Alternative means for stimulating corporate social responsibility

Sharing.

When it comes to corporate social or environmental responsibility (CSR), self-regulation has a fairly bad reputation. “Laissez-faire” is seen as letting the fox loose in the henhouse, with all the damages one would expect. But should we really give up on having any trust in companies ? Perhaps not quite yet. I would like to defend the notion that allowing businesses to manage themselves is not as crazy as it seems, provided the correct organisation and incentives are in place.

Commons and artificial commons

To better understand how this could be done, we can take a look at the notion of “the commons”.

Take an idyllic garden. Let everyone go and enjoy this communal space however and whenever they please. Very quickly, individual selfishness spoils the fragrant flowers and green lawn and this charming garden turns into no more than a dusty lot and everyone is upset. It’s a tragedy, “the tragedy of the commons”.

The story, however, is not always “tragic”. Economists are beginning to understand how groups of individuals, no wiser than you and I, can intelligently share a garden, a fishery or any number of other collective resources. All this without any official instructions raining down from a high throne or issued by a legislature. Elinor Ostrom showed how these collective resources can, under certain conditions, engender surprisingly virtuous behaviour.

The concern of economists is specifying the types of collective organisation that would prevent trampling of the lawn and flowers: How to preserve the “commons”? But this is not the question that concerns us. Let us invert the question: which are the commons that elicit virtuous collective behaviour?

This is the element of Ostrom’s work pertinent to this topic: the ability of collective resources to elicit these counter-intuitive virtuous behaviours. I thus propose that we should consider these commons not as an end, but as a means of inducing this virtuous behaviour. Applying this idea to the issue of social entrepreneurship, I demonstrated that we could, by creating “artificial commons” (I don’t use this term, but that’s the idea), encourage entrepreneurs to adopt desirable behaviours. This should be similarly applicable to other situations, for instance CSR.

But how?

The logic of sharing

Organise a party. Everyone is welcome. Put a large cake on the table and invite the guests in to share it. You would expect the cake to be divided equally among them. A greedy guest who would like to take a larger slice knows what he risks: disapproval from the other guests who would not appreciate such an injustice. So he refrains from trying to get a bigger slice and resigns himself to getting a fair and equal share of the cake. Experimental economics reinforces the idea that rejection of injustice often outweighs material interests (we would rather not have any cake at all than have an unfairly a slice).

Let’s complicate things a bit. Let’s say that the cake is there to reward the most philanthropic among the guests. We provide the criteria for measuring philanthropy, we specify that the cake can only be shared once everyone has agreed on how to share it, and then we let them do as they may (those who no longer want to participate can leave – with no cake, of course). We could still expect them to share the cake fairly, and the most philanthropic among them to get larger slices. Otherwise, they would refuse to tolerate this injustice, and no one would get any cake at all.

Now let’s complicate things a bit more. Suppose we now say that the cake is there to reward philanthropy. Not the most philanthropic among them, just philanthropy. And no criteria are given. What can we expect? Once again, there is good reason to believe that the guests will eventually agree upon philanthropy criteria that are neither absurd nor unfair. And that they would agree upon how to share the cake in the fairest possible way, proportionately rewarding the most philanthropic individuals.

Applying this concept to companies, let’s replace the cake with a sufficient amount of money, and replace philanthropy with a concern about the impact their activity has on society (social, environmental, or even moral, epistemic or any other consequences). There is reason to believe that, following the same logic, virtuous behaviours can be rewarded, and thus encouraged. And one can hope, elicited.

Naturally there are a lot of complications to consider, but the idea is there.

In practical terms, what should be done to start to put this idea into practice? Where would the “cake” come from?

The creation of artificial commons

Artificial commons could be created in many ways. I’ll mention two.

One way would be to entrust companies with the task of redistributing a proportion of their taxes among themselves. This would be a type of horizontal taxation. Naturally, this potential redistribution would only be offered to companies who agree to following this logic of sharing.

This would most likely suit companies, but public authorities might frown on the prospect of having to sacrifice some of their revenues. But perhaps there is another way that would suit everyone: conjuring up the cake out of nowhere. It’s not magic, just legally complex – but apparently not impossible. This has been actually considered by respected policymakers. This is the concept of “helicopter money” created ex nihilo by central banks which would go directly into the pocket of consumers. This demonstrates, however, that it is legally and economically feasible for money created by the central banks to go elsewhere than to banks. In that case, why not put it into artificial commons, at the request of corporate collectives?

I propose that we give companies the novel freedom of creating artificial commons. This freedom, coupled with the commitment to respect the “rules of the game” I have presented, could lead to a form of self-organisation improving their ability to uphold their social responsibility – and perhaps reconcile the fox with the henhouse.

This article was originally published in French