CSR – It is still Greek to European Banks!

Yesterday, Greek Prime Minister George Papandreou narrowly won the support of the Greek parliament for his ongoing efforts to steer the country away from bankruptcy. Whether this has given him a second political life though is an open question. Greece’s financial troubles are far from over.

As a member the EU and the Eurozone the survival of Greece within these European institutions seems still anything but certain. Last week, the debate among European heads of state and Finance Ministers on further support for Greece was tough and controversial. Finally an agreement of another multi billion Euro cash injection from mostly France and Germany paved the way for keeping Greece floating for another month or so.

A thorny nettle of disagreement between the countries was the question, in how far private sector banks should be part of the solution. Germany, whose banks exposure of some €20bn is much lower than France’s was insisting on more involvement, while France opposed this approach in fear of a downgrading of their private banks by rating agencies. The compromise turned out to appeal to banks to ‘voluntarily’ become involved – but precious little is found in the news about whether banks have actually taken up this ‘invitation’.

If we watch the footage of protests and civil unrest in Greece it is conceivable that further ‘austerity’ measures (i.e. cutting public services) – let alone an outright bankruptcy – of the Greek government will pose a serious threat to the country’s democratic institutions. Much (admittedly not all) of Greece’s current troubles are following the global financial crisis. Greece is perhaps the most visible example of what many citizens in North America and Europe think: that Governments pile up huge debts to fix the irresponsible behaviour of wealthy bankers and investors while asking the common taxpayer and middle/working class people to put up with reduced public services or – as for instance in the case of UK university students – higher prices for those services.

It reflects a recent debate in the CSR literature which was initiated by Colin Crouch, a prominent sociologist and, more recently, CSR expert at Warwick University. He argues that capitalism has been able to coexist with democracy in most Western countries only because there were mechanisms to deal with two problems inherent in capitalist market economies: first, the cyclical ups and downs of the economy, which exposes particularly middle and lower income groups to economic hardship. Second, the harmonious coexistence of both systems is only possible if the inherent inequality of income distribution in capitalist systems can be addressed in a way that some income at the top end is redistributed to those at the bottom.

For decades after World War II the mechanism to address this problem was referred to as Keynesianism. Government spending during recession as well as progressive taxation and a welfare state helped addressing these two problems. This system was somewhat obliterated in the 1980s with policies most visibly linked to Reagan and Thatcher, often referred to as ‘neo-liberalism’. Crouch though argues that those changes in fact created a policy regime of ‘privatized Keynesianism’. By encouraging and extending home ownership, pension plans based on investments in capital markets and other models of making the saving middle class to small scale investors, the two inherent contradictions between capitalism and democracy were basically to turn lower income citizens in ‘mini capitalists’.

With the so-called ‘financial crisis’ in the late 2000s though this system has proven to be no longer effective. Many lower and middle income citizens in Western countries have lost their homes and pensions – or at least have suffered a severe reduction of their value. Currently, he suggests, we see this mechanism of ‘privatized Keynesianism’ weakened, if not absent, with no real alternatives in sight.

In this situation we face two stark options. The first possibility is that similar to the 1920s and early 1930s, this absence of a mediating policy regime may give rise to political extremism, anti-democratic movements or outright the re-invigoration of fascism or left wing authoritarianism. In this light, the developments in Greece, but also the ongoing rise of the political extreme right in many European countries and the United States actually get quite a daunting character. We are not quite there yet, but the signs of far reaching unrest and despair about the effects of a global, largely unregulated capitalist system are clearly there and by all accounts, are likely to rise.

The other option though, in Crouch’s argument, is that one group among the winners of global capitalism and arguably the most powerful players step into the role of addressing the two inherent tensions between capitalism and democracy. This is exactly the point where corporate social responsibility would kick in. And in fact, as we have argued elsewhere, much of what companies are doing under the label of CSR is in fact very similar to classic welfare state activities. CSR in this perspective would see private corporations as pivotal actors in addressing those two inherent tensions between capitalism and democracy.

