GLI EFFETTI DELLA GLOBALIZAZIONE SULLA DISTRIBUZIONE DELLA RICCHEZZA

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The potential of social responsibility for
sustainable development and the pursuit of
common good in Church Social Doctrine  
Leonardo Becchetti Università tor
Vergata Facoltà di Economia

Via di Tor
Vergata snc
E-Mail
becchetti_at_uniroma2.it
 
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A synthesis of the role of social responsibility
(SR) on sustainable development

• In recent years we have often seen corporations
  and institutions reconsider and change their
  policies due to the bottom-up pressure of civil
  society. We need this type of pressure if we want
  to reach the Millennium Development Goals Kofi
  AnnanUN General Secretary Reprinted by La
  Repubblica 18 December 2002.

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A tentative definition of SR

• Decision of economic agents (individuals or
  corporations) to take into account in their
  choices not just their myopic interest, but
  also the interest of their neighbour which
  coincides with their own long term interest
• In this perspective globalisation acts as a
  second invisible hand as it makes distant
  people our neighbour and increases
  interdependence among geographically distant areas

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SR, socially and environmentally sustainable
development and sustainable happiness (1)

• Common good passes through human and economic
  rights and through socially and environmentally
  sustainable development
• Three main limits to the pursuit of the common
  good today
• i) poverty,
• ii) environmental problems,
• ii) social and spiritual poverty in the North
  or crowding out of community and deep
  relationships by the homo hoeconomicus
  reductionist view of life

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SR, socially and environmentally sustainable
development and sustainable happiness (2)

• Strategy sustainable creation of value (more
  role to intangible goods such as art, services,
  values, culture, religion)
• Not just giving values to the market but giving a
  market to values.
• Values must be part of the productive activity
  and not left aside for leisure time to fulfill
  the principle of incarnated Christian life
  (becoming saint not in spite of but through
  our daily activities)

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Factors allowing escape from poverty

•   
• DETERMINISTIC PESSIMISM inequalities are
  inevitably bound to increase
• DETERMINISTIC OPTIMISM Developing countries are
  inevitably bound to catch up due to international
  capital movements
• THE MIDDLE PATH catching-up is possible but is
  conditional upon the improvement of fundamental
  development factors
• Physical investment and infrastructure
• Education and health which build human capital
• Removal of digital divide
• Quality of institutions and social capital

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Society as it works the three pillars of the
economic system
PROFIT CORPORATIONS Target  profit
maximisation Actions investment, production,
choice of inputs, etc.
 
INSTITUTIONS Target survivorship,
expansion, relection of instit.
members Actions  laws, regulations,
decisions
INDIVIDUALS   Target myopic self
interest Actions   consumption and saving
decisions
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The ethical limits of this system

• The invisible hand does not always fix things
  toward common good. Myopic self-interest does not
  coincide with interest of the mankind
• Failures arises any time
• Individual actions maximizing their own interest
  damage interests of other individuals (negative
  externalities)
• Public goods which contribute to common good are
  insufficiently produced (i.e. health, education,
  etc.).
• How this system may be improved?
• Ethical innovations on the path toward common
  good may be introduced only by
• Benevolent institutions (paternalistic approach)
  
• SR choices of concerned individuals
  incorporating ethical goals in their everyday
  consumption and saving choices.
• What is realistically more likely to happen ?

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The virtuous change of the three pillar system
under bottom-up SR actions of civil society
PROFIT CORPORATIONSTarget profit
maximisation which incorporates SR imitation to
capture SR consumers Actions investment,
production, choice of inputs, etc
 
INSTITUTIONS Targets of inst.
officials Stay in charge which is conditioned
also by the will of SR citizens Actions  laws
and regulations
INDIVIDUALS Target SR enters the priorities of
a minority of concerned individuals Actions 
daily votes with SR savings and consumptions
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The role of SR choices of civil society

• Globalisation increases interdependence and the
  need for global governance to solve the problem
  of global public goods
• Bottom-up pressure of SR consumers and savers
  (and of their associations) plays a fundamental
  role in increasing SR of corporations and
  institutions.
• Indirect positive effects on corporations are
  straightforward. When the share of SR consumers
  is revealed to the market, corporations strive
  to conquer these consumers and find it optimal to
  increase at the margin their social
  responsibility.

