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Corporate Social Responsibility
Long-form reading of Economic text
The only thing worse
than being exploited
by capitalism is not
being exploited by
capitalism
Joan Violet Robinson
All around the world, history books tend to stop at World War II. It is as if this horrible
experience became the starting point to the modern world. In Europe, America, as well
as Japan, new societies flourished with modern concepts of social respect. The world
was divided into three parts:
1st World- Industrial nations including Western Europe; Anglo countries such as
Australia, America, Canada and New Zealand, plus Japan and later, South Korea
2nd World countries - Industrial nations under the communist model including Eastern
Europe and the Soviet Union. These nations were seen as being lesser than 1st World
countries but were nevertheless without deprivation and modern (They were seen to be
only a couple of decades behind western nations.)
3rd World countries- All other developing nations. During the cold war, these nations
were mere pawns between the 1st world, led by the United States and the 2nd world, led
by the Soviet Union.
In 1989, the unthinkable happen: The 2nd world cease to exist leaving the world divided
into industrial (developed) nations and developing nations. The dividing line between
the two isn’t so clear.
Q. Is Slovakia fully developed while Ukraine, Moldova is not? What about Mexico?
Currently the entire world is in a race to the top. The leaders of this race, traditional
industrial nations, are slowing down while others are catching up, especially China and
lately, India.
In this section we will the expectations from the place we work as well as the
expectation of the society we live in.
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What is expected from our corporation and society depends upon the point of view or
aspect (uhol pohľadu). Examples include the following



Historical aspect- We expect governments to provide for our welfare in our old
age, but historically, the family was supposed to do this.
Societal or local aspect- We expect corporations to maintain a high standard of
environmental protection and to provide the employees with a high standard of
living. (10€ an hour for example)
Global aspect- We don’t expect corporations in developing countries to provide the
same standard of living as we have in industrialized countries. (It is OK to pay
someone 50 cents an hour in India)
Some History and the global perspective
To understand this concept we need to look at CSR in three separate historical aspects:
Historical Classical
model
After World War II
Government intervention model
Fall of the Iron Curtain
Globalized competition
Modern economic theory can be said to start with the classical model of economics that
was famously proposed by Adam Smith in his book “The Wealth of Nations” (1776).
This model states that everyone should be allowed to seek their own self-interest in free
and open competition as long as it doesn’t interfere with the rights of others.
Of course, the rights of others are an open question. Some people have no possibility to
choose a better option leading to exploitation. In the past, there were problems with
child labour, inadequate pay, six day working weeks and twelve hour days, and of course
slavery.
With the industrial revolution, jobs began to move from the farm and to the factory. As
productivity increase, machines replace man. Sometimes people would lose their jobs to
machines.
The Luddites
In reaction to industrial advance, a society
known as the Luddites would go around
the
English
countryside
smashing
machines in an effort to protect jobs.
Today, calling someone a Luddite is to
suggest that they are old-fashion and
against modernization.
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Standard morality was used to keep the system in order. It was an employer’s
responsibility and character to pay a decent wage for workers and their family. Laissezfaire or let businesses do what they want without government interference.
Q. Do you think employers would treat you fairly if there were less government rules?
Because of workplace abuse, Governments begin to make rules to make workplaces
safer and more just (spravodlivý) including shorter working days, minimum wages, safer
working conditions, etc.
The Triangle Shirt Factory Tragedy 1911
The Triangle Shirtwaist factory in New York City was
the site of one of the worst industrial accidents of the
20th century. A fire started on the 8th floor of the
building and quickly engulfed the 9th and 10th floor
where the factory existed. Managers had locked the exit
doors to keep the workers from leaving early. 146
workers, mostly women, died in the fire. 62 people
died by jumping to their deaths. After the fire, many
rules and regulations where put in place (zaviedli) to
prevent this tragedy from happening in the future.
Workers began to unionize to demand fair pay and working conditions. We no longer
expect to work in a sweatshop (a factory where employees work for long hours for low
pay).
