Facing Up to Social Cost: The Real Meaning of Corporate Social Responsibility

Abstract

This article argues that the label ‘corporate social responsibility’ (CSR) should be reserved for the process by which corporations voluntarily identify and correct the costs their operations impose on society. This would exclude both voluntary measures aimed at making the world a better place and enhancing the value of corporate brands from the scope of CSR. It would allow CSR to become another – possibly more cost-effective – method of governing the negative externalities or social costs of economic activity. In support of this argument, the article examines a number of economic approaches to the governance of negative externalities through taxation, regulation and market-based bargaining. It then argues that CSR – understood as voluntarily facing up to social cost – offers significant advantages over these more conventional alternatives. However, a number of legal changes would be required before corporations would voluntarily be likely to face up to the social costs of their activities.