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SR, market, conflict and solidarity (1)

• Grassroot SR consumption and savings are crucial
  to achieve a balance of the three powers
  (individuals, corporations and institutions). The
  weakest pillar today is that of individuals (and
  their associations)
• SR is a revolution in the conception of social
  conflict. The old external Marxian conflict
  between workers and employers turns into an
  internal conflict between consumers and workers
  which divides all individuals in themselves.
  Firms respond to consumers and consumers may
  improve conditions of workers with their choices.
  The internal nature of conflict is much closer to
  the Christian way of thinking (evil inside and
  not outside us)

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SR, market, conflict and solidarity (2)

• The conflict is internal because competition with
  downward price pressures has two effects on
  individuals. It benefits them as consumers (more
  products at more convenient prices) at the cost
  of endangering them as workers.
• If individuals are aware of this internal
  conflict they may solve it by remembering of
  being workers when they consume.
• With a SR consumption choice they solve this
  conflict by giving higher value to products with
  higher social value (i.e. higher defense of
  worker rights)

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Demand


Supply

Goods

market






Happier as consumers


Competitive pressure leads to

price reduction
.



Individuals



Corporations


.l

Less happy and more



also through worse labour


precarious as workers

conditions



Labour

market




Demand

Supply



The internal conflict of competitive markets
enhanced by globalisation and delocalisation





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SR, market, conflict and solidarity (3)

• Globalisation enhances this internal
  consumer/worker conflict by putting in contact
  labour costs and costs of living in the North
  with those much lower in the South. It enhances
  competition on labour costs by making it easier
  delocalisation choices of corporation
• The solution is an improvement of working
  conditions in the South. SR consumers act as
  union activists for workers in the South by
  voting for products with higher labour dignity.
  
• Consumers acting for workers in the South are
  much more effective than barriers to South
  products or unionism in the North only (which
  just increase welfare gaps and advantages of
  delocalisation for firms)

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SR as the new frontier of Church social doctrine
(1)

• One of the central goals of social doctrine is
  the pursuit of common good as the creation of all
  conditions which allows individuals to fulfill
  their vocation in life.
• Human and economic rights are fundamental part of
  these conditions
• SR is an important contribution to this because
  it actualises the concept of solidarity in the
  perspective of the magis
• SR starts from the idea that contractualism is
  insufficient per se to solve all problems of
  sustainability. Optimal rules fails or are not
  enforced if social capital and virtues of the
  civil society do not support them (i.e. recent
  financial scandals)
• SR brings back at the center of the stage
  individual lifestyles and ethics, a traditional
  issue in church social doctrine

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SR as the new frontier of Church social
doctrine(2)

• SR is a synthesis between ethics of intentions
  and ethics of responsibility.
• In SR solidarity implies a responsibility of
  beneficiaries. Donors aim to self development of
  beneficiaries and not to the creation of
  perpetual relationships of dependence.
• SR acknowledges that creation of economic value
  has ethical value and is at the basis of the
  possibility of redistribution and solidarity
• Value creation in a world of increasing
  population is an ethical duty because it makes
  resources available for redistribution. The same
  wealth is future expected income and therefore
  looses almost all its value if income growth
  perspectives fall.

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SR as the new frontier of Church social
doctrine(3)

• How to reconcile value creation, common good and
  environmental sustainability? When we talk about
  productivity and growth we still believe that
  income is made by physical production while
  manufacturing industry accounts only for 10-20
  of the total cake.
• We may therefore build a better/truer economy by
  increasing those dimensions of value creation
  (art, culture, religion, leisure) which are more
  socially, and environmentally sustainable and
  help us to pursuit common good.

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SR as the new frontier of Church social doctrine
(4)

• By creating value through values we achieve two
  goals diffusion of economic rights and pursuit
  of common good satisfying the constraint of
  sustainable growth
• SR interventions give economic value to values
  and create responsibility in beneficiaries making
  them in the future financiers of those who are
  more in need and cannot be productive (are we
  sure ?) by themselves (elders, disabled, etc.)

