Globalization, Corporate Social Responsibility and Poverty

Author(s): Rhys Jenkins

Source: International Affairs (Royal Institute of International Affairs 1944-), Vol. 81, No. 3,
Critical Perspectives on Corporate Social Responsibility (May, 2005), pp. 525-540
Published by: Blackwell Publishing on behalf of the Royal Institute of International Affairs
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 Globalization, Social
Corporate
and poverty
Responsibility

RHYSJENKINS*

Corporate Social Responsibility(CSR) has become a major focus of interest

not only forcorporatemanagersbut also fordevelopmentpractitioners, both
withintheNGO communityand withinthemultilateral and bilateraldevelop-
mentagencies.' Development NGOs have, forthe mostpart,been extremely
criticalof the voluntaryinitiativesundertakenby the corporatesector. In a
recent report ChristianAid stated that 'CSR is a completelyinadequate
response to the sometimesdevastatingimpact that multinationalcompanies
[have]',2while a recentOxfam studyhighlightsthe way in which the supply-
chain purchasingpracticesof retailersin the garmentand horticulturesectors
underminetheirprofessedaspirationsto social responsibility as set out in their
corporate codes of conduct.3
Official development agencies take a much more positive view of the
development impacts of CSR. As the UK's Departmentfor International
Development (DFID) states,'By followingsociallyresponsiblepractices,the
growthgeneratedby the privatesectorwill be more inclusive,equitable and
povertyreducing.'4Antonio Vivos of the Inter-American Development Bank
(IDB) goes even further when he writes that 'CSR, by its very nature,is
developmentdone by the privatesector,and it perfectlycomplementsthe
developmentefforts of governments and multilateraldevelopmentinstitutions.'5
The World Bank activelypromotesCSR throughits Corporate Social Res-
ponsibilityPracticeand its trainingarm the World Bank Institute,while the

* Earlierversionsofthisarticlewerepresented at twoworkshops, at theCopenhagenBusinessSchoolin

August2004 andat ChathamHouse inJanuary 2005. I am gratefulto participants
at theworkshops for
theircomments.
The termCSR hasbeenusedin a variety ofdifferentways.In thispaperitrefersto voluntarycorporate
initiatives
aimedat improving thesocialandenvironmental impactsofa company's business
activities,
butexcludesphilanthropy whicharisesafter profitsaremade.
2 ChristianAid,Behind themask:thereal socialresponsibility
faceofcorporate (London:Christian Aid,2004), p. 2.
3 Oxfam,Trading awayourrights: women workinginglobalsupply chains
(Oxford:OxfamInternational, 2004).
4 DFID, SociallyResponsibleBusiness Teamstrategy:April2001-March 2004(London:Department for
InternationalDevelopment), p. 2.
5 A. Vivos,'The roleofmultilateral development institutions
in fostering
corporatesocialresponsibility',
Development 47: 3, 2004,p. 46.

International
Affairs
8I, 3 (2005) 525-540
RhysJenkins
United Nationshas also leaped on to the CSR bandwagonwiththe creationof
the Global Compact in 2000.
This articledescribesthe factorsthat have led to the recent emphasison
CSR by the officialdevelopmentagencies,and questionswhetherCSR can in
role in povertyreductionin developingcountriesthat
factplay the significant
itsproponentsclaim forit.

andtheriseofCSR
Globalderegulation
The currentwave ofinterestin CSR datesfromthe early199os.6In manyways
it is onlythe latestmanifestation of a longstandingdebate over the relationship
between businessand society.Since the rise of the corporationin its modern
formin thelate nineteenthcentury,thisdebatehas ebbed and flowed,through
periodswhen corporationsextendtheircontroland periodsin which society
attemptsto regulatethe growthof corporatepower and corporationsattempt
to re-establishtheirlegitimacyin the face of public criticism.
The consolidationoflargecorporationsin theUnited Statesin thelatenine-
teenthcenturyled to the anti-trust movementand the regulationof utilities.7
Demands that corporate power be reined in led major US companies to
emphasizecorporateresponsibility as they'soughtto demonstratethatcorpor-
ationscould be good withoutthe coercivepush of governmentsand unions'.8
The GreatDepressionof the 1930scontributedto a second wave of regulation,
exemplifiedby Roosevelt's New Deal in theUnited Statesand thenationaliza-
tions and regulationsof the postwar Labour governmentin the United
Kingdom.At theinternational level,theproposedInternational Trade Organi-
zation's draftcharter,signed at Havana in 1948, included measures that
addressed internationalinvestment,employment standardsand restrictive
businesspractices;but it was neverratifiedby the United States.
A thirdperiod of increasedefforts to regulatecorporateactivityoccurred
fromthe mid-196osto the late 1970os.Withinthe United Statesthe main focus
was on consumer and environmentalprotection.9The activitiesof US
corporationsabroad also came underscrutinywiththe ITT scandalin Chile in
the earlyI970s, when it was revealedthatthe US companyhad been involved
in attemptingto overthrow the democraticallyelected Popular Unity
governmentled by SalvadorAllende.A numberofbriberycasesalso resultedin
the US Congresspassingthe ForeignCorruptPracticesAct in I977.
In the developingworld, the late I96os and 1970S saw increasedefforts to
regulate the activitiesof foreign investors. For the firsttime regulationof
corporate activitybecame an internationalissue, with numerous attempts
6 D. Henderson, notions socialresponsibility
Misguided
virtue:false ofcorporate (London:Institute
ofEconomic
Affairs,2001), p. 29.
7 J.Richter,Holding accountable:
corporations international
conduct,
corporate andcitizen
codes, action(London:
Zed, 2001), p. 18.
8 J.Bakan,Thecorporation: thepathological
pursuit andpower
ofprofit (London:Constable,2004), p. 18.
9 Richter,Holding accountable,
corporations p. I9.

