CSR and Fair Trade Approaches to Economic Development - Essay Example

Module of the Assignment: CSR and Fair Trade Approaches to Economic Development of the Number: Submission Date: Table of Contents CSR and Fair Trade Approaches to Economic Development 0 Course Title: 0 Module Name: 0 Title of the Assignment: CSR and Fair Trade Approaches to Economic Development 0 Name of the Student: 0 Student Number: 0 Submission Date: 0 Page 20 0 Table of Contents 1 Introduction 2 Modern corporations are increasingly being viewed as major drivers of economic development influencing societal and ecological status of local communities. Future economic growth will be the ‘litmus test’ by which society assess the worth of transnational corporations including the source and procurement of their merchandise among other considerations (Burns, 2003). Companies are now being pressurised to consider the welfare of the communities within the environs of their operations particularly among the economically and physically challenged communities. Within the developing countries, transnational corporations are looked upon as the critical stimulus for growth with further substantial inputs to development than local governments often mired in corruption and mismanagement. 2 This discussion paper will focus on the impact of fair trade policies and corporate social responsibility (CSR) on economic development particularly within the developing countries. The analysis will attempt to establish a linkage between the two models and their influence on contemporary organisations strategies. 2 Definitions 2 There are numerous descriptions of corporate social responsibility (CSR) with no definite unitary conformity. According to a World Bank definition, Corporate Social Responsibility (CSR), ‘is the commitment of businesses to behave ethically and to contribute to sustainable economic development by working with all relevant stakeholders to improve their lives in ways that are good for business, the sustainable development agenda, and society at large’ (World Bank, 2001). The Social Responsibility Research Network (SRRNet) however defines CSR as a ‘commitment of business to contribute to sustainable economic development, aims at creating higher standards of living, while preserving profitability of the corporation’ (Sankaran, 2004, Pg. 2). This definition aptly captures our focus of discussion as it integrates the two concepts of CSR within the task of economic development thus embracing CSR models to help alleviate poverty and underdevelopment. 2 Fair trade has been describes as equitable trading regimes that aims at enhancing fair pricing for small producers and job environment hence ensuring ecological, employment and developmental values are upheld as well as facilitating economic development. This progressive strategy has been endorsed by major brands including Cadbury and Starbucks among others (Global Development Network, 2010). 2 Private Corporations and Economic Development 3 According to a report by the Institute for Social and Policy Studies (2003), among the 100 largest global ‘economic entities’ 51 are corporations while only 49 are countries while the top 200 international corporations control over a quarter of global economy though only engaging a mere one percent of global population (IPS, 2003). Although by 1970, 70 percent of development programs were funded by national governments within developing countries whilst the private sector contributed only 30 percent, the situation is now diametrically opposite with only 20 percent of development funds emanating from the government and 80 percent being injected by the corporate sector (USAID, 2003). This has therefore made the focus for economic development be directed towards the corporate sector to stimulate economic expansion. 3 A study of the linkage between corporate business activities and their economic impact identifies six key activities that have profound effect on community development. These include ‘facilities sitting and management; employment; product and service development, use, and delivery; sourcing and procurement; financial investments and fiscal contributions; and philanthropy and community investment’ (Burns, 2003: 7). [see Figure: 1] Various international bodies give guidelines on how to implement such initiatives including, UN Global Compact, OECD and ILO standards all give clear directions on how to implement CSR in organisations to positively impact not only on their staff and brand but also on all the stakeholders who transact with the firms (The Law Society, 2002, Pg. 9). 3 Figure 1: Linkage between Corporate Activities and Economic Impact 4 4 Source: Burns (2003), Pg. 7 4 Corporate Social Responsibility (CSR) 4 Locke (2003) has classified CSR models into four major approaches: ‘minimalist, philanthropic, encompassing and social activist’ (Pg. 2). [See Table1] 4 Table 1: CSR Approaches 4 Minimalist 4 Philanthropic 4 Encompassing 4 Social Activist 4 Initial Stakeholder Support 4 Definite Ventures or schemes 4 Futuristic approach involving communities 4 Modelled in the organisational objectives 4 Dealing with Human Resource Issues 4 Addressing particular organisational concerns 4 Entrenched within the organisation’s principles and management approach 4 Trade as vehicle for transformation 4 Occasional Handouts 4 Hand-outs and contributions 4 Desire for transformational leadership 4 Desire to transform other people and organisations 4 Desire to transform 4 Source: Adapted from Locke (2003) 4 Modern corporations have embraced the task of corporate social responsibility (CSR) seriously with strategic plans now incorporating CSR initiatives. At Ben & Jerry’s, the confectionery manufacturer, they have a business maxim that states, ‘Business has a responsibility to the community and the environment’ (Nelgadde, 2010). At KPMG, they have appointed a corporate head to coordinate CSR activities within the company. This has seen a rise in the firms CSRs initiative as more than 35 percent of the staff actively engage in community projects among the less fortunate members of the society. KPMG has adopted fair-trade programs with a mantra of ‘education, social inclusion and the environment.’ In this regard, the firm purchases its coffee from a supplier who also engages in fair-trade with producers (Fairtrade.org, 2010). 4 CSR necessitates company executives realizing that the corporation’s operations influence not only the firm’s internal operations but also on the adjacent environment. According to Foley and Jayawardhena (2001), the impact of company’s activities can be categorised into three interconnected spheres: 5 Social - encompassing schooling, communal inclusion, renaissance and staff volunteering; 5 Economic – involves work related issues, ethical business values and merchandise worth; 5 Environment – issues like carbon emissions or waste management, power utilization, recycling of commodities and sustainable growth. 5 The significance of CSR has affected corporations brand image, as major local and international organisations require their staff to transact business only with those firms that have embraced the concept. This trend has even been adopted by Wall Street whereby firms practicing CSR are listed separately. This method by the Dow Jones index has also been applied by the London FTSE and other indices globally (Barnea and Rubin, 2006). 