Corporate Responsibility and Political Philosophy

Exploring the Social Liberal Corporation

Kristian Høyer Toft

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781351660105
• Edition: 1
• Topic: Philosophy
• Subtopic: Philosophy History & Theory

This book argues for the inclusion of the corporation as an integral element of political philosophy. It begins with a historical evaluation of the corporation as a constituent of political society. It shows how Adam Smith, Hegel, and Marx conceived the role of the corporation in relation to the state, the market and civil society, before moving on to the rejection of the corporation as a genuine moral and political agent by Rawls and Habermas. The next chapter of the book presents the corporation as a collective that possesses political and moral agency. The author outlines four distinct political philosophies of corporate responsibility: the Aristotelian conservative-virtue ethical conception; the market liberal theory; the social liberal theory of corporate citizenship and political CSR; and Marxist-inspired critical theories. It is argued that the social liberal theory provides a better justification compared to its rivals. The third and final group of chapters applies the social liberal conception – called the social liberal corporation – to important contemporary issues, including human rights in global supply chains, financial and digital firms, sustainability and climate change. Corporate Responsibility and Political Philosophy will appeal to political philosophers, political theorists, and applied ethicists, as well as scholars in other disciplines working on issues related to business ethics, organizational ethics, sustainability and corporate social responsibility. As it provides a comprehensive introduction to corporate responsibility it is also relevant to sustainability professionals who seek an overview of the theoretical debate on corporate responsibility.

Part I
The Corporation in Liberalism and Corporate Moral Agency

1 The Corporation and Free Markets in Classical Liberalism and Its Critics

This chapter is a reading of Adam Smith (1723–1790), G. W. F. Hegel (1770–1831), and Karl Marx (1818–1883) and the role of the corporation in society and the market in the 18th and 19th centuries. This is a period of both industrialization and liberal political revolutions within the rising nation states. Pivotal is the freedom to pursue private interests in the market. The modern corporation, as we know it, is emerging, and the period experiences a transition from the small-holder corporation of the guilds and craftsmen to big industrial factory firms. Moreover, as David Ciepley (2013) has pointed out, the corporation first appears as a “franchise of the government” because the government provides legal permissions to run the corporation, and at the same time the corporation is also a creature of the market because it is seen as a vehicle for liberating individuals from the old feudal order. In Adam Smith’s works, the focus is the joint-stock companies that he criticizes. However, Smith basically sees the corporation as a means to make production more effective. The idea of a division of labour is driven by expansion of the market and the needs it seeks to satisfy. The example of the factory where each worker contributes his share to produce a pin described in the Wealth of Nations (1776) is instructive. Hegel adopts Smith’s idea of the emancipatory potential of free markets, which he titles the “system of needs”, but he also seeks to connect citizens’ freedom in the marketplace with the idea of the state and its institutions as a necessary condition for realizing political freedom. Hegel’s notion of the corporation is a version of the socially embedded organization in which the private and public are united and mediated through the state. Marx, finally, launches a criticism of liberal market ideas, emphasizing that workers under capitalism are exploited and alienated and that capitalism as a system is doomed due to its internal contradictions. Marx’s focus is clearly the system level of capital and the means of production to which the corporation per se is secondary. However, indirectly, Marx’s main oeuvre on economics, Capital (1867), contains inherent contradictions between the free market and the not-so-free organization of production. Marx is asking why the worker is free to sell labour on the market, but when working in the factory, the worker loses freedom. Hence, the worker is denied the essence of the liberal revolution – the right to pursue individual freedom. In the space of the corporation, the feudal order is therefore preserved.

The point of a comparative reading of Smith, Hegel, and Marx in regard to unravelling the idea of corporate responsibility, the main theme of this book, is that they provide the historical backdrop for much of the modern understanding of the corporation. In terms of political theory, these three thinkers each represent different “ideologies”, that is, the positions associated with market liberalism or libertarianism (Smith), social liberalism (Hegel), and socialism (Marx). This is, of course, a rather crude categorization because Smith also defended public education and social security, Hegel was clearly also a conservative about political institutions in his critique of the terror of the French Revolution, and Marx was not entirely content with socialism. Also relevant for current thinking is that they all grappled with how to reconcile markets, civil society, and the state or, in the Marxian understanding, the classes.

