CSR through sensible market intervention

The article on CSR as Consumer Social Responsibility (ET, 30th March 2010), by Nitish Kumar of XIMB did not make any sense to me. So I wrote a response to ET as below; Hope they will publish it or else.....



CSR through sensible market intervention rather than consumers

This is a response to Nitish Kumar’s article in the POLICY page on CSR as consumer social responsibility. (ET, Tuesday 30th March, 2010.)
The debate on whether it is possible for a bottom up approach from consumer awareness and choices to social responsibility postulates that the consumer’s informed freedom of choice would lead to CSR. Nothing could be farther from the truth. First of all the price sensitivity of the Indian consumer has not been considered, although it is implied in the consumer’s preferences for cheap Chinese products.

The consumer in a developed economy is different from that of a developing one. Besides, the ‘consumer’ is an amorphous term. There is not a single entity called the Indian consumer to be called as such. In a more developed economy such as that of the US, because of the presence of consumer activists such as Ralph Nader there can be concerted efforts from the consumers side , but the Indian consumer is still unorganized.
Therefore educating consumer would call for the question, which consumer? If the answer is ‘everyone’ is it possible to educate everyone where the author himself has suggested that the government has failed?
On the other hand, business houses are more concrete and numerable. However the article implies that it is unlikely that the business houses would take responsibility for pollution or CSR. That is why an alternate idea of consumer as CSR in the first place.


That the consumer would be able to determine the CSR or pollution control by his freedom of choice is counter to experience since the matter is age old and is the first text book reference to negative externalities such as pollution as examples of how the market mechanism itself fails in certain cases.


Coming back to the Indian consumer he is still not willing to pay more or demand for environmental performance or CSR in his choice of products or purchase decisions, leave alone thinking about ultimate prices they pay. The Indian consumer is worried more about how affordable something is.


Given the above, that is, consumer not ready and the corporate not expected, then the only way to mitigate the negative is by diktats and law enforcement. However, that can also be not expected as the article says the government has failed in its functions.


However, there are ways in which the government can induce the consumer to prefer and the corporate to invest in less polluting technologies. One such method is by removing subsidies, for instance, on oil, if not all on a sudden but in a phased manner. When oil prices are left to be market determined, their prices are sure to find market equilibrium at a higher level than the present one.

This would trigger efforts at alternate energy. The relative cost of the alternate energy comes down and eventually becomes less than the oil prices as volumes reduce unit costs. There will be a time when using polluting oil would be costlier than using non polluting alternatives. The only factor that makes oil attractive presently is the subsidies on oil at the cost of the taxpayer.

For the CSR or Environmental responsibility an economy hopes to achieve by consumer freedom of choice, the consumer should first be given a choice. The government should divert the subsidies on unclean technology such as on oil and its derivatives to the cleaner alternatives. By doing so, the consumers , the producers and the society at large benefits.
Merely hoping consumers would take up CSR and business would educate consumers would remain exactly what it is ; Hope!


Author details : Shelly Jose, Teaches Environmental Management and Business Ethics at Rajagiri Centre for Business Studies, Kochi.