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Dishonest and greedy? We still need business to do good

By Mark Leonard. Source: Observer Worldview, 21 July 2002

The left must resist the temptation to crow at corporate misfortune. Governments are right to seek to harness corporate power in delivering public goods, but still haven't worked out how to get what they want.

The state is back. Public spending and regulation are the new black. The public sector is seen as honest, well intentioned, and desirable. Gordon Brown is the most popular chancellor in recent memory - and for putting taxes up, not trimming them down. Across the Atlantic, despite George Bush's pro-corporate instincts, The President has been forced to talk about curbing the excesses of the American boardroom. And, in fact, Bush has alread been one of most economically interventionist of American Presidents - handing money out to farmers and ailing companies.

Meanwhile polls show a public which believes that business is dishonest, inefficient, callous and greedy. Seven out of ten Americans think that companies routinely lie to mislead investors, and six out of ten think that they have too much control over politics. As if to prove the contrast, the stock market plummetted on the very day that Gordon Brown announced the biggest rise in public spending this century.

The cartoonish avarice that now defines Corporate America has caused no little schadenfreude amongst the Left. Just as memories are short during boom years, as eager pundits predict that the economy will defy well-worn economic laws, so a collective amnesia overcomes left-wing commentators when the world economy enters a downturn. Every economic trough - from the exit from the ERM in 1992 to the Asian flu five years later - there were predictions that the era of untrammelled capitalism was coming to an end. The stock market always ended up higher than before within acouple of years - and regulation to curb the excesses of capital never materialised.

The danger is that this inane crowing will destroy the best chance yet to address one of the biggest questions: what are the responsibilities of business towards society? This is a much broader question than the much-needed but relatively straightforward reforms which would bring more transparency and honesty into corporate accounting practices.

To address the issue depends on rejecting the the unholy alliance of right-wing commentators like Milton Friedman who see the business of business as business and nothing else - the mantra that "the social responsibility of business is to make a profit" - and those on the left, like Naomi Klein who want "the contaminating influence of business" removed from the public sphere because it has no place in education, health-care or criminal justice. Many people will instinctively think Klein is right. Surely the public sphere is the business of government itself? Indeed, when anyone thinks of companies providing public goods they imagine Virgin delaying trains, Group Four losing prisoners or McDonalds taking over the school canteen.

But despite current events, many governments want private involvement and know they need it if they are to deliver the public goods their electorate's expect. What is more they are right to do so, despite the endless caricatures of governments being helplessly "in thrall to business". There are many examples of companies delivering public goods. Of course, companies create jobs and pay taxes for a start but business entrepreneurs can also create the technology for renewable energy, affordable housing, or life-saving drugs. When they do this companies do not replace or hollow out the role of governments - but they can help to make it possible for political leaders to meet policy objectives. Forging an effective partnership with business can be the key to tackling climate change by using the market to spread clean fuels; tackling war in Africa by certifying resources like diamonds that have fuelled conflicts; renewing neighbourhoods by rebuilding public spaces and creating a better-work life balance for employees. Many of the thorniest public policy issues will continue to defy governments acting on their own.

Recent heated debates about pharmaceuticals show how public debate rarely recognises this reality. Fourteen million people die every year of preventable or curable diseases. The products of pharmaceutical companies can play a vital role in tackling them. But public debate focuses on vilifying corporations rather than exploring how their resources can be harnessed to research new drugs, supply them at affordable prices, and integrate them into national health systems.

However an understandable cynicism remains. Why would companies do anything other than make their shareholders richer - particularly if we enter an economic downturn?

Where corporate behaviour has changed in the last decade, the driving force has been public opinion. Even corporate titans like Shell and GAP have been dented by customer boycotts when they appeared to be misbehaving. In both of these cases, consumer pressure brought about immediate changes in corporate behaviour.

Claims that GAP used Cambodian child labour in the manufacture of clothes resulted in changes in the supply chain; protests at Shell's proposed dumping of the Brent Spa oil platform led to a swift volte-face, against the advice of the company's own scientists. But the ability of pressure politics to change the world in this way is limited. These effect of public exposure on the corporate bottom-line arguments will only ever make a difference to the most high profile companies at the top end of branded products.

If GAP were to implement a tougher labour code of conduct through its supply chains, this might directly benefit 5 million workers. That seems limited when 1.5 billion people live on less than a dollar a day. And consumers are entirely capable of holding contradictory views - polls show that most people care about the environment but there are no unfilled job vacancies at Exxon Mobil because of their virulent opposition to the Kyoto Protocol. Relying purely on public and media pressure turns accountability into a lottery - the worst offenders can escape media scrutiny because they are less famous. And a narrow focus on naming and shaming bad practice may stop some bad practices, but it will not unleash the powers of companies to do good.

This is where intelligent government action can make a real difference. Companies are acutely aware of the way in which NGO campaigns can knock billions off their share price. Yet they can't be sure that if they change their policies in response to one NGO campaign, they won't be criticized by another one for the opposite reasons. This leaves many business leaders jittery about their position. BP Executive Nick Butler says "we don't feel we have very much power at all". Attempts to regain control drive DIY attempts at accountability. BP recently hired Senator George Mitchell to chair an independent commission on the impact of their Indonesian drilling operations on the local community. But not every company can hire a Nobel Prize nominee. And that doesn't solve the problem of judging the veracity of claims made against companies. NGOs are not vetted according to the evidence behind their allegations and companies almost invariably deny wrongdoing. How will consumers be able to navigate this world of claim and counter-claim?

The pharmaceutical industry experience shows that progress will be patchy unless governments set out clearer frameworks for understanding corporate responsibility. At the moment companies that are trying to reform like Glaxo SmithKline - which has been praised by Oxfam for beginning to address the issue of access to medicines more transparently - are tarred with the same brush as those like Hoffmann-La Roche that still refuse to discuss the substantive issues on the grounds of "confidentiality".

The solution is for governments to bring companies, NGOs and international organisations together to thrash out new standards which can then be vouched for by governments. These would need to be underpinned by carrots and sticks - kitemarks or tax-breaks for companies that are responsible with censures and fines for those that aren't - so that recalcitrant companies feel the pressure for change. This is starting to happen in the clunkily named "joint public private initiatives" which are being formed to tackle health problems in developing countries.

These new partnerships begin to align the activities of companies to real public policy problems rather than the perspective of the corporate PR department. The presence of governments and international bodies like the World Health Organisation mean that corporate initiatives are slotted into broader development projects. They allow ethical companies to stave off unfair attacks. Governments need to set out transparent frameworks for public-private partnerships at home and abroad and be prepared to praise good "corporate citizens" while mercilessly naming and shaming poor performers.

Public cynicism about companies has created both the thirst and the opportunity for government action. What is more, many companies realise they need governments too: not just for their "licence to operate" but to enjoy stability and to know what rules they will be expected to follow. But will governments realise that being "business-friendly" can mean delivering uncomfortable truths as well as light regulation? That would be mark the real return of the state.