3 ESSENTIALS OF CSR
3.1.2 Most significant business ethics and economic theories
In this sense, the objective of an investment by a company is probably not focused on ethical matters, but an economical approach, even though the outcome of ethical issues would be beneficial (Holzmann, 2015, p. 73). This finding was already identified almost 240 years ago: ‘it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest’ is certainly one of the most quoted statements by Adam Smith from the year 1776 (Smith and Sutherland, 1790 (2008), p. 22). Smith, who is known as the founder of the classical economies as well as national economies, also coined the term, invisible hand. John Stuart Mill and John Locke, Smith as representatives of the school of liberalism demanded that business should be done on a self‐
regulating‐market without governmental intervention in the economy: ‘the statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention […]
and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to excercise it’ (Smith and Sutherland, 1790 (2008), p. 292).
About 200 years later, the so‐called neoliberalism rose as a new edition of the liberalism approach. To name two commonly known representatives of this school of thought, Friedrich von Hayek and Milton Friedman also demand a free market without any regulation and interference from government. In terms of business ethics, Friedman claims that ‘the social responsibility of business is to increase its profits’
(Friedman, 1970). In his essay ‘Why Government is the problem’ he explains that
‘liberal pundits’ blame ‘private enterprises’ for polluting the earth. Thus, Friedman proposed the comparison of the pollution of air, water, and soil in the former Soviet countries with those in capitalist countries and concludes: ‘the difference is not that our government has been more efficient in avoiding pollution; it is that private enterprises find that it is not profitable to pollute; it is more profitable to avoid pollution’ (Friedman, 1993, p. 6). Rappaport, another representative of this school of thought, suggested that ’shareholder are us’ (Rappaport, 1998, p. 11). The meaning, however, comes to light when looking at the economic market of the United Stated of America. In contrast to Germany, where in 1998 less than 7% and in year 2015 less than 9% of
the inhabitants owned shares in capital companies (DAI, 2017), in 1998 ‘about 40% of United States households own individuals stocks or mutual funds’ (Rappaport, 1998, p.
11). In this sense, the society of the United States is not only a stakeholder but also a shareholder, thus raising a legal claim and an economic demand on corporations which becomes a universal requirement.
Another school of thought was brought up by Karl Marx in the 19th century.
He complained of the oppression of workers and therefore reasons for a change in the economic system. However, he not only demands equal distribution of productions factors, but more than this postulates the conquest of power and ownership through the proletariat (Oermann, 2015, pp. 28–32). Nowadays, there is nothing contradictory between the theory of communism and need of social responsibility from firms in communist states. As an example, a project by the Germany Gesellschaft für Internationale Zusammenarbeit (GIZ) was established between 2007 and 2012 in the Peopleʹs Republic of China to improve CSR knowledge within the country (GIZ, 2012): ’the Chinese government has acknowledged these challenges and has introduced the model of a “harmonious society” which […] aligns economic interests with social and environmental interests’.
By the way of contrast, another school of thought on business ethics and economic theory is given by institutional economics and by new institutional economics respectively. A recent representative of the new institutional economics is the author of ‘The nature of the firm’ Ronald Coase (1937) and Douglass North (1990). Their point of view focuses on social and legal norms that underlie economic activity. With respect to social requirements and a company’s stakeholders, Freeman et al. (2010, p. 241) points out that ‘the recent financial crisis show[s] the consequences of separating ethic[s] from capitalism. The large banks and financial services firms all had CSR policies and programs, but because they did not see ethics as connected to what they do – to how they create value – they were unable to fulfil their basic responsibilities to their stakeholders and ended up destroying value for the entire economy’.
Another theory is the social market economy. This system is the market system of Germany. The social market economy is a socio‐political and economic policy model with the aim of combining a free market capitalist economic initiative
with social progress secured by economic performance on the basis of the competitive economy (Müller‐Armack, 1976, p. 245). Müller‐Armack chose this word combination for the first time in 1946 in his book ʺWirtschaftslenkung und Marktwirtschaftʺ, which was finally published in 1947. He designed the social market economy as a ‘third form’ alongside the governmental based economic steering and the purely liberal market economy. His aim was to embed the market as a ‘supporting framework’ in ‘a consciously controlled, and socially controlled market economy’ (Müller‐Armack, 1947, p. 88).
Even today, the search for the right approach in terms of business ethics is still ongoing. In this sense, six guiding principles in business ethics defined by Suchanek (2007, pp. 11–12) will finally be introduced with respect to demands on social responsibility:
One may have another point of view and some do so.
Humans are moral subjects, they have dignity and are skilled to choose freedom. Moreover, humans are of a physiological nature, gifted with economic thinking, thus, bound to certain conditions.
One always alter conditions and options for oneself but also for others.
Only a behaviour that alters the future and keeps oneself’s freedom and liberty is reasonable and means responsibility.
To keep freedom and liberty, one needs integrity, trust, (good) institutions and organisations which are worth to invest.
One is asked to invest in conditions of good behaviour to ensure social cooperation to a mutual beneficial approach.
The economic philosopher Karl Popper, who during his life had personally accepted and rejected different economic theories, emphasised the criticism of relativism in a lecture held on radio (Popper, 1990). The idea of relativism, as explained by Popper, assumes that there cannot be only one, but rather different truth at same issue, depending on an individuals’ perspective. Assuming that Popper is right and there is, nonetheless, only one objective truth, the question of whether Corporate Social Responsibility in the sense of stakeholder value management or shareholder value management, as it will be presented in Chapter
4.2, is either vital for companies or not. To understand CSR as a conceptual framework, a brief introduction is given in the following chapter.