At the same time, it is also difficult if not misleading to look for the source of current notions of corporate responsibility in the philosophical literature of the 18th and 19th centuries. Basically, none of these philosophers mention corporate responsibility as a term, which is not surprising because the concept was coined much later in the 20th century (see, e.g., Christiansen 2015). However, the inherent meaning of corporate responsibility rendering the business firm responsible for its impact on society, or assessing the value of the corporation as a provider of goods or a problem solver in society, is not foreign to the thinking of Smith, Hegel, and Marx. In fact, the corporation is a key topic for these thinkers, but the concerns go by other names and also mirror a different historical context.

From the Manufacturer to the Industrial Organization

The period of around 90 years covering the publication of Smith’s Wealth of Nations (1776) to Hegel’s Philosophy of Right (1821) and Marx’s first volume of Capital (1867) marks a significant development in the political institutions of society. The breakdown of feudalism and departure from absolutist monarchism in the wake of the French, the British, and American revolutions created the institutional background for emancipation of individuals to “pursue their happiness” in society and on the market. The institution of the market is a liberating force, functioning as a level playing field for individuals to exchange goods, to “truck and barter” as Smith would say (2000, 14). This view of the market is mirrored in the cosmopolitan ideal of doux commerce, which later proved constructive in promoting co-operation and partnership among trading nations. According to classical liberalism the market is even seen as an institution that realizes the natural or a human right (Muthu 2008, 206) to pursue personal freedom, mirrored in both Smith’s and Hegel’s recognition of the market. They are, however, also aware that the market can be skewed to the interests of the few and mighty, for instance, in the case of monopolies and state-granted privileges to corporations. The market is not perfect, but it is instrumental in granting liberties to individuals as citizens in the emerging nation states, and liberal democracy is therefore historically linked to market liberalism. The optimistic view of the market as a liberating force, however, changes. Hegel acknowledges that a particular group of citizens lose on the market because they cannot find proper labour to sustain a household. With the advent of industrial factories and large-scale production, this marginalized group grows into a rabble (Hegel 1821, §244 on the “Pöbel”). Hegel’s dialectic way of “sublating” (Aufheben) contradictions of the system reaches an impasse because the rabble cannot be sublated, that is, integrated into the system of society by getting proper jobs. The rabble, in fact, contradicts the positive story of the new market society that will elevate all its citizens to prosperity. To Marx, the sad fact of the rabble, which he names the “Proletariat” or the “reserve army” of workers, is that the market fails to cater for all. The developmental storyline of the period running from Smith to Marx shows a remarkable turn from sheer optimism to grave pessimism in the belief of what the market can bring to society. So what happened during this period to prompt such a drastic change of view?

Elizabeth Anderson (2017) diagnoses the advent of industrialism as the cause of the turn. To Smith the agents on the market are mostly small groups of merchants and individual manufacturers exchanging with equals. To Marx it has become clear that big business corporations now run industry and dominate the market, meaning that there is unequal access to possible benefits of the market. In particular, according to Marx, the labour market has resulted in a general exploitation of the working class, who have no alternative but to sell their labour to make an income. So the ideal view of the market held by classical liberalism was shattered by the advent of industrialization, which ultimately resulted in the differing views of the market that continue to exist today. The market liberal will insist that there is nothing wrong with the market as such; rather, it is external forces, in particular the state, that have made it imperfect. Marxists, conversely, tend to see the market as inherently effective and rational, and thus agree with classical liberalism, but they believe that the market is harmful to the majority of humans because it represents a commodification of human labour that can be exchanged for a price that does not correspond to the actual labour invested by the worker. Social liberals accept that markets are a vehicle for human liberty and wealth creation, but they also concede that markets are never perfect and therefore need to be regulated or instilled with an ethos of “responsibility”. Conservatives tend to also be critical about markets and in agreement with Marxists; they prefer a retreat back to local and reciprocal exchange in the community where the goods are produced and used – basically a critique of the modern organization of the division of labour. Admittedly, these descriptions are nothing new, but I restate them because they have had considerable impact on how we currently perceive the prospects for corporate responsibility.

The next sections will focus on the political role of the corporation in the works of Smith, Hegel, and Marx to set the stage for the search for foundations of the social liberal corporation.

The sections will show that a balanced liberalism of a social liberal kind is at work here as Smith is positive about small merchants and manufacturers but critical about monopoly. Hegel envisages a significant role for the corporation to mediate between citizens and the state. Marx is critical about industrialized production but positive about pre-modern localized production. Hence, his view of the cooperative as an alternative to capitalist firms is explored.

