Monday 25 January 2016

Rethinking How Business Contributes to Society

By Noemi Sinkovics, Rudolf R. Sinkovics, Samia Hoque and Laszlo Czaban
Image by Sujin

In a recent article published in Critical perspectives on international business, 11 (3/4), the authors propose a reconceptualization of social value creation as social constraint alleviation.

Scholars from various disciplines have been pondering about how to grasp the impact of business on society. Most people would agree that it is desirable for business to contribute to wider society, but how should such a contribution be defined? Is it donating toys to a local kindergarten? Or are we talking about multinationals transferring technology to a developing country through foreign investment? Or about Nike and Levis auditing working conditions in their supply chain? To clarify the definition, we suggest that the extent to which companies help alleviating social constraints may be a useful way to think about business’ contribution to society.

Such a focus on addressing social constraints may help to clarify discussions across a number of disciplinary areas. Fields as diverse as international business, global value chains, social entrepreneurship, or corporate social responsibility all address the business-society relation from different angles. International business often looks at business’ social impact in terms of spill-over effects of foreign direct investment on the domestic economy, or in terms of corporate social responsibility initiatives helping acceptance of multinationals entering a country. Experts on global value chains describe how social upgrading can improve working conditions and income of workers. The social entrepreneurship literature discusses mutual value creation in bottom of the pyramid markets, enabling poor consumers and firms to benefit at the same time. Discussions on business and human rights ask whether corporate social responsibility initiatives go beyond improving a company’s image and can actually result in “doing well by doing good”. All would like to achieve a positive impact of business on society, but how exactly such social value creation can be defined stays unclear.

We argue that ideally a positive contribution of business to society consists of promoting social and economic human rights. This follows Todaro & Smith’s (2011) core values of development: sustenance, self-esteem and freedom from servitude. To see how such a contribution can be reached, it may be helpful to see society as a complex adaptive system, drawing on complexity science and systems theory. From such a perspective, a single constraint may keep the system from functioning and prevent it from reaching certain development outcomes we would like to see. Then, for businesses to contribute to the outcome of human rights, they need to address the social constraint(s) that are the root cause(s) holding back development in a specific community or society. Only addressing a symptom of the underlying social constraints will not really help because it will not change anything about how the system as a whole functions. For example, handing out free food to homeless people may help to alleviate hunger momentarily, but does nothing to address the underlying root cause or social constraint that makes these people live on the streets in the first place. Hence, such an action will not create lasting value for society.

How can a focus on underlying social constraints look like in practice? In our fieldwork in India we met a social entrepreneur who managed to address the root cause of poverty in a rural community. In this case, many young people in the community were living in poverty even though they had high levels of education. Social norms obliged graduates to return to their families in the village after finishing their studies in the city, even though there were no adequate jobs available for them at home. Recognising the social constraint of labour immobility among young people, the social entrepreneur founded a business process outsourcing company based in that rural area. The business model was based on providing services remotely via the internet, while drawing on the local pool of educated but immobile labour in the community. As a result, the underlying root cause of poverty, i.e. young people being unable to move, was addressed and the business contributed to realising subsistence and self-esteem needs in the community.

Summing up, we propose that seeing social value creation in terms of alleviating social constraints is a helpful starting point for comprehending how business can contribute to realising human rights in society. Further research will be needed to explore how such social constraints can best be operationalised, and how social and economic human rights can be broken down further for the purpose of this discussion.

For further details, see:

Sinkovics, Noemi, Rudolf R Sinkovics, Samia Hoque, and Laszlo Czaban (2015), "A reconceptualization of social value creation as social constraint alleviation," Critical Perspectives on International Business, 11 (3/4), 340-363.