526
 andpoverty
SocialResponsibility
Globalization,Corporate

withinthe UN to establishcodes of conduct forthe activityof transnational

companies (TNCs). These internationalcodes were seen as supportingthe
efforts of developing-country governmentsto regulateTNCs at the national
level. They emergedfroma perceptionthatthe growthof giantinternational
companies posed a threatto the sovereigntyof small,poor statesand repre-
sentedan attemptto redressthebalance betweenthe growingpower of TNCs
and the vulnerablenation-state, particularly in the South.I?
Corporations and northern governmentsresistedglobal attemptsat manda-
toryregulationof TNC activities,proposingself-regulation as an alternative.
The InternationalChamber of Commerce, representingmajor TNCs,
launchedits GuidelinesforInternationalInvestmentin 1972, and a numberof
largeUS companiesalso adopted codes of conduct,with a particularemphasis
on curtailingquestionablepayments,duringthe 1970s.
The I98os saw a significantshiftaway from state interventionin both
developed and developingcountries.The increasedmobilityof capitalenabled
TNCs to exploit regulatorydifferencesbetween statesby (re)locating(or
threateningto relocate) their production facilitiesin countrieswith more
favourableregimes,a phenomenon that has been referredto as 'regulatory
arbitrage'."I These trendswere reflected in developingcountrypoliciestowards
TNCs, which shifteddramatically fromregulationof theiractivitiesto intense
competitionto attractforeigndirectinvestment(FDI).'2
By the I99os theheydayof neo-liberalpolicieshad passedin theNorth,and
corporationsstartedto attractcriticismfor their global environmentaland
labourpractices.The growthof global 'value chains',in which northernbuyers
controla web of suppliersin the South, led to calls forthem to take respon-
sibilitynot only for aspects such as quality and deliverydates but also for
workingconditionsand environmental impacts.At thesame timetheincreased
significanceof brands and corporate reputationmade leading companies
particularly vulnerableto bad publicity.The developmentsin globalcommuni-
cationswhich have enabledcorporationsto controlproductionactivitieson an
ever-wideningscale have also facilitatedthe internationaltransmissionof
information about workingconditionsin theiroverseassuppliers,contributing
to increasedpublic awarenessand facilitating campaigningactivities.I3
Once more, companies responded to bad publicity surroundingtheir
activitiesby espousing corporatesocial responsibility. Many firmssourcing
consumergoods fromdevelopingcountriesadopted suppliercodes of conduct
followingscandalsabout corporatepractices.Levi Strausswas one of the first
companies to do so, adoptingits Business PartnerTerms of Engagementin
Io Formoredetailssee R. Jenkins, codesofconduct:
Corporate ina globaleconomy,
self-regulation Technology,
Business
andSocietyPaperno. 2 (Geneva:UnitedNationsResearchInstitute forSocialDevelopment, 2001).
i p. Dicken,Globalshift,
4thedn (London:Sage,2004),p. 277.
12 R. Jenkins,
'The changing betweenemerging
relationship marketsandmultinational in P.
enterprises',
J.BuckleyandP. N. Ghauri,eds,Multinational andemerging
enterprises markets:managing increasing
(Oxford:Pergamon,I999).
interdependence
13Thishasbeentermedthe'spotlight effect'
byD. L. Spar:'The spotlight andthebottomline:how
multinationals
exporthumanrights', Foreign 77: 2, I998,pp. 7-I2.
Affairs

527
RhysJenkins

I992 afterits overseas contractorswere accused of treatingtheirworkersas

indenturedslaves.The mid-I99os saw further revelationsconcerningtheuse of
sweatshops and child labour by leading US brands such as Gap, Kathie Lee
Gifford,Nike, Disney and others. Activists'campaignson these issues,high-
lightingthe practicesof marketleaders,led to theyear 1995/6being described
as 'the Year of the Sweatshop' in the United States.'4 Similarly,in the
extractiveindustriesShell became a CSR leader followingthe controversies
over BrentSpar and itsoperationsin Nigeria.
The efforts at stateregulationof TNCs in the I970S and the international
codes of conduct designedto supporttheseefforts emanatedforthe mostpart
fromthe South, and particularly fromsoutherngovernments. However, in the
199os mostsoutherngovernments were stillfollowingneo-liberalpolicies,and
so, in contrastto the 1970s, the I99os saw CSR initiativescominglargelyfrom
theNorth. Here international tradeunions,developmentNGOs, humanrights
organizationsand environmental groupshave all contributedto thedemandfor
greatersocial responsibility.'5
The factthatCSR today has been largelydrivenby NGOs, tradeunions,
consumersand shareholdersin the North has importantimplicationsforthe
issueswhich have takencentrestage.The concernsof such groupstend to be
environmentalimpacts,workingconditionsand human rights.Companies are
concerned largelywith the potentialdamage to their reputationsthat may
accrue as a resultof media exposureof corporatemalpractice.Together,these
prioritieslead to a tendencyto see CSR in negativeterms,in otherwords,with
an emphasison thingsthatcompaniesshould notdo, such as employingchild-
ren or violatinghuman rights,ratherthan on seekingpositive development
outcomes,such as helpingto eradicatepoverty.
The currentCSR agenda is as significant forwhat it does not include as for
what it does. Corporatepracticessuch as transfer pricing,tax avoidance or the
abuse of marketpower are not partof the CSR mainstream.Most significantly
for the theme of this article,CSR has not explicitlydealt with the poverty
impactsof businessactivities.For instance,despitethe growthof ethicalfunds
in recentyears,no fundmanagementcompanyincludesimpacton povertyas a
specificcriterionin the assessmentof companyperformance.'6Even the UN
Global Compact does not explicitlyreferto key developmentconcernssuch as
povertyreductionor equity.17 This omissionhas led some commentatorsto
call fora shiftto a more development-oriented approach.i8
14 N. Klein, No logo(London:
Flamingo, 2000).
IS J. Bendell, Barricades
and boardrooms:a contemporary ofthecorporate
history movement,
accountability Technology,
Business and Society Paper no. 13 (Geneva: UNRISD, 2004); Jenkins,Corporate codesofconduct.
I6 EmergingMarket Economics, Pro-poor investment: maximisingthecontribution
ofinvestmentand businessto
povertyreduction,reportto the DepartmentforInternationalDevelopment (London: DFID, 2002), p. 19.
17 RING Alliance, The dimensions
development oftheUN Global Compact:finalreport,reportforthe
Secretariatof the United Nations Global Compact, available at: http://www.ring-alliance.orgring_pdf/
global_compact.pdf.2003, p. 3.
8 T. Fox, 'Corporate social responsibilityand development: in quest of an agenda', Development 47: 3,
2004, pp. 29-36; M. Warner, Optimising thedevelopment performance
ofcorporateinvestment:buildingthecase
fora corecompetencesapproach(London: Overseas Development Institute,2002).