The reaction of European banks to support the effort of saving Greece from bankruptcy so far however shows little sign of awareness of this broader context for corporate responsibility. The Greek bailout situation is probably a blatant example of a country at the brink of severe political unrest where direct involvement of the private sector might indeed prevent a country sliding into anarchy or political extremism. So far though there are no signs that any of the European banks have seriously thought about their broader role in society. Maybe it is because the business case for this kind of CSR is so hard to make...

Picture by PIAZZA del POPOLO. Reproduced under Creative Commons Licence.

Egypt and the revolutionaries with MBA degrees

Like many of you we have been glued at times to the TV screens these last days. Seeing the masses assembling on Tahrir Square in Cairo asking for a peaceful transition to democracy in one of the biggest Arab nations is something of a watershed. For too long we in the West were just used to taking for granted that, well, if it comes to politics, the Arab world is a wholly different story. And the botched attempts to parachute ‘democracy’ into Afghanistan and Iraq seemed to underline this notion.

But now, the chips on the table seem to be mixed for a whole new round. This being a business ethics blog, lets first work through some of those issues with regard to recent developments in Egypt. Let’s look at the upshot. The current revolution would not have been possible without new media –or social networking companies. Twitter, Google, Facebook were instrumental in coordinating, organizing and network the protest movement. All of which, of course, are private companies.

We think it’s a good time to give Google some credit – especially as we have taken them to task in some of or our earlier blogs every now and then. One of their executives actually became a leader in the movement, which so far has shown little signs of a coordinated effort. Google – symbolically represented by Wael Ghonim, their marketing executive for the Middle East, has become a pivotal player in the ‘revolution’ in Egypt. The support of social media has been vital – even after the Egyptian government closed down internet communication. It was then when Twitter opened the ‘SayNow’ feature, allowing sending messages via telephone. As Ghonim pointed out himself in an interview with ABC's 60 Minutes program, much of the pressure to free him from his 12 days in solitary confinement by the Egyptian police came from his employer Google itself. All in all then, we have seen private businesses ‘enabling’ civil and political rights, much along the lines of one our most cited papers.

In a similar vein, some companies have also collected some shame. Vodafone’s network was used by the existing Egyptian authorities to send compulsory messages to their users in support of the system. Vodafone’s explanations do not sound very convincing. When has a major multinational accepted an abuse of their assets lately? Looking at the way Vodafone has managed its business so far, not at least the vociferous determination it applied to their takeover of Mannesmann in Germany years ago, their complicity in this approach sounds less than convincing. Framing themselves as a helpless victim just doesn’t wash.

Leaning back and comparing the current uprising in Egypt (and other Arab countries) to, say the fall of Communism in Eastern Europe 20 years ago, there are some remarkable differences now. Apart from such accidental leaders like Wael Ghonim – who does not intend to play a bigger role in Egyptian politics and just wants to go back to work – it really was a ‘leaderless rebellion’. No particular persons, organisations, ideologies or religious groups can be identified to have fuelled the process. Ghonim told ABC’s 60 Minutes program that ‘we don’t understand politics’. He is not a trade unionist (like Poland’s Lech Walesa), nor a writer or artist (such as the Czech Vaclav Havel), but a marketing executive with an MBA from the American University in Cairo. The MBA as a degree which provides skills for being a revolutionary? – who would have thought!

The success of the movement seems to lie in a combination of people agreeing on a minimal demand (to get rid of Mubarak) and a new set of very efficient tools (social media) to coordinate this effort. Internet and mobile communication played a pivotal role, not at least also because it allowed considerable exchange of knowledge and experience among a global group of activists in Tunisia, Serbia and the US. Pragmatism and access to new forms of information sharing seem to be the two crucial ingredients of this latest revolution.

