Private Sector Must Pursue Social Goals

In Latin America, business—whether global or national in ownership—is under siege. As economic growth in the region slows in response to the U.S. downturn, political assaults on the private sector are only likely to escalate.

Whether rightly or wrongly, corporations are widely blamed—by opportunistic politicians, leftist intellectuals, self-righteous clerics, bombastic bloggers—for the persistent poverty, glaring inequalities and the abrupt dislocations associated with globalization. While the region's sustained growth of the last five years has swelled the middle class, the bottom half—frustrated, envious—have benefited much less.

The popular rage against corporations is everywhere manifest in a region where wide-open democracy now allows for long-simmering resentments to surface.

• In Venezuela, Hugo Chávez capitalizes on anti-business anger to appropriate media, utilities and energy companies.
• In Bolivia and Ecuador, elected governments regularly rail against market capitalism.
• In liberal-minded Costa Rica, anti-corporate sentiment nearly overturned the free trade accord with the United States.
• In recent elections, counter-corporate candidates jolted Mexico and Peru, and are gathering force in El Salvador.

Although little noticed in the region so far, the corporate social responsibility (CSR) movement is a potentially important counter-punch to these anti-corporate fusillades. Increasingly, private sector executives recognize that CSR is a smart defensive strategy against political onslaught. Healthy CSR practices can also bolster the business bottom line—by improving productivity, cutting energy costs and building customer loyalty.

In fact, most Latin American countries now have active national CSR associations. The hemispheric network, Forum Empresa, groups 22 CSR organizations from 20 countries with 3,500 member firms. Across the region, leading firms are working to uphold labor standards, adhere to environmental codes and undertake social investments in the community.

However, regional opinion surveys suggest scant public knowledge of CSR. Few Latin Americans would credit CSR as contributing significantly to broad national social agendas. So far, CSR has not materially effected the tarnished image -- only marginally better than that of traditional political parties—of private business. If CSR is to have a tangible impact on popular perceptions of corporate behavior, the more enlightened firms will have to persuade governments to lend a helping hand.

By definition, CSR is voluntary. Beyond compliance with national and applicable international laws and regulations, each board of directors fashions its own CSR strategies. But ''voluntarism'' does not preclude governments encouraging CSR through a pattern of market-based incentives.

There are valuable precedents for public-private cooperation. Costa Rica's Certificate of Sustainable Tourism rates hotels on resource management. Peru's mining solidarity program matches public funds with social investments by more than 40 mining companies. Brazil's Zero Hunger campaign enrolls private firms to provide nutrition to needy citizens. USAID's Global Development Alliance forges public-private partnerships worldwide, for example, in Central America, to raise labor standards.

To encourage credible CSR, there is much that governments can do, in partnership with CSR associations. Establishing guidelines for high-quality annual reports would make consumers more cognizant of CSR practices. (Government incentives can vary from issuing national awards to top performers to conditioning access to preferential government programs on conformance to consensual standards). Even better, governments and business associations could harmonize reporting standards across the Americas. Already, separate efforts are underway in South and Central America to establish consistent reporting guidelines.

In addition, firms should be incentivized to fit their social investments within larger policy frameworks. National social programs or the U.N.-sanctioned Millennium Development Goals can provide macro-frameworks to orient CSR investments. More ambitiously, firms can be encouraged to invest a certain percentage of earnings in corporate philanthropy—perhaps beginning at 1 percent and gradually escalating to 2 percent of pre-tax profits.

Increasingly, the private sector is recognizing that corporate social responsibility can help counter the corrosive public cynicism that threatens market capitalism. But if CSR is to fulfill its promise in the Western Hemisphere, governments and the private sector must join forces to design a regional regime that builds high-quality standards and sets measurable social goals that pursue broader national aspirations.

Richard Feinberg is professor of international political economy at the University of California, San Diego. This Op-Ed, originally published in the Miami Herald, is adapted from an article that appears in the Winter 2008 issue of Americas Quarterly.