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SR and rules

• SR is not a substitute but a complement of the
  reform of global rules and governance
• It is an effective political tool allowing civil
  society to vote daily for a change in global
  rules and pushing corporations to move in the
  same direction
• It is a tool to create a pressure group which
  asks for a reform of global governance (minimum
  social and environmental standards, more
  equitable rules and removal agricultural trade
  barriers for the South, international antitrust
  regulation to balance the power of transnational
  corporations with those of institutions and the
  civil society ).
• E.g. Fair Trade is an instrument to campaign for
  fair trade rules and removal of trade barriers
  from the North

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An example of SR Fair Trade (1)

• Fair trade is a product chain created by zero
  profit importers, distributors and retailers of
  food and textile products which have been
  partially or wholly manufactured by poor rural
  communities in developing countries under
  specific social and environmental criteria. To
  obtain the fair trade label products need to
  comply with a series of criteria, defined by the
  Fair Trade Federation (FTF)
• CRITERIA
• paying a fair wage in the local context
• offering employees opportunities for advancement
  (including investment in local public goods)
• providing equal employment opportunities for all
  people, particularly the most disadvantaged
• engaging in environmentally sustainable
  practices
• being open to public accountability
• building long-term trade relationships
• providing healthy and safe working conditions
  within the local context
• providing technical and financial assistance
  (price stabilization insurance services and
  anticipated financing arrangements which reduce
  financial constraints) to producers whenever
  possible.

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An example of SR consumption Fair Trade (2)

• Growing interest on Fair Trade in the
  institutions.
• In the 1999 the European Commission issued a
  document about Fair Trade (29.11.1999 COM(1999)
  619 in its introduction is underlined the
  potential goods effects of Fair Trade to reduce
  inequalities between the richest and poorest
  countries and in promoting a sustainable
  development.
• Two years later, in the 2001, the European
  Commission issued also a Green Book COM(2001)
  366 to promote firms social responsibility in a
  European framework, and a relevant part of this
  book just deals with the Fair Trade experience.
• The Council of Rome imposes a share of fair trade
  product as compulsory requirement in school
  catering procurement

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An example of SR consmption Fair Trade (3)

• FT products have achieved small but significant
  market shares for some products in different
  European countries (i.e. 15 for bananas in
  Switzerland, 7 of ground coffee in England and 4
  percent tea in Switzerland).

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An example of SR consmption Fair Trade (4)

• Academic research shows that Fair trade provides
  solutions to several types of market failures
  through
• Prefinancing small producers, solving their
  credit rationing problems and breaking monopoly
  of local moneylenders
• Investing surplus in local public goods which are
  fundamental prerequisites for self-development
  (education, health , etc)
• Insuring producers from price fluctuations
• Creating stable partnerships and providing
  services which ease access to our markets
• Reducing child labour not through bans but
  through integration of household income
• Creating indirect effects and pushing profit
  corporations to be more socially responsible (see
  the three pillar story)

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An example of the indirect effects of bottom up
SR on corporations through fair trade

• (EFTA Advocacy Newsletter n 9, 2003).
• Vodafone announces that it will distribute
  socially responsible (fair trade) coffee from
  their office vending machines all over the world
• Procter Gamble, announces it would begin
  offering Fair Trade certified coffee through one
  of its specialty brands .
• Kraft will buy 5m pounds of Rainforest Alliance
  certified coffee in the first year, according to
  an agreement between Kraft Foods and the
  Rainforest Alliance
• In Italy, the Fair Trade certification brand
  TransFair Italy certifies specific fair trade
  products sold by consumers good distribution
  companies and multinationals such as Coop,
  Carrefour, Sma, Pam, Gs, Conad
• The Italian largest cooperative group in the
  large distribution certifies itself as fair trade
  distributor
• (http//www.macfrut.com/ita/conv_2003/relazioni
  /162benvenuti_f2.pdf).

