As unemployment levels remain high and will probably stay that way for the next year or so, should corporations be doing more to create employment? And is this part of their social responsibility?
The short answer: Yes.
As I noted yesterday in part one, the longer answer lies in deciding what kind of jobs we are talking about. There are many types of employment, yet much less is currently required to supply us all with the goods we need. What we really need is a system that recycles wealth earned into people’s hands as fairly and sustainably as possible.
Unfortunately, we haven’t found an adequate way to do that.
Socially Responsible Restructuring
As employment reduces, firing someone immediately with little or no warning subjects the victim to many more hardships than simply losing a source of revenue. We all know that it is easier to get another job if you are already employed.
Socially responsible restructuring would address that issue and keep the ‘fired’ on board, with re-training and access to infrastructure while they are transitioning.
Both require little cost.
Not often realized is the devastating loss of human capital that can hardly be reinvigorated as jobs return and demands for lost skills increase. A highly skilled laidoff service sector worker is hard pressed to keep up with new technology as one iPhone replaces another’s Blackberry. The loss to a nation is hard to calculate but may easily drop future economic growth by several percentage points.
But large corporations, as the OECD graphic shows below, do not create many jobs themselves.
Obviously the structure of the business population varies between countries, but so does the distribution of employment. For example, in Greece, Italy and Portugal, micro-enterprises account for more than 40 percent of employment, while they represent around 10 percent or less of employment in Israel, the United States and Luxembourg.
In all the countries represented on the graph, small and medium-sized firms with less than 250 employees account for a majority of jobs. The implication then is that investment should be made in small and medium sized firms (SME), since they create jobs more rapidly than larger firms.
However, an SME needs larger enterprises and/or the public sector to provide the demand for their goods and services.
Yet, corporations are concerned about poor income distribution and high unemployment because most of them need markets for the goods and services they produce. This photo outside the US Chamber of Commerce, for example, shows the Chamber’s concern on JOBS even if the prescriptions and books cited on their website misses a number of key texts.
In fact, the US Chamber website states:
“Americans have become increasingly concerned about the economy, their faith in the free enterprise system remains strong, according to a survey by the U.S. Chamber of Commerce. While government efforts to stimulate the economy are considered useful in the short term, we as Americans believe that it’s the free enterprise system that will grow our economy and create jobs over the long term.”
Surprisingly then, the US Chamber has been one, if not the biggest, lobbyist against just about any action by the current Obama Government including its stimulus package (popularly deemed to have preserved or created anywhere from 700,000 to three million jobs for lack of better estimation), while paradoxically admitting ‘government efforts are useful in the short-term.’
Perhaps the right form of stimulus to create jobs was not entirely used since a third was actually used to cover tax relief.
How To Avoid a Recession In Market Economies
Keynes established that economic growth is based upon the growth of private and public consumption and investment, and the balance of trade of goods and services (the Keynesian equation). Employment cannot rise unless there is economic growth that is more than jobless growth solely due to increased productivity.
In the absence of private consumption and investment and a poor trade balance, the only source of growth will be the public sector. With today’s urgency to reduce deficits, the only solution is the private sector. But with the private sector not expanding and interest rates at historical lows, it would make sense to invest and/or provide transfer payments to the unemployed, right?
The main outcome however will be increasing unemployment and a continual recession.
The only solution then? A stimulus unless the private sector thinks that low consumption will suddenly reverse, which without a stimulus, probably won't.
Back to our original question: Are corporations irresponsible for not investing or are governments irresponsible for not introducing more stimuli?
CSR & Keynesian Theory: Sustainable Economics
Linking CSR to Keynes’ equation shows that economic growth needs to be ‘sustainable’ and fairly distributed, consumption needs to be conducted responsibly, energy efficiently, investment needs to be socially responsible, and trade must not be exploitative nor use harmful products.
As it happens, all these seemingly new concerns do, in fact, give rise to new forms of economic growth (of the sustainable kind) and different forms of employment.
The Way Forward
Despite the reluctance to re-read Keynes in today’s recession, counter-cyclical stimulus is required. But we also need both corporate and public responsibility to create the sorts of sustainable development we would all like to see across the whole planet.
Certainly, large deficits have complicated matters and governments must keep a close watch on bond markets for the coming decades. Yet, the political bias both in the USA and Europe is to favor short-term stimulus by lowering taxes without raising spending with an eye on long-term deficits through cutting public spending and raising taxes.
This dual balancing act is, in fact, exactly what Keynes recommended.
When times are hard, increase stimulus but quickly move to balance deficit budgets when growth returns. The danger in today's economy is that the former is happening too little while the latter simply may not occur in time, leaving debt to rise to hazardous levels and perpetual unemployment and recession.
Which way do we fall?
Part 1: CSR & Employment: Is There a Connection?
This post is a shortened version of the original, published on MHC International.