5 Sustainable Development 5 The Rio Earth Summit in 1992 set the tone for business enterprise and development as the concept of ‘sustainable development’ took root. Corporations in the 1990s were increasingly being held liable for the environment they were operating in as pressure was exerted to reduce the exploitation of non-renewable natural resources and eradicating of effluence and waste mismanagement. The new millennium era was rocked by corporate scandals in the US bringing more pressure to bear on private firms to be more socially responsible as the undue greed and sleaze by corporate leaders was censured (DFID, 2003). 5 According to UK’s Department for International Development (DFID), four major forces pressurise organisations to adapt corporate social responsibility [see illustration figure: 2]. These are the need to preserve their clients; the investment environment; non-governmental organisations and the nature of their business. Nonetheless, the main drivers are the consumers and the community who exert latent weight on the enterprise to conform to contemporary environmental needs (DFID, 2003). 5 Figure 2: Drivers of Corporate Social Responsibility 6 6 Source: Adapted from DFID (2003), Pg. 6 6 Poverty Alleviation and Economic Development 6 Corporations generally mobilise countries’ natural and human resources so that they can gain profits however, modern organisations are required to regenerate some of these profits to the community where they outsource their produce. This eases tension especially if the local communities perceive that they are being unduly exploited by foreign companies without any benefit to the local population. In the Niger delta region of Nigeria, local militants have waged a constant strife against oil extraction companies like BP due to perceived negligence and minimal benefit from the corporation hence should initiate more CSR initiatives. 6 Private organisations can assist in poverty alleviation and economic development through positive actions from their operations. These include: 6 Investments in the developing countries, employing local labour and paying reasonable wages to staff; 6 Payment of all the taxes to the local government, which ensures delivery of services to the local population; 6 Providing skills and training to the local communities, which assist them in future self-sustenance; 6 Production of merchandise that are affordable to the poor, hence ensuring they are not derived of essential commodities; 7 Sourcing of local human and natural resources from resident communities and local suppliers. 7 However, CSR can affect local communities negatively if not properly implemented. Some of the associated disadvantages as outlined by DFID (2003) attributed to CSR initiatives include: 7 Substituting local regulations with imported laws or not abiding to them means that the corporation is not intent in assisting the local communities if they perceive they can better help them than their own governments. 7 Dogmatic corporate rules that do not consider local social conditions may be counterproductive in the eventually as they affect negatively economically on the local households. Examples include barring child labour where the families are overly underpaid may leave them destitute hence a more appropriate action should be raising their wages when banning child labour. 7 Withdrawing investment in countries perceived to have very poor human rights abuses may also be counterproductive as the ruling elites will not be overly affected as much as the expected catastrophic impact the action will have on the poor. A better approach should be compromise conditional engagements with the local authorities to persuade change their policies. 7 Ethical codes of conduct that favour large corporations are not helpful to the local suppliers. The relatively smaller locals are constrained in their capacity of sustaining international standards. The international should therefore assist the local firms by mutually compromising on some of the tough conditions. 7 In the UK, the Ethical Trading Initiative (ETI) encompassing several companies, non-government organisations (NGOs) and trade unions regulate the inventory systems of affiliated members including the source suppliers wherever located to monitor their CSR approaches. Controlling over £100 billion, the ETI ensures compliance with the Core Conventions of the International Labour Organisation by also inspecting the condition at the suppliers’ plants globally (DFID, 2003, p. 10). 7 Benefits of CSR 7 Corporations that embrace CSR eventually benefit financially as contemporary risk management techniques, financial statement directives and good governance as well as dedicated workers helps the initiative generate higher returns. [Table: 2] The impact of private enterprise is today more profound than it has ever been as approximately 800 nonfinancial organisations control an equivalent economic yield like that of the world’s 144 poorest nations. These organisations therefore have a dual duty of not only enhancing their growth but also addressing trading imbalances in line with fair trade initiatives. Surdyk has therefore likened CSR to a fusion of social movements and strategic management approach that end up ‘doing well by doing good’ (Pg. 1). 7 Table 2: Benefits of CSR 8 Business Area 8 Reduce Costs 8 Create Value 8 Endorsed to functionality 8 Additional complimentary authorities associations; abridged investor agitation; less hazard of civil suits 8 Enhanced societal support for the corporation’s activities (banking on goodwill) 8 Character Investment 8 Less cynical client agitation/embargo; affirmative press coverage 8 Enhanced client interaction, retention and appreciation 8 Employees/Workforce 8 Enhanced staff preservation and motivation 8 Better staffing; enhanced growth 8 Funding 8 Communal monitoring and outlays, resources injected to firms observing CSR 8 Source: Surdyk (2009), Pg.2 8 Various public studies continuously reveal that consumers in many countries including the US, UK and other European nations are more likely to purchase items or services from those firms that practise CSR, while a significant number even boycott merchandise from firms not conforming to CSR (Burns, 2003); (Fairtrade.org, 2010); (DFID, 2003); (Surdyk, 2009). The organisations should thus augment their CSR approaches by executing the diverse international regulations governing corporations. 8 There are some fundamental areas of importance that an organisation can develop to enhance its CSR operations including access to funding and corporate image. This are derived from: 8 Instituting moral values, standards and principles for the business; 8 Enhancing ecological practice or reducing environmental effects; 8 Enhancing the company’s labour provisions to its workforce 8 ‘Bottom of the Pyramid’ Hypothesis 8 To adequately deal with the problem of global poverty requires stakeholders to address the needs of the ‘bottom of the pyramid’ as a more effective strategy to alleviate poverty. This hypothesis indicates that the poor are bevelled by a myriad of problems due to the vicious cycle of poverty hence addressing their issues will ease the root of world problems. This is critical considering that approximately a fifth of global citizens live on less than $1 daily while half of the world’s population live on less than $2 on daily basis while most of the global wealth is in the hands of just a few people (World Bank, 2001, Pg.3-4). 