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More on the indirect effect

• The entry of SR pioneers (such as fair trade
  producers) introduces solidarity among
  competitive factors.
• SR pioneers reveal to the market the presence of
  a minority share of consumers attaching high
  value to the social value of the product
• Profit maximising firms start to imitate
  partially the behavior of pioneers to conquer SR
  consumers
• Partial imitation of traditional corporations is
  their optimal reaction to the competition from SR
  pioneer and is consistent with their profit
  maximisation policy

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Corporations and SR

• The hinge of this mechanism is the role of the
  minority of SR consumers which trigger the
  indirect effects on the economic system
• If the above mentioned indirect effects occur
  with shares of 1-2 percent of SR consumers what
  could happen if this share grows to 5-10 percent
  ?
• SR is an example of incarnated social doctrine
  as it overcomes the dichotomy between production
  (generating social conflicts) and distribution
  (trying to solve conflicts created by production)
  
• Production now occurs in a more SR way and
  solidarity and distribution become not a residual
  activity but a competitive factor
• Source Becchetti-Paganetto, Ethical finance,
  Fair trade. The silent revolution of social
  responsibility, Donzelli, 2003

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SR finance

• We include in SR finance all those initiatives
  which incorporate in the evaluation of financial
  assets, in addition to return and risk, their
  social impact and their support to investment
  promoting social and environmental
  sustainability.
• SR finance includes i) ethical investment funds
  ii) microfinance iii) socially responsible
  savings.
• Ethical investment funds are of two types i)
  first generation (part of capital gains are
  invested in charity) ii) second generation
  (funds are not invested in share of companies
  which are not socially and environmentally
  sustainable).
• The share of SR finance is quite large and
  reaches almost 10 percent of savings in the UK
  and in the US .

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Ethics and finance the microfinance promise

• The poor have no access to bank loans because
  they lack of collaterals which banks require as
  guarantee of the loans
• With progressive loans, joint liability and
  education of borrowers microfinance extends
  credit to uncollateralised poor giving them
  opportunities of self development
• Access to financial market is fundamental to
  fight the four dimensions of modern poverty (i)
  malnutrition and lack of basic goods (water,
  sanitation, etc.) ii) vulnerability to shocks,
  iii) lack of voice, iv) lack of education)

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The matching of two promises microfinance and SR
savings

• Microfinance is an example of solidarity which
  involves the responsibility of beneficiaries
• The contribution of SR savers accepting lower
  return on their deposits to finance microfinance
  progams has significant effects on the
  enlargement of credit to the poor and on the
  improvement of their debt service conditions
• The initiative does not violate efficiency rules
  as it compensates information and risk costs
  which prevent profitable projects from being
  financed

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The matching of two promises SR savings and
microfinance
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The role of EU institutions ?

• International institutions are aware that the
  civil society may be more effective in targeting
  the poor than themselves and therefore support
  subsidiarity in this field (see last WB report on
  poverty)  
• Institutions should define a framework and invest
  in culture and promotion of SR recognising their
  social value and their consistence with the main
  Lisbon goal (growth with social cohesion)
• Institutions should fix rules to ensure
  transparency and increase information between
  consumers and producers in the field of social
  responsibility beyond the reputation incentive
  which pushes SR producers to be truthful 

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What catholic organisations can do?

• i) launch a campaign to increase engagement of
  their members in SR consumption and saving
• ii) create a coalition with most sensitive firms
  to push the industrial system to SR certification
  and engagement
• iii) support the effort of education and
  promotion of SR which is crucial for its
  extension in this maturity phase from niches to
  the overall society

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SR, justice and peace

• Peace and justice is ensured in a stable way only
  when people start sharing resources and interests
  (see how European Union is born from the ashes of
  WWII)
• SR consumption and finance enact North-South
  partnerships and educate and stimulate resource
  sharing among communities of different countries
  creating a culture of responsible solidarity

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A final encouragement on this path

• Nothing albeit imperfect and temporary, of what
  can and has to be done through the solidaristic
  effort of everyone and Gods grace in a given
  historical moment, to make human life more human
  will be lost or will be vain
• John Paul II Sollicitudo Rei socialis 13 dicembre
  1987