528
 andpoverty
SocialResponsibility
Globalization,Corporate

agenciesand CSR
Thedevelopment
While initiallyCSR was a corporateinitiativeadoptedby individualcompanies
in thelate I99os itbegan to be takenup by international
and theirorganizations,
organizationssuch as the World Bank and the United Nations, and national
developmentcooperationagenciessuch as DFID in the UK and the Canadian
InternationalDevelopment Agency (CIDA). What was it thatpromotedthis
interestin CSR among manydevelopmentagenciesat thistime?
The emergenceof CSR as a developmentissuehas to be seen in thecontext
of the changingviews of the developmentagencieson the main objectivesof
developmentand the best means of bringingit about. Over the past quarter-
centurythe view of developmentas being primarilyabout economic growth
has become less dominant, with a much greateremphasis on the social
dimensionsof development as exemplifiedby the creation of the Human
Development Index by the United Nations Development Programme.This
shiftculminatedin the adoption of the UN MillenniumDevelopment Goals
(MDGs), focused on eradicatingpoverty and hunger, achieving universal
primaryeducation, promotinggender equality,reducingmortalityand im-
provinghealth,and ensuringenvironmentalsustainability. Povertywas a key
targetfor the MDGs, which aimed to reduce the proportionof the world's
populationlivingon less thanUS$i a day by halfbetween I990 and 2015.
A second featureof the changingview of the developmentagenciesin this
period was the decline in confidencein the role of the stateas an agent for
development.This was mostvividlyillustrated in the emergencein the I98os of
the 'WashingtonConsensus',with its emphasison liberalization,deregulation
and a reduced role forthe statein developingeconomies-and a correspon-
dingly greaterrole for the private sector. This shiftof emphasis was also
reflectedin the flows of capital to developing countries,where FDI is now
runningat threetimesthe level of officialdevelopmentassistance(ODA).
By the late I990s, however, cracks were appearingin the Washington
Consensus and therewas a growingawarenessthatthe marketalone was not
sufficientto bringabout development.'9A major plank of the critiqueof free
marketpolicies was the significanceof marketfailuresin developingcountries.
Market failuresmay prevent business operating in a socially responsible
fashion.20Iffirmsare drivenby short-term financialprofitability,
theymaynot
make thelong-terminvestments necessaryto promotehumandevelopmentor
benefitthe poor. For example,trainingwhich would help develop employee
capabilitiesmightnot be providedbecause the returnsare not immediate;or

'9 C. Gore,'The riseandfalloftheWashington

Consensusas a paradigm
fordeveloping
countries',
World
28: 5, 2000, pp. 789-804;J.Stiglitz,
Development 'Moreinstruments
andbroadergoals:movingtoward
thePost-Washington Consensus',I998 WorldInstitute
forDevelopment
EconomicsResearchAnnual
Lecture,UnitedNationsUniversity, Helsinki.
20
DFID, Socially
ResponsibleBusiness
Teamstrategy.

529
RhysJenkins
the developmentof new productsforlow-incomeconsumersmightbe deemed
unjustified where the paybackperiod forsuch an investmentis too long.2I
There are grounds,therefore, forthinkingthatfirmswhich are concerned
or
only primarily with the financial
bottomline would not meet these social
objectives.On the otherhand, sociallyresponsiblebusinesscould be expected
to seek to overcome these obstacles in order to ensure a wider spread of
benefits.It is againstthisbackgroundthatthe developmentagencieshave come
to see CSR as a way of reconcilingsupportforprivateenterprise and a market-
based systemwith theircentralaim of reducingglobal poverty.22
A pioneer in promotingCSR in a developmentcontextwas DFID, which
createda SociallyResponsibleBusinessUnit in I997 followingthe publication
of the firstWhite Paper on InternationalDevelopment which committedthe
departmentto promotingethicalbusinessand voluntarycodes of conduct on
core labour standards.23The unit was involved in establishingthe Ethical
Trading Initiativein I998 and creatinga Resource Centre for the Social
Dimensionsof BusinessPracticein I999. The second White Paper also saw an
importantrole forCSR in povertyreduction,devotinga sectionof the chapter
on 'HarnessingPrivateFinance' to the issue.24
The multilateral developmentagencieshave also been active in promoting
CSR in recentyears.25The World Bank took up the CSR bannerin the late
1990s. A CorporateSocial ResponsibilityPracticewas setup withinthePrivate
Sector Development Vice Presidency.It is located withinthe PrivateSector
AdvisoryServiceDepartmentand advisesdeveloping-country governments on
waysto deployand encouragecorporatesocial responsibility. The trainingarm
of the Bank, the World Bank Institute,organizesperiodic electronicconfer-
ences on CSR and has been involvedin offering trainingcoursesin thisarea.
The Inter-American DevelopmentBank has also engagedin the promotionof
corporateresponsibility, holdingan annual conferenceon the subject.
In 2000 the UN launched the Global Compact, which involvesbusiness,
labour,NGOs and governments.Its originalnine principleswere derivedfrom
theUniversalDeclarationof Human Rights,the ILO's FundamentalPrinciples
on Rights at Work and the Rio Declaration on Environmentand Develop-
ment.Criticshave pointedto a tendencyforthe Global Compact Officeto see

21 An
exampleis thatofan internationalbankoperating in EastAfricawhichwantedto providebanking
servicestailoredto poorcustomerswho didnothaveaccessto affordable credit,current
accountsand
savingsservices.The projectwasvetoedbytheheadofficein Londonon thegroundsthatitwas risky
anddidnotmeetthe30%rateofreturn requiredbythebankon suchrisky investments(Emerging
MarketEconomics,Pro-poor Box 2).
investment,
22
However,therecentshift in emphasiswithintheDFID, whichrenameditsSociallyResponsible
BusinessTeam theMultinational Enterprise
Engagement team,andthetendency fortheGlobal
Compactto regardFDI in developing countriesas a manifestation ofCSR, mightbe interpreted as a
shiftbackto theviewthatthekeycontribution ofbusiness is to foster
growth.
23
DFID, Eliminating world a challengefor
poverty: the21stcentury (London:Stationery Office,1997),p. 64.
24
DFID, Eliminating world
poverty:making workfor
globalisation thepoor(London:Stationery Office,2000), p.
59. Fora morerecentsummary oftheDFID's positionon CSR, see DFID andcorporate social
(London:DFID, 2003).
responsibility
25
Vivos,'The roleofmultilateraldevelopment institutions'.