8 Modern corporations who traditionally focussed on the more affluent members of society or those with a purchasing power are now being pressurised to direct their trade towards the bottom of the pyramid (Arli et al, 2007); (Prahalad, 2005). A concerted effort by companies will have a more enduring positive impact on the lives of the poor rather than the occasional handouts, which only perpetuate a dependency syndrome. An approach that offers favourable or fair trading regime will not only enhance the economic development of these nations but also boost their self-esteem tremendously as it spur durable growth. To eradicate the cycle of poverty and dependency Prahalad (2005) argues that, ‘an approach that involves partnering with them to innovate and achieve sustainable win-win scenarios where the poor are actively engaged and, at the same time, the companies providing products and services to them are profitable’ (Pg. 3). 9 The dependency on governments to fight or eradicate poverty is misplaced since they lack modern periodic capacity for social ills thus the private sector is better equipped to deal with such problems. Drucker (1984) argues that the many years of fruitless results or progress from government assisted programs alongside aid from World Bank, IMF and other donor agencies have proved that they are incapable of solving the poverty problem. 9 Organisations that are involved in poverty reduction eventually benefit as they enhance the poor’s purchasing power hence able to buy their products and services. Many of the current social ills including crime, disease, and lack of education or pollution can be eradicated by a more affluent society. This is due to enhanced economic status ensuring the desperately poor people will not result to crime and other antisocial activities. The International Finance Corporation (2004) stated, ‘We want to know how to enable poor people to be the central force for change and not an object of charity’. 9 Poverty Alleviation Strategy 9 Arli et al (2007, Pg. 2384) have identified three strategies that are currently utilised by companies as part of poverty alleviation modules. These include ‘profit strategy’; ‘non-profit strategy’; and the CSR approach. 9 1)Profit Strategy Model 10 In the profit strategy model, the organisation deliberately targets the low-income population group as potential consumers where it produces specific commodities or services that are affordable to them. This is a mutually attractive strategy for the low-income consumers as well as the company, which eventually realises handsome profits by tapping this formerly neglected market segment. This strategy has been perfected by Indian firm Hindustan Lever Limited (HLL) which is an offshoot of Unilever plc applying innovative market entry techniques has targeted the ‘bottom of the pyramid’ to reap over $1 billion in profits by 2001 (Ellison et al, 2002). 10 2)Non-Profit Strategy 10 In the non-profit strategy, poverty eradication is led by the nongovernmental organisations (NGOs) that initiate various programs aimed at assisting the poor. The NGOs are the main drivers of economic development programs in many developing countries setting poverty alleviation projects in the rural areas and in the urban shanties. These organisations however unlike other corporations do not seek profit in return for their many projects and are only gratified by the uplifting of the poor communities resident there (Broomhill, 2007). The Confederation of Indian Industry (CII) NGO has initiated a program to train the huge number of unskilled or semi-skilled Indian nationals from the poverty ravaged sections of the country in a scheme called ‘Skills Development Initiative’ that has a stated objective of providing training to over a million individuals. This ‘Skill a million Indians’ program is aimed at exploiting Indias vast population of over a billion to garner a Demographic Dividend (Sankaran, 2009, p. 9). 10 3)The CSR Model 10 In the final approach, the CSR model is adopted whereby corporations voluntary inject some of their profits back to the community as well as their employees engaging in various humanitarian missions. The corporations identify needy cases sometimes in diverse regions even where they have no visible clients to enhance their corporate image. The companies also give opportunities to local suppliers for their raw materials both human and natural resources by inducing subsidised financing to enhance their economic empowerment (DFID, 2003). In the Yucatan region of Mexico, Starwood Hotels and Resorts have initiated a project to assist local Indian communities revive the famed Mayan culture by restoring the cultural artefacts within their haciendas. This CSR initiative has economically benefited the local communities while providing market for the tourists using the Starwood Hotels facilities hence has been mutually beneficial to both (Sankaran, 2009). 10 Corporations are encouraged to consider advancing social programs especially in countries that have poor governance and human rights record against their own population engaging only in personal enrichment (UNCTAD, 1999). [See Figure3] Nevertheless, corporations should not leave the task of advancing social and economic development to predatory governments that clearly abdicate their duties hence progressive transnational corporations should step in and initiate social programs. 11 Figure 3: The impact of business on development 11 11 Source: DFID (2003), Pg. 3 11 Organisations should go beyond the conventional concept of firms that regard CSR as mere philanthropic endeavours and adopt a more pro-poor approach that aims at empowering the deprived individuals into sustainable development. Through a model dubbed ‘Doing business differently’, Ashley and Haysom (2005) argue that pro-poor policies by firms entail them integrating a mutual beneficial business model that actively engages the poor in poverty alleviation measures rather than mere occasional ‘handouts’. 11 CSR and Fair Trade Congruence 11 A welcome development of CSR initiatives is the concept of fair-trade whereby corporations in the developed countries have enhanced the economic wellbeing of poor farmers in the developing countries (Snilstveit, 2010). This has led to better pricing for their produce that used to be underpriced because of too many intermediaries and lack of direct access to the large markets as enhanced international trade assist producers in developing countries particularly if there are fair-trade concessions. Farmers are now also better trained hence able to improve their livelihood including health, education and sanitation among others. In Kenya, initiatives by Italian fair-trade importer CTM assisted farmers improve their produce prices thus enhancing their production to earn export earnings of €267,862 in 2004 (Becchetti and Costantino, 2006). 