It is said that the current economic crisis has triggered a crisis of capitalism. Not so; there are multiple crises prompting a crisis of capitalism.

Welcome to the second post of The Missing Link blog (TML 2), a course-by-blog on corporate social responsibility.

It’s considered good practice at the start of a course, I believe, to impress upon students why the course is important; what real-world problems the course content might help students to understand and address.

If I had been writing this blog a few years ago my job would perhaps have been harder.

Imagine trying to do so back in the beginning of 2005. Memories are short, and the last crisis of capitalism – the wave of corporate accounting scandals that began with the demise of Enron and the forcible ethical rewiring Worldcom - were all but forgotten, confidently dismissed as “one-offs” and “aberrations”.

At the same time, back in 2005, it was too soon for the banks, the government (but I repeat myself) or the fourth estate to have added their voices to those of the minority of commentators already predicting financial apocalypse.

While a crisis of capitalism has been brewing for a long time, it was not possible to talk about systemic problems while such an apparently benign financial environment continued.

Now, however, we have begun to experience financial meltdown; the global economy is experiencing a “Great Recession”; and there is no shortage of obvious villainous features and practices that helped to bring us to this state.

Case closed. Capitalism is in crisis – in crisis in the sense that we might say a fortysomething executive is experiencing a “mid-life crisis”.

Not that capitalism has zipped on its gleaming new leathers, donned a shiny black helmet and sped off with a judder into the sunset on a brand new motorbike leaving family and responsibilities behind.
Rather, a critical mass of people engaged in capitalism are feeling compelled to sit back and question whether it has all been worthwhile, or whether we are in fact on the wrong track entirely.

And yet, while the economic crisis has produced the loudest call for reflection, it is not the only, nor the most important call.

It’s not just the economy, stupid

If we are going to spend this period of questioning profitably, and especially if in this course-by-blog we are going to get to the root of what we mean by corporate social responsibility and address it effectively, then we have to open up our field of enquiry beyond the economic crisis.

We have plenty of scope.

Here, for starters, and because crises are so compelling, are four other contemporary crises that could join the economic crisis in provoking a crisis of capitalism:

• The environmental crisis (or rather crises)
• The psycho-sociological crisis
• The ethics crisis
• The political crisis.

Note that these are interconnected and sometimes overlapping themes, not distinct examples of cause and effect.

The environmental crises

The world’s climate over the next few decades is changing, with predictions of a rise in planetary temperatures that will prove disastrous. The cause is economic activity.

In addition, our living environment is being degraded by industrial activity.

The link between these is what economists term the “externalities” problem. There can be insurmountable difficulties in quantifying and attributing the cost of environmental degradation to a particular polluter. These costs thus remain entirely outside the prices determined by the markets, so the prices do not represent the actual costs of resources used.

International Scientific Congress on Climate Change. “Key Messages from the Congress.” March 12, 2009.
Grist. “The ‘invisible hand’ is blind to climate externalities and the value of natural resources.” December 18, 2008.

The psycho-sociological crisis

We have experienced high rates of economic growth since the Second World War, but following the satisfaction of basic needs that growth has not been accompanied by increasing happiness. More worryingly, it has been achieved at increasing cost to psychological and social health.

James, Oliver. “Selfish capitalism is bad for our mental health.” The Guardian. January 3, 2008.
Kasser, Tim, Steven Cohn, Allen D. Kanner and Richard M. Ryan. 2007. “Some Costs of American Corporate Capitalism: A Psychological Exploration of Value and Goal Conflicts”. Psychological Inquiry. Vol. 18, No. 1, 1–22.
Friedman, Thomas L. “The Inflection Is Near?.” New York Times. March 7, 2009.

The ethics crisis

Any public-speaking business leader, politician or business school professor will insist upon the importance of ethics in the conduct of business. But the dominant legitimizing narrative for action – and the principal measure of success - within the corporation is contribution to shareholder value. Compliance with the law is calculated on a cost-benefit basis, linked to the probability and magnitude of sanction. We even talk about the business case for doing the right thing.

While we may feel disappointment, we can hardly feel surprised when we discover that ethical concerns are subordinated to profit.

We may despair at declining trust, but we should be even more concerned by the decline in trustworthiness.

Reuters. “Global Trust In Business Plummeted In 2008: Edelman Survey.” Jan 27, 2009.
Mayer, Roger, James H. Davis and F. David Schoorman. 1995. “An integrative model or organizational trust.” Academy of Management Review. Vol. 20, No. 3, 709-734.
Ghoshal, Sumantra. “Business schools share the blame for Enron.” Financial Times. July 17, 2003.
Goodpaster, Kenneth E. 2004. “Ethics or excellence? Conscience as a check on the unbalanced pursuit of organizational goals.” Ivey Business Journal. March/April.

The political crisis

If someone exercises power that impacts me, that power had better be exercised legitimately or I will likely resist it. The question is whether largely unaccountable corporate power has effectively usurped that of governments in areas that impact us. Corporate lobbying and political contributions have undermined the efficient functioning of markets, as well as the protection of communities beyond the economic exchange.

Multinationals can shift around their headquarters according to which nation offers the most advantageous tax base irrespective of the public services they benefit from; or move to jurisdictions offering the weakest corporate liability laws and softest regulatory approach, prompting a race to lower standards. They can all but disappear, for legal liability purposes, when a part of their far flung empire engages in or becomes complicit in human rights abuses.

Johnson, Simon. “The Quiet Coup.” The Atlantic. May, 2009.
Stiglitz, Joseph. “Making globalisation work.” The Guardian. September 7, 2006.
TheTyee. “Canadian Mining Firm Financed Violence in Ecuador: Lawsuit.” March 3, 2009.

Next post: CSR: Confusing Social Responsibility