530
Globalization,
Corporate andpoverty
SocialResponsibility
the promotionof FDI in developingcountriesas an importantobjective and
even to regardit as a manifestation
of corporateresponsibility.26
Other developmentagencieshave also recentlyemphasizedthe role of CSR
in promotingdevelopment.These include CIDA, the Swedish International
Development Agency (SIDA), the German Federal Ministryfor Economic
Cooperation and Development (BMZ) and the Dutch Ministryof Develop-
mentCooperation (MBZ).27 Are the expectationsof theseagenciesregarding
the contributionof CSR to developmentobjectives,particularly the targetof
reducingglobal poverty,realistic?

directinvestment
Foreign and poverty
Althoughpovertyreductionhas not been an explicitelementof CSR, thisdoes
not necessarilymean thatthe adoptionof sociallyresponsiblebusinesspractices
has no impact on povertyin developing countries.In order to addressthis
question more directly,it is necessaryfirstto consider the ways in which
businessand particularly
FDI can contributeto povertyreduction.28Given the
increasedsignificanceof FDI as a source of capitalfordevelopingcountriesin
recentyears,and the emphasisof developmentagencieson povertyreduction
as a prominentgoal, it is surprisingthat researchon the impact of FDI on
povertyis so limited.

FDIand growth
The paucityof researchon FDI and povertyin partreflectsthe factthatmany
considerthe major potentialcontributionof FDI to povertyreductionto be
throughitsimpacton growth.There is an extensiveliterature on theimpactof
FDI on growth.29While some authorsfinda positiverelationship, otherspoint
to thefactthatthisdependscriticallyon local capabilitiesto absorbFDI and on
the local policy framework,suggestingthe need for caution in drawingany
directcausal relationship.Nevertheless,ifFDI does lead to highergrowth,and
providedthatthisis not offsetby increasedincome inequality,thenincreased
FDI will liftsome people out ofpoverty.However, thistellsus verylittleabout
the actualmechanismslinkingFDI to povertyreduction.A few recentstudies

26 A. atrisk:rethinking
Zammit,Development UN-business (Geneva:SouthCentreand
partnerships
UNRISD, 2003), p. 74.
27 Fora summary oftheactivities
oftheseandotherdevelopment agenciesrelatedto CSR, see appendix2
ofthereporton theconference on 'Developmentcooperation andcorporate socialresponsibility:
exploring theroleofdevelopment agencies'heldin Stockholm,
cooperation 22-23 March2004,
availableat:www.sweden.gov.se/content/I/c6/02/40/25/i2d6e7o8.pdf (accessedI9 July2004).
28 Thispaperfocusesparticularlyon FDI sincetransnational
corporationswhichaccountforthebulkof
FDI areoftenleadersin termsofCSR, andmanyoftheCSR promotion activities
ofdevelopment
agencieshavebeendirected at TNCs.
29 Forreviews ofstudiesoftheimpactofFDI on growthsee OECD, Foreign direct
investmentfor
development:maximisingbenefits, costs
minimising (Paris:OECD, 2002), ch. III; UNCTAD, World
investmentreport direct
1999:foreign investment
andthechallenge
ofdevelopment (New YorkandGeneva:
UnitedNations,I999), annexto ch. XI.

53I
RhysJenkins

have attemptedto identifydifferent ways in which FDI (or businessmore

generally)can impact on poverty.3?Unfortunately,none has developed a
systematicframeworkforanalysingthe povertyimpactsof FDI.
A useful systematicapproach for addressingsuch mechanisms can be
developed fromthe frameworkused by Alan Wintersto analysethe impactof
tradeliberalizationon poverty.3IHe identifiesthreechannels:
* the enterprisechannel;
* the distribution
channel;
* the governmentrevenuechannel.

Theenterprise
channel
This can involveboth a directeffecton thoseemployedby theforeignfirmand
an indirecteffectthroughcreatingdemand forlocal suppliers.If the increased
demandis forunskilledlabour,thenit is possiblethatthe newlyemployedwill
be fromamong thepoor. For example,in Bangladeshthe growthof the export
industryin ready-madegarmentshas created employmentopportunitiesfor
women workers,manyofwhom are migrants frompoor ruralareas.However,
the overallimpacton povertyof FDI is limitedby the relativelysmallnumbers
directlyinvolved.UNCTAD estimatedtotalemploymentby TNC affiliates in
developingcountriesto be I9 millionin 1998.32This is a smallproportionofthe
1,200 millionpoor people (definedas thoselivingon lessthanUS$i a day)world-
wide. Moreover, foreigninvestorsoftenrequiremore skilledworkers,which
meansthatthepoor are not themainbeneficiaries. There maybe benefits where
the foreignfirmprovidestrainingto itsworkers,particularly if those workers
acquireskillswhich can raisetheirearningpotential,but trainingalso tendsto be
concentrated on thehigherechelonsofthelabourforce,againbypassing thepoor.
There is greaterpotentialforFDI to benefitthe poor indirectly by creating
linkageswith local firms,especiallywhere suppliersare micro-enterprises or
agricultural The
smallholders. of
growth export horticulture in some African
countrieshas providednew marketopportunitiesforsmallholders.However,
where foreignfirmsdepend heavilyon importedinputs,such as fabricsin the
garmentindustryor partsand componentsin electronicsassembly,as is usually
the case in exportprocessingzones (EPZs), theseindirectimpactsare limited.
The location of investmentis also an importantfactor,since indirecteffects
on povertyare likely to be greaterwhen investmenttakes place in a poor