11 The Fair Trade Movement has over one million small-scale farmer and employee in its ranks encompassing over 3,000 organisations spread in over fifty developing countries (Kocken, 2006). However Fair-Trade and CSR advocates contend that this is just a manifestation of greed and selfish interests with a total disregard for the consuming public and the less fortunate in the society (Fairtrade.org, 2010). Adopting Fair Trade fundamentals is one of the crucial CSR attributes for corporations that are concerned about their responsibility to the communities that form part of their environment. Among fair trade features adopted by companies is ensuring a more suitable workplace environment, procurement of supplies who similarly adopt the same features, engaging in community-based projects among others. 12 The fair trade movement assert that trade, not aid’ is the most sustainable model for poverty alleviation hence the need for opening up markets for traders in the developing countries for their produce and offering equitable prices. This can be possible of fair trade concessions invoking the CSR approaches are allowed whereby governments like the US and Japan should stop subsidising their farmers at the expense of those in developing nations that only depress the prices of their produce hence perpetuating poverty within their ranks. A trade partnership between the more affluent western countries and corporations is the most viable model for economic development in poor nations (EFTA, 2009). 12 Companies embracing fair trade concessions ensure that they have taken part in CSR thereby helping to eradicate poverty and underdevelopment in the needy regions where they operate or source raw materials. Some of the fair trade supporting organisations includes Starbucks that has developed equitable pricing and funding for coffee farmers in developing countries. In Britain, Cafédirect, a roasted coffee firm has been at the forefront of fair-trade initiatives. The effect of globalisation enables developing countries access markets within the developed economies that have a social responsibility of dealing fairly with thus avoiding the ‘extraction’ approach previously used by traditional multinational corporations (Ashley and Haysom, 2005). 12 Disadvantages of CSR and Fair-Trade Concepts 12 CSR is essentially a self-regulated community based initiative adopted by businesses but has nonetheless been discredited by some analysts as deviating from corporations main objective of generating profits (Friedman, 1970); (Barnea and Rubin, 2006). Others have criticised the CSRs initiative as mere ‘window dressing’ to forestall regulatory authorities from exerting governance issues on the mostly large transnational corporations (Paluszek, 2005). 13 Opponents of CSR and fair-trade concessions like Nobel laureate Friedman who advocate a free-market model maintain that the primary obligation of business enterprises is generating profits for their shareholders hence CSR is like a self-imposed taxation and giving out shareholders profits is criminal. The advocates for free markets also assert that this approach has been at the centre of economic growth for the developed countries hence the same recipe should be adhered by the developing poor countries (Heimann, 2008). 13 Henderson (2005) asserts that economic development does not emanate from commercial benevolence or philanthropic ideals but rather from ‘innovative profit oriented activity within the framework of a competitive market economy’ (Pg. 31). These proponents of ‘free trade’ argue that any deviation from the company’s core activity of generating profits will lead to depressed revenue and efficiency, which eventually mean that the desired economic growth stagnates, thus corporations should conversely be ruthlessly adamant in preserving their earnings and dealings with non-shareholders. 13 Other arguments infers that company’s management pursuing CSR initiates may end up losing jobs as they erode the firm’s profitability through these ‘philanthropic’ endeavours. They therefore argue that the management should be constructively involved in profitable projects that enhance the company’s profitability and competitive advantage rather than ‘charitable causes’ that have no bearing on the firm’s core activities (Buchholz & Rosenthal, 2004); (Doane (2005). 13 Opponents of CSR also argue that proponents of the module should be addressing the real cause of poverty which cannot be solved through benevolent corporate handouts but real macroeconomic initiatives led by both national and international bodies including governments. They assert that CSR ultimately runs counter to the needs of the corporation’s own employees and other stakeholders (Blowfield, 2005). Critics advance suspicion that CSR is just another capitalist ploy advanced by the Washington Consensus grouping in the 1980s to defray proponents of radical change by advancing large corporations social programs rather than critically evaluating the widening gap between the rich and poor (Doane, 2005); (Henderson, 2001). 13 Another argument advanced by opponents of CSR and fair trade states that excessive involvement by corporations in social programs will make the government complacent hence abdicate from its real task of empowering the public through taxes paid by the same corporations (Blowfield, 2005). They further assert that due to Private Corporation’s lack of ‘democratic’ ideals they are not competent to lead the process of social change. Similarly, due to the nature of business competition, firms that do not engage in CSR or fair trade approaches will be at a disadvantage as rivals capitalise on their distraction to enhance their market positions (Norberg, 2006). 14 Conclusion 14 Our analysis of CSR and Fair-Trade initiatives has revealed that the private corporate sector in conjunction with NGOs can be the main driver for economic development particularly in the developing countries. The evolvement of CSR conception from the philanthropic approach to the pro-poor policies whereby communities are economically empowered through fair trade and mutually beneficial projects is a welcome advance that can lead to an enabling sustainable development. More involvement by the corporate sector is nevertheless, necessary in future including enacting laws that make it a requisite for corporations to inject back some tangible funding to local communities. Although proponents of free trade have maintained the need for a pure capitalistic model, recent events including corporate scandals and collapse depict the need to spread wealth away from the top equitably to cushion the poor against devastating effects of economic upheavals, which is ethically and morally obligatory for the more wealthy corporations and nations. 