Friday, December 19, 2014

The New Market State and Corporate Social Responsibility

The Theory of the Modern State

The ongoing development and evolution of the modern state, as presented by Philip Bobbitt, can be traced through the following stages:

1) The Princely States (1494 – 1648)

The princely states, that evolved in Italy during the Renaissance, replaced the previous feudal lords by offering citizens the first significance territorial protection and security in return for granting individual princes territorial power. Under these arrangements, princes hired mercenaries to protected their territories and the trade routes that ran through them. In return, the princes collected taxes and normalized daily commerce and relations within their domains.

2) The Kingly States (1648 – 1776)

The kingly states emerged under the concept of the divine, God-given right to rule enjoyed by kings. During this era, the state continued to fulfil its responsibility to provide security, albeit for greater territorial areas, through the creation of armies and navies. In return, the subjects of the regime enjoyed a kind of participation in the king’s divine status and the glory of his dynasty.

3) The State-Nation (1776 – 1914)

During the late 18th century, a new order arose under the ideas of freedom and democracy that united a population around a common participation in a national, ethno-cultural identity. During this era, we see the rise of imperialism, and the expansion and exploitation of national identity.

4) The Nation State (1914 – 1991)

Toward the turn of the 19th century, the nation state emerged to benefit the people it governed by providing for the economic welfare of it citizens. During this era, communism, fascism, and parliamentarianism competed to provide the greatest welfare to its citizenry.

5) The Market State (1991 – )

Emerging during the 1990s in the U.S. and Western Europe with the global economy, the market state exists to maximize the opportunity for people to advance themselves and to ensure the existence of the market structures that provide for wealth and social prosperity.

Modern technology, globalization, the multinational corporation, and large amounts of unengaged, surplus capital¹ are heralding a new era that is changing the traditional boundaries between government and business and that underlies the new concern about corporate social responsibility in the world of business.

In the western world, governments are increasingly aspiring to model their operations after the science and efficiency of the corporate business model. These efforts, particularly in the U.S., are changing the governmental operating model and driving government to spin-off many of its traditional social responsibilities to the world of business.

Simultaneously, business, with its significant wealth and its ability to deliver increasing profitability, is assuming new responsibility for many previously governmental areas, such as the environmental, individual health, the redress of economic inequities, specific social problems, continuous adult education, and the financial fostering of culture.

In an interesting turn-about, the state is becoming more driven by market dynamics and the corporate principles of operational effectiveness, and the world of business is becoming more concerned and involved with social and cultural responsibilities previously left to government and non-profit institutions.

The Multinational Corporation

Recent studies, published in Global Inc.², report that of the 100 largest “economies” in the world during 2002, only 47 of them are nation states, with the other 53 being multinational corporations. For example, Wal-Mart Stores, the world’s largest corporation during 2002, with annual sales approaching $250 billion exceeded the gross domestic products of all but 17 of the world’s 208 nations as reported by the World Bank.

Advances in political and social freedom achieved over the last 100 years have led to enhanced levels of individual education and greatly increased personal and societal wealth around the world. Recent statistics reported in the Wall Street Journal suggest that within the U.S. individual incomes have doubled since 1960, 70% of the citizens now own their own homes, the average home size has doubled, people live twice as long as their 19th century forebears, the air and water are cleaner, and crime rates are decreasing.

As many commentators on rising affluence and improved living conditions have observed, the life lived today by the average employee in America is better in health, comfort, personal fulfillment, and well-being than that enjoyed by the Queens of England in centuries past.

Today, there are more than 63,000 multinational corporations, employing over 90 million people across both the developed and developing worlds. What is emerging is a world economy, where the world’s largest corporations are larger in economic size than most of the nations in the world, and the citizens on the street experience greater well-being than the royalty of centuries past.

Within this environment, the old topography of government and business is rapidly changing, and with these changes, so too are the responsibilities of both government and business shifting.