30 See e.g. C. Aaron,Thecontribution

ofFDI topoverty FIAS paper,availableat:www.fias.net/
alleviation,
documents/Seminar_Series_Papers_Aaron.doc; Emerging MarketEconomics,Pro-poor M.
investment;
Hopkins,Is there
a role
forlarge-scale inalleviating
corporations indeveloping
poverty countries?,
paperprepared
forCorporateSocialResponsibilityWorkingGroup,DevelopmentStudiesAssociation Conference,
ofManchester,
University I Sept.200I, availableat:www.rc-sdbp.org/library/documents/
K. Madden,Measuring
resourcecentre/organisations/documents/docI659o.doc; theimpactsofbusiness
and
ResourceCentrefortheSocialDimensionsofBusinessPractice,IssuePaperno. 3, 200ooi.
poverty,
3I N. McCulloch,A. WintersandX. Cirera,Tradeliberalisation
andpoverty:
a handbook(London:CEPR,
2001), ch. 4.
32 UNCTAD, World
investment 1999,tableIX.2.
report

532
 andpoverty
SocialResponsibility
Globalization,Corporate

region thanwhen it takesplace in a relativelyaffluentone.33 However, with

the exceptionof naturalresourceinvestment, where locationis determinedby
geological factors,FDI is oftenconcentratedin the wealthierregionsof host
countries.34

channel
Thedistribution
Whereas the firstchannel focuseson the poor as producers,the distribution
channel involves the poor as consumers.It has been argued that 'the major
impactof povertyon businessis the way thatit limitsthe size of the marketfor
goods and services'.35It has also been suggestedthatthisis a basison which to
develop a businesscase forfirms'engagingin the eliminationof povertyanalo-
gous to thatwhich has been used to persuadebusinessto take environmental
protectionseriously.36The IndianTNC Tata, which has a highCSR profilein
India, arguesthatif marketsare to grow, the poor mustbecome consumers
too.37
This approach has been popularizedrecentlyin the managementliterature
by C. K. Prahalad'sargumentsconcerning'The fortuneat the bottomof the
pyramid'.8 He arguesthat,'By stimulating commerceand developmentat the
bottomof the economic pyramid,MNCs could radicallyimprovethe lives of
billions of people and help bring into being a more stable, less dangerous
world.'39He emphasizesthe immenseuntappedpotentialmarketrepresented
his argumentswithcase-studiesof successful
by theworld'spoor, and illustrates
attemptsto develop this market.However, although he provides inspiring
examples of success storiesin India and other countries,severalof the cases
organizationsand relativelyfeware foreign
which he citesare of not-for-profit
investors.He consistentlyoverestimatesthe potentialpurchasingpower of
poor people, oftenby extendingthe definitionof the poor to include those
who are relativelywell offby developing-country standards.40

33 Emerging Market Economics, Pro-poorinvestment,

p. 23. However, labour migrationmeans thatsome of
thosein a poorregionmaybenefit fromemployment elsewhere.
opportunities
34In Vietnam,forinstance,Ho Chi MinhCityandHanoi andtheirenvirons accountedforoverthree-
quartersoftotalFDI, whileat theotherextreme,thesixpoorestprovincesin VietnamreceivedonlyI%
ofthetotal:R. Jenkins,
'Globalisation,
foreign andemployment
investment in Vietnam',Transnational
forthcoming.
Corporations,
35 Madden,Measuring theimpacts p. 3.
ofbusiness,
36 K. MaddenandC. Sankey,Infocus.Understanding thepoverty-business
interface: Tanzania,
experiencesfrom
ResourceCentrefortheSocialDimensionsofBusinessPractice, 200o, availableat:www.rc-sdbp.org/
library/documents/resourcecentre/organizations/initiatives/doc
i228403.pdf.
37 I am indebtedto MortenOudgaardforthisinformation.
38 C. K. Prahalad,Thefortune
at thebottom
ofthepyramid(Philadelphia: ofPennsylvania,
University
WhartonSchoolPublishing,
2004).
39 C. K. PrahaladandA. Hammond,'Servingtheworld'spoor,profitably', Business
Harvard Review,
Sept.
2002, p. 48.
40Forexample,in hiscasestudyoftheBrazilianretailer
CasasBahias,hisown dataindicatethatthe
poorest33% ofhouseholds(GroupE) accountforonly2% ofconsumer spending He includes
capacity.
GroupsC andD together withGroupE as partofthe'bottomofthepyramid'. Sincethesetogether
accountfor82%oftheBrazilianpopulation,theyclearlyincludemuchmorethanjustpoorhouseholds
(see Prahalad, Thefortuneat thebottomofthepyramid,
pp. 1I7-46).

533
RhysJenkins

Prahaladand othersare undoubtedlyrightin pointingout thatif the poor

could be integratedinto the global economy as consumers,then theywould
representan enormouspotentialmarket.However, it is a mistaketo assume
that because a reductionin povertywould help businessby expandingthe
market,it is in the interestof individualfirmsto take stepsto reduce poverty.
One reason for this is 'coordinationfailure'.4' For firmsto benefitfroman
expanded market,all firmsneed to contributeto a reductionin poverty;the
actions of an individualfirmwill have a minimalimpact on demand for its
product.
The firmswhich are bestplaced to takeadvantageof thesepotentialmarkets
are those which produce fast-movingconsumer goods such as beverages,
cigarettesand soap. There are instanceswhere such firmshave sought to
expand theirmarketsby makinggoods more readilyavailableto the poor, for
example supplyingproductsin small unit packages or providingconsumer
credit.42Similarly,StandardBank South Africauses its ATM network to
provide low-cost bankingforthe poor.43Utilitiesare anotherarea in which
the poor are potentialconsumers.Aaron suggeststhat FDI in infrastructure
such as watersupplyand sewerageservices,which directlyaddressbasic human
needs, and in the telecommunicationsand transportsectors can make a
substantialcontributionby improvingaccess and reducingthe cost of service
provision.44However, there are also concerns that private investorsmay
engage in 'marketcreaming'to the detrimentof serviceprovisionto the poor.
It should also be noted thatthe factthatsome TNCs sell theirproductsto
the poor is no guaranteethat they will contributeto eitherimprovingthe
welfareof the poor or reducingpoverty.The problemsassociatedwith the
promotionof breastmilksubstitutes in developingcountriesby Nestle aroseto
a significantextentbecause the company did targetlow-income consumers
who were then unable to buy sufficient quantitiesof infantformulaor used
pollutedwaterto diluteit,leadingto malnutrition and diarrhoea.45The sale of
skin lightenersin single-applicationpacketswhich can be purchasedindivi-
dually by less well-offconsumersin Bangladeshis unlikelyto contributeto
sustainabledevelopment.46There may also be knock-on effectsin otherareas.
BritishAmerican Tobacco's sale of incense sticksin India displaced many
women homeworkerswho had previouslymade themby hand,thusreducing
income opportunitiesforthe poor.47