This said, some big questions however are yet to be answered. First, will this movement spread? Today’s news from Iran, Yemen, Bahrain seem to point in this direction, but it appears that those regimes tend to be more ready and unequivocal in their resort to using force against the protesters. The second question of course points to – however spectacular the fall of Mubarak by peaceful means may be – what will succeed these regimes? To build democracy will take time and allowing people elections is just a first step. Signs are that the new Egyptian politics stays on its pragmatic course: Where else have we ever seen the revolutionaries coming back to their square of victory and, after their job of toppling the regime was done, cleaning up with broom and shovel the garbage left behind by peaceful protest?

Photo by Ahmad Hammoud. Reproduced under Creative Commons Licence

CSRwire Talkback - Can We Really Afford Free News?

Check out our post on the ethics of free news on CSR Wire....

CSRwire Talkback - Can We Really Afford Free News?

Bailout – Who’s next?

So, you know by now that a little ‘Obamania’ has also infected Crane and Matten. But why not enjoy the honeymoon while it lasts. It might be over sooner than later. Among the many daunting tasks the new administration will have to face – the economy, Iraq, Afghanistan, Guantanamo, foreign relations – one of the most difficult animals for Obama to tame reared its ugly head last week: the American auto industry.

Now it makes perfect sense that at a time when Washington is handing out blank cheques to troubled banks, Detroit’s CEOs thought it worth a try to get next in line. And in fact their companies are in dire straits. Poor quality, fierce competition from the Far East and Europe, bad environmental performance of their products, high healthcare costs – these are just some of the issues which have led to the current situation. None of which is really new and good management could have addressed these problems years, if not decades ago.

But the appearance of the CEO’s of the big three on Capitol Hill last week points at a bigger issue Obama will have to face. It is good to see this in a broader context and to pull Stan Luger’s brilliant analysis of ‘Corporate Power, American Democracy, and the Automobile Industry’ from the shelf again. The book analyses the influence on political decision making by the US car industry over most of the 20th century. It puts the recent efforts of the industry in the context of longstanding direct political intervention, lobbying and coalition building.

Last week’s events then point to one of Obama’s biggest challenges, to deliver on bringing ‘change’ to Washington. And for a democrate President, this is no easy task. After all, car companies still are massive employers. Michael Moore’s ‘Roger and Me’ showed years ago what happens to towns in America’s industrial heartland when car companies close shop. In that sense then Obama’s success will in some way depend closely on creating jobs – which in fact is one of his big promises.

Here is the tricky bit: the political power of business in modern democracies is more than just lobbying or other ways of direct influence. In his book (p. 25) Luger quotes the sociologist Claus Offe on this point:

‘The entire relationship between capital and the state is built not upon what capital can do politically via its association […] but upon what capital can refuse to do in terms of investment.’

So every politician needs business to thrive and to invest in order to secure jobs and tax revenue. To deal then with this crucial contribution of business from the political end is a much more complex job for Obama than it seems.

In this sense, with the bailout of the banking industry and potentially others we might witness a watershed in contemporary capitalism: a return of the government as a key player in business. The last three decades have seen the exact opposite with most governments privatizing large parts of the public service delivery and divesting from their business interests. In some ways the bailouts then might even have this one positive effect: corporations apparently have such an importance for the wellbeing of a society that the government has to ‘rescue’ them in a situation where their survival is threatened. Acknowledging this, and granting the government a controlling stake in these companies might actually reverse one important trend of the last years. Rather than accepting a growing influence of business on politics we might actually see the reverse: that we as citizens, represented by democratic governments, regain control of a corporate world which for too long has put shareholder’s and manager’s interests ahead of many legitimate interests of wider society.

Now that sounds a bit like a utopia. And the perspective of more governmental influence on corporations will make most hard nosed business people cringe – isn’t that what socialism was about? Not quite – but anyway: it is essentially what banks and automakers in the US and elsewhere are currently asking for!