14 Recommendations 14 A scrutiny of research on CSR and Fair-Trade models reveals surprisingly little linkage between the two parallel pro-people initiatives. There is therefore a need for further research in the area particularly regarding firms practising fair-trade and CSR as to whether they share the same strategies despite the lack of support from the more stringent ‘free-trade’ proponents. There is always a gnawing suspicion that firms practising CSR use it as part of corporate image improvement rather than genuine concern nonetheless close study of erstwhile supporters like Starbucks or Cadbury may shed light on the grey areas. 14 References 15 Ashley, Caroline and Haysom, Gareth (2005) From Philanthropy to a Different Way of Doing Business:Strategies and Challenges in Integrating Pro-Poor Approaches into Tourism Business. ATLAS Africa Conference (Pg. 1-16) Pro-Poor Tourism, Pretoria. 15 Becchetti, Leonardo and Marco Costantino (2006) The Effects of Fair Trade on Marginalised Producers: an Impact Analysis on Kenyan Farmers. Rome: Society for the Study of Economic Inequality (ECINEQ). 15 Blowfield, M and Frynas, J G (2005) Setting new Agendas: Critical Perspectives on Corporate Social Responsibility in the Developing World. International Affairs , Vol. 81 (3), Pg. 499-513. 15 Broomhill, R. (2007) Corporate Social Responsibility: Key Issues And Debates. 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Lesson from the Grameen Bank Experience. Journal of International Affairs , Vol. 52(1), Pg. 47. 19 Appendices 19 Figure 4 20 20 Introduction Modern corporations are increasingly being viewed as major drivers of economic development influencing societal and ecological status of local communities. Future economic growth will be the ‘litmus test’ by which society assess the worth of transnational corporations including the source and procurement of their merchandise among other considerations (Burns, 2003). Companies are now being pressurised to consider the welfare of the communities within the environs of their operations particularly among the economically and physically challenged communities. Within the developing countries, transnational corporations are looked upon as the critical stimulus for growth with further substantial inputs to development than local governments often mired in corruption and mismanagement. This discussion paper will focus on the impact of fair trade policies and corporate social responsibility (CSR) on economic development particularly within the developing countries. The analysis will attempt to establish a linkage between the two models and their influence on contemporary organisations strategies. Definitions There are numerous descriptions of corporate social responsibility (CSR) with no definite unitary conformity. According to a World Bank definition, Corporate Social Responsibility (CSR), ‘is the commitment of businesses to behave ethically and to contribute to sustainable economic development by working with all relevant stakeholders to improve their lives in ways that are good for business, the sustainable development agenda, and society at large’ (World Bank, 2001). The Social Responsibility Research Network (SRRNet) however defines CSR as a ‘commitment of business to contribute to sustainable economic development, aims at creating higher standards of living, while preserving profitability of the corporation’ (Sankaran, 2004, Pg. 2). This definition aptly captures our focus of discussion as it integrates the two concepts of CSR within the task of economic development thus embracing CSR models to help alleviate poverty and underdevelopment. Fair trade has been describes as equitable trading regimes that aims at enhancing fair pricing for small producers and job environment hence ensuring ecological, employment and developmental values are upheld as well as facilitating economic development. This progressive strategy has been endorsed by major brands including Cadbury and Starbucks among others (Global Development Network, 2010). Private Corporations and Economic Development According to a report by the Institute for Social and Policy Studies (2003), among the 100 largest global ‘economic entities’ 51 are corporations while only 49 are countries while the top 200 international corporations control over a quarter of global economy though only engaging a mere one percent of global population (IPS, 2003). Although by 1970, 70 percent of development programs were funded by national governments within developing countries whilst the private sector contributed only 30 percent, the situation is now diametrically opposite with only 20 percent of development funds emanating from the government and 80 percent being injected by the corporate sector (USAID, 2003). This has therefore made the focus for economic development be directed towards the corporate sector to stimulate economic expansion. A study of the linkage between corporate business activities and their economic impact identifies six key activities that have profound effect on community development. These include ‘facilities sitting and management; employment; product and service development, use, and delivery; sourcing and procurement; financial investments and fiscal contributions; and philanthropy and community investment’ (Burns, 2003: 7). [see Figure: 1] Various international bodies give guidelines on how to implement such initiatives including, UN Global Compact, OECD and ILO standards all give clear directions on how to implement CSR in organisations to positively impact not only on their staff and brand but also on all the stakeholders who transact with the firms (The Law Society, 2002, Pg. 9). Figure 1: Linkage between Corporate Activities and Economic Impact Source: Burns (2003), Pg. 7 Corporate Social Responsibility (CSR) Locke (2003) has classified CSR models into four major approaches: ‘minimalist, philanthropic, encompassing and social activist’ (Pg. 2). [See Table1] Table 1: CSR Approaches Minimalist Philanthropic Encompassing Social Activist Initial Stakeholder Support Definite Ventures or schemes Futuristic approach involving communities Modelled in the organisational objectives Dealing with Human Resource Issues Addressing particular organisational concerns Entrenched within the organisation’s principles and management approach Trade as vehicle for transformation Occasional Handouts Hand-outs and contributions Desire for transformational leadership Desire to transform other people and organisations Desire to transform Source: Adapted from Locke (2003) Modern corporations have embraced the task of corporate social responsibility (CSR) seriously with strategic plans now incorporating CSR initiatives. At Ben & Jerry’s, the confectionery manufacturer, they have a business maxim that states, ‘Business has a responsibility to the community and the environment’ (Nelgadde, 2010). At KPMG, they have appointed a corporate head to coordinate CSR activities within the company. This has seen a rise in the firms CSRs initiative as more than 35 percent of the staff actively engage in community projects among the less fortunate members of the society. KPMG has adopted fair-trade programs with a mantra of ‘education, social inclusion and the environment.’ In this regard, the firm purchases its coffee from a supplier who also engages in fair-trade with producers (Fairtrade.org, 2010). CSR necessitates company executives realizing that the corporation’s operations influence not only the firm’s internal operations but also on the adjacent environment. According to Foley and Jayawardhena (2001), the impact of company’s activities can be categorised into three interconnected spheres: Social - encompassing schooling, communal inclusion, renaissance and staff volunteering; Economic – involves work related issues, ethical business values and merchandise worth; Environment – issues like carbon emissions or waste management, power utilization, recycling of commodities and sustainable growth. The significance of CSR has affected corporations brand image, as major local and international organisations require their staff to transact business only with those firms that have embraced the concept. This trend has even been adopted by Wall Street whereby firms practicing CSR are listed separately. This method by the Dow Jones index has also been applied by the London FTSE and other indices globally (Barnea and Rubin, 2006). Sustainable Development The Rio Earth Summit in 1992 set the tone for business enterprise and development as the concept of ‘sustainable development’ took root. Corporations in the 1990s were increasingly being held liable for the environment they were operating in as pressure was exerted to reduce the exploitation of non-renewable natural resources and eradicating of effluence and waste mismanagement. The new millennium era was rocked by corporate scandals in the US bringing more pressure to bear on private firms to be more socially responsible as the undue greed and sleaze by corporate leaders was censured (DFID, 2003). According to UK’s Department for International Development (DFID), four major forces pressurise organisations to adapt corporate social responsibility [see illustration figure: 2]. These are the need to preserve their clients; the investment environment; non-governmental organisations and the nature of their business. Nonetheless, the main drivers are the consumers and the community who exert latent weight on the enterprise to conform to contemporary environmental needs (DFID, 2003). Figure 2: Drivers of Corporate Social Responsibility Source: Adapted from DFID (2003), Pg. 6 Poverty Alleviation and Economic Development Corporations generally mobilise countries’ natural and human resources so that they can gain profits however, modern organisations are required to regenerate some of these profits to the community where they outsource their produce. This eases tension especially if the local communities perceive that they are being unduly exploited by foreign companies without any benefit to the local population. In the Niger delta region of Nigeria, local militants have waged a constant strife against oil extraction companies like BP due to perceived negligence and minimal benefit from the corporation hence should initiate more CSR initiatives. Private organisations can assist in poverty alleviation and economic development through positive actions from their operations. These include: Investments in the developing countries, employing local labour and paying reasonable wages to staff; Payment of all the taxes to the local government, which ensures delivery of services to the local population; Providing skills and training to the local communities, which assist them in future self-sustenance; Production of merchandise that are affordable to the poor, hence ensuring they are not derived of essential commodities; Sourcing of local human and natural resources from resident communities and local suppliers. However, CSR can affect local communities negatively if not properly implemented. Some of the associated disadvantages as outlined by DFID (2003) attributed to CSR initiatives include: Substituting local regulations with imported laws or not abiding to them means that the corporation is not intent in assisting the local communities if they perceive they can better help them than their own governments. Dogmatic corporate rules that do not consider local social conditions may be counterproductive in the eventually as they affect negatively economically on the local households. Examples include barring child labour where the families are overly underpaid may leave them destitute hence a more appropriate action should be raising their wages when banning child labour. Withdrawing investment in countries perceived to have very poor human rights abuses may also be counterproductive as the ruling elites will not be overly affected as much as the expected catastrophic impact the action will have on the poor. A better approach should be compromise conditional engagements with the local authorities to persuade change their policies. Ethical codes of conduct that favour large corporations are not helpful to the local suppliers. The relatively smaller locals are constrained in their capacity of sustaining international standards. The international should therefore assist the local firms by mutually compromising on some of the tough conditions. In the UK, the Ethical Trading Initiative (ETI) encompassing several companies, non-government organisations (NGOs) and trade unions regulate the inventory systems of affiliated members including the source suppliers wherever located to monitor their CSR approaches. Controlling over £100 billion, the ETI ensures compliance with the Core Conventions of the International Labour Organisation by also inspecting the condition at the suppliers’ plants globally (DFID, 2003, p. 10). Benefits of CSR Corporations that embrace CSR eventually benefit financially as contemporary risk management techniques, financial statement directives and good governance as well as dedicated workers helps the initiative generate higher returns. [Table: 2] The impact of private enterprise is today more profound than it has ever been as approximately 800 nonfinancial organisations control an equivalent economic yield like that of the world’s 144 poorest nations. These organisations therefore have a dual duty of not only enhancing their growth but also addressing trading imbalances in line with fair trade initiatives. Surdyk has therefore likened CSR to a fusion of social movements and strategic management approach that end up ‘doing well by doing good’ (Pg. 1). Table 2: Benefits of CSR Business Area Reduce Costs Create Value Endorsed to functionality Additional complimentary authorities associations; abridged investor agitation; less hazard of civil suits Enhanced societal support for the corporation’s activities (banking on goodwill) Character Investment Less cynical client agitation/embargo; affirmative press coverage Enhanced client interaction, retention and appreciation Employees/Workforce Enhanced staff preservation and motivation Better staffing; enhanced growth Funding Communal monitoring and outlays, resources injected to firms observing CSR Source: Surdyk (2009), Pg.2 Various public studies continuously reveal that consumers in many countries including the US, UK and other European nations are more likely to purchase items or services from those firms that practise CSR, while a significant number even boycott merchandise from firms not conforming to CSR (Burns, 2003); (Fairtrade.org, 2010); (DFID, 2003); (Surdyk, 2009). The organisations should thus augment their CSR approaches by executing the diverse