4' The significanceof 'coordination failures'as an obstacle to development dates back to some of the
earliestanalysesof development problems,such as Rosenstein-Rodan's 'Big Push' theory.See K.
Murphy,A. Shleiferand R. Vishny,'Industrializationand the Big Push',JournalofPoliticalEconomy97:
5, 1989, pp. 1003-26.
42
Prahalad, Thefortuneat thebottomofthepyramid,pp. i6-17.
43
EmergingMarket Economics, Pro-poorinvestment, Box 5.
44 Aaron, The contributionFDI to alleviation.
of poverty
45 Richter, ch. 3.
accountable,
Holdingcorporations
46 RING Alliance, The development dimensions oftheUN Global Compact,p. 7
47 I am indebted to
George Frynasforthisexample.

534
 andpoverty
SocialResponsibility
Globalization,Corporate

revenuechannel
Thegovernment
The finalchannelidentified by Wintersinvolvesrevenuesaccruingto developing-
countrygovernments. Foreigninvestors,particularlyin the extractive
industries,
contributeto governmenttax revenues,which may in turnbe used foranti-
povertymeasures.The efficacyof thischanneldependson the extentto which
the stateis able to levy taxeson foreigncapitaland the uses which are made of
any tax revenues.
A numberof factorslimitthe revenue gains fromFDI.48 Competitionto
attractFDI means thatgovernmentsfrequently offertax holidaysto investors,
so that the tax revenue generatedby the investmentis negligible.This is
especiallytruein EPZs, where taxesand regulationsare minimized.TNCs are
also well placed to minimizetheirglobal tax burden.They pass a largepartof
theirprofitsthroughtax havens,and are able to use variousformsof transfer
pricingin order to reduce the profitswhich they declare in high-taxjuris-
dictions.The largestcompaniesdevote considerableresourcesto ensuringthat
theypay as littletax as possible.Althoughcompaniesare carefulto distinguish
between tax avoidance (regardedas legitimate)and tax evasion (which is
illegal), the boundariesbetween them are oftenblurred.Illegal activitiesalso
extend to briberyand corruption,which divert resourcesfrom the state's
coffersinto privatepockets.

This review of the channelsthroughwhich FDI could contributeto poverty

reductionsuggeststhatin the normalcourseof eventsthe impactis likelyto be
limitedand in some casesmayeven be negative.The relationship betweenFDI
and growthis ambiguous and likelyto depend on local circumstances.The
directand indirecteffectson employmentare limitedand onlyrarelyextendto
include thepoor. Despite the claimsconcerningthepoor as a potentialmarket,
in practice they do not constitutean importantmarketfor the majorityof
TNCs; and where theydo, theydo not necessarilybenefit.Finally,globaliza-
tion has made it increasinglydifficult
forgovernmentsto secure tax revenues
frominternationally mobile capital.

CSRand poverty
impacts
If, as argued in the previous section, TNCs do not necessarilycontribute
to povertyreductionin the South and may even have negative
significantly
impacts, does theadoptionof CSR by such companiesoffera way of achieving
a more positiveoutcome?

48 Christensenand R.
J. Murphy, 'The social irresponsibility
of corporatetax avoidance: takingCSR to
the bottom line', Development
47: 3, 2004, pp. 37-44.

535
RhysJenkins

CSR and growth

A centralplank of the 'businesscase' forCSR is thatthe pursuitof short-term
in thelong term.
profitto the exclusionof othergoals will have adverseeffects
'Sociallyirresponsiblebusinesseswill findtheirbenefitsdiminishedby growing
economic and social insecurity,shrinkingmarketsand the depletion of
availableraw materials.'49The case thatCSR will lead to strongerlong-term
growthis by no means proven,however,and criticsof CSR argue thatit is a
distractionfromthe role of business,underminesthe marketeconomy and
reduceswelfare.50
Given the lack of consensuson the impactsof CSR on growthin general,it
is moreusefulto considerthespecificwaysin which theactualpracticeof CSR
can affectpovertythroughthe channelsidentifiedin the previoussection.

CSR and theenterprise

channel
One of the main ways in which businesscan help reduce povertyis through
job creation.Will CSR contributeto the creationof more employmentfor
poor people or help reduce povertyin otherways, such as raisingwages or
providinggreaterstabilityof income?At firstsightit would seem thatsome of
the labour issues on the CSR agenda could indeed contributeto poverty
reduction.The requirementto pay thelegal minimumwage or a 'livingwage'
could be seen as a way of ensuringthatcompaniesdo not pay wages which are
below the povertyline. Equal pay forwomen can also be seen in thislight
where manypoor householdshave femaleheads.
As pointedout above, thepositiveimpactof TNCs on povertyin the South
is severelylimited by the relativelysmall numbers that they employ, and
nothingwithin the currentCSR agenda encourages them to create more
employmentthanis economicallyjustified.Indeed, it is even possiblethatthe
requirements imposedby firmsregardingthe treatment of labourtendto make
more labour-intensiveproduction less competitive. This occurred in the
football-stitching industry in Pakistan,where unitcostsforlow-gradeballsrose
by 6-12 per cent as a resultof monitoring,leading to increasedcompetition
frommore mechanizedproductionin China.51
Nor is thereanythingwithinCSR which requiresfirmsto targetthepoor in
termsof employmentgeneration.The location decisionsof foreigninvestors,
which can have an importantimpact on poverty,are driven by economic
considerationsand arenot currently challengedby theCSR agenda.Indeed,some
aspectsof CSR lead firmsto avoid employingthe poor, as when Nike refused
to employhomeworkers becauseofpublicconcernaboutexploitative conditions.

