DesJardins examines the positives and negatives of economic frameworks in prescribing how businesses should respond to the ethical premise of corporate social responsibility. He presents a thorough and rigorous analysis of these frameworks and identifies the deficiencies in the traditional models employed to study markets, namely the inability to include moral and ethical concerns in relation to the environment and natural resource use. DesJardins proposes a sustainable development model which he believes covers the deficiencies of previous models. While this model does appear superior to traditional models (and indeed is used today), like any model it is only a representation of reality and is still subject to market failure. DesJardins fails to note though that it is ultimately the “public good” nature of the environment (i.e. it is non-excludable and people can have simultaneous enjoyment of the good) that gives rise to problems of efficient management. This is compounded when moral and ethical concerns are considered in conjunction with standard economic efficiency analysis.
What is corporate social responsibility (CSR)?
The idea underpinning CSR is that businesses should be responsible in their production and supply of goods and services, taking into account environmental and ecological issues as well as economic ones. CSR should influence business decisions and policy via an integration of business and ethics. While it is recognised that economic growth is fundamental to society and sustain the needs of the population (in providing all required goods and services), it must be noted that economic growth creates its own problems such as environmental degradation through supplying potentially unsustainable and unethical market demands. DesJardins notes that a market equilibrium, while efficient in the economic sense, may not be ethically or environmentally optimal. Resource economists explain this phenomena through the divergence of private marginal cost (PMC – which represents costs to the firm and usually determines how much it will supply) and social marginal cost (SMC – which includes environmental and possible ethical costs, and hence restricts supply to its socially optimal point).
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Businesses usually respond to demands of consumers. While there has been a recent increase in demand for products which are produced sustainably, for example tables made from sustainably harvested forests, free range eggs, and organic meats, it cannot be expected that all consumers will behave in an ethical manner. Satisfying consumer demands is economically efficient in that everyone gets what they want, but these things may not be environmentally or ethically sound – for example consumers may demand cheap t-shirts, but these may have been produced in a sweat shop from cotton that was irrigated during drought. While governments can step in to combat market failure such as not properly valuing pollution costs or by regulating the minimum wage, it is well recognised that governments fail too, and may become corrupt when influenced by rich lobby groups. CSR maintains that businesses have a role to consider the ethics of production, and the model of sustainable development (SD) proposed by DesJardins attempts to show how this can be factored into the production decisions of businesses.
Summary and analysis of DesJardins’ presentation of economic models
Classical Economics
Strengths
- an early model which defines fundamental economic concepts such as willingness to pay, efficient use of resources, basic supply and demand framework and profit maximisation
- incorporates legal constraints to production which regulates businesses to some degree
Weaknesses
- model denies that business has any direct environmental responsibility
- market failures (leading to an excess of production leading to environmental damage) not captured by the model
- microeconomic goals (profit maximisation of businesses) may be inconsistent with macroeconomic objectives (economic growth and environmental management)
- since human preferences may be silly and immoral, the optimal supply and demand providing maximum satisfaction of consumer preferences may not be an ethical goal
Comments
- resource economics theories and environmental law were only developed in the 1970s, this model is outdated although its basic economic supply and demand framework hold for goods where there are no “hidden” environmental costs
- nowadays with increased awareness of environmental issues, we see consumers demanding ‘green’ products, this may help to rectify the market failures as consumers develop more socially optimal preferences
- it is the “public good” nature of environmental assets (that they are non-excludable and non-rival in consumption) that leads to market failures – resource economics has models to explain this and suggests government intervention and the creation of incentives (such as tradeable emissions permits) to alter the business conscience towards more ethical/environmental considerations
Neoclassical Economics
Strengths
- an improvement on the classical model as economic efficiency and obedience to law must be achieved to satisfy moral responsibility
- suggests that corporate responsibility should involve corporations seeking profits while obeying a moral minimum of avoiding harm, responsibility to stakeholders and the moral rights of its employees and consumers
Weaknesses
- moral minimum still fails to include ecological sustainability
- there are many neoclassical alternatives such as moral standing of the non-human world, deontological and consequentialist views, holistic approaches, which cannot be incorporated into the model and would probably restrict economic activity
Comments
- the “moral minimum” described by DesJardins appears to be what a rational businessperson would strive for anyway, as it is of benefit to the firm to ensure all involved in production and consumption are happy, as this will also help to improve their bottom line
- ecological principles tend to be tied to the long term self interest of businesses
- model recognises externalities of production (such as pollution) exist, that the market does fail and proposes that government should regulate businesses to achieve a socially and environmentally optimal outcome
Sustainable Development Model
Strengths
- this model includes both ecological constraints as well as minimal moral constraints, where the classical model only considered the legal constraints and the neoclassical encompasses only moral constraints
sustainable development seen to best satisfy DesJardins’ defined “criteria of adequacy” listed at start of the chapter, despite the views of deep ecologies and defenders of animal welfare - aims for economic development as opposed to economic growth which purely focuses on increased production rather than diversification and consideration of environmental values
- businesses do not just respond to the market environment set by consumers and the government, but have an opportunity to respond to shape they way they meet this demand, and must share moral responsibility for sustainable development
- sustainable development includes intergenerational equity as well as consideration of the billions of people currently living who have no voice in international markets
- sustainable economic activities can hope to maximise overall good even if market demands are not ethical
Weaknesses
- markets always find efficient allocation of resources, so if there are less resources in the future we will find an optimal point satisfying this regardless of sustainable development
- future happiness may not be equal to present happiness – what if the world no longer exists 100 years for now? Should we just make full use of resources while we have access to them?
Comments
- although this seems the best model at present, it has not yet stood up to the test of time
- there may be difficulty in regulating moral minimums for businesses, as morals are different for all people. Anthropocentric producers are not necessarily completely void of ethics as they would protect the environment, albeit for human gain
- the Pacific Lumber case is a poor case study of unsustainable resource use as any other company would manage the timber for long term sustainable gains, it was only because this company was faced with insolvency that it had high short term costs to overcome before it could realise these gains and thus exploited the resource to try and cover these costs
- in the 10 years since this article has been widely adopted, ecologically sustainable development is evident in Australian law and policy