international regulations governing corporations. There are some fundamental areas of importance that an organisation can develop to enhance its CSR operations including access to funding and corporate image. This are derived from: Instituting moral values, standards and principles for the business; Enhancing ecological practice or reducing environmental effects; Enhancing the company’s labour provisions to its workforce ‘Bottom of the Pyramid’ Hypothesis To adequately deal with the problem of global poverty requires stakeholders to address the needs of the ‘bottom of the pyramid’ as a more effective strategy to alleviate poverty. This hypothesis indicates that the poor are bevelled by a myriad of problems due to the vicious cycle of poverty hence addressing their issues will ease the root of world problems. This is critical considering that approximately a fifth of global citizens live on less than $1 daily while half of the world’s population live on less than $2 on daily basis while most of the global wealth is in the hands of just a few people (World Bank, 2001, Pg.3-4). Modern corporations who traditionally focussed on the more affluent members of society or those with a purchasing power are now being pressurised to direct their trade towards the bottom of the pyramid (Arli et al, 2007); (Prahalad, 2005). A concerted effort by companies will have a more enduring positive impact on the lives of the poor rather than the occasional handouts, which only perpetuate a dependency syndrome. An approach that offers favourable or fair trading regime will not only enhance the economic development of these nations but also boost their self-esteem tremendously as it spur durable growth. To eradicate the cycle of poverty and dependency Prahalad (2005) argues that, ‘an approach that involves partnering with them to innovate and achieve sustainable win-win scenarios where the poor are actively engaged and, at the same time, the companies providing products and services to them are profitable’ (Pg. 3). The dependency on governments to fight or eradicate poverty is misplaced since they lack modern periodic capacity for social ills thus the private sector is better equipped to deal with such problems. Drucker (1984) argues that the many years of fruitless results or progress from government assisted programs alongside aid from World Bank, IMF and other donor agencies have proved that they are incapable of solving the poverty problem. Organisations that are involved in poverty reduction eventually benefit as they enhance the poor’s purchasing power hence able to buy their products and services. Many of the current social ills including crime, disease, and lack of education or pollution can be eradicated by a more affluent society. This is due to enhanced economic status ensuring the desperately poor people will not result to crime and other antisocial activities. The International Finance Corporation (2004) stated, ‘We want to know how to enable poor people to be the central force for change and not an object of charity’. Poverty Alleviation Strategy Arli et al (2007, Pg. 2384) have identified three strategies that are currently utilised by companies as part of poverty alleviation modules. These include ‘profit strategy’; ‘non-profit strategy’; and the CSR approach. 1) Profit Strategy Model In the profit strategy model, the organisation deliberately targets the low-income population group as potential consumers where it produces specific commodities or services that are affordable to them. This is a mutually attractive strategy for the low-income consumers as well as the company, which eventually realises handsome profits by tapping this formerly neglected market segment. This strategy has been perfected by Indian firm Hindustan Lever Limited (HLL) which is an offshoot of Unilever plc applying innovative market entry techniques has targeted the ‘bottom of the pyramid’ to reap over $1 billion in profits by 2001 (Ellison et al, 2002). 2) Non-Profit Strategy In the non-profit strategy, poverty eradication is led by the nongovernmental organisations (NGOs) that initiate various programs aimed at assisting the poor. The NGOs are the main drivers of economic development programs in many developing countries setting poverty alleviation projects in the rural areas and in the urban shanties. These organisations however unlike other corporations do not seek profit in return for their many projects and are only gratified by the uplifting of the poor communities resident there (Broomhill, 2007). The Confederation of Indian Industry (CII) NGO has initiated a program to train the huge number of unskilled or semi-skilled Indian nationals from the poverty ravaged sections of the country in a scheme called ‘Skills Development Initiative’ that has a stated objective of providing training to over a million individuals. This ‘Skill a million Indians’ program is aimed at exploiting Indias vast population of over a billion to garner a Demographic Dividend (Sankaran, 2009, p. 9). 3) The CSR Model In the final approach, the CSR model is adopted whereby corporations voluntary inject some of their profits back to the community as well as their employees engaging in various humanitarian missions. The corporations identify needy cases sometimes in diverse regions even where they have no visible clients to enhance their corporate image. The companies also give opportunities to local suppliers for their raw materials both human and natural resources by inducing subsidised financing to enhance their economic empowerment (DFID, 2003). In the Yucatan region of Mexico, Starwood Hotels and Resorts have initiated a project to assist local Indian communities revive the famed Mayan culture by restoring the cultural artefacts within their haciendas. This CSR initiative has economically benefited the local communities while providing market for the tourists using the Starwood Hotels facilities hence has been mutually beneficial to both (Sankaran, 2009). Corporations are encouraged to consider advancing social programs especially in countries that have poor governance and human rights record against their own population engaging only in personal enrichment (UNCTAD, 1999). [See Figure3] Nevertheless, corporations should not leave the task of advancing social and economic development to predatory governments that clearly abdicate their duties hence progressive transnational corporations should step in and initiate social programs. Figure 3: The impact of business on development Source: DFID (2003), Pg. 3 Organisations should go beyond the conventional concept of firms that regard CSR as mere philanthropic endeavours and adopt a more pro-poor approach that aims at empowering the deprived individuals into sustainable development. Through a model dubbed ‘Doing business differently’, Ashley and Haysom (2005) argue that pro-poor policies by firms entail them integrating a mutual beneficial business model that actively engages the poor in poverty alleviation measures rather than mere occasional ‘handouts’. CSR and Fair Trade Congruence A welcome development of CSR initiatives is the concept of fair-trade whereby corporations in the developed countries have enhanced the economic wellbeing of poor farmers in the developing countries (Snilstveit, 2010). This has led to better pricing for their produce that used to be underpriced because of too many intermediaries and lack of direct access to the large markets as enhanced international trade assist producers in developing countries particularly if there are fair-trade concessions. Farmers are now also better trained hence able to improve their livelihood including health, education and sanitation among others. In Kenya, initiatives by Italian fair-trade importer CTM assisted farmers improve their produce prices thus enhancing their production to earn export earnings of €267,862 in 2004 (Becchetti and Costantino, 2006). The Fair Trade Movement has over one million small-scale farmer and employee in its ranks encompassing over 3,000 organisations spread in over fifty developing countries (Kocken, 2006). However Fair-Trade and CSR advocates contend that this is just a manifestation of greed and selfish interests with a total disregard for the consuming public and the less fortunate in the society (Fairtrade.org, 2010). Adopting Fair Trade fundamentals is one of the crucial CSR attributes for corporations that are concerned about their responsibility to the communities that form part of their environment. Among fair trade features adopted by companies is ensuring a more suitable workplace environment, procurement of supplies who similarly adopt the same features, engaging in community-based projects among others. The fair trade movement assert that trade, not aid’ is the most sustainable model for poverty alleviation hence the need for opening up markets for traders in the developing countries for their produce and offering equitable prices. This can be possible of fair trade concessions invoking the CSR approaches are allowed whereby governments like the US and Japan should stop subsidising their farmers at the expense of those in developing nations that only depress the prices of their produce hence perpetuating poverty within their ranks. A trade partnership between the more affluent western countries and corporations is the most viable model for economic development in poor nations (EFTA, 2009). Companies embracing fair trade concessions ensure that they have taken part in CSR thereby helping to eradicate poverty and underdevelopment in the needy regions where they operate or source raw materials. Some of the fair trade supporting organisations includes Starbucks that has developed equitable pricing and funding for coffee farmers in developing countries. In Britain, Cafédirect, a roasted coffee firm has been at the forefront of fair-trade initiatives. The effect of globalisation enables developing countries access markets within the developed economies that have a social responsibility of dealing fairly with thus avoiding the ‘extraction’ approach previously used by traditional multinational corporations (Ashley and Haysom, 2005). Disadvantages of CSR and Fair-Trade Concepts CSR is essentially a self-regulated community based initiative adopted by businesses but has nonetheless been discredited by some analysts as deviating from corporations main objective of generating profits (Friedman, 1970); (Barnea and Rubin, 2006). Others have criticised the CSRs initiative as mere ‘window dressing’ to forestall regulatory authorities from exerting governance issues on the mostly large transnational corporations (Paluszek, 2005). Opponents of CSR and fair-trade concessions like Nobel laureate Friedman who advocate a free-market model maintain that the primary obligation of business enterprises is generating profits for their shareholders hence CSR is like a self-imposed taxation and giving out shareholders profits is criminal. The advocates for free markets also assert that this approach has been at the centre of economic growth for the developed countries hence the same recipe should be adhered by the developing poor countries (Heimann, 2008). Henderson (2005) asserts that economic development does not emanate from commercial benevolence or philanthropic ideals but rather from ‘innovative profit oriented activity within the framework of a competitive market economy’ (Pg. 31). These proponents of ‘free trade’ argue that any deviation from the company’s core activity of generating profits will lead to depressed revenue and efficiency, which eventually mean that the desired economic growth stagnates, thus corporations should conversely be ruthlessly adamant in preserving their earnings and dealings with non-shareholders. Other arguments infers that company’s management pursuing CSR initiates may end up losing jobs as they erode the firm’s profitability through these ‘philanthropic’ endeavours. They therefore argue that the management should be constructively involved in profitable projects that enhance the company’s profitability and competitive advantage rather than ‘charitable causes’ that have no bearing on the firm’s core activities (Buchholz & Rosenthal, 2004); (Doane (2005). Opponents of CSR also argue that proponents of the module should be addressing the real cause of poverty which cannot be solved through benevolent corporate handouts but real macroeconomic initiatives led by both national and international bodies including governments. They assert that CSR ultimately runs counter to the needs of the corporation’s own employees and other stakeholders (Blowfield, 2005). Critics advance suspicion that CSR is just another capitalist ploy advanced by the Washington Consensus grouping in the 1980s to defray proponents of radical change by advancing large corporations social programs rather than critically evaluating the widening gap between the rich and poor (Doane, 2005); (Henderson, 2001). Another argument advanced by opponents of CSR and fair trade states that excessive involvement by corporations in social programs will make the government complacent hence abdicate from its real task of empowering the public through taxes paid by the same corporations (Blowfield, 2005). They further assert that due to Private Corporation’s lack of ‘democratic’ ideals they are not competent to lead the process of social change. Similarly, due to the nature of business competition, firms that do not engage in CSR or fair trade approaches will be at a disadvantage as rivals capitalise on their distraction to enhance their market positions (Norberg, 2006). Conclusion Our analysis of CSR and Fair-Trade initiatives has revealed that the private corporate sector in conjunction with NGOs can be the main driver for economic development particularly in the developing countries. The evolvement of CSR conception from the philanthropic approach to the pro-poor policies whereby communities are economically empowered through fair trade and mutually beneficial projects is a welcome advance that can lead to an enabling sustainable development. More involvement by the corporate sector is nevertheless, necessary in future including enacting laws that make it a requisite for corporations to inject back some tangible funding to local communities. Although proponents of free trade have maintained the need for a pure capitalistic model, recent events including corporate Read More