49 DFID, SociallyResponsibleBusinessTeam strategy,

p. 2.
5? Henderson, Misguidedvirtue.
5I B. Ali, 'Warwick Business School/Save the Children presentation',in Resource Centre forthe Social

Dimensions of Business Practice,Partnerships-how do theyimpact

poverty elimination?
(2001), available at:
www.rc-sdpbp.org?library/documents/resourcecentre/initiatives/doc 1289I4.doc.

536
 SocialResponsibility
Globalization,Corporate andpoverty

Indirectnegativeimpactsmayalso ensue fromthe efforts of firmsto monitor

the social impactof theiractivities.Since it is easierforfirmsto monitora small
numberof large suppliersthan a myriadof smallones, thereis a tendencyto
concentratesuppliers.However, small and/or informalenterprisesare more
likelyto employ large numbersof poor people, and agriculturalsmallholders
are more likelyto be poor thanlargecommercialgrowers,so such a trendcan
have a negative effecton the poor. Again, the football-stitching industryin
Pakistanprovidesan example:in Sialkot,theshiftto concentrateproductionin
factories,in response to concerns about child labour, led to many women
homeworkerslosing out.52 Similarly,concernshave been expressedthatthe
demand forcodes of conduct in the South Africanwine industrywill tend to
widen inequalityin agricultureand further concentratepower in the handsof
wealthywhite farmers.53
In contrast,one recent developmentwhich does representa potentially
positiveimpactof CSR on povertyis the decision of some TNCs to provide
anti-retroviral drugs to workerswho are HIV positive. Given thatworkers
sufferingfromHIV/AIDS who do not receivetreatment arelikelyto be unable
to continueworkingand have a low lifeexpectancy,such a policy can make a
significant contributionto preventing theirhouseholdsfromfallingintopoverty.
This is particularly
so where the benefitsare extendedto familymembersand
to workersaftertheyleave employment.Nevertheless,it is importantnot to
exaggeratethe significanceof this developmentsince, as a recent surveyof
corporateresponsesto HIV/AIDS in the workplaceshows,thereis a 'lack of
wholesale and comprehensiveengagementby even the largestcompanies on
thismatter,and even in the mostaffectedareas,such as South Africa'.54

CSR and the distributionchannel

The impactof CSR on povertythroughthe distribution channelis likelyto be
ratherlimited.This channeloperatesthroughthepriceand availability of goods
consumed by the poor; but generally,the goods produced by firmspractising
CSR are not sold to thepoor. Since a majorsourceofpressureforCSR comes
frommarketsin the North, the focus is oftenon firmswhich produce for
export. This is reflectedin the sectoral distributionof voluntarycodes of
conduct dealingwith labour rights,which tend to be concentratedin sectors
such as garments,footwear,sportsgoods and toys,whose productsare exported
underwell-knownbrandnames.55Other industriesthatlead the way in terms

52 L. Brill, 'Can codes of conduct help home based workers?',in R. Jenkins,R. Pearson and G. Seyfang,
eds, Corporate and labourrights:
responsibility codesofconduct
in theglobaleconomy (London: Earthscan,2002),
pp. 113-23.
53 A. Du Toit, 'Ethical
trading-a forceforimprovementor corporatewhitewash?', ODI NaturalResource
no. 7I, 2001.
Perspectives,
54
J. Bendell, Wakingup to risk:corporate toHIV/AIDS in theworkplace,
responses Technology, Business and
Society Paper no. 12 (Geneva: UNRISD, 2003), p. 34.
55
Jenkins,Corporate codesofconduct,p. I9.

537
RhysJenkins

of the environmentalaspects of CSR, such as forestry, mining and the oil

industry,also produce forexport.
Even where TNCs do produce forthe domesticmarket,theirproductsare
oftensold to high-incomeconsumersand thereforehave littleimpacton the
poor. Examples include durableconsumeritemssuch as carsand white goods.
There are,it is true,some sectorsthatproduce consumergoods which are sold
to poor people, such as softdrinks(Coca-Cola, Pepsi) and foodstuffs (Unilever,
Nestle). However, while it is clear that these products do have an impacton
the poor, it is less obvious thatCSR policies adopted by such firmshave any
positiveeffecton povertyreduction.
As was mentionedabove, one area in which FDI has a significant potential
impact on the poor is in investment in infrastructure.These projectsoften
involve public-privatepartnerships, or are subject to governmentregulation.
In thesecases the impacton the poor is likelyto depend primarilyon the role
playedby the state,ratherthanany specificexerciseof CSR.
Anothersectorthatpotentially has a majorimpacton thepoor is thepharma-
ceuticalindustry.At presentthe high cost of drugsputsthemout of reachfor
most poor households,as is vividlyillustratedin the recentdebate on anti-
retroviraldrugs for treatingHIV/AIDS. Recent reductionsin the prices
chargedby pharmaceuticalTNCs in developingcountriescould be regardedas
an example of pro-poor corporateresponsibility. In practice,however, this
developmenthas been driven not by CSR but by the growthof competition
from generic products,increasedfundsmade available by donors, and the
companies'loss of public supportin the face of pressurefromNGOs.56
This example does illustratehow a pro-poor CSR strategymightbe con-
ceived. It would involve a deliberateeffortto make a company's products
available to the poor (eitherhouseholdsor countries)at a discount ('socially
responsiblepricing'). CSR as currentlypractised,however, has a minimal
impacton the poor throughthe distribution channel.The focuson labourand
environmentalissues,and the predominanceof firmsin exportsectors,means
thatCSR payslittleattentionto the marketingand pricingstrategies of TNCs.