After the Great Depression and World War II
The Great Depression was an extended period of deflation and below average
production which was only ended by the military production of World War II. These
two events change forever the laissez-faire era of the industrial age as society put into
effect social reforms that would guarantee retirement plans, minimum wages,
unemployment benefits, and health insurance. As our standard of living rose, so has our
demand for better working conditions.
After World War II, there was a huge increase in innovation. Europe had to rebuild from
the destruction of the war. There was also pent-up demand (zadržiavaná dopyt) for
cars, refrigerators, consumer goods that were not available during the war. Because of
all of these things, getting a good paying job was easy.
With the rising standard of living, came the expectation that life will always be this way.
Workers started to demand more pay and governments started to demand higher
standards from business. Businesses had more work rules and more regulations to
follow.
The Fall of the iron curtain.
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Socialist nations under the umbrella of the USSR chose the central planning model
where all aspects of production was strictly controlled and planned by the government.
This social scientific experiment ended in 1989. This 2nd world model locked away
human potential, at least from the west. In other words, any nation that chose this
alternative model would be neither our customers nor competitors. Now the whole
world is both our competitors and customer.
Technology has made it possible to control production over the whole world. We can
easily design a product in Europe, and have it made in China or India where the price of
labour is cheaper. Now, some of these countries are becoming our competitors as well.
This brings us to an important question: Can we afford the lifestyle we have created.
Task 1- Discussion
Consider the following opposing arguments. Which one would you agree with?
The right to retire at 65 after a full life of If someone lives to be 65, they will more
work with a full pension should be than likely live to 85. It is not a good idea
guaranteed.
to pay someone for 20 years to do nothing,
especially if we are taking from our
children to do so.
If you lose your job, you should be able to If you are collecting unemployment
collect unemployment benefits until you benefits, you are less likely to take a job
find a new job.
you don’t particularly like.
A person with a certain skill shouldn’t have Just as cars replaced horses, technology
to look for a new job in a different field.
makes some jobs obsolete. Some jobs will
never come back.
We should only have to work 40 hours a We should be allowed to work as long as
week.
we want to. If I want to work long hours I
should be allowed to.
We should guarantee certain jobs should
never be sent to another country. It is
important that jobs such as steel
production, high tech manufacturing, and
agriculture our always produced in our
own country.
Why should we protect jobs? If no one
wants to buy their products, they should
go out of business. Nobody cried when the
shoe or textile factory closed. Why should
some jobs get special treatment and others
nothing?
Global warming is a real threat. All Richer countries cannot dictate to poorer
countries need to lower their carbon countries what they can do. It is totally
footprint
unfair to tell poor countries that they
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cannot have cars and living conditions like
rich countries have.
Our future is going to be worse!
Our future is going to be better!
Task 2- Vocabulary review-Use the words from this section in the sentences below
1st world
Luddite
deflation
2nd world
3rd world
Laissez-faire
pent-up demand
exploited
aspect
Adam Smith
just
put in place sweatshop
under s/o umbrella
1. The end of the socialist system meant the end of the concept of ____________________
world countries.
2. To be fair and to do what is right is to be _________________.
3. I would not want to work in a _____________________ for 12 hours a day, 6 days a week, for
very little money, and in bad working conditions.
4. You don’t have a smartphone, a Facebook account or even internet connection! You
are such a ________________________!
5. ___________________ countries complain that it is the _____________________ countries that are
making all of the pollution.
6. Škoda is a car company under the ________________________ of Volkswagen.
7. New safety rules were _______________________ after the accident.
8. In the past, companies could do what they want. The government had a ________________
attitude towards business.
9. A big worry for economist in Europe today is _____________________. When prices go
down, it means there is not enough demand. This will lead to higher unemployment.
10. ________________________ thought the invisible hand that guides business was the best
way to bring prosperity to society.
11. We are happy to buy cheap clothes from the shopping center, but we rarely think
about the workers who may have been ______________________.
12. After the fall of socialism, there was __________________________ in Central Europe to see
the world.
13. When solving a conflict, you need to think about all __________________ of the problem.
You need to consider both the workers and management.
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The Stakeholder model
What should we expect from the company?
What is the definition
of minimum wage?....
If I could pay you less, I
would!