Adam Smith: Free Markets and Colonial Monopoly

Adam Smith is a recurrent source of reference for research on CSR. In particular, Milton Friedman, the godfather of modern market liberal critique of CSR, refers to Smith’s idea of an invisible hand when emphasizing that the only responsibility of business is to increase its profits and not see to the public good (Capitalism and Freedom 1962, 133; see also Chapter 5 for a discussion of Friedman). Other market liberals favour Smith as an authority who can back up their views on corporate responsibility. For instance, Porter and Kramer (2011, 17) in introducing their “shared value” concept allude to Smith’s invisible hand of an undisturbed market:

Creating shared value represents a broader conception of Adam Smith’s invisible hand. It opens the doors of the pin factory to a wider set of influences. It is not philanthropy but self-interested behavior to create economic value by creating societal value. If all companies individually pursued shared value connected to their particular businesses, society’s overall interests would be served.

Hence, Smith is here taken to represent the value of self-interest as a means to create public wealth. Indeed, this is the reading most commonly associated with the market liberalism that Smith endorses. However, this reading is also disputed by several commentators of Smith who claim that he did not endorse an unconstrained self-interest. Indeed, the entire debate over Smith has resulted in what has been called the “Adam Smith problem”, alluding to the fact that Smith’s position was incoherent about the value of selfishness in the market (Herzog 2013, 20–21). The incoherence appears in the allegedly incompatible views found in the two main works of Smith, the Wealth of Nations and the Theory of Moral Sentiments. The first propagates unrestrained selfishness, it is assumed by the popular reading, and the latter an altruist morality often overlooked because the work is less famous. The contradiction is real insofar as the two works are in some tension on the view about balancing selfishness and altruism. A few famous quotes from Smith will show why the “Smith problem” is a commonly held view of the internal incoherence of his position.

In the Wealth of Nations (15), he contends:

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. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

The reciprocity found in the marketplace is therefore founded on self-regard rather than any altruistic concern. Furthermore, this quote, which is often used to illustrate the utter pointlessness in asking for businesses to be morally responsible, is supplemented with the equally famous quote about the collective effects of promoting self-regard. This is the metaphor of the invisible hand (ibid. 485):

[The man of commerce] generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it… . By directing industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

However, these quotes are then confronted with the opening sentence of the Theory of Moral Sentiments, which sets a quite different tone (Smith 2009, 13):

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.

Commentators have argued that only a superficial reading of Smith would give rise to the perception of incoherence. Our morality is conditioned on the ability to view our own sentiments and interest at “a certain distance” by invoking the impartial spectator in us (Smith 2009, Introduction, xx). We have an interest in other peoples’ interests and the ability to take ours, and their interests, into consideration. Therefore, the dilemma of choosing between self and another’s interest dissolves, and hence the “Adam Smith problem” is also dismissed. Patricia Werhane (2000, 186) also critiques the libertarian reading of Smith on the grounds that it mistakes his views of the free market with Herbert Spencer’s libertarian view of the night watchman theory of the state and the mistaken interpretation of free markets as analogue to the Darwinian “survival of the fittest” (a phrase that Spencer and not Darwin proposed). The idea that self-interest prevails in Smith’s Wealth of Nations is a misreading, so according to Werhane,

[o]ur natural desire to cooperate motivates us to work together by dividing and specializing our labor. It also motivates us to barter, where the appeal to self-interest of others as well as to their good will in honoring the exchange results in “mutual and reciprocal” gains.

(Werhane 2000, 194)

The free market is also not unconstrained; rather, it presupposes, according to Smith, that the government provides a legal context that ensures that buyers and sellers are meeting on a level playing field (ibid. 195). And, the role of government is also beyond the minimalism often ascribed to Smith because he argues that some level of free education must be offered to the youth (Smith 2000, 779).

To get a more concrete impression of how Smith viewed the corporation, besides these general normative views of the market and personal morality, his writing on the pin factory and the East India Company in the Wealth of Nations is helpful. In Chapter 1 on the subject of “the division of labour”, he describes how this type of modern production can increase the efficiency in the manufacturing of pins. In this pin factory ten men can produce up to 48,000 pins in a day due to the division of labour, whereas if they “had all wrought separat...