While issues of corporate social responsibility and sustainability regularly make the news, the MEI is publishing today an Economic Note clarifying these concepts and evaluating their impact on companies and on society in general.
Companies that are successful demonstrate their social utility every day by responding to consumers’ expectations, by using available resources in the best possible way, and by innovating in order to replace those resources when they become scarcer, notes Germain Belzile, Senior Associate Researcher at the MEI and author of the publication. “This does not mean that the decisions of company managers are always beneficial, but in a market economy, property rights ensure that companies are held responsible for the negative consequences of their actions when these affect the property of others.”
Properly understood, corporate social responsibility should mean running a firm in a legal and responsible way. Sustainability should mean making sure that our society does not run out of resources and that pollution is controlled.
“These two concepts are complementary and are in no way opposed to the profit motive, as long as laws, regulations, and property rights are respected and the price mechanism is allowed to play its role in the economy,” explains Germain Belzile.
Indeed, even if the main goal of a firm remains to maximize profits, taking further steps toward the “social good” can improve the bottom line by increasing sales through a better image and reputation, reducing costs through decreased resource use, improving employee engagement, etc.
If, on the other hand, these concepts are defined too widely and vaguely, there is a risk that economic growth will be restricted, which will entail harmful consequences. For example, trying to push companies to increase wages and other employee benefits above what is already determined by law and by the market would increase costs and have adverse effects on their competitiveness, and might even endanger their existence. It is shareholders, consumers, and employees who would end up paying the price.
The same is true of sustainability. The market remains the ideal institution for ensuring the conservation of resources since it alerts us to their scarcity and creates an incentive to find more or to replace them. Copper is a good example, as reserves have soared and prices plummeted over the past 200 years. And the need for this metal more or less melted away with the invention of optic fibre and cell phones. “In fact, the world has never run out of a resource critical for growth!” concludes Mr. Belzile.
The Economic Note entitled “How Should Corporate Social Responsibility and Sustainability Be Defined?” was prepared by Germain Belzile, Senior Associate Researcher at the MEI, in collaboration with Michel Kelly-Gagnon, President and CEO of the MEI. This publication is available on their website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
This article was taken from here.