CSR Is A Dangerous Socialist Hoax

The following article of mine appeared in the June 11 issue of Outlook Business. It is republished below as they have not yet made it available online.

CSR IS A DANGEROUS SOCIALIST HOAX

by

SAUVIK CHAKRAVERTI

Legislation is being passed mandating “corporate social responsibility” (CSR) and private firms will now be forced at gun-point to divert resources towards this dubious end. At the outset, it ought to be pointed out that this presents us with a “principal-agent problem,” as the principals, who are the shareholders, have never instructed management, who are their agents, to spend their precious Capital in this manner.

What are the responsibilities of a corporation? Well, first must come the shareholders, who have put up the Capital. And then, if markets are fully competitive, in order to ensure share value, the corporation must satisfy the buying public – its customers.

Now, if corporations act in this way – serving the self-interest of their shareholders and customers – then, as Adam Smith pointed out, “society benefits as though by an invisible hand.” The mobile phone with a built-in torch is a great example in India, where the socialist State, with all its social responsibility, cannot provide reliable, uninterrupted electricity, which it has monopolised. Thank heavens their telephone monopoly has gone!

Indeed, all the goodies we enjoy consuming today are produced by private corporations – cars, phones, computers, software, beer, wine, fashionable clothes, and so much more. Because of these “selfish capitalists” the invisible hand ensures that the whole of society benefits.

           

“I have never seen much good come out of those who purport to trade for the public benefit,” added Smith, and this point is worth pondering over in socialist India, where the State owns and operates hundreds of companies that “purport to trade for the public benefit” – from Air India and SAIL to ONGC and ITDC to banks and telephone and electricity companies. Our long experience with a State-owned industrial sector ought to have convinced us that private corporations serve us – the members of society – far better than public sector firms. The former produce for us our “common wealth,” while the latter are our “common loss.”

In other words, it ought to be apparent to all of us that “social responsibility” is a hoax, just as “socialism” is a hoax. If a socially responsible government were to take power, its first duty would be to liquidate all the PSUs. Social responsibility, indeed!

Friedrich Hayek, the only Austrian School economist to win the Nobel prize so far, called “social” a “weasel word” – and we must watch out for it. The weasel is an animal that feeds by making a tiny hole and sucking everything out of an egg, leaving behind the empty shell. In precisely the same way, if any other word is attached to “social” then it loses its meaning entirely. For example, “social justice.” Justice, we all know, is fair exchange: “the principle of Justice is the principle of Trade.” But what “justice” is there in “social justice” – which means the State robs Peter to pay Paul? Social justice is just a “mirage,” said Hayek. Look at the MGNREGA.

Similarly, there is “work” – which means, to most of us, performing onerous duties in order to satisfy our bosses and our customers. In which case, what is “social work” – which also “purports to trade for the public benefit”? The NGO sector is full of frauds.

Hayek has listed out over 150 words that have their entire meaning sucked out of them when attached to the word “social” – the very word that lies at the root of “socialism.” If socialism failed so spectacularly, what good can “corporate social responsibility” (CSR) accomplish?

Civil society must see through this hoax being perpetrated by our socialist political society. It is to civil society that shareholders as well as consumers belong. Would it not be best if businesses are left alone, free to pursue profits by producing goods and services for society while being responsible for shareholder value? Or should managerial energies and corporate profits be diverted towards such nonsense?

To my severely jaundiced eye, this impending legislation mandating CSR is another attempt by our socialist State to malign The Market – and Smith’s “invisible hand” – while asserting that, without these State interventions, society will lose.

The truth is the other way around. These interventions will cause monetary losses to civil society and its only beneficiaries will be a new set of baboos who will emerge to “enforce” CSR. Another lot of government “inspectors” will land up to torment business managers. The socialist State, which ought to be drastically cut down, will actually expand!

This will be a horror story. It ought to be strongly opposed by all – from those who invest in shares to businessmen and managers, right down to the buying public.

(Sauvik Chakraverti is an author and columnist. He was honoured with the Frederic Bastiat prize in 2002.)