The Emergence of the Market State

The shifting roles between government and business can be understood by considering the new theory of “market statehood”advanced by Professor Philip Bobbitt, a historian and constitutional scholar, wherein the new emerging “market state” is juxtaposed to the now passing nation state.³

The nation state arose after the Civil War in the United States, and in Europe at the end of World War I with the destruction of the 19th century empires. The role of these new nation states was to advance the welfare of their people by becoming responsible for the economic well-being of their citizens.

During the 20th century, three primary models of nation statehood vied to better the material well-being of their people. The fascist model, adopted by Germany and Italy, under the leadership of Adolf Hitler and Benito Mussolini. The communist model, advanced in the Soviet Union by Vladimir Lenin and Joseph Stalin. And the parliamentarian-capitalistic model adopted and advanced by the U.S. and the U.K. under the leadership of Franklin Roosevelt and Winston Churchill. World War II, and the subsequent “cold war” era, provided the stage upon which each theory of nation statehood advanced its claims until it became clear that the greatest true welfare for the greatest number was provided through individual freedom, democracy, parliamentary-representational government, and a capitalistic economy.

In the United States, the nation state pursued the material wealth of its citizens by maximizing the opportunities for individual advancement and by ensuring a fair distribution of the emerging wealth.During this time, business and government worked hand-in-glove to accomplish this work through the government regulation of markets and the operation of social welfare programs.
Toward the end of the era of the nation state, in the U.S. it became increasingly clear that markets provided the most effective way to run an economy, and thus the incentives and dynamics of the marketplace increasingly replaced regulation and governmental social programs.

Today, under the emerging market state, the state finds its legitimacy in fostering the free enterprise and free markets necessary to increase the aggregate wealth of the citizenry, in continuing to maximize opportunities for individual advancement, in encouraging the growth of public-private partnerships, and in devolving the welfare state.

Thus we see a trend toward (i) the deregulation of industries making markets more dynamic and fruitful, (ii) the emergence of public-private partnerships such as those between government and business evidenced during the recent Iraqi war, and (iii) the disappearance of traditional welfare programs in favor of job retraining programs and the continuing education that suit individuals to play new, expanded roles within the changing economy.

Business and Social Responsibility

This new state model, with its shifted conception of the role of the state, reciprocally puts a new emphasis upon business and its role in society, thus inaugurating a new distribution of responsibility between the state and business.

As government structures the market dynamics that drive wealth and prosperity, business emerges to provide opportunity, livelihood, health care, continuing education, social mobility, and to assume new social and cultural responsibility for society.

Since the 1970s, with the emergence of small business, public markets, deregulation, and the upsurge in non-profit organizations, the marketplace has increasingly been left to deal with social problems through philanthropy. As welfare continues to devolve and the non-profits are attacked for their inefficiencies and failure to deliver social and cultural benefits, business is challenged to apply its wealth and operational efficiencies for the common good.

Thus, the areas targeted by governmental social programs and non-profit initiatives, long inadequately funded with tax dollars and philanthropy, become the new focus of business as a matter of corporate social responsibility.

Corporations, if they will remain successful in the marketplace, must adopt and make congruent and contiguous with their strategies, the well-being of the societies within which they operate. Thus, previously governmental concerns of sustainable development, education, environmental protection, and public health, are the concerns of business as well for this is market-building at its most essential and the assurance of ongoing consumption, competitive advantage, and profitability.

Today, these are matters of corporate strategy, no less than are global market penetration and building brand awareness. But not just as public relations or expediencies of brand management, but under a new business worldview that sees societal success as corporate success, and corporate success as societal well-being and advancement.

Today, under the new market state and the ethos of corporate social responsibility, success in the marketplace emerges from pursuing those paths for business development that also improve society, build the culture, and develop wealth for prosperity.
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¹ “Surplus capital,” often referred to as “overhang” by venture capitalists, refers to the as yet uninvested money in their coffers that only awaits good investment opportunities.

² Global Inc.: An Atlas of the Multinational Corporation, by Medard Gabel, 2003. These numbers point to a remarkable transformation in the world and de facto portend a promising change in the human condition.

³ The Shield of Achilles: War, Peace and the Course of History, by Philip Bobbitt, Alfreed A. Knopf, 2002.

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