Markets and Morality

Corporate Social Responsibility Raises Costs, Undermines Market


Government and Institutions
Housing and Planning
The new ‘corporate social responsibility’ (CSR) movement will increase business costs, reduce welfare and undermine the market economy, according to Professor David Henderson, former Head of Economics and Statistics at the OECD.

In his new IEA paper, Henderson says many advocates of CSR do not understand the rationale of a market economy and the role of profits. They want companies to embrace ‘corporate citizenship’ and run their affairs in close collaboration with numerous ‘stakeholders’, promoting ‘sustainable development’ instead of concentrating on profitability and shareholder value. But ‘sustainable development’ is ill-defined and the actions required to promote it are unclear.

The adoption of CSR by business is likely to increase costs and impair performance, as managers try to take account of a wide range of goals, consult stakeholders and set up new accounting and monitoring systems. Firms which do adopt CSR have a powerful incentive to ensure the same regime is imposed on their competitors, thus limiting competition throughout the economy and making people in general poorer.

The greatest potential for harm arises from government attempts to regulate the world as a whole in the name of CSR, imposing common international standards which would reduce the potential for trade and investment and hold back the development of poor countries.

Henderson concludes that many businesses which have endorsed CSR are trying to appease anti-business groups. They hope to make businesses more popular but they fail to realise that ‘the case for private business derives from its links with competition and economic freedom’