The Stakeholders are all people who are connected to the success of the company
which include the shareholders, workers, and the customer. Stakeholders can be
divided in two groups: Primary and Secondary stakeholders. The primary
stakeholders are those whose participation is critical for the company’s success
(employees, stockholders, customers, consumers). Secondary stakeholders are those
people who are affected by the company (Freeman 1984).
The problem with this model is that each stakeholder will have different demands on the
company as well as different interest in the long term success of the company. All
individuals want to maximize their utility (the things we want and what makes us
happy) and thus will demand more. Thus there is always competition between the
groups. Stockholders want higher dividends or profit; Employees want more money or
benefits; Consumers want lower prices. A local storekeeper in town wants a factory to
be successful because his success depends on the workers at the factory (a secondary
stakeholder). Each group is looking after their own interest.
This concept has been historically different between Europe and America. In America,
Unions are often seen as only having an interest in the worker, who are seen as trying to
get as much as they can, even when the company needs help. In Germany, unions are
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considered an integral part of production, helping to produce the talent that is required
for German Engineering.
The American system of brutal layoffs means they can cut cost quickly in the short term
and are not as reluctant to hire new people since they can be fired at anytime.
The stakeholder model includes 5 core groups that make up the interest of the company:
1. The customer- the most important stakeholder since it is without the customer
support, the company will falter. In some cases the “wants” of the customer is not
necessarily what they need. A heavy user of McDonalds might enjoy the experience, but
could be made unhealthy. The packaging might end up as garbage in the community.
2. The supplier- Suppliers should become a partner with a successful company. Any
company that just “fills orders” will not have long term success. Imagine if you go to a
hairstylist who never gives advice and only does what you want.
In the 1970’s, England had a thriving car industry with names like MG, Triumph, Jaguar,
and Rover. All suffered from the same supplier problem; Lucas Wire LTD. This company
made all electrical components for all British Manufacturers. Neither supplier nor car
company cared about the
quality of the product, thus
today there is no longer a
major British Car company
today. The quality was so
bad , it became the source of
many jokes; Q. Why do the
English like warm beer? A.
Because the refrigerators had
Lucas wires.

3.
The
EmployeesEmployees need to want to
work for your company and
to do a good job. Thus,
employee relationship is important. This is more than just a case of pay; it is also a case
of respect.
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5. The community- The town or local
community also needs to be a partner. This is
especially true for large heavy industry,
where the community needs to feel safe in
regards to the environment, health of the
employees, and economic stability. Nobody
wants to have a Bhopal tragedy in their
community.
Union Carbide in Bhopal, India was the scene
for the largest industrial accident when water leaked into a storage tank of methalisocyanate which produced a dangerous gas that killed 11,000 people and injured
thousands more. It was found the company had poor maintenance and the safety
systems did not work or were disabled for cost reasons.
5. Investors- Of course, all investors need to feel that there will be a return on their
money (a profit) or their will be no reason to invest.
Historically, the American Companies had less commitment to workers than European
companies. The ability to hire and fire at will have meant that American companies
were more flexible. When a recession comes, it is usually shorter lived and less severe
than the Europeans.
Europeans tend to give much more protection to employees thus they are less likely to
hire new employees as it could become a costly burden to the company.
Compare the difference between France and the United States (note: both the US and
France have complicated formulas. These are just averages for comparison):
France
United States
Minimum Wage
Health care
1,344€
Guaranteed by states
Unemployment
benefits
Approx. 75% of original
salary. If you have been
working 14 of the last 24
months, you can get 24
months’ worth of benefits
30 days on average
916€ (higher in some states)
Not guaranteed with much of the copayments made by the employee.
Co-payments are a portion of the
medical bill that must be paid by the
employee.
30,000,000 have no medical
insurance
Approx. 75% of salary and up to 26
weeks.
Paid holidays
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Not guaranteed by law. The U.S.
Public holidays
10 days
Max working hrs
per week
Unemployment
Discussion:
35 for most employees
average is 7.6 days per year.
6 major holidays where most
businesses close and 5 minor “bank”
holidays for Banks and postal
workers
40 for most employees
11%
7.4 %
How does Slovakia compare to the above statistics?