CSR and government

revenue
As indicatedabove, foreigninvestorscan contributeto governmentrevenues
through taxation, generatingfunds that might then be used for poverty
reductionpurposes. In practice this contributionis reduced by tax holidays
offeredby hostgovernmentsand tax avoidance strategies used by TNCs.
The paymentof taxes could be seen as a fundamentalaspect of corporate
citizenship. As Christensen and Murphy note, 'It is ... curious ... that the
debate about Corporate Social Responsibility(CSR), which has touched on
virtuallyeveryother area of corporateengagementwith broadersocietyhas
56 S. VachaniandN. C. Smith,'Sociallyresponsible pricing: lessonsfromthepricingofAIDS drugsin
Review47: I, 2004, pp. I 17-44.
developing countries', CaliforniaManagement

538
 SocialResponsibility
Globalization,Corporate andpoverty

scarcely begun to question companies in the area where their corporate

citizenshipis most tangibleand most important-the paymentof tax.'57The
lack of attentionto theseissues,comparedto environmental impactsand labour
rights,is highlightedby an OECD surveyof 246 codes of corporateconduct.
Whereas 148 codes coveredlabourstandardsand 145 dealtwithenvironmental
issues,only one mentionedtaxation.58
An issue with a bearingon governmentrevenuesand expenditurethatgets
somewhatmore attentionon the CSR agendais thatofbriberyand corruption.
InJune2004 thefightagainstcorruptionwas added as thetenthprincipleof the
UN Global Compact. Althoughthiswas an importantelementin the wave of
codes produced duringthe 1970s, more recentlyit has receivedless attention
thanthe environmentand labourrights.Less thana quarter(23 per cent) of the
codes covered in the OECD surveyaddressedbriberyand corruption.59
One aspectof CSR which can be helpfulin thiscontextis the emphasison
disclosureand transparency. A backgroundpaper to theDFID White Paper on
globalization identifiedbetter reportingand informationdisclosure as an
importantway of improvingthe developmentimpactof TNCs.60 The British
governmentlaunched the ExtractiveIndustriesTransparencyInitiative(EITI)
at the World Summiton SustainableDevelopment in Johannesburgin 2002.
This bringstogetherbusiness,governments, internationalagenciesand NGOs
to promote transparency in paymentsmade by extractiveTNCs to govern-
mentsand government-linked entities.
The main way in which CSR as presentlyconceived mightcontributeto
governmentrevenueis throughdiscouragingthe briberyof public officialsby
companies. However, this does not touch the abilityof companies to shift
profitsand avoid taxationthrough'legitimate'means such as transfer pricing
and the use of tax havens. This is anotherarea on which the currentCSR
agenda is silent,and the dominantview is thatcompaniesare perfectly entitled
to minimizetheirtax burdenby anylegal means.
Althoughgreatertransparency and lesscorruptioncould increasegovernment
revenue,the crucialquestionin termsof pro-poor growthis what happensto
governmentexpenditure.Thus the connection between CSR and poverty
throughthischannelis rathertenuous.

Conclusion
There are a numberof reasonsfordoubtingthe claim thatadoptingCSR will
make growthmore inclusiveand more equitable,and therebyreduce poverty.
As at presentconstituted,
CSR initiativesdo not includepovertyreductionas a

57 Christensenand
Murphy, 'The social irresponsibility
of corporatetax avoidance', p. 37.
58 OECD, Codes of conduct-an expandedreviewoftheircontents,
corporate TD/TC/WP(99)56/FINAL (Paris:
OECD Working Partyof the Trade Committee, 2000), fig. 3.
59 OECD, Codes conduct,
ofcorporate fig.3.
60 A. Inamdar, thedevelopment
Improving impactoftrans-national backgroundpaper to the DFID
corporations,
White Paper, available at www.globalisation.gov,p. I I.

539
RhysJenkins

majorobjective,focusingratheron environmental issuesand labourand human

rights.These are undoubtedlyimportantissues,and thisarticleshould not be
read as a criticismof thisorientation.However, given the lack of an explicit
focus on povertyreduction,the firstquestion that needs to be addressedis
whetheror not CSR as it is currently practisedhelpsindirectly reducepoverty.
The evidence presentedhere suggeststhat CSR is unlikely to have a
significantimpact on povertyin the South, except in a limited number of
ratherspecificcases. A keyfactorconstraining the impactit is likelyto have on
the production side is the relativelysmall number of people employed in
developingcountriesby the leadingTNCs thathave adopted CSR. Similarly,
on the consumptionside, most of these companiesdo not produce goods for
the poor. This is not to deny that TNCs may well contributeto poverty
reductionthroughsocial projectsof a charitablenature,but thisshould not be
confused with the adoption of CSR, which involves the integrationof
environmental and social considerationsinto core businessstrategies.
The secondquestionto consideris whethertheCSR agendacan be extended
to incorporatepovertyreductionas a keyelement,along withlabourrightsand
environmentalprotection.Some of the characteristics of CSR highlightedin
the editorialintroductionto thisspecialissueof International Affairssuggestthat
thereare inherentfeatureswhich limititsabilityto addresspoverty.The firstis
theway in whichCSR prioritizes the'businesscase' which,as pointedout above,
is particularlydifficultto make in relationto povertyreduction.While thereis
some (debated)evidencethathighenvironmental and labourstandards areassoci-
atedwithbetterfinancialperformance, thereis no reasonto supposethata similar
relationwill existbetweencompanyactionsto reducepovertyand profitability.
A second limitationlies in the originsof the currentCSR movementas a
responseto criticismof the environmentaland social impactsof TNCs. This
has led to a definitionof CSR largelyin negativeterms-firmsshouldnot harm
the environment,not employ child labour, not discriminatein employment,
not be complicitin human rightsabuses-or at best permissiveterms:they
should allow freedomof associationand collectivebargaining.Tacklingglobal
povertywould require a much more positive commitment,for example to
discriminate in favourof the poor in employment,or to providegoods to the
poor at discountedprices.
Finally,the centrality of stakeholderswithinCSR also limitsitsusefulnessin
approachingpoverty.Almost by definition,the poor are those who do not
have a stake.When a TNC investsin a country'scapitalcity,thepoor in remote
ruralregionswill not be consideredstakeholders;moreover,the decision of
manyinvestorsto concentratein the capitalboth reproducestheirpovertyand
excludesthemfrombeing stakeholders.
In conclusion,then,CSR as currently practisedis unlikelyto play a signi-
ficantrole in reducingpovertyin developingcountries,despitethe enthusiasm
of manydevelopmentagencies.It is also doubtfulwhetherreformof CSR can
make it more amenableto achievingthisobjective.

540