The Jakarta Post, HEADLINE, Tuesday 12 Sept 2006
The Sidoarjo mudflow as an acid test for CSR
B. Herry-Priyono, Jakarta
On Aug. 29, the three-month anniversary of the Sidoarjo mudflow in East
Java, there was a strange move by several desperate groups to demand the
government declare the calamity a national disaster.
This demand may have arisen from a genuine concern for the plight of the
victims. By declaring the calamity a national disaster, it was expected
the victims would at last receive proper attention. Very noble! We may
have been seduced by the demand, if only for its compassionate appearance.
Reality, however, is always less happy than fantasy.
The fantasy was to rally public concern, yet in reality there were dire
legal implications; dire in the sense that by buying into such a move, we
would be succumbing to a state of affairs in which we would be digging our
own grave by swallowing the bait prepared by Lapindo Brantas.
Indeed, for the company that drilled the gas well from which the mud has
flowed, nothing could be sweeter than the costs of its colossal fault
being borne by the wider public. If not blatantly hit up for donations for
the colossal repair and compensation costs, the public would have to bear
the costs, partly or fully, through government expenditure. This surely
means public money, including our tax money. In theory at least, that
would be the meaning of the Sidoarjo calamity being declared a national
disaster.
This is certainly not the only possibility, for there could be other
arrangements. But once a problem is declared a national disaster, nothing
in legal terms can halt an imperative wherein the government is forced to
get involved in bearing the costs. The route to this state of affairs is
not as remote as it first appears, and on many occasions Vice President
Jusuf Kalla has unambiguously suggested the government will share the
financial responsibility of the disaster.
In my view, the most proper role for the government in the Sidoarjo affair
is as an overseer. And by no means should the government spend public
money to pay for the cleanup and compensation. That would be like a repeat
of the Bank Indonesia liquidity funds scandal, where trillions of rupiah
were looted by indebted bankers.
Surely it is not easy for the government to stick to its role as an
overseer. There are at least two powerful forces that are likely to push
the government to abandon this role. The first is a naive demand, based on
an outdated political philosophy, that the government must be responsible
for any malady befalling the country. This demand is likely to be based on
the seemingly lofty argument that government is elected to take care of
its citizens. This sort of argument is like a wolf in sheep's clothing.
The second force is none other than a compulsion intrinsic to any business
power, i.e. to socialize costs and privatize profits. To socialize costs
is simply another term for "externalities", in technical economic
parlance.
The arid sound of the term should not deceive us, for what is meant is
plain: profit is mine, the cost someone else's problem. If this can only
be done by collusion or nepotism, so be it. This may sound harsh, but the
harshness comes from the fact that we live in an age where we, if
unconsciously, venerate corporate executives as knights on white horses.
We are awed even before raising questions.
It is interesting to note that the Sidoarjo calamity has occurred at a
times when there is much talk about corporate social responsibility (CSR).
The coincidence could not have been better placed. In an age where the
"externalized-cost-is-privatized-profit" motive has become the business of
business itself, CSR is indeed a tall order.
It was back in 1962 when Milton Friedman, that militant market
fundamentalist economist, said that a company's social responsibility
beyond the interests of stockholders is immoral. In his words, "there is
one and only one social responsibility of business -- to use its resources
and engage in activities designed to increase its profits".
This peculiarly provocative statement is, of course, a provocation.
Although he marshals a good deal of logical wits, he is essentially an
economic mandarin looking for practical convenience.
In Friedman's view, there is only one instance when CSR can be tolerated,
that is when it serves no other purpose but the company's profit. In his
words, it's like "putting a good-looking girl in front of an automobile to
sell an automobile; that is not to promote pulchritude, but in order to
sell cars". Lofty ideals are immaterial, for hypocrisy is virtuous when it
serves the bottom line.
It is apparently this issue that prompted Robert Monks, that prominent
businessman and shareholder activist, to say that "corporate power is an
externalizing machine, in the same way that a shark is a killing machine".
Indeed, a company's built-in compulsion to externalize costs is at the
root of many environmental ills, for the costs saved by externalization
only reappear elsewhere. In some cases, the "elsewhere" is environmental
disaster, in other instances social ills, and still in other cases it is
economic ruin.
This, of course, is not to belittle so-called "positive externalities" in
the form of, say, job creation. The point, rather, is that the trade-off
is hardly in favor of positive externalities.
But who is in charge of ensuring that the public at large will not bear
the brunt of this built-in compulsion? It is the overseer. Alas, in
economic policymaking circles regulation is the subject that dares not
speak its name. Of course, if "regulation" means "red tape", no regulation
is to be tolerated. But the type of regulation to force companies to
internalize costs that would otherwise be externalized onto society and
the environment is indispensable.
This, however, hasn't touched the bottom line. CSR is not alms-giving. It
is rather a movement to make any corporate ventures re-embedded. This
cannot but be reflected in the bookkeeping scorecard that counts not only
benefits and costs to shareholders but also to the stakeholding public,
including the environment. Otherwise, we couldn't distinguish whether it
is the entrepreneurs who have arrived, or the barbarians.
Or is it possible that they are the same?
The writer, a lecturer in the Postgraduate Program at Driyarkara School of
Philosophy, Jakarta, holds a PhD from the London School of Economics.