Which country do you think has the best working conditions?
Which country do you think is the model for the world?
Two countries- Two different approaches to recessionary times
Germany- Kurzarbeit
Kurzarbeit or short week is a German system that attempts to keep from laying off
people in times of a recession. Instead of reducing employment like the Americans do,
the Germans will reduce the work week with a small reduction in salary. Some of this
extra time off is spent in skills training. The company benefits because they don’t lose
their skilled workers. The workers benefit because their skills don’t atrophy in down
times. When good times return, the workers may be expected to work longer to make up
for the short week.
USA
What is good for General Motors is good for America Charles Erwin Wilson, President of GM, 1953
General Motors was the biggest employer in the 1950’s and
American cars were the biggest symbol of American Success.
In this time of plenty, American car companies had a lot of cash
and as such the Unions demanded more and more pay and
benefits from the car companies. To avoid costly strikes,
American car companies often gave the Unions what they
wanted. After all, GM was always going to be big. This
included Job protection. severance package (money or
benefits from losing your job), and big pensions for retirement.
Management gladly gave the Unions what they wanted.
After the oil shortage of 1973 and 1979, Americans decided to
try small and efficient cars made in Japan. They discovered
that unlike American cars, these cars were not only efficient on
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GM Market Share by
Year (US)
1960’s
48.3%
1970’s
44.6%
1980’s
41.45%
1993
35.2%
2004
26.9%
2015
17.6%
petrol, but also highly reliable. In the 1970’s FORD was known by the acronym Fix Or
Repair Daily.
Question: Are labour unions good or bad for business?
The community as a stakeholder
As companies get larger, they are
often asked by the community to give
more and more. A classic example of
this is corporate sponsorship. This is
defined as financial backing of a
public-interest program or project by
a firm, enhancing its corporate image.
This could include sponsoring a local
sports team, or providing funding for
a park or other local facility. Normal,
sponsorship differs from advertisement in that the expected reward from the activity
doesn’t increase sales.
For example, Železiarne Podbrezova (ZP) has had a brass band for years. Slovalco
Aliminium factory from Žiar nad Hronom built a hockey stadium for local teams. In both
cases the funding has not added to the profits of the company but has establish good
corporate stewardship of the community. Corporate stewardship is not always about
money. ZP has also sponsored a high school that would guarantee quality employees for
their factory as well as providing quality jobs for the local population. The leaders of ZP
have also refurbished a castle in Slovenska Lupča.
In this section, we started with the differences between the United States and Europe
and how corporations in Europe are expected to provide more for the community and
the employees than their Americans. Though the US is still a leader in innovations
(think Google, Facebook, Apple), more established business models have done better in
Europe. Volkswagen, Mercedes Benz, and BMW are thriving while American carmakers
continue to loose market share.
Task 3- Vocabulary review-Use the words from this section in the sentences below. Be
sure to use the right form of the word.
stakeholder
utility
dividends
orders
return (on investment)
payments
atrophy
severance
thrive
hire
dismissal
fill
fire
cocorporate sponsors stewardship
1. With the success of our new product, we are having troubles _____________________ the
___________. We will need to ______________ more people.
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2. Sometimes, car insurance can be made cheaper if you are required to make a
____________________.
3. The CEO of the company got a high ____________________ package when he was
______________ from the job. Everyone thinks this is unfair since the company has been
losing money for years.
4. In economics, to maximize your ________________ means to get the things you desire.
5. We invested in corporate bonds hoping to get a high ______________ on our
_________________.
6. Coca-Cola is a company that is known for paying a good ___________________ on their
stocks.
7. Škoda is a_______________________________ for the hockey team Slovan.
8. The most important _______________________ in a company are the employees. Without
them, it would be impossible to succeed.
9. A polite way to say some was fired is to say that he was ___________________.
10. Under the ____________________________ of Mr. Kovač, our sales have doubled and our
company is ______________!
11. If you don’t do any exercise you muscles will start to ___________________.
The Stockholder model
Poverty is not socialism.
To be rich is glorious.
Deng Xiaoping
Rich Uncle Pennybags from the game Monopoly was designed to be like a New York City business elite.
