways or other utilities which developed in the industrialised economies to meet human desires and needs – posits enormous power in corporations. The historical contrast is that the early industrial developments were funded by known individuals whose actions are governed by their own sentiment and moral framework while today this vital infrastructure is owned by conscienceless corporations with a myopic focus on profit.

6. See: Forest Hill, ‘Veblen, Berle and the Modern Corporation', American Journal of Economics and Sociology 26, no. 3 (1967): 279–95.

7. While European governments have typically seemed comfortable introducing policy with a socialist flavour, the United States has initiated some similar programmes but its focus has typically been on low tax and individual responsibility.

8. Karl Polanyi, The Great Transformation, 3rd ed. (Beacon Press, 2001[1944]).

9. Friedrich August von Hayek, The Road to Serfdom (London: Routledge, 2001), originally published by George Routledge and Sons, 1944.

10. Robert Reich, Supercapitalism: The Battle for Democracy in the Age of Big Business (Cambridge: Icon Books, 2007).

11. John Kenneth Galbraith, American Capitalism: The Concept of Countervailing Power (Boston, MA: Houghton Mifflin, 1952).

12. Andrew Hacker, ‘Introduction: Corporate America’, in The Corporate Take-Over, ed. Andrew Hacker (New York: Anchor Books, 1965), 10.

13. Ibid.

14. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago, 1962), 40th Anniversary ed. 2002. More recently Robert Reich, who does not come from the neoliberal economic tradition associated with Friedman, supports this analysis. Reich, Supercapitalism.

15. Friedman, Capitalism and Freedom (1962), 27.

16. For example, the assumption that jobs are more valuable to communities than cultural practices: Mulligan, ‘Globalization and the Environmental Change in Madagascar: The Opportunities and Challenges Faced by Rio Tinto’, in Development and the Challenge of Globalisation, ed. Peter Newell, Shirin Rai, and Andrew Scott (London: ITDG Publishing, 2002).

17. For example, the application of strict cost/benefit analysis to decision-making.

18. Neil Stammers, ‘Social Movements and Social Construction’, Human Rights Quarterly 21, no. 4 (1999): 980–1008.

19. It should be noted that not all corporate law from a global perspective insists that corporations are entirely profit-centred. In Germany ‘Supervisory Boards' (Aufsichtsrat) must include ‘Worker’ (employees and unions) representation which in theory should make them respond to certain stimuli differently. It is not clear whether these principles substantially move the corporate perspective away from profit or what impact they would have on human rights outside of Germany, but it is certainly an interesting angle worth further investigation.

20. Nicholas Connolly, ‘Corporate Social Responsibility: A Duplicitous Distraction?’, International Journal of Human Rights 16, no. 8 (2012): 1228–49.

21. Rhoda Howard-Hassman, Can Globalization Promote Human Rights? (Pennsylvannia: Pennsylvania State University Press, 2010); William Meyer, Human Rights and International Political Economy in Third World Nations (Westport, CT: Paeger, 1998).

22. Verdana Shiva, Earth Democracy; Justice, Sustainability and Peace (South End Press, 2005).

23. Of course, choice is a relative thing. One could credibly argue that globalisation has meant some small-scale farmers are not able to make a decent living and are consequently forced to seek employment within the global supply chain but this would ignore the reality that the vast majority of humans have lived in abject poverty for millennia with little or no opportunity to achieve anything else (William Easterly, The White Man's Burden (Oxford: Oxford University Press, 2006)). Equally, one could argue that advertising has created a desire for material goods which has driven people to desire more than their traditional lifestyle can provide and therefore enticed them to seek new lives (Edward Bernays, Propaganda (Ig Publishing, 2004[1928]); Vance Packard, The Hidden Persuaders (New York: Ig Publishing, 2007), originally published by Pocket Books, 1957. Again, although this is probably true it fails to recognise that advertising works because people seek the satisfaction advertising attributes to various products. The average person – we can reasonably assume – wants convenience, they want to look and feel good, and they want to live without fear of hunger and disease; and the modern globalised capitalism has helped more people achieve this objective than any other economic system. One could of course argue that no one should live the modern consumer lifestyle but it is reasonable to doubt that social change is likely to occur, certainly on a global scale (Lester Thurrow, Fortune Favors the Bold (New York: Harper Collins, 2005)).

24. Easterly, The White Man's Burden.

25. Ibid.

26. Thomas Friedman, The World is Flat (Muller, 2002).

27. Ha-Joon Chang, Bad Samaritan (London: Random House Business Books, 2008).

28. Ibid.; Reich, Supercapitalism.

29. Dani Rodick, One Economics Many Recipes (Princeton, NJ: Princeton University Press, 2007); Easterly, The White Man's Burden; Chang, Bad Samaritan.

30. Joseph Stiglitz, Globalization and its Discontents (London: Penguin, 2002).

31. Thurrow, Fortune Favors the Bold.

32. For general evidence see Naomi Klein, No Logo (London: Flamingo, 2001); and Joel Bakan, The Corporation (London: Constable, 2004). For more detailed industry or business-specific evidence see John Ghazvinian, Untapped: The Scramble for Africa's Oil (Orlando, FL: Harcourt Books, 2007); Gary Greenberg, Manufacturing Depression: The Secret History of a Modern Disease (London: Bloomsbury, 2010); Marie-Monique Robin, The World According to Monsanto: Pollution, Corruption, and the Control of Our Food Supply (New York: The New Press, 2010).

33. Abhijit Banerjee and Esther Duflo (London: Penguin, 2011).

34. Ibid., 13.

35. Polanyi, The Great Transformation (1944).

36. Hayek, The Road to Serfdom (1944).

37. Joseph Stiglitz and Andrew Charlton, Fair Trade for All: How Trade Can Promote Development (Oxford: Oxford University Press, 2005).

38. The rise of the new economies (e.g. Brazil, Russia, China and India (the BRICs)) is creating a new global power balance but for the purposes of this article the generalised distinction between consumer and producer states suffices.

39. Reich, Supercapitalism.

40. Note previous arguments that most wealthy states do not implement neoliberal policies when they do not benefit them or their citizens (Chang, Bad Samaritan).

41. Stiglitz and Charlton, Fair Trade for All.

42. International Covenant on Economic and Social Rights (ICESCR)] [1966] Article 2(1).

43. Human Rights as outlined by multi-lateral treaties (for example: International Convention on Civil and Political Rights (1966), the International Convention on Economic and Social Rights (1966), and the United Nations Convention on the Rights of the Child (CRC) (1989)) and interpreted by international, regional and national courts, and Treaty Bodies, are universal and indivisible (Michael Freeman, Human Rights (Cambridge: Polity, 2002)). They are intended to protect every human being from the excessive use of state power and, where business practice is concerned, to ensure the state protects human beings within their jurisdiction, as far as is reasonably possible, from that which is out of an individual's control (e.g. environmentally destructive business practice (ICESCR Art. 122(b)) and forced labour (ICCPR Art. 8)). They also confer ‘positive’ rights on people, for example the rights to education (ICESCR Art. 13), health (ICESCR Art. 12), social security (ICESCR Art. 9), freedom of association (ICCPR Art. 22 and ICESCR Art. 8) and more broadly the right to an adequate standard of living (ICESCR Art. 11), and work (ICESCR Art. 6) in a fair and safe manner (ICESCR Art. 7). No multi-lateral human rights treaty has been ratified by every state but almost every state has ratified at least one treaty which recognises that human rights exist (Michael Ignatieff, Human Rights: a politics and idolatory (Princeton, NJ: Princeton University Press, 2003); Freeman, Human Rights).

44. David Earnest and James Rosenau, ‘The Spy Who Loved Globalisation’, Washington Post, September–October, 2000; Stigltiz and Charlton, Fair Trade for All.

45. Connolly, ‘Corporate Social Responsibility: A Duplicitous Distraction?’

46. This term is appropriate because many commentators see the corporation as undermining and ultimately destroying the state. Berle and Means (1932) suggested that the corporation would ultimately replace the state in many areas and that this was effectively inevitable; see Adolf A. Berle and Gardiner Means, The Modern Corporation and Private Property (9th ed. Transaction, 2007; originally published by Harcourt, Brace & World, 1932).

47. Klein, No Logo.

48. Ian Craib, Modern Social Theory from Parsons to Habermas (New York: Haverster Wheatsheaf, 1992).

49. That is, those usually associated with economic, cultural and social rights.

50. An idea explored in more detail by Rhoda Howard-Hassmann, ‘The Great Transformation II: Human Rights Leap-frogging in the Era of Globalization’ (conference paper delivered at the Southern Sociological Society 2004 annual meeting).

51. To use the previous example and to simplify substantially, by making bread cheaper though industrial processing, poorer people were able to afford hire purchase agreements for televisions or cars.

52. Robert Cialdini's book Influence (New York: Harper, 1984) investigated the psychology of persuasion in relation to product sales and asserts that the importance of price is not worth investigating because it is fundamental to the success of every persuasion technique. Its central importance to decision-making is a given.

53. For example, a survey of consumers in Canada in 2000 indicated that only 5% would be willing to pay more for ethical products (Rhys Jenkins, ‘Corporate Codes of Conduct: Self-Regulation in a Global Economy, in Voluntary Approaches to Corporate Responsibility (UN NGLS, 2002), 29).

54. Cars are a more pertinent example because the decision to purchase a car is not usually determined by addiction. Also, cars represent the third type of product on the elastic/inelastic scale because although for many a car is perceived to be a necessary purchase there is little practical requirement for vehicles that can substantially exceed speed limits or have leather seats. Packard (The Hidden Persuaders) describes the efforts car manufacturers have made to create demand for vehicles that exceed consumers' practical requirements.

55. For the purposes of this discussion the evidence from the United Kingdom is sufficient because the globalised nature of vehicle manufacture ensures that the products available there are in most respects identical to those sold in the European Union (the largest single consumer market) and similar to those sold in the United States or Japan.

56. Note, because the market price of oil fluctuate substantially and unpredictably, and the lead time of developing new vehicles is comparatively long in relation to other consumer products, car manufacturers historically have not reacted to oil price changes when considering consumer preferences and determining what characteristics new models may have.

57. See: Vehicle Licensing Statistics, https://www.gov.uk/government/organisations/department-for-transport/series/vehicle-licensing-statistics (accessed 18 April 2014).

58. This calculation is indicative rather than accurate because it assumes vehicles sold within a band are distributed evenly across the band.

59. Denmark instigated environmental taxation of a similar kind in the early 1990s but it did not have an effect on the pollution emissions of vehicles sold in Denmark. We can reasonably assume the Danish tax regime was not as effective as the post-Kyoto industrial consensus because the market for new vehicles in Denmark was not sufficiently large to encourage global car manufacturers to commit the necessary research and development to develop high-performing low-emission vehicles.

60. The Case for Green Fiscal Reform: Final Report of the UK Green Fiscal Commission, October (2009), 79. Note, the Green Fiscal Commission was a cross-sector independent body established to assess the effectiveness of environmental taxation.

61. Arthur C. Pigou, The Economics of Welfare, 4th ed. (Basingstoke: Palgrave Macmillan, 2013[1920]), 5.

62. Ibid., 1228.

63. Ibid., 1.

64. Arthur C. Pigou, The Economics of Welfare (London: Macmillan and Company, 1920), 619.

65. Pigou spends considerable time discussing subsidies (‘bounties') and thought they were necessary in specific circumstances but expected they would be less effective change agents than taxation.

66. A Google search for Arthur Cecil Pigou delivers 49,600 results of which none of the results on the first page is from mainstream media. A plain Google search for John Maynard Keynes delivers 4,650,000 results and there are entries from the BBC and the Guardian on the first page of results.

67. James M. Buchanan, ‘External Diseconomies, Corrective Taxes and Market Structure’, America Economic Review 59 (March 1969): 174–7.

68. Otto A. David and Andrew Whinston, ‘Externalities, Welfare and the Theory of Games', Political Economy 70 (June 1962): 241–62.

69. Anti-trust and pro-competition legislation exist in most established industrial economies although these laws work with varying degrees of effectiveness.

70. Ronald H. Coase, ‘The Problem of Social Cost’, Journal of Law Economy 29 (October 1960): 371–84.

71. William J. Baumol, ‘On Taxation and the Control of Externalities', The American Economic Review 62, no. 3 (1972): 307–22.

72. In contrast, K. William Kapp (The Social Cost of Business (Spokesman, 1978), 41) argues that ‘[a]bove all, there seems to be no indication that … [Pigou's] … envisaged system of bounties and taxes can be made to yield theoretically defensible estimates of social costs and gains'. With the experience of environmental taxation behind us, we now know that Baumol's analysis that tax rates need not be theoretically defensible has proven correct.

73. Baumol agrees with Pigou that subsidies are less effective than taxes.

74. Evan N. Turgeon, ‘Triple-Dividends: Toward Pigovian Gasoline Taxation’, Land Resources & Environmental Law 145 (2010).

75. Bruce Yandle, ‘Much Ado about Pigou’, Regulation 33 (2010): 2–4.

76. Louis Kaplow, The Theory of Taxation and Public Economics (Princeton, NJ: Princeton University Press, 2008).

77. Ibid., 212.

78. Implicit in this principle is the calculation that any increase in costs would be relative to the wages and related taxes in the country where the productive activity occurs. Hence a pension, education or health plan would be provided at the market rate in that country which would be, in most cases, as comparatively cheap as the labour.

79. ‘The centrality of administrative and enforcement concerns is difficult to overstate, especially given the serious problems of avoidance and evasion of income and other taxes and the fact that information limitations determine the feasibility of different tax instruments' (Kaplow, The Theory of Taxation and Public Economics, 411).

80. This need to trust professional services firms is a problem, consider the ENRON saga, but is a systemic imperfection that exists within the current regime.

81. See http://www.macleans.ca/economy/business/what-does-that-14-shirt-really-cost/ (accessed 23 August 2014) for a useful summary of production costs and see: http://www.ecouterre.com/infographic-how-much-does-that-14-t-shirt-really-cost/14-t-shirt-2/ (accessed 23 August 2014) for a related infographic. See: http://www.globalresearch.ca/sweatshop-manufacturing-engine-of-poverty/19193 (accessed 23 August 2014) for a more in-depth analysis of production costs and the impact of sweatshop manufacture.

82. Hopeful because human rights have generated negative perceptions in some counties.

83. See: http://www.bbc.co.uk/news/technology-26144981 for recent article on ‘conflict minerals' being used in Apple products (accessed 27 April 2014).