Tuesday, 21 August 2012

Liberal v state capitalism and how CSR performs.

Continuing on a theme from the last post, I'm trying to explore where CSR sits within the two competing models of capitalism. The first blog looked at the main differences and laid out some of the areas to explore. This blog intends to look at the pros and cons of the two models, to help identify where CSR sits and to see if its impacts or purpose may differ.

In order to tie these together, I have copied  a chart below showing major state and private operations around the World and the share of Nat v state listed companies.

Ref: Economist.

Tabulated below are some thoughts on pros and cons for liberal and state capital enterprises, it is not exhaustive, but is there to provoke thought and provide a basis for some analysis about the perception and function of CSR within these regimes.

Some examples are given to illustrate points, however it must be taken into account that in reality there are a number states that operate varying degrees of state capitalism and some operate constraints to the extend that a market isn't fully liberalised, so there is a total spectrum of possibilities.

Topic area
Liberal capitalism
State capitalism
Business type.
Performs well with start up and innovation, more freedom to find investment. Suited to consumer goods hi tech etc.
More suited to large infrastructure projects, can align investment to seed national priority industries (I.e. utilities, transport etc.). Service industries may also be suited, including elements of finance and banking (especially as you tend toward a more socialist model.
Decision making more streamlined, especially for smaller companies, policy more focused and less external influence/interference. Larger enterprises can become bureaucratic and may face other difficulties where there might be a mismatch with state policy (rail v air).
Generally larger enterprises, more bureaucracy and probability of external influence. This can hinder development and productivity, but could also provide a more direct route for state support.
General economic impact
Exists to provide a return to shareholders, job and wealth creation, pays taxes to state.
For as many shades of capitalism as there are, it is quite possible that private companies may receive state aid and conversely avoid full tax obligations in the states in which they are based.
Quite often receive large state aid as a consequence of strategic positioning, however there is often scope to use consultants/specialist to enhance areas of performance.
Usually large employers that can provide benefits of employment stability as well as a return to the state when operating efficiently within a market.
General social benefits
Blue chip companies always bring kudos with them and the possibilities of spin off business and partnerships. The flip side of this however, is that they can relocate (maybe for lower corporation tax or workforce skills). Larger enterprises often bring growth or stability to the areas they occupy and will willingly volunteer to fund or participate in community projects, however their allegiance is still to their shareholders and often there are conflicts with communities over planning issues for instance.
State enterprises by contrast can be seen as being a bit moribund and may occupy more run down areas, however this image is changing.
New state projects are now seen as flagship enterprises and are used to demonstrate high standards in environment and social practice (although it would be easy to say that this can be engineered through planning to some extent).
Nonetheless this is seen as a positive and can also allow for a more diverse (or self contained) enterprise) through, for instance the provision of training academies and health care services.
Knowledge transfer/success rate
Large corporations often have to compromise in terms of selling knowledge in order to gain access to markets or to gain access to large government contracts. This enables a state to play catch up at a fast pace as well as much reduced development costs.
Private companies are also vulnerable to buy out by state enterprises, enabling them to access technology and skills that can be quickly replicated and used.
State enterprise has not always been able to benefit from venture capital in the same way as private enterprise, leading to a poor conversion rate from innovation into realty.
State links with universities is generally strong, although in the US corporate sponsorship is advanced within their system. The weak link has always been access to analysis and well targeted venture capital.
Different methods have been used to overcome this from tweaking how states fund universities (as in the UK) to building complete cities designed to showcase and encourage research and innovation as in China.
I hope that this represents a fair reflection of the status of the two models and their strengths and weaknesses. I would like to take the information so far and analyse this in the context of CSR, leading to some conclusions and, quite likely, some more questions!
For the next blog.

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