In the 1800’s a new type of government was formed that did away with the royal or
noble class in the newly created United States of America. Though injustice to native
Indians and the use of slave labor meant that there was still inequality, it was now
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possible for an average citizen to become successful and even fabulously wealthy. And
during this time, there was no redistribution of wealth (no tax on what you made).
Thus, some people became extremely wealthy and powerful during this time. This was
the time of the robber barons; American industrial or financial leaders of the late 19th
century who became wealthy by unethical means, such as questionable stock-market
operations and exploitation of labour. For example:
John Jacob Astor (real estate, fur)—New York City- Made his money in the fur and real
estate trade. Ebenezer Scrooge from Charles Dickens’s A Christmas Carol (Vianočná
koleda) was supposedly modeled after Mr. Astor.
Andrew Carnegie (steel)—Pittsburgh and New York- Made most of his money in the
Steel industry. It later became known as US Steel.
John D. Rockefeller (oil) Standard Oil- Oil was first used as kerosene and in the days
before electric lighting, it can be said that Rockefeller was in the lighting company since
he provided oil for lamps.
Much of their success came from economies of scale; reduction in cost per unit
resulting from increased production, realized through operational efficiencies. As
production increases, the cost of producing each additional unit falls.
Discussion
What is free competition?
- Freedom from businesses
that do bad things?
Or
- Freedom from government
regulation and an absolute
freedom to make a contract
with others as we want?
Standard oil monopoly
◄ Cartoon displaying standard oil
company as a large dangerous
monster.
This brings us to the Stockholder Model, and argument that was made by Milton
Friedman which states:
"There is one and only one social responsibility of business: to use its resources to engage in
activities designed to increase its profits so long as it stays within the rules of the game,
which is to say, engages in open and free competition, without deception or fraud."
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The argument can also be made that
businesses should not be called upon to
correct what is wrong in society. Much of
the responsibilities that is given to
corporations are usually implemented by
the government. These are usually in the
form of regulations and rules.
If you put the government in
charge of the Sahara Desert,
in 5 years there will be a
shortage of sand
These can be called government
mandates or rules that are demanded by
the government. Governments demand
minimum wages, food vouchers, time off, and many regulations about business. In
today’s world, the regulations are easily avioded by moving to another country were
regulations are more lax.
Milton Friedman
Many people feel that it is the duty of a company to only focus on profits for the owners
or shareholders of a company. By focusing on profit, companies become better and
more efficient which , in the end, will provide more opportunities for society. This is
called shareholder capitalism. In the 1987 movie “Wall Street” the Antagonist Gordon
Gekko summed it up in the famous “Greed is Good” speech:
…..Greed -- for lack of a better word -- is good. Greed is right. Greed works.
Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.
Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has
marked the upward surge of mankind….
Is it OK for one individual to become so fabulously wealthy? Do the filthy rich, deserved
to be filthy rich? Example: Bill Gates or Steve Jobs.
Is this the correct model today? Most societies want their businesses to be a mirror of
societal interest. We want businesses to give what we perceive to be a minimum
standard for living for the greatest amount of people. We want companies to be
successful but, at the same time, we make rules for companies that make it harder to do
business.
Task 4- Vocabulary review-Use the words from this section in the sentences below. Be
sure to use the right form of the word.
redistribution
efficient
deceive
wealthy
lax
robber
greed
baron
economies of scale
perceive/perception
filthy
1. He only thinks about money, money, money! He is so ____________________.
2. Janošik was a _____________________ who took money from the rich_____________ and gave
to the poor.
3. Bill Gates is a very ______________________ man.
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4. A term meaning to take money from wealthy people and to give to the poor in the
form of subsidies is called ___________________________ of wealth.
5. Volkswagen makes very ___________________________ cars that go a long distance on a tank
of fuel. However, Volkswagen is in a lot of trouble for _______________________ their
customers about the cleanliness of their car’s emissions. This is very bad for Volkswagen
because the company is _______________________ to have good environmental practices.
6. The rules for emissions are very __________ in India. This is why the air in many of their
major cities is absolutely ____________________________.
7. Kaufland can sell things cheaper than other stores because they have
__________________________ .
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