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Responsible Business, Efficient Government?

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Responsible Business, Efficient Government?

Image courtesy: Remigius de Souza, Archetypes India

Image courtesy: Remigius de Souza, Archetypes India

Does business think beyond earning profits and rewarding its owners? When it actually does, is it using philanthropy and corporate social responsibility (CSR) to buy peace or for doing genuine good?

 

This is a question that is being debated with some ferocity in America right now but has increasing relevance in India too.

 

New York Times columnist Anand Girdharidas raised some interesting points in a recent speech about the nature of capitalism. He was speaking two weeks ago at the Aspen Action Forum in Aspen, Colorado.

 

His key argument was that the rich are to be praised for the good they do with their philanthropy but are never challenged for the harm they do in their businesses. A business – in a manner of speaking – buys good citizen credits through philanthropy but does not fundamentally change the way it does business.

 

He further argued that, philanthropy or not, businesses are doing more harm to the environment than before, they are more removed from their communities and are slowly distancing themselves from responsibilities like taking care of their workers – Uber being a classic example of a company that denies responsibility for its workers’ lives, health and desire for career growth.

 

As an attendee, I had a fascinating glimpse into the surprising views that emerged after the talk from other Aspen Institute Fellows – Anand is one too.  Impressions ranged from utter shock at the state of affairs, almost as if it all happened yesterday, to a gentle reminder that this was only a restatement of issues, debated for long in capitalist America.

 

New York Times columnist David Brooks jumped into the fray two days later with his own take on the issue with a column titled Two Cheers For Capitalism. He was present at the speech too. Brooks’ argued the solution to the failure of capitalism as stated here was not state intervention since that was what Anand’s speech implied, at least in his perception.

 

Brooks also said an attempt to tame the market would end up stultifying it. He brought back some older points, including that capitalism had brought about the greatest reduction in poverty in places ranging from China to Nigeria – of course you could add India to the list too.

 

He also said America’s fluid style of capitalism attracts driven and talented immigrants and creates vast waves of technological innovation. And this dynamism is always in danger of being stultified by planners who think they can tame it and by governing elites who want to rig it.

 

Which brings us back home. India has of course always located itself on the other end of the spectrum. The state has had a heavy hand in business and redistribution of wealth. The state owns banks, oil companies, telecom companies, power generation plants, ports and of course railway systems, all broadly in the interest of protecting the citizen, either from denial of service, national security or high prices.

 

In the same vein, the state also owns airlines, hotels, soap companies and hundreds of such enterprises run at the federal and state level most of which are spectacular failures and huge drains on tax payer money.  Because somehow, these enterprises are viewed as serving the common good and balancing the fine line between business and social responsibility.

 

Finally, the Indian state gives out massive subsidies and benefits to poor people, up to $35 billion or 10-12% of GDP at the central and state level, as this report quoting UBS Securities in The Economic Times newspaper points out. Just fixing leakages, incidentally, could save 1.2% of GDP.

 

But India’s story of state ownership, distribution and redistribution does not end there. Last April, it formally instituted a mandatory Corporate Social Responsibility (CSR) bill which made companies having either a turnover of Rs 1,000 crore, net profit of Rs 5 crore or net worth of Rs 500 crore put aside 2% of three-year average net profits for CSR activities.

 

The CSR Bill when first drafted in 2012 drew howls of protest. Undeterred, the previously reigning United Progressive Alliance (UPA) government and corporate affairs minister Sachin Pilot stood firm in their belief that there was sufficient private sector prosperity and thus a need for some redistribution. They might not have said it in that manner but it was implied.

 

Amazingly, India’s business leaders have made peace with the CSR law, while continuing to lobby for relaxations in the definition – the original one is liberal in its own way, allowing for instance investments in incubators for social entrepreneurship projects.

 

Now, the CSR law might end up doing what it was intended to do, which is to create impact-worthy physical and social infrastructure for the poor. It is also likely that businesses will find ways to duck some of the provisions or account earlier expenditures differently. But, to be fair, some will genuinely do good.

 

But the problem is that much of the desired outcomes of the 2% law fall squarely into the Government’s classic roles and responsibilities. Shouldn’t building public toilets, schools and allied initiatives, both rural and urban, be the domain of the state?

 

Putting the burden of inequality on business exposes a more fundamental dichotomy. On one hand, the state is assumed to have limitations in its ability to govern and deliver services to citizens. On the other, business must pay a price for being successful in the very same environment.

 

It is no one’s argument that India can do away with subsidies and benefits to at least a third of its population. So the question could be – is a state with more efficient distribution mechanisms better equipped to do the job of creating greater equality or should it always farm out the role to business as well, partly or perhaps increasingly?

 

Picking up a thread from Anand’s argument, one could surmise that business in India too will take the 2% contribution as a means of providing moral legitimacy to its excesses elsewhere.

 

Look at recent announcements by information technology giant TCS and telecom major Bharti Enterprises saying they would spend Rs 200 crore or $31 million for building toilets as part of their 2% CSR efforts. They aligned it, however, with the Government (and Prime Minister Modi’s) pet Swachh Bharat initiative or Clean India movement.

 

Evidently, even if the intentions are fine and outcomes desirous, such moves could contain seeds of crony capitalism. The same companies might have carried out these efforts more silently, if they wished so to begin with, had there been no push to announce and thus align with the Government’s initiative. But doing so could lay the grounds for quid pro quos.

 

So India does not face a ‘how’ question because we are already doing it. By dragging businesses into the business of fixing inequality, good things will happen at least in some parts. Hopefully, state-led redistribution will also become more efficient and thus reduce citizen frustration and anger about leakages.

 

But will this lead to a situation where businesses behave more responsibly and government functions more efficiently? Unfortunately, the answers to these questions are not clear as yet. Perhaps it is a happy balance at this point. But the debate must go on. Whether in America or India.

 

The writer is a Fellow, The Aspen Institute, Colorado.

 

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