What is the role of businesses in tackling inequality?
Uwe Gneiting is a Research and Evaluation Advisor for the Private Sector Department at Oxfam America.
This week’s World Economic Forum in Davos – once again – highlights the stark contrasts that characterize our global economy. While the CEO’s of the world’s largest and wealthiest corporations enjoy the luxuries of a Swiss ski resort, the economic realities of the majority of the world’s population remain precarious.
Oxfam’s new report, An Economy for the 1%, published this week, analyzes the exclusive nature of our world’s economic system. The report builds on Oxfam’s recent inequality work, which has brought attention to the problem of inequality in circles such as Davos and beyond. As inequality trends continue upward, and we have more and more data and evidence to document them, the world is starting to get on board. A growing number of business executives, political leaders and financial institutions, such as the World Bank, acknowledge that increasingly skewed wealth and income distribution represents a problem for society and business.
What should business do to tackle inequality?
We’ve come a long way since the idea first emerged that businesses have a responsibility for social ills like extreme poverty and inequality. In the 19th century, extreme inequality gave rise to the idea of corporate social engagement, led in the U.S. by wealthy industrialists, like Andrew Carnegie who argued that surplus wealth should be used for philanthropy. This philanthropic approach remained the backbone for corporate social engagement during the 20th century, until a wave of environmental disasters, sweatshop scandals, and protests brought on a new perspective that focused more closely on the social and environmental impacts of companies’ core business.
This second era of corporate responsibility soon progressed from a reactive approach by businesses protect themselves against the threat of civil society campaigns, to a more proactive approach that focused on aligning business and social interests – or Creating Shared Value – an idea that made significant inroads at last year’s Davos discussions. The problem is, the idea of corporate responsibility as a business-led endeavor based on the close association of profit and social motives misses the inequality question entirely.
Reversing inequality trends requires addressing the underlying causes that are preventing millions of people from participating fully in economic, political and social life. As others have pointed out, the creation of more equitable and inclusive market systems doesn’t always make economic sense for individual companies without the right surrounding conditions shaping their own, their workers’, and consumers’ incentives. Changing these incentives requires collective approaches as they are set up by the political institutions in the societies where businesses operate. As a result, it is through public policies, not voluntary action, that the exclusionary dynamics of markets can most effectively be rectified.
Rethinking the corporate responsibility agenda
If public policy solutions are what’s needed to reverse inequality, then what does the future of corporate responsibility look like?
Here are three fundamental shifts the corporate responsibility agenda will have to make from an inequality standpoint:
The share of value (not shared value) – First, judging corporate responsibility actions by their ability to tackle inequality raises the bar for how we assess their merits. It challenges the idea of making corporate responsibility contingent on increasing profits, and instead focuses on the distributive implications of such actions. Focusing on inequality means assessing the relative (not absolute) value creation between companies, executives and shareholders and other stakeholders impacted by their operations (e.g. employees, communities surrounding their operations), thus making the excessive pursuit of profits a corporate responsibility issue.
Taxes – The second shift concerns the issue of corporate tax practices. As inequality refocuses our attention on the availability of government resources, particularly in low-growth contexts, taxation has emerged as a central signaling device for companies’ social responsibility. Despite their social and economic significance, corporate tax practices have been largely sidelined from the corporate responsibility agenda. Only recently, we have seen the gradual emergence of proposals regarding responsible corporate tax behavior including tax planning, disclosure and tax lobbying, which businesses should adopt as part of their corporate responsibility efforts.
The politics of business – Third, an inequality lens politicizes the whole corporate responsibility agenda since our ability to address inequality drivers will depend on eliminating barriers to governments’ ability to effectively tax, regulate and redistribute income and wealth. Many of the barriers these institutions are facing are closely tied to the political strategies and influence of the private sector, which to date has largely managed to isolate its political activities from its commitment to responsible business practices. In order for governments to be able to take up the challenge of inequality in a meaningful way, they will have to rid themselves from their own political capture. At the same time, it will require finding those allies in the private sector that will stand next to activists speaking out for more equitable societies.
Let’s not kid ourselves. Existing approaches to corporate responsibility might help to alleviate inequality problems at the margins but they will not reverse inequality trends. If businesses are serious about more equitable societies, their responsibility should primarily be focused on helping to ensure the existence of a political space in which collective solutions to inequality issues can be democratically